NEGOTIABLE INSTRUMENTS LAW finals -CASE COMPILATION

SBCA-SOL-MAGHIRANG MCL

1. SADAYA VS SEVILLA
FACTS:
March 28, 1949: Victor Sevilla, Oscar Varona and Simeon Sadaya executed, jointly and severally, in favor of the BPI,
or its order, a promissory note for P15,000.00 with interest at 8% per annum, payable on demand. The P15,000.00
proceeds was received by Oscar Varona alone. Victor Sevilla and Simeon Sadaya signed the promissory note as co-
makers only as a favor to Oscar Varona. On June 15, 1950: outstanding balance is P4,850.00. No payment thereafter
made. On Oct 16 1952: bank collected from Sadaya total of P5,416.12(w/ int). Varona failed to reimburse Sadaya
despite repeated demands. Victor Sevilla died Francisco Sevilla was named administrator. Sadaya filed a creditor's
claim for the above sum of P5,746.12, plus attorneys fees in the sum of P1,500.00. The administrator resisted the
claim upon the averment that the deceased Victor Sevilla "did not receive any amount as consideration for the
promissory note," but signed it only "as surety for Oscar Varona. On June 5, 1957: Trial court order the administrator
to pay however, CA reversed.

ISSUE: W/N Sadaya can claim against the estate of Sevilla as co-accomodation party when Verona as principal debtor is not yet
insolvent

HELD: NO. Affirmed

Varona is bound by the obligation to reimburse Sadaya A solidary accommodation maker is one who made payment
— has the right to contribution, from his co-accommodation maker, in the absence of agreement to the contrary
between them, and subject to conditions imposed by law. Requisites before one accommodation maker can seek
reimbursement from a co-accommodation maker:
ART. 2073. When there are two or more guarantors of the same debtor and for the same debt, the one among them who has
paid may demand of each of the others the share which is proportionally owing from him.
If any of the guarantors should be insolvent, his share shall be borne by the others, including the payer, in the same
proportion.
(1) 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;
(2) a joint and several accommodation maker who pays on the said promissory note may directly demand reimbursement
from his co-accommodation maker without first directing his action against the principal debtor provided that
(a) he made the payment by virtue of a judicial demand, or -no judicial demand just voluntarily
(b) a principal debtor is insolvent. - Varona is not insolvent

DOCTRINE:
On principle, a solidary accommodation maker—whomade payment—has the right to contribution, from his co-
accomodation maker, in the absence of agreement to the contrary between them, subject to conditions imposed by law.
This right springs from an implied promise to share equally the burdens thay may ensue from their having
consented to stamp their signatures on the promissory note.

2. CRISOLOGO JOSE VS CA

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

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

DOCTRINE:
The provision of NIL which holds an accommodation party liable on the instrument to holder for value, although such
holder at the time of taking the instrument knew him to be only an accommodation party, does not include nor apply to
corporations which are accommodation parties. This is because the issue or indorsement of negotiable paper by a
corporation without consideration and for accommodation of another is ultra vires. Hence, one who has taken the
instrument with knowledge of the accommodation nature thereof cannot recover against a corporation where it is only a
accommodation party.

3. STELCO MARKETING VS. COURT OF APPEALS

FACTS:
Petitioner Stelco Marketing Corp (Stelco) is engaged in the distribution and sale to the public of structural steel bars. It
sold on 7 occasions quantities of steel bars and rolls of G.I sheets with an aggregate amount of P126,859.61 to RYL
Construction, Inc. (RYL). Despite the parties’ agreement that payment would be on CODbasis, RYL never paid upon delivery
of the materials and despite insistent demands. One year later, RYL issued a check drawn against Metrobank toArmstrong
Industries, the sister company and manufacturing arm of Stelco, to the amount of its obligations to the latter. The
checkhowever was a company check of another corporation Steelweld Corporation of the Philippines (Steelweld) signed
by its President and Vice President. Said check was issued by the president of Steelweld at the request of the president of
RYL as an accommodation and “only as guaranty but not to pay for anything.”Armstrong subsequently deposited the check
but was dishonoured because it was DAIF*. It bore the endorsements of RYL andArmstrong. The latter filed a complaint
against the pres and vp of Steelweld for violation of BP22. The trial court acquitted the defendants noting that the checks
were not issued to apply on account for value, it being merely for accommodation purposes. However, the court did not
release Steelweld from its liabilities, relying on Sec 29 of the NIL for issuing a check for accommodation. Relying on the
previous decision and averring that it was a holder in due course, Stelco subsequently filed a complaint for recovery of the
value of the materials from RYL and Steelweld. However, RYL had already been dissolved leading the trial court to rule
against Steelweld and hold them liable. Steelweld appealed to the CA which reversed the decision of the RTC declaring
that STELCO was not a holder in due course and Steelweld was a stranger to the contract between STELCO and RYL.

ISSUE: Whether or not STELCO was a holder in due course

HELD: STELCO’s reliance on the RTC’s decision in the previous criminal case is misplaced. Although the RTC maintained
that Steelweld was liable for issuing a check for accommodation, the RTC did not specify to whom it was liable. Despite
the records showing that STELCO was in possession of the check, such possession does not give a presumption that the
holder is one for value. There was no evidence that STELCO had possession before the checks were presented and
dishonoured nor evidence that the checks were given to STELCO, indorsed to STELCO in any manner or form of payment.
Only after said checks were dishonoured were they acquired by STELCO. STELCO never became a holder for value since
nowhere in thecheck was STELCO identified as payee, indorsee, or depositor. Evidence shows that Armstrong was the
intended payee, that it was the injured party, and the proper party to bring the action.

DOCTRINE:
A person cannot be holder of the check for value if it does not meet the essential requisites prescribed by the law. He
must become the holder of it before it was overdue, and without notice that it had 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.
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4. TRAVEL-ON BPI VS. COURT OF APPEALS

FACTS:
Arturo S. Miranda had a revolving credit line with Travel-On. Inc. (Travel-On), a travel agency selling airline tickets on
commission basis for and in behalf of different airline companies. Miranda procured tickets from Travel-On on behalf of
airline passengers and derived commissions therefrom. On June 14 1972: Travel-On filed bef. the CFI to collect 6 checks
issued by Miranda totaling P115,000.00. On August 5 1969 - January 16 1970: Travel-On sold and delivered airline tickets
to Miranda w/ total price of P278,201.57. He paid in cash and 6 checks = P115,000 - all dishonored by the drawee banks
On
Travel-On's General Manager to show the BOD of Travel-On that their receivables were still good. Travel-On's witness,
Elita Montilla: related to situations where its passengers needed money in Hongkong, and upon request of Travel-On,
Miranda would contact his friends in Hongkong to advance Hongkong money to the passenger. CA affirmed CFI: ordered
Travel-On to pay Miranda P8,894.91 representing net overpayments by private respondent, moral damages of P10,000.00
(later increased to P50,000 by CFI and reduced by CA to P20,000) for the wrongful issuance of the writ of attachment and
for the filing of this case, P5,000.00 for attorney's fees and the costs of the suit - decision was because Travel-On did not
show that Miranda had an outstanding balance of P115,000.00

ISSUE: W/N Miranda is liable for the 6 dishonored checks because there was no accommodation.

