SUMACAD vs.

THE PROVINCE OF SAMAR

G.R. No. L-8155

Petitioner: Violet Mcquire Sumacad, et al. (plaintiff-appellees)

Respondents: The Province of Samar, et al. (defendants) ; Philippine National Bank (defendant-appellant)
Date of Promulgation: October 23, 1956
Ponente: Paras, J.

1. Commercial Transaction: Payment/Encashment of Check (?)

2. Instrument: Check
3. Parties: Province of Samar – drawer ; Philippine National Bank – drawee bank ; Paulino M. Santos – payee ;
negotiated to James Mcquire ; Mcquire transferred rights to Sumacad (plaintiff)
4. Issue: W/N PNB is liable?
5. Law:
6. Ruling: Yes, PNB is subsidiary-ly liable.

Facts:

 May 1942: While the province of Samar was still occupied by Japanese military forces, a check was issued by
said province to Paulino M. Santos (then the postmaster of Borongan) for the sum of P25,000, drawn against the
Philippine National Bank Cebu Branch.
 Santos (payee) negotiated the check with James McGuire, an American citizen and resident of the municipality of
Borongan.
 After the liberation (1946): James McGuire presented the check to the municipal treasurer of Borongan for
payment, but the municipal treasurer (who merely noted it) was not able or did not choose to pay the same.
 James McGuire wrote letters to the Bureau of Posts seeking payment of the check, which were in turn referred
by the Director of the Bureau of Posts to the Philippine National Bank.
 The PNB requested the Bureau of Posts to furnish it with photostatic copies of the check which were duly
received by the bank on May 12, 1950. As of this date the province of Samar still had a deposit of P84,287.47 in
the PNB.
 PNB requested James McGuire to present the check to the provincial treasurer and the provincial auditor for
certification in accordance with the circular issued by the Secretary of Finance.
 James McGuire again requested the Bureau of Posts to expedite compliance with the requirement of the PNB so
as to permit the encashment of the check. Before the check could be certified by the authorities concerned as
being in order and entitled to priority of payment, the province of Samar, withdraw the amount of P83,504.07,
leaving a balance of only P743.43.
 In the meantime, James McGuire transferred his rights to the check to the herein Plaintiffs.
 Unable to cash it, plaintiffs Sumacad et al filed in the CFI of Samar the present complaint against the province of
Samar and PNB.
 CFI: Defendants Province of Samar and PNB are to pay jointly and severally to the Plaintiffs the sum of P25,000
+ legal interest, attorney’s fees, and the costs.
 Only the Philippine National Bank has appealed.
 PNB’s Contention: It did not issue the check and was merely called upon to pay the same upon being presented
for encashment if and when funds for the purpose were available; that it could not have paid said check because
it was never presented to it with the required certification under the circular of the Secretary of Finance; that
the relation between PNB and the province of Samar was that of debtor and creditor, the debtor being without
power to inquire into the obligation of his creditor unless it had an interest in the same; that there is nothing in
the records to show that the holder of the check ever requested PNB to withhold the amount of the check or ever
filed, before the exhaustion of the deposit of the province of Samar, any order from the courts or proper
authorities to withhold the amount covered by the check; that PNB cannot be held solidarily liable, the province
of Samar being the drawee of the check and therefore primarily liable to pay the same.

Issue: W/N PNB is liable.

Held: Yes, PNB is liable subsidiary-ly. PNB’s contentions are in the main correct. But in view of the fact that as early
as May 12, 1950, upon its own request, it was furnished with photostatic copies of the check in question; and on May 14,
1950, it went to the trouble of requiring James McGuire to present the check to the provincial treasurer and provincial
auditor for necessary certification, it voluntarily assumed the obligation of holding so much of the deposit of the province
of Samar as would be sufficient to cover the amount of the check, or before allowing the withdrawal that exhausted said
deposit, of making the necessary inquiry on the matter. In our opinion, an implied acceptance of the check by the
Appellant bank (PNB) was thereby created. The request by the Appellant bank (PNB) from the Bureau of Posts for
photostatic copies of the check and the subsequent requirement by it for its presentation by James McGuire to the
provincial treasurer and the provincial auditor for certification, would be an empty gesture if the Appellant did not
thereby mean to assume the obligation of paying the check and holding sufficient deposit of the drawer for the purpose.
Even so, PNB’s resulting obligation is merely subsidiary, the province of Samar being primarily liable to pay the check.
HSBC vs. CIR
G.R. No. 166018 and G.R. NO. 167728

Petitioner: Hongkong and Shanghai Banking Corporation Limited-Philippine Branches (HSBC)

Respondents: Commissioner of Internal Revenue (CIR)
Date of Promulgation: June 4, 2014
Ponente: Leonardo-De Castro, J.

