Negotiable Instruments – Atty.
Joanne Ranada – CASE DIGESTS 1
George A. Kauffman vs. PNB
GR No. 16454
September 29, 1921
FACTS: Kauffman was the president of a domestic corporation
Philippine Fiber&Produce Co. Of which company he held in
his own right the entire issue of capital stock. The board of
directors of said company declared a dividend of P100,000
from its surplus earning for the year 1917. Kauffman was
entitled to the sum of P98,000.
George B. Wicks, treasurer of the company presented himself
in the exchange department of PNB Manila and requested a
telegraphic transfer of $45,000 should be made to Kauffman in
New York City, upon account of the company.
PNB dispatched to its New York agency a cablegram:
Pay George A. Kauffman, New York, account Philippine Fiber
Produce Co., $45,000. (Sgd.) PHILIPPINE NATIONAL
BANK, Manila.
Bank’s representative in NY sent a cable message in reply
suggesting the advisability of withholding this money from
Kauffman.
Wicks, cabled to Kauffman advising that $45,000 had been
placed to his credit in NY agency of PNB. Kauffman presented
himself at the office of PNB NY. The message from PNB
directing the withholding of payment had been received in NY,
and payment was therefore refused.
Kauffman instituted this action in CFI Manila to recover said
amount. The judgement was infavor of Kauffman, PNB
appealed.
ISSUE:
(1) Whether or not Negotiable Instruments Law is applicable.
(2) Whether Kauffman can maintain an action against the bank
for the nonperformance of said undertaking.
RULING: Before the provsions of the NIL can come into
operation, there must be a document in existence of the
character described in section 1 of the Law; and no rights
properly speaking arise in respect to said instrument until it is
delivered.
In this case, the order was not payable “to order or to bearer,”
as required in subsection (d) of that Act.
The test to determine whether the interest of a third person in a
contract is a stipulation pour autrui or merely an incidental
interest, is to rely upon the intention of the parties as disclosed
by their contract. If a third person claims an enforcible interest
in thecontract, the question must be settled by determining
whether the contracting partied desired to tender him such an
interest.
The right of Kauffman to maintain the present action is clear
enough; for it is undeniable that the bank’s promise to cause a
definite sum of money to be paid to the plaintiff in NYC is a
stipulation in his favor.
A third person seeking to enforce compliance with a stipulation
in his favor must signify his acceptance before it has been
revoked. In this case, Kauffman clearly signified his acceptance
to the bank by demanding payment; and although PNB had
already directed its NY agency to withhold payment when the
demand was made, the rights of Kauffman cannot be considered
to as there used, must be understood to imply revocation by the
mutual consent of the contracting parties, or at least by direction
of the party purchasing the exchange.
By selling a cable transfer of funds on a foreign country in
ordinary course, a bank incurs a simple contractual obligation,
and cannot be considered as holding the money which was paid
for the transfer in the character of a specific trust.
Cable transfers, therefore, mean a method of transmitting
money by cable wherein the seller engages that he has the
balance at the point on which the payment is ordered and that
on receipt of the cable directing the transfer his correspondent
at such point will make payment to the beneficiary described in
the cable. All these transaction are matters of purchase and sale
create no trust relationship.
GSIS vs. CA & Mr&Mrs. Isabelo R. Racho
GR No. L-40824
February 23, 1989
FACTS: Spouses Racho, together with Sps. Lagasca executed
a deed of mortgage in favor of GSIS and subsequently, another
deed of mortgage in connection with 2 loans granted by GSIS.
A parcel of land co-owned by them was given as security under
the 2 deeds. They also executed a promissory note promising to
pay GSIS jointly, severally and solidarily. Lagasca spouses
executed “Assumption of Mortgage” obligating themselves to
assume obligation to GSIS and to secure the release of
mortgage covering that portion of the land belonging to Sps.
Racho which was mortgaged to GSIS.
Upon failure to comply with the conditions of the mortgage,
GSIS extrajudicially foreclosed the mortgage and caused the
property to be sold at public auction.
2 years after, Sps. Rancho filed a complaint against GSIS and
Sps. Lagasca in CFI praying that the foreclosure be declared
null and void. They allege that they signed the mortgage
contracts not as sureties or guarantors for Sps. Lagasca but they
merely gave their common property to the said co-owners who
solely benefited by the loans of GSIS.
Trial court dismissed the complaint. CA reversed the decision.
Hence, this petition.
ISSUE: Whether the Mortgage deeds and the promisorry note
executed are negotiable instruments.
RULING: Section 29 of Act No. 2031, otherwise known as the
Negotiable Instruments Law, which provide that an
accomodation party is one who has signed an instrument as
maker, drawer, acceptor of indorser without receiving value
therefore, but is held liable on the instrument to a holder for
value although the latter knew him to be only an accomodation
party.
The promissory note, as well as the mortgage deeds subject of
this case are clearly not negotiable instruments/ these
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
documents do not comply with the fourth requisite to be
considered as such under Section 1 of the Act No. 2031 because
they are neither payable to order nor to bearer. The note is
payable to a specified party, the GSIS. Absent the aforesaid
requisite, the provisions of Act No. 2031 would not apply;
governance shall be afforded, instead, by the provisions of the
Civil Code and special laws on mortgages.
Norberto Tibajia & Carmen Tibajia vs. CA & Eden Tan
GR No. 100290
June 04, 1993
FACTS: RTC Pasig rendered its decision in favor of Eden Tan,
ordering the Tibajia spouses to pay her. Eden Tan filed a motion
for execution and the garnished funds which by then were on
deposit with the cashier of RTC Pasig.
Sps. Tibajia delivered to Deputy Sheriff the total money
judgement in Cashier’s Check and Cash.
Eden Tan refused to accept the payment made by Tibajia
spouses and instead insisted that the garnished funds deposited
with the cashier of RTC Pasig.
Sps. Tibajia filed a motion to lift the writ of execution on the
ground that the judgement debt had already been paid. Motion
was denied by the trial court. Sps. Tibajia filed a petition in CA,
however the appellate court dismissed the petition.
ISSUE: Whether or not payment by means of check (even by
cashier’s check) is considered payment in legal tender.
RULING: A check, whether a manager’s check or ordinary
check, is not a legal tender, and an offer of a check in payment
of a debt is not a valid tender of payment and may be refused
receipt by the obligee or creditor.
A check is not legal tender and that a creditor may validly refuse
payment by check, whether it be a manager’s cashier’s or
personal check.
Philipine Airlines vs. CA
GR No. L-49188
January 30, 1990
FACTS: On 1967, Amelia Tan, under the name and style of
Able Printing Press commenced a complaint for damages
before the Court of First Instance. CFI, in 1972, rendered
judgment in favor of Tan against PAL.
PAL appealed to CA and its decision modified the trial courts
decision. The case was remanded to trial court for execution.
In 1977, Tan filed a motion praying for the issuance of a writ of
execution of the judgment rendered by the Court of Appeals.
In 1978, Tan moved for the issuance of an alias writ of
execution stating that the judgment rendered by the lower court,
and affirmed with modification by the Court of Appeals,
remained unsatisfied.
2
PAL, filed an opposition to the motion for the issuance of an
alias writ of execution stating that it had already fully paid its
obligation to plaintiff.
Amelia Tan filed a motion to withdraw "Motion for Partial
Alias Writ of Execution" with Substitute Motion for Alias Writ
of Execution.
PAL received a copy of the first alias writ of execution issued,
it then filed an urgent motion to quash the alias writ of
execution, and that judgment debt had already been fully
satisfied by the petitioner as evidenced by the cash vouchers
signed and receipted by the server of the writ of execution
PAL filed petition for certiorari.
ISSUE: Whether or not the payment made to the sheriff by
check in his name operate to satisfy the judgment debt?
RULING: Under the peculiar circumstances of this case, the
payment to the absconding sheriff by check in his name did not
operate as a satisfaction of the judgment debt.
In general, a payment, in order to be effective to discharge an
obligation, must be made to the proper person. Payment must
be made to the obligee himself or to an agent having authority,
express or implied, to receive the particular payment.
The theory is where payment is made to a person authorized and
recognized by the creditor, the payment to such a person so
authorized is deemed payment to the creditor. Under ordinary
circumstances, payment by the judgment debtor in the case at
bar, to the sheriff should be valid payment to extinguish the
judgment debt.
There are circumstances in this case, however, which compel a
different conclusion.
The payment made by the petitioner to the absconding sheriff
was not in cash or legal tender but in checks. The checks were
not payable to Amelia Tan or Able Printing Press but to the
absconding sheriff.
The payment of debts in money shall be made in the currency
stipulated, and if it is not possible to deliver such currency, then
in the currency which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of
exchange or other mercantile documents shall produce the
effect of payment only when they have been cashed, or when
through the fault of the creditor they have been impaired.
The acceptance by the sheriff of the petitioner's checks, in the
case at bar, does not, per se, operate as a discharge of the
judgment debt.
Since a negotiable instrument is only a substitute for money and
not money, the delivery of such an instrument does not, by
itself, operate as payment.
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
A check, whether a manager's check or ordinary cheek, is not
legal tender, and an offer of a check in payment of a debt is not
a valid tender of payment and may be refused receipt by the
obligee or creditor. Mere delivery of checks does not discharge
the obligation under a judgment. The obligation is not
extinguished and remains suspended until the payment by
commercial document is actually realized.
RAUL SESBREÑO vs HON. COURT OF APPEALS,
DELTA MOTORS CORPORATION AND PILIPINAS
BANK
G.R. No. 89252 May 24, 1993
FACTS:
Raul Sesbreno made a money market placement in the amount
of P300,000 with PhilFinance, with a term of 32 days.
PhilFinance issued to Sesbreno the Certificate of Confirmation
of Sale of a Delta Motor Corporation Promissory Note (DMC
PN No. 2731), the Certificate of Securities Delivery Receipt
indicating the sale of the Note with notation that said security
was in the custody of Pilipinas Bank, and postdated checks
drawn against the Insular Bank of Asia and America for
P304,533.33 payable on 13 March 1981. The checks were
dishonored for having been drawn against insufficient
funds. Philfinance delivered to petitioner Denominated
Custodian Receipt (DCR).
Petitioner approached Ms. Elizabeth de Villa of private
respondent Pilipinas, and handed her a demand letter informing
the bank that his placement with Philfinance in the amount
reflected in the DCR had remained unpaid and outstanding, and
that he in effect was asking for the physical delivery of the
underlying promissory note. Petitioner then examined the
original of the DMC PN No. 2731 and found: that the security
had been issued on 10 April 1980; that it would mature on 6
April 1981; that it had a face value of P2,300,833.33, with the
Philfinance as “payee” and private respondent Delta Motors
Corporation (“Delta”) as “maker;” and that on face of the
promissory note was stamped “NON
NEGOTIABLE.” Pilipinas did not deliver the Note, nor any
certificate of participation in respect thereof, to petitioner.
Petitioner later made similar demand letters again asking
private respondent Pilipinas for physical delivery of the original
of DMC PN No. 2731.
Petitioner also made a written demand upon private respondent
Delta for the partial satisfaction of DMC PN No. 2731,
explaining that Philfinance, as payee thereof, had assigned to
him said Note to the extent of P307,933.33. Delta, however,
denied any liability to petitioner on the promissory note.
As petitioner had failed to collect his investment and interest
thereon, he filed an action for damages against private
respondents Delta and Pilipinas.
3
ISSUE:
WON DMC PN No. 2731 marked as non-negotiable may be
assigned?
HELD:
YES. Only an instrument qualifying as a negotiable instrument
under the relevant statute may be negotiated either by
indorsement thereof coupled with delivery, or by delivery alone
where the negotiable instrument is in bearer form. A negotiable
instrument may, however, instead of being negotiated, also
be assigned or transferred. The legal consequences of
negotiation as distinguished from assignment of a negotiable
instrument are, of course, different. A non-negotiable
instrument may, obviously, not be negotiated; but it may be
assigned or transferred, absent an express prohibition against
assignment or transfer written in the face of the instrument:
The words “not negotiable,” stamped on the face of the bill of
lading, did not destroy its assignability, but the sole effect was
to exempt the bill from the statutory provisions relative
thereto, and a bill, though not negotiable, may be transferred
by assignment; the assignee taking subject to the equities
between the original parties. 12 (Emphasis added)
DMC PN No. 2731, while marked “non-negotiable,” was not at
the same time stamped “non-transferable” or “non-assignable.”
It contained no stipulation which prohibited Philfinance from
assigning or transferring, in whole or in part, that Note.
Philippine Education Co. vs. Soriano, L-22405, June 30,
1971
Facts:
Enrique Montinola sought to purchase from Manila Post
Office ten money orders of 200php each payable to E. P.
Montinola. Montinola offered to pay with the money orders
with a private check. Private check was not generally accepted
in payment of money orders, the teller advised him to see the
Chief of the Money Order Division, but instead of doing so,
Montinola managed to leave the building without the
knowledge of the teller. Upon the disappearance of the unpaid
money order, a message was sent to instruct all banks that it
must not pay for the money order stolen upon presentment. The
Bank of America received a copy of said notice. However, The
Bank of America received the money order and deposited it to
the appellant’s account upon clearance. Mauricio Soriano,
Chief of the Money Order Division notified the Bank of
America that the money order deposited had been found to have
been irregularly issued and that, the amount it represented had
been deducted from the bank’s clearing account. The Bank of
America debited appellant’s account with the same account and
give notice by mean of debit memo.
Issue:
Whether the postal money order in question is a negotiable
instrument
Held:
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
No. It is not disputed that the Philippine postal statutes were
patterned after similar statutes in force in United States. The
Weight of authority in the United States is that postal money
orders are not negotiable instruments, the reason being that in
establishing and operating a postal money order system, the
government is not engaged in commercial transactions but
merely exercises a governmental power for the public benefit.
Moreover, some of the restrictions imposed upon money orders
by postal laws and regulations are inconsistent with the
character of negotiable instruments. For instance, such laws and
regulations usually provide for not more than one endorsement;
payment of money orders may be withheld under a variety of
circumstances.
Caltex Inc. v. Court of Appeals, G.R. No. 97753, August
10, 1992
Facts:
On various dates, Security Bank and Trust Company
(SBTC), through its Sucat Branch issued 280 certificates of
time deposit (CTD) in favor of one Angel dela Cruz who later
lost them.
Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____
This is to Certify that B E A R E R has deposited in this Bank
the sum of PESOS: FOUR THOUSAND ONLY, SECURITY
BANK SUCAT OFFICE P4,000& 00 CTS Pesos, Philippine
Currency, repayable to said depositor 731 days. after date,
upon presentation and surrender of this certificate, with interest
at the rate of 16% per cent per annum.
(Sgd. Illegible)
Caltex (Phils.) Inc. went to the SBTC Sucat branch and
presented for verification the CTDs declared lost by Angel dela
Cruz alleging that the same were delivered to herein plaintiff
“as security for purchases made with Caltex Philippines, Inc.”
by said depositor. SBTC rejected Caltex’s demand and claim.
Caltex sued SBTC but case was dismissed rationalizing that
CTDs are non-negotiable instruments.
Issue:
Whether Certificate of Time Deposit (CTD) is a negotiable
instrument.
Held:
YES. The CTDs in question undoubtedly meet the requirements
of the law for negotiability under Section 1 of the Negotiable
Instruments Law. The accepted rule is that the negotiability or
non-negotiability of an instrument is determined from the
writing, that is, from the face of the instrument itself. In the
construction of a bill or note, the intention of the parties is to
control, if it can be legally ascertained. Here, if it was really the
intention of respondent bank to pay the amount to Angel de la
Cruz only, it could have with facility so expressed that fact in
clear and categorical terms in the documents, instead of having
the word “BEARER” stamped on the space provided for the
name of the depositor in each CTD.
4
While the writing may be read in the light of surrounding
circumstances in order to more perfectly understand the intent
and meaning of the parties, yet as they have constituted the
writing to be the only outward and visible expression of their
meaning, no other words are to be added to it or substituted in
its stead.
Casabuena v. Court of Appeals, G.R. No. 115410,
February 27, 1988
Facts:
To secure debt, spouses Urdaneta ceded their rights over the
land through a deed of assignment.
Issue:
Whether or not a deed of assignment transfer ownership of
property to assignee.
Held:
NO. The act of assignment could not have operated to efface
liens or restrictions burdening the right assigned, because an
assignee cannot acquire a greater right than that pertaining to
the assignor. At most, an assignee can only acquire rights
duplicating those which his assignor is entitled by law to
exercise. In the case at bar, the Casabuenas merely stepped into
Benin’s shoes, who was not so much an owner as a mere
assignee of the rights of her debtors. Not having acquired any
right over the land in question, it follows that Benin conveyed
nothing to defendants with respect to the property.
BDO vs. Equitable Banking Corp
G.R. No. 74917. January 20, 1988
Facts: Plaintiff through its Visa Card Department, drew six
crossed Manager's check payable to certain member
establishments of Visa Card. Subsequently, the Checks were
deposited with the defendant to the credit of its depositor, a
certain Aida Trencio.
Following normal procedures, and after stamping at the back of
the Checks the usual endorsements. All prior and/or lack of
endorsement guaranteed the defendant sent the checks for
clearing through the Philippine Clearing House Corporation
(PCHC). Accordingly, plaintiff paid the Checks; its clearing
account was debited for the value of the Checks and defendant's
clearing account was credited for the same amount,
Thereafter, plaintiff discovered that the endorsements
appearing at the back of the Checks and purporting to be that of
the payees were forged and/or unauthorized or otherwise
belong to persons other than the payees.
Pursuant to the PCHC Clearing Rules and Regulations, plaintiff
presented the Checks directly to the defendant for the purpose
of claiming reimbursement from the latter. However,
defendant refused to accept such direct presentation and to
reimburse the plaintiff for the value of the Checks.
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
Issues:
(a) Whether or not BDO is estopped from claiming that checks
under consideration are non-negotiable instruments.
(b) Whether or not BDO can escape liability by reasons of
forgery.
(c) What is a check.
Rulings:
(a) Yes. BDO having stamped its guarantee of “all prior
endorsements and/or lack of endorsements” is now estopped
from claiming that the checks under consideration are not
negotiable instruments. The checks were accepted for deposit
by the petitioner stamping thereon its guarantee, in order that it
can clear the said checks with the respondent bank. By such
deliberate and positive attitude of the petitioner it has for all
legal intents and purposes treated the said cheeks as negotiable
instruments and accordingly assumed the warranty of the
endorser when it stamped its guarantee of prior endorsements
at the back of the checks. It led the said respondent to believe
that it was acting as endorser of the checks and on the strength
of this guarantee said respondent cleared the checks in question
and credited the account of the petitioner. Petitioner is now
barred from taking an opposite posture by claiming that the
disputed checks are not negotiable instrument.
(b) No. A commercial bank cannot escape the liability of an
endorser of a check and which may turn out to be a forged
endorsement. If the instrument involved is a check, the drawee
cannot charge the account of the drawer if the payee’s or
indorser’s signature is forged. The drawee, in turn has the right
of recourse against the collecting bank.
The drawer owes no duty of diligence to the collecting bank,
the law imposes a duty of diligence on the collecting bank to
scrutinize checks deposited with it for the purpose of
determining their genuineness and regularity. It is the collecting
bank that generally suffers the loss with regard to forged
indorsements because it had the duty to ascertain the
genuineness of all prior indorsements 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 indorsements.
(c) A check is a bill of exchange drawn on a bank payable on
demand. Except as herein otherwise provided, the provisions of
this act applicable to a bill of exchange payable on demand
apply to a check. Checks are used between banks and bankers
and their customers and are designed to facilitate banking
operations. It is of the essence to be payable on demand,
because the contract between the banker and the customer is
that the money is needed on demand.
5
The Philippine Bank of Commerce vs. Aruego
G.R. Nos. L-25836-37 January 31, 1981
Facts: The complaint filed by Philippine Bank of Commerce
contains twenty-two (22) causes of action referring to twenty-
two (22) transactions entered into by the said Bank and Aruego
on different dates, representing the cost of the printing of
"World Current Events," a periodical published by the
defendant. To facilitate the payment of the printing the
defendant obtained a credit accommodation from the plaintiff.