HELD: YES. GRANT due course to the Petition for Review on Certiorari and to REVERSE and SET ASIDE the Decision of the

on its face is deemed prima facie to have been issued for a valuable consideration and every person whose signature

given or indorsed for a sufficient consideration unless otherwise contradicted and overcome by other competent evidence

struments Law does refer to accommodation transactions, no

such transaction was here shown
— An accommodation party is one who has signed the instrument as maker,
drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other
person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of taking
Having issued or indorsed the check, the accommodating
-On obviously
was not an accommodated party; it realized no value on the checks which bounced.

DOCTRINE:
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. Further the rule is quite settled
that a negotiable instrument is presumed to have been given or indorsed for a sufficient consideration unless otherwise
contradicted and overcome by another evidence.

In the accommodation transactions recognized by the NIL, an accommodating party lends his credit to the accommodated
party, by issuing or indorsing a check which is held by the payee or indorsee as a holder in due course, who gave full value
which the accommodated party must repay the accommodating party, unless of course the accommodating party
intended to make a donation to the accommodated party. But the accommodating party is bound on the check to the
holder in due course who is necessarily a third party and is not the accommodated party. Having issued or indorsed the
check, the accommodating party has warranted to the holder in due course that he will pay the same according to its
tenor.

5. BPI VS. CA 326 scra 641

FACTS:
A certain Henry Chan owned a Continental Bank Manager’s Check payable to "cash" in the amount of Two Thousand Five
Hundred Dollars ($2,500.00). Chan went to the office of Benjamin Napiza 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. Napiza thus endorsed the check and deposited it in a Foreign Currency Deposit Unit (FCDU) Savings
Account he maintained with BPI. Using the blank withdrawal slip given by private respondent to Chan, one Ruben Gayon,
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Jr. was able to withdraw the amount of $2,541.67 from Napiza's FCDU account. It turned out that said check deposited
by private respondent was a counterfeit check.

*When BPI demanded the return of $2,500.00, private respondent claimed that he deposited the check "for clearing
purposes" only to accommodate Chan.

**Petitioner claims that private respondent, having affixed his signature at the dorsal side of the check, should be liable
for the amount stated therein in accordance with the provision of the Negotiable Instruments Law on the liability of a
general indorser (Sec. 66).

ISSUE:*
Whether private respondent is obliged to return the money paid out by BPI on a counterfeit check even if he deposited
the check "for clearing purposes" only to accommodate Chan.

ISSUE:**
Whether or not respondent Napiza is liable under his warranties as a general indorser.

RULING:
Ordinarily private respondent may be held liable as an indorser of the check or even as an accommodation party.
However, petitioner BPI, in allowing the withdrawal of private respondent’s deposit, failed to exercise the diligence of a
good father of a family. BPI 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 proximate cause of
the eventual loss of the amount of $2,500.00 on BPI'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, BPI assumed the risk of incurring
a loss on account of a forged or counterfeit foreign check and hence, it should suffer the resulting damage.

DOCTRINE:
Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration; every person whose
signature appears thereon to have become a party thereto for value. Therefore, it is up to the party who alleges that there
was absence of consideration to prove such fact.
The presumption will operate only if there was negotiation. Consideration is not presumed if there was transfer without
indorsement.

6. AGRO CONGLOMERATES, INC. vs. CA

FACTS:
July 17, 1982: Agro Conglomerates, Inc. (Agro) sold 2 parcels of land to Wonderland Food Industries, Inc (Wonderland)
for P 5M under terms and conditions:
1. P 1M Pesos shall be paid in cash upon the signing of the agreement

2. P 2M Pesos worth of common shares of stock of the Wonderland Food Industries, Inc.

3. balance of P2,000,000.00 shall be paid in 4 equal installments, the first installment falling due, 180 days after the
signing of the agreement and every six months thereafter, with an interest rate of 18% per annum, to be advanced
by the vendee upon the signing of the agreement
July 19, 1982: Agro, Wonderland and Regent Savings & Loan Bank (Regent) (formerly Summa Savings & Loan
Association) amended the arrangement resulting to a revision - addedum was not notarized. Agro would secure a loan in
the name of Agro Conglomerates Inc. for the total amount of the initial payments, while the settlement of loan would be
assumed by Wonderland. Mario Soriano (of Agro) signed as maker several promissory notes, payable to Regent in favor
of Wonderland. Subsidiary contract of suretyship had taken effect since Agro signed the promissory notes as maker and
accommodation party for the benefit of Wonderland. Bank released the proceeds of the loan to Agro who failed to meet
their obligations as they fell due. Bank, experiencing financial turmoil, gave Agro opportunity to settle their account by
extending payment due dates. Mario Soriano manifested his intention to re-structure the loan, yet did not show up nor
submit his formal written request. Regent filed 3 separate complaints before the RTC for Collection of sums of money. CA
affirmed Trial court: held Agro liable

ISSUE: W/N Agro should be liable because there was no accomodation or surety

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HELD:
YES. CA affirmed. First, there was no contract of sale that materialized. The original
agreement was that Wonderland would pay cash and Agro would
deliver possession of the farmlands. But this was changed through an addendum, that Agro would instead secure
a loan and the settlement of the same would be shouldered by Wonderland. The contract of surety between Woodland
and petitioner was extinguished by the rescission of the contract of sale of the farmland. With the rescission, there was
confusion in the persons of the principal debtor and surety. The addendum thereon likewise lost its efficacy

Accommodation party - NOT in this case because of recission. A person who has signed the instrument as: maker, acceptor,
indorser without receiving value therefor for the purpose of lending his name to some other person 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 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. Suretyship relation which exists where: 1 person has undertaken an obligation, another person is
also under the obligation or other duty to the obligee, who is entitled to but one performance. The surety’s liability to the
creditor or promisee is directly and equally bound with the principal and the creditor may proceed against any one of the
solidary debtors

Novation - NOT in this case. Means extinguishment of an obligation by the substitution or change of the obligation by a
subsequent one which extinguishes or modifies the first, either by changing the object or principal conditions, or by
substituting another in place of the debtor, or by subrogating a third person in the rights of the creditor. It is never
presumed and it must be clearly and unequivocally shown
Requisites:

1. There must be a previous valid obligation - lacking

2. There must be an agreement of the parties concerned to a new contract
3. There must be the extinguishment of the old contract; and
4. There must be the validity of the new contract
Sec. 22 of the Civil Code provides: Every person who through an act of performance by another, or any other means,
acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return
the same to him.