1. Commercial Transaction: Payment/Encashment of Check (?)

2. Instrument: Check
3. Parties: Province of Samar – drawer ; Philippine National Bank – drawee bank ; Paulino M. Santos – payee ;
negotiated to James Mcquire ; Mcquire transferred rights to Sumacad (plaintiff)
4. Issue: W/N PNB is liable?
5. Law:
6. Ruling: Yes, PNB is subsidiary-ly liable.

Facts:

 HSBC performs custodial services on behalf of its investor-clients, corporate and individual, resident or non-
resident of the Philippines, with respect to their passive investments in the Philippines, particularly investments
in shares of stocks in domestic corporations. As a custodian bank, HSBC serves as the collection/payment agent
with respect to dividends and other income derived from its investor-clients’ passive investments.
 HSBC’s investor-clients maintain Philippine peso and/or foreign currency accounts, which are managed by HSBC
through instructions given through electronic messages. The said instructions are standard forms known in the
banking industry as SWIFT, or “Society for Worldwide Interbank Financial Telecommunication.” In purchasing
shares of stock and other investment in securities, the investor-clients would send electronic messages from
abroad instructing HSBC to debit their local or foreign currency accounts and to pay the purchase price therefor
upon receipt of the securities.
 Pursuant to the electronic messages of its investor-clients, HSBC purchased and paid Documentary Stamp Tax
(DST) from Sept to Dec 1997 and also from Jan to Dec 1998 amounting to P19,572,992.10 and P32,904,437.30,
respectively.
 BIR, thru its then Commissioner, Beethoven Rualo, issued BIR Ruling No. 132-99 to the effect that instructions or
advises from abroad on the management of funds located in the Philippines which do not involve transfer of
funds from abroad are not subject to DST.
 HSBC then filed an 2 administrative claim for the refund allegedly representing erroneously paid DST to the BIR
for September to December 1997 and January to December 1998.
 Claims for refund were not acted upon by the BIR. HSBC subsequently brought the matter to the CTA as CTA
Case Nos. 5951 and 6009, respectively, in order to suspend the running of the two-year prescriptive period.
 CTA: HSBC is entitled to a tax refund or tax credit because Sections 180 and 181 of the 1997 Tax Code do not
apply to electronic message instructions transmitted by HSBC’s non-resident investor-clients.
 CA: Reversed CTA decision – electronic messages of HSBC’s investor-clients are subject to DST.
 Hence, this petition.

Issue: W/N electronic message is considered a bill of exchange, and thus subject to DST.

Held: No.

The Court finds for HSBC.

The Court agrees with the CTA that the DST under Section 181 of the Tax Code is levied on the acceptance or payment of
“a bill of exchange purporting to be drawn in a foreign country but payable in the Philippines” and that “a bill of exchange
is an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the
person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to
order or to bearer.” A bill of exchange is one of two general forms of negotiable instruments under the NIL.cr

The Court further agrees with the CTA that the electronic messages of HSBC’s investor-clients containing instructions to
debit their respective local or foreign currency accounts in the Philippines and pay a certain named recipient also residing
in the Philippines is not the transaction contemplated under Section 181 of the Tax Code as such instructions are “parallel
to an automatic bank transfer of local funds from a savings account to a checking account maintained by a depositor in
one bank.” The Court favorably adopts the finding of the CTA that the electronic messages “cannot be considered
negotiable instruments as they lack the feature of negotiability, which, is the ability to be transferred” and that the said
electronic messages are “mere memoranda” of the transaction consisting of the “actual debiting of the [investor-client-
]payor’s local or foreign currency account in the Philippines” and “entered as such in the books of account of the local
bank,” HSBC.

More fundamentally, the instructions given through electronic messages that are subjected to DST in these cases are not
negotiable instruments as they do not comply with the requisites of negotiability under Section 1 of the NIL, which
provides:

Sec. 1. Form of negotiable instruments.– An instrument to be negotiable must conform to the following requirements:

(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable
certainty.

The electronic messages are not signed by the investor-clients as supposed drawers of a bill of exchange; they do
not contain an unconditional order to pay a sum certain in money as the payment is supposed to come from a
specific fund or account of the investor-clients; and, they are not payable to order or bearer but to a specifically
designated third party. Thus, the electronic messages are not bills of exchange. As there was no bill of exchange
or order for the payment drawn abroad and made payable here in the Philippines, there could have been no
acceptance or payment that will trigger the imposition of the DST under Section 181 of the Tax Code.