Thus, for every printing of the "World Current Events," the
printer, Encal Press and Photo Engraving, collected the cost of
printing by drawing a draft against the plaintiff, said draft being
sent later to the defendant for acceptance. As an added security
for the payment of the amounts advanced to Encal Press and
Photo-Engraving, the plaintiff bank also required defendant
Aruego to execute a trust receipt in favor of said bank wherein
said defendant undertook to hold in trust for plaintiff the
periodicals and to sell the same with the promise to turn over to
the plaintiff the proceeds of the sale of said publication to
answer for the payment of all obligations arising from the draft.
The bank instituted an action against Aruego to recover the cost
of printing of the latter’s periodical. Aruego however argues
that he signed the supposed bills of exchange only as an agent
of the Philippine Education Foundation Company where he is
president.
Issues:
(a) WON Aruego is estopped from denying liability?
(b) Whether Aruego can be held liable by the petitioner
although he signed the supposed bills of exchange only as an
agent of Philippine Education Foundation Company.
Rulings:
(a) Yes. Nowhere has he disclosed that he was signing as a
representative of the Philippine Education Foundation
Company. For failure to disclose his principal, Aruego is
personally liable for the drafts he accepted. An accommodation
party is one who has signed the instrument as maker, drawer,
indorser, without receiving value therefor and for the purpose
of lending his name to some other person. Such person is liable
on the instrument to a holder for value, notwithstanding such
holder, at the time of the taking of the instrument knew him to
be only an accommodation party.
(b) The first defense of the defendant is that he signed the
supposed bills of exchange as an agent of the Philippine
Education Foundation Company where he is president. Section
20 of the Negotiable Instruments Law provides that "Where the
instrument contains or a person adds to his signature words
indicating that he signs for or on behalf of a principal or in a
representative capacity, he is not liable on the instrument if he
was duly authorized; but the mere addition of words describing
him as an agent or as filing a representative character, without
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
disclosing his principal, does not exempt him from personal
liability."
He merely signed as follows: "JOSE ARUEGO (Acceptor)
(SGD) JOSE ARGUEGO For failure to disclose his principal,
Aruego is personally liable for the drafts he accepted.
Metropolitan Bank & Trust Company vs. Court of
Appeals
G.R. No. 88866 February, 18, 1991
Facts:
In January 1979, a certain Eduardo Gomez opened an account
with Golden Savings and deposited over a period of two months
38 treasury warrants with a total value of ₱1,755,228.37. They
were all drawn by the Philippine Fish Marketing Authority and
purportedly signed by its General Manager and counter-signed
by its Auditor. Six of these were directly payable to Gomez
while the others appeared to have been indorsed by their
respective payees, followed by Gomez as second indorser.
On various dates, all these warrants were subsequently indorsed
by Gloria Castillo as Cashier of Golden Savings and deposited
to its Savings Account No. 2498 in the Metrobank branch in
Calapan, Mindoro. They were then sent for clearing by the
branch office to the principal office of Metrobank, which
forwarded them to the Bureau of Treasury for special clearing.
Weeks after the deposits, Gloria Castillo went to the Calapan
branch several times to ask whether the warrants had been
cleared. Later, however, "exasperated" over Gloria’s repeated
inquiries and also as an accommodation for a "valued client,"
the petitioner says it finally decided to allow Golden Savings to
withdraw from the proceeds of the warrants. In turn, Golden
Savings subsequently allowed Gomez to make withdrawals
from his own account, eventually collecting the total amount of
₱1,167,500.00 from the proceeds of the apparently cleared
warrants.
On July 21, 1979, Metrobank informed Golden Savings that 32
of the warrants had been dishonored by the Bureau of Treasury
on July 19, 1979, and demanded the refund by Golden Savings
of the amount it had previously withdrawn, to make up the
deficit in its account. The demand was rejected. Metrobank then
sued Golden Savings in the Regional Trial Court of Mindoro
which rendered a judgment in favor of the Golden Savings.
Metrobank filed a motion for reconsideration. The lower Court
modified a part of its decision which is still in favor of Golden
Savings. Metrobank filed a petition for review.
Issues:
1.) Whether or not treasury warrants are negotiable
instruments.
2.) Whether or not Metrobank can claim a refund from
Golden Savings.
6
Held:
1.) No. It is indicated that they are payable from a
particular fund, Fund 501.
SECTION 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.
As provided by Sec. 3 of NIL an unqualified order or
promise to pay is unconditional though coupled with:
(1) an indication of a particular fund out of which
reimbursement is to be made or a particular account to
be debited with the amount; or (2) a statement of the
transaction which give rise to the instrument. But an
order to promise to pay out of particular fund is not
unconditional. The indication of Fund 501 as the
source of the payment to be made on the treasury
warrants makes the order or promise to pay “not
conditional” and the warrants themselves non-
negotiable.
2.) No. The amount withdrawn must be charged not to
Golden Savings but to Metrobank, which must bear
the consequences of its own negligence. But the
balance of P586,589.00 should be debited to Golden
Savings. Metrobank was indeed negligent in giving
Golden Savings the impression that the treasury
warrants had been cleared and that, consequently, it
was safe to allow Gomez to withdraw the proceeds
thereof from his account with it. There was no reason
why it should not have waited until the treasury
warrants had been cleared.
Art. 1909. - The agent is responsible not only for fraud,
but also for negligence, which shall be judged 'with
more or less rigor by the courts, according to whether
the agency was or was not for a compensation.
Forgery cannot be presumed. It must be established by
clear, positive and convincing evidence. This was not
done in the present case.
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
Pay v. Palanca, G.R. No. L-29900, June 28, 1974
Facts:
The promissory note indicated payment “upon demand”.
Petitioner relied on this to mean that prescription would not lie
unless there is demand from them. The petition was filed fifteen
years after its issuance.
Issue:
Whether or not a promissory note to be paid “upon demand” is
immediately due and demandable.
Held:
YES. Every obligation whose performance does not depend
upon a future or uncertain event, or upon a past event unknown
to the parties, is demandable at once (Art. 1179 of the New Civil
Code). The obligation being due and demandable in this case,
it would appear that the filing of the suit after fifteen years was
much too late.
ANG TEK LIAN, petitioner, vs. THE COURT OF
APPEALS, respondent
G.R. No. L-2516 September 25, 1950
Facts:
Ang Tek Lian drew the check upon the China Banking
Corporation for the sum of ₱4,000, payable to the order of
"cash". He delivered it to Lee Hua Hong in exchange for money
which the latter handed in act. On the next business day, the
check was presented by Lee Hua Hong to the drawee bank for
payment, but it was dishonored for insufficiency of funds, the
balance of the deposit of Ang Tek Lian on both dates being
₱335 only. The Court of Appeals believed the version of Lee
Huan Hong who testified that "appellant went to his
(complainant's) office and asked him to exchange the check —
which he (appellant) then brought with him — with cash
alleging that he needed badly the sum of ₱4,000 represented by
the check, but could not withdraw it from the bank, it being then
already closed; that despite repeated efforts to notify him that
the check had been dishonored by the bank, appellant could not
be located any-where, until he was summoned in the City
Fiscal's Office in view of the complaint for estafa filed in
connection therewith; and that appellant has not paid as yet the
amount of the check, or any part thereof."
Issues:
1.) Whether or not a check payable to the order of “cash”
is a check payable to bearer.
2.) Whether or not a check payable to “cash” need to be
indorsed.
Held:
1.) Yes. Under the Negotiable Instruments Law (sec. 9
[d], a check drawn payable to the order of "cash" is a
7
check payable to bearer. A check payable to the order
of cash is a bearer instrument. Where a check is made
payable to the order of "cash", the word cash "does not
purport to be the name of any person", and hence the
instrument is payable to bearer.
2.) No. The bank may pay it to the person presenting it for
payment without the drawer's indorsement. Of course,
if the bank is not sure of the bearer's identity or
financial solvency, it has the right to demand
identification and /or assurance against possible
complications, — for instance, (a) forgery of drawer's
signature, (b) loss of the check by the rightful owner,
(c) raising of the amount payable, etc. The bank may
therefore require, for its protection, that the
indorsement of the drawer — or of some other person
known to it — be obtained. But where the Bank is
satisfied of the identity and /or the economic standing
of the bearer who tenders the check for collection, it
will pay the instrument without further question; and
it would incur no liability to the drawer in thus acting.
A check payable to bearer is authority for payment to
holder. Where a check is in the ordinary form, and is
payable to bearer, so that no indorsement is required,
a bank, to which it is presented for payment, need not
have the holder identified, and is not negligent in
failing to do so.
LORETO D. DE LA VICTORIA, as City Fiscal of
Mandaue City and in his personal capacity as
garnishee, petitioner,
vs.
HON. JOSE P. BURGOS, Presiding Judge, RTC, Br.
XVII, Cebu City, and RAUL H. SESBREÑO, respondents.
G.R. No. 111190 June 27, 1995
(2) Under IIIA6,IIIA8)
FACTS:
Raul Sebreño filed a complaint for damages against
Fiscal Bienvenido Mabanto Jr. of Cebu City. Sebreño won and
he was awarded the payment of damages. Judge Burgos ordered
De La Victoria, custodian of the paychecks of Mabanto, to hold
the checks and convey them to Sebreño instead. De La Victoria
assailed the order as he said that the paychecks and the amount
thereon are not yet the property of Mabanto because they are
not yet delivered to him; that since there is no delivery of the
checks to Mabanto, the checks are still part of the public funds;
and the checks due to the foregoing cannot be the proper subject
of garnishment.
Petitioner raises the following relevant issues: (1) whether a
check still in the hands of the maker or its duly authorized
representative is owned by the payee before physical delivery
to the latter: and, (2) whether the salary check of a government
official or employee funded with public funds can be subject to
garnishment.
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
Petitioner reiterates his position that the salary checks were not
owned by Mabanto, Jr., because they were not yet delivered to
him, and that petitioner as garnishee has no legal obligation to
hold and deliver them to the trial court to be applied to Mabanto,
Jr.’s judgment debt. The thesis of petitioner is that the salary
checks still formed part of public funds and therefore beyond
the reach of garnishment proceedings.
ISSUE:
Whether or not a negotiable instrument is incomplete
and revocable until delivery of the instrument.
HELD:
Yes. Under Section 16 of the Negotiable Instruments
Law, every contract on a negotiable instrument is incomplete
and revocable until delivery of the instrument for the purpose
of giving effect thereto. As ordinarily understood, delivery
means the transfer of the possession of the instrument by the
maker or drawer with intent to transfer title to the payee and
recognize him as the holder thereof.
CONSOLIDATED PLYWOOD INDUSTRIES VS. IFC
LEASING & ACCEPTANCE CORP.
149 SCRA 448 (1987)
Facts:
Consolidated Plywood Industries Inc. (CPII) is a
corporation engaged in the logging business. It had for its
program of logging activities the opening of additional roads,
and simultaneous logging operations along the route of said
roads. With this, it requires two more units of tractors to attain
its objective. Atlantic Gulf and Pacific Company of Manila’s
sister company, Industrial Products Marketing (IPM), offered
to sell to CPII 2 "Used" Allis Crawler Tractors. IPM assured
CPII that the "Used" Allis Crawler Tractors which were offered
are fit for the job, and gave the corresponding warranty of 90
days performance of the machines and availability of parts. The
president and vice president of CPII, agreed to purchase on
installment said 2 units of "Used" Allis Crawler Tractors
relying on IPM’s guarantee. They paid a down payment of
210,000.00. After issuance of the sales invoice, the deed of sale
with chattel mortgage with promissory note was executed.
Simultaneously with the execution of the deed of sale with
chattel mortgage with promissory note, IPM, by means of a
deed of assignment, assigned its rights and interest in the chattel
mortgage in favor of IFC Leasing and Acceptance Corporation.
Immediately thereafter, IPM delivered said 2 units of "Used
“tractors to CPII's jobsite as agreed upon. Eventually, one of the
tractors broke down, 9 days subsequent to the incident; the other
tractor also broke down. IPM sent mechanics to fix the tractors
but was unable to do so as the units were not serviceable. Due
to this, the road building and simultaneous logging operations
were delayed. The Vice President of CPII advised IPM that the
payments of the installments as listed in the promissory note
would likewise be delayed until IPM completely fulfills its
obligation under its warranty. Since the tractors were no longer
serviceable, the President asked IPM to pull out the units and
8
have them reconditioned, and thereafter to offer them for sale.
The proceeds were to be given to IFC Leasing and the excess,
if any, to be divided between IPM and CPII which offered to
bear 1/2 of their conditioning cost. No response to this letter
was received by CPII and despite several follow-up calls; IPM
did nothing with regard to the request, until the complaint in the
case was filed by IFC Leasing against CPII. The trial court
rendered judgment, ordering CPII, et al. to pay jointly and
severally in their official and personal capacities the principal
sum of P1, 093,798.71 with accrued interest. CPII et al.'s
motion for reconsideration was denied by the Intermediate
Appellate Court Hence, this case.
Issue:
Whether the promissory note in question is a
negotiable instrument?
Held:
The pertinent portion of the note provides that
""FORVALUE RECEIVED, I/we jointly and severally promise
to pay to the INDUSTRIAL PRODUCTS MARKETING, the
sum of ONEMILLION NINETY THREE THOUSAND
SEVEN HUNDRED EIGHTYNINE PESOS & 71/100 only
(P1,093,789.71), Philippine Currency, the said principal sum,
to be payable in 24 monthly installments starting July 15, 1978
and every 15th of the month thereafter until fully paid."
Considering that paragraph (d), Section 1 of the Negotiable
Instruments Law requires that a promissory note "must be
payable to order or bearer," it cannot be denied that the
promissory note in question is nota negotiable instrument. The
instrument in order to be considered negotiable must contain
the so called "words of negotiability" ³ i.e., must be payable to
"order" or "bearer."These words serve as an expression of
consent that the instrument may be transferred. This consent is
indispensable since a maker assumes greater risk under a
negotiable instrument than under a non-negotiable one. Without
the words "or order" or "to the order of," the instrument is
payable only to the person designated therein and is therefore
non-negotiable. Any subsequent purchaser thereof will not
enjoy the advantages of being a holder of a negotiable
instrument, but will merely "step into the shoes "of the person
designated in the instrument and will thus be open to all
defenses available against the latter. Therefore, considering that
the subject promissory note is not a negotiable instrument, it
follows that IFC Leasing can never be a holder in due course
but remains a mere assignee of the note in question. Thus, CPII
may raise against IFC Leasing all defenses available to it as
against IPM. This being so, there was no need for CPII to
implead IPM when it was sued by IFC Leasing because CPII's
defenses apply to both or either of them.
TRADERS ROYAL BANK V CA G.R. No. 93397 March
3, 1997
FACTS:
Filriters registered owner of Central Bank Certificate of
Indebtedness (CBCI). Filriters transferred it to Philfinance by
one of its officers without authorization from the company.
Subsequently, Philfinance transferred same CBCI to Traders
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
Royal Bank (TRB) under a repurchase agreement. When
Philfinance failed to do so, The TRB tried to register in its
name in the CBCI. The Central Bank did not want to recognize
the transfer.
Docketed as Civil Case No. 83-17966 in the Regional Trial
Court of Manila, Branch 32, the action was originally filed as a
Petition for Mandamus 5 under Rule 65 of the Rules of Court,
to compel the Central Bank of the Philippines to register the
transfer of the subject CBCI to petitioner Traders Royal Bank
(TRB).
DECISION OF LOWER COURTS: * RTC: transfer is null and
void. * CA: The appellate court ruled that the subject CBCI is
not a negotiable instrument. Philfinance acquired no title or
rights under CBCI No. D891 which it could assign or transfer
to Traders Royal Bank and which the latter can register with the
Central Bank. Thus, the transfer of the instrument from
Philfinance to TRB was merely an assignment, and is not
governed by the negotiable instruments law.
APPLICABLE LAWS:
Under section 1 of Act no. 2031 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.
Under section 3, Article V of Rules and Regulations Governing
Central Bank Certificates of Indebtedness states that the
assignment of registered certificates shall not be valid unless
made at the office where the same have been issued and
registered or at the Securities Servicing Department, Central
Bank of the Philippines, and by the registered owner thereof, in
person or by his representative, duly authorized in writing. For
this purpose, the transferee may be designated as the
representative of the registered owner.
ISSUES & RULING: 1. Whether the CBCI is negotiable
instrument or not.
The pertinent portions of the subject CBCI read:
xxx xxx xxx
The Central Bank of the Philippines (the Bank) for value
received, hereby promises to pay bearer, of if this Certificate of
indebtedness be registered, to FILRITERS GUARANTY
ASSURANCE CORPORATION, the registered owner hereof,
the principal sum of FIVE HUNDRED THOUSAND PESOS.
NO. The CBCI is not a negotiable instrument, since the
instrument clearly stated that it was payable to Filriters, and the
certificate lacked the words of negotiability which serve as an
9
expression of consent that the instrument may be transferred by
negotiation.
Before the instruments become negotiable instruments, the
instrument must conform to the requirements under the
Negotiable Instrument Law. Otherwise instrument shall not
bind the parties.
2. Whether the Assignment of registered certificate is valid or
null and void.
IT'S NULL AND VOID. Obviously the Assignment of
certificate from Filriters to Philfinance was null and void. One
of officers who signed the deed of assignment in behalf of
Filriters did not have the necessary written authorization from
the Board of Directors of Filriters. For lack of such authority
the assignment is considered null and void.
Clearly shown in the record is the fact that
Philfinance's title over CBCI is defective since it acquired
the instrument from Filriters fictitiously. Under 1409 of the
Civil Code those contracts which are absolutely simulated or
fictitious are considered void and inexistent from the
beginning.
Petitioner knew that Philfinance is not registered owner of the
CBCI No. D891. The fact that a non-owner was disposing of
the registered CBCI owned by another entity was a good reason
for petitioner to verify of inquire as to the title Philfinance to
dispose to the CBCI.
OTHER NOTES:
1. the mere ownership by a single stockholder or by another
corporation of all or nearly all of the capital stock of a
corporation is not of itself a sufficient reason for disregarding
the fiction of separate corporate personalities.
LIM v. CA (1995)
Facts:
Spouses Manuel and Rosita Lim (Spouses Lim – president and
treasurer respectively of Rigi Bilt Industries, Inc. which has
been transacting business with LINTON) were charged with 3
counts of Estafa and 7 counts of violation of the Bouncing
Checks Law/BP 22 for allegedly conspiring together, purchased
goods (100 pieces of mild steel plates worth Php51,815; 65
pieces of mild steel plates worth P63,455; 2,600 “Z” purlins
worth P241,800) from Linton Commercial Company, Inc.
(LINTON), and with deceit issued seven (7) Consolidated Bank
and Trust Company (SOLIDBANK) checks simultaneously
with the delivery therefor. When presented to SOLIDBANK for
payment the checks were dishonored for insufficiency of funds
to cover the amounts and despite repeated notice and demand,
Spouses Lim failed and refused to pay the checks or the value
of the goods. Testimonies from William Yu Bin (Vpres and
Sales Manager of LINTON) and Salvador Alfonso (signature
verifier of SOLIDBANK) further strengthened the fact that the
account did not have sufficient funds. Manuel admitted to
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
having issued seven (7) checks however still denied that Rigi
Bilt’s account had insufficient funds to cover the amounts of the
presenting the bank ledger showing a balance of P65,752.75.
Furthermore, he claimed that he ordered SOLIDBANK to stop
payment because the supplies delivered by LINTON were not
in accordance with the specifications in the purchase orders.
Trial Court held Spouses Lim guilty of Estafa and violation of
BP 22.
CA acquitted Spouses Lim of Estafa because the checks were
not made in payment of an obligation contracted at the time of
the issuance. However, CA affirmed guilt of violation of BP 22.
Issue/s: Whether the prosecution failed to prove that any of the
essential elements of the crime punishable under B.P. Blg. 22
was committed within the jurisdiction of the Regional Trial
Court of Malabon.