Agro had no legal or just ground to retain the proceeds of the loan at the expense of Wonderland. Neither could Agro
excuse themselves and hold Wonderland still liable to pay the loan upon the rescission of their sales contract - surety no
effect because of the rescission. If Agro sustained damages as a result of the rescission, they should have impleaded
Wonderland and asked damages. The non-inclusion of a necessary party does not prevent the court from proceeding in
the action, and the judgment rendered therein shall be without prejudice to the rights of such necessary party. But
respondent appellate court did not err in holding that Agro are duty-bound under the law to pay the claims of Regent
from whom they had obtained the loan proceeds

DOCTRINE:
Agro is liable to pay for its own loan. Since there was no accommodation because the contract of sale did not materialize
and the contract of suretyship was extinguished because of the rescission of the contract, agro is liable to pay for its own
loan. There was no novation because the old contract was not extinguished by the addendum; it simply complemented
the MOA

7. DE OCAMPO vs. GATCHALIAN

FACTS:
Matilde Gonzales was a patient of the De Ocampo Clinic owned by Vicente De Ocampo. She incurred a debt amounting to
P441.75. Her husband, Manuel Gonzales designed a scheme in order to pay off this debt: In 1953, Manuel went to a certain
Anita Gatchalian. Manuel purported himself to be selling the car of Vicente De Ocampo. Gatchalian was interested in
buying said car but Manuel told her that De Ocampo will only sell the car if Gatchalian shows her willingness to pay for it.
Manuel advised Gatchalian to draw a check of P600.00 payable to De Ocampo so that Manuel may show it to De Ocampo
and that Manuel in the meantime will hold it for safekeeping. Gatchalian agreed and gave Manuel the check. After that,
Manuel never showed himself to Gatchalian.
Meanwhile, Manuel gave the check to his wife who in turn gave the check to De Ocampo as payment of her bills with the
clinic. De Ocampo received the check and even gave Matilde her change (sukli). On the other hand, since Gatchalian never

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saw Manuel again, she placed a stop-payment on the P600.00 check so De Ocampo was not able to cash on the check.
Eventually, the issue reached the courts and the trial court ordered Gatchalian to pay De Ocampo the amount of the check.
Gatchalian argued that De Ocampo is not entitled to payment because there was no valid indorsement. De Ocampo argued
tha he is a holder in due course because he is the named payee.

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

HELD:
No. Section 52 of the Negotiable Instruments Law, defines holder in due course, thus:
A holder in due course is a holder who has taken the instrument under the following conditions:
(a) That it is complete and regular upon its face; (b) That he became the holder of it before it was overdue, and without
notice that it had been previously dishonored, if such was the fact; (c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of
the person negotiating it.
The Supreme Court emphasized that if one is such a holder in due course, it is immaterial that he was the payee and an
immediate party to the instrument. The Supreme Court however ruled that De Ocampo is not a holder in due course for
his lack of good faith. De Ocampo should have inquired as to the legal title of Manuel to the said check. The fact that
Gatchalian has no obligation to De Ocampo and yet he’s named as the payee in the check hould have apprised De Ocampo;
that the check did not correspond to Matilde Gonzales’ obligation with the clinic because of the fact that it was for P600.00
– more than the indebtedness; that why was Manuel in possession of the check – all these gave De Ocampo the duty to
ascertain from the holder Manuel Gonzales what the nature of the latter’s title to the check was or the nature of his
possession.

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.

8. MESINA vs. IAC

FACTS:
Jose Go maintains an account with Associated Bank. He needed to transfer P800,000.00 from Associated Bank to another
bank but he realized that he does not want to be carrying that cash so he bought a cashier’s check from Associated Bank
worth P800,000.00. Associated Bank then issued the check but Jose Go forgot to get the check so it was left on top of the
desk of the bank manager. The bank manager, when he found the check, entrusted it to Albert Uy for the later to safe
keep it. The check was however stolen from Uy by a certain Alexander Lim.
Jose Go learned that the check was stolen son he made a stop payment order against the check. Meanwhile, Associated
Bank received the subject check from Prudential Bank for clearing. Apparently, the check was presented by a certain
Marcelo Mesina for payment. Associated Bank dishonored the check.
When asked how Mesina got hold of the check, he merely stated that Alfredo Lim, who’s already at large, paid the check
to him for “a certain transaction”.

ISSUE: Whether or not Mesina is a holder in due course.

HELD:
No. Admittedly, Mesina became the holder of the cashier’s check as endorsed by Alexander Lim who stole the check.
Mesina however refused to say how and why it was passed to him. Mesina 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. The check in question suffers from the infirmity of not having been
properly negotiated and for value by Jose Go who is the real owner of said instrument.

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.
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9. METROPOL vs. SAMBOK

FACTS:
Dr. Javier Villaruel executed a promissory note in favor of Ng Sambok Sons Motors Co., Ltd. Payable in 12 equal monthly
installments with interest. It is further provided that in case on non-payment of any of the installments, the total principal
sum then remaining unpaid shall become due and payable with an additional interest. Sambok Motors co., a sister
company of Ng Sambok Sons negotiated and indorsed the note in favor of Metropol Financing & investment Corporation.
Villaruel defaulted in the payment, upon presentment of the promissory note he failed to pay the promissory note as
demanded, hence Ng Sambok Sons Motors Co., Ltd. notified Sambok as indorsee that the promissory note has been
dishonored and demanded payment. Sambok failed to pay. Ng Sambok Sons filed a complaint for the collection of sum of
money. During the pendency of the case Villaruel died. Sambok argues that by adding the words “with recourse” in the
indorsement of the note, it becomes a qualified indorser, thus, it does not warrant that in case that the maker failed to
pay upon presentment it will pay the amount to the holder.

ISSUE: Whether or not Sambok Motors Co is a qualified indorser, thus it is not liable upon the failure of payment of the
maker.

HELD: No. A qualified indorserment constitutes the indorser a mere assignor of the title to the instrument. It may be made
by adding to the indorser’s signature the words “without recourse” or any words of similar import. Such indorsement
relieves the indorser of the general obligation to pay if the instrument is dishonored but not of the liability arising from
warranties on the instrument as provided by section 65 of NIL. However, Sambok indorsed the note “with recourse” and
even waived the notice of demand, dishonor, protest and presentment. Recourse means resort to a person who is
secondarily liable after the default of the person who is primarily liable. Sambok by indorsing the note “with recourse”
does not make itself a qualified indorser but a general indorser who is secondarily liable, because by such indorsement, it
agreed that if Villaruel fails to pay the not the holder can go after it. The effect of such indorsement is that the note was
indorsed witout qualification. A person who indorses without qualification engages that on due presentment, the note
shall be accepted or paid, or both as the case maybe, and that if it be dishonored, he will pay the amount thereof to the
holder. The words added by Sambok do not limit his liability, but rather confirm his obligation as general indorser.