Section 181 of the 1997 Tax Code, which governs HSBC’s claim for tax refund for taxable year 1998 subject of G.R. No.
167728, provides:

SEC. 181. Stamp Tax Upon Acceptance of Bills of Exchange and Others. – Upon any acceptance or payment of any bill of
exchange or order for the payment of money purporting to be drawn in a foreign country but payable in the
Philippines, there shall be collected a documentary stamp tax of Thirty centavos (P0.30) on each Two hundred pesos
(P200), or fractional part thereof, of the face value of any such bill of exchange, or order, or the Philippine equivalent of
such value, if expressed in foreign currency. (Emphasis supplied.)

Section 230 of the 1977 Tax Code, as amended, which governs HSBC’s claim for tax refund for DST paid during the period
September to December 1997 and subject of G.R. No. 166018, is worded exactly the same as its counterpart provision in
the 1997 Tax Code quoted above.

The origin of the above provision is Section 117 of the Tax Code of 1904, which provided:

SECTION 117. The acceptor or acceptors of any bill of exchange or order for the payment of any sum of money
drawn or purporting to be drawn in any foreign country but payable in the Philippine Islands, shall, before paying
or accepting the same, place thereupon a stamp in payment of the tax upon such document in the same manner as is
required in this Act for the stamping of inland bills of exchange or promissory notes, and no bill of exchange shall be paid
nor negotiated until such stamp shall have been affixed thereto. (Emphasis supplied.)

It then became Section 30(h) of the 1914 Tax Code:

SEC. 30. Stamp tax upon documents and papers. – Upon documents, instruments, and papers, and upon acceptances,
assignments, sales, and transfers of the obligation, right, or property incident thereto documentary taxes for and in
respect of the transaction so had or accomplished shall be paid as hereinafter prescribed, by the persons making, signing,
issuing, accepting, or transferring the same, and at the time such act is done or transaction had:

xxxx

(h) Upon any acceptance or payment upon acceptance of any bill of exchange or order for the payment of money
purporting to be drawn in a foreign country but payable in the Philippine Islands, on each two hundred pesos, or
fractional part thereof, of the face value of any such bill of exchange or order, or the Philippine equivalent of such value, if
expressed in foreign currency, two centavos[.] (Emphasis supplied.)

It was implemented by Section 46 in relation to Section 39 of Revenue Regulations No. 26, as amended:

SEC. 39. A Bill of Exchange is one that “denotes checks, drafts, and all other kinds of orders for the payment of money,
payable at sight or on demand, or after a specific period after sight or from a stated date.”

SEC. 46. Bill of Exchange, etc. – When any bill of exchange or order for the payment of money drawn in a foreign
country but payable in this country whether at sight or on demand or after a specified period after sight or from a
stated date, is presented for acceptance or payment, there must be affixed upon acceptance or payment of
documentary stamp equal to P0.02 for each P200 or fractional part thereof. (Emphasis supplied.)

It took its present form in Section 218 of the Tax Code of 1939, which provided:

SEC. 218. Stamp Tax Upon Acceptance of Bills of Exchange and Others. – Upon any acceptance or payment of any bill of
exchange or order for the payment of money purporting to be drawn in a foreign country but payable in the
Philippines, there shall be collected a documentary stamp tax of four centavos on each two hundred pesos, or fractional
part thereof, of the face value of any such bill of exchange or order, or the Philippine equivalent of such value, if expressed
in foreign currency. (Emphasis supplied.)

It then became Section 230 of the 1977 Tax Code, as amended by Presidential Decree Nos. 1457 and 1959, which, as
stated earlier, was worded exactly as Section 181 of the current Tax Code:

SEC. 230. Stamp tax upon acceptance of bills of exchange and others. – Upon any acceptance or payment of any bill of
exchange or order for the payment of money purporting to be drawn in a foreign country but payable in the
Philippines, there shall be collected a documentary stamp tax of thirty centavos on each two hundred pesos, or fractional
part thereof, of the face value of any such bill of exchange, or order, or the Philippine equivalent of such value, if expressed
in foreign currency. (Emphasis supplied.)

The pertinent provision of the present Tax Code has therefore remained substantially the same for the past one hundred
years. The identical text and common history of Section 230 of the 1977 Tax Code, as amended, and the 1997 Tax Code, as
amended, show that the law imposes DST on either (a) the acceptance or (b) the payment of a foreign bill of exchange or
order for the payment of money that was drawn abroad but payable in the Philippines.

