Case No.

Philippine Education Co. vs. Soriano

G.R. No. L-22405 June 30, 1971

Doctrine:

Postal money order is not a negotiable instrument. Our postal statutes were patterned after similar statues in force in the
United States. The weight of authority in the United States is that postal money orders are not negotiable instruments, the
reason being that in establishing and operating a postal money order system, the government is not engaged in commercial
transactions but merely exercises a governmental power for the public benefit.

Facts:

On April 18, 1958, Enrique Montinola sought to purchase from the Manila Post Office 10 money order of P200.00 each
payable E. P. Montinola. After the postal teller had made the money orders numbered 124685, 124687-124695, Montinola
offered to pay for them with a private check. Since private checks were not generally accepted in payment of money orders,
the teller advised him to see the Chief Money Order Division, but instead of doing so, Montinola left the building with his
own check and the 10 money orders without the knowledge of the teller. On the same date, upon the discovery of the
disappearance of the unpaid money orders, an urgent message was sent to all postmasters and the following day, notice
was served upon all banks, instructing them not to pay anyone with the money orders aforesaid if presented for payment.

On April 23, 1958, one of the mentioned money orders numbered 124688 was received by Philippine Education Co. as part
of its sales receipts. The following day, it deposited the it with the Bank of America, and one day thereafter, the latter cleared
it with the Bureau of Posts and received from the latter its face value of P200.00. On September 27, 1961, Mauricio Soriano,
the chief of the Money Order Division of the Manila Post Office, acting for and in behalf of Postmaster Enrico Palomar,
notified the Bank of America that money order No. 124688 had been found to be irregularly issued and that the amount it
represented had been deducted from the bank’s clearing account. The Bank of America debited the appellant’s account
with the same amount and gave it advice by means of a debit memo. Appellant asked the Postmaster General to reconsider
its action but is was denied. Montinola was charged with the Court of Friest Instance with theft but he was acquitted after
trial on the ground of reasonable doubt. On January 8, 1962 appellant frilled an action against appellees in the Municipal
Court of Manila which rendered a decision ordering the defendants to countermand the notice given to the Bank of America
on September 27, 1961 and to indemnify the plaintiff in the said sum of P200.00 with interest. When it was appealed to the
Court of First Instance of Manila, the complaint was dismissed.

Issue:

Whether or not the postal money order is a negotiable instrument

Ruling:

No. Our postal statutes were patterned after similar statues in force in the United States. The weight of authority in the
United States is that postal money orders are not negotiable instruments. The reason behind this rule is that in establishing
and operating a postal money order system, the government is not engaging in commercial transactions but merely
exercises a governmental power for the public benefit. Moreover, some of the restrictions imposed upon money orders by
postal laws and regulations are inconsistent with the character of negotiable instruments. For instance, such laws and
regulations usually provide for not more than one endorsement; payment of money orders may be withheld under a variety
of circumstances.
Case No. 2

Caltex (Philippines), Inc. vs. Court of Appeals

G.R. No. 97753 August 10, 1992

Doctrine:

Although the Certificates of Time Deposites (CTDs) are bearer instruments, a valid negotiation thereof for the true purpose
and agreement between it and dela Cruz requires both delivery and indorsement. The delivery of the CTDs only as security
constitutes the holder as holder for value to the extent of his lien.

Facts:

On various dates, Security Bank and Trust Company, a commercial banking institution, through its Sucat Branch issued
280 Certificates of Time Deposits (CTDs) in favor of Angel dela Cruz who deposited an aggregate amount of P1,120,000.00.
Angel dela Cruz delivered the said CTDs to Caltex Philippines Inc. in connection with his purchase of fuel products from the
latter. In March 1982, Angel dela Cruz informed Mr. Timoteo Tiangco, the Sucat Branch manager, that he lost all the CTDs.
After, he had submitted a notarized affidavit of loss as required by the bank’s procedure for the replacement of the lost
CTDs, 280 replacement CTDs were issued in favor of de la Cruz after. On March 25, 1982, Angel dela Cruz negotiated and
obtained a loan from the defendant bank in the amount of P875,000 and on the same day, he executed a notarized deed
of assignment of time deposit stating that dela Cruz surrenders to the defendant bank fill control of the indicated time
deposits from and after date of the assignment and further authorizes that bank to pre-terminate, set-off, and apply the said
time deposits to the payment of whatever amount(s) may be due on the loan upon its maturity.

In November 1982, Mr. Aranas, Credit Manager of Caltex went to the defendant’s bank in Sucat branch and presented for
verification the CTDs declared lost by dela Cruz alleging that it was delivered to the plaintiff as security for purchases made
with Caltex by the said depositor. The plaintiff was requested by the defendant to furnish them a copy of the document
evidencing the guarantee agreement with Mr. dela Cruz as well as the details of his obligations against which the plaintiff
proposed to apply the time deposits but the plaintiff failed to submit the document and the defendant bank rejected the
plaintiff’s demand for payment of the value of CTDs.

When the loan of dela Cruz with the defendant bank matured and fell due, the defendant bank set-off and applied the time
deposits in question to the payment of matured loans. Plaintiff filed a complaint, praying that the defendant bank be ordered
to pay its affrefate value of the CTDs of P1,120,000.00 plus interest. The trial court dismissed the complaint, which was
affirmed by the appellate court.

Issue:

Whether or not the CTDs are non-negotiable despite being clearly negotiable instruments

Ruling:

No. CTDs in question are negotiable instruments since it undoubtedly meets the requirements of the law for negotiability
under Section 1 of the NIL. However, the petitioner cannot rightfully recover from on the CTDs because when dela Cruz
delivered the CTDs to the petitioner, de la Cruz did it without informing the respondent bank thereof at any time. Moreover,
unfortunately for petitioner, although the CTDs are bearer instruments, a valid negotiation thereof for the true purpose and
agreement between it and dela Cruz requires both delivery and indorsement. For the CTDs were in reality delivered to it as
a security for dela Cruz’s purchases of it fuel products.
03-​ ​METROBANK​ ​&​ ​TRUST​ ​CO.​ ​v.​ ​COURT​ ​OF​ ​APPEALS

G.R.​ ​No.​ ​88866,​ ​February​ ​18,​ ​1991

Cruz,​ ​J.

DOCTRINE:

Treasury warrants are non-negotiable instruments being payable out of a particular fund. An
instrument to be negotiable instrument must contain an unconditional promise or orders to
pay a sum certain in money. As provided by Sec 3 of NIL an unqualified order or promise to pay
is unconditional though coupled with: 1) an indication of a particular fund out of which
reimbursement is to be made or a particular account to be debited with the amount; or 2), a
statement of the transaction which give rise to the instrument ; but an order to promise to pay
out​ ​of​ ​particular​ ​fund​ ​is​ ​not​ ​unconditional.

FACTS:

Eduardo Gomez opened an account with Golden Savings and deposited over a period of
two months 38 treasury warrants. The warrants were subsequently indorsed by Gloria
Castillo as Cashier of Golden Savings and deposited to the Metrobank branch in Calapan,
Mindoro. They were then sent for clearing by the branch office to the principal office of
Metrobank, which forwarded them to the Bureau of Treasury for special clearing. ​Gloria
Castillo went to the Calapan branch several times to ask whether the warrants had been
cleared. She was told to wait. Accordingly, Gomez was meanwhile not allowed to withdraw
from his account. Later, however, "exasperated" over Gloria's repeated inquiries and also
as an accommodation for a "valued client," the petitioner says it finally decided to allow
Golden Savings to withdraw from the proceeds of the warrants. In turn, Golden Savings
subsequently allowed Gomez to make withdrawals from his own account. Metrobank
informed Golden Savings that 32 of the warrants had been dishonored by the Bureau of
Treasury on July 19, 1979, and demanded the refund by Golden Savings of the amount it
had previously withdrawn, to make up the deficit in its account. The demand was rejected.
Metrobank then sued Golden Savings. After trial, judgment was rendered in favor of
Golden Savings and upon appeal, the Court of Appeals affirmed the decision of the trial
court.

ISSUE:

Whether​ ​or​ ​not​ ​treasury​ ​warrants​ ​are​ ​negotiable​ ​instruments

RULING:

NO. Treasury warrants are non-negotiable instruments being payable out of a particular
fund. An instrument to be negotiable instrument must contain an unconditional promise or
orders to pay a sum certain in money. As provided by Sec 3 of NIL an unqualified order or
promise to pay is unconditional though coupled with: 1) an indication of a particular fund
out of which reimbursement is to be made or a particular account to be debited with the
amount; or 2), a statement of the transaction which give rise to the instrument. But an order
to promise to pay out of particular fund is not unconditional. In this case, ​the indication of
Fund 501 as the source of the payment to be made on the treasury warrants makes the
order or promise to pay "not unconditional" and the warrants themselves non-negotiable.
Thus,​ ​the​ ​decision​ ​of​ ​Court​ ​of​ ​Appeals​ ​was​ ​affirmed.
04-​ ​SESBREÑO​ ​v.​ ​COURT​ ​OF​ ​APPEALS

G.R.​ ​No.89252,​ ​May​ ​24,​ ​1993

Feliciano,​ ​J.

DOCTRINE:

Only an instrument qualifying as a negotiable instrument under the relevant statute may be
negotiated either by indorsement thereof coupled with delivery, or by delivery alone w here
the negotiable instrument is in bearer form. A negotiable instrument may, however, instead
of being negotiated, also be assigned or transferred.. A non-negotiable instrument may,
obviously, not be negotiated; but it may be assigned or transferred, absent an express
prohibition​ ​against​ ​assignment​ ​or​ ​transfer​ ​written​ ​in​ ​the​ ​face​ ​of​ ​the​ ​instrument.

FACTS:

Petitioner Raul Sesbreño made a money market placement in the amount of P300,000.00 with
the Philippine Underwriters Finance Corporation (Philfinance) with a term of thirty-two (32)
days. Philfinance issued Certificate of Confirmation of Sale, "without recourse," of one (1)
Delta Motors Corporation Promissory Note and indicating that the sale of DMC PN No. 2731 to
petitioner, with the notation that the said security was in custodianship of Pilipinas Bank and
the post-dated checks payable on 13 March 1981 with petitioner as payee, Philfinance as
drawer, and Insular Bank of Asia and America as drawee. Petitioner sought to encash the
postdated checks issued by Philfinance. However, the checks were dishonored for having been
drawn against insufficient funds. Petitioner approached Ms. Elizabeth de Villa of private
respondent Pilipinas, Makati Branch, and handed her a demand letter informing the bank that
his placement with Philfinance in the amount reflected in the DCR No. 10805 had remained
unpaid and outstanding, and that he in effect was asking for the physical delivery of the
underlying promissory note. Pilipinas did not deliver the Note, nor any certificate of
participation in respect thereof, to petitioner. Petitioner also made a written demand on 14
July 1981​3 upon private respondent Delta for the partial satisfaction. However Delta denied
any liability to petitioner on the promissory note, and explained in turn that it had previously
agreed with Philfinance to offset its promissory note. As petitioner had failed to collect his
investment and interest thereon, he filed an action for damages. The trial court dismissed the
complaint​ ​and​ ​the​ ​Court​ ​of​ ​Appeals​ ​upon​ ​appeal​ ​affirmed​ ​the​ ​decision​ ​of​ ​the​ ​trial​ ​court.

ISSUE:

Whether​ ​or​ ​not​ ​non-negotiable​ ​instrument​ ​may​ ​be​ ​transferred

RULING:
YES. Only an instrument qualifying as a negotiable instrument under the relevant statute may
be negotiated either by indorsement thereof coupled with delivery, or by delivery alone w here
the negotiable instrument is in bearer form. A negotiable instrument may, however, instead of
being negotiated, also be assigned or transferred. The legal consequences of negotiation as
distinguished from assignment of a negotiable instrument are, of course, different. A
non-negotiable instrument may, obviously, not be negotiated; but it may be assigned or
transferred, absent an express prohibition against assignment or transfer written in the face of
the instrument. The promissory note in question ​while marked "non-negotiable," was ​not at the
same time stamped "non-transferable" or "non-assignable." It contained no stipulation which
prohibited Philfinance from assigning or transferring, in whole or in part, that Note. Therefore,
the promissory note may be transferred or assigned. Thus, the resolution of the Court of
Appeals​ ​was​ ​affirmed.
05​ ​-​ ​FIRESTONE​ ​TIRE​ ​&​ ​RUBBER​ ​CO.​ ​V.​ ​COURT​ ​OF​ ​APPEALS

G.R.​ ​No.​ ​113236,​ ​March​ ​ ​5,​ ​2001

Quisumbing,​ ​J.

DOCTRINE:

Withdrawal slips are non-negotiable instruments. The essence of negotiability which

characterizes a negotiable paper as a credit instrument lies in its freedom to circulate freely as
a​ ​substitute​ ​for​ ​money.​ ​The​ ​withdrawal​ ​slips​ ​lacked​ ​this​ ​character.

FACTS:

Firestone Tire & Rubber Co. and Fojas-Arca entered into a Franchised Dealership Agreement
whereby Fojas-Arca has the privilege to purchase on credit and sell plaintiffs products. In
payment of these purchases, Fojas-Arca delivered to plaintiff special withdrawal slips drawn
upon the. In turn, these were deposited by the plaintiff with its current account with the
Citibank. Successively​, Firestone would deposit these withdrawal slips with Citibank. Citibank
would then honor and pay the withdrawal slips. Relying on such confidence and belief
plaintiff extended to Fojas-Arca other purchases on credit of its products. However Citibank
informed plaintiff that several withdrawal slips were dishonored. As a consequence, the
Citibank debited plaintiff’s account representing the aggregate amount of the withdrawal slips.
Plaintiff averred that the pecuniary losses it suffered is caused by and directly attributable to
defendants gross negligence and filed a complaint for damages. The RTC of Pasay City
dismissed​ ​the​ ​complaint​ ​and​ ​the​ ​Court​ ​of​ ​Appeals​ ​affirmed​ ​the​ ​judgement​ ​of​ ​the​ ​trial​ ​court.

ISSUE:

Whether​ ​or​ ​not​ ​special​ ​withdrawal​ ​slips​ ​are​ ​negotiable​ ​instruments

RULING:

NO. The withdrawal slips in question are non-negotiable instruments. Hence, the rules
governing the giving of immediate notice of dishonor of negotiable instruments do not apply
in this case. Citibank should have known that withdrawal slips were not negotiable
instruments. The essence of negotiability which characterizes a negotiable paper as a credit
instrument lies in its freedom to circulate freely as a substitute for money. The withdrawal
slips​ ​lacked​ ​this​ ​character.​ ​Thus,​ ​the​ ​petition​ ​is​ ​DENIED.
ANG TEK LIAN v. CA
G.R. No. L-2516, September 25, 1950
Bengzon, J.

DOCTRINE:
A check drawn payable to the order of cash is a check payable to bearer, and
the bank may pay it to the person presenting it for payment without the
drawer’s indorsement. Where a check is payable to the order of “cash,” the
word cash “does not purport to be the name of any person,” and hence the
instrument is payable to bearer. The drawee bank need not obtain
indorsement of the check, but may pay it to the person presenting it without
any indorsement.

FACTS:
Ang Tek Lian was convicted of estafa in the Manila Court of Frist Instance for
having drawn on a check despite knowledge that he had no funds therefor.
Thus when the check was presented by Lee Hua Hong to the drawee bank for
payment, it was dishonored for insufficiency of funds.

The Court of Appeals affirmed the conviction. Ang Tek Lian now argues that
as the check had been made payable “to cash” and had not been endorsed
by him, he is not guilty of the offense charged. He argues that by uniform
practice of all banks in the Philippines, a check so drawn is invariably
dishonored. When therefore Lee Hua Hong accepted the check from Ang Tek
Lian, he did so with full knowledge that it would be dishonored upon
presentment, and the latter therefore could not be said to have acted
fraudulently. Lee Hua Hong in accepting the check as it was drawn must be
considered to have done so fully aware of the risk he was running thereby.

ISSUE:
Whether or not the form of the check and its having been drawn payable to
cash exculpates the drawer from liability for dishonor.

RULING:
NO. Under the Negotiable Instruments Law, a check drawn payable to the
order of cash is a check payable to bearer, and the bank may pay it to the
person presenting it for payment without the drawer’s indorsement. Where a
check is payable to the order of “cash,” the word cash “does not purport to
be the name of any person,” and hence the instrument is payable to bearer.
The drawee bank need not obtain indorsement of the check, but may pay it
to the person presenting it without any indorsement.

A check payable to bearer is authority for payment to the holder. Where a

check is in ordinary form, and is payable to bearer, so that no indorsement is
required, a blank, to which it is presented for payment need not have the
holder identified, and is not negligent failing to do so. Consequently, a
drawee bank to which the bearer check is presented for payment need not
necessarily have the holder identified and ordinarily may not be charged with
negligence in failing to do so. If the bank has no reasonable cause for
suspecting any irregularity, it will be protected in paying a bearer check, no
matter what facts unknown to it may have occurred prior to the
presentment.

The form of the check was totally unconnected with its dishonor. The Court of
Appeals declared that it was returned unsatisfied because the drawer had
insufficient funds and not because the drawer’s indorsement was lacking.
DEVELOPMENT BANK OF RIZAL v. SIMA WEI
G.R. No. 85419, March 9, 1993
Campos, Jr., J.

DOCTRINE:
A negotiable instrument must be delivered to the payee in order to evidence
its existence as a binding contract. The payee of a negotiable instrument
acquires no interest with respect thereto until its delivery to him. Without the
initial delivery from the drawer to the payee, there can be no liability on the
instrument.

FACTS:
In consideration of a loan extended by petitioner bank to Sima Wei, the latter
executed and delivered to the former a promissory note, engaging to pay the
petitioner bank or order the amount of P1,820,000 on or before June 24,
1983, with interest at 32% per annum. Sima Wei made two partial payments,
and then issued two crossed checks payable to petitioner bank drawn
against China Banking Corporation. These two checks, however, were not
delivered to petitioner bank or any of its authorized representatives.

For some reason, the checks came into the possession of respondent Lee
Kian Huat, who deposited the checks without petitioner bank’s indorsement,
to the account of respondent Plastic Corporation. Branch manager of said
corporation instructed the cashier of respondent Producers Bank to accept
the checks for deposit and to accredit them to the account of the corporation
despite the fact that the checks were crossed and payable to petitioner Bank
and bore no indorsement of the latter.