DOCTRINE:

A qualified indorserment constitutes the indorser a mere assignor of the title to the instrument. It may be made by adding
to the indorser’s signature the words “without recourse” or any words of similar import. Such indorsement relieves the
indorser of the general obligation to pay if the instrument is dishonored but not of the liability arising from warranties on
the instrument as provided by section 65 of NIL.

Recourse means resort to a person who is secondarily liable after the default of the person who is primarily liable. A person
who indorses without qualification engages that on due presentment, the note shall be accepted or paid, or both as the
case maybe, and that if it be dishonored, he will pay the amount thereof to the holder.

10. MARALIT vs. IMPERIAL

Facts:
Petitioner Maralit (assistant manager of Naga City branch of PNB) filed 3 complaints for estafa thru falsification of
commercial documents through reckless imprudence respondent Imperial. On several dates, Imperial deposited in her
savings account at the PNB 3 US treasury warrants and on the same days withdrew peso equivalent of P59,216,743, 130k,
130k respectively. And that the TW were subsequently returned one after the other by the US treasury thru the Makati
Branch of Citibank on the ground that the AMOUNTS THEREOF HAD BEEN ALTERED. Maralit claimed that as a
consequence, she was held personally liable by PNB for the total amount of 320,287.30. Imperial claims that she merely
helped a relative (Aida Abengoza) encash the TW. That she deposited that TW in her saving account and withdrew the
peso with the help of Maralit. That she gave the money to Aida, she did not know that the TW had been altered nor did
she represent them to be genuine Upon being informed of the dishonor, she immediately contacted Aida and signed an
acknowledgement of debt to pay the total amount of TW
MTC - imperial was acquitted of all the charges against her BUT was held civilly liable as indorser of the checks which are
the subject matter of the criminal action. Imperial moved to quash the writ of execution on the ground that the judgment
did not order imperial to pay a specific amount of money to a particular person as it merely adjudicated the criminal aspect
but not the civil aspect, hence there was no judgment which can be the subject of exection à motion denied
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RTC – petition for certiorari à The RTC held that the decision of the MTC did not really find respondent liable for
P320,286.46 because in fact it was petitioner who was found responsible for making the defraudation possible. Petitioner
moved for reconsideration but was denied. In this petition, petitioner contends that the phrase "civilly liable" in the
judgment part of the MTC's decision also connotes an order to pay on respondent's part.

Issue:
W/N phrase "civilly liable" in the judgment part of the MTC's decision also connotes an order to pay on Imperial’s part

Held:
YES! SC reversed decision of the RTC. The Court ruled that to affirm the RTC's decision would be to hold that respondent
was absolved from both criminal and civil liability by the MTC. Such reading of the MTC decision will not, however, bear
analysis. For one, the dispositive portion of the decision of the MTC expressly declares respondent to be "civilly liable" as
indorser of the checks which is the subject matter of the criminal action. To find therefore that there is no declaration of
civil liability of respondent would be to disregard the judgment of the MTC. Worse, it would be to amend a final and
executory clarified by a resort to the text of the decision or, what is properly called, the opinion part. By doing so, it is
clear that it can only be to petitioner that respondent was made liable as the former was the offended party in the case

DOCTRINE:
Imperial should be made liable for the total amount o the US treasury warrants. Both Maralit and Imperial are negligent.
BUT greater responsibility on the private complainant (Maralit) because she should have been more diligent in imposing
bank rules. HOWEVER, loss is charged against Imperial who upon her INDORSEMENT warranted that the instrument is
GENUINE and that she will pay the amount in case of dishonor (Sect 66).

Sec 66. Liability of general indorser. - Every indorser who indorses without qualification, warrants to all subsequent
holders in due course: (holders in good faith) (a) The matters and things mentioned in subdivisions (a), (b), and (c) of the
next preceding section; and (b) That the instrument is, at the time of his indorsement, valid and subsisting; And, in
addition, he engages that, on due presentment, it shall be accepted or paid, or both, as the case may be, according
to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be duly taken, he will pay the
amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it.

11. SAPIERA vs. CA, 314 SCRA 370

FACTS:
Remedios Nota Sapiera, a sari-sari store owner, on several occasions, purchased from Monrico Mart grocery items, mostly
cigarettes and paid for them with checks issued by one Arturo de Guzman. These checks were signed by Sapiera on the
back. When they were presented for payment, the checks were dishonoured because the drawer’s account was already
closed. Respondent Ramon Samua informed Arturo de Guzman and petitioner but both failed to pay. Hence, four charges
of Estafa were filed against Sapiera while two counts of BP 22 was filed against Arturo de Guzman. These cases were
consolidated. On December 27 1999, the RTC Dagupan city acquitted Sapiera of all charges of Estafa but did not rule on
the civil aspect of the case. Arturo de Guzman was held liable for the 2 BP 22 cases and was ordered to pay Sua 167,150
Php as civil indemnity and was sentenced for imprisonmentof 6 months and 1 day. Respondent Sua appealed regarding
the civil aspect of Sapiera’s case but the courtdenied it saying that the acquittal of petitioner was absolute. Respondent
filed a petition for mandamus with the Court of Appeals praying that the appeal be given due course, this was granted.
On January 1996, CA rendered a decision ordering Sapiera to pay 335000 php to Sua. Sapiera filed a motion for
reconsideration. The CA the issued a resolution noting that the admission of both parties that Sua already collected 125000
for the 2 check paid by De Guzman on the BP 22 cases. It appears that the payment should be deducted on her liability as
they involved the same two checks which Sapiera was involved in. the CA deducted the liability to 210,000 Php. Hence
this petition by Sapiera claiming that the CA erred in rendering such decision because she was acquitted and the fact from
which the civil liability exists did not exist.

Issue: Whether or not Sapiera could be held civilly liable when she was acquitted in the criminal charges against her.