DST is an excise tax on the exercise of a right or privilege to transfer obligations, rights or properties incident thereto.
Under Section 173 of the 1997 Tax Code, the persons primarily liable for the payment of the DST are those (1) making, (2)
signing, (3) issuing, (4) accepting, or (5) transferring the taxable documents, instruments or papers.

In general, DST is levied on the exercise by persons of certain privileges conferred by law for the creation, revision, or
termination of specific legal relationships through the execution of specific instruments. Examples of such privileges, the
exercise of which, as effected through the issuance of particular documents, are subject to the payment of DST are leases
of lands, mortgages, pledges and trusts, and conveyances of real property.

As stated above, Section 230 of the 1977 Tax Code, as amended, now Section 181 of the 1997 Tax Code, levies DST on
either (a) the acceptance or (b) the payment of a foreign bill of exchange or order for the payment of money that was
drawn abroad but payable in the Philippines. In other words, it levies DST as an excise tax on the privilege of the drawee
to accept or pay a bill of exchange or order for the payment of money, which has been drawn abroad but payable in the
Philippines, and on the corresponding privilege of the drawer to have acceptance of or payment for the bill of exchange or
order for the payment of money which it has drawn abroad but payable in the Philippines.

Acceptance applies only to bills of exchange. Acceptance of a bill of exchange has a very definite meaning in law. In
particular, Section 132 of the NIL provides:

Sec. 132. Acceptance; how made, by and so forth. – The acceptance of a bill [of exchange] is the signification by the drawee
of his assent to the order of the drawer. The acceptance must be in writing and signed by the drawee. It must not express
that the drawee will perform his promise by any other means than the payment of money.
Under the law, therefore, what is accepted is a bill of exchange, and the acceptance of a bill of exchange is both the
manifestation of the drawee’s consent to the drawer’s order to pay money and the expression of the drawee’s promise to
pay. It is “the act by which the drawee manifests his consent to comply with the request contained in the bill of exchange
directed to him and it contemplates an engagement or promise to pay.” Once the drawee accepts, he becomes an
acceptor. As acceptor, he engages to pay the bill of exchange according to the tenor of his acceptance. 31cralawred

Acceptance is made upon presentment of the bill of exchange, or within 24 hours after such presentment. Presentment
for acceptance is the production or exhibition of the bill of exchange to the drawee for the purpose of obtaining his
acceptance.

Presentment for acceptance is necessary only in the instances where the law requires it. 34 In the instances where
presentment for acceptance is not necessary, the holder of the bill of exchange can proceed directly to presentment for
payment.

Presentment for payment is the presentation of the instrument to the person primarily liable for the purpose of
demanding and obtaining payment thereof.

Thus, whether it be presentment for acceptance or presentment for payment, the negotiable instrument has to be
produced and shown to the drawee for acceptance or to the acceptor for payment.

Revenue Regulations No. 26 recognizes that the acceptance or payment (of bills of exchange or orders for the payment of
money that have been drawn abroad but payable in the Philippines) that is subjected to DST under Section 181 of the
1997 Tax Code is done after presentment for acceptance or presentment for payment, respectively. In other words, the
acceptance or payment of the subject bill of exchange or order for the payment of money is done when there is
presentment either for acceptance or for payment of the bill of exchange or order for the payment of money.

Applying the above concepts to the matter subjected to DST in these cases, the electronic messages received by HSBC
from its investor-clients abroad instructing the former to debit the latter’s local and foreign currency accounts
and to pay the purchase price of shares of stock or investment in securities do not properly qualify as either
presentment for acceptance or presentment for payment. There being neither presentment for acceptance nor
presentment for payment, then there was no acceptance or payment that could have been subjected to DST to
speak of.

Indeed, there had been no acceptance of a bill of exchange or order for the payment of money on the part of
HSBC. To reiterate, there was no bill of exchange or order for the payment drawn abroad and made payable here
in the Philippines. Thus, there was no acceptance as the electronic messages did not constitute the written and signed
manifestation of HSBC to a drawer’s order to pay money. As HSBC could not have been an acceptor, then it could not have
made any payment of a bill of exchange or order for the payment of money drawn abroad but payable here in the
Philippines. In other words, HSBC could not have been held liable for DST under Section 230 of the 1977 Tax Code, as
amended, and Section 181 of the 1997 Tax Code as it is not “a person making, signing, issuing, accepting, or, transferring”
the taxable instruments under the said provision. Thus, HSBC erroneously paid DST on the said electronic messages for
which it is entitled to a tax refund.
METRROPOLITAN BANK vs. CHIOK
G.R. No. 172652 ; G.R. No. 175302 ; G.R. No. 175394

Petitioner: Metropolitan Bank and Trust Company; Bank of the Philippine Islands; Global Business Bank Inc.
Respondents: Wilfred N. Chiok
Date of Promulgation: November 26, 2014
Ponente: Leonardo-De Castro, J.