Development Bank of Rizal thus filed an action for sum of money against the
abovementioned parties. Sima Wei alleges that having issued the two checks
payable to petitioner bank, she is already freed from liability.

ISSUE:
Whether or not the issuance of the checks alone freed the drawer from
liability.

RULING:
NO. A negotiable instrument, of which a check is, is not only a written
evidence of a contract right but is also a species of property. It must be
delivered to the payee in order to evidence its existence as a binding
contract. As provided in Sec. 16 of the NIL, every contract on a negotiable
instrument is incomplete and revocable until delivery of the instrument for
the purpose of giving effect thereto. Thus, the payee of a negotiable
instrument acquires no interest with respect thereto until its delivery to him.
Delivery of an instrument means transfer of possession, actual or
constructive, form one person to another. Without the initial delivery from
the drawer to the payee, there can be no liability on the instrument. Delivery
must be intended to give effect to the instrument.
Philippine Bank of Commerce v. Aruego
G.R. Nos. L-25836-37 . January 31, 1981
Fernandez, J.

Doctrine: Where the instrument contains or a person adds to his signature

words indicating that he signs for or on behalf of a principal or in a
representative capacity, he is not liable on the instrument if he was duly
authorized; but the mere addition of words describing him as an agent or as
filling a representative character, without disclosing his principal, does not
exempt him from personal liability.

Facts:
Philippine Bank of Commerce filed 22 causes of action referring to 22
transactions entered into by said Bank and Aruego. The sum sought to be
recovered represents the
cost of the printing of "World Current Events," a periodical published by the
defendant. To facilitate the payment of the printing the defendant obtained a
credit accommodation
from the plaintiff. Thus, for every printing of the "World Current Events," the
printer, Encal Press and Photo-Engraving, collected the cost of printing by
drawing a draft against the plaintiff, said draft being sent later to the
defendant for acceptance.
Respondent interposed his defense that he signed the bills of exchange
referred to in the plaintiff's complaint in a representative capacity, as the
then President of the Philippine Education Foundation Company, publisher of
"World Current Events and Decision Law Journal," printed by Encal Press and
Photo-Engraving, drawer of the said bills of exchange in favor of the plaintiff
bank; that his liability is only secondary; and that he believed that he was
signing only as an accommodation party.

Issue: Whether or not respondent has a good and substantial defense. NO.

Ruling:
The NIL provides that "Where the instrument contains or a person adds
to his signature words indicating that he signs for or on behalf of a principal
or in a representative capacity, he is not liable on the instrument if he was
duly authorized; but the mere addition of words describing him as an agent or
as filling a representative character, without disclosing his principal, does not
exempt him from personal liability."
An inspection of the drafts accepted by the defendant shows that
nowhere has he
disclosed that he was signing as representative of the Philippine Education
Foundation Company. He merely signed as follows: "JOSE ARUEGO (Acceptor)
(SGD) JOSE ARUEGO." For failure to disclose his principal, Aruego is personally
liable for the drafts he
accepted.
Francisco v CA
G.R. No 116320 . November 29, 1999
Gonzaga-Reyes, J.

Doctrine:
Where any person is under obligation to indorse in a representative
capacity, he may indorse in such terms as to negative personal liability. An
agent, when so signing, should indicate that he is merely signing in behalf of
the principal and must disclose the name of his principal; otherwise he shall
be held personally liable.

Facts:
Under a contract, Herby Commercial and Construction Corporation
agreed to undertake the construction of 35 housing units and the
development of 35 hectares of land. The payment of HCCC for its services
was on a turn-key basis, that is, HCCC was to be paid on the basis of the
completed houses and developed lands delivered to and accepted by A.
Francisco Realty and Development Corporation and the GSIS. To facilitate
payment, AFRDC executed a Deed of Assignment in favor of HCCC to enable
the latter to collect payments directly from the GSIS. Furthermore, the GSIS
and AFRDC put up an Executive Committee Account with the Insular Bank of
Asia & America (IBAA) in the amount of P4,000,000.00 from which checks
would be issued and co-signed by petitioner Francisco and the GSIS Vice-
President Armando Diaz (Diaz).
After examination of the records of the GSIS, Ong discovered that Diaz
and petitioner had executed and signed seven checks of various dates and
amounts, drawn against IBAA and payable to HCCC for completed and
delivered work under the contract. Petitioner forged
the signature of Ong without his knowledge or consent, to make it appear as
if he had indorsed said checks and that, after indorsing the checks for a
second time by signing her name at the back of the checks, she deposited
said checks in her savings account with the IBAA.
Ong filed a complaint charging petitioner with estafa thru falsification
of commercial documents. Petitioner, on the other hand, denied having
forged respondent Ong's signature on the checks, claiming that Ong himself
indorsed the checks and delivered the same to her in payment of the loans
which he extended to respondent HCCC. As a means of repayment,
respondent Ong allegedly issued a Certification authorizing petitioner to
collect respondent HCCC's receivables from the GSIS.

Issue: Whether or not Petitioner was authorized by Ong to collect the

receivables of HERBY from GSIS. NO

Ruling:
Petitioner claims that she was, in any event, authorized to sign Ong's
name on the checks by virtue of the Certification executed by Ong in her
favor giving her the authority to collect all the receivables of HCCC from the
GSIS, including the questioned checks. Petitioner's alternative defense must
similarly fail. The Negotiable Instruments Law provides that where any person
is under obligation to indorse in a representative capacity, he may
indorse in such terms as to negative personal liability. An agent, when so
signing, should indicate that he is merely signing in behalf of the principal
and must disclose the name of his principal; otherwise he shall be held
personally liable. Even assuming that Francisco was authorized by HCCC to
sign Ong's name, still, Francisco did not indorse the instrument in accordance
with law. Instead of signing Ong's name, Francisco should have signed her
own name and expressly indicated that she was signing as an agent of HCCC.
Thus, the
Certification cannot be used by Francisco to validate her act of forgery.
Jai-Alai Corp. of the Phil. vs. Bank of the Phil. Islands

No. L-29432, August 6, 1975

Castro, J.:

Doctrine:

The collecting bank, in reimbursing the drawee-bank due to a forgery made upon
the check, specifically the indorsement of the payee being forged, may seek
reimbursement from previous indorsers to a forged check due to their breach of the
warranty outlined in Section 66-67 of the NIL.

Facts:

From April 2, 1959 to May 18, 1959, ten checks with a total worth of 8,030.58 PHP were
deposited by Jai-Alai Corp. in its account with respondent-BPI. The checks were drawn by Delta
Engineering Service and Enrique Cortiz & Co. upon the drawee bank, Pacific Banking
Corporation, as well as Luzon Tinsmith & Co. upon China Banking Corp., and Roxas
Manufacturing, Inc. upon PNB, all payable to Inter-Island Gas Service, Incorporated or order. All
the checks were delivered to Jai-Alai Corp. from a certain Antonio Ramirez, a sales-agent of
Inter-Island Gas Service, and was also a regular bettor at the Jai-Alai games, who deposited such
checks causing a temporary credit to Jai-Alai Corp’s account which was noted on the deposit
slips issued by respondent-BPI. In July, 1959, Ramirez had already resigned from Inter-Island
Gas Service. It was found that, after the checks had been submitted for inter-bank clearing, the
indorsements made on the check, purportedly by the cashiers of Inter-Island Gas Inc. were in fact
forgeries. Thus, Inter-Island Gas informed the Jai-Alai Corp., the respondent bank-BPI, the
drawers and the drawee-banks of the checks about the forgeries, and also instituted criminal
complaints against Ramirez. BPI’s cashier, Ramon Sarthou, upon receiving the notice from Inter-
Island Gas, then informed Jai-Alai Corp.’s cashier and advised them that BPI would debit the
value of the checks against Jai-Alai Corp.’s account as soon as the checks were returned to their
respective drawee-banks. The drawers of the respective checks demanded reimbursement from
the drawee-banks, where consequently, the drawee-banks demanded reimbursement from
respondent-BPI as the collecting bank. The respondent-collecting bank, BPI, returned the money
of the value of the checks to the drawee-banks who then reimbursed Inter-Island Gas.
Respondent bank-BPI now debited the account of Jai-Alai Corp. the value of the forged checks.
Jai-Alai Corp. refused and filed a case in the CFI of Manila. The trial court ruled in favour of
BPI, and the Court of Appeals affirmed the decision of the trial court.

Issue:
Whether the BPI-collecting bank may debit the account of Jai-Alai Corp., an indorser, based on
the checks which were forgeries

Rule:

Yes.

BPI acted within legal grounds when it debited Jai-Alai Corp.’s account. No debtor-creditor
relationship was created, instead, when Jai-Alai Corp. deposited the checks with BPI, the
relationship created was that of agency, where the bank is to collect from the drawee of the
check, the value represented by such checks.

Section 23 provides the rules on forged signatures in a negotiable instrument. Applying such
rules in the present case, respondent-BPI, as a collecting bank which indorsed the checks to the
drawee-banks for clearing is liable to the drawee-bank for reimbursement due to the forged
indorsements were made prior to the delivery to Jai-Alai Corp. Any payment made by the
drawee-bank to the collecting bank-BPI was ineffective. It was held in similar jurisprudence
(Great Eastern Life Ins. Co. vs. Hongkong & Shanghai Bank) It is the obligation of the collecting
bank to reimburse the drawee bank the value of the checks subsequently found to contain forged
indorsement of the payee. It is the duty of the indorser to know whether previous indorsements
or even of the payee’s indorsement were genuine before cashing the check. Moreover, Jai-Alai
Corp., having indorsed them to respondent bank is deemed to have warranted those provided in
Section 66 of the NIL, that they warrant the checks are genuine and in all respects what they
purport to be.

Jai-Alai Corp. was also found to be negligent with accepting the checks from Ramirez. The
payee of the checks was a corporation, Inter-Island Gas Service Inc., Jai-Alai Corp. failed to
make an inquiry as to Ramirez’s authority to exchange checks belonging to such payee-
corporation. It is a rule in jurisprudence, that “Any person taking checks made payable to a
corporation, which can act only through its agents, does so at his peril, and must abide by the
consequences if the agent who indorses the same is without authority”.
Republic Bank vs. Ebrada

No. L-40796, July 31, 1975

Martin, J.:

Doctrine:

The drawee bank may recover from the holder the money paid to him from a forged instrument.
It is the indorser that is supposed to warrant to the drawee that the signatures of the payee and
previous indorsers are genuine

Facts:

On February 27, 1963, defendant, Mauricia T. Ebrada, encashed “Back Pay Check No. 508060”
dated January 15, 1963, for an amount of 1,246.08 PHP at the office of petitioner, Republic
Bank. The check was issued by the Bureau of Treasury, who advised Republic Bank that the
alleged indorsement by the payee, “Martin Lorenzo” was a forgery because the payee, Lorenzo,
had already died as of July 14, 1952, about 11 years before the check was issued. The Bureau of
Treasury requested Republic Bank to refund the 1,246.08PHP, and so Republic Bank sought to
make verbal and written demands upon defendant Ebrada for the 1246.08 PHP, but Ebrada
refused to do so. Republic Bank sued Ebrada for the sum. Ebrada argued that she was a holder in
due course, or at the very least she acquired her rights from a holder in due course, and alleged
that Republic Bank should be held estopped from recovering anything from her on account of
their negligence. Ebrada further filed complaints against the party who she acquired the check
from, Adelaida Dominguez, and the latter filed a complaint against Ramon Lorenzo. The trial
court held that Ebrada must pay the 1,246.08 PHP to Republic Bank

Issue:

Whether drawee bank, Republic Bank, may recover the amount of the check from the holder,
after having found that the signature of the payee was forged?

Held:

Yes. As provided by Section 65 of the Negotiable Instruments Law, defendant-appellant admitted

that she was the last indorser of the said check. As such indorser, she warranted that she has good
title to the check, and that the instrument is genuine and in all respects it purports to be.
Furthermore, the signature of the payee, having been forged, Section 23 of the Negotiable
Instruments Law is clear that the negotiation of the check is without force and effect, in this case,
with regard with the alleged negotiation from the payee, to Ramon Lorenzo, the 2nd indorser.
However, the subsequent negotiation of the check from Ramon Lorenzo to Adelaida Dominguez,
the 3rd indorser, and subsequently to Ebrada who did not know of the forgery, should be
considered valid and enforceable, barring any claim of forgery.

As such, the drawee bank may recover from the holder the money paid to such holder on a
forged instrument. It is not the duty of the drawee to ascertain whether the signatures of the
payee or indorsers are genuine or not. It is the indorser that is supposed to warrant to the drawee
that the signatures of the payee and previous indorsers are genuine, warranty not extending only
to holders in due course. The rule is that one who purchases a check is bound to satisfy himself
that the paper is genuine and that by indorsing it or presenting it for payment, he impliedly
asserts he has performed his duty, and the drawee who has paid the forged check, without actual
negligence on the drawee’s part, may recover the money paid from such negligent purchasers,
thus the drawee may recover because if it had not been for the encasher’s negligence the forgery
would in all probability be detected.

Thus, applying such rule in the present case, Ebrada, upon receiving the check from Dominguez,
was duty-bound to ascertain the genuineness of the check before presenting it to the drawee
bank. Ebrada’s failure to do so makes her liable for the loss and Republic Bank may recover
from her the money she received for the check.
Case No. 12

MWSS vs. CA and PNB

G.R. No. L-62943 July 14, 1986

Doctrine:

Forgery cannot be presumed. It must be established by clear, positive, and convincing evidence. Moreover, considering
the petitioner's gross negligence, which was the proximate cause of the loss, it is barred from setting up the defense of
forgery under Section 23 of the Negotiable Instruments Law.

Facts:

Metropolitan Waterworks and Sewerage System and its predecessor-in-interest NWSA has several accounts with the
Philippine National Bank (PNB). Account No. 6, wherein the authorized signature for said account were those of MWSS
treasurer Jose Sanchez, its auditor Pedro Aguilar, and its acting General Manager Victor L. Recio. By special arrangement
with the PNB, the MWSS used personalized checks in drawing from this account.

During the months of March, April and May 1969, 23 checks were prepared, processed, issued and released by NWSA,
all of which were paid and cleared by PNB and debited by PNB against NWSA Account No. 6. The foregoing checks were
deposited by the payees Raul Dizon, Arturo Sison and Antonio Mendoza in their respective current accounts with the
Philippine Commercial and Industrial Bank (PCIB) and Philippine Bank of Commerce (PBC). Subsequent investigation
however, conducted by the NBI showed that the 3 payees were all fictitious persons. On June 11, 1969, NWSA addressed
a letter to PNB requesting the immediate restoration to its Account No. 6, of the total sum of P3,457,903.00 corresponding
to the total amount of the 23 checks claimed by NWSA to be forged and/or spurious checks. PNB refused to credit back to
Account No. 6 the said total sum, thus, MWSS filed the complaint before the Court of First Instance (CFI) of Manila. PNB
contended among others, that the checks in question were regular on its face in all respects, including the genuineness of
the signatures of authorized NWSA signing officers and there was nothing on its face that could have aroused any
suspicion as to its genuineness and due execution and; that NWSA was guilty of negligence which was the proximate
cause of the loss. CFI rendered judgment in favor of the MWSS. However, Court of Appeals reversed the decision of CFI
and rendered judgment in favor of PNB.

Issue:

Whether or not MWSS can recover the amounts debited against their account.

Ruling:

No. The 3 NBI reports relied upon by the petitioner are inadequate to sustain its allegations of forgery. These reports did
not touch on the inherent qualities of the signatures which are indispensable in the determination of the existence of
forgery. Forgery cannot be presumed. It must be established by clear, positive, and convincing evidence. Moreover, even
if the 23 checks are considered forgeries, considering the petitioner's gross negligence, which was the proximate cause of
the loss, it is barred from setting up the defense of forgery under Section 23 of the Negotiable Instruments Law.

The records show that at the time the 23 checks were prepared, negotiated, and encashed, the petitioner was using its
own personalized checks, instead of the official PNB Commercial blank checks. In the exercise of this special privilege,
however, the petitioner failed to provide the needed security measures. Another factor which facilitated the fraudulent
encashment of the 23 checks was the failure of the petitioner to reconcile the bank statements with its own records. The
records likewise show that the petitioner failed to provide appropriate security measures over its own records thereby
laying confidential records open to unauthorized persons. It observed that the office of Mr. Ongtengco (Cashier No. VI of
the Treasury Department at the NAWASA) is quite open to any person known to him or his staff members and that the
check writer is merely on top of his table. Also, we cannot fault the respondent drawee Bank for not having detected the
fraudulent encashment of the checks because the printing of the petitioner's personalized checks was not done under the
supervision and control of the Bank.
Case No. 13

BDO vs. Equitable Banking Corp.

G.R. No. L-74917 January 20, 1988

Doctrine:

Having stamped its guarantee of "all prior endorsements and/or lack of endorsements", the collecting bank is estopped from
claiming otherwise. Whenever any bank treats the signature at the back of the checks as endorsements and thus guarantees
the same, it is liable. Moreover, the collecting bank or last endorser generally suffers the loss because it has the duty to
ascertain the genuineness of all prior endorsements considering that the act of presenting the check for payment to the
drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the
endorsements.

Facts:

On March, April, May and August 1983, Equitable Banking Corporation (Equitable) drew six crossed Manager's check
having an aggregate amount of P45,982.23 and payable to certain member establishments of Visa Card. Subsequently,
the Checks were deposited with the Banco de Oro Savings and Mortgage Bank (BDO) to the credit of its depositor, Aida
Trencio. Following normal procedures, and after stamping at the back of the Checks the usual endorsements: ‘All prior
and/or lack of endorsement guaranteed’, BDO sent the checks for clearing through the Philippine Clearing House
Corporation (PCHC). Accordingly, Equitable paid the Checks; its clearing account was debited for the value of the Checks
and BDO's clearing account was credited for the same amount. Thereafter, Equitable discovered that the endorsements
appearing at the back of the Checks and purporting to be that of the payees were forged and/or unauthorized or otherwise
belong to persons other than the payees. Equitable presented the Checks directly to the defendant for the purpose of
claiming reimbursement from the latter but the defendant refused. This prompted Equitable to file a complaint against BDO
and PCHC.