Held/Ratio:
NO. The essential element in violating BP 22 of knowingly
issuing a worthless check is fulfilled. Section 1, par. 1, of BP
22 punishes “"[a]ny person who makes or draws and issues any
check to apply on account or for value, knowing at the time of
issue that he does not have sufficient funds in or credit with the
drawee bank for the payment of such check in full upon its
presentment, which check is subsequently dishonored by the
drawee bank for insufficiency of funds or credit or would have
been dishonored for the same reason had not the drawer,
without any valid reason, ordered the bank to stop payment . .
." Given that Spouses Lim had knowledge of the insufficiency
of their funds in SOLIDBANK at the time their checks were
issued, then they clearly violated the aforementioned Section in
BP 22.
Under Sec. 191, NIL the term “issue” means the first delivery
of the instrument complete in form to a person who takes it as
a holder. A “holder”, however, refers to the payee or indorsee
of a bill or note who is in possession of it or the bearer therof.
In the present case, the checks were actually issued and
delivered to LINTON in Balut, Navotas but the receipt of
LINTON’s Collector (received checks from Spouses Lim) of
the checks is not what is contemplated as he was not the person
who could take the checks as “holder” and neither can the
Collector be considered an agent of LINTON for he was a mere
employee.
In addition, Spouses Lim did not overcome the prima facie
evidence set down in Sec. 2, BP 22 (The making, drawing and
issuance of a check payment of which is refused by the bank
because of insufficient funds in or credit with such bank, when
presented within ninety (90) days from the date of the check,
shall be prima facie evidence of knowledge of such
insufficiency of funds or credit unless such maker or drawer
pays the holder thereof the amount due thereon, or makes
arrangement for payment in full by the drawee of such check
within five (5) banking days after receiving notice that such
check has not been paid by the drawee.) and they also did not
make arrangements to pay SOLIDBANK within five (5) days
after receiving notices that the checks had not been paid.
10
CA decision AFFIRMED.
FACTS:
Spouses Lim were charged with estafa and violations of BP22
for allegedly purchasing goods from Linton Commercial
Corporation and issuing checks as payment thereof. The checks
when presented to the bank were dishonored for insufficiency
of funds or the payment for the checks has been stopped.
HELD:
It is settled that venue in criminal cases is a vital ingredient of
jurisdiction. It shall be where the crime or offense was
committed or any one of the essential ingredients thereof took
place. In determining the proper venue for these cases, the
following are material facts—the checks were issued at the
place of business of Linton; they were delivered to Linton at the
same place; they were dishonored in Kalookan City; petitioners
had knowledge of the insufficiency of funds in their account.
Under Section 191 of the NIL, issue means the first delivery of
the instrument complete in its form to a person who takes it as
holder. The term holder on the other hand refers to the payee
or indorsee of a bill or note who is in possession of it or the
bearer thereof. The important place to consider in the
consummation of a negotiable instrument is the place of
delivery. Delivery is the final act essential to its consummation
as an obligation.
G.R. No. 85419 March 9, 1993
DEVELOPMENT BANK OF RIZAL, plaintiff-petitioner,
vs.
SIMA WEI and/or LEE KIAN HUAT, MARY CHENG
UY, SAMSON TUNG, ASIAN INDUSTRIAL PLASTIC
CORPORATION and PRODUCERS BANK OF THE
PHILIPPINES, defendants-respondents.
Facts: Development Bank of Rizal filed a complaint for a sum
of money against respondents Sima Wei and/or Lee Kian Huat,
Mary Cheng Uy, Samson Tung, Asian Industrial Plastic
Corporation and the Producers Bank of the Philippines for: (a)
enforce payment of the balance on a promissory note executed
by Wei; (b) and enforce payment of two checks executed by
Sima Wei.
 In consideration for a loan extended by petitioner
Bank to respondent Sima Wei, the latter executed and
delivered to the former a promissory note, engaging to
pay the petitioner Bank or order the amount of
P1,820,000.00 on or before June 24, 1983 with interest
at 32% per annum.
 Sima Wei made partial payments on the note, leaving
a balance of P1,032,450.02. On November 18, 1983,
Sima Wei issued two crossed checks payable to
petitioner Bank drawn against China Banking
Corporation. The said checks were allegedly issued in
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
full settlement of the drawer's account evidenced by
the promissory note.
 These two checks were not delivered to the petitioner
or to any of its authorized representatives. Instead for
these checks came into the possession of respondent
Lee Kian Huat, who deposited the checks without the
petitioner’s indorsement to the account of respondent
Plastic Corporation in Producers Bank which was
afterwards credited to Plastic Corporation’s account.
Issues raised in the case: whether petitioner Bank has a cause
of action against any or all of the defendants, in the alternative
or otherwise.
Held: No cause of action against other defendant only against
Sima Wei.
 A cause of action is defined as an act or omission of
one party in violation of the legal right or rights of
another. The essential elements are: (1) legal right of
the plaintiff; (2) correlative obligation of the
defendant; and (3) an act or omission of the defendant
in violation of said legal right.
 The normal parties to a check are the drawer, the
payee and the drawee bank. Courts have long
recognized the business custom of using printed
checks where blanks are provided for the date of
issuance, the name of the payee, the amount payable
and the drawer's signature. All the drawer has to do
when he wishes to issue a check is to properly fill up
the blanks and sign it.
 However, the mere fact that he has done these does
not give rise to any liability on his part, until and
unless the check is delivered to the payee or his
representative.
 A negotiable instrument, of which a check is, is not
only a written evidence of a contract right but is also
a species of property. Just as a deed to a piece of land
must be delivered in order to convey title to the
grantee, so must a negotiable instrument be delivered
to the payee in order to evidence its existence as a
binding contract.
 Section 16 of the Negotiable Instruments Law, which
governs checks, provides in part:
Every contract on a negotiable instrument is
incomplete and revocable until delivery of
the instrument for the purpose of giving
effect thereto. . . .
 Thus, the payee of a negotiable instrument acquires no
interest with respect thereto until its delivery to
him. Delivery of an instrument means transfer of
possession, actual or constructive, from one person to
another. Without the initial delivery of the instrument
from the drawer to the payee, there can be no liability
11
on the instrument. Moreover, such delivery must be
intended to give effect to the instrument.
 The allegations of the petitioner in the original
complaint show that the two (2) China Bank checks
were not delivered to the payee. Without the delivery
of said checks to petitioner-payee, the former did not
acquire any right or interest therein and cannot
therefore assert any cause of action, founded on said
checks, whether against the drawer Sima Wei or
against the Producers Bank or any of the other
respondents.
 Notwithstanding the above, it does not necessarily
follow that the drawer Sima Wei is freed from liability
to petitioner Bank under the loan evidenced by the
promissory note agreed to by her. Hence, the case is
REMANDED to the trial court for a trial on the merits.
G.R. No. L-2861 February 26, 1951
ENRIQUE P. MONTINOLA, plaintiff-appellant, vs. THE
PHILIPPINE NATIONAL BANK, ET AL., defendants-
appellees.
Facts:
In April and May, 1942, Ubaldo D. Laya was the Provincial
Treasurer of Misamis Oriental. As such Provincial Treasurer he
was ex officio agent of the Philippine National Bank branch in
the province. Mariano V. Ramos worked under him as assistant
agent in the bank branch aforementioned. In April of that year
1942, the currency being used in Mindanao, particularly
Misamis Oriental and Lanao which had not yet been occupied
by the Japanese invading forces, was the emergency currency
which had been issued since January, 1942 by the Mindanao
Emergency Currency Board by authority of the late President
Quezon.
About April 26, 1942, thru the recommendation of Provincial
Treasurer Laya, his assistant agent M. V. Ramos was inducted
into the United States Armed Forces in the Far East (USAFFE)
as disbursing officer of an army division. As such disbursing
officer, M. V. Ramos on April 30, 1942, went to the
neighboring Province Lanao to procure a cash advance in the
amount of P800,000 for the use of the USAFFE in Cagayan de
Misamis. Pedro Encarnacion, Provincial Treasurer of Lanao did
not have that amount in cash. So, he gave Ramos P300,000 in
emergency notes and a check for P500,000. On May 2, 1942
Ramos went to the office of Provincial Treasurer Laya at
Misamis Oriental to encash the check for P500,000 which he
had received from the Provincial Treasurer of Lanao. Laya did
not have enough cash to cover the check so he gave Ramos
P400,000 in emergency notes and a check No. 1382 for
P100,000 drawn on the Philippine National Bank. According to
Laya he had previously deposited P500,000 emergency notes in
the Philippine National Bank branch in Cebu and he expected
to have the check issued by him cashed in Cebu against said
deposit.
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
About the last days of December, 1944 or the first days of
January, 1945, M. V. Ramos allegedly indorsed this check No.
1382 to Enrique P. Montinola. The circumstances and
conditions under which the negotiation or transfer was made are
in controversy.
According to Montinola's version, sometime in June, 1944,
Ramos, needing money with which to buy foodstuffs and
medicine, offered to sell him the check; to be sure that it was
genuine and negotiable, Montinola, accompanied by his agents
and by Ramos himself, went to see President Carmona of the
Philippine National Bank in Manila about said check; that after
examining it President Carmona told him that it was negotiable
but that he should not let the Japanese catch him with it because
possession of the same would indicate that he was still waiting
for the return of the Americans to the Philippines; that he and
Ramos finally agreed to the sale of the check for P850,000
Japanese military notes, payable in installments; that of this
amount, P450,000 was paid to Ramos in Japanese military notes
in five installments, and the balance of P400,000 was paid in
kind, namely, four bottles of sulphatia sole, each bottle
containing 1,000 tablets, and each tablet valued at P100; that
upon payment of the full price, M. V. Ramos duly indorsed the
check to him.
Ramos in his turn told the court that the agreement between
himself and Montinola regarding the transfer of the check was
that he was selling only P30,000 of the check and for this
reason, at the back of the document he wrote in longhand the
following:
“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.”
Ramos further said that in exchange for this assignment of
P30,000 Montinola would pay him P90,000 in Japanese
military notes but that Montinola gave him only two checks of
P20,000 and P25,000, leaving a balance unpaid of P45,000. In
this he was corroborated by Atty. Simeon Ramos Jr. who told
the court that the agreement between Ramos and Montinola was
that the latter, for the sale to him of P30,000 of the check, was
to pay Ramos P90,000 in Japanese military notes; that when the
first check for P20,000 was issued by Montinola, he (Simeon)
prepared a document evidencing said payment of P20,000; that
when the second check for P25,000 was issued by Montinola,
he (Simeon) prepared another document with two copies, one
for Montinola and the other for Ramos, both signed by
Montinola and M. V. Ramos, evidencing said payment, with the
understanding that the balance of P45,000 would be paid in a
few days.
Issue:
Whether or not there has been a negotiation of the negotiable
instrument and if such was the fact, is Montinola an indorsee?
Held:
No. The check was not legally negotiated within the meaning
of the Negotiable Instruments Law. Section 32 of the same
12
law provides that "the indorsement must be an indorsement of
the entire instrument. An indorsement which purports to
transfer to the indorsee a part only of the amount payable, . . .
(as in this case) does not operate as a negotiation of the
instrument." Montinola may therefore not be regarded as an
indorsee. At most he may be regarded as a mere assignee of
the P30,000 sold to him by Ramos, in which case, as such
assignee, he is subject to all defenses available to the drawer
Provincial Treasurer of Misamis Oriental and against Ramos.
We then have the following facts. The check issued by Laya in
his capacity as Provincial Treasurer of Misamis Oriental as
drawer on the Philippine National Bank as drawee. Ramos sold
P30,000 of the check to Enrique P. Montinola for P90,000
Japanese military notes, of which only P45,000 was paid by
Montinola. The writing made by Ramos at the back of the check
was an instruction to the bank to pay P30,000 to Montinola and
to deposit the balance to his (Ramos) credit. This writing was
obliterated and in its place we now have the supposed
indorsement appearing on the back of the check.
G.R. No. L-39641 February 28, 1983
METROPOL (BACOLOD) FINANCING &
INVESTMENT CORPORATION, plaintiff-appellee,
vs. SAMBOK MOTORS COMPANY and NG SAMBOK
SONS MOTORS CO., LTD., defendants-appellants.
Facts:
On April 15, 1969 Dr. Javier Villaruel executed a promissory
note in favor of Ng Sambok Sons Motors Co., Ltd., in the
amount of P15,939.00 payable in twelve (12) equal monthly
installments, beginning May 18, 1969, with interest at the rate
of one percent per month. 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 equal to twenty-five percent of the total
amount due.
On the same date, Sambok Motors Company (hereinafter
referred to as Sambok), a sister company of Ng Sambok Sons
Motors Co., Ltd., and under the same management as the
former, negotiated and indorsed the note in favor of plaintiff
Metropol Financing & Investment Corporation with the
following indorsement:
“Pay to the order of Metropol Bacolod Financing & Investment
Corporation with recourse. Notice of Demand; Dishonor;
Protest; and Presentment are hereby waived.
SAMBOK MOTORS CO. (BACOLOD)
By: RODOLFO G. NONILLO Asst. General Manager”
The maker, Dr. Villaruel defaulted in the payment of his
installments when they became due, so on October 30, 1969
plaintiff formally presented the promissory note for payment to
the maker.Dr. Villaruel failed to pay the promissory note as
demanded, hence plaintiff notified Sambok, as indorsee of said
note, of the fact that the same has been dishonored and
demanded payment. Sambok refused to pay.
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
It argues that by adding the words "with recourse" in the
indorsement of the note, it becomes a qualified indorser that
being a qualified indorser, it does not warrant that if said note
is dishonored by the maker on presentment, it will pay the
amount to the holder; that it only warrants the following
pursuant to Section 65 of the Negotiable Instruments Law: (a)
that the instrument is genuine and in all respects what it purports
to be; (b) that he has a good title to it; (c) that all prior parties
had capacity to contract; (d) that he has no knowledge of any
fact which would impair the validity of the instrument or render
it valueless.
Issue:
Whether or not Sambok Motors Company is a qualified
indorsee and hence not liable to in case of non-payment of the
maker?
Held:
It is liable.
A qualified indorsement 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.
"Recourse" means resort to a person who is secondarily liable
after the default of the person who is primarily liable. 3
Appellant, by indorsing the note "with recourse" does not make
itself a qualified indorser but a general indorser who is
secondarily liable, because by such indorsement, it agreed that
if Dr. Villaruel fails to pay the note, plaintiff-appellee can go
after said appellant.
The effect of such indorsement is that the note was indorsed
without qualification. A person who indorses without
qualification engages that on due presentment, the note shall be
accepted or paid, or both as the case may be, and that if it be
dishonored, he will pay the amount thereof to the holder.
Appellant Sambok's intention of indorsing the note without
qualification is made even more apparent by the fact that the
notice of demand, dishonor, protest and presentment were an
waived. The words added by said appellant do not limit his
liability, but rather confirm his obligation as a general indorser.
NATIVIDAD GEMPESAW, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and
PHILIPPINE BANK OF
COMMUNICATIONS, respondents.
G.R. No. 92244 February 9, 1993
(4) (Under IIIB,IIIF,IIIH,VD)
FACTS:
Petioner, Natividad Gempesaw entrusted to her
bookkeeper, Alicia Galang, the preparation of checks about to
13
be issued in the course of her business transactions. From 1984
to 1986, 82 checks amounting to P1,208,606.89, were prepared
and were supposed to be delivered to Gempesaw’s clients as
payees named thereon. However, through Galang, these checks
were never delivered to the supposed payees. Instead, the
checks were fraudulently indorsed to Alfredo Romero and
Benito Lam.
ISSUE:
Whether or not the bank should is mandated by law to
refund the money lost due to forged indorsements.
HELD:
No, the bank is not mandated to refund the money. As
a rule, a drawee bank (in this case the Philippine Bank of
Communications) who has paid a check on which an
indorsement has been forged cannot charge the drawer’s
(Gempesaw’s) account for the amount of said check. An
exception to this rule is where the drawer is guilty of such
negligence which causes the bank to honor such a check or
checks. If a check is stolen from the payee, it is quite obvious
that the drawer cannot possibly discover the forged indorsement
by mere examination of his cancelled check. A different
situation arises where the indorsement was forged by an
employee or agent of the drawer,or done with the active
participation of the latter.
The negligence of a depositor which will prevent recovery of
an unauthorized payment is based on failure of the depositor to
act as a prudent businessman would under the circumstances.
In the case at bar, Gempesaw relied implicitly upon the honesty
and loyalty of Galang, and did not even verify the accuracy of
amounts of the checks she signed against the invoices attached
thereto. Furthermore, although she regularly received her bank
statements, she apparently did not carefully examine the same
nor the check stubs and the returned checks, and did not
compare them with the same invoices. Otherwise, she could
have easily discovered the discrepancies between the checks
and the documents serving as bases for the checks. With such
discovery, the subsequent forgeries would not have been
accomplished. It was not until two years after Galang
commenced her fraudulent scheme that Gempesaw discovered
that eighty-two (82) checks were wrongfully charged to her
account, at which she notified the Philippine Bank of
Communications.
BIBIANO V. BAÑAS, JR., petitioner, vs. COURT OF
APPEALS, AQUILINO T. LARIN, RODOLFO TUAZON
AND PROCOPIO TALON, G.R. No. 102967
February 10, 2000
FACTS:
On February 20, 1976, petitioner, Bibiano V. Bañas Jr. sold to
Ayala Investment Corporation (AYALA), 128,265 square
meters of land located at Bayanan, Muntinlupa, for two million,
three hundred eight thousand, seven hundred seventy
(P2,308,770.00) pesos. The Deed of Sale provided that upon the
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
signing of the contract AYALA shall pay four hundred sixty-
one thousand, seven hundred fifty-four (P461,754.00) pesos.
The balance of one million, eight hundred forty-seven thousand
and sixteen (P1,847,016.00) pesos was to be paid in four equal
consecutive annual installments, with twelve (12%) percent
interest per annum on the outstanding balance. AYALA issued
one promissory note covering four equal annual installments.
Each periodic payment of P461,754.00 pesos shall be payable
starting on February 20, 1977, and every year thereafter, or until
February 20, 1980.
The same day, petitioner discounted the promissory note with
AYALA, for its face value of P1,847,016.00, evidenced by a
Deed of Assignment signed by the petitioner and AYALA.
AYALA issued nine (9) checks to petitioner, all dated February
20, 1976, drawn against Bank of the Philippine Islands with the
uniform amount of two hundred five thousand, two hundred
twenty-four (P205,224.00) pesos.
In his 1976 Income Tax Return, petitioner reported the
P461,754 initial payment as income from disposition of capital
asset.
On April 11, 1978, then Revenue Director Mauro Calaguio
authorized the examination of the books and records of
petitioner for the year 1976. They discovered that petitioner had
no outstanding receivable from the 1976 land sale to AYALA
and concluded that the sale was cash and the entire profit should
have been taxable in 1976 since the income was wholly derived
in 1976.
Issue: WON the promissory note should be declared as a cash
transaction for purposes of taxation?