1. Commercial Transaction:
2. Instrument:
3. Parties:
4. Issue:
5. Law:
6. Ruling:

Facts:

 This is a three consolidated petitions.

 Respondent Wilfred N. Chiok (Chiok) had been engaged in dollar trading for several years.
 He usually buys dollars from Gonzalo B. Nuguid (Nuguid) at the exchange rate prevailing on the date of the sale.
Chiok pays Nuguid either in cash or manager’s check, to be picked up by the latter or deposited in the latter’s
bank account. Nuguid delivers the dollars either on the same day or on a later date as may be agreed upon
between them, up to a week later. Chiok and Nuguid had been dealing in this manner for about six to eight years,
with their transactions running into millions of pesos.
 For this purpose, Chiok maintained accounts with petitioners Metropolitan Bank and Trust Company
(Metrobank) and Global Business Bank, Inc. (Global Bank), the latter being then referred to as the Asian Banking
Corporation (Asian Bank).
 Chiok likewise entered into a Bills Purchase Line Agreement (BPLA) with Asian Bank. Under the BPLA, checks
drawn in favor of, or negotiated to, Chiok may be purchased by Asian Bank. Upon such purchase, Chiok receives
a discounted cash equivalent of the amount of the check earlier than the normal clearing period.
Bank of America vs. Associated Citizen’s Bank
G.R. No. 141001 and G.R. No. 141018

G.R. No. 141001

Petitioner: Bank of America, NT & SA
Respondents: Associated Citizen’s Bank ; BA Finance Corp ; Miller Offset Press, Inc ; Uy Kiat Chung ; Ching Uy Seng ; Uy
Chung Guan Seng ; CA

G.R. No. 141018

Petitioner: Associated Citizen’s Bank (now United Overseas Bank Phils)
Respondents: BA Finance Corp ; Miller Offset Press, Inc ; Uy Kiat Chung ; Ching Uy Seng ; Uy Chung Guan Seng ; Bank of
America ; NT &SA
Date of Promulgation: May 21, 2009
Ponente: Carpio, J.

1. Commercial Transaction:
2. Instrument: 4 Checks
3. Parties: BA Finance – drawer ; Bank of America – drawee bank ; Miller Offset Press, Inc – payee ; Associated
Citizens Bank – Collecting Bank
4. Issue: (1) W/N Bank of America is liable to pay BA-Finance the amount of the four checks? Yes.
(2) W/N Associated Bank liable to reimburse Bank of America the amount of the four checks? Yes.
(3) W/N Ching Uy Seng and/or Uy Chung Guan Seng liable to pay Associated Bank the amount of the 4
checks? Yes.
5. Law: NIL

Facts:

 This is a consolidated cases.