The Arbiter rendered a decision in favor of Equitable and against the defendant, ordering the PCHC to debit the clearing
account of BDO. A petition for review was filed with the Regional Trial Court of Quezon City which affirmed the decision of
PCHC.

Issue:

Whether or not Equitable could collect reimbursement from BDO.

Ruling:

Yes. The petitioner, BDO, having stamped its guarantee of "all prior endorsements and/or lack of endorsements" is now
estopped from claiming that the checks under consideration are not negotiable instruments. A commercial bank cannot
escape the liability of an endorser of a check and which may turn out to be a forged endorsement. Whenever any bank
treats the signature at the back of the checks as endorsements and thus logically guarantees the same as such there can
be no doubt said bank has considered the checks as negotiable.

Moreover, this Court has succinctly emphasized that the collecting bank or last endorser generally suffers the loss because
it has the duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the check for
payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness
of the endorsements.

While the drawer generally owes no duty of diligence to the collecting bank, the law imposes a duty of diligence on the
collecting bank to scrutinize checks deposited with it for the purpose of determining their genuineness and regularity. The
collecting bank being primarily engaged in banking holds itself out to the public as the expert and the law holds it to a high
standard of conduct. And although the subject checks are non-negotiable the responsibility of petitioner as indorser thereof
remains.
03- GEMPESAW v. COURT OF APPEALS

G.R. No. 92244, February 9, 1993

Campos, Jr., J.

DOCTRINE:

A forged signature is wholly inoperative, no one can gain title to the

instrument through such forged indorsement. Such indorsement prevents
any subsequent party from acquiring any right as against parties prior to the
forgery. Although rights may exist between and among parties subsequent
to the forged instrument, not one of the can acquire rights against parties
prior to the forgery. Such forged instrument cuts-off the rights of all
subsequent parties as against parties prior to the forgery. However, the law
makes an exception to these rules where party is precluded from setting up
forgery as a defense.

FACTS:

Petitioner Natividad O. Gempesaw owns and operates four grocery stores

where she maintains a checking account with respondent drawee Bank.
Her customary practice of issuing checks in payment of her suppliers was
as follows: the checks were prepared and filled up as to all material
particulars by her trusted bookkeeper, Alicia Galang, an employee for
more than eight (8) years. Petitioner signed each and every check
without bothering to verify the accuracy of the checks against the
corresponding invoices. The issuance and delivery of the checks to the
payees named therein were left to the bookkeeper. In the course of her
business operations covering a period of two years, petitioner issued a
total of eighty-two (82) checks and the checks were all presented by the
indorsees as holders thereof to, and honored by, the respondent drawee
Bank. Most of the checks were for amounts in excess of her actual
obligations to the various payees as shown in their corresponding
invoices. All the eighty-two (82) checks with forged signatures of the
payees were brought to Ernest L. Boon, Chief Accountant of respondent
drawee Bank who, without authority therefore, accepted them all for
deposit to the credit and/or in the accounts of Alfredo Y. Romero and
Benito Lam. Petitioner made a written demand on respondent drawee
Bank to credit her account with the money value of the eighty-two (82)
checks totalling P1,208.606.89 for having been wrongfully charged
against her account. Respondent drawee Bank refused to grant
petitioner's demand. The Regional Trial Court dismissed the complaint.
Upon appeal, affirmed the decision of the trial court.
ISSUE:

Whether or not the drawer can demand from the drawee bank to recredit
her account by reason of the forged indorsements

RULING:

NO. The petitioner cannot demand from the drawee bank to recredit her
account because her negligence was the proximate cause of her loss. As a
rule, a 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. 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. 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, the
petitioner relied implicitly upon the honesty and loyalty of her bookkeeper,
and did not even verify the accuracy of amounts of the checks she signed
against the invoices attached thereto. 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 the bookkeeper commenced her fraudulent scheme that petitioner
discovered that eighty-two (82) checks were wrongfully charged to her
account, at which she notified the respondent drawee bank.
15- GEMPESAW v. COURT OF APPEALS

G.R. No. 107382, February 9, 1996

Campos, Jr., J.

DOCTRINE:

When a check is deposited with the collecting bank, it takes a risk on its
depositor. It is only logical that this bank be held accountable for checks
deposited by its customers. It is important to mention that Payee whose
signature was forged may directly proceed against the collecting bank.
However, the drawer cannot opt to recover from the collecting bank. There
is no privity of contract between the drawer and the collecting bank

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. Portion of the funds of the province is allocated to the Concepcion
Emergency Hospital. The checks are released by the Office of the Provincial
Treasurer and received for the hospital by its administrative officer and
cashier. It was discovered by the provincial auditor that the hospital did not
receive several allotment checks drawn by the Province. After examination,
the Provincial Treasurer learned that 30 checks amounting to P203,300.00
were encashed by one Fausto Pangilinan, with the Associated Bank acting as
collecting bank. It turned out that Fausto Pangilinan, who was the retired
administrative officer and cashier of payee hospital collected the questioned
checks from the office of the Provincial Treasurer by forging the the signature
of Dr. Adena Canlas who was chief of the payee hospital. The Provincial
Treasurer seeks the restoration of the various amounts debited from the
current account of the Province from the PNB and in turn PNB demanded
reimbursement from the Associated Bank. As both banks resisted payment,
the Province of Tarlac brought suit against PNB which, in turn, impleaded
Associated Bank as third-party defendant. The trial court rendered its
decision in favor of Province of Tarlac and against PNB. Upon appeal, CA
affirmed the trial court’s decision.

ISSUE:

Whether or not PNB and the Associated should be held liable

RULING:
YES. 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.
Section 23 does not avoid the instrument but only the forged signature.
Thus, a forged indorsement does not operate as the payees indorsement.
The exception to the general rule in Section 23 is where a party against
whom it is sought to enforce a right is precluded from setting up the
forgery or want of authority. The drawee bank, is under strict liability to
pay the check to the order of the payee. The drawers instructions are
reflected on the face and by the terms of the check. 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 the drawer’s 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. Collecting bank is bound by his warranties as an indorser
and cannot set up the defense of forgery as against the drawee bank.
Hence, the drawee bank can recover the amount paid on the check
bearing a forged indorsement from the collecting bank. However in this
case, the Court finds as reasonable due to contributory negligence of each
parties, the proportionate sharing of fifty percent - fifty percent (50%-
50%). PNB shall pay fifty percent (50%) of P203,300.00 to the Province of
Tarlac and the Associated Bank shall pay fifty percent (50%) of
P203,300.00 to PNB.
METROPOLITAN BANK AND TRUST CO. v. FIRST NATIONAL CITY BANK
G.R. No. L-55079, November 19, 1982.
Melencio-Herrera, J.

DOCTRINE:
Banks are bound by the regulation of the Central Bank which requires the
drawee bank receiving the check for clearing from the Central Bank clearing
house to return the check to the collecting bank within the 24-hour period if
the check is defective for any reason. Indorsements made by the collecting
bank must be read together with this 24-hour regulation. Once the 24-hour
period is over, the liability of such an indorsement has ceased.

FACTS:
A check for P50,000 payable to CASH was drawn by Joaquin Cunanan & Co.
on First National City Bank (FNCB) was deposited with Metro Bank by one
Salvador Sales, who had opened a current account with Metro Bank earlier
that day. Metro Bank sent the check to the clearing house of the Central
Bank, stamping on the back of the check that “all prior endorsements and/ or
lack of endorsements guaranteed.” The check was cleared the same day,
and FNCB paid Metro Bank the P50,000 which the latter deposited with Sales’
account. Sales withdrew various sums from his account in three separate
days, withdrawing the balance and closing his account on the third day, only
six days from the day he opened his account and deposited the check.

Nine days from the deposit, FNCB returned cancelled check to Joaquin
Cunanan & Co, which notified FNCB that the check had been altered, with
the amount changed from P50.00 to P50,000, and over the name of the
payee Manila Polo Club was superimposed the word CASH. FNCB notified
Metro Bank, and asked for reimbursement of the P50,000. Metro Bank
refused, prompting FNCB to file a civil case. The trial court ruled in favor of
FNCB and the appellate court affirmed.

Metro Bank invokes the Central Bank’s regulation that the drawee bank
receiving the check for clearing from the Central Bank clearing house must
return the check to the collecting bank within the 24-hour period if the check
is defective for any reason. FNCB on the other hand relies on the guarantee
of all previous indorsements made by Metro Bank.

ISSUE:
Whether or not the drawee bank or the collecting bank was liable for
payment of the drawee check.

RULING:
The failure of FNCB to call the attention of Metro Bank to the alteration until
after the lapse of nine days negates whatever right it might have had against
Metro Bank in light of the said Central Bank circular. Its remedy lies not
against Metro Bank but against the party responsible for altering the check.
The indorsement relied upon by FNCB must be read together with the 24-
hour regulation on clearing house operations of the Central Bank. Once that
24-hour period is over, the liability of such an indorsement has ceased.
REPUBLIC BANK v. COURT OF APPEALS
G.R. No. L-42725, April 22, 1991
Grino-Aquino, J.

DOCTRINE:
Unless an alteration is attributable to the fault or negligence of the drawer
himself, such as when he leaves spaces on the check which would allow the
fraudulent insertion of additional numerals, the remedy of the drawee bank
that negligently clears a forged and/or altered check for payment is against
the party responsible for the forgery or alteration, otherwise, it bears the
loss. It may not charge the amount so paid to the account of the drawer, if
the latter was free from blame, nor recover it from the collecting bank if the
latter made payment after proper clearance from the drawee. Where a loss,
which must be borne by on of two parties alike innocent of forgery, can be
traced to the neglect or fault of either, it is reasonable that it would be borne
by him, even if innocent of any intentional fraud, through whose means it
has succeeded.

FACTS:
San Miguel Corporation (SMC) drew a dividend check for P240 on its account
with First National City Bank (FNCB) in favor of J. Roberto C. Delgado, a
stockholder. After the check had been delivered to Delgado, the amount on
its face was fraudulently altered by increasing it from P240 to P9,240. The
check was indorsed and deposited by Delgado in his account with Republic
Bank.

Republic accepted the check for deposit without ascertaining its genuineness
and regularity. Later, Republic endorsed the check to FNCB and presented it
to FNCB for payment through the Central Bank Clearing House. Relying on
the guaranty and endorsement of Republic, FNCB paid P9,240 to Republic.
More than a month later, SMC notified FNCB of the material alteration in the
amount of the check. FNCB thus recredited the P9,240 to SMC. FNCB after
another month then informed Republic of the alteration and the forgery of
the endorsement of Delgado, who had by then already withdrawn his
account from Republic.

FNCB demanded that Republic refund the P9,240 on the basis of the latter’s
endorsement and guaranty. Republic refused, claiming delay in giving it
notice of the alteration, and that FNCB has no right of recourse against it.
Trial court and CA both ordered Republic to pay.

ISSUE:
Whether or not Republic, as the collecting bank, is protected by the 24-hour
clearing house rule.

RULING:
YES. When an endorsement is forged, the collecting bank or last endorser, as
a general rule, bears the loss. But the unqualified endorsement of the
collecting bank on the check should be read together with the 24-hour
regulation on clearing house operation. When the 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. Unless an alteration is
attributable to the fault or negligence of the drawer himself, the remedy of
the drawee bank that negligently clears a forged and/ or altered check for
payment is against the party responsible for the forgery or alteration.
Otherwise, it bears the loss, and may not charge the amount so paid to the
account of the drawer if the latter was free from blame, nor recover it from
the collecting bank if the latter made payment after proper clearance from
the drawee. Republic Bank absolved from liability to refund.
PCIB v. CA
G.R. Nos. 121413, 121479, 128604, January 29, 2001
Quisumbing, J.

DOCTRINE:
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. 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.

FACTS:
This is a consolidation of cases instituted by Ford Philippines against drawee
Citibank and collecting bank PCIB.

First case: Ford drew a Citibank check in the amount of P4,746,114 in favor
of the Commissioner of Internal Revenue in payment of its taxes. The
checked issued was a crossed check which specified that it was “payable to
the payee’s account only,” signifying that the check can only be deposited
with the CIR’s account with Metrobank. The check was, however presented to
PCIB, which then indorsed the check for clearing and subsequently presented
it to Citibank for payment. CIR later informed Ford that it never received the
tax payment, causing Ford to pay a second time. It was discovered upon
investigation that Ford’s accountant Godofredo Rivera recalled the Citibank
check supposedly because of errors in the computation of the taxes due to
the BIR, and replaced them with PCIB’s manager’s checks later deposited by
alleged members of a syndicate with the Pacific Banking Corporation.

For filed a complaint against both Citibank and PCIB, both of which refused to
reimburse Ford of the payment it had made a second time to the BIR. Ford
likewise impleaded Rivera but the latter was declared a fugitive from justice.

The RTC held both Citibank and PCIB liable to Ford.

Second case: Ford drew two crossed Citibank checks in the amounts of
P5,851,7076 and P6,311,591, both again for tax payments, payable to the
CIR. BIR Revenue Tax receipts were issued for the said purpose. The checks
never reached the BIR, and the latter declared the two tax receipts fake and
spurious. Ford thus had to pay anew and file an action against Citibank and
PCIB.
It was found upon investigation that the checks were prepared by Godofredo
Rivera for payment to the BIR, but instead of delivering the same to the
payee, he passed on the check to co-conspirators who caused and allowed
the opening of a bogus account with PCIB where the checks were
subsequently deposited and through which account the amounts in the
check were disbursed.

The RTC held Citibank liable but absolved PCIB from any liability.

ISSUE:
Whether or not Ford has the right to recover from the collecting bank and the
drawee bank the value of the checks.

RULING:
YES. 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.

Having fallen short of these standards, PCIB’s negligence is the proximate

cause of the injury suffered by Ford and must thus be held liable in the
amount corresponding to the proceeds of Citibank Check in the first case.

In the second case, however, Citibank was likewise negligent. It failed to

ensure that the amount of the checks should be paid only to its designated
payee. As a business affected with public interest, 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.

In both cases, Ford was likewise negligent for failing to examine its
passbooks in a timely manner which could have avoided further loss.
Because of this contributory negligence, the liability of PCIB and Citibank is
mitigated.
Ilusorio v. CA
G.R. No. 139130 . November 27, 2002
Quisumbing, J.

Doctrine:
No right to retain the instrument, or to give a discharge therefor, or to
enforce payment thereof against any party, can be acquired through or under
such signature. However, the rule does provide for an exception, namely:
"unless the party against whom it is sought to enforce such right is precluded
from setting up the forgery or want of authority."

Facts:
Petitioner is a prominent businessman who, at the time material to this
case, was the Managing Director of Multinational Investment Bancorporation
and the Chairman and /or President of several other corporations. As he was
then running about 20 corporations, and was going out of the country a
number of times, petitioner entrusted to his secretary, Katherine E. Eugenio,
his credit cards and his check book with blank checks. It was also Eugenio
who verified and reconciled the statements of said checking account.
Between the dates September 5, 1980 and January 23, 1981, Eugenio
was able to encash and deposit to her personal account about seventeen (17)
checks drawn against the
account of the petitioner at the respondent bank, with an aggregate amount
of P119,634.34. Petitioner did not bother to check his statement of account
until a business partner apprised him that he saw Eugenio use his credit
cards. Petitioner fired Eugenio immediately, and instituted a criminal action
against her for estafa thru falsification.
Petitioner then requested the Manila Bank, respondent, to credit back
and restore to its account the value of the checks which were wrongfully
encashed but respondent bank refused.
Petitioner contends that as a general rule a bank which has obtained
possession of a check upon an unauthorized or forged endorsement of the
payee's signature and which collects the amount of the check from the
drawee is liable for the proceeds thereof to the payee.

Issue: Whether or not petitioner has cause of action against Manila Bank.
NO.

Ruling:
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, i.e., by submitting his specimen signatures and comparing them
with those on the questioned checks. Curiously though, petitioner failed to
submit additional specimen signatures as requested by the National Bureau
of Investigation from which to draw a conclusive finding regarding forgery.
The Court of Appeals found that petitioner, by his own inaction, was
precluded from setting up forgery.
No right to retain the instrument, or to give a discharge therefor, or to
enforce payment thereof against any party, can be acquired through or under
such signature. However, the rule does provide for an exception, namely:
"unless the party against whom it is sought to enforce such right is precluded
from setting up the forgery or want of authority."
In the present case, it appears that petitioner accorded his secretary
unusual degree of trust and unrestricted access to his credit cards,
passbooks, check books, bank statements, including custody and possession
of cancelled checks and reconciliation of accounts. Petitioner is precluded
from setting up the forgery, assuming there is forgery, due to his own
negligence in entrusting to his secretary his credit cards and checkbook
including the verification of his statements of account.
Samsung Construction v. FEBTC
G.R. No. 129015 . August 13, 2004
Tinga, J.

Doctrine:
The justification for the distinction between forgery of the signature of
the drawer and forgery of an indorsement is that the drawee is in a position
to verify the drawer’s signature by comparison with one in his hands, but has
ordinarily no opportunity to verify an indorsement.
Thus, a drawee bank is generally liable to its depositor in paying a
check which bears either a forgery of the drawer’s signature or a forged
indorsement. But the bank may, as a general rule, recover back the money
which it has paid on a check bearing a forged indorsement, whereas it has
not this right to the same extent with reference to a check bearing a forgery
of the drawer’s signature.

Facts:
Plaintiff Samsung Construction Company Philippines, Inc. (“Samsung
Construction”), whilebased in Biñan, Laguna, maintained a current account
with defendant Far East Bank and Trust Company.
On 19 March 1992, a certain Roberto Gonzaga presented for payment
FEBTC Check No. 432100 to the bank’s branch in Bel-Air, Makati. The check,
payable to cash and drawn against Samsung Construction’s current account,
was in the amount of Nine Hundred Ninety Nine Thousand Five Hundred Pesos
(P999,500.00). The bank teller, Cleofe Justiani, first checked the balance of
Samsung Construction’s account. After comparing the two signatures,
Justiani was satisfied as to the authenticity of the signature appearing on the
check. Justiani forwarded the check to the branch Senior Assistant Cashier
Gemma Velez. Velez then forwarded the check and signature card to Shirley
Syfu, another bank officer, for approval. Syfu then noticed that Jose Sempio III
(“Sempio”), the assistant accountant of Samsung Construction, was also in
the bank. Sempio was well-known to Syfu and the other bank officers, he
being the assistant accountant of Samsung Construction. Syfu showed the
check to Sempio, who vouched for the genuineness of Jong’s signature.
Confirming the identity of Gonzaga, Sempio said that the check was for the
purchase of equipment for Samsung Construction. Satisfied with the
genuineness of the signature of Jong, Syfu authorized the bank’s encashment
of the check to Gonzaga.
The following day, the accountant of Samsung Construction, Kyu,
examined the balance of the bank account and discovered that a check in the
amount of Nine Hundred Ninety Nine Thousand Five Hundred Pesos
(P999,500.00) had been encashed. Aware that he had not prepared such a
check for Jong’s signature, Kyu perused the checkbook and found that the
last blank check was missing. He reported the matter to Jong, who then
proceeded to the bank. Subsequently, a criminal case for qualified theft was
filed against Sempio beforethe Laguna court.