Held:
YES. As a general rule, the whole profit accruing from a sale of
property is taxable as income in the year the sale is made. But,
if not all of the sale price is received during such year, and a
statute provides that income shall be taxable in the year in
which it is "received," the profit from an installment sale is to
be apportioned between or among the years in which such
installments are paid and received. Sec. 43 and Sec. 175 says
that among the entities who may use the above-mentioned
installment method is a seller of real property who disposes his
property on installment, provided that the initial payment does
not exceed 25% of the selling price. They also state what may
be regarded as installment payment and what constitutes initial
payment. Initial payment means the payment received in cash
or property excluding evidences of indebtedness due and
payable in subsequent years, like promissory notes or
mortgages, given of the purchaser during the taxable year of
sale. Initial payment does not include amounts received by the
vendor in the year of sale from the disposition to a third person
of notes given by the vendee as part of the purchase price which
are due and payable in subsequent years. Such disposition or
discounting of receivable is material only as to the computation
of the initial payment. If the initial payment is within 25% of
total contract price, exclusive of the proceeds of discounted
notes, the sale qualifies as an installment sale, otherwise it is a
deferred sale. Although the proceed of a discounted promissory
note is not considered part of the initial payment, it is still
14
taxable income for the year it was converted into cash. The
subsequent payments or liquidation of certificates of
indebtedness is reported using the installment method in
computing the proportionate income to be returned, during the
respective year it was realized. Non-dealer sales of real or
personal property may be reported as income under the
installment method provided that the obligation is still
outstanding at the close of that year. If the seller disposes the
entire installment obligation by discounting the bill or the
promissory note, he necessarily must report the balance of the
income from the discounting not only income from the initial
installment payment. Where an installment obligation is
discounted at a bank or finance company, a taxable disposition
results, even if the seller guarantees its payment, continues to
collect on the installment obligation, or handles repossession of
merchandise in case of default. Thus, by analogy, all the more
would a taxable disposition result when the discounting of the
promissory note is done by the seller himself. Clearly, the
indebtedness of the buyer is discharged, while the seller
acquires money for the settlement of his receivables. Logically
then, the income should be reported at the time of the actual
gain. For income tax purposes, income is an actual gain or an
actual increase of wealth. Although the proceeds of a
discounted promissory note is not considered initial payment,
still it must be included as taxable income on the year it was
converted to cash. When petitioner had the promissory notes
covering the succeeding installment payments of the land
issued by AYALA, discounted by AYALA itself, on the same
day of the sale, he lost entitlement to report the sale as a sale on
installment since, a taxable disposition resulted and petitioner
was required by law to report in his returns the income derived
from the discounting.
According to Section 25 of the NIL- Value is any consideration
sufficient to support a simple contract. An antecedent or pre-
existing debt constitutes value; and is deemed such whether the
instrument is payable on demand or at a determinable future
time.
The proceed of the discounted promissory note is taxable
income as it was converted to cash on the taxable year.
CHAN WAN, plaintiff-appellant, vs. TAN KIM and
CHEN SO, defendants-appellees G.R. No. L-15380
September 30, 1960
Facts :
Checks payable to "cash or bearer" and drawn by defendant Tan
Kim (the other defendant is her husband) upon the Equitable
Banking Corporation, were all presented for payment by Chan
Wan to the drawee bank, but they "were all dishonored and
returned to him unpaid due to insufficient funds and/or causes
attributable to the drawer."
At the hearing of the case, in the Manila court of first instance,
defendants Tan Kim declared without contradiction that the
checks had been issued to two persons named Pinong and Muy
for some shoes the former had promised to make and "were
intended as mere receipts". In view of such circumstances, the
court declined to order payment for two principal reasons: (a)
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
plaintiff failed to prove he was a holder in due course, and (b)
the checks being crossed checks should not have been deposited
instead with the bank mentioned in the crossing.
Issue: WON plaintiff Chan Wan is a holder in due course?
Held:
No. Eight of the checks here in question bear across their face
two parallel transverse lines between which these words are
written: non-negotiable — China Banking Corporation. These
checks have, therefore, been crossed specially to the China
Banking Corporation, and should have been presented for
payment by China Banking, and not by Chan Wan. Inasmuch
as Chan Wan did present them for payment himself — the
Manila court said — there was no proper presentment, and the
liability did not attach to the drawer.
Nevertheless it is found on the back of the check that it was
presented to the bank but was returned due to lack of funds by
the drawee. Naturally and rightly, the lower court held him not
to be a holder in due course under the circumstances, since he
knew, upon taking them up, that the checks had already been
dishonored.
Sec. 52. What constitute a holder in due course.
- 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 ist 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.
Chan Wan is not a holder in due course as she has
knowledge that the check was previously dishonored.
ATRIUM MANAGEMENT VS. CA
G.R. No. 109491. February 28, 2001
FACTS:
 Hi-Cement Corporation through its corporate signatories,
Lourdes M. de Leon (Teasurer) and Antonio de las Alas
(Chairman) issued four (4) checks in favor of E.T. Henry
and Co. Inc., as payee.
 E.T. Henry and Co., Inc., in turn, endorsed the four checks
to petitioner Atrium Management Corporation for valuable
consideration.
 Upon presentment for payment, the drawee bank dishonored
all four checks for the common reason payment
stopped. Atrium Management Corporation filed with the
Regional Trial Court, Manila an action for collection of the
proceeds of four postdated checks in the total amount of P2
million.
15
Trial Court
During trial, Atrium and Hi-Cement presented their own
witnesses:
Atrium witness:
Carlos C. Syquia testified that Enrique Tan of E.T.
Henry approached Atrium for financial assistance,
offering to discount four RCBC checks issued by Hi-
Cement in favor of E.T. Henry. Atrium agreed to
discount the checks provided that Hi-Cements
confirms that checks represented payment for
petroleum products it purchased from E.T. Henry.
Lourdes de Leon signed a letter confirming the same.
Hi-Cement witness:
Ms. Erlinda Yap testified that E.T. Henry offered to
give Hi-Cement a loan which the subject checks would
secure as collateral.
The trial court rendered a decision ordering Lourdes M. de
Leon, her husband Rafael de Leon, E.T. Henry and Co., Inc.
and Hi-Cement Corporation to pay petitioner Atrium, jointly
and severally, the amount of P2 million corresponding to the
value of the four checks.
Court of Appeals
Lourdes M. de Leon submitted that the trial court erred in ruling
that she was solidarilly liable with Hi-Cement for the amount
of the check. Also, that the trial court erred in ruling that Atrium
was an ordinary holder, not a holder in due course of the
rediscounted checks
Hi-Cement on its part submitted that the trial court erred in
ruling that even if Hi-Cement did not authorize the issuance of
the checks, it could still be held liable for the checks. And
assuming that the checks were issued with its authorization, the
same was without any consideration, which is a defense against
a holder in due course and that the liability shall be borne alone
by E.T. Henry
The Court of Appeals absolved Hi-Cement Corporation from
liability and dismissing the complaint as against it, and ruled
that:
(1) Lourdes M. de Leon was not authorized to issue the subject
checks in favor of E.T. Henry, Inc.;
(2) The issuance of the subject checks by Lourdes M. de Leon
and the late Antonio de las Alas constituted ultra vires acts;
(3) The subject checks were not issued for valuable
consideration.
ISSUE: Whether Atrium was not a holder in due course and
for value
SC RULING: The Negotiable Instruments Law, Section 52
defines a holder in due course, thus:
A holder in due course is a holder who has taken the instrument
under the following conditions:
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
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 checks were crossed checks and specifically indorsed
for deposit to payees account only. From the beginning,
Atrium was aware of the fact that the checks were all for
deposit only to payees account, meaning E.T.
Henry. Clearly, then, Atrium could not be considered a
holder in due course.
However, it does not follow as a legal proposition that simply
because petitioner Atrium was not a holder in due course for
having taken the instruments in question with notice that the
same was for deposit only to the account of payee E.T. Henry
that it was altogether precluded from recovering on the
instrument. The Negotiable Instruments Law does not provide
that a holder not in due course can not recover on the
instrument.
The disadvantage (of Atrium) in not being a holder in due
course is that the negotiable instrument is subject to defenses as
if it were non-negotiable.
Decision of CA is affirmed.
MARCELO A. MESINA v. CA
GR No. L-70145, Nov 13, 1986
FACTS:
 Respondent Jose Go, on December 29, 1983, purchased
from Associated Bank Cashier's Check No. 011302 for
P800,000.00. Unfortunately, Jose Go left said check on the
top of the desk of the bank manager when he left the bank.
The bank manager entrusted the check for safekeeping to a
bank official, a certain Albert Uy, who had then a visitor in
the person of Alexander Lim. Uy had to answer a phone call
on a nearby telephone after which he proceeded to the men's
room. When he returned to his desk, his visitor Lim was
already gone. When Jose Go inquired for his cashier's check
from Albert Uy, the check was not in his folder and nowhere
to be found. The latter advised Jose Go to go to the bank to
accomplish a "STOP PAYMENT"order, which suggestion
Jose Go immediately followed. He also executed an
affidavit of loss. Albert Uy went to the police to report the
loss of the check, pointing to the person of Alexander Lim
as the one who could shed light on it.
 The records of the police show that Associated Bank
received the lost check for clearing. The check was
immediately dishonored Payment Stopped" stamped on
it. However, the same was again returned to Associated
Bank and for the second time it was
dishonored. Respondent Associated Bank received a letter,
16
from a certain Atty. Lorenzo Navarro demanding payment
on the cashier's check in question, which was being held by
his client, whose name he refused to disclose, and threatened
to sue, if payment is not made.
 Unsure of what to do on the matter, respondent Associated
Bank filed an action for Interpleader naming as respondent,
Jose Go and one John Doe, Atty. Navarro's then unnamed
client. On even date, respondent bank received summons
and copy of the complaint for damages of a certain Marcelo
A. Mesina from the Regional Trial Court (RTC) of
Caloocan. The bank then substituted Marcelo A. Mesina for
John Doe.
 When Marcelo Mesina was asked how he came to possess
the check, he said it was paid to him by Alexander Lim in a
"certain transaction" but refused to elucidate further. An
information for theft was instituted against Alexander Lim
and the corresponding warrant for his arrest was issued
which up to the date of the filing of this instant petition
remains unserved because of Alexander Lim's successful
evasion thereof.
Who between Marcelo Mesina and Jose Go is entitled to
payment of Associated Bank's Cashier's Check No. CC-
011302?
Trial Court
In the interpleader, judgment was rendered ordering plaintiff
Associate Bank to replace Cashier's Check No. 011302 in
favor of Jose Go or its cash equivalent with legal rate of
interest from date of complaint, and with costs of suit against
the latter.
Petitioner Mesina filed a petition for certiorari with preliminary
injunction with IAC to set aside the order of respondent court.
IAC: Dismissed Mesina’s petition for certiorari and
preliminary injunction. Petitioner Marcelo Mesina, among
other issues alleges that the IAC erred in ruling that a cashier's
check can be countermanded even in the hands of a holder in
due course.
ISSUE: Whether Marcelo Mesina is a holder in due course.
SC RULING: No. Petitioner failed to substantiate his claim
that he is a holder in due course and for consideration or value
as shown by the established facts of the case. Admittedly,
petitioner became the holder of the cashier's check as endorsed
by Alexander Lim who stole the check. He refused to say how
and why it was passed to him. He had therefore notice of the
defect of his title over the check from the start. The holder of a
cashier's check who is not a holder in due course cannot enforce
such check against the issuing bank which dishonors the
same. If a payee of a cashier's check obtained it from the
issuing bank by fraud, or if there is some other reason why the
payee is not entitled to collect the check, the respondent bank
would, of course, have the right to refuse payment of the check
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
when presented by the payee, since respondent bank was aware
of the facts surrounding the loss of the check in question.
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.
VICENTE R. DE OCAMPO v. ANITA GATCHALIAN
GR No. L-15126, Nov 30, 1961
FACTS:
Anita C. Gatchalian who was then interested in looking for a
car was shown and offered a car by Manuel Gonzales. He
represented to defendant Anita that he was duly authorized by
the owner of the car, Ocampo Clinic, to look for a buyer of said
car and to negotiate for and accomplish said sale. Finding the
price of the car quoted by Manuel Gonzales to her satisfaction,
she requested Manuel Gonzales to bring the car the day
following together with the certificate of registration of the car,
so that her husband would be able to see same.
Manuel Gonzales advised her that the owner of the car will not
be willing to give the certificate of registration unless there is a
showing that the party interested in the purchase of said car is
ready and willing to make such purchase. He requested Anita
to give him, a check which will be shown to the owner as
evidence of buyer's good faith in the intention to purchase the
said car. He says that the check is for his safekeeping only and
to be returned to her the following day when he brings the car
and the certificate of registration.
Relying on the representations of Manuel Gonzales, Anita drew
and issued a check, and was issued a receipt therefor. The
following day, however, Manuel Gonzales failed to appear.
Anita issued a 'Stop Payment Order’ with the drawee bank.
What happened to Manuel and the check?
Manuel delivered the check to the Ocampo Clinic in payment
of the fees and expenses arising from the hospitalization and
release of his wife, Metilda Gonzales. Vicente Ocampo
accepted said check, applied P441.75 thereof to payment of said
hospitalization fees and gave Manuel P158.25, representing the
balance on the amount of the said check.
Vicente Ocampo filed a case for estafa against Manuel after
learning that the check was under a Stop Payment Order. – The
complaint was subsequently dropped. Vicente then filed an
action is for the recovery of the value of a check for P600,
against Manuel Gonzales and Anita Gatchalian
Trial Court:
Sentencing the defendants to pay the plaintiff the sum of P600,
with legal interest from September 10, 1953 until paid, and to
pay the costs.
Contention of defendants Manuel and Anita during appeal:
In their appeal defendants-appellants contend that the check is
not a negotiable instrument, under the facts and circumstances
17
stated in the stipulation of facts, and that plaintiff is not a holder
in due course. It is also claimed that the plaintiff-appellee is not
a holder in due course because it acquired the check with notice
of defect in the title of the holder, Manuel Gonzales, and
because under the circumstances stated in the stipulation of
facts there were circumstances that brought suspicion about
Gonzales' possession and negotiation, which circumstances
should have placed the plaintiff-appellee under the duty to
inquire into the title of the holder.
ISSUE: Whether the plaintiff-appellee Vicente may be
considered as a holder in due course.
SC RULING: No, Vicente is not a holder in due course.
Section 52 (c) provides that a holder in due course is one who
takes the instrument "in good faith and for value;" Section 59,
"that every holder is deemed prima facie to be a holder in due
course;" and Section 52 (d), that in order that one may be a
holder in due course it is necessary that "at the time the
instrument was negotiated to him "he had no notice of any * *
* defect in the title of the person negotiating it;" and lastly
Section 59, that every holder is deemed prima facie to be a
holder in due course.
In the case at bar the rule that a possessor of the instrument is
prima facie a holder in due course does not apply because there
was a defect in the title of the holder (Manuel Gonzales),
because the instrument is not payable to him or to bearer. On
the other hand, the stipulation of facts indicated by the
appellants in their brief, like the fact that the drawer had no
account' with the payee; that the holder did not show or tell the
payee why he had the check in his possession and why he was
using it for the payment of his own personal account show that
holder's title was defective or suspicious, to say the least. As
holder's title was defective or suspicious, it cannot be stated that
the payee acquired the check without knowledge of said defect
in holder's title, and for this reason the presumption that it is a
holder in due course or that it acquired the instrument in good
faith does not exist. And having presented no evidence that it
acquired the check in good faith, it (payee) cannot be
considered as a holder in due course. In other words, under the
circumstances of the case, instead of the presumption that payee
was a holder in good faith, the fact is that it acquired possession
of the instrument under circumstances that should have put it to
inquiry as to the title of the holder who negotiated the check to
it. The burden was, therefore, placed upon it to show that
notwithstanding the suspicious circumstances, it acquired the
check in actual good faith.
"It comes to this then: When the case has taken such shape that
the plaintiff is called upon to prove himself a holder in due
course to be entitled to recover, he is required to establish the
conditions entitling him to standing as such, including good
faith in taking the instrument. It devolves upon him to disclose
the facts and circumstances attending the transfer, from which
good or bad faith in the transaction may be inferred."
In the case at bar as the payee acquired the check under
circumstances which should have put it to inquiry, why the
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
holder had the check and used it to pay his own personal
account, the duty devolved upon it, plaintiff-appellee, to prove
that it actually acquired said check in good faith. The stipulation
of facts contains no statement of such good faith, hence plaintiff
payee has not proved that it acquired the check in good faith
and may not be deemed a holder in due course thereof.
The Decision appealed is reversed and the defendants are
absolved from the complaint.
CELY YANG vs. HON. COURT OF APPEALS,
PHILIPPINE COMMERCIAL INTERNATIONAL
BANK, FAR EAST BANK & TRUST CO., EQUITABLE
BANKING CORPORATION, PREM CHANDIRAMANI and
FERNANDO DAVID, G.R. No. 138074. August 15, 2003
FACTS:
Cely Yang and private respondent Prem Chandiramani entered
into an agreement whereby the latter was to give Yang a PCIB
managers check in the amount of P4.2 million in exchange for
two of Yangs managers checks, each in the amount of P2.087
million, both payable to the order of private respondent
Fernando David. Yang and Chandiramani agreed that the
difference of P26,000.00 in the exchange would be their profit
to be divided equally between them.
Yang and Chandiramani also further agreed that the Yang
would secure from FEBTC a dollar draft in the amount of
US$200,000.00, payable to PCIB FCDU Account No. 4195-
01165-2, which Chandiramani would exchange for another
dollar draft in the same amount to be issued by Hang Seng Bank
Ltd. of Hong Kong.
Accordingly, Yang procured the following:
a) Equitable Cashiers Check in the sum of P2,087,000.00,
payable to the order of Fernando David;
b) FEBTC Cashiers in the amount of P2,087,000.00, likewise
payable to the order of Fernando David; and
c) FEBTC Dollar Draft No. 4771, drawn on Chemical Bank,
New York, in the amount of US$200,000.00, payable to PCIB
FCDU Account No. 4195-01165-2.
Yang gave the cashiers checks and dollar drafts to her business
associate, Albert Liong, to be delivered to Chandiramani by
Liongs messenger, Danilo Ranigo. Ranigo was to meet
Chandiramani at Philippine Trust Bank, Ayala Avenue, Makati
City where he would turn over Yang’s cashiers checks and
dollar draft to Chandiramani who, in turn, would deliver to
Ranigo a PCIB managers check in the sum of P4.2 million and
a Hang Seng Bank dollar draft for US$200,000.00 in exchange.
Ranigo reported that Chandiramani did not appear at the
rendezvous he allegedly lost the checks and drafts. The loss was
then reported to the police.
 It transpired, however, that the checks and the dollar
draft were not lost, for Chandiramani was able to get
hold of said instruments, without delivering the
18
exchange consideration consisting of the PCIB
managers check and the Hang Seng Bank dollar draft.
 Chandiramani delivered the checks to respondent
Fernando David at China Banking Corporation branch
in San Fernando City, Pampanga. In exchange,
Chandiramani got US$360,000.00 from David, which
Chandiramani deposited in the savings account of his
wife and his mother, who held FCDU Account with
the United Coconut Planters Bank branch in
Greenhills, San Juan, Metro Manila.
 Chandiramani also deposited FEBTC Dollar Draft No.
4771, drawn upon the Chemical Bank, New York for
US$200,000.00 in PCIB FCDU Account No. 4195-
01165-2 on the same date.
Meanwhile, Yang requested FEBTC and Equitable to stop
payment on the instruments she believed to be lost. Both banks
complied with her request, but upon the representation of PCIB,
FEBTC subsequently lifted the stop payment order on FEBTC
Dollar Draft No. 4771, thus enabling the holder of PCIB FCDU
Account No. 4195-01165-2 to receive the amount of
US$200,000.00.
Thus Yang filed a complaint against Equitable, FEBTC, PCIB,
Chandiramani and David, with the RTC of Pasay City.
RTC:
Fernando David is entitled to the proceeds of the two (2)
cashiers checks The complaint against Far East Bank and Trust
Company (FEBTC), Philippine Commercial International Bank
(PCIB) and Equitable Banking Corporation (EBC) is dismissed.
The evidence shows that defendant David was a holder in due
course for the reason that the cashiers checks were complete on
their face when they were negotiated to him. They were not yet
overdue when he became the holder thereof and he had no
notice that said checks were previously dishonored; he took the
cashiers checks in good faith and for value. He parted some
$200,000.00 for the two (2) cashiers checks which were given
by Chandiramani; he had also no notice of any infirmity in the
cashiers checks or defect in the title of the drawer. As a matter
of fact, he asked the manager of the China Banking Corporation
to inquire as to the genuineness of the cashiers checks.
CA: Affirmed the judgement of the RTC.
Yany’s (petitioner’s) arguments:
Petitioner challenges David’ss status as a holder in due course
based on two arguments: (1) the lack of proof to show that
David tendered any valuable consideration for the disputed
checks; and (2) Davids failure to inquire from Chandiramani as
to how the latter acquired possession of the checks, thus
resulting in Davids intentional ignorance tantamount to bad
faith.
ISSUE: Whether the Court of Appeals erred in holding that
respondent Fernando David to be a holder in due course
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
SC RULING: The Trial Court and the CA are correct in
holding David a holder in due course.