 BA-Finance Corporation (BA-Finance) entered into a transaction with Miller Offset Press, Inc. (Miller), through
the latters authorized representatives, i.e., Uy Kiat Chung, Ching Uy Seng, and Uy Chung Guan Seng.
 BA-Finance granted Miller a credit line facility through which Miller could assign or discount its trade
receivables with BA-Finance.
 Uy Kiat Chung, Ching Uy Seng, and Uy Chung Guan Seng executed a Continuing Suretyship Agreement with BA-
Finance whereby they jointly and severally guaranteed the full and prompt payment of any and all indebtedness
which Miller may incur with BA-Finance.
 Miller discounted and assigned several trade receivables to BA-Finance by executing Deeds of Assignment in
favor of the latter (BA-Finance).
 In consideration of the assignment, BA-Finance issued 4 checks payable to the Order of Miller Offset Press, Inc.
with the notation For Payees Account Only. These checks were drawn against Bank of America with a total of
P741,227.78.
 The 4 checks were deposited by Ching Uy Seng (a.k.a. Robert Ching), then the corporate secretary of Miller, in
Account No. 989 in Associated Citizens Bank (Associated Bank). Account No. 989 is a joint bank account under
the names of Ching Uy Seng and Uy Chung Guan Seng.
 Associated Bank stamped the checks with the notation all prior endorsements and/or lack of endorsements
guaranteed, and sent them through clearing.
 Later, the drawee bank, Bank of America, honored the checks and paid the proceeds to Associated Bank as the
collecting bank.
 Miller failed to deliver to BA-Finance the proceeds of the assigned trade receivables.
 Consequently, BA-Finance filed a Complaint against Miller for collection of the amount of P731,329.63 which BA-
Finance allegedly paid in consideration of the assignment, plus interest. Likewise impleaded as party defendants
in the collection case were Uy Kiat Chung, Ching Uy Seng, and Uy Chung Guan Seng.
 Miller, Uy Kiat Chung, and Uy Chung Guan Seng filed a Joint Answer (to the BA-Finances Complaint) with Cross-
Claim against Ching Uy Seng, wherein they denied that:
o they received the amount covered by the four Bank of America checks, and
o they authorized their co-defendant Ching Uy Seng to transact business with BA-Finance on behalf of
Miller.
 o Uy Kiat Chung and Uy Chung Guan Seng also denied having signed the Continuing Suretyship
Agreement with BA-Finance.
 In view thereof, BA-Finance filed an Amended Complaint impleading Bank of America as additional defendant
for allegedly allowing encashment and collection of the checks by person or persons other than the payee named
thereon. Ching Uy Seng, on the other hand, did not file his Answer to the complaint.
 Bank of America filed a Third Party Complaint against Associated Bank.
 In its Answer to the Third Party Complaint, Associated Bank admitted having received the 4 checks for deposit in
the joint account of Ching Uy Seng (a.k.a. Robert Ching) and Uy Chung Guan Seng, but alleged that Robert Ching,
being one of the corporate officers of Miller, was duly authorized to act for and on behalf of Miller.
 RTC: Bank of America to pay BA Finance Corporation the value of the 4 checks; and Associated Citizens Bank to
reimburse Bank of America.
 CA: Affirmed with modification.
o Bank of America, NT & SA to pay BA-Finance Corporation P741,277.78, with legal interest.
o Associated Citizens Bank is likewise ordered to reimburse Bank of America
o Ching Uy Seng and/or Uy Chung Guan Seng to pay Associated Citizens Bank the aforestated amount
 Associated Bank and Bank of America filed MR – denied.
 Hence, this petition.

Issue: (1) W/N Bank of America is liable to pay BA-Finance the amount of the four checks.
(2) W/N Associated Bank liable to reimburse Bank of America the amount of the four checks.
(3) W/N Ching Uy Seng and/or Uy Chung Guan Seng liable to pay Associated Bank the amount of the 4 checks.

Held: (1) Yes, Bank of America is liable to pay BA-Finance the amount of the four checks.

The bank on which a check is drawn, known as the drawee bank, is under strict liability, based on the contract between
the bank and its customer (drawer), to pay the check only to the payee or the payees order. The drawers instructions are
reflected on the face and by the terms of the check. When the drawee bank pays a person other than the payee named on
the check, it does not comply with the terms of the check and violates its duty to charge the drawers account only for
properly payable items. Thus, a drawee should charge to the drawers accounts only the payables authorized by the latter;
otherwise, the drawee will be violating the instructions of the drawer and shall be liable for the amount charged to the
drawers account.

Among the different types of checks issued by a drawer is the crossed check. The NIL is silent with respect to crossed
checks, although the Code of Commerce makes reference to such instruments. This Court has taken judicial cognizance of
the practice that a check with two parallel lines in the upper left hand corner means that it could only be deposited and
could not be converted into cash. Thus, the effect of crossing a check relates to the mode of payment, meaning that the
drawer had intended the check for deposit only by the rightful person, i.e., the payee named therein. The crossing may be
special wherein between the two parallel lines is written the name of a bank or a business institution, in which case the
drawee should pay only with the intervention of that bank or company, or general wherein between two parallel diagonal
lines are written the words and Co. or none at all, in which case the drawee should not encash the same but merely accept
the same for deposit.

Effects of crossing a check: (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; and (c) 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.

In this case, the 4 checks were drawn by BA-Finance and made payable to the Order of Miller Offset Press, Inc. The checks
were also crossed and issued For Payees Account Only. Clearly, the drawer intended the check for deposit only by Miller
Offset Press, Inc. in the latter’s bank account. Thus, when a person other than Miller, i.e., Ching Uy Seng, a.k.a. Robert
Ching, presented and deposited the checks in his own personal account (Ching Uy Sengs joint account with Uy Chung
Guan Seng), and the drawee bank, Bank of America, paid the value of the checks and charged BA-Finances account
therefor, the drawee Bank of America is deemed to have violated the instructions of the drawer, and therefore, is liable for
the amount charged to the drawers account.