Issue: Whether or not the bank who pays out on a forged check is liable to
reimburse the drawer from whose account the funds were paid out. YES.
Ruling:
In the absence of evidence to the contrary, we can conclude that there
was no
negligence on Samsung Construction’s part. The presumption remains that
every person takes ordinary care of his concerns, and that the ordinary
course of business has been followed.
The Court finds no basis to conclude that Samsung Construction was
negligent in the safekeeping of its checks. For one, the settled rule is that the
mere fact that the depositor leaves his check book lying around does not
constitute such negligence as will free the bank from liability to him, where a
clerk of the depositor or other persons, taking advantage of the opportunity,
abstract some of the check blanks, forges the depositor’s signature and
collect on the checks from the bank. And for another, in point of fact
Samsung Construction was not negligent at all since it reported the forgery
almost immediately upon discovery.
It is also worth noting that the forged signatures in PNB v. National City
Bank of New York were not of the drawer, but of indorsers.
The justification for the distinction between forgery of the signature of
the drawer and forgery of an indorsement is that the drawee is in a position
to verify the drawer’s signature by comparison with one in his hands, but has
ordinarily no opportunity to verify an indorsement.
Thus, a drawee bank is generally liable to its depositor in paying a
check which bears either a forgery of the drawer’s signature or a forged
indorsement. But the bank may, as a general rule, recover back the money
which it has paid on a check bearing a forged indorsement, whereas it has
not this right to the same extent with reference to a check bearing a forgery
of the drawer’s signature.
The general rule imputing liability on the drawee who paid out on the
forgery holds in this case.
PNB v. CA
G.R. No. 107508 . April 25, 1996
Kapunan, J.

Doctrine:
Alteration of serial number has no material effect whatsoever on the
integrity of the check.

Facts:
A check dated August 7, 1981 in the amount of P97,650.00 was issued
by the Ministry of Education and Culture payable to F. Abante Marketing. This
check was drawn against Philippine National Bank. On August 11, 1981, F.
Abante Marketing, a client of Capitol City Development Bank (Capitol),
deposited the questioned check in its savings account with said bank. In turn,
Capitol deposited the same in its account with the Philippine Bank of
Communications (PBCom) which, in turn, sent the check to petitioner for
clearing.
Petitioner cleared the check as good and, thereafter, PBCom credited
Capitol's account for the amount stated in the check. However, on October
19, 1981, petitioner returned the check to PBCom and debited PBCom's
account for the amount covered by the check, the reason being that there
was a "material alteration" of the check number.
PBCom, as collecting agent of Capitol, then proceeded to debit the
latter's account for the same amount, and subsequently, sent the check back
to petitioner. Petitioner, however, returned the check to PBCom.
On the other hand, Capitol could not, in turn, debit F. Abante
Marketing's account since the latter had already withdrawn the amount of the
check as of October 15, 1981.

Issue: Whether or not an alteration of the serial number of a check is a

material alteration. NO.

Ruling:
The check's serial number is not the sole indication of its origin. As
succinctly found by the Court of Appeals, the name of the government
agency which issued the subject check was prominently printed therein. The
check's issuer was therefore insufficiently identified, rendering the referral to
the serial number redundant and inconsequential.
If the purpose of the serial number is merely to identify the issuing
government
office or agency, its alteration in this case had no material effect whatsoever
on the integrity of the check. The identity of the issuing government office or
agency was not changed thereby and the amount of the check was not
charged against the account of another government office or agency which
had no liability under the check.
The ownership of the check is established without the necessity of
recourse to the serial number.
Montinola vs. Philippine National Bank

No. L–2861, February 26, 1951

MONTEMAYOR, J.:

Doctrine:

A material alteration avoids those who are not privy or subsequent indorsers to the material
alteration.

Facts:

In April and May 1942, Ubaldo Laya was the Provincial Treasurer of Misamis Oriental, and was
the allegedly the ex officio agent of Philippine National Bank in that province. Mariano V.
Ramos was working under Laya as an assistant agent in the bank branch, Ramos later on became
the disbursing officer of the USAFFE. Ramos went to the Province of Lanao to procure a cash
advance in the amount of 800,000 PHP for the use of the USAFFE. The provincial treasurer of
Lanao gave Ramos 300,000 PHP of emergency notes, and a check for 500,000 PHP. Ramos then
went to Laya to encash the check for 500,000 PHP , but Laya only gave Ramos 400,000 PHP in
emergency notes and issued a check for 100,000 PHP drawn on the Philippine National Bank.
Ramos was not able to cash the check because Japanese forces had already entered Misamis
Oriental and the USAFFE surrendered thereafter. In around December 1944, or the first days of
1945, Ramos was able to indorse the check that was worth 100,000 PHP, that was issued by
Laya, and indorsed this check to Enrique Montinola. The circumstances and conditions of such
negotiations or transfer are the present controversy.

According to Montinola, Ramos offered to sell the check because Ramos needed to buy food and
medicine, to be sure such check was genuine, Ramos and Montinola went to Manila to see the
President of PNB, Carmona. Carmona allegedly told them that the check was good. Ramos then
agreed to sell the check to Montinola for 850,000 Japanese military notes, 450,000 in military
notes, and 400,000 in kind, in the form of bottles of sulphatiasole. Ramos, then indorsed the
check, where his signature was handprinted. However, Ramos told the court that he agreed only
to sell the check for 30,000 PHP, that he wrote at the back of the check “Pay to the order of E.
Montinola 30,000 PHP only…” and that in consideration for this, Montinola would pay Ramos
90,000 Japanese Military Notes. In this testimony, Atty. Simeon Ramos Jr. corroborated such
agreement.

Montinola presented a photostatic copy of the Check as “Exhibit A” upon filing his complaint,
where it does not show the indorsement of 30,000 PHP as allegedly made by Ramos. However,
during the trial proper, Montinola presented the check itself which was badly mutilated, partially
burned, and had 1/3 of its portion cut-off and a blotted indelible ink at the back of the check.
Montinola explained that the check was in its currently damaged status because Montinola
alleged that Ramos, threatening bodily harm against Montinola, demanded the check to be given
back to him, thus to hide the check Montinola heavily mutilated it.

The Court agrees with the findings of the trial court that the original writing of Ramos on the
back of the check was to the effect of assigning only 30,000 PHP. This writing was found to have
been omitted. The Court agrees furthermore with the findings of the trial court that the mutilated
check contained numerous inconsistencies with the photostatic check presented. (For specifics on
the evidence the Court considered that the mutilated check was a material alteration see full text
nalang if gusto niyo ilagay rin sa digest…)

The Court found for Laya when he then testified in court that he issued the check in his capacity
as the Provincial Treasurer, and that the words “Agent, Phil. National Bank” now appearing
under his signature was not on the check when he first issued it. Laya was corroborated by
Ramos.

Issue:

Whether Montinola could collect on the assigned 30,000 PHP

Ruling:

Yes. The Court agrees with the trial court that the alteration of Laya’s signature adding the words
“Agent, Phil. National Bank” was found to have been made only after Ramos had transferred the
check to Montinola. The check was issued by Laya only in his capacity as a Provincial Treasurer
and as an official of the Government which was under the obligation to the USAFFE to provide
advanced funds. The check was drawn against Philippine National Bank. The Court also agrees
that Ramos only indorsed the check to Montinola, instructing PNB to pay only 30,000 PHP to
Montinola’s account, but such writing was removed.

The case at bar constitutes a material alteration as provided in Sec 124 of the NIL. The insertion
of the words “Agent, Philippine National Bank” which converted the bank from a drawee to a
drawer constitutes as a material alteration without the consent of the parties involved and so
discharges the instrument.

The check was not negotiated within meaning of Sec 32 of the NIL which provides, “the
indorsement must be an indorsemenet of the entire instrument. An indorsement which purports to
transfer to the indorsee a part of the amount payable does not operate as a negotiation of the
instrument.” Thus Montinola may not be regarded as an indorsee, but is only a transferee subject
to personal defences available to the drawer, the Provincial Treasurer of Misamis Oriental and
against Ramos.

Furthemore, Montinola cannot be a holder in due course because Montinola had received the
check when it was already long overdue. Montinola cannot also be considered as an indorsee of
the check because Sec 191 of the NIL defines holder as the payee or indorsee of the bill or note,
of which Montinola is neither, thus at most, Montinola is only an assignee of the 30,000 PHP.
Sadaya vs. Sevilla

No. L-17845. April 27, 1967.

SANCHEZ, J.:

Doctrine

A joint and several accommodation maker who pays on the promissory note may directly
demand reimbursement from his co-accommodation makers without first directing his action
against the principal debtor, provided that he made payment by virtue of a judicial demand,
or that principal debtor is insolvent.

Facts:

On March 28, 1949, Victor Sevilla, Oscar Varona, and Simeon Sadaya executed jointly and
severally a promissory note for 15,000 PHP with interest of 8% per annum in favour of Bank of
the Philippine Islands or its order, payable on demand. The proceeds of the note was received by
Verona alone, while Sevilla and Sadaya signed as co-makers. Payments were duly made on the
note until June 15, 1950, where an outstanding balance of 4,859 PHP remained. The bank
collected from Sadaya the balance with interest totalling 5746.12 PHP on Oct. 6 1952. Varona
failed to reimburse Sadaya. Victor Sevilla died, and Francisco Sevilla was named administrator
of his estate. Sadaya then filed a claim for reimbursement against the estate of Victor Sevilla, the
administrator resisted the claim claiming that the deceased Victor Sevilla did not receive any
consideration for the promissory note, but merely signed it as a surety for Oscar Varona.

Issue:

Whether Sadaya can collect from a co-accommodation party for reimbursement

Ruling:

No.

Their liability on the note is joint and several. Amongst the three, Sadaya paid the bank, thus the
obligation of Varona and Sevilla to Sadaya is joint and several.

A joint and several accommodation maker of a negotiable promissory note may demand from the
principal debtor reimbursement for the amount that he paid to the payee, and that a joint and
several accommodation maker who pays on the promissory note may directly demand
reimbursement from his co-accommodation makers without first directing his action against the
principal debtor, provided that he made payment by virtue of a judicial demand, or that
principal debtor is insolvent.
It was never shown that there was a judicial demand on Sadaya to pay the obligation and also, it
was never proven that Varona was insolvent. Thus, Sadaya cannot proceed against Sevilla for
reimbursement.
Crisologo-Jose vs. Court of Appeals

G.R. No. 80599.September 15, 1989.

REGALADO, J.:

Doctrine

An accommodation party is one who is i) a party to the instrument, signing as the maker, drawer,
acceptor, or indorser; ii) not receive value therefore; iii) sign for the purpose of lending his name
for the credit of some other person

Facts:

In 1980, Ricardo Santos Jr. was the vice-president of Mover Enterprises Inc., and the president of
the corporation was Atty. Benares. Atty. Benares, in accommodation of his clients, Spouses Ong,
issued Check No. 093553 drawn against Traders Royal Bank dated June 14, 1980, for the amount
of 45,000 PHP payable to petitioner-Crisologo Jose. The check was under the account of Mover
Enterprises Inc., the President, Atty. Beneres, signed the check, but because the treasurer of the
corporation was not available, Ricardo Santos Jr. was then asked, and did sign the check. The
check was issued to Crisologo in consideration of his waiver over certain properties which the
GSIS agreed to sell to Atty. Benares and his clients, Sps. Ong. When Crisologo-Jose tried to
encash the check, it was dishonoured for insufficiency of funds. Thus, he filed a criminal
complaint for violation of B.P. 22 against both Atty. Benares and Ricardo Santos Jr. During the
preliminary investigation, Ricardo Santos Jr. tendered a cashier’s check to Crisologo-Jose for the
payment of the obligation, but Crisologo refused. Ricardo Santos then deposited the check with
the clerk of court.

Petitioner-Crisologo contends that the private respondent, Ricardo Santos, is not an

accommodation party, that it is the corporation, Movers Enterprises Inc. that is the
accommodation party and not the Santos, who merely signed the check in a representative
capacity.

Issue:

Whether Ricardo Santos is an accommodation party

Ruling:

Yes.

To be considered as an accommodation party a person must be i) a party to the instrument,

signing as the maker, drawer, acceptor, or indorser; ii) not receive value therefore; iii) sign for
the purpose of lending his name for the credit of some other person. Thus it is not a valid defense
that the accommodation party did not receive any valuable consideration when he executed the
instrument. Nevertheless, he is liable to the holder for value. Thus it has been held that in lending
his name to the accommodated party, the accommodation party is in effect a surety.

Petitioner’s argument that Movers Enterprises is the accommodation party is wrong. The NIL
holds that an accommodation party liable on the instrument to a holder for value does not include
nor apply to corporations because such issue or indorsement of the instrument is done without
consideration and for the accommodation of another is ultra vires. 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. An exception to such rule is that when an
officer or agent of the corporation has the power to execute or indorse such instruments in the
name of the corporation.

However, the lack of capacity of the corporation does not absolve, but does render personally
liable the signatories to the instrument. where the facts show that the accommodation involved
was for their personal account,
Case No. 25

Stelco Marketing Corp. v. CA

G.R. No. 96160 June 17, 1992

Doctrine:

A holder cannot be deemed a holder of the check for value if it does not meet the essential requisites prescribed by the
statute. He must become the holder of it before it became overdue, and without notice that it had been previously
dishonored, and he took the check in good faith and for value before he can be considered as a holder of the check for
value. Additionally, mere possession of a negotiable instrument after presentment and dishonor, or payment, is utterly
inconsequential; it does not make the possessor a holder for value within the meaning of the law; it gives rise to no liability
on the part of the maker or drawer and indorsers.

Facts:

Stelco Marketing Corporation is engaged in the distribution and sale to the public of structural steel bars. On seven
different occasions in September and October, 1980, it sold and delivered to RYL Construction, Inc. quantities of steels
bars of various sizes and rolls of G.I. wire with an aggregate price for the purchases was P126,859.61. Although the
invoices issued by Stelco stipulated that RYL pay on Cash on Delivery, RYL made no payments despite insistent
demands.

On April 4, 1981, RYL gave to Armstrong, Industries (sister corporation and manufacturing arm of Stelco) a check drawn
against Metrobank in payment of an obligation in the amount of P126,129.86,. That check was a company check of
another corporation, Steelweld Corporation of the Philippines, signed by its President, Peter Rafael Limson, and its Vice-
President, Artemio Torres. The check was issued by Limson at the behest of his friend, Romeo Y. Lim, President of RYL
who 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. However, when the Armstrong deposited the check at its bank, it was
dishonored because "drawn against insufficient funds."

On account of the dishonor of the Metrobank Check, and on complaint of Armstrong Industries, Limson and Torres were
charged in the Regional Trial Court (RTC) of Manila with a violation of Batas Pambansa Bilang 22, but the RTC acquitted
them since it was not issued to apply on account for value, it being merely for accommodation purposes. In 1985, Stelco
filed a civil complaint in RTC Caloocan against RYL and Steelweld for the recovery of the value of the steel bars and wire.
RTC ruled in favor of Stelco. Steelweld appealed to the Court of Appeals and it dismissed the complaint against
Steelweld.

Issue:

Whether or not Stelco ever became a holder in due course of the check.

Ruling:

No. Stelco cannot be deemed a holder of the check for value. It does not meet two of the essential requisites prescribed
by the statute. It did not become "the holder of it before it was overdue, and without notice that it had been previously
dishonored," and it did not take the check "in good faith and for value."

Mere possession of Stelco of a negotiable instrument after presentment and dishonor, or payment, is utterly
inconsequential; it does not make the possessor a holder for value within the meaning of the law; it gives rise to no liability
on the part of the maker or drawer and indorsers. There is no evidence that Stelco ever took possession of the check any
time before the instrument's presentment and dishonor. 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. Neither is there any evidence
whatever that Armstrong Industries, to whom R.Y. Lim negotiated the check accepted the instrument and attempted to
encash it in behalf, and as agent of Stelco.
Case No. 26

Travel-On Inc. v. CA

G.R. No. 56169 June 26, 1992

Doctrine:

A check which is regular on its face is deemed prima facie to have been issued for a valuable consideration and every
person whose signature appears thereon is deemed to have become a party thereto for value. Only clear and convincing
evidence, and not mere self-serving evidence of a drawer, can rebut this presumption.

Facts:

Travel-On. Inc. is a travel agency selling airline tickets on commission basis for and in behalf of different airline
companies. Arturo S. Miranda had a revolving credit line with petitioner. He procured tickets from petitioner on behalf of
airline passengers and derived commissions therefrom.

On 14 June 1972, Travel-On filed suit before the Court of First Instance (CFI) of Manila to collect on 6 checks issued by
Miranda with a total face amount of P115,000.00. Petitioner averred that on 5 August 1969 to 16 January 1970, petitioner
sold and delivered various airline tickets to respondent at a total price of P278,201.57; that to settle said account, private
respondent paid various amounts in cash and in kind, and thereafter issued 6 postdated checks amounting to
P115,000.00 which were all dishonored by the drawee banks. Miranda admitted having had transactions with Travel-On
and claimed that he had already fully paid his obligations, and argued that he had issued the postdated checks for
purposes of accommodation and issued the checks in the name of Travel-On in order that its General Manager, Elita
Montilla, could show to Travel-On's Board of Directors that the accounts receivable of the company were still good.