Every holder of a negotiable instrument is deemed prima facie
a holder in due course. However, this presumption arises only
in favor of a person who is a holder as defined in Section 191
of the Negotiable Instruments Law, meaning a payee or
indorsee of a bill or note, who is in possession of it, or the bearer
thereof.
It is not disputed that David was the payee of the checks in
question. The weight of authority sustains the view that a payee
may be a holder in due course. Hence, the presumption that he
is a prima facie holder in due course applies in his favor.
However, said presumption may be rebutted. Hence, what is
vital to the resolution of this issue is whether David took
possession of the checks under the conditions provided for in
Section 52 of the Negotiable Instruments Law. All the
requisites provided for in Section 52 must concur in Davids
case, otherwise he cannot be deemed a holder in due course.
(1) Both the trial court and the appellate court found that David
did not receive the checks gratis, but instead gave
Chandiramani US$360,000.00 as consideration for the said
instruments.
(2) Chandiramani and David had a separate dealing in which it
was precisely Chandiramanis duty to deliver the checks to
David as payee.
(3) Petitioner Yang also admits that David took the step of
asking the manager of his bank to verify from FEBTC and
Equitable as to the genuineness of the checks and only accepted
the same after being assured that there was nothing wrong with
said checks.
(4) At that time, David was not aware of any stop payment
order.
Under these circumstances, David thus had no obligation to
ascertain from Chandiramani what the nature of the latters title
to the checks was, if any, or the nature of his possession.
This David is not guilty of gross neglect amounting to legal
absence of good faith, absent any showing that there was
something amiss about Chandiramanis acquisition or
possession of the checks.
David did not close his eyes deliberately to the nature or the
particulars of a fraud allegedly committed by Chandiramani
upon the petitioner, absent any knowledge on his part that the
action in taking the instruments amounted to bad faith.
STELCO MARKETING CORPORATION VS. CA
210 SCRA 51
June 17, 1992
FACTS:
19
STELCO Marketing Corporation sold structural steel bars to
RYL Construction Inc. RYL gave Stelco’s “sister
corporation,” Armstrong Industries, a Metrobank check from
Steelweld Corporation.
The check was issued by Steelweld’s president to Romeo Lim
(President of RYL) by way of accommodation, as a guaranty
and not in payment of an obligation. When Armstrong
deposited the check at its bank, it was dishonored because it was
drawn against insufficient funds. When so deposited, the check
bore two (2) indorsements, i.e. RYL and
Armstrong. Subsequently, Stelco filed a case against RYL and
Steelweld to recover the value of the steel products.
ISSUE:
Whether STELCO became a holder in due course of the said
check, a bearer instrument within the contemplation of the
Negotiable Instruments Law
HELD:
NO.
It never did. There is no evidence whatever that STELCO's
possession of Check 765380 ever dated back to any time before
the instrument's presentment and dishonor. There is no
evidence whatsoever that the check was ever given to it or
indorsed to it in any manner or form in payment of an obligation
or as security for an obligation, or for any other purpose before
it was presented for payment.
On the contrary, STELCO never became a holder for value and
that "nowhere in the check itself does the name of STELCO
Marketing appear as payee, indorsee or depositor thereof."
What the record shows is that:
a. the STEELWELD company check in question was given
by its president to R.Y. Lim;
b. it was given only by way of accommodation, to be "used
as collateral for another obligation;"
c. in breach of the agreement, however, R.Y. Lim indorsed
the check to Armstrong in payment of an obligation;
d. Armstrong deposited the check to its account, after
indorsing it;
e. the check was dishonored. The record does not show any
intervention or participation by STELCO in any manner
or form whatsoever in these transactions, or any
communication of any sort between STEELWELD and
STELCO, or between either of them and Armstrong
Industries, at any time before the dishonor of the check.
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
The record does show that after the check had been deposited
and dishonored, STELCO came into possession of it in some
way, and was able, several years after the dishonor of the check,
to give it in evidence at the trial of the civil case it had instituted
against the drawers of the check (Limson and Torres) and RYL.
Possession of a negotiable instrument after presentment and
dishonor, or payment, is utterly inconsequential; it does not
make the possessor a holder for value within the meaning of the
law; it gives rise to no liability on the part of the maker or
drawer and indorsers. It is clear from the relevant circumstances
that STELCO cannot be deemed a holder of the check for value.
It does not meet two of the essential requisites prescribed by the
statute. It did not become "the holder of it before it was overdue,
and without notice that it had been previously dishonored," and
it did not take the check "in good faith and for value." Neither
is there any evidence whatever that Armstrong Industries, to
whom R.Y. Lim negotiated the check, accepted the instrument
and attempted to encash it in behalf, and as agent of STELCO.
On the contrary, the indications are that Armstrong was really
the intended payee of the check and was the party injured by its
dishonor; it was after all its representative (a Mr. Young) who
instituted the criminal prosecution of the drawers, Limson and
Torres, albeit unsuccessfully.
JUANITA SALAS VS COURT OF APPEALS
GR No. 76788 / 181 SCRA 296
January 22, 1990 (Fernan, C.J.)
FACTS:
On February 6, 1980, Juanita Salas bought a motor
vehicle from the Violago Motor Sales Corporation (VMS) for
P58,138.20 as evidenced by a promissory note, which contained
an unconditional promise to pay the amount of P58,138.20
payable at a fixed or determinable future time which is
P1,614.95 monthly for 36 months due and payable on the 21 st
day of each month starting March 21, 1980 thru and inclusive
of Feb. 21, 1983. This note was indorsed to Filinvest Finance &
Leasing Corporation which financed the purchase.
Salas defaulted in her installments beginning May 21,
1980 allegedly due to a discrepancy in the engine and chassis
numbers of the vehicle delivered to her and those indicated in
the sales invoice, certificate of registration and deed of chattel
mortgage, which fact she discovered when the vehicle figured
in an accident on May 9, 1980.
This failure to pay prompted Filinvest to initiate a case
for a sum of money against Salas before the RTC of San
Fernando, Pampanga. RTC ruled in favor of Filinvest.
Salas appealed the decision to the CA imputing fraud,
bad faith and misrepresentation against VMS for having
20
delivered a different vehicle. However, CA affirmed RTC’s
decision.
ISSUE:
WON the promissory note in question is a negotiable
instrument which will bar completely all the available defenses
of Salas against Filinvest.
HELD:
Yes. Salas’ claim against Filinvest is a promissory
note which bears all the earmarks of negotiability, having
complied with the requisities under the law as follows: [a] in
writing and signed by the maker, Juanita Salas; [b] contains an
unconditional promise to pay the amount of P58,138.20; [c]
payable at a fixed and determinable future time which is
P1,614.95 monthly for 36 months due and payable on the 21 st
day of each month starting March 21, 1980 thru and inclusive
of Feb. 21, 1983; [d] payable to Violago Motor Sales Corp., or
order and as such, [e] drawee is named or indicated with
certainty.
There appears to be no question that Filinvest is a
holder in due course, having taken the instrument under the
following conditions: [a] it is complete and regular upon its
face; [b] it became the holder thereof before it was overdue, and
without notice that it had previously been dishonored; [c] took
the same in good faith and for value; and [d] when it was
negotiated to Filinvest, the latter had no notice of any infirmity
in the instrument or defect in the title of VMS Corporation.
Filinvest holds the instrument free from any defect of
title of prior parties, and free from defenses available to prior
parties among themselves, and may enforce payment of the
instrument for the full amount thereof. This being so, Salas
cannot set up against Filinvest the defense of nullity of the
contract of sale between her and VMS.
STATE INVESTMENT HOUSE VS. CA
175 SCRA 311
July 13, 1989
FACTS:
New Sikatuna Wood Industries, Inc. requested for a loan from
Chua. The latter agreed to grant the same subject to the condition
that the former should wait until December 1980 when he would
have the money. In view of this agreement, private respondent
Chua issued three (3) "crossed checks" payable to New Sikatuna
Wood Industries, Inc. all postdated December 22, 1980.
Subsequently, New Sikatuna entered into an agreement with
herein petitioner State Investment House, Inc. whereby New
Sikatuna assigned and discounted with petitioner eleven (11)
postdated checks including the three (3) postdated checks issued
by Chua. The checks, however, were dishonored by reason of
"insufficient funds", "stop payment" and "account closed",
respectively. Petitioner claims that despite demands on Chua to
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
make good said checks, the latter failed to pay the same
necessitating the former to file an action for collection. When the
CA reversed the trial court ruling favoring State Investment
House, the latter elevated the issue before the SC.
ISSUE:
Whether petitioner is a holder in due course as to entitle it to
proceed against private respondents for the amount stated in the
dishonored crossed checks
HELD:
NO.
The Court of Appeals correctly elucidated that the effects of
crossing a check are:
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.
It results therefore that when State Investment House
rediscounted the check knowing that it was a crossed check he
was knowingly violating the avowed intention of crossing the
check.
Furthermore, his failure to inquire from the holder, party
defendant New Sikatuna Wood Industries, Inc., the purpose for
which the three checks were cross despite the warning of the
crossing, prevents him from being considered in good faith and
thus he is not a holder in due course.
Being not a holder in due course, plaintiff is subject to personal
defenses, such as lack of consideration between appellants and
New Sikatuna Wood Industries.
Note that under the facts the checks were postdated and issued
only as a loan to New Sikatuna Wood Industries, Inc. if and when
deposits were made to back up the checks. Such deposits were
not made; hence no loan was made, hence, the three checks are
without consideration (Sec. 28, Negotiable Instruments Law).
EULALIO PRUDENCIO VS COURT OF APPEALS
GR No. L-34539 / 143 SCRA 7
July 14, 1986 (Gutierrez, Jr, J.)
FACTS:
21
The Prudencios are the registered owners of a parcel
of land located in Sampaloc, Manila. On October 7, 1954, the
property was mortgaged by the Prudencios to the PNB to
guarantee a loan of P1,000 extended to one Domingo
Prudencio.
Sometime in 1955, the Concepcion & Tamayo
Construction Company, had a pending contract with the Bureau
of Public Works, for the construction of the municipal building
in Puerto Princesa in the amount of P36,800 and said company
needed funds for the construction, Jose Toribio, Prudencio’s
relative, and atty-in-fact of the company, approached the
Prudencios asking them to mortgage their property to secure the
load on P10,000 which the company was negotiating with the
PNB.
The Prudencios signed on December 23, 1955 the
‘Amendment of Real Estate Mortgage’, mortgaging their said
property to PNB to guaranty a loan of P10,000 extended to the
Company. The terms and conditions of the original mortgage
for P1,000 were made integral part of the new mortgage for
P10,000. The promissory note covering the loan of P10,000
dated December 29, 1955, maturing on April 27, 1956 was
signed by Jose Toribio, as atty-in-fact of the company, and by
the Prudencios. The Prudencios also signed the portion of the
promissory note indicating that they are requesting the PNB to
issue the check covering the loan to the company. On the same
day, Toribio also executed the ‘Deed of Assignment’ assigning
all payments to be made by the Bureau to the company on
account of the contract for the construction in favor of PNB.
The Bureau’s last request for P5,000 on June 20, 1956,
however, was denied by the PNB because since the loan was
already overdue as of April 28, 1956, the remaining balance of
the contract price should be applied to the loan.
The company abandoned the work and the Bureau
rescinded the construction contract and assumed the work of
completing the building. On November 14, 1958, the
Prudencios wrote the PNB contending that since the PNB
authorized payments to the company instead of on account of
the loan guaranteed by the mortgage there was a change in the
conditions of the contract without the knowledge of the
Prudencios, which entitled them to cancel their mortgage
contract.
Failing to have the mortgage cancelled, the Prudencios
filed this action against PNB seeking for it’s cancellation. The
trial court denied. The CA affirmed the decision of the trial
court.
ISSUE:
1. WON PNB is a holder in due course
2. WON PNB can be considered a holder for value
under Sec 29 of the NIL such that the petitioners must be
necessarily barred from setting up the defense of want of
consideration or some other personal defenses which may be set
up against a party who is not a holder in due course.
HELD:
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
1. No, PNB is not a holder in due course.
Although as a general rule, a payee may be considered
a holder in due course we think that such a rule cannot apply
with respect to the respondent PNB. Not only was PNB an
immediate party or in privy to the promissory note, that is, it
had dealt directly with the petitioners knowing fully well that
the latter only signed as accommodation makers but more
important, it was the Deed of Assignment executed by the
Construction Company in favor of PNB which principally
moved the petitioners to sign the promissory note also in favor
of PNB. Petitioners were made to believe and on that belief
entered into the agreement that no other conditions would alter
the terms thereof and yet, PNB altered the same. The Deed of
Assignment specifically provided that Jose F. Toribio, on
behalf of the Company, "have assigned, transferred and
conveyed and by these presents, do assign, transfer and convey
unto the said Philippine National Bank, its successors and
assigns all payments to be received from the Bureau of Public
Works on account of contract for the construction of the Puerto
Princesa Municipal Building in Palawan, involving the total
amount of P 36,000.00" and that "This assignment shall be
irrevocable and subject to the terms and conditions of the
promissory note and or any other kind of documents which the
Philippine National Bank have required or may require the
assignor to execute to evidence the above-mentioned
obligation."
2. No, PNB cannot be considered a holder for value
under Sec 29 of the NIL.
Since the court ruled that the PNB is not a holder in
due course, the petitioners can validly set up their personal
defense of release from the real estate mortgage against PNB.
The latter, in authorizing the third payment to the Company
after the promissory note became due, in effect, extended the
term of the payment of the note without the consent of the
accommodation makers who stand as sureties to the
accommodated party and to all other parties who are not holders
in due course or who do not derive their right from the same,
including PNB.
CHARLES A. FOSSUM vs. FERNANDEZ HERMANOS
March 28, 1923 GR No. 19461
FACTS:
On February 10, 1920, Charles A. Fossum, acting as an agent
of the American Iron Products Company, Inc., procured an
order from Fernandez Hermanos, a general commercial
partnership, to deliver to said firm a tail shaft, to be installed on
the ship Romulus, then operated by Hermanos, as manager of
La Compañía Marítima.
It was stipulated that said tail shaft would be in accordance with
the specifications contained in a blueprint which had been
placed in the hands of Fossum on or about December 18, 1919.
The shaft was shipped from New York in 1920 and arrived in
Manila in January, 1921.
22
Meanwhile the American Iron Products Company, Inc., had
drawn a time draft, at sixty days, upon Hermanos, for the
purchase price of the shaft, in the amount of $2,250, and
payable to the Philippine National Bank (PNB). In due course
the draft was presented to Hermanos for acceptance, and was
accepted by said firm on December 15, 1920, according to its
tenor.
Upon discovering that the shaft was not able to comply with the
specifications, Hermanos refused to pay the draft, and it
remained for a time, dishonored in the hands of PNB in Manila.
Later the bank indorsed the draft in blank, without
consideration, and delivered it to Charles A. Fossum, who
thereupon instituted the present action to recover the amount
covered by the draft.
ISSUE:
Whether or not Charles A. Fossum is a holder in due course?
HELD:
NO. In the first place, Fossum is a party to the contract which
supplied the consideration for the draft, albeit he there acted in
a representative capacity. In the second place, he procured the
instrument to be indorsed by the bank and delivered to himself
without the payment of value, after it was overdue, and with full
notice that, as between the original parties, the consideration
had completely failed.
The presumption expressed in section 59 of the Negotiable
Instruments Law, to the effect that every holder is deemed
prima facie to be a holder in due course, arises only in favor of
a person who is a holder in the sense defined in section 191 of
the same Law, that is, a payee or indorsee who is in possession
of the draft, or the bearer thereof. There is no presumption that
a person through whose hands an instrument has passed was a
holder in due course.
If this action had been instituted by the bank itself, the
presumption that the bank was a holder in due course would
have arisen from the tenor of the draft and the fact that it was in
the bank's possession; but when the instrument passed out of
the possession of the bank and into the possession of the present
plaintiff, no presumption arises as to the character in which the
bank held the paper. The bank's relation to the instrument
became past history when it delivered the document to the
plaintiff; and it was incumbent upon the plaintiff in this action
to show that the bank had in fact acquired the instrument for
value and under such conditions as would constitute it a holder
in due course.
JAI -ALAI vs. BPI August 6, 1975 GR No. L-29432
FACTS:
From April 2, 1959 to May 18, 1959, ten checks with a total
face value of P8,030.58 were deposited by the petitioner, Jai-
Alai Corporation of the Philippines, in its current account with
the respondent bank, Bank of the Philippine Islands (BPI). The
particulars of these checks are as follows:
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
1. Five checks drawn by the Delta Engineering Service
upon the Pacific Banking Corporation and payable to
the Inter-Island Gas Service, Inc. or order.
2. Two checks drawn by the Enrique Cortiz & Co. upon
the Pacific Banking Corporation and payable to the
Inter-Island Gas Service, Inc. or bearer.
3. One check drawn by the Luzon Tinsmith & Company
upon the China Banking Corporation and payable to
the Inter-Island Gas Service, Inc. or bearer.
4. Two checks drawn by the Roxas Manufacturing, Inc.
upon the Philippine National Bank and payable to the
Inter-Island Gas Service, Inc. or order.
All the foregoing checks were acquired by the petitioner from
one Antonio J. Ramirez, a sales agent of the Inter-Island Gas
and a regular bettor at jai-alai games.
Inter-Island Gas discovered that all the indorsements made on
the checks purportedly by its cashiers, Santiago Amplayo and
Vicenta Mucor (who were merely authorized to deposit checks
issued payable to the said company) as well as the rubberstamp
impression thereon reading “Inter-Island Gas Service, Inc.,”
were forgeries. In due time, the Inter-Island Gas advised all the
parties concerned about the forgeries, and filed a criminal
complaint against Ramirez with the Office of the City Fiscal of
Manila.
BPI, as the collecting bank, debited the petitioner’s current
account and forwarded to the latter the checks containing the
forged indorsements, which the petitioner refused to accept.
On October 8, 1959 the petitioner drew against its current
account with the respondent bank a check for P135,000 payable
to the order of the Mariano Olondriz y Cia. in payment of
certain shares of stock. The check was, however, dishonored by
the respondent as its records showed that as of October 8, 1959
the current account of the petitioner, after netting out the value
of the checks P8,030.58) with the forged indorsements, had a
balance of only P128,257.65.
The petitioner then filed a complaint against the respondent
with the Court of First Instance of Manila but it was dismissed
by the trial court, as well by the Court of Appeals.
ISSUE:
Whether or not the BPI had the right to debit from petitioner’s
current account the value of the checks with the forged
endorsements?
HELD:
YES. BPI acted within legal bounds when it debited the
petitioner’s account. When the petitioner deposited the checks
with the respondent, the nature of the relationship created at that
stage was one of agency, that is, the bank was to collect from
the drawees of the checks the corresponding proceeds. It is true
that the respondent had already collected the proceeds of the
checks when it debited the petitioner’s account, so that
following the rule in Gullas vs. Philippine National Bank it
might be argued that the relationship between the parties had
become that of creditor and debtor as to preclude the respondent
23
from using the petitioner’s funds to make payments not
authorized by the latter. Nonetheless no creditor-debtor
relationship was created between the parties.
Under Section 23 of the Negotiable Instruments Law (Act
2031), a forged signature in a negotiable instrument is wholly
inoperative and no right to discharge it or enforce its payment
can be acquired through or under the forged signature except
against a party who cannot invoke the forgery, it stands to
reason, upon the facts of record, that the respondent, as a
collecting bank which indorsed the checks to the drawee-banks
for clearing, should be liable to the latter for reimbursement,
for, as found by the court a quo and by the appellate court, the
indorsements on the checks had been forged prior to their
delivery to the petitioner. In legal contemplation, therefore, the
payments made by the drawee-banks to the respondent on
account of the said checks were ineffective; and, such being the
case, the relationship of creditor and debtor between the
petitioner and the respondent had not been validly effected, the
checks not having been properly and legitimately converted
into cash.