(2) Yes, Associated Bank liable to reimburse Bank of America the amount of the 4 checks.
A collecting bank where a check is deposited, and which endorses the check upon presentment with the drawee bank, is
an endorser. Under Section 66 of the NIL, an endorser warrants that the instrument is genuine and in all respects what it
purports to be; that he has good title to it; that all prior parties had capacity to contract; and that the instrument is at the
time of his endorsement valid and subsisting. In check transactions, 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.

When Associated Bank stamped the back of the 4 checks with the phrase all prior endorsements and/or lack of
endorsement guaranteed, that bank had for all intents and purposes treated the checks as negotiable instruments and,
accordingly, assumed the warranty of an endorser. Being so, Associated Bank cannot deny liability on the checks.

In a case decided by SC: “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. x x x In presenting the checks
for clearing and for payment, the defendant [collecting bank] made an express guarantee on the validity of all prior
endorsements. Thus, stamped at the back of the checks are the defendants clear warranty: ALL PRIOR ENDORSEMENTS
AND/OR LACK OF ENDORSEMENTS GUARANTEED. Without such warranty, plaintiff [drawee] would not have paid on the
checks. No amount of legal jargon can reverse the clear meaning of defendants warranty. As the warranty has proven to
be false and inaccurate, the defendant is liable for any damage arising out of the falsity of its representation.”

Associated Bank was also clearly negligent in disregarding established banking rules and regulations by allowing the 4
checks to be presented by, and deposited in the personal bank account of, a person who was not the payee named in the
checks. It could not have escaped Associated Banks attention that the payee of the checks is a corporation while the
person who deposited the checks in his own account is an individual. Verily, when the bank allowed its client to collect on
crossed checks issued in the name of another, the bank is guilty of negligence. One who accepts and encashes a check from
an individual knowing that the payee is a corporation does so at his peril. Accordingly, Associated Bank is liable for the
amount of the 4 checks and should reimburse the amount of the checks to Bank of America.

(3) Yes, Ching Uy Seng and/or Uy Chung Guan Seng liable to pay Associated Bank the amount of the 4
checks.

It is well-settled that a person who had not given value for the money paid to him has no right to retain the money he
received. Since Ching Uy Seng and/or Uy Chung Guan Seng received the proceeds of the checks as they were deposited in
their personal joint account with Associated Bank, they should be obliged to reimburse Associated Bank for the amount it
has to pay to Bank of America, in line with the rule that no person should be allowed to unjustly enrich himself at the
expense of another.
SECURITY BANK vs. RCBC
G.R. No. 170984 ; G.R. No. 170987

Petitioner: Security Bank and Trust Company

Respondents: Rizal Commercial Banking Corporation
Date of Promulgation: January 30, 2009
Ponente: Quisimbing, J.

1. Commercial Transaction: Payment of Loan

2. Instrument: Managers Check
3. Parties: Security Bank and Trust Company (SBCT)– drawer and drawee bank ; Guidon Construction and
Development (GCDC) – payee ; RCBC – collecting bank
4. Issue: W/N SBTC liable to RCBC for the remaining P4 million.
5. Law: NIL and Monetary Board Resolution
6. Ruling: Yes,

Facts:

 Security Bank and Trust Company (SBTC) issued a managers check for P8 million, payable to CASH, as proceeds
of the loan granted to Guidon Construction and Development Corporation (GCDC).
 The P8-million check, along with other checks, was deposited by Continental Manufacturing Corporation (CMC)
in its Current Account No. 0109-022888 with Rizal Commercial Banking Corporation (RCBC).
 Immediately, RCBC honored the P8-million check and allowed CMC to withdraw the same.
 On the next banking day, GCDC issued a Stop Payment Order to SBTC, claiming that the P8-million check was
released to a third party by mistake.
 Consequently, SBTC dishonored and returned the managers check to RCBC. Thereafter, the check was returned
back and forth between the two banks, resulting in automatic debits and credits in each banks clearing balance.
 RCBC filed a complaint for damages against SBTC.
 Meanwhile, following the rules of the Philippine Clearing House, RCBC and SBTC stopped returning the checks to
each other. By way of a temporary arrangement pending resolution of the case, the P8-million check was equally
divided between, and credited to, RCBC and SBTC.
 RTC: In favour of RCBC.
 CA: Affirmed with modifications.