CFI ruled in favor of Miranda, since the indebtedness to petitioner was not satisfactorily established and that the
postdated checks were issued not for the purpose of encashment to pay his indebtedness but to accommodate the
General Manager of Travel-On to enable her to show to the Board of Directors that Travel-On was financially stable. On
appeal, the Court of Appeals affirmed the decision of the trial court. Travel-On urged that the postdated checks are per se
evidence of liability on the part of Miranda and argues that even assuming that the checks were for accommodation,
private respondent is still liable thereunder considering that petitioner is a holder for value.

Issue:

Whether or not the checks are evidence of the liability of the respondent to the petitioner even assuming that they were for
purposes of accommodation.

Ruling:

Yes. The checks clearly established private respondent's indebtedness to petitioner and these evidence was not
successfully overturned or rebutted by Miranda. A check which is regular on its face is deemed prima facie to have been
issued for a valuable consideration and every person whose signature appears thereon is deemed to have become a
party thereto for value. Thus, the mere introduction of the instrument sued on in evidence prima facie entitles the plaintiff
to recovery.

Even if the checks were for purposes of accommodation, the respondent would still be liable considering that Travel-On is
a holder for value. Travel-On was entitled to the benefit of the statutory presumption that it was a holder in due course,
that the checks were supported by valuable consideration. Miranda, the maker of the checks, did not successfully rebut
these presumptions. The only evidence aliunde that private respondent offered was his own self-serving uncorroborated
testimony.
Case No. 27

Bank of the Philippines Islands vs. Court of Appeals

G. R. No. 112392 February 29, 2000

Doctrine:

Ordinarily private respondent may be held liable as an indorser of the check or even as an accommodation party by
having affixed his signature at the dorsal side of the check as stated in Section 66 of the Negotiable Instruments Law .
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.

Facts:

On September 3, 1987, private respondent Benjamin Napiza deposited in his Foreign Currency Deposit Unit (FCDU)
Savings Account which he maintains in the petitioner bank, Bank of the Philippine Islands (BPI), a Continental Bank
Managers check dated August 17, 1984, payable to "cash" in the amount of $2,500.00, and duly endorsed by private
respondent on its dorsal side. It appears that the check belonged to a certain Henry Chan who went to the office of private
respondent and requested him to deposit the check in his dollar account by way of accommodation and for the purpose of
clearing the same. Private respondent acceded, and agreed to deliver to Chan a signed blank withdrawal slip, with the
understanding that as soon as the check is cleared, both of them would go to the bank to withdraw the amount of the
check upon private respondent’s presentation to the bank of his passbook.

On October 23, 1984, using the blank withdrawal slip given by Napiza to Chan, one Ruben Gayon, Jr. was able to
withdraw the amount of $2,541.67 from FCDU Savings Account of the private respondent. Notably, the withdrawal slip
shows that the amount was payable to Ramon A. de Guzman and Agnes C. de Guzman and was duly initialed by the
branch assistant manager. On November 20, 1984, petitioner received communication from the Wells Fargo Bank
International of New York that the said check deposited by private respondent was a counterfeit check because it was "not
of the type or style of checks issued by Continental Bank International."

Mr. Ariel Reyes, manager of BPI, instructed one of its employees, Benjamin D. Napiza IV, who is Napiza's son, to inform
his father that the check bounced. Reyes, himself, also sent a telegram to Napiza regarding the dishonor of the check.
Napiza's son told Reyes that the check had been assigned "for encashment" to Ramon A. de Guzman and/or Agnes C. de
Guzman after it shall have been cleared upon instruction of Chan. Upon learning the dishonor of the check, Napiza
immediately tried to contact Chan but Chan was out of town. On August 12, 1986: BPI filed a complaint against Napiza for
the return of $2,500.00 or the prevailing peso equivalent plus legal interest, and the costs of suit. Napiza admitted that he
indeed signed a "blank" withdrawal slip with the understanding that the amount deposited would be withdrawn only after
the check in question has been cleared. However, without his knowledge, it was withdrawn through collusion with one of
BPI's employees. BPI aslo filed a motion for admission of a third party complaint against Chan. He alleged that "thru
stratagem and/or manipulation," Chan was able to withdraw the amount of $2,500.00 even without Napiza's
passbook. The lower court dismissed the complaint which was affirmed by the Court of Appeals stating that BPI
committed "clears gross negligence" in allowing Ruben Gayon, Jr. to withdraw the money without presenting Napiza’s
passbook and, before the check was cleared and in crediting the amount indicated therein in Napiza's account. BPI now
claims that Napiza, having affixed his signature at the dorsal side of the check, should be liable in accordance to Sec. 66
of the Negotiable Instrument Law.

Issue:

Wether or not Napiza can be held liable as an indorser or accommodation party.

Ruling:

No. Ordinarily Napiza may be held liable as an indorser of the check or even as an accommodation party. However, to
hold Napiza 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. Under the Philippine foreign currency deposit system, two requisites must be presented to petitioner bank by the
person withdrawing an amount: (a) a duly filled-up withdrawal slip, and (b) the depositor's passbook.
Moreover, in depositing the check in his name, Napiza did not become the outright owner of the amount stated therein, he
was, merely designating BPI as the collecting bank. This is in consonance with the rule that a negotiable instrument, such
as a check, whether a manager's check or ordinary check, is not legal tender. Petitioner violated its own rules by allowing
the withdrawal of an amount that is definitely over and above the aggregate amount of private respondent’s dollar deposits
that had yet to be cleared. The banks ledger on private respondents account shows that before he deposited $2,500.00,
private respondent had a balance of only $750.00.

While it is true that Napiza's having signed a blank withdrawal slip set in motion the events that resulted in the withdrawal
and encashment of the counterfeit check, the negligence of BPI's personnel was the proximate cause of the loss that
petitioner sustained. The proximate cause of the withdrawal and eventual loss of the amount of $2,500.00 on petitioner’s
part was its personnel’s negligence in allowing such withdrawal in disregard of its own rules and the clearing requirement
in the banking system. In so doing, petitioner assumed the risk of incurring a loss on account of a forged or counterfeit
foreign check and hence, it should suffer the resulting damage.
28 - Agro Conglomerates, Inc. v Court of Appeals
G.R. No. 117660. December 18, 2000
Quisumbing, J.

Doctrine:
An accommodation party is a person who has signed the instrument
as maker, acceptor, or indorser, without receiving value therefor, and for
the purpose of lending his name to some other person and is liable on the
instrument to a holder for value, notwithstanding such holder at the time
of taking the instrument knew (the signatory) to be an accommodation
party. He has the right, after paying the holder, to obtain reimbursement
from the party accommodated, since the relation between them has in
effect become one of principal and surety, the accommodation party
being the surety.

Facts:
Petitioner Agro Conglomerates, Inc. sold two parcels of farmland to
Wonderland Food Industries, Inc. Petitioner as vendor , Wonderland Food
Industries as vendee, and the respondent Regent Savings and Loan Bank
executed as Addendum to the previous Memorandum of Agreement to the
effect that the vendee authorized the vendor to obtain a loan from the
respondent bank for the total amount of the initial payments and that the
vendee undertook to assume the settlement of the said loan. Petitioner
Mario Soriano signed several promissory notes and received the proceeds
in behalf of Agro Conglomerates, Inc. However, the sale of the said
farmland did not materialize which resulted to a rescission of contract of
sale between the Agro Conglomerates, Inc. and Wonderland Food
Industries, Inc. However, petitioners Agro Conglomerates, Inc. and Mario
Soriano failed to meet their obligations as they fell due. Respondent bank
filed three separate complaints for Collection of Sums of Money against
the petitioners. Agro Conglomerates interposed the defense of novation
and insisted that there was a valid substitution of debtor based on the
executed addendum. The trial court rendered judgment in favor of the
respondent bank. The Court of Appeals affirmed in toto the said judgment.

Issue:
Whether or not Agro Conglomerates is liable as an
accommodation party

Held:
Yes. . The Court held that a subsidiary contract of suretyship had
taken effect since petitioners signed the promissory notes as maker and
accommodation party for the benefit of Wonderland. Agro Conglomerates,
Inc. became liable as accommodation party. An accommodation party is a
person who has signed the instrument as maker, acceptor, or indorser,
without receiving value therefor, and for the purpose of lending his name
to some other person and is liable on the instrument to a holder for value,
notwithstanding such holder at the time of taking the instrument knew
(the signatory) to be an accommodation party. He has the right, after
paying the holder, to obtain reimbursement from the party
accommodated, since the relation between them has in effect become
one of principal and surety, the accommodation party being the surety.
The surety's liability to the creditor or promisee of the principal is said to
be direct, primary and absolute; in other words, he is directly and equally
bound with the principal. And the creditor may proceed against any one
of the solidary debtors.
De Ocampo v. Gatchalian
G.R. No. L-15126. November 30, 1961
Labrador, J

Doctrine:

Good faith on the part of the holder is presumed, such presumption is destroyed if
the payee or indorsee acquired possession of the instrument under circumstances
that should have put it to inquiry as to the title of the holder who negotiated the
instrument. The burden is now on the part of the holder to show that notwithstanding
the suspicious circumstances, it acquired in the actual good faith

Facts:
Manuel Gonzales represented to defendant Anita C. Gatchalian that he was
duly authorized by the owner of the car, Ocampo Clinic, to look for a buyer of said
car. Gatchalian, requested Gonzales to bring the car the day following together with
the certificate of registration of the car. However, Gonzales advised her that a check
which will be shown to the owner as evidence of buyer's good faith in the intention to
purchase the said car and that the said check to be for safekeeping only of Manuel
Gonzales. Relying on these representations of Gonzales,Gatchalian drew and
issued a check. Upon the failure of Gonzales to appear the day following and on his
failure to bring the car and its certificate of registration, Gatchalian issued a 'Stop
Payment Order' on the check. Meanwhile, Gonzales having received the check,
delivered the same to the Ocampo Clinic, in payment of the fees and expenses
arising from the hospitalization of his wife. De Ocampo accepted the check and
applied to the payment of fees and delivered to Gonzales the balance on the amount
of the said check. De Ocampo filed a complaint for estafa against Gatchalian based
on the act of Manuel Gonzales in paying his obligations with plaintiff and receiving
the cash balance of the check. The trial court ordered Gatchalian to pay De Ocampo
the amount of the check.

Issue:
Whether or not De Ocampo is a holder in due course
Held:
No. The Court held that the rule that a possessor of the instrument is prima
facie a holder in due course does not apply because there was a defect in the title of
the holder, Manuel Gonzales. As holder's title was defective or suspicious, it cannot
be stated that the payee acquired the check without knowledge of said defect in
holder's title, and for this reason the presumption that it is a holder in due course or
that it acquired the instrument in good faith does not exist. Furthermore, where the
payee acquired the check under circumstances which should have put it to inquiry,
why the holder had the check and used it, to pay his own personal account, the duty
devolved upon it to prove that it actually acquired said check in good faith. In this
case, De Ocampo should have inquired as to the legal title of Manuel to the said
check.
30-​ ​Mesina​ ​v.​ ​IAC
G.R.​ ​No.​ ​70145.​ ​November​ ​13,​ ​1986
Paras,​ ​J.

Doctrine:
The holder of a cashier’s check who is not a holder in due course cannot enforce
payment against the issuing bank which dishonors the same. If a payee of a cashier’s check
obtained it from the issuing bank by fraud, or if there is some other reason why the payee is
not entitled to collect the check, the bank would of course have the right to refuse payment
of​ ​the​ ​check​ ​when​ ​presented​ ​by​ ​payee.

Facts:
Jose Go, purchased from Associated Bank Cashier's Check for P800,000.00.
Unfortunately, Jose Go left said check on the top of the desk of the bank manager when he
left the bank. The bank manager entrusted the check for safekeeping to a bank official, a
certain Albert Uy, who had then a visitor in the person of Alexander Lim, Uy had to answer a
phone call and when he returned to his desk, his visitor Lim was already gone. When Jose
Go inquired for his cashier's check from Albert Uy, the check was not in his folder and
nowhere to be found. The latter advised Jose Go to go to the bank to accomplish a "STOP
PAYMENT" order, which suggestion Jose Go immediately followed. Associated Bank
received the lost check twice for clearing but the check was immediately dishonored.
Associated Bank filed a case of interpleader and Go moved to participate as intervenor in
the complaint for damages. Mesina moved for the dismissal of the case however it
was denied. The trial court in the interpleader case ordered Associate Bank to replace
Cashier's​ ​Check​ ​in​ ​favor​ ​of​ ​Jose​ ​Go.

Issue:
Whether​ ​or​ ​not​ ​Marcelo​ ​Mesina​ ​ ​is​ ​a​ ​holder​ ​in​ ​due​ ​course

Held:
No. ​The Court held that ​petitioner failed to substantiate his claim that he is a holder
in due course and for consideration or value as shown by the established facts of the case.
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. If a payee of a cashier's check obtained it from the
issuing bank by fraud, or if there is some other reason why the payee is not entitled to
collect the check, the respondent bank would, of course, have the right to refuse payment
of the check when presented by the payee, since respondent bank was aware of the facts
surrounding​ ​the​ ​loss​ ​of​ ​the​ ​check​ ​in​ ​question.
METROPOL FINANCING v. SAMBOK MOTORS COMPANY
G.R. No. L-39641, February 28, 1983
De Castro, J.

DOCTRINE:
The effect of an indorsement “with recourse” is that the note was indorsed
without qualification. A person who indorses without qualification engages
that on due presentment, the note shall be accepted or paid, or both as the
case may be, and if it be dishonored, he shall pay the amount thereof to the
holder.

FACTS:
Dr. Javier Villaruel executed a promissory note in favor of Ng Sambok Sons
Motors Co, payable in 12 equal monthly installments. In case of non-payment
of any installment, the total principal sum then remaining unpaid shall
become due and payable with interest 25% of the total amount due. On the
same date, Sambok Motors Company (Sambok), a sister company of Ng
Sambok Sons, negotiated and indorsed in favor of plaintiff Metropol Financing
with the indorsement stating: “pay to the order of Metropol Financing with
recourse. Notice of demand; dishonor; protest; and presentment are hereby
waived.

Villaruel defaulted in the payment of his installments, thus Metropol formally

presented the promissory note for payment to Villaruel. Villaruel failed to ay
as demanded, hence Metropol notified Sambok as indorsee of the fact that
the note has been dishonored and demanded payment. Failing to pay,
Metropol instituted complaint for collection of sum of money against Villaruel
and Sambok. During the pendency of the case, Villaruel died, thus the case
against him was dismissed. The CFI ordered Sambok to pay.

Sambok argues that by adding “with recourse” in the indorsement of the

note, it is a qualified indorser and therefore does not warrant that if not is
dishonored by the maker on presentment, it will pay the amount to the
holder; it only warrants, under Sec. 65 of the NIL, that the instrument is
genuine in all respects and what it purports to be; that he has good title to it;
that prior parties had capacity to pay; and that he has no knowledge of any
fact which would impair the validity of the instrument or render it valueless.

ISSUE:
Whether Sambok could not be held liable under its indorsement.

RULING:
NO. Sambok could be held liable as a general indorser and not as a qualified
indorser, having indorsed the note “with recourse.” Recourse means resort to
a person who is secondarily liable after the default of the person who is
primarily liable. By indorsing the note “with recourse” it made itself a general
indorser who is secondarily liable, agreeing that if the maker would not pay,
the petitioner holder can go after the appellant. The effect of such
indorsement is that the note was indorsed without qualification. A person
who indorses without qualification engages that on due presentment, the
note shall be accepted or paid, or both as the case may be, and if it be
dishonored, he will pay the amount thereof to the holder. After the
instrument is dishonored by non-payment, the person secondarily liable
thereon ceases to be such and becomes a principal debtor. The holder need
not even proceed against the maker before suing the indorser.
MARALIT v. IMPERIAL
G.R. No. 130756, January 21, 1999
De Castro, J.

DOCTRINE:
In cases of altered instruments the loss is chargeable to the person who upon
indorsements warrant that the instrument is genuine and in all respects what
it purports to be, and that she will pay the amount thereof in case of
dishonor.

FACTS:
Ester Maralit was the assistant manager of PNB Naga City branch. Corazon
Imperial separately deposited in her savings account with PNB three US
treasury warrants, and on the same days withdrew their peso equivalent. The
treasury warrants were subsequently returned one after the other by the US
Treasury, on the ground that the amounts had been altered. Maralit claimed
that as a consequence, she was held personally liable by PNB for the total
amount. She thus filed 3 complaints for estafa through falsification of
commercial documents and reckless imprudence against Imperial.

According to Imperial, she was merely helping a relative encash the

warrants, and did not know that the amounts hadd been altered nor did she
represent to Maralit that the warrants were genuine. The MTC acquitted
Imperial of the criminal charges but held her civilly liable as indorser of the
checks. Imperial then moved to quash the writ of execution subsequently on
the ground that the court did not order the accused to pay a specific amount
of money to a particular person as it merely ruled on the criminal aspect. On
certiorari before the RTC, it held that the MTC decision did not really find
Imperial liable for the amount in the treasury warrants, and in fact MTC
decision stated that it is petitioner Maralit herself who should be faulted for
the payment of the dishonored US checks since was the one who approved
the encashment before clearing.

ISSUE:
Whether or not it was proper to hold Imperial civilly liable for the
encashment of altered checks.

RULING:
YES. In reversing the findings of the RTC, the Supreme Court explained that
while the MTC indeed found Maralit partly responsible for the encashment of
the altered checks, it nonetheless found Imperial civilly liable because of her
indorsement of the treasury warrants, in addition to the fact that she
executed a notarized acknowledgement of debt promising to pay the total
amount of said checks. The loss is chargeable to the accused who upon her
indorsements warrant that the instrument is genuine in all respects and what
it purports to be, and that she will pay the amount thereof in case of
dishonor.
Sapiera v. CA
G. R. No. 128927 . September 14, 1999
Bellosillo, J.

Doctrine: A person placing his signature upon an instrument otherwise than

as maker, drawer or acceptor, is deemed to be an indorser unless he clearly
indicates by appropriate words his intention to be bound in some other
capacity.

Facts:
On several occasions petitioner Remedios Nota Sapiera, a sari-sari
store owner, purchased from Monrico Mart certain grocery items, mostly
cigarettes, and paid for them with checks issued by one Arturo de Guzman.
These checks were signed at the back by petitioner. When presented for
payment the checks were dishonored because the drawer's account was
already closed. Private respondent Ramon Sua informed Arturo de Guzman
and petitioner about the dishonor but both failed to pay the value of the
checks. Hence, four (4) charges of estafa were filed against petitioner with
the Regional Trial Court

Issue: Whether or not petitioner should be held liable for the checks indorsed
to private respondent.