Held: Yes. Sec. 2 of rule 111 of the rules of court provides thatextinction of the penal action does not carry with it the
extinction of the civil, unless this shows that the fact from which the civil liability is based is proven to not have existed
because of such acquittal. Civilliability is not extinguished where: (a) the acquittal is not based on reasonable doubt. (b)
Where the court expressly declares that theliability is not criminal but only civil, (c) where the civil liability is not derived
from or based on the criminal act. The decision of the case would show that the acquittal was based on failure of the
prosecution to present sufficient evidence showing conspiracy between her and De Guzman. Since all checks were signed
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by Sapiera on the back, sec 17 of Negotiable instruments law says that she would be considered an indorser of the bill of
exchange and under section 66 thereof would be held liable for breach of warranty and is held liable to pay the holder
who may be compelled to pay the instrument.

DOCTRINES:
Every indorser who indorses without qualification, warrants to all subsequent holders in due course that, on due
presentment, it shall be accepted or paid or both, according to its tenor, and that if it be dishonored and the necessary
proceedings on dishonor be duly taken, he will pay the amount thereof to the holder or to any subsequent indorser who
may be compelled to pay it.

12. BPI vs. CA

FACTS:
By way of accommodation and only for the purpose of clearing, Benjamin Napiza (private respondent herein), deposited
a check in the amount of $2,500.00 in his dollar deposit with the petitioner Bank of the Philippine Islands. This check
belongs to Henry Chan. Napiza delivered 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. However, using the same blank withdrawal slip, a bank employee was able to
withdraw the amount of $2,541.67, which was made payable to Ramon A. de Guzman and Agnes C. de Guzman. Later, the
bank received a communication that the deposited check was a counterfeit. The bank informed respondent Napiza that
the check bounced, hence, the latter tried to locate Chan. Since Napiza was unable to locate Chan, the bank demanded
payment from him. Napiza refused to pay on the ground that the check was deposited for clearing purposes only to
accommodate Chan. As a result, petitioner bank filed a complaint against private respondent for the return of the amount
of $2,500.00 or the prevailing peso equivalent plus interest, attorney's fees, and litigation costs. The lower court dismissed
the complaint. The lower court held that having committed a mistake of not waiting for the clearance of the check before
authorizing the withdrawal of its value, petitioner should suffer the resultant loss. The Court of Appeals affirmed the lower
court's decision and stressed that the mere deposit of the check did not mean that it was already the property of the
depositor. The check had to be cleared and its proceeds can only be withdrawn upon presentation of a passbook in
accordance with the bank's rules and regulations. Hence, this petition. SCaITA

Held:
The Supreme Court denied the petition. The Court of Appeals correctly held that in depositing the check in his name,
private respondent did not become the outright owner of the amount stated therein. Under petitioner bank's own rule,
by depositing the check, private respondent was merely designating petitioner as the collecting bank. This is in consonance
with the rule that a negotiable instrument, such as a check, is not a legal tender.

DOCTRINE:

GR: Napiza may be held liable as an indorser of the check or even as an accommodation party
XPN: However, to hold him liable would result in injustice, proximate cause of the loss is negligence of BPI because of the
following acts: (1) Credited the amount without waiting for clearing period (2) Money was allowed to be withdrawn even
without presentation of the passbook. (3) Also, the withdrawal slip itself indicates a special instruction that the amount is
payable to “Ramon De Guzman and/or Agnes de Guzman” **

13. PRUDENTIAL BANK vs. IAC

FACTS:
Philippine Rayon Mills, Inc. entered into a contract with Nissho Co., Ltd. of Japan for the importation of textile machineries
under a five-year deferred payment plan. To effect payment for said machineries, Philippine Rayon Mills opened a
commercial letter of credit with the Prudential Bank and Trust Company in favor of Nissho. Against this letter of credit,
drafts were drawn and issued by Nissho, which were all paid by the Prudential Bank through its correspondent in Japan.
Two of these drafts were accepted by Philippine Rayon Mills while the others were not. Petitioner instituted an action for
the recovery of the sum of money it paid to Nissho as Philippine Rayon Mills was not able to pay its obligations arising
from the letter of credit. Respondent court ruled that with regard to the ten drafts which were not presented and
accepted, no valid demand for payment can be made. Petitioner however claims that the drafts were sight drafts which
did not require presentment for acceptance to Philippine Rayon.

ISSUE:
Whether presentment for acceptance of the drafts was indispensable to make Philippine Rayon liable thereon.
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RULING:
In the case at bar, the drawee was necessarily the herein petitioner. It was to the latter that the drafts were presented for
payment. There was in fact no need for acceptance as the issued drafts are sight drafts. Presentment for acceptance is
necessary only in the cases expressly provided for in Section 143 of the Negotiable Instruments Law (NIL). The said section
provides that presentment for acceptance must be made:

(a) Where the bill is payable after sight, or in any other case, where presentment for acceptance is necessary in order to
fix the maturity of the instrument; or
(b) Where the bill expressly stipulates that it shall be presented for acceptance; or
(c) Where the bill is drawn payable elsewhere than at the residence or place of business of the drawee.

In no other case is presentment for acceptance necessary in order to render any party to the bill liable. Obviously then,
sight drafts do not require presentment for acceptance.

DOCTRINE:
Acceptance is presumed to be unqualified or absolute. If the drawee intends to qualify his acceptance, he must do so
distinctly and unmistakably or else the acceptance will be taken as absolute.

14. WONG vs. CA

FACTS:
Luis Wong is a collector of Limtong Press, Inc., a company which prints calendars. Wong was assigned to collect check
payments from LPI’ clients. One time, six of LPI’s clients were not able to give the check payments to Wong. Wong then
made arrangements with LPI so that for the meantime, Wong can use his personal checks to guarantee the calendar orders
of the LPI’s clients. LPI however has a policy of not accepting personal checks of its agents. LPI instead proposed that the
personal checks should be used to cover Wong’s debt with LPI which arose from unremitted checks by Wong in the past.
Wong agreed. So he issued 6 checks dated December 30, 1985.
Before the maturity of the checks, Wong persuaded LPI not to deposit the checks because he said he’ll be replacing them
within 30 days. LPI complied however Wong reneged on the payment. On June 5, 1986 or 157 days from date of issue, LPI
presented the check to RCBC but the checks were dishonored (account closed). On June 20, 1986, LPI sent Wong a notice
of dishonor. Wong failed to make good the amount of the checks within five banking days from his receipt of the notice.
LPI then sued Wong for violations of Batas Pambansa Blg. 22.
Among others, Wong argued that he’s not guilty of the crime of charged because one of the elements of the crime is
missing, that is, prima facie presumption of “knowledge of lack of funds” against the drawer. According to Wong, this
element is lost by reason of the belated deposit of the checks by LPI which was 157 days after the checks were issued;
that he is not expected to keep his bank account active beyond the 90-day period – 90 days being the period required for
the prima facie presumption of knowledge of lack of fund to arise.

ISSUE: Whether or not Wong is guilty of the crime charged.