RCBC’s contention: The managers check issued by SBTC is substantially as good as the money it represents because by
its peculiar character, its issuance has the effect of an advance acceptance. RCBC claims that it is a holder in due course
when it credited the P8-million managers check to CMCs account. Accordingly, RCBC asserts that SBTCs refusal to honor
its obligation justifies RCBC claim for lost interest income, exemplary damages and attorneys fees.

SBTC’s contention: RCBC violated Monetary Board Resolution No. 2202 of the Central Bank of the Philippines mandating
all banks to verify the genuineness and validity of all checks before allowing drawings of the same. SBTC insists that RCBC
should bear the consequences of allowing CMC to withdraw the amount of the check before it was cleared.

Issue: (1) W/N SBTC liable to RCBC for the remaining P4 million. Yes.
(2) W/N SBTC liable to pay for lost interest income on the remaining P4 million, exemplary damages and
attorneys fees.

Held:

At the outset, it must be noted that the questioned check issued by SBTC is not just an ordinary check but a managers
check. A managers check is one drawn by a banks manager upon the bank itself. It stands on the same footing as a
certified check, which is deemed to have been accepted by the bank that certified it. As the banks own check, a managers
check becomes the primary obligation of the bank and is accepted in advance by the act of its issuance.

In this case, RCBC, in immediately crediting the amount of P8 million to CMCs account, relied on the integrity and honor of
the check as it is regarded in commercial transactions. Where the questioned check, which was payable to Cash, appeared
regular on its face, and the bank found nothing unusual in the transaction, as the drawer usually issued checks in big
amounts made payable to cash, RCBC cannot be faulted in paying the value of the questioned check.
 SBTC cannot escape liability by invoking Monetary Board Resolution No. 2202 dated December 21, 1979, prohibiting
drawings against uncollected deposits. For we must point out that the Central Bank at that time issued a Memorandum
dated July 9, 1980, which interpreted said Monetary Board Resolution No. 2202. In its pertinent portion, said
Memorandum reads:

MEMORANDUM TO ALL BANKS

July 9, 1980

For the guidance of all concerned, Monetary Board Resolution No. 2202 dated December 31, 1979 prohibiting,
as a matter of policy, drawing against uncollected deposit effective July 1, 1980, uncollected deposits
representing managers cashiers/ treasurers checks, treasury warrants, postal money orders and duly funded
on us checks which may be permitted at the discretion of each bank, covers drawings against demand deposits
as well as withdrawals from savings deposits.

Thus, it is clear from the July 9, 1980 Memorandum that banks were given the discretion to allow immediate drawings on
uncollected deposits of managers checks, among others. Consequently, RCBC, in allowing the immediate withdrawal
against the subject manager’s check, only exercised a prerogative expressly granted to it by the Monetary Board.

Moreover, neither Monetary Board Resolution No. 2202 nor the July 9, 1980 Memorandum alters the extraordinary nature
of the managers check and the relative rights of the parties thereto. SBTCs liability as drawer remains the same − by
drawing the instrument, it admits the existence of the payee and his then capacity to indorse; and engages that on due
presentment, the instrument will be accepted, or paid, or both, according to its tenor.

Concerning RCBCs claim for lost interest income on the remaining P4 million, this is already covered by the amount of
damages in the form of legal interest of 6%, based on Article 2200 and 2209 of the NCC, as awarded by the Court of Appeals
in its decision.

In addition to the above-mentioned award of compensatory damages, we also find merit in the need to award exemplary
damages in order to set an example for the public good. The banking system has become an indispensable institution in the
modern world and plays a vital role in the economic life of every civilized society. Whether as mere passive entities for the
safe-keeping and saving of money or as active instruments of business and commerce, banks have attained an ubiquitous
presence among the people, who have come to regard them with respect and even gratitude and, above all, trust and
confidence. In this connection, it is important that banks should guard against injury attributable to negligence or bad faith
on its part. As repeatedly emphasized, since the banking business is impressed with public interest, the trust and
confidence of the public in it is of paramount importance. Consequently, the highest degree of diligence is expected, and
high standards of integrity and performance are required of it. SBTC having failed in this respect, the award of exemplary
damages to RCBC in the amount of P50,000.00 is warranted.

Pursuant to current jurisprudence, with the finding of liability for exemplary damages, attorneys fees in the amount of
P25,000.00 must also be awarded against SBTC and in favor of RCBC.