Ruling:
It is undisputed that the four (4) checks issued by de Guzman were
signed by
petitioner at the back without any indication as to how she should be bound
thereby and, therefore, she is deemed to be an indorser thereof. A person
placing his signature upon an instrument otherwise than as maker, drawer or
acceptor, is deemed to be an indorser unless he clearly indicates by
appropriate words his intention to be bound in some other capacity.
The dismissal of the criminal cases against petitioner did not erase her
civil liability since the dismissal was due to insufficiency of evidence and not
from a declaration from the
court that the fact from which the civil action might arise did not exist.
Case No. 27

Bank of the Philippines Islands vs. Court of Appeals

G. R. No. 112392 February 29, 2000

Doctrine:

While it is true that private respondent's having signed a blank withdrawal slip set in motion the events that resulted in the
withdrawal and encashment of the counterfeit check, the negligence of petitioner's personnel was the proximate cause of
the loss that petitioner sustained. 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.

Facts:

Private respondent Benjamin Napiza deposited in his Foreign Currency Deposit Unit (FCDU) Savings Account which he
maintains in the petitioner bank, Bank of the Philippine Islands (BPI), a Continental Bank Managers check, payable to
"cash" in the amount of $2,500.00, and duly endorsed by private respondent on its dorsal side. The check belonged to a
certain Henry Chan who went to the office of private respondent and requested him to deposit the check in his dollar
account by way of accommodation and for the purpose of clearing the same. Private respondent acceded, and agreed to
deliver to Chan a signed blank withdrawal slip, with the understanding that as soon as the check is cleared, both of them
would go to the bank to withdraw the amount of the check upon private respondent’s presentation to the bank of his
passbook.

Using the blank withdrawal slip given by Napiza to Chan, one Ruben Gayon, Jr. was able to withdraw the amount of
$2,541.67 from FCDU Savings Account of the private respondent. Petitioner received a communication from the Wells
Fargo Bank International of New York that the said check deposited by private respondent was a counterfeit
check because it was "not of the type or style of checks issued by Continental Bank International."

BPI filed a complaint against Napiza for the return of $2,500.00 or the prevailing peso equivalent plus legal interest, and
the costs of suit. Napiza admitted that he indeed signed a "blank" withdrawal slip with the understanding that the amount
deposited would be withdrawn only after the check in question has been cleared. However, without his knowledge, it was
withdrawn through collusion with one of BPI's employees. He alleged that "thru stratagem and/or manipulation," Chan was
able to withdraw the amount of $2,500.00 even without Napiza's passbook. The lower court dismissed the complaint
which was affirmed by the Court of Appeals stating that BPI committed "clears gross negligence" in allowing Ruben
Gayon, Jr. to withdraw the money without presenting Napiza’s passbook and, before the check was cleared and in
crediting the amount indicated therein in Napiza's account. BPI now claims that Napiza, having affixed his signature at the
dorsal side of the check, should be liable in accordance to Sec. 66 of the Negotiable Instrument Law.

Issue:

Whether or not Napiza is liable under his warranties as a general indorser.

Ruling:

No. Ordinarily Napiza may be held liable as an indorser of the check or even as an accommodation party. Under the
Philippine foreign currency deposit system, two requisites must be presented to petitioner bank by the person withdrawing
an amount: (a) a duly filled-up withdrawal slip, and (b) the depositor's passbook. While it is true that Napiza's having
signed a blank withdrawal slip set in motion the events that resulted in the withdrawal and encashment of the counterfeit
check, the negligence of BPI's personnel was the proximate cause of the loss that petitioner sustained. The proximate
cause of the withdrawal and eventual loss of the amount of $2,500.00 on petitioner’s part was its personnel’s negligence
in allowing such withdrawal in disregard of its own rules and the clearing requirement in the banking system. In so doing,
petitioner assumed the risk of incurring a loss on account of a forged or counterfeit foreign check and hence, it should
suffer the resulting damage. To hold Napiza 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.
Prudential Bank vs. Intermediate Appellate Court

G.R. No. 74886

December 8, 1992

DAVIDE, JR., J.:

Doctrine:

Sight drafts are instruments which are not required to be presented for acceptance. Instruments
that must be presented for acceptance are expressly provided for in Section 143 of the NIL.

Facts:

On August 8, 1962, private respondent-Philippine Rayon Mills Inc. entered into a contract with
Nissho Co Ltd. Of Japan for the imporation of textile machineries to be paid in instalments under
a 5 year payment plan. Phil. Rayon Inc. applied for a commercial letter of credit with Prudential
Bank and Trust Co. in favour of Nissho Co. Sight drafts were drawn in favour of Nissho Co.
labelled in the present case as “Exhibits X-1 to X-11”. All drafts were paid by Prudential Bank
through its correspondent bank in Japan, Bank of Tokyo, Ltd. However, only 2 of the sight drafts
were accepted by Phil Rayon Mills Inc. through its President, Anacelto Chi, while the other
drafts were not. The machineries arrived, and Prudential bank indorsed the shipping documents
to Phil Rayon Inc. and also executed a trust receipt with respondent Phil Rayon Inc. In 1967, Phil
Rayon Inc. ceased its operations, but their obligation arising from the letters of credit and trust
receipts executed with Prudential Bank remained outstanding despite formal demands for
payment. The trial court ruled in that only the 2 sight drafts accepted by Phil. Rayon Inc. were to
be paid, but the rest of the sight drafts which were not accepted, were ruled that their cause of
actions did not yet arise as Phil. Rayon Inc. did not accept these, thus the case was premature.
The appellate court affirmed the decision of the trial court.

Issue: Whether presentment for acceptance of the drafts was indispensible to make Philippine
Rayon liable thereon

Rule:

No. Philippine Rayon Mills Inc. is liable to pay Prudential Bank the amounts of which the letter
of credit was issued in favour of Nissho Co. A letter of credit is an engagement by a bank or
other person made at the request of a customer that the issuer will honor drafts or other demands
for payment upon compliance with the conditions specified in the credit. The bank merely
substitutes its own promise to pay in lieu of a promise to pay by its client. The client then
promises to pay the bank the amount of funds in the letter of credit.

Thus in the present case, the drawee is the petitioner-Prudential Bank. It was also to Prudential
Bank that such instruments would be presented, but in this case the instruments are sight drafts
and there is no need for these to be presented for acceptance. Presentment for acceptance is only
necessary only in cases provided for in Section 143 of the NIL.

The trial court and appellate court erred in ruling that presentment for acceptance was necessary
to charge Phil. Rayon Inc. liable on the instruments because Phil. Rayon Inc. became liable
thereon once Prudential Bank had already paid Nissho Co. the amounts in the letter of credit.
Wong vs. Court of Appeals

G.R. No. 117857

February 2, 2001

QUISUMBING, J.:

Doctrine:

Facts:

Petitioner-Wong was an agent of Limtong Press Inc. (LPI), a manufacturer of calendars. The
agents of LPI would receive a sample of the products from LPI and would also receive purchase
orders of customers to be forwarded to LPI. The agents would then collect the payment from the
clients to be delivered directly to LPI. Petitioner-Wong had unremitted collections which he duly
acknowledged, as such Wong issued 6 post-dated checks totalling 18,025 PHP drawn upon Allied
Banking Corp. payable to the order of LPI. The checks were supposed to be initially a guarantee
for customers who failed to issue their own post-dated checks for payment of calendars they
ordered. However, LPI, by company policy, applied the post-dated checks drawn by Wong to
apply for the payment of Wong’s unremitted collections. Petitioner-Wong told LPI not to deposit
such checks as he would replace them within 30 days, but Wong failed to do so. LPI deposited
the checks but the checks were dishonoured for the reason of “account closed”. Wong failed to
make arrangement for the payment of the checks within 5 banking days as provided for by BP
22, thus he was charged for violation of BP 22. Wong argued that he issued the checks not for
payment of any obligation nor his unremitted collections, but to guarantee the orders of his
customers.

Issue: Whether the Petitioner Wong may be held liable for violating BP 22.

Rule: Yes

The mere act of issuing a worthless check is malum prohibitum.

There are 2 ways of violating BP 22, first, by making-drawing a check to apply on account for
value knowing at the time of issue that the check was not sufficiently funded, and the second, by
failing to maintain sufficient funds in or credit in the drawee bank to cover the full amount of the
check when presented to the drawee bank within a period of 90 days.

Petitioner’s argument that he cannot be held liable for the first way of violating BP 22 since the
checks did not apply for account or for value being mere guarantees fails because the trial court
and appellate court had already found that Petititoner Wong and LPI had already agreed that the
checks were to apply for Wong’s unremitted collections.
Petitioner’s 2nd argument that LPI had only deposited the checks 157 days after the maturity date
would have the effect of absolving Wong of the presumption of knowledge of the insufficiency
of funds under Section 2 of BP 22 which provides for a prima facie evidence of knowledge of
insufficiency of funds if the checks are presented within 90 days from the date of the check, such
argument fails. Sec. 2 of BP 22 only provides for a prima facie presumption of knowledge of
such insufficiency of funds. It does not constitute as an element of the offense. Neither does
depositing a check beyond the 90 period as held in Sec 2 of BP 22 discharge the petitioner. NIL
provides under Sec 186, that a check must be presented for payment within a reasonable time
after its issue, which in banking practice, a check becomes stale only after 6 months. Thus, the
checks being deposited on the 157th day, the checks have not yet become stale. Petitioner had
opportunity to make arrangements for the full payments of the value of the checks within 5 days
as provided by BP 22 when Wong was duly notified of the dishonour, but he has failed to do so.
Case No. 37

The International Corporate Bank vs. Spouses Gueco

G. R. No. 141968 February 12, 2001

Doctrine:

A check must be presented for payment within a reasonable time after its issue, and in determining what is a "reasonable
time," regard is to be had to the nature of the instrument, the usage of trade or business with respect to such instruments,
and the facts of the particular case. Even assuming that presentment is needed, failure to present for payment within a
reasonable time will result to the discharge of the drawer only to the extent of the loss caused by the delay. Failure to
present on time, thus, does not totally wipe out all liability.

Facts:

The respondent Gueco Spouses obtained a loan from petitioner International Corporate Bank (now Union Bank of the
Philippines) to purchase a car. In consideration thereof, the Spouses executed promissory notes which were payable in
monthly installments and chattel mortgage over the car to serve as security for the notes. The Spouses defaulted in
payment of installments. Consequently, the Bank filed a civil action for "Sum of Money with Prayer for a Writ of
Replevin" before the Metropolitan Trial Court of Pasay City. As a result of the non-payment of the reduced amount on that
date, the car was detained inside the bank's compound. Dr. Gueco went to the bank and talked with its Administrative
Support, Auto Loans/Credit Card Collection Head. The negotiations resulted in the further reduction of the outstanding
loan to P150,000.00. Dr. Gueco delivered a manager's check in amount of P150,000.00 but the car was not released
because of his refusal to sign the Joint Motion to Dismiss. It is the contention of the Gueco spouses and their counsel that
Dr. Gueco need not sign the motion for joint dismissal considering that they had not yet filed their Answer. Petitioner,
however, insisted that the joint motion to dismiss is standard operating procedure in their bank to effect a compromise and
to preclude future filing of claims, counterclaims or suits for damages.

Souses Gueco initiated a civil action for damages before the Metropolitan Trial Court of Quezon City, but it was dismissed
for lack of merit. On appeal to the Regional Trial Courtof Quezon City, the decision of the MTC was reversed. By the time
the case was instituted, the check had become stale in the hands of the bank.

Issue:

Whether or not International Corporate Bank should shoulder the loss due to a stale check.

Ruling:

No.

A stale check is one which has not been presented for payment within a reasonable time after its issue. It is valueless
and, therefore, should not be paid. A check must be presented for payment within a reasonable time after its issue, and in
determining what is a "reasonable time," regard is to be had to the nature of the instrument, the usage of trade or
business with respect to such instruments, and the facts of the particular case.

Even assuming that presentment is needed, failure to present for payment within a reasonable time will result to the
discharge of the drawer only to the extent of the loss caused by the delay. Failure to present on time, thus, does not totally
wipe out all liability. In fact, the legal situation amounts to an acknowledgment of liability in the sum stated in the check. In
the case at bar, there is no doubt that the petitioner bank held on the check and refused to encash the same because of
the controversy surrounding the signing of the joint motion to dismiss. We see no bad faith or negligence in this position
taken by the Bank. Thus, Spouses Gueco are further ordered to pay the original obligation amounting to P150,000.00 to
the petitioner upon surrender or cancellation of the manager's check in the latter's possession, after which, petitioner is to
return the subject motor vehicle in good working condition.
Case No. 38

State Investment House vs. Court of Appeals

G. R. No. 101163 January 11, 1993

Doctrine:

The withdrawal of the money from the drawee bank to avoid liability on the checks cannot prejudice the rights of holders in
due course. The holder who takes the negotiated paper makes a contract with the parties on the face of the instrument.
There is an implied representation that funds or credit are available for the payment of the instrument in the bank upon
which it is drawn

Facts:

Private respondent Nora B. Moulic issued to Corazon Victoriano, as security for pieces of jewelry to be sold on
commission, 2 post-dated Equitable Banking Corporation checks in the amount of P50,000.00 each. Thereafter, the payee
negotiated the checks to petitioner State Investment House. Inc. Moulic failed to sell the pieces of jewelry, so she returned
them to the payee before maturity of the checks. The checks, however, could no longer be retrieved as they had already
been negotiated. Consequently, before their maturity dates, MOULIC withdrew her funds from the drawee bank.

Upon presentment for payment, the checks were dishonored for insufficiency of funds. State sued to recover the value of
the checks plus attorney's fees and expenses of litigation. Moulic contends that she incurred no obligation on the checks
because the jewelry was never sold and the checks were negotiated without her knowledge and consent.

The trial court dismissed the Complaint and ordered State to pay Moulic for attorney's fees. The appellate court affirmed
the trial court’s decision on the ground that the Notice of Dishonor to MOULIC was made beyond the period prescribed by
the Negotiable Instruments Law and that since the sale of the jewelry was never effected; the checks, therefore, ceased to
serve their purpose as security for the jewelry.

Issue:

Whether or not State Investment House is entitled to be paid.

Ruling:

Yes. State is a holder in due course since it met all the requirements stated in Section 52 of NIL. The evidence shows that:
(a) the checks were complete and regular upon its face: (b) State acquired the checks before their due dates; (c) State
took the checks in good faith and for value; and, (d) State was never informed nor made aware that the checks were
merely issued to payee as security and not for value. Moulic may not unilaterally discharge herself from her liability by the
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 checks to a holder in due course.

Moreover, the fact that State failed to give Notice of Dishonor to Moulic is of no moment. The need for such notice is not
absolute; there are exceptions under Sec. 114 of the NIL. She did not retrieve the checks when she returned the jewelry.
She simply withdrew her funds from her drawee bank and transferred them to another to protect herself. After withdrawing
her funds, she could not have expected her checks to be honored. In other words, she was responsible for the dishonor of
her checks, hence, there was no need to serve her Notice of Dishonor, which is simply bringing to the knowledge of the
drawer or indorser of the instrument, either verbally or by writing, the fact that a specified instrument, upon proper
proceedings taken, has not been accepted or has not been paid, and that the party notified is expected to pay it.
Consequently, the withdrawal of the money from the drawee bank to avoid liability on the checks cannot prejudice the
rights of holders in due course. Such withdrawal renders the drawer, Moulic, liable to State, a holder in due course of the
checks.
39 - Agro Conglomerates, Inc. v Court of Appeals
G.R. No. 93048. March 3, 1994
Quisumbing, J.

Doctrine:
In order to preserve the creditworthiness of checks, jurisprudence
has pronounced that crossing a check should have the following effects:
(1) check may not be encashed but only deposited in the bank; (2) the
check may be negotiated only once, to one who has an account with a
bank; (3) and the act of crossing the check serves as a warning to the
holder that the check has been issued for a definite purpose so that he
must inquire if he has received the check pursuant to that purpose,
otherwise he is not a holder in due course.

Facts:
Petitioner, Bataan Cigar & Cigarette Factory, Inc. (BCCFI), a
corporation involved in the manufacturing of cigarettes, engaged one of
its suppliers, King Tim Pua George to deliver 2,000 bales of tobacco leaf .
In consideration thereof, BCCFI, issued crossed checks post dated in the
total amount of P820,000.00. Relying on the supplier's representation that
he would complete delivery within three months, petitioner agreed to
purchase additional 2,500 bales of tobacco leaves, despite the supplier's
failure to deliver in accordance with their earlier agreement. Again
petitioner issued post dated crossed checks in the total amount of
P1,100,000.00. During these times, George King was simultaneously
dealing with private respondent State Investment House, Inc. (SIHI) and
sold the at a discount the checks issued by BCCFI in favor of George King.
Subsequently, George King failed to deliver the bales of tobacco leaf as
agreed despite petitioner's demand, BCCFI issued a stop payment order
on all checks payable to George King. Efforts of SIHI to collect from BCCFI
having failed, it instituted a case against BCCFI. The trial court
pronounced SIHI as having a valid claim being a holder in due course.
Issue:
Whether or not State Investment House, Inc. (SIHI), a
second indorser, a holder of crossed checks, is a holder in due
course to be able to collect from the drawer, BCCFI

Held:
No. In order to preserve the creditworthiness of checks,
jurisprudence has pronounced that crossing of a check should have the
following effects: (a) the check may not be encashed but only deposited in
the bank; (b) the check may be negotiated only once — to one who has an
account with a bank; (c) and the act of crossing the check serves as
warning to the holder that the check has been issued for a definite
purpose so that he must inquire if he has received the check pursuant to
that purpose, otherwise, he is not a holder in due course. It is then settled
that crossing of checks should put the holder on inquiry and upon him
devolves the duty to ascertain the indorser's title to the check or the
nature of his possession. The Court held that BCCFI's defense in stopping
payment is as good to SIHI as it is to George King. Because,, the checks
were issued with the intention that George King would supply BCCFI with
the bales of tobacco leaf. There being failure of consideration, SIHI is not a
holder in due course. Therefore, BCCFI cannot be obliged to pay the
checks.
40 - Citytrust Banking Corporation v. Intermediate Appellate
Court
G.R. No. 84281. May 27, 1994
Vitug, J.