HELD:
Yes. Wong is guilty of violating BP 22. The elements of violation of BP 22 pertinent to this case are:
1. The making, drawing and issuance of any check to apply for account or for value;
2. The knowledge of the maker, drawer, or issuer that at the time of issue he does not have sufficient funds in or credit
with the drawee bank for the payment of such check in full upon its presentment; and
3. The subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for the same
reason had not the drawer, without any valid cause, ordered the bank to stop payment.
Under the second element, the presumption of knowledge of the insufficiency arises if the check is presented within 90
days from the date of issue of the check. This presumption is lost, as in the case at bar, by failure of LPI to present it within
90 days. But this does not mean that the second element was not attendant with respect to Wong. The presumption is
lost but lack of knowledge can still be proven, LPI did not deposit the checks because of the reassurance of Wong that he
would issue new checks. Upon his failure to do so, LPI was constrained to deposit the said checks. After the checks were
dishonored, Wong was duly notified of such fact but failed to make arrangements for full payment within five (5) banking
days thereof. There is, on record, sufficient evidence that Wong had knowledge of the insufficiency of his funds in or credit
with the drawee bank at the time of issuance of the checks.
The Supreme Court also noted that under Section 186 of the Negotiable Instruments Law, “a check must be presented for
payment within a reasonable time after its issue or the drawer will be discharged from liability thereon to the extent of

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the loss caused by the delay.” By current banking practice, a check becomes stale after more than six (6) months, or 180
days. LPI deposited the checks 157 days after the date of the check. Hence said checks cannot be considered stale.

DOCTRINE:
A check must be presented for payment within a reasonable time after its issue or the drawer will be discharged from
liability thereon to the extent of the loss caused by the delay. By current banking practice, a check becomes stale after
more than six (6) months, or 180 days.

15. INTERNATIONAL CORPORATE BANK vs. SPS. GUECO

FACTS:
The respondents obtained a loan from the petitioner to purchase a motor vehicle (car). The respondents defaulted in
payment of installments. A civil case was filed by the petitioner which resulted later into negotiations in lowering the
remaining unpaid balance from P184,000.00 to P150,000.00, detaining the car until payment thereof. Respondent
delivered a manager’s check but petitioner insisted on the signing of “Joint Motion to Dismiss”, still holding the motor
vehicle. Respondent initiated civil action for damages before MTC but the case was dismissed for lack of merit. On appeal
to RTC, the decision of MTC was reversed ordering herein petitioners to indemnify the respondents. The Court of Appeals
likewise affirmed the decision of the RTC.

ISSUE: Whether or not the respondents are entitled of indemnification for damages.

RULING:
NO. Petitioner’s act of requiring respondents to sign the Joint Motion to Dismiss can not be said to be a deliberate attempt
on the part of petitioner to renege on the compromise agreement of the parties. The law presumes good faith. In fact, the
act of petitioner bank in lowering the debt of respondent from P184,000.00 to P150,000.00 is indicative of its good faith
and sincere desire to settle the case.
The decision of the Court of Appeals affirming the decision of the RTC was set aside. Respondents were 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.

DOCTRINE:
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. Under the negotiable instruments law, an instrument not payable on demand must be
presented for payment on the day it falls due. When the instrument is payable on demand, presentment must be made
within a reasonable time after its issue. In the case of a bill of exchange, presentment is sufficient if made within a
reasonable time after the last negotiation thereof. 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. The test is whether the payee
employed such diligence as a prudent man exercises in his own affairs. This is because the nature and theory behind the
use of a check points to its immediate use and payability.

16. NYCO SALES CORP. vs. BA FINANCE CORP

FACTS:
Nyco Sales Corporation has discounting privileges with BA Finance Corporation. In 1978, brothers Renato Fernandez and
Santiago Renato (officers of Sanshell Corporation) approached Nyco Sales Corporation for a credit accommodation in
order for the brothers make use of Nyco’s discounting privileges. Nyco Sales agreed and so, on November 15, 1978,
Sanshell issued a post-dated (November 17, 1978) BPI check to Nyco Sales in the amount of P60,000.00. Following the
discounting process agreed upon, Nyco Sales, thru its president Rufino Yao, endorsed the check in favor of BA Finance.
Thereafter, BA Finance issued a check payable to Nyco Sales which endorsed it in favor of Sanshell. Sanshell then made
use of and/or negotiated the check. Accompanying the exchange of checks was a Deed of Assignment executed by Nyco
Sales (assignor) in favor of BA Finance (assignee) with the conformity of Sanshell. Under the said Deed, the subject of the
discounting was P60k BPI check.
The check bounced. BA Finance notified Sanshell. Sanshell substituted the BPI check with a Security Bank and Trust
Company check for P60k. This check again bounced. BA Finance made repeated demands to Nyco Sales and Sanshell but
neither of the two settled the obligation. Hence, BA Finance sued Nyco Sales. Nyco Sales averred that it received no notice
of dishonor when the second check was dishonored.

ISSUE: Whether or not Nyco Sales is liable to pay BA Finance.

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HELD: Yes. The relationship between Nyco Sales and BA Finance is one of assignor-assignee. The assignor-vendor warrants
both the credit itself (its existence and legality) and the person of the debtor (his solvency), if so stipulated, as in the case
at bar. Consequently, if there be any breach of the above warranties, the assignor-vendor should be held answerable
therefor. There is no question then that the assignor-vendor is indeed liable for the invalidity of whatever he assigned to
the assignee-vendee. Considering now the facts of the case at bar, it is beyond dispute that Nyco executed a deed of
assignment in favor of BA Finance with Sanshell Corporation as the debtor-obligor. BA Finance is actually enforcing said
deed and the check covered thereby is merely an incidental or collateral matter. This particular check merely evidenced
the credit which was actually assigned to BA Finance. Thus, the designation is immaterial as it could be any other check. It
is only what is represented by the said checks that Nyco is being asked to pay.
Nyco Sales’ pretension that it had not been notified of the fact of dishonor is belied not only by the formal demand letter
issued by BA Finance but also by the fact that Nyco Sales and Sanshell had frequent contacts before, during and after the
dishonor. More importantly, as long as the credit remains outstanding, Nyco Sales shall continue to be liable to BA Finance
as its assignor. The dishonor of an assigned check simply stresses its liability and the failure to give a notice of dishonor
will not discharge it from such liability. This is because the cause of action stems from the breach of the warranties
embodied in the Deed of Assignment, and not from the dishonoring of the check alone.

DOCTRINE:
ASSIGNOR-ASSIGNEE. The relationship between NYCO sales and BA finance is one of assignor-assignee. There was a breach
of warranty as to the implied warranty of the existence and legality of the credit. Hence, despite failure to give notice of
dishonor, the assignee is still liable for such breach of warranty.