In Great Eastern Life Ins. Co. vs. Hongkong &Shanghai Bank,
the Court ruled that it is the obligation of the collecting bank to
reimburse the drawee-bank the value of the checks
subsequently found to contain the forged indorsement of the
payee. The reason is that the bank with which the check was
deposited has no right to pay the sum stated therein to the forger
“or anyone else upon a forged signature.” “It was its duty to
know,” said the Court, “that [the payee’s] endorsement was
genuine before cashing the check.” The petitioner must in turn
shoulder the loss of the amounts which the respondent, as its
collecting agent, had to reimburse to the drawee-banks.
At all events, under Section 67 of the Negotiable Instruments
Law, “Where a person places his indorsement on an instrument
negotiable by delivery he incurs all the liability of an indorser,”
and under Section 66 of the same statute a general indorser
warrants that the instrument “is genuine and in all respects what
it purports to be.” Considering that the petitioner indorsed the
said checks when it deposited them with the respondent, the
petitioner as an indorser guaranteed the genuineness of all prior
indorsements thereon. The respondent which relied upon the
petitioner’s warranty should not be held liable for the resulting
loss. This conclusion applied similarly to an uncrossed bearer
instrument, for under Section 65 of the Negotiable Instrument
Law. “Every
person negotiating an instrument by delivery. . .warrants (a)
That the instrument is genuine and in all respects what it
purports to be.” Under that same section this warranty “extends
in favor of no holder other than the immediate transferee,”
which, in the case at bar, would be the respondent.
Philippine National Bank vs. Picornell
September 26, 1922
46 Phil 716
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
FACTS:
Bartolome Picornell, following the instruction of Hyndman,
Tavera & Ventura, bought in Cebu 1,735 bales of tobacco.
Picornell also obtained from the branch of the National Bank in
Cebu the sum of P39,529.83, the value of the tobacco, together
with his commission of 1 real per quintal, having, in turn, drawn
the bill of exchange.
"No. 2-A. CEBU, 28 febrero, 1920. For P39,529.83
"At treinta (30) days sight please pay this first of exchange
(second unpaid) to the order of Philippine National Bank treinta
y nueve mil quinientos veintinueve pesos con 83/100. Value
received.
"To Sres. HYNDMAN, TAVERA Y VENTURA,
"Calle Soler 26 y 28.
(Sgd.) "B. PICORNELL"
This instrument was delivered to the branch of the National
Bank in Cebu, together with the invoice and bill of lading of the
tobacco, which was shipped in the boat Don Ildefonso, on
February 27, 1920, consigned to Hyndman, Tavera & Ventura
at Manila. The invoice and bill of lading were delivered to the
National Bank with the understanding that the bank should not
deliver them to Hyndman, Tavera & Ventura except upon
payment of the bill; which condition was expressed by the well-
known formula "D/P" (documents for [against] payment).
The central office of the National Bank in Manila received the
bill and the aforesaid documents. On March 3, 1920, National
Bank presented the bill to Hyndman, Tavera & Ventura, who
accepted it.
Upon the arrival of tobaccos in Manila, Hyndman, Tavera &
Ventura proceeded to the examination of the same which was
deposited in their warehouses. Bartolome Picornell was notified
that a certain portion of tobacco received was of no use and was
damaged.
The bill was extended for thirty days (May 2, 1920) at the
request of Picornell which was re-accepted by Pardo de Tavera,
successor to Hyndman, Tavera & Ventura. On May 2, 1920, the
bill was not paid and on the 4th of the same month, Hyndman,
Tavera & Ventura sent a letter to the plaintiff bank refusing to
pay draft no. 2 owing to noncompliance of the contract by the
drawer.
The bank protested the bill, took possession of the tobacco, and
had it appraised on the 12th of the same month, its value having
been fixed at P28,790.72. The bank then brought this action for
the recovery of the value of the bill of exchange and about
September 1921, the tobaccos were sold for P6,708.82.
ISSUES:
Whether or not the drawee-acceptor is liable to the payee?
What is the liability of the drawer?
HELD:
YES. The drawee, the Hyndman, Tavera & Ventura company,
24
or its successors, J. Pardo de Tavera, accepted the bill and is
primarily liable for the value of the negotiable instrument, while
the drawer, Bartolome Picornell, is secondarily liable.
The Hyndman, Tavera & Ventura company cannot escape
liability in view of section 28 of the Negotiable Instruments
Law. "* * * The drawee by acceptance becomes liable to the
payee or his indorsee, and also to the drawer himself. But the
drawer and acceptor are the immediate parties to the
consideration, and if the acceptance be without consideration,
the drawer cannot recover of the acceptor. The payee holds a
different relation; he is a stranger to the transaction between the
drawer and the acceptor, and is, therefore, in a legal sense a
remote party. In a suit by him against the acceptor, the question
as to the consideration between the drawer and the acceptor
cannot be inquired into. The payee or holder gives value to the
drawer, and if he is ignorant of the equities between the drawer
and the acceptor, he is in the position of a bona fide indorsee.
Hence, it is no defense to a suit against the acceptor of a draft
which has been discounted, and upon which money has been
advanced by the plaintiff, that the draft was accepted for the
accommodation of the drawer. * * *" (3 R. C. L., pp. 1143,
1144, par. 358.)
As to Bartolome Picornell, he warranted, as drawer of the bill,
that it would be accepted upon proper presentment and paid in
due course, and as it was not paid, he became liable to the
payment of its value to the holder thereof, which is the plaintiff
bank. (Sec. 61, Negotiable Instruments Law.)
Philippine National Bank vs. Court of Appeals
October 29, 1968
GR No. L-26001 (25 SCRA 693)
FACTS:
On or about January 15, 1962, one Augusto Lim deposited in
his current account with Philippine Commercial and Industrial
Bank (PCIB) branch at Padre Faura, Manila, GSIS Check No.
645915-B, in the sum of P57,415.00. Thereupon, PCIB stamped
the following on the back of the check: "All prior indorsements
and/or Lack of Endorsement Guaranteed, Philippine
Commercial and Industrial Bank," Padre Faura Branch, Manila.
On the same date, the PCIB sent the check to the PNB, for
clearance, through the Central Bank. The amount of check was
paid to PCIB and was debited against the account of the GSIS
in the PNB.
Over two (2) months before, or on November 13, 1961, the
GSIS had notified the PNB, which acknowledged receipt of the
notice, that said check had been lost, and. accordingly,
requested that its payment be stopped.
On January 31, 1962, upon demand from the GSIS, said sum of
P57,415.00 was re-credited to the latter's account, because the
signatures of its officers on the check were forged. On February
2, 1962, the PNB demanded from the PCIB the refund of said
sum, which the PCIB refused to do. Hence, the present action
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
against the PCIB, which was dismissed by the Court of First
Instance of Manila, whose decision was, in turn, affirmed by
the Court of Appeals.
ISSUE:
Whether or not PNB can recover the amount of P57,415.00
from PCIB?
HELD:
NO. The question whether or not the indorsements have been
falsified is immaterial to the PNB's liability as a drawee, or to
its right to recover from the PCIB, for, as against the drawee,
the indorsement of an intermediate bank does not guarantee the
signature of the drawer, since the forgery of the indorsement is
not the cause of the loss.
With respect to the warranty on the back of the check, the PCIB
guaranteed only "all prior indorsements", not the authenticity of
the signatures of the officers of the GSIS who signed on its
behalf, because the GSIS is not an indorser of the check, but its
drawer. Upon payment by the PNB, as drawee, the check ceased
to be a negotiable instrument, and became a mere voucher or
proof of payment.
Assuming that the PCIB had been guilty of negligence in not
discovering that the check was forged, it is undeniable that the
PNB had also been guilty of a greater degree of negligence,
because it had a previous and formal notice from the GSIS that
the check had been lost, with the request that payment thereof
be -stopped. Thus, by not returning the check to the PCIB, by
thereby indicating that the PNB had found nothing wrong with
the check and would honor the same, and by actually paying its
amount to the PCIB, the PNB induced the latter, not only to
believe that the check was genuine and good in every respect,
but, also, to pay its amount to Augusto Lim. The PNB was,
therefore, the primary or proximate cause of the loss, and,
hence, may not recover from the PCIB.
Lastly, Section 62 of Act No. 2031 provides:
“The acceptor by accepting the instrument engages that he will
pay it according to the tenor of his acceptance and admits:
(a) The existence of the drawer, the genuineness of his
signature, and his capacity and authority to draw the instrument;
and
(b) The existence of the payee and his then capacity to indorse."
The prevailing view is that the same rule applies in the case of
a drawee who pays a bill without having previously accepted it.
Ang Tiong v. Ting, G.R. No. L-26767, Feb. 22, 1968
Facts:
Defendant Lorenzo Ting issued PBCOM check K-81618, for
the sum of P4000 payable to cash or bearer, to Plaintiff Ang
25
Tiong. With defendant Felipe Ang’s signature (indorsement in
blank) at the back, it was received by Tiong and presented to
PBCOM for payment, but was dishonored. Tiong made written
demands to Ting and Ang, but when these were ignored he filed
an action for collection with the MTC for P4000 plus P500
attorney’s fees, and won. Ang appealed to the CFI, which
directed him to pay P4000 plus legal interest plus P400
attorney's fees instead, so he elevated the case to the CA, which
certified it to the SC because the issues raised are purely of law.
Issue: [General Indorser] Did the court err in considering him
a general indorser under NIL 29, rather than an accommodation
party?
Held: No, he is a general indorser
Ratio:
● The SC paraphrased NIL 29: the accommodation party
is liable to a holder for value as if the contract was not
for accommodation. It is not a valid defense that the
accommodation party did not receive any valuable
consideration. Nor is it correct to say that the holder
for value is not a holder in due course merely because
at the time he acquired the instrument, he knew the
indorser was only an accommodation party.
PEOPLE OF THE PHILIPPINES, plaintiff-appellee,
vs.
JULIA MANIEGO, accused-appellant.
G.R. No. L-30910
February 27, 1987
FACTS:
Julia Maniego was an indorser of several checks drawn by
her sister, Milagros Pamintuan, which weredishonored after
they had been exchange with cash belonging to the
Government, then in the official custodyof Lt. Rizalino Ubay.
Ubay, Pamintuan and Maniego were indicted for the crime of
malversation. Ubay andManiego were arraigned, while
Pamintuan fled to the United States. Ubay was found guilty
while Maniegowas acquitted. Both, however, were ordered to
pay in solidum the amount of P57,434.50 to the
government.Maniego appealed.
ISSUES:
(A) Parties who are liable; Indosers; General Indorser
(B) Parties who are liable; Indosers; Order of Liability
Whether Julia Maniego is liable as indorser?
HELD:
YES, A mere indorser is also liable on account of the dishonor
of the checks indorsed by her. (A) Under the law, the holder or
last indorsee of a negotiable instrument has the right to "enforce
payment of the instrument for the full amount thereof against
all parties liable thereon." Among the "parties liable thereon" is
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
an indorser of the instrument i.e. . ., "a person placing his
signature upon an instrument otherwise than as maker, drawer,
or acceptor unless he clearly indicates by appropriate words his
intention to be bound in some other capacity." (B) Such an
indorser "who indorses without qualification," inter alia
"engages that on due presentment, (the instrument) shall be
accepted or paid, or both, as the case may be, according to its
order, and that if it be dis- honored 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."
Clark v. Sellner, G.R. No. L-16477, Nov. 22, 1921
Facts:
George Sellner, along with two others, signed a note in favor of
R.N. Clark, promising jointly and separately to pay P12000 plus
interest after six months, but it was not paid when due. Sellner
claims, among others, that he is not liable, being an
accommodation party, since the note was not negotiated.
Issue: [Liability of Accommodation Party] Is Sellner liable as
an accommodation party?
Held: Yes, but his situation is more like a joint surety than that
of an accommodation party
Ratio:
● By putting his signature on the note, he lent his name
to the other co-signers and assumed the same liability
they have in relation to the creditor.
● Sellner contends that he has no liability because he did
not receive anything a part of the transaction.
○ Definition of “without receiving value
therefore” under NIL 29 means “without
receiving value by virtue of the instrument”
rather than payment for the use of his name.
○ If a sum of money was received by virtue of
the note, it is immaterial to the creditor
whether one of the signers received payment
for the use of his name as guarantor
Crisologo-Jose v. CA, G.R. No. 80599, Sept. 15, 1989
Facts:
Atty. Oscar Benares, president of Mover Enterprises, was to
issue a check on behalf of the company to accommodate their
clients, Spouses Ong, and payable to Ernestina Crisologo-Jose
in consideration of her quitclaim over a property sold by the
GSIS to the Ongs; the check was to be payable upon approval
of the GSIS of their compromise agreement. The check was
supposed to be signed by Benares and the company treasurer,
but since the latter was unavailable at the time, he pressured
vice-president Ricardo Santos to sign instead. When the
26
compromise agreement fell through, the Ongs issued another
check signed by Santos and Benares, but it was dishonored as
well. Crisologo-Jose filed an action against the company as
accommodation party,
Issue: [Liability of Accommodation Party] Can the company
be held liable as an accommodation party?
Held: No, the signatories are personally liable.
Ratio:
● Corporations cannot indorse as accommodation
parties because it is ultra vires.
○ XPN: Corporate officers are only able to
indorse in the name of the company as
accommodation party if they are specifically
authorized to do so and if it is a legitimate
company concern.
○ Officers like the vice-president have no
power to indorse on behalf of the company if
not authorized, hence their signatures hold
themselves personally liable for the
instrument.
● One who takes an instrument knowing that a
corporation is an accommodation party cannot recover
from that corporation.
○ However, recourse here is to hold signatories
personally liable, rather than absolve them.
PNB v. Maza, G.R. No. L-24224, Nov. 3, 1925
Facts:
PNB sued Ramon Maza and Francisco Mecenas for non-
payment of five promissory notes. The CFI found in favor of
PNB and held the two liable for the full payment plus
interest,but they appealed on the ground that the notes were sent
to them by Enrique Echaus in blank, which the latter requested
they sign so that he could negotiate them to PNB, and that they
received no value therefrom, hence Echaus is the real party-in-
interest and they are only accommodation parties.
Issue: [Liability of Accommodation Party] Are Maza and
Mecenas liable?
Held: Yes
Ratio:
● SC: It is fundamental that an instrument given without
consideration does not create any obligation at law or
in equity in favor of the payee; however, to fasten
liability upon an accommodation maker, it is not
necessary that any consideration should move to him.
○ The consideration which supports the
promise of the accommodation maker is that
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS 27

parted with by the person taking the note and

received by the person accommodated. FACTS:
● [Obiter dictum] When accommodation parties make Before is an appeal from the decision of the Court of Appeals
ruling that Hi-Cement Corporation is not liable for four checks
payment to the holder of the notes, they have the right
amounting to P2 million issued to E.T. Henry Co. and
to sue the accommodated party for reimbursement, discounted to Atrium Management Corporation.
since the relation between them is in effect that of
principal and sureties. Petitioner filed with the Regional Trial Court of Manila an
action for collection of the proceeds of four postdated checks in
the total amount of P2 million. Hi-Cement through its corporate
signatories, issued checks in favor of E.T. Henry and Co.; as
FERNANDO MAULIN, ET. AL. VS ANTONIO G.
payee, the latter endorsed the four checks to the petitioner for
SERRANO GR. NO. L-8844 DECEMBER 16, 1914
valuable consideration. Upon presentment for payment the
drawee bank dishonored all four checks for the common reason
FACTS:
payment stopped. Atrium, thus instituted this action after its
This is an appeal from a judgment of the Court of the First
demand for payment of the value of the checks was denied.
Instance of the City of Manila in favor of the plaintiff for the
sum of P3,000 with interest at the rate of 1½ per month.
The RTC rendered a decision ordering the respondents
(Lourdes M. de Leon and husband, E.T. Henry and Co. and Hi-
The action was brought by the plaintiff, Fernando Maulin upon
Cement Corporation) to pay petitioner, jointly and severally,
the contract of indorsement alleged to have been made in his
the amount of P2 million plus interest and attorney’s fee.
favor by the defendant, Antonio Serrano upon a promissory
note.
The CA modified the decision, absolving Hi-Cement
Corporation from liability and dismissing the complaint as
Thus, in a parol evidence presented in the trial, it showed that
against it.
the defendant was a broker doing business in Manila which
consisted in looking up and ascertaining persons who had
ISSUES:
money to loan, as well as those who desired to borrow money
1. Whether or not the issuance of the questioned checks
and acting as a “median,” who negotiates a loan between the
as an ultra vires act.
two. According to the method in the said transaction, the broker
2. Whether or not Atrium was a holder in due course and
delivers the money personally to the borrower, takes note in his
or value.
own name and immediately transfers it by indorsement to the
lender.
RULING:
1. The court finds that there was no sufficient evidence to
ISSUE:
show that such is the case. However, our view that there is
Whether or not, Serrano is an accommodation indorser.
basis to rule that the act of issuing the checks was well
within the ambit of a valid corporate act, for it was for
RULING:
securing a loan to finance the activities of the corporation,
The accommodation to which reference is made in the section
hence not an ultra vires act.
quoted is not one to the person who takes the note (the payee or
indorsee), but one to the maker or indorser of the note. It is true
An ultra vires act is one committed outside the object for
that in the case at bar, it was an accommodation described in
which a corporation is created as defined by the law of its
the law, but rather, a mere favor to him and one which in no
organization and therefore beyond the power conferred
way bound Serrano. In cases of accommodation indorsement,
upon it by law.
the indorse rakes the indorsement for the accommodation of the
maker for the purpose of securing the payment of the note – that
2. A holder in due course is a holder who has taken the
is, he lend his name to the maker, not to the holder.
instrument under the following conditions:
a. That it is complete and regular upon its face;
There is no contradiction of the evidence offered by the defense
b. That he became the holder of it was overdue and
and received provisionally by the court. Accepting it as true, the
without notice that it had been previously dishonored,
judgment must be reversed.
if such was the fact;
c. That he took it in good faith and for value;
The judgment appealed from is reversed and the complaint
d. That tat the time it was negotiated to him, he had no
dismissed on the merits.
notice of any infirmity in the instrument or defect in
the title of the person negotiating it.
ATRIUM MANAGEMNT CORPORATION VS COURT The Negotiable Instruments Law does not provided that a
OF APPEALS, ET. AL. GR. NO. 109491 FEBRUARY 28, holder in due course can not recover o the instrument.
2001
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
The disadvantage of Atrium in not being a holder in due course
is that the negotiable instrument is subject to defenses as if it
were non-negotiable. One such defense is absence or failure of
consideration.
The petition is hereby denied.
ERNESTINA CRISOLOGO-JOSE, petitioner,
vs.
COURT OF APPEALS and RICARDO S. SANTOS, JR.
in his own behalf and as Vice-President for Sales of Mover
Enterprises, Inc., respondents.
G.R. No. 80599
September 15, 1989
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.
ISSUES:
(A) IIIF – Real Defenses; Minority and Ultra Vires Act
Whether the Corporation can be held as an Accommodation
Party?
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
28
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.
(B) IIIH – Liability of the person secondarily liable when
instrument is dishonored
Whether Atty. Benares can be held liable?
HELD:
YES, 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.
ASSOCIATED BANK VS HONORABLE COURT OF
APPEALS, PROVINCE OF TARLAC AND PHILIPPINE
NATIONAL BANK GR. NO. 107382 AND GR. NO. 107612
JANUARY 31, 1996 AND JANUARY 31, 1996, respectively
FACTS:
This is a consolidated petition for review assailing the decision
of the Court of Appeals.
The province of Tarlac maintains an account with the Philippine
National Bank (Tarlac Branch) where the provincial funds are
deposited.
A portion of the said funds is allocated to the Concepcion
Emergency Hospital. However, upon post-audit by the
Provincial Auditor, it was discovered that the hospital did not
receive several allotment checks drawn by the province. After
re-examination, ot was also learned that 30 checks were
encashed by Fausto Pangilinan, Administrative Officer and
Cashier of the hospital.
Pangilinan was able to withdraw the money by forging the
signature of Dr. Adena Canlas, Chief of the hospital.
The lower court rendered a decision ordering the following:
1. PNB to pay the province of Tarlac of P203,300 with
legal interest;
2. Associated Bank to reimburse the PNB of P203,300
with legal interest; and
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
3. Associated Bank’s complaint against Canlas and
Pangilinan were dismissed for lack of cause of action
and lack of jurisdiction, respectively.