Doctrine:
Even there was error on the account number the controlling in
determining in whose account the deposit is name of the account owner.
This is so because it is not likely to commit an error in one’s name than
merely relying on numbers which are difficult to remember. Numbers are
for the convenience of the bank but was never intended to disregard the
real name of its depositors. The bank is engaged in business impressed
with public trust, and it is its duty to protect in return its clients and
depositors who transact business with it.

Facts:
Emme Herrero, businesswoman, made regular deposits with
Citytrust Banking Corporation. She deposited the amount of P31, 500 in
order to amply cover 6 post dated checks she issued. When presented for
encashment upon maturity, all the checks were dishonored due to
insufficiency of funds. Herrero filed a complaint for damages against
Citytrust Banking Corporation. Petitioner asserted that it was due to
private respondent's fault that her check were dishonored for she
inaccurately wrote her account number in the deposit slip. Upon trial, the
Regional Trial Court dismissed the complaint for lack of merit. Upon
appeal, the Court of Appeals reversed the decision of RTC.

Issue:
Whether or not Citytrust banking Corp. has the duty to
honor checks issued by Emme Herrero notwithstanding the
failure to accurately state her correct account number that
resulted to the dishonor of her checks due to insufficient funds
Held:
Yes. The Court held that even if it be true that there was error on
the part of the plaintiff in omitting a 'zero' in her account number, yet, it is
a fact that her name, “Emme E. Herrero”, is clearly written on the deposit
slip.This is controlling in determining in whose account the deposit is
made or should be posted. This is so because it is not likely to commit an
error in one's name than merely relying on numbers which are difficult to
remember. Furthermore, the use of numbers is simply for the convenience
of the bank but was never intended to disregard the real name of its
depositors. The bank is engaged in business impressed with public
interest, and it is its duty to protect in return its many clients and
depositors who transact business with it. It should not be a matter of the
bank alone receiving deposits, lending out money and collecting interests.
It is also its obligation to see to it that all funds invested with it are
properly accounted for and duly posted in its ledgers.
40 - Citytrust Banking Corporation v. Intermediate Appellate
Court
G.R. No. 84281. May 27, 1994
Vitug, J.

Doctrine:
Even there was error on the account number the controlling in
determining in whose account the deposit is name of the account owner.
This is so because it is not likely to commit an error in one’s name than
merely relying on numbers which are difficult to remember. Numbers are
for the convenience of the bank but was never intended to disregard the
real name of its depositors. The bank is engaged in business impressed
with public trust, and it is its duty to protect in return its clients and
depositors who transact business with it.

Facts:
Emme Herrero, businesswoman, made regular deposits with
Citytrust Banking Corporation. She deposited the amount of P31, 500 in
order to amply cover 6 post dated checks she issued. When presented for
encashment upon maturity, all the checks were dishonored due to
insufficiency of funds. Herrero filed a complaint for damages against
Citytrust Banking Corporation. Petitioner asserted that it was due to
private respondent's fault that her check were dishonored for she
inaccurately wrote her account number in the deposit slip. Upon trial, the
Regional Trial Court dismissed the complaint for lack of merit. Upon
appeal, the Court of Appeals reversed the decision of RTC.

Issue:
Whether or not Citytrust banking Corp. has the duty to
honor checks issued by Emme Herrero notwithstanding the
failure to accurately state her correct account number that
resulted to the dishonor of her checks due to insufficient funds
Held:
Yes. The Court held that even if it be true that there was error on
the part of the plaintiff in omitting a 'zero' in her account number, yet, it is
a fact that her name, “Emme E. Herrero”, is clearly written on the deposit
slip.This is controlling in determining in whose account the deposit is
made or should be posted. This is so because it is not likely to commit an
error in one's name than merely relying on numbers which are difficult to
remember. Furthermore, the use of numbers is simply for the convenience
of the bank but was never intended to disregard the real name of its
depositors. The bank is engaged in business impressed with public
interest, and it is its duty to protect in return its many clients and
depositors who transact business with it. It should not be a matter of the
bank alone receiving deposits, lending out money and collecting interests.
It is also its obligation to see to it that all funds invested with it are
properly accounted for and duly posted in its ledgers.
Tan v. CA
G.R. No. 108555 . December 20, 1994
Kapunan, J.

Doctrine:
A cashier's check is a primary obligation of the issuing bank and
accepted in advance by its mere issuance. By its very nature, a cashier's
check is the bank's order to pay drawn upon itself, committing in
effect its total resources, integrity and honor behind the check. A cashier's
check by its peculiar character and general use in the commercial world is
regarded substantially to be as good as the money which it represents.

Facts:
Petitioner Ramon Tan, a trader-businessman and community leader
in Puerto Princesa, had maintained since 1976 a current account with
respondent bank's Binondo branch. On March 11, 1988, to avoid
carrying cash while en route to Manila, he secured a Cashier's Check from
the Philippine Commercial Industrial Bank (PCIB), Puerto Princesa branch,
in the amount of Thirty Thousand (P30,000.00) Pesos, payable to his order.
He deposited the check in his account with RCBC Binondo on March 15.
On the same day, RCBC erroneously sent the same cashier's
check for clearing to the Central Bank which was returned for having
been "missent" or "misrouted." The next day, March 16, RCBC debited
the amount covered by the same cashier's check from the account of
the petitioner. Respondent bank at this time had not informed the
petitioner of its action which the latter claims he learned of only 42 days
after, specifically on March 16, when he received the bank's debit
memo. Relying on the common knowledge that a cashier's check was
as good as cash, that the usual banking practice that local checks are
cleared within three (3). working days and regional checks within seven (7)
working days, and the fact that the cashier's check was accepted,
petitioner issued two (2) personal checks which were returned for
insufficiency of funds.
Petitioner contended that RCBC had been remiss in the
performance of its obligation to the petitioner when it "missent" the
cashier's check. In its defense, RCBC alleged that it was merely acting as
petitioner's collecting agent and it assumed no responsibility beyond care
in selecting correspondents under the theory that where a check is
deposited with a collecting bank the relationship created is that of agency
and not creditor-debtor, thus it cannot be liable.

Issue: Whether or not respondent bank is free from liability. NO.

Ruling:
The respondent bank cannot exculpate itself from liability by claiming
that its depositor "impliedly instructed" the bank to clear his check with the
Central Bank by Elling a local check deposit slip.
RCBC insists that immediate payment without awaiting clearance
of a cashier's check is discretionary with the bank to whom the check
is presented and such being the case, its refusal to immediately pay the
cashier's check in this case is not to be equated with negligence on its
part. We find this disturbing and unfortunate.
An ordinary check is not a mere undertaking to pay an amount of
money. There is an element of certainty or assurance that it will be paid upon
presentation that is why it is. perceived as a convenient substitute for
currency in commercial and financial transactions. The basis of the
perception being confidence. Any practice that destroys that confidence will
impair the usefulness of the check as a currency substitute and create havoc
in trade circles and the banking community.
What was presented was a cashier´s check payable to the account of
the depositor himself. A cashier's check is a primary obligation of the issuing
bank and accepted in advance by its mere issuance. By its very nature, a
cashier's check is the bank's order to pay drawn upon itself,
committing in effect its total resources, integrity and honor behind the
check. A cashier's check by its peculiar character and general use in the
commercial world is regarded substantially to be as good as the money
which it represents. In this case, therefore, PCIB by issuing the check created
an unconditional credit in favor of any collecting bank.
Papa v. A.U. Valencia
G.R. No. 105188 . January 23, 1998
Kapunan, J.

Doctrine:
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. If no presentment is made at all, the
drawer cannot be held liable irrespective of loss or injury unless presentment
is otherwise excused.

Facts:
In June 1982, private respondents A.U. Valencia and Co., Inc. and Felix
Peñarroyo, filed with the Regional Trial Court of Pasig, Branch 151, a
complaint for specific performance against petitioner Myron C. Papa, in his
capacity as administrator of the Testate Estate of one Angela M. Butte.
The complaint alleged that on 15 June 1973, petitioner Myron C. Papa,
acting as attorney-in-fact of Angela M. Butte, sold to respondent Peñarroyo,
through respondent Valencia, a parcel of land; that prior to the alleged sale,
the said property, together with several other parcels of land likewise owned
by Angela M. Butte, had been mortgaged by her to the Associated Banking
Corporation. Complaint further alleged that it was only upon the release of
the title to the property, sometime in April 1977, that respondents Valencia
and Peñarroyo discovered that the mortgage rights of the bank had been
assigned to one Tomas L. Parpana (now deceased), as special administrator of
the Estate of Ramon Papa. Jr., on 12 April 1977; that since then, herein
petitioner had been collecting monthly rentals in the amount of P800.00 from
the tenants of the property, knowing that said property had already been sold
to private respondents on 15 June 1973; that despite repeated demands from
said respondents, petitioner refused and failed to deliver the title to the
property.
Petitioner alleged among others that the sale was never
"consummated" as he did not encash the check (in the amount of
P40,000.00) given by respondents Valencia and Peñarroyo in payment of the
full purchase price of the subject lot. He maintained that what said
respondents had actually paid was only the amount of P5,000.00 (in cash) as
earnest
money.

Issue: Whether or not the sale was consummated despite failure to encash
check. YES.

Ruling:
Granting that petitioner 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 Art. 1249 of the Civil Code, the
rule is otherwise if the debtor is
prejudiced by the creditor's 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. It has, likewise, been held that if no
presentment is made at all, the drawer cannot be held liable irrespective of
loss or injury unless presentment is otherwise excused. This is in harmony
with Article 1249 of the Civil Code under which payment by way of check or
other negotiable instrument is conditioned on its being cashed, except when
through the fault of the creditor, the instrument is impaired. The payee of a
check would be a creditor under this provision and if its non-payment is
caused by his negligence, payment will be deemed effected and the
obligation for which the check was given as conditional payment will be
discharged.
ALLIED BANKING CORPORATION v. CA
G.R. No. 125851, July 11, 2006
Quisumbing, J.

DOCTRINE:
The contract of indorsement is primarily that of transfer, while the contract
of guaranty is that of personal security. The liability of a guarantor/ surety is
broader than that of an indorser. Unless the bill is promptly presented for
payment at maturity and due notice of dishonor given to the indorser within
a reasonable time, he will be discharged from liability thereon; on the other
hand, except where required by the provisions of the contract of suretyship,
demand or notice of default is not required to fix the surety’s liability.

FACTS:
Allied Bank purchased an export bill in the amount of USD 20,085.00 from
respondent G.G. Sportswear Mfg Corporation (GGS). The bill was drawn
under a letter of credit covering Men’s Valvoline Training Suit, and said bill
was issued by Chekiang First Bank Ltd., Hong Kong. With the purchase of the
bill, Allied Bank credited GGS the peso equivalent of the said amount. Upon
acknowledgment of the receipt of the money, the other respondents
executed their respective letters of guaranty and surety, guaranteeing
payment of any and all such credit accommodations which Allied Bank may
extend GGS.

When Allied negotiated the bill to Chekiang, payment was refused by the
latter. Allied thus demanded payment from the respondents, based on said
letters of guaranty and surety. Their refusal to pay prompted Allied to file an
action for sum of money. The respondents, pointing to the fact that Allied
failed to protest the dishonor of the export bill, asserted that they were
discharged from liability as indorsers of the instrument under Sec. 152 of the
Negotiable Instruments Law.

ISSUE:
Whether or not respondents as guarantors and surety can be held solidarily
liable in the absence of protest on the bill in accordance with Sec. 152 of the
NIL.

RULING:
YES. Section 152 is not pertinent to this case. There are well-defined
distinctions between the contract of an indorser and that of a guarantor/
surety of a commercial paper, as in this case. The contract of indorsement is
primarily that of transfer, while the contract of guaranty is that of personal
security. The liability of a guarantor/ surety is broader than that of an
indorser. Unless the bill is promptly presented for payment at maturity and
due notice of dishonor given to the indorser within a reasonable time, he will
be discharged from liability thereon. On the other hand, except where
required by the provisions of the contract of suretyship, demand or notice of
default is not required to fix the surety’s liability. No protest on the export bill
is necessary to charge all the respondents jointly and severally liable with
GGS since the respondents held themselves liable upon demand in case the
instrument was dishonored and on the surety, they even waived notice of
dishonor as stipulated in their Letters of Guaranty.
SINCERE VILLANUEVA v. MARLYN NITE
G.R. No. 148211, July 25, 2006
Corona, J.

DOCTRINE:
If a bank refuses to pay a check, the payee-holder cannot sue the bank. The
payee should instead sue the drawer who might in turn sue the bank. No
privity of contract exists between the drawee-bank and the payee.

FACTS:
Marlyn Nite allegedly loaned P409,000 from Sincere Villanueva. To secure the
loan, the former issued an Asian Banking Corporation check in the amount of
P325,000. The date of the check was changed from February 8 to June 8,
1994 with the consent and concurrence of petitioner. However, it was
dishonored due to material alteration when petitioner presented it on due
date.

On August 24, respondent through representative remitted P235,000 as

partial payment to petitioner, with the agreement that the balance was due
on or before December 8. Also on August 24, however, petitioner sued ABC
for the full amount of the dishonored check. RTC ruled in favor of petitioner,
and ABC in compliance with the RTC ruling remitted to the sheriff a
manager’s check drawn on respondent’s account. Respondent thus filed a
petition before the CA seeking to have the RTC ruling annulled. CA granted
the petition on the basis of extrinsic fraud, the respondent having been
prevented from having a trial or or presenting her case to the court.

ISSUE:
Whether or not respondent should have been impleaded in the action for
sum of money.

RULING:
YES. Citing Sec. 189 of the Negotiable Instruments Law, the Supreme Court
held that if a bank refuses to pay a check notwithstanding the sufficiency of
funds, the payee-holder cannot sue the bank. The payee should instead sue
the drawer who might in turn sue the bank. Section 189 is based on logic and
established legal principle: no privity of contract exists between the drawee-
bank and the payee. In this case, there was no such privity between ABC and
petitioner. The contract of loan was between petitioner and respondent. No
collection suit could prosper without the respondent who was an
indispensable party.
BPI v. CIR
G.R. No. 137002, July 27, 2006
Chico-Nazario, J.

DOCTRINE:
In a bill of exchange, the funds may belong to the drawer and need not be
advanced by the drawee, as in the case of a check or a draft. A draft is a
form of a bill of exchange used mainly in transactions between persons
physically remote from each other. It is an order made by one person, e.g.
buyer, addressed to a person having in his possession funds of such buyer
ordering the addressee to pay the purchase price to the seller of the goods.

FACTS:
BPI sold to Central Bank (now BSP) US dollars for P1,608,541,900.00. BPI
instructed, by cable, its correspondent bank in New York to transfer US
dollars in the BPI account to the Central Bank’s account with the Federal
Reserve Bank also in New York. During this period, the Central Bank enjoyed
tax exemption privileges. However, PD No. 1994 amended the National
Internal Revenue Code by adding that whenever one party to the taxable
document enjoys exemption from the tax herein imposed, the other party
thereto who is not exempt shall be the one directly liable for the tax.

Pursuant to this provision, the CIR ordered an investigation to be made on

BPI’s sale of foreign currency. BPI was subsequently assessed a total tax
liability of P3,016,316.06, which mainly consisted of documentary stamp tax
liability. Disputing the assessment, BPI filed a petition for review before the
CTA. The CTA however held BPI liable for the tax. The CA affirmed, ruling that
the documentary stamp tax under Sec. 195 (now 182) of the NIRC is not
limited only to foreign bills of exchange and letters of credit but also includes
the orders made by telegraph or by any other means of payment of money
made by any person drawn in but payable out of the Philippines. The court
referred to Sec. 51 of Revenue Regulation No. 26 in interpreting the
documentary stamp tax provisions.

BPI argues among others that since the funds transferred to the Federal
Reserve Bank were taken from the BPI’s account with the correspondent
bank, this is not the transaction contemplated under Sec. 51, which uses the
phrase “with which local bank has credit.” BPI argues that Sec. 51 involves
only transactions wherein the drawee bank pays with its own funds, and
excludes from the coverage of the law situations where in the funds paid out
by correspondent bank are owned by the drawer.

ISSUE:
Whether or not BPI’s subject transactions may be considered as bill of
exchange falling within the purview of the documentary stamp tax
provisions.
RULING:
YES. That the funds belong to BPI and were not advanced by the
correspondent bank will not remove the transaction from the coverage of
Sec. 195 or the NIRC. There are transactions covered by this section wherein
funds belonging to the drawer are used for payment. A bill of exchange,
when drawn in the Philippines but payable in another country, is covered by
this section. In case of a bill of exchange, the funds may belong to the
drawer and need not be advanced by the drawee, as in the case of a check
or a draft. A draft is a form of bill pf exchange used mainly in transactions
between persons physically remote from each other. It is an order made by
one person, e.g. buyer, addressed to a person having in his possession funds
of such buyer ordering the addressee to pay the purchase price to the seller
of the goods. Where the order is made by one bank to another, it is referred
to as a bank draft.
Citibank v. Sabeniano
G.R. No. 156132 . October 16, 2006
Chico- Nazario, J.

Doctrine: As a general rule, one who pleads payment has the burden of
proving it. Even where the plaintiff must allege non-payment, the general rule
is that the burden rests on the. defendant to prove payment, rather than on
the plaintiff to prove non-payment. The debtor has the burden of showing
with legal certainty that the obligation has been discharged by payment.
Where the debtor introduces some evidence of payment, the burden of going
forward with the evidence — as distinct from the general burden of proof —
shifts to the
creditor, who is then under the duty of producing some evidence of non-
payment.