17. STATE INVESTMENT HOUSE vs. CA

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

Issues:
1. Whether or not State Investment House inc. was a holder of the check in due course
2. Whether or not Moulic can set up against the petitioner the defense that there was failure or absence of consideration

Held:

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

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

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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. For the reason that 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 withdrawn.

18. PNB vs. CA

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

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

In this case, the alleged material alteration was the alteration of the serial number of the check in issue—which is not
an essential element of a negotiable instrument under Section 1. PNB alleges that the alteration was material since it
is an accepted concept that a TCAA check by its very
nature is the medium of exchange of governments, instrumentalities and agencies. As a safety measure, every
government office or agency is assigned checks bearing different serial numbers.

But this contention has to fail. The check’s serial number is not the sole indicia of its origin. The name of the government
agency issuing the check is clearly stated therein. Thus, the check’s drawer is sufficiently identified, rendering redundant
the referral to its serial number.

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

DOCTRINE:
SERIAL NUMBER = X MATERIAL ALTERATION. There is no material alteration. An alteration is said to be material if it alters
the effect of the instrument. It means an unauthorized change in the instrument that purports to modify in any respect
the obligation of a party or an unauthorized addition or words or numbers or other change to an incomplete instrument
relation to the obligation of the party.
In this case, the alleged alteration was the alteration of the SERIAL NUMBER of the check in issue which is NOT AN
ESSENTIAL ELEMENT OF A NI under section 1. The check’s serial number is not the sole indicia of its origin. The name of
the government agency issuing the check is clearly stated therein. Thus, the check’s drawer is sufficiently identified,
rendering redundant the referral to its serial number. Therefore, there being no material alteration in the check
committed, PNB could NOT return the check to PBCOM. It should pay

19. MONTINOLA vs. PNB

FACTS:
In May 1942, Ubaldo Laya, as provincial treasurer of Misamis Oriental issued a P100,000.00 Philippine National Bank (PNB)
check to Mariano Ramos. The said check was to be used by Ramos, as disbursing officer of the US forces at that time, for
military purposes. Before Ramos can encash the check, he was made a prisoner of war by the invading Japanese forces.
When he got free in December 1944, he needed some cash for himself and so he went to a certain Enrique Montinola and
made arrangements.

On the back of the check, Ramos wrote:

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Pay to the order of Enrique P. Montinola P30,000 only. The balance to be deposited in the Philippine National Bank to the
credit of M. V. Ramos. In consideration thereof, Montinola promised to pay 85,000 in Japanese notes (that time peso
notes are valued higher). However, he was only able to pay 45k in Japanese notes to Ramos.
Later, Montinola sought to have the check encashed but PNB dishonored the check. It appears that there was an insertion
made. Under the signature of Laya, the words “Agent, Philippine National Bank” was inserted, thus making it appear that
Laya disbursed the check as an agent of PNB and not as provincial treasurer of Misamis Oriental (NOTE: at that time, a
provincial treasurer is an ex officio agent of the government’s bank).

ISSUE: Whether or not the subject check is a negotiable instrument.

HELD: No. It was not negotiated according to the Negotiable Instruments Law (NIL) hence it is not a negotiable instrument.
There was only a partial indorsement and not a negotiation contemplated under the NIL. Only P30k of the P100k amount
of the check was indorsed. This merely make Montinola a mere assignee – and this is the clear intent of Ramos. Ramos
was merely assigning P30k to Montinola. Montinola may therefore not be regarded as an indorsee and PNB has all the
right to dishonor the check. As mere assignee, he is subject to all defenses available to the drawer Provincial Treasurer of
Misamis Oriental and against Ramos.
Anent the issue of alteration, the apparent purpose of which is to make the drawee (PNB) the drawer against which
Montinola can recover from directly. Such material alteration which was done by Montinola without the consent of the
parties liable thereon discharges the instrument, pursuant to Sec. 124 of the NIL.
Montinola cannot be said to be a holder. He is an assignee. And even if he is a holder, he is not in good faith because he
did not pay the full amount of the consideration for which the P30k was issued to him – he only paid 45k Japanese notes
out of the 90k Japanese notes consideration.
At any rate, even assuming that there is proper negotiation, Montinola can no longer encash said check because when he
sought to have it encashed in January 1945, it is already stale there being two and half years passing since its time of
issuance.

DOCTRINE:
There is material alteration. The insertion of the words, “Agent. Phil. Natinal Bank” on the face of the check converts the
bank from a mere drawee to a drawer and therefore changes its liability. This constitutes material alteration of the
instrument without the consent of the parties liable thereon, hence it discharges the instrument.

20. BATAAN CIGAR FACTORY

FACTS:

Bataan Cigar & Cigarette Factory, Inc. (BCCFI), engaged with King Tim Pua George, to deliver 2,000 bales of tobacco leaf.
BCCFI issued post dated crossed checks in exchange. Trusting King's words, BCCFI issued another post-dated cross check
for another purchase of tobacco leaves. During these time, King was dealing with State Investment House Inc.. On two
separate occasions King sold the post-dated cross checks to SIHI, that was drawn by BCCFI in favor of King. Because King
failed to deliver the leaves, BCFI issued a stop payment to all the checks, including those sold to SIHI. The RTC held that
SIHI had a valid claim of being a holder in due course and to collect the checks issued by BCCFI.

ISSUE: Whether SIHI is a holder in due course.

RULING: The SC held that SIHI is not a holder in due course thus granting the petition of BCCFI. The purpose of cross checks
is to avoid those bouncing or encashing of forged checks. Cross checks have the following effects: it cannot be encashed
but only deposited in a bank; it can only be negotiated on its respective bank once; it serves as a warning to the hiolder
that it has been issued for a defienite purpose thus making SIHI not a holder in due course. Still, SIHI can collect from the
immediate indorser, in this case, George King.

DOCTRINE:
Crossing of a check should have the following effects:
 the check may not been encashed but only deposited in the bank;
 the check may be negotiated only once — to one who has an account with a bank;
 and the act of crossing the check serves as warning to the holder that the check has been issued for a definite
purpose

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21. CITY TRUST BANKING CORP VS CA

FACTS:
Emme Herrero, businesswoman, made regular deposits with Citytrust Banking Corp. at its Burgoa branch in Calamba,
Laguna. She deposited the amount of P31, 500 in order to amply cover 6 postdated checks she issued. All checks were
dishonored due to insufficiency of funds upon the presentment for encashment. Citytrust banking Corp. asserted that it
was due to Herrero’s fault that her checks were dishonored, for he inaccurately wrote his account number in the deposit
slip. RTC dismissed the complaint for lack of merit. CA reversed the decision of RTC.
Issue: Whether or not Citytrust banking Corp. has the duty to honor checks issued by Emme Herrero despite the failure
to accurately stating the account number resulting to insufficiency of funds for the check.