The CA affirmed the decision, in toto.
ISSUE:
Whether or not the CA erred in affirming the lower court’s
decision, with respect to the checks payable to the order of
Concepcion Emergency Hospital or its Chief, as well as the
liabilities of the parties.
RULING:
Checks having forged insdorsements should be differentiated
from forged checks or checks bearing forged signature of the
drawer.
A forged signature, whether it be that of the drawer or the payee,
is wholly inoperative and no one can gain title to the instrument
through it. A person whose signature to an instrument is forged
was never a party and never consented to the contract which
allegedly gave rise to the instrument. Section 23 does not avoid
the instrument but only the forged signature. Thus, a forged
indorsement does not operate as the payee’s indorsement.
In bearer instruments, the signature of the payee or holder is
unnecessary to pass title to the instrument. Hence, when the
indorsement is a forgery, only the person whose signature is
forged can raise the defense of forgery against a holder in due
course.
Where the instrument is payable to order at the time of forgery,
the signature of its rightful holder is essential to transfer title to
the same instrument. When the holder’s indorsement is forged,
all parties prior to the forgery may raise the real defense of
forgery against all parties subsequent.
Thus, due to the negligence of the Province of Tarlac in
releasing the checks to an unauthorized person (Pangilinan), in
allowing the retired hospital cashier to receive the checks for
the payee hospital for a period close to three years and in not
properly ascertaining why the retired hospital cashier was
collecting checks for the payee hospital in addition to the
hospital’s real cashier, respondent contributed to the loss
amounting to P203,300 and shall be liable to the PNB for 50%.
In effect the Province of Tarlac can only rev\cover 50% of the
P203,300 from PNB.
The collecting bank, Associated Bank, shall be liable to PNB
for 50% of the P203,300. It is liable on its warranties as indorser
of the checks which were deposited by Pangilinan, having
guaranteed the genuineness of all prior indorsements, including
that of the Chief of the payee hospital, Canlas. Associated Bank
was also remiss in its duty to ascertain the genuineness of the
payee’s endorsement.
REPUBLIC BANK VS. MAURICIA T. EBRADA GR. NO.
L-40796 JULY 31, 1975
29
FACTS:
An appeal on a question of law of the decision of the court of
the First Instance of Manila.
Defendant Maurici Ebrada encashed a checked at the main
office of the plaintiff, Republic Bank at Escolta, Manila. The
aid check was issued by the Bureau of Treasury. However,
plaintiff was later advised by the bureau that the alleged
indorsement was a forgery. The former then refunded the
amount to the latter.
Meanwhile, upon verbal and formal demands for the payment
of refund, Ebrada refused to pay. Thus, Republic Bank sued the
defendant.
ISSUE:
Whether or not the Republic Bank may recover from Ebrada.
RULING:
Where a check has several indorsements on it, it was held that
only the negotiation based on the forged signature which is
inoperative. Applying the case before us, it can be safely
concluded that it is only the negotiation predicated on the
forged indorsement that should be declared inoperative.
It was also held that the drawee can recover from the holder the
money paid to him on a forged instrument. It is not supposed to
be its duty to ascertain whether the signatures of the payee or
indorsers are genuine or not. This is because the indorser is
supposed to warrant to the drawee that the signatures of the
payee and previous indorsers are genuine, warranty not
exceeding only to the holders in due course.
Similarly, the defendant-appellant, was duty-bound to ascertain
whether the check in question was genuine before presenting it
to the plaintiff bank for payment. Her failure to do so makes her
liable for the loss and the plaintiff bank may recover from her
the money she received for the check.
With the foregoing doctrine, we are to concede that the plaintiff
bank should suffer the loss when it paid the amount of the check
in question to defendant-appellant, but it has the remedy to
recover from the latter the amount it paid her. Although the
defendant-appellant to whom the plaintiff bank paid the check
was not proven to be the author of he supposed forgery, yet as
last indorser, she is warranted that she has god title to it even if
in fact, she did not have ait because the payee of the check was
already dead 11 years before the check was issued.
The judgment appealed is hereby affirmed in toto.
METROPOLITAN WATERWORKS AND SEWERAGE
SYSTEM (MWSS), petitioner, vs. COURT OF APPEALS,
HON. PERCIVAL LOPEZ, AYALA CORPORATION
and AYALA LAND, INC., respondents.
G.R. No. 126000. October 7, 1998
FACTS:
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
Metropolitan Waterworks and Sewerage System (MWSS) is a
Government-owned and controlled corporation (GOCC) and
successor-in- interest of the defunct NWSA.
The authorized signature for PNB Account No. 6 were those of
MWSS treasurer Jose Sanchez, its auditor Pedro Aguilar, and
its acting General Manager Victor L. Recio. Specimen
signatures were submitted by the MWSS to and on file with the
PNB. By special arrangement with the PNB, the MWSS used
personalized checks in drawing from this account printed for
MWSS by its printer, F. Mesina Enterprises.
March, April and May 1969: 23 checks were prepared,
processed, issued and released by NWSA, all of which were
paid and cleared by PNB and debited by PNB against NWSA
Account No. 6 deposited by the fictitious payees Raul Dizon,
Arturo Sison and Antonio Mendoza in their respective current
accounts with the Philippine Commercial and Industrial Bank
(PCIB) and Philippine Bank of Commerce (PBC).
At the time of their presentation to PNB these checks bear the
standard indorsement which reads 'all prior indorsement and/or
lack of endorsement guaranteed. NWSA filed against PNB
before the Court of First Instance. Then, PNB also filed a third
party complaint against the negotiating banks PBC and PCIB
on the ground that they failed to ascertain the identity of the
payees and their title to the checks which were deposited in the
respective new accounts of the payees with them. The Court of
First Instance favored MWSS.
The Court of Appeals reversed and favored PNB.
ISSUE:
1. Whether MWSS can claim against PNB.
2. Whether PNB should restore the said amount.
HELD:
1. No. Every negotiable instrument is deemed prima
facie to have been issued for valuable consideration
and every person whose signature appears thereon to
have become a party thereto for value. Gross
negligence in the printing of its personalized checks -
MWSS failed to:
a. give its printer, Mesina Enterprises, specific
instructions relative to the safekeeping and
disposition of excess forms, check vouchers, and
safety papers
b. retrieve from its printer all spoiled check forms
c. provide any control regarding the paper used in
the printing of said checks
d. furnish the respondent drawee bank with samples
of typewriting, cheek writing, and print used by
its printer in the printing of its checks and of the
inks and pens used in signing the same
e. send a representative to the printing office during
the printing of said checks
f. to reconcile the bank statements with its own
records
30
2. No. MWSS is precluded from setting up the defense
of forgery.
SEC. 23. FORGED SIGNATURE; EFFECT OF.-
When the signature is forged or made without
authority of the person whose signature it purports to
be, it is wholly inoperative, and no right to retain the
instrument, or to give a discharge therefor, or to
enforce payment thereof against any party thereto can
be acquired through or under such signature unless
the party against whom it is sought to enforce such
right is precluded from setting up the forgery or want
of authority.
It has been proven that MWSS has been negligent in
supervising the printing of its personalized checks. It
failed to provide security measures and coordinate the
same with PNB. Further, the signatures in the forged
checks appear to be genuine as reported by the
National Bureau of Investigation so much so that the
MWSS itself cannot tell the difference between the
forged signature and the genuine one. The records
likewise show that MWSS failed to provide
appropriate security measures over its own records
thereby laying confidential records open to
unauthorized persons. Even if the twenty-three (23)
checks in question are considered forgeries,
considering the MWSS’s gross negligence, it is barred
from setting up the defense of forgery under Section
23 of the Negotiable Instruments Law.
The Supreme Court further emphasized that forgery
cannot be presumed. It must be established by clear,
positive, and convincing evidence. This was not done
in the present case.
WHEREFORE, in view of the foregoing, the consolidated
petitions are hereby DENIED.
SO ORDERED.
BANK OF AMERICA NT & SA, petitioner vs.
PHILIPPINE RACING CLUB, respondents
G.R. No. 150228. July 30, 2009
FACTS:
Plaintiff-appellee PRCI is a domestic corporation which
maintains several accounts with different banks in the Metro
Manila area. Among the accounts maintained was Current
Account No. 58891-012 with defendant-appellant BA (Paseo
de Roxas Branch). The authorized joint signatories with respect
to said Current Account were plaintiff-appellees President
(Antonia Reyes) and Vice President for Finance (Gregorio
Reyes).
On or about the 2nd week of December 1988, the President and
Vice President of plaintiff-appellee corporation were scheduled
to go out of the country in connection with the corporations
business. In order not to disrupt operations in their absence,
they pre-signed several checks relating to Current Account No.
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
58891-012. The intention was to insure continuity of plaintiff-
appellees operations by making available cash/money
especially to settle obligations that might become due. These
checks were entrusted to the accountant with instruction to
make use of the same as the need arose. The internal
arrangement was, in the event there was need to make use of
the checks, the accountant would prepare the corresponding
voucher and thereafter complete the entries on the pre-signed
checks.
It turned out that on December 16, 1988, a John Doe presented
to defendant-appellant bank for encashment a couple of
plaintiff-appellee corporations checks (Nos. 401116 and
401117) with the indicated value of P110,000.00 each. It is
admitted that these 2 checks were among those presigned by
plaintiff-appellee corporations authorized signatories.
The two (2) checks had similar entries with similar infirmities
and irregularities. On the space where the name of the payee
should be indicated (Pay To The Order Of) the following 2-line
entries were instead typewritten: on the upper line was the word
CASH while the lower line had the following typewritten
words, viz: ONE HUNDRED TEN THOUSAND PESOS
ONLY. Despite the highly irregular entries on the face of the
checks, defendant-appellant bank, without as much as verifying
and/or confirming the legitimacy of the checks considering the
substantial amount involved and the obvious infirmity/defect of
the checks on their faces, encashed said checks. A verification
process, even by was of a telephone call to PRCI office, would
have taken less than ten (10) minutes. But this was not done by
BA. Investigation conducted by plaintiff-appellee corporation
yielded the fact that there was no transaction involving PRCI
that call for the payment of P220,000.00 to anyone. The checks
appeared to have come into the hands of an employee of PRCI
(one Clarita Mesina who was subsequently criminally charged
for qualified theft) who eventually completed without authority
the entries on the pre-signed checks. PRCIs demand for
defendant-appellant to pay fell on deaf ears. Hence, the
complaint.
Petitioner contended that since the instrument is incomplete but
delivered or complete but undelivered, it could validly presume
upon presentation of the checks, that the party who filled up the
blanks had authority and that a valid and intentional delivery to
the party presenting the checks had taken place and the
proximate cause of the encashment was the respondent’s
negligent practice of delivering pre-signed check to its
accountant.
ISSUE:
Whether the petitioner can be held liable for negligence and
thus should pay damages to Philippine Racing Club.
HELD:
It appears that both parties are held to be at fault but the bank
has the last clear chance to prevent the fraudulent encashment
hence it is the one foremost liable. The court held that the
31
petitioner is liable for 60% of the total amount of damages while
PRC should shoulder 40% of the said amount.
There was no dispute that the signatures in the checks are
genuine but the presence of irregularities on the face of the
check should have alerted the bank to exercise caution before
the encashment. It is well-settled that banks are in the business
impressed with public interest that they are duty bound to
protect their clients and their deposits at all times. They must
treat the accounts of these clients with meticulousness and a
highest degree of care considering the fiduciary nature of their
relationship.
The diligence required of banks are more than that of a good
father of a family. The PRC officers' practice of pre-signing
checks is a seriously negligent and highly risky behavior which
makes them also contributor to the loss. It's own negligence
must therefore mitigate the petitioner's liability. Moreover, the
person who stole the checks is also an employee of the plaintiff,
a clerk in its accounting department at that. As the employer,
PRC supposedly should have control and supervision over its
own employees.
WHEREFORE, the Decision of the Court of Appeals dated July
16, 2001 and its Resolution dated September 28, 2001 are
AFFIRMED with the following MODIFICATIONS: (a)
petitioner Bank of America NT & SA shall pay to respondent
Philippine Racing Club sixty percent (60%) of the sum of Two
Hundred Twenty Thousand Pesos (P220,000.00) with legal
interest as awarded by the trial court and (b) the awards of
attorneys fees and litigation expenses in favor of respondent are
deleted. Proportionate costs. SO ORDERED.
SAMSUNG CONSTRUCTION COMPANY
PHILIPPINES, INC., petitioner, vs. FAR EAST
BANK AND TRUST COMPANY AND COURT
OF APPEALS, respondents.
[G.R. No. 129015. August 13, 2004]
FACTS: Samsung maintained a current account with FEBTC
at the latter’s Bel-Air, Makati branch.2 The sole signatory to
Samsung Construction’s account was Jong Kyu Lee
(“Jong”),3 while the checks remained in the custody of the
company’s accountant, Kyu Yong Lee (“Kyu”)4
On 19 March 1992, a certain Roberto Gonzaga presented for
payment FEBTC Check No. 432100 to the bank’s branch in
BelAir, Makati.payable to cash and drawn against Samsung
Construction’s current account, was in the amount of Nine
Hundred Ninety Nine Thousand Five Hundred Pesos
(P999,500.00).
After several efforts by FEBTC bank tellers to check the
genuineness of the signature in the check, and after confirming
from Jose Sempio who was said to be known to the bank as
employee of Samsung, the check was accepted and payment
was made.
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
Upon examining that a check had been encashed against the
bank balance without he preparing such check, Kyu perused the
checkbook and found that the last blank check was missing.7 He
then informed Jong who later went to the bank and learned that
his signature was forged by Sempio.
Samsung Construction, through counsel, demanded that
FEBTC credit to it the amount that was debited.
Issue: WON Samsung can recover from FETBC.
Ruling:
Yes.
The general rule is to the effect that a forged signature is
“wholly inoperative,” and payment made “through or under
such signature” is ineffectual or does not discharge the
instrument. If payment is made, the drawee cannot charge it to
the drawer’s account. The traditional justification for the result
is that the drawee is in a superior position to detect a forgery
because he has the maker’s signature and is expected to know
and compare it.
The forged signature may so closely resemble the genuine as to
defy detection by the depositor himself. And yet, if a bank pays
the check, it is paying out its own money and not the
depositor’s.
The forgery may be committed by a trusted employee or
confidential agent. The bank still must bear the loss. Even in a
case where the forged check was drawn by the depositor’s
partner, the loss was placed upon the bank.
PHILIPPINE NATIONAL BANK petitioner, vs.
HON. ROMULO S. QUIMPO, Presiding Judge, Court of
First Instance of Rizal, Branch XIV, and FRANCISCO S.
GOZON II, respondents G.R. No. L-53194 March 14, 1988
Facts:
Upon complaint of private respondent, Francisco Gozon II,
Ernesto Santos was apprehended by the police authorities for
stealing the check of Gozon, forging his signature and
encashing the same with the Bank. In a complaint of recovery
filed before the CFI of Rizal Gozon asked the amount debted
be returned on his account. CFI of Rizal ruled in favor Gozon
ordering thereby PNB to return the amount debited against the
plaintiff.
Unsatisfied with the ruling the PNB filed petition for review on
certiorari in this Court raising the sole legal issue that — THE
ACT OF RESPONDENT FRANCISCO GOZON, II IN
PUTTING HIS CHECK BOOK CONTAINING THE CHECK
IN QUESTION INTO THE HANDS OF ERNESTO SANTOS
WAS INDEED THE PROXIMATE CAUSE OF THE LOSS,
THEREBY PRECLUDING HIM FROM SETTING UP THE
32
DEFENSE OF FORGERY OR WANT 0F AUTHORITY
UNDER SECTION 23 OF THE NEGOTIABLE
INSTRUMENTS LAW, ACT NO. 3201
Issue:
1.) WON the forged signature is operative?
2.) WON the plaintiff should proceed against Santos
before suing PNB?
Held:
1. No. under Sec. 23 of the Negotiable Instruments Law
–When a signature is forged or made without the authority of
the person whose signature it purports to be, it is wholly
inoperative, and no right to retain the instrument, or to give a
discharge therefor, or to enforce payment thereof against any
party thereto, can be acquired through or under such signature,
unless the party against whom it is sought to enforce such right
is precluded from setting up the forgery or want of authority.
The present case is a forgery of the maker’s signature hence
inoperative.
2. No. The bank being secondarily liable warrants
immediate recourse.
A bank is bound to know the signatures of its customers; and if
it pays a forged check, it must be considered as making the
payment out of its own funds, and cannot ordinarily change the
amount so paid to the account of the depositor whose name was
forged' (San Carlos Milling Co. vs. Bank of the P.I., 59 Phil.
59). This rule is absolutely necessary to the circulation of drafts
and checks, and is based upon the presumed negligence of the
drawee in failing to meet its obligation to know the signature of
its correspondent. ... There is nothing inequitable in such a rule.
If the paper comes to the drawee in the regular course of
business, and he, having the opportunity ascertaining its
character, pronounces it to be valid and pays it, it is not only a
question of payment under mistake, but payment in neglect of
duty which the commercial law places upon him, and the result
of his negligence must rest upon him (12 ALR 1901, citing
many cases found in I Agbayani, supra).
The prime duty of a bank is to ascertain the genuineness of the
signature of the drawer or the depositor on the check being
encashed. It is expected to use reasonable business prudence in
accepting and cashing a check presented to it.
WESTMONT BANK (formerly ASSOCIATED
BANKING CORP.), petitioner, vs. EUGENE
ONG, respondent.
G.R. No. 132560. January 30, 2002
FACTS:
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
Eugene Ong maintained a current account with Westmont
Bank. Sometime in May 1976, he sold certain shares of stocks
through Island Securities Corporation. To pay Ong, Island
Securities purchased two (2) Pacific Banking Corporation
managers checks,[2] [2] both dated May 4, 1976, issued in the
name of Eugene Ong as payee. Before Ong could get hold of
the checks, his friend Paciano Tanlimco got hold of them,
forged Ongs signature and deposited these with petitioner. Even
though Ongs specimen signature was on file, petitioner
accepted and credited both checks to the account of Tanlimco,
without verifying the signature indorsements appearing at the
back thereof. Tanlimco then immediately withdrew the money
and absconded.
Ong first sought the help of Tanlimcos family to recover the
amount then later reported the incident to the Central Bank,
both efforts proved futile. Ong then went demanded in his
complaint that petitioner pay the value of the two checks from
the bank on whose gross negligence he imputed his loss.
Issue: WON Ong can still recover from Westmont Bank
Ruling:
Yes.
When a signature is forged or made without the authority of the
person whose signature it purports to be, it is wholly
inoperative, and no right to retain the instrument, or to give a
discharge therefor, or to enforce payment thereof against any
party thereto, can be acquired through or under such signature,
unless the party against whom it is sought to enforce such right
is precluded from setting up the forgery or want of authority.
Since the signature of the payee, in the case at bar, was
forged to make it appear that he had made an indorsement in
favor of the forger, such signature should be deemed as
inoperative and ineffectual. Petitioner, as the collecting bank,
grossly erred in making payment by virtue of said forged
signature. The payee, herein respondent, should therefore be
allowed to recover from the collecting bank.
Ilusorio v CA
GR #139130, 27 November 2002
FACTS:
Ramon Ilusorio is a prominent businessman who was the
Managing Director of Multinational Investment
Bancorporation and the Chairman and/or President of several
other corporations. As he was managing 20 corporations and
traveling in and out of the country, he entrusted his credit cards,
checkbook with blank checks to his secretary, Katherine
Eugenio.
Between the dates 5 September 1980 and 23 January 1981,
Eugenio encashed and deposited to her personal account about
seventeen checks drawn against Ilusorio’s account at the
33
Manila Banking Corporation with an aggregate amount of
P119,634.34. Ilusorio did not bother checking his accounts until
a partner apprised him of Eugenio using his credit cards.
Ilusorio terminated Eugenio’s employment and filed a
complaint of estafa and falsification of documents against her
on the basis that the checks’ signatures were forged.
ISSUE:
Whether or not the forged checks should be considered
inoperative
HELD:
No. While Ilusorio contends that under Section 23 of the NIL
that forged checks are held inoperative and that the bank has no
authority to pay the said checks, the rule does provide for an
exception, namely: unless the party against whom it is sought
to enforce such right is precluded from setting up the forgery or
want of authority. In this case, such exception applies. The
petitioner Ilusorio is precluded from setting up the forgery,
assuming there is forgery, due to his own negligence in
entrusting to his secretary his credit cards and checkbook
including the verification of his statements of account.
Traders Royal Bank v RPN
GR #138510, 10 October 2002
FACTS:
On 15 April 1985, the Bureau of Internal Revenue (BIR)
assessed Radio Philippines Network (RPN), Intercontinental
Broadcasting Corporation (IBC), and Banahaw Broadcasting
Corporation (BBC) of their tax obligations.
In paying their taxes from the petitioner bank, Mrs. Vera, the
network’s comptroller engaged into a settlement with the BIR.
BIR granted the request for settlement and the networks
purchased managers checks from Traders Royal Bank (TRB).
The checks were supposed to be turned over to Mrs. Vera, but
instead was presented for payment by unknown persons to a
personal account in Security Bank. The BIR issued a levy,
distraint, and garnishment against the three networks.
Traders Royal Bank sent letters demanding to be reimbursed
which the networks refused. An action was filed wherein it was
decided that the networks should be reimbursed for the amounts
of the checks by petitioner bank and the latter in turn, must be
reimbursed by Security Bank. In the appellate court, it was held
that TRB should be the only bank liable.
ISSUE:
Whether or not Traders Royal Bank should be the only bank
liable
HELD:
Yes. In the instant case, the 3 checks were payable to the BIR.
However, that said checks were never delivered or paid to the
BIR but were in fact presented for payment by some unknown
persons who, in order to receive payment therefor, forged the
name of the payee.
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
It is the primary duty of TRB to know that the check was duly
indorsed by the original payee. It should be further noted that
one of the checks was a crossed check. The crossing of the
check should have put petitioner on guard; it was duty-bound to
ascertain the indorser’s title to the check or the nature of his
possession. In paying the amount of the check to a third person
who forged the signature in the check, the loss falls upon the
petitioner who cashed the check. Its only remedy is against the
person to whom it paid the money.
Since TRB did not pay the rightful holder or other person or
entity entitled to receive payment, it has no right to
reimbursement. Petitioner TRB was remiss in its duty and
obligation, and must therefore suffer the consequences of its
own negligence and disregard of established banking rules and
procedures.
BPI vs. CA
GR #102383, 26 November 1992
FACTS:
On 9 October 1981 someone impersonated herself as Eligia
Fernando who wanted to pre-terminate her placement in the
money market with the bank. Reginaldo Estaquio, a dealer
trainee, received the call and told her that the “trading time” for
the week was over. The next week, Estaquio conveyed the pre-
termination request, however, he did not verify whether he
talked to the real Eligia Fernando. He relied to the early
conversation the week prior and he proceeded with processing
the termination. Thereafter, the caller gave instructions that the
checks will be picked up by her niece, Rosemarie Fernando,
rather than delivering the checks to her office. The dispatcher
failed to get the promissory note evidencing the placement. The
impersonator opened an account with the bank, deposited the
checks, then withdrew the amounts.
The real Eligia appeared to roll-over her placement upon the
maturity and denied pre-terminating her money market
placements, and that she never received the proceeds. This
prompted BPI to surrender the checks to China Banking
Corporation (CBC) on the alleged forgery of payee’s
indorsements.
ISSUE:
Whether or not the banks were negligent which should be held
responsible.
HELD:
YES. Both banks, BPI and CBC were negligent in the selection
and supervision of their employees resulting in the encashment
of the forged checks by an impostor. Both banks were not able
to overcome the presumption of negligence in the selection and
supervision of their employees.
The general rule is that since the payee’s indorsement has been
forged, the instrument is wholly inoperative. However, on this
34
case, the issue in this case is as to who between the parties
should bear the loss in the payment of the forged checks.
It is held that the acts of the employees of BPI were tainted with
more negligence if not criminal than the acts of CBC. First, the
act of disclosing information about the money market
placement over the phone is a violation of the General Banking
Law. Second, there was failure on BPI’s part to compare the
signatures during the termination of the placement, opening of
a new account with the specimen signature in file of Fernando.
Third, there was failure to ask the surrender of the promissory
note evidencing the placement.
While the acts of BPI was the proximate cause to the loss.
Nevertheless, the negligence of the employees of CBC should
be taken also into consideration as they closed their eyes to the
suspicious large amount withdrawals made over the counter as
well as the opening of the account.
PNB v CA (1996) (input)
Montinola v PNB
88 Phil 198, 26 February 1951
FACTS:
In May 1942, Ubaldo Laya, a 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:
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.
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, which at that time, a
provincial treasurer is an ex officio agent of the government’s
bank.
ISSUE:
Whether or not the material alteration discharges the instrument
HELD: Yes. The insertion of the words "Agent, Phil. National
Bank" which converts the bank from a mere drawee to a drawer
and therefore changes its liability, constitutes a material
alteration of the instrument without the consent of the parties
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
liable thereon, and so discharges the instrument, pursuant to
Section 124 of the Negotiable Instruments Law.
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.
PCIB v CA (input)
Papa v AU Valencia
G.R. No. L-18657 August 23, 1922
THE GREAT EASTERN LIFE INSURANCE CO.,
plaintiff-appellant, vs. HONGKONG & SHANGHAI
BANKING CORPORATION and PHILIPPINE
NATIONAL BANK, defendants-appellees.
Facts:
May 3, 1920, the plaintiff drew its check for P2,000 on the
Hongkong and Shanghai Banking Corporation with whom it
had an account, payable to the order of Lazaro Melicor. E. M.
Maasim fraudulently obtained possession of the check, forged
Melicor's signature, as an endorser, and then personally
endorsed and presented it to the Philippine National Bank
where the amount of the check was placed to his credit. After
having paid the check, and on the next day, the Philippine
national Bank endorsed the check to the Hongkong and
Shanghai Banking Corporation which paid it and charged the
amount of the check to the account of the plaintiff. In the
ordinary course of business, the Hongkong Shanghai Banking
Corporation rendered a bank statement to the plaintiff showing
that the amount of the check was charged to its account, and no
objection was then made to the statement. About four months
after the check was charged to the account of the plaintiff, it
developed that Lazaro Melicor, to whom the check was made
payable, had never received it, and that his signature, as an
endorser, was forged by Maasim, who presented and deposited
it to his private account in the Philippine National Bank. With
this knowledge, the plaintiff promptly made a demand upon the
Hongkong and Shanghai Banking Corporation that it should be
given credit for the amount of the forged check, which the bank
refused to do, and the plaintiff commenced this action to
recover the P2,000 which was paid on the forged check.
Lower court ruled against the plaintiff and in favor of the banks
absolving them in their liability despite the forgery.
Issue:
1. Whether or not the banks are absolved from their
liability to repay the plaintiff despite the said forgery?
2. If not, what would then be the liability of PNB?
Held:
1. The judgment of the lower court is reversed, and one
will be entered here in favor of the plaintiff and against
the Hongkong and Shanghai Banking Corporation for
the P2,000, with interest thereon from November 8,
35
1920 at the rate of 6 per cent per annum, and the costs
of this action.
2. A corresponding judgment will be entered in favor of
the Hongkong Shanghai Banking Corporation against
the Philippine National Bank for the same amount,
together with the amount of its costs in this action.
Ratio:
Section 23 of Act No. 2031, known as the Negotiable
Instruments Law, says:
“When a signature is forged or made without the authority of
the person whose signature it purports to be, it is wholly
inoperative, and no right to retain the instrument, or to give a
discharge therefor, or to enforce payment thereof against any
party thereto, can be acquired through or under such signature,
unless the party against whom it is sought to enforce such right
is precluded from setting up the forgery or want of authority.”
The money was on deposit in the Shanghai Bank, and it had no
legal right to pay it out to anyone except the plaintiff or its order.
Here, the plaintiff ordered the Shanghai Bank to pay the P2,000
to Melicor, and the money was actually paid to Maasim and was
never paid to Melicor, and he never paid to Melicor, and he
never personally endorsed the check, or authorized any one to
endorse it for him, and the alleged endorsement was a forgery.
Hence, upon the undisputed facts, it must follow that the
Shanghai Bank has no defense to this action.
It is admitted that the Philippine National Bank cashed the
check upon a forged signature, and placed the money to the
credit of Maasim, who was a forger. That the Philippine
National Bank then endorsed the check and forwarded it to the
Shanghai Bank by whom it was paid. The Philippine National
Bank had no license or authority to pay the money to Maasim
or anyone else upon a forge signature. It was its legal duty to
know that Melicor's endorsment was genuine before cashing the
check. Its remedy is against Maasim to whom it paid the money.
Quirino Logging v CA (input)
Republic v Ebrada
Far East Realty v CA
VIOLET MCGUIRE SUMACAD, ET AL., PLAINTIFFS-
APPELLEES, VS.
THE PROVINCE OF SAMAR, ET
AL., DEFENDANTS; THE PHILIPPINE NATIONAL
BANK, DEFENDANT-APPELLANT.
G.R. NO. L-8155. OCTOBER 23, 1956.
FACTS:
a check was issued by Province of Samar to Paulino M. Santos
(Postmaster of Borongan), and drawn against the Philippine
National Bank Cebu Branch. The payee negotiated the check
with James McGuire. James McGuire presented the check to
the municipal treasurer of Borongan for payment, but the latter
(who merely noted it) was not able or did not choose to pay the
same. McGuire was referred by the Bureau of Post to the PNB.
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
PNB requested the Bureau of Posts to furnish it with copies of
the check. James McGuire again requested the Bureau of Posts
to expedite compliance with the requirement of the Philippine
National Bank. Before the check could be certified by the
authorities, the province of Samar withdrew the money from
PNB. ames McGuire transferred his rights to the check to the
herein Plaintiffs who, unable to cash it.
ISSUE: Whether or not PNB is liable for the check
RULING:
Partially yes, because PNB is subsidiary liable to the check.
PNB did not issue the check and was merely called upon to pay
the check upon being presented for encashment and when the
funds for the purpose were available. The relationship of 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. PNB cannot be
held solidarily liable, the province of Samar being the drawee
of the check shall be primarily liable to pay the same.
However, there was an implied acceptable of the check by the
PNB. The request by the Appellant bank 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 PNB did not thereby mean to
assume the obligation of paying the check and holding
sufficient deposit of the drawer for the purpose. PNB resulting
obligation is merely subsidiary, the province of Samar being
primarily liable to pay the check.
ASIAN BANKING CORPORATION, plaintiff-appellee, vs.
JUAN JAVIER, limited copartnership, defendant-appellant.
G.R. No. L-19051, April 4, 1923
FACTS:
Salvador B. Chaves drew a check on the Philippine National
Bank in favor of La Insular. This check was indorsed by the
limited partners of La Insular, and then deposited by Salvador
B. Chaves in his current account with the plaintiff, Asia
Banking Corporation. Then, Chaves drew another check from
PNB, in favor of La Insular, and was endorsed and deposited by
Chaves in Asian Banking Corp. Both checks were used by
Chaves after they were deposited in the Asian Banking
Corporation. Subsequently the checks in dispute were presented
by ABC to the PNB for payment, but the latter refused to pay
on the ground that Chaves had no funds therein.
ISSUE: Whether or not Juan Javier is liable for the checks.
RULING:
No, the liability of Juan Javier as an indorser never arose.
Section 89 of the Negotiable Instruments Law (Act No. 2031)
provides that, when a negotiable instrument is dishonored for
non-acceptance or non-payment, notice thereof must be given
to the drawer and each of the indorsers, and those who are not
36
notified shall be discharged from liability, except where this act
provides otherwise. According to this, the indorsers are not
liable unless they are notified that the document was
dishonored. Then, under the general principle of the law of
procedure, it will be incumbent upon the plaintiff, who seeks to
enforce the defendant's liability upon these checks as indorser,
to establish said liability by proving that notice was given to the
defendant within the time, and in the manner, required by the
law that the checks in question had been dishonored. If these
facts are not proven, the plaintiff has not sufficiently established
the defendant's liability.
PAULINO GULLAS, plaintiff-appellant,
vs.
THE PHILIPPINE NATIONAL BANK, defendant-
appellant.
G.R. No. L-43191, November 13, 1935
FACTS:
Treasurer of the United States for the United States Veterans
Bureau issued a Warrant, payable to the order of Francisco
Sabectoria Bacos. Paulino Gullas and Pedro Lopez signed as
endorsers of this check. Thereupon it was cashed by the
Philippine National Bank. Subsequently the treasury warrant
was dishonored by the Insular Treasurer.
The bank on learning of the dishonor of the treasury warrant
sent notices by mail to Mr. Gullas which could not be delivered
to him at that time because he was in Manila. When Upon
receipt of the notice of dishonor and the unbalance of the United
States Treasury, Gullas immediately paid it.
ISSUE: Whether or not an award should be granted to Gullas.
RULING:
Yes, the because Gullas was merely an indorser and had issued
the check in good faith.
Negotiable Instruments Law contains provisions establishing
the liability of a general indorser and giving the procedure for a
notice of dishonor. The general indorser of negotiable
instrument engages that if he be dishonored and the, necessary
proceedings of dishonor be duly taken, he will pay the amount
thereof to the holder. (Negotiable Instruments Law, sec. 66.) In
this connection, it has been held a long line of authorities that
notice of dishonor is in order to charge all indorser and that the
right of action against him does not accrue until the notice is
given.
As a general rule, a bank has a right of set off of the deposits in
its hands for the payment of any indebtedness to it on the part
of a depositor.
With respect to the deposit of Gullas, PNB had a right to set off.
It is undeniable that prior to the mailing of notice of dishonor,
and without waiting for any action by Gullas, the bank made
use of the money standing in his account to make good for the
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
treasury warrant. At this point recall that Gullas was merely an
indorser and had issued in good faith.
As to a depositor who has funds sufficient to meet payment of
a check drawn by him in favor of a third party, it has been held
that he has a right of action against the bank for its refusal to
pay such a check in the absence of notice to him that the bank
has applied the funds so deposited in extinguishment of past due
claims held against him.
NYCO SALES CORPORATION, petitioner,
vs.
BA FINANCE CORPORATION, JUDGE ROSALIO A.
DE LEON, respondents.
G.R. No. 71694, August 16, 1991
FACTS:
Nyco Sales Corporation (hereinafter referred to as Nyco) whose
president and general manager is Rufino Yao, is engaged in the
business of selling construction materials.
Santiago and Renato Fernandez (Fernandezes), both acting in
behalf of Sanshell Corporation, approached Rufino Yao for
credit accommodation. They requested Nyco, thru Yao, to grant
Sanshell discounting privileges which Nyco had with BA
Finance Corporation. Fernandezes went to Yao for the purpose
of discounting Sanshell's post-dated check which was a BPI-
Davao Branch
The said check was payable to Nyco. Following the discounting
process agreed upon, Nyco, thru Yao, endorsed the check in
favor of BA Finance. Thereafter, BA Finance issued a check
payable to Nyco 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 in favor of BA Finance with the
conformity of Sanshell.
The BPI check, however, was dishonored by the drawee bank
upon presentment for payment. BA Finance immediately
reported the matter to the Fernandezes who thereupon issued a
substitute check.
Nyco and the Fernandezes failed to settle the obligation with
BA Finance, thus prompting the latter to institute an action in
court
ISSUE: Whether or not the assignor is liable to its assignee for
its dishonored checks.
RULING:
Yes, assignor-vendor is liable for the invalidity of whatever he
as signed to the assignee-vendee. According to Article 1628 of
the Civil Code, the assignor-vendor warrants both the credit
itself (its existence and legality) and the person of the debtor
(his solvency), if so stipulated.
Nyco executed a deed of assignment in favor of BA Finance
with Sanshell Corporation as the debtor-obligor. Nyco is liable
to pay the amount represented in the said checks.
Nyco's pretension that it had not been notified of the fact of
dishonor is belied not only by the formal demand letter but also
by the findings of the trial court that Rufino Yao of Nyco and
the Fernandez Brothers of Sanshell had frequent contacts
before, during and after the dishonor. The dishonor of an
assigned check simply stresses its liability and the failure to
37
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.
Great Asian Sales Center Corporation vs. Court of
Appeals
GR No. 105774, April 25, 2002
FACTS:
On March 17, 1981, the board of directors of Great
Asian Sales Center Corporation (Great Asian) approved a
resolution authorizing its Treasurer and General Manager,
Arsenio Lim Piat, Jr. (Arsenio) to secure a loan from Bancasia
Finance and Investment Corporation (Bancasia) in an amount
not to exceed P1 million. On February 10, 1982, a second
resolution was approved to secure a discounting line with
Bancasia in an amount not exceeding P2 million, also
designating Arsenio as the authorized signatory to sign all
instruments. Tan Chong Lin signed two surety agreements in
favor of Bancasia to guarantee, solidarily, the debts of Great
Asian to Bancasia.
Great Asian, through Arsenio, signed four Deeds of
Assignment of Receivables assigning to Bancasia fifteen post-
dated checks. However, the drawee banks dishonored the
fifteen checks on maturity when deposited for collection by
Bancasia, with any of the following as reason for the dishonor:
“account closed,” “payment stopped,” “account under
garnishment,” and “insufficiency of funds.” The total amount
of the fifteen dishonored checks is P1,042,005.00.
Subsequently, Bancasia notified Tan Chong Lin of the dishonor
of the fifteen checks and demanding payment from him. Neither
Great Asian nor Tan Chong Lin paid Bancasia the dishonored
checks.
On May 21, 1982, Great Asian filed with the Court of
First Instance of Manila a petition for insolvency and listing
Bancasia as one of the creditors. On June 23, 1982, Bancasia
filed a complaint for collection of a sum of money against Great
Asian and Tan Chong Lin. In its answer, Great Asian denied the
allegations claiming that there was already a pending
insolvency proceeding, although Great Asian subsequently
withdrew its petition for voluntary insolvency. Great Asian
futher raised the alleged lack of authority of Arsenio to sign the
Deeds of Assignment as well as the absence of consideration
and consent of all the parties to the Surety Agreements signed
by Tan Chong Lin.
The trial court ruled in favor of Bancasia, that Great
Asian sufficiently established an existing liability to plaintiff by
way of financing accommodation as aforementioned in its
Schedule and Inventory of Liabilities and Creditors attached to
its Verified Petition for Insolvency. On appeal, the Court of
Appeals sustained the decision of the lower court, deleting only
the award of attorney’s fees.
ISSUE:
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
Whether or not Great Asian is liable to Bancasia when
the drawee banks dishonored the checks.
HELD:
Yes. As endorsee of Great Asian, Bancasia had the
option to proceed against Great Asian under the Negotiable
Instruments Law. However, Bancasia sued Great Asian for
breach of contract under the Civil Code, a right that Bnacasia
had under the express with recourse stipulation in the Deeds of
Assignment. Great Asian, after paying Bancasia, is subrogated
back as creditor of the receivables. Great Asian can then
proceed against the drawers who issued the dishonored checks.
Even if Bancasia failed to give timely notice of dishonor, there
would be no prejudice whatever to Great Asian.
Under the Negotiable Instruments Law, notice of
dishonor is not required if the drawer has no right to expect or
require the bank to honor the check, or if the drawer has
countermanded payment. In the instant case, all the checks were
dishonored for any of the following reasons: “account closed,”
“account under garnishment,” “insufficiency of funds,” or
“payment stopped.” In the first three instances, the three
drawers had no right to expect or require the bank to honor the
checks, and in the last instance, the drawers had countermanded
payment.
Under common law, delay in notice of dishonor,
where such notice is required, discharges the drawer only to the
extent of the loss caused by the delay. This rule finds
application in this jurisdiction pursuant to Section 196 of the
Negotiable Instruments Law which states, “Any case not
provided for in this Act shall be governed by the provisions of
existing legislation, or in default thereof, by the rules of the Law
Merchant.” Under Section 186 of the Negotiable Instruments