Facts:

Respondent Modesta R. Sabeniano was a client of both petitioners

Citibank and FNCB Finance. Regrettably, the business relations among the
parties subsequently went awry.Respondent claimed to have substantial
deposits and money market placements with the petitioners, as well as
money market placements with the Ayala Investment and Development
Corporation (AIDC), the proceeds of which were supposedly deposited
automatically and directly to respondent's accounts with petitioner Citibank.
Respondent alleged that petitioners refused to return her deposits and the
proceeds of her money market placements despite her repeated demands,
Petitiioners alleged that when respondent failed to pay her loans
despite repeated demands by petitioner Citibank, the latter exercised its right
to off-set or compensate respondent's outstanding loans with her deposits
and money market placements, pursuant to the Declaration of Pledge and the
Deeds of Assignment executed by respondent in its favor.
Petitioner Citibank did not deny the existence nor questioned the
authenticity of PNs No. 23356 and 23357 it issued in favor of respondent for
her money market placements. In fact, it admitted the genuineness and due
execution of the said PNs, but qualified that they were no longer outstanding.

Issue:

Whether or not petitioners are liable to return the foregoing amounts,

together with the appropriate interests and penalties, to respondent. YES

Ruling:

Since the genuineness and due execution of PNs No. 23356 and
23357 are uncontested, respondent was able to establish prima facie
that petitioner Citibank is liable to her for the amounts stated therein.
The assertion of petitioner Citibank of payment of the said PNs is an
affirmative allegation of a new matter, the burden of proof as to such
resting on petitioner Citibank. Respondent having proved the existence of the
obligation, the burden of proof was upon petitioner Citibank to show that it
had been discharged.
As a general rule, one who pleads payment has the burden of proving
it. Even where the plaintiff must allege non-payment, the general rule is that
the burden rests on the. defendant to prove payment, rather than on the
plaintiff to prove non-payment. The debtor has the burden of showing with
legal certainty that the obligation has been discharged by. payment.
Reviewing the evidence on record, this Court finds that petitioner
Citibank failed to satisfactorily prove that PNs No. 23356 and 23357 had
already been paid, and that the amount so paid was actually used to open
one of respondent's TD accounts with petitioner Citibank. The Court is
reluctant to give much weight to the testimonies provided by the petitioner
as there was substantial length of time between transactions and the
witnesses’ testimonies.
EPCI Bank v. Ong
G.R. No. 156207 . September 15, 2006
Chico-Nazario, J.

Doctrine:
A Manager’s Check is a bill of exchange drawn by the cashier of a bank upon
the bank itself, and accepted in advance by the act of its issuance. It is really
the bank's own check and may be treated as a promissory note with the bank
as a maker. The check becomes the primary obligation of the bank which
issues it and constitutes its written promise to pay upon demand. The mere
issuance of it is considered an acceptance thereof.

Facts:
On 29 November 1991, Warliza Sarande deposited in her account at
PCI Bank- Davao Check No. 0249188 in the amount of P225,000.00. Upon
inquiry by Serande at PCI Bank on 5 December 1991 on whether check had
been cleared, she received an affirmative answer. Relying on this assurance,
she issued two checks drawn against the proceeds of the check. One of these
was PCI Bank Check No. 073661 dated 5 December 1991 for P132,000.00
which Sarande issued to respondent Rowena Ong, owing to a business
transaction. On the same day, Ong presented to PCI Bank Magsaysay Avenue
Branch said Check No. 073661, and instead of encashing it, requested PCI
Bank to convert the proceeds thereof into a manager's check, which the PCI
Bank obliged.
The next day, 6 December 1991, Ong deposited PCI Bank Manager's
Check in her account with Equitable Banking Corporation Davao City Branch.
On 9 December 1991,she received a check return-slip informing her that PCI
Bank had stopped the payment of the said check on the ground of irregular
issuance. She was in informed that the account from which it was drawn had
already been closed resulted in a failure or want of consideration for the
issuance of PCI Bank Manager's Check.
Petitioner contends that Ong is not a holder in due course because the
manager's check was drawn against a closed account; therefore, the same
was issued without consideration.

Issue: Whether or not respondent Ong is a party liable for payment. NO.

Ruling:
Having cleared the check earlier, PCI Bank, therefore, became liable to
Ong and it cannot allege want or failure of consideration between it and
Sarande. Under settled jurisprudence, Ong is a stranger as regards the
transaction between PCI Bank and Sarande.
A manager's check is one drawn by the bank's manager upon the bank
itself. It is
similar to a cashier's check both as to effect and use. A cashier's check is a
check of the bank's cashier on his own or another check. In effect, it is a bill
of exchange drawn by the cashier of a bank upon the bank itself, and
accepted in advance by the act of its issuance. It is really the bank's own
check and may be treated as a promissory note with the bank as a maker.
The check becomes the primary obligation of the bank which issues it and
constitutes its written promise to pay upon demand. The mere issuance of it
is considered an acceptance thereof.
By accepting PCI Bank Check No. 073661 issued by Sarande to Ong
and issuing in turn a manager's check in exchange thereof, PCI Bank
assumed the liabilities of an acceptor.
International Corporate Bank v. CA
G.R. No. 129910 . September 5, 2006
Carprio, J.

Doctrine:
The 24-hour clearing time does not apply when there are no material
alterations on the checks. An alteration is said to be material if it alters the
effect of the instrument. It means an unauthorized change in an instrument
that purports to modify in any respect the obligation of a party or an
unauthorized addition of words or numbers or other change to an incomplete
instrument relating to the obligation of a party.

Facts:
The Ministry of Education and Culture issued 15 checks 55 drawn
against respondent which petitioner accepted for deposit on various dates.
After 24 hours from submission of the checks to respondent for clearing,
petitioner paid the value of the checks and allowed the withdrawals of the
deposits. However, on 14 October 1981, respondent returned all the checks
to petitioner without clearing them on the ground that it serial numbers were
materially altered. Thus, petitioner instituted an action for collection of sums
of money against respondent to recover the value of the checks.
The trial court ruled that respondent is expected to use reasonable
business practices in accepting and paying the checks presented to it. Thus,
respondent cannot be faulted for the delay in clearing the checks considering
the ingenuity in which the alterations were effected.
The Court of Appeals reversed the trial court's Decision and held that
checks that have been materially altered shall be returned within 24 hours
after discovery of the alteration although the return would not relieve the
drawee bank from any liability for its failure to return the checks within the
24-hour clearing period.

Issue: Whether or not the checks were materially altered. NO.

Ruling:
In Philippine National Bank v. Court of Appeals, the Court ruled that
the alteration on the serial number of a check is not a material alteration.
An alteration is said to be material if it alters the effect of the
instrument. It means an unauthorized change in an instrument that purports
to modify in any respect the obligation of a party or an unauthorized addition
of words or numbers or other change to an incomplete instrument relating to
the obligation of a party.
Since there were no material alterations on the checks, respondent as
drawee bank has no right to dishonor them and return them to petitioner, the
collecting bank. Thus, respondent is liable to petitioner for the value of the
checks, with legal interest from the time of filing of the complaint on 16
March 1982 until full payment.
Gonzales vs. Rizal Commercial Banking Corporation

G.R. No. 156294. November 29, 2006

GARCIA, J.:

Facts:

Gonzales was an employee of Rizal Commercial Banking Corp. (RCBC) as a “new accounts
clerk”. A foreign check in the amount of $7,500 was drawn by a Dr. Don Zapanta of the Ade
Medeical Group from 569 Western Avenue, Los Angeles, California, drawn against the drawee
bank Wilshire Center Bank, payable to Gonzales’ mother, defendant-Eva Alviar. Alviar endorsed
the check. Gonzales presented the foreign check to Olivia Gomez, the RCBC head of retail
banking, who requested Gonzales to indorse the check which Gonzales did. Olivia Gomez
allowed the encashment of the check, but indicated her authority of “up to 17,500 PHP only” on
the check. Gomez directed Gonzales to present the check to RCBC employee Carlos Ramos to
procure his signature, which Ramos did, signing the check with an “ok” annotation. Gonzales
then presented the check to Rolando Zornosa, Supervisor of the Remittance Section of the
Foreign Department of RCBC, who authorized the encashment of the check of the amount of
155,270.85 PHP. RCBC sought to collect the amount of the check from the drawee bank through
its correspondent bank, First Interstate Bank of California, but dishonoured the check because of
the an irregular indorsement thereon the check, and was later on subsequently denied due to
“account closed”. RCBC then demanded from Gonzales the payment of the peso amount of the
check, which Gonzales settled the matter through salary deductions, but Gonzales resigned from
RCBC after 10 months. RCBC sent a demand letter to Alviar, but the latter did not reply. Thus
RCBC filed a suit against Eva Alviar, petitioner Melva Theresa Alviar-Gonzales, and her
husband Gino Gonzales. The Regional Trial Court found the 3 defendants liable . The Court of
Appeals affirmed the trial court. Defendants argue that the CA erred in the signature of Gomez,
an RCBC employee does not constitute as an endorsement but only as an inter-bank approval of
signature necessary for the encashment of the check.

Issue:

Whether the defendants are liable?

Ruling:

No.

The foreign drawee bank had dishonoured the check drawn by Dr. Don Zapanta because of an
irregular indorsement caused by Olivia Gomez, and RCBC employee, using the phrase “up to
17,500 PHP only”. The Court finds that the foreign drawee bank would not have dishonoured the
check if it weren’t for defect introduced by respondent-RCBC, through its employee Olivia
Gomez. A subsequent party which caused a defect in the instrument cannot have any recourse
against prior indorsers in good faith. Eva Alviar and petitioner-Gonzales’s liability is governed
by Sec. 66 of the Negotiable Instrument Law as a general indorser. Under the Sec. 66, the
warranties for which Alviar and Gonzales are liable as general endorsers, in favour of subsequent
indorsers, extend only to the state of the instrument at the time of their indorsements, that the
instrument is genuine and in all respects it purports to be; that all prior parties had capacity to
contract; at that the instrument, at the time of their endorsements, is valid and subsisting. Such
provision, Sec. 66, cannot be used by a party who has introduced a defect upon the instrument, as
did respondent RCBC in the present case. Furthermore, Section 66, must be read in light of the
rule that the holder or subsequent endorser who tries to claim under the instrument which had
been dishonoured due to irregular indorsement must not be the irregular indorser himself who
gave the cause for the dishonour of the instrument. Thus RCBC, which caused the dishonour of
the check due to the irregular indorsement made by its employee, cannot hold prior endorsers
liable on the instrument. Furthermore, the Court orders that RCBC return the amounts of salary
deductions from Gonzales, being a rank-and-file employee of RCBC, the Court finds the
vulnerability of Gonzales who is financially dependent upon RCBC, such circumstances amount
to the acquiescence to salary deductions as a free and voluntary act.
Macalalag vs. People of the Philippines

G.R. No. 164358.

December 20, 2006.

Facts:

On July 30, 1995 and on October 16, 1995, petitioner Theresa Macalalag obtained loans from Grace
Estrella, each loan in the amount of 100,000 PHP, each bearing an interest rate of 10% per month.
Macalalag paid the interests starting August 30, 1995. Finding the payments as too burdensome,
Macalalag requested for a reduction from Estrella. They executed an Acknowledgement/Affirmation
Receipt on April 16, 1996 and May 1, 1996, respectively, where on the receipts, Macalalag promised to
pay Estrella the face value of the loans, totalling 200,000 PHP within two months from the date of its
execution plus 6% interest per month for each loan. As security for the payment of the loans, Macalalag
issued two Philippine National Bank Checks on June 30, 1996, each in the amount of 100,000 PHP in
favour of Estrella. However, when Estrella presented the checks for payment with the drawee bank, the
checks were dishonoured, as the account which the checks were drawn against had already been closed.
Estrella sent a notice to Macalalag, demanding that she make good the said checks. Macalalag failed to do
so. Estrella filed 2 criminal complaints for violation of BP22. The Municipal Trial Court in Cities of
Bacolod found Macalalag guilty, which the RTC affirmed in toto. The Court of Appeals modified the
decisions of the trial courts and only found Macalalag guilty of 1 count of violation of BP 22, and struck
down the unconscionable interest rate of 10% which even if lowered to 6% per month, was still found to
be unconscionable as held by jurisprudence in Medel v. Court of Appeals, thus the Court of Appeals still
found Macalalag guilty, but reduced the interest rate to 12% per annum plus 1% per month penalty charge
as liquidated damages on each loan. Macalalag argues that she should not even be convicted of even one
count of violation of BP 22, claiming that the payment of the accounts before the checks became due and
demandable and before the checks are presented for payment would exempt her from violation of BP 22
because she had already made payments of 355,837.98 PHP, paying 156,000 PHP before the checks were
presented for payment, including payment amounting to 199,837.98 made during the pendency of the
case. Macalalag also argues that redeemable value of the check is limited to only its face value and does
not include interest, and that the partial redemption of the check will exempt her from criminal liability
from violating BP 22. Macalalag claiming to have paid the obligation to the amount of 156,000 PHP
before the checks were presented for payment, argues that the 100,000PHP of the payment should be
applied to the first check’s redemption, and the remaining 56,000 PHP be a partial redemption of the
second check, thus exempting her from criminal liability.

Issue:

Whether Macalalag is guilty of violating BP 22.

Ruling:

Yes. Although payment by the accused of the amount of the checks issued as a security for a loan before
the subject checks were presented for payment would exempt the accused from liability from violating BP
22, accused Macalalag, in paying 156,000 PHP before Estrella had presented for payment the said checks,
the payment still falls short in covering the 2nd outstanding loan, where the first 100,000 PHP will be
applied to the first loan, leaving 56,000 to insufficiently cover the second existing loan. Only a full
payment of the face value of the second check at the time of presentment or during the 5 day grace period
given by the law could exempt Macalalag from incurring criminal liability. Macalalag’s subsequent
payment of 199,837.98 during the pendency of the cases before her in the MTCC of Bacolod would not
free her from criminal liability as the same had already attached after the checks were dishonoured and
the same were not subsequently paid. Such subsequent payments could only affect her civil liability. The
gravamen of BP 22 is the issuance of a worthless check, not the non-payment of an obligation. The
elements being: i) the accused makes, draws, or issues a check to apply to account or for value; ii) the
accused knows at the time of issuance that they don’t have sufficient funds in the drawee bank for the
payment of the full value of the check upon presentment; iii) the check is subsequently dishonoured for
insufficiency of funds, or it would have been dishonoured for the same reason had not the drawer, without
any valid reason, ordered the bank to stop payment. Thus all the elements being present, Macalalag’s
criminal liability attached the moment she failed to make good the value of the checks within the grace
period allowed by the law.
BPI v. CA
G.R. No. 136202 . January 25, 2007
Azcuna, J.

Doctrine:
Mere possession of a negotiable instrument does not in itself
conclusively establish either the right of the possessor to receive payment, or
of the right of one who has made payment to be discharged from liability.
Thus, something more than mere possession by persons who are not payees
or indorsers of the instrument is necessary to authorize payment to them in
the absence of any other facts from which the authority to receive payment
may be inferred.
Delay in the demand for reimbursement, taken in conjunction with
possession of checks does not give rise to the presumption of ownership.

Facts:
A.A. Salazar Construction and Engineering Services filed an action for a
sum of money with damages against herein petitioner Bank of the Philippine
Islands (BPI) on December 5, 1991. The complaint was later amended by
substituting the name of Annabelle A. Salazar as the real party in interest in
place of A.A. Salazar Construction and Engineering Services. Private
respondent Salazar prayed for the recovery of the amount of Two Hundred
Sixty-Seven Thousand, Seven Hundred Seven Pesos and Seventy Centavos
(P267,707.70) debited by petitioner BPI from her account.
Petitioner BPI, in its answer, alleged that on August 31, 1991, Julio R.
Templonuevo, third-party defendant and herein also a private respondent,
demanded from the former payment of the amount of Two Hundred Sixty-
Seven Thousand, Six Hundred Ninety-Two Pesos and Fifty Centavos
(P267,692.50) representing the aggregate value of three (3) checks, which
were allegedly payable to him, but which were deposited with the petitioner
bank to private respondent Salazar's account without his knowledge and
corresponding endorsement.
Accepting that Templonuevo's claim was a valid one, petitioner BPI
froze A.A. Salazar and Construction and Engineering Services´account,
instead of the account where the checks were deposited, since this account
was already closed by private respondent Salazar or had an insufficient
balance

Issue: Whether or not there was transfer of ownership of checks between

Salazar and Templonuevo. NO.

Ruling:
The records do not support that a prior arrangement existed between
Salazar and Templonuevo regarding the transfer of ownership of the checks.
This fact is crucial as Salazar's entitlement to the value of the instruments is
based on the assumption that she is a transferee within the contemplation of
Section 49 of the Negotiable Instruments Law.
Transaction is an equitable assignment and the transferee acquires the
instrument subject to defenses and equities available among prior parties.
Thus, if the transferor had legal title, the transferee acquires such title and, in
addition, the right to have the indorsement of the transferor and also the
right, as holder of the legal title, to maintain legal action against the maker or
acceptor or other party liable to the transferor. The underlying premise of this
provision, however, is that a valid transfer of ownership of the negotiable
instrument in question has taken place.
Transferees in this situation do not enjoy the presumption of ownership
in favor of holders since they are neither payees nor indorsees of such
instruments. The weight of authority is that the mere possession of a
negotiable instrument does not in itself conclusively establish either the right
of the possessor to receive payment, or of the right of one who has made
payment to be discharged from liability. Thus, something more than mere
possession by persons who are not payees or indorsers of the instrument is
necessary to authorize payment to them in the absence of any other facts
from which the authority to receive payment may be inferred.
The CA and the trial court surmised that the subject checks belonged
to private
respondent Salazar based on the pre-trial stipulation that Templonuevo
incurred a one-year delay in demanding reimbursement for the proceeds of
the same. To the Court's mind,
however, such period of delay is not of such unreasonable length as to estop
Templonuevo from asserting ownership over the checks especially
considering that it was readily
apparent on the face of the instruments that these were crossed checks.
In State Investment House v. IAC, the Court enumerated the effects of
crossing a check, thus: (1) that the check may not be encashed but only
deposited in the bank; (2) that the check may be negotiated only once — to
one who has an account with a bank; and (3) that the act of crossing the
check serves as a warning to the holder that the check has been
issued for a definite purpose so that such holder must inquire if the check has
been
received pursuant to that purpose.
Thus, even if the delay in the demand for reimbursement is taken in
conjunction with
Salazar's possession of the checks, it cannot be said that the presumption of
ownership in Templonuevo's favor as the designated payee therein was
sufficiently overcome. This is
consistent with the principle that if instruments payable to named payees or
to their order
have not been indorsed in blank, only such payees or their indorsees can be
holders and
entitled to receive payment in their own right.