Held:
Yes, even it is true that there was error on the account number stated in the deposit slip, its is, however, indicated the
name of “Emme Herrero.” 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. 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. 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.

DOCTRINE:
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 is under obligation to treat the accounts of its depositors with meticulous care
having in mind the fiduciary nature of their relationship. The depositor expects the bank to treat his account with utmost
fidelity, whether such account consists only of a few hundred pesos or of millions. It must exercise extraordinary diligence.
Hence, nominal damages may be awarded.

22. TAN VS CA

FACTS:
Tan was a businessman who maintained an account with RCBC. To avoid the risk of bringing with him cash, he bought a
cashier’s check from PCIB and deposited it in his account. On the same day, RCBC erroneously sent the check for clearing
which was sent back for having been missent or misrouted. This caused RCBC to debit the account of Tan. Thereafter,
without being informed of his account being debited, Tan issued two checks with the same value of the cashier’s check he
deposited. This naturally bounced and this prompted Tan to file an action against RCBC.

ISSUE: W/N RCBC may be held liable

HELD:
YES! RCBC cannot exculpate itself from liability by claiming that the depositor has implied instructed it to send the
check for clearing by filling a local check deposit slip. Such posture is disingenuous to say the least. First, why would the
bank follow a patently erroneous act born of ignorance or inattention or both. Second, bank transactions pass through a
succession of bank personnel whose duty is to check and countercheck transactions for possible errors. As soon as their
deposits are accepted by the bank, Michelle Duguil, teller, they wholly repose trust in the bank personnel’s mastery of
banking, their and the bank’s sworn profession of diligence and meticulousness in giving irreproachable service. In the
instant case, it was the bank which was remiss in its duties. The two checks were issued 45 days after the cashier’s check
was deposited. The bank had ample time to have cleared the cashier’s check had it corrected its missending the same
upon the return from CB using the correct slip this time so that it can be cleared properly. Instead, the bank has promptly
debited the account of Tan. RCBC insists that immediate payment of a certified check is discretionary on the bank whom
the check was presented and such being the case, its refusal to immediately pay the check in this case is not to be equated
with negligence on its part.

DOCTRINE:
RCBC is held liable for its negligence – it was remiss on its duties. The two checks were issued 45 days after the cashier’s
check was deposited. The bank had ample time to have cleared the cashier’s check had it corrected its missending the
same upon the return from CB using the correct slip this time so that it can be cleared properly. Instead, the bank has
promptly debited the account of Tan. The bank is engaged in business impressed with public interest and the nature of
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the relationship between the bank and its clients is fiduciary in character hence it is required to exercise extraordinary
diligence in handling the accounts of its clients.

23. PAPA VS VALENCIA

FACTS:
Myron Papa, acting as attorney-in-fact of Angela Butte, allegedly sold a parcel of land in La Loma, Quezon City to Felix
Penarroyo. However, prior to the alleged sale, the land was mortgaged by Butte to Associated Banking Corporation along
with other properties and after the alleged sale but prior to the property’s release by delivery, Butte died. The Bank
refused to release the property despite Penarroyo’s unless and until the other mortgaged properties by Butte have been
redeemed and because of this Penarroyo settled to having the title of the property annotated. It was later discovered that
the mortgage rights of the Bank were transferred to one Tomas Parpana, administrator of the estate of Ramon Papa Jr.
and his since then been collecting rents. Despite repeated demands of Penarroyo and Valencia, Papa refused to deliver
the property which led to a suit for specific performance.The trial court ruled in favor of Penarroyo and Valencia. On
appeal to the CA, and ultimately in relation to negotiable instruments, Papa averred that the sale of the property was not
consummated since the PCIB check issued by Penarroyo for payment worth 40000 pesos was not encashed by him.
However, the CA saw the contrary and that Papa in fact encashed the check by means of a receipt. Finally on appeal to
the SC, Papa cited that according to Art 1249 of the Civil Code, payment of checks only produce effect once they have
been encashed and he insists that he never encashed the check. He further alleged that if check was encashed, it should
have been stamped as such or at least a microfilm copy. It must be noted that the check was in possession of Papa for ten
(10) years from the time payment was made to him.

ISSUE: W/N the check was encashed and can be considered effective as payment?

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

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

24. BARRETO REALTY VS CA

FACTS:
Honor Moslares and Pio Barretto Realty Development Corporation are disputing over the estate of Nicolai Drepin,
represented by Atty. Tomas Trinidad. To settle the dispute, and while the case was in court, they entered into a
Compromise Agreement by which they agreed to have the estate in dispute be sold; that in case Moslares was able to buy
the property first, he should pay P3,000,000.00 to Barretto Realty (representing the amount of investments by Barretto
Realty in the estate); that should Barretto Realty buy the property first, it should pay P1,000,000.00 to Moslares
(representing interest). The compromise agreement was approved by the judge (Judge Perfecto Laguio).Barretto Realty
was able to buy the property first hence it delivered a manager’s check worth P1,000,000.00 to Moslares but the latter
refused to accept the same. Barretto Realty filed a petition before the trial court to direct Moslares to comply with the
Compromise Agreement. Barretto Realty also consigned the check payment with the court. The judge issued a writ of
execution against Moslares and the sheriff also delivered the check to Moslares which the latter accepted. However, three
years later, Moslares filed a motion for reconsideration alleging that the check payment did not amount to legal tender
and that he never even encashed the check. The judge agreed with Moslares.

ISSUE: Whether or not the judge was correct.

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HELD: No. There was already a final and executory order issued by the same judge three years prior. The same may no
longer be amended regardless of any claim or error or incorrectness (save for clerical errors only). It is true that a check is
not a legal tender and while delivery of a check produces the effect of payment only when it is encashed, the rule is
otherwise if the debtor (Barretto Realty) was prejudiced by the creditor’s (Moslares’) unreasonable delay in presentment.
Acceptance of a check implies an undertaking of due diligence in presenting it for payment. If no such presentment was
made, the drawer cannot be held liable irrespective of loss or injury sustained by the payee. Payment will be deemed
effected and the obligation for which the check was given as conditional payment will be discharged.

DOCTRINE:
While delivery of a check produces the effect of payment only when it is encashed, the rule is otherwise if the drawer
(debtor) was prejudiced by the holder/payee’s (creditor’s) unreasonable delay in presentment.

Acceptance of a check implies an undertaking of due diligence in presenting it for payment. If no such presentment was
made, the drawer cannot be held liable irrespective of loss or injury sustained by the payee. Payment will be deemed
effected and the obligation for which the check was given as conditional payment will be discharged

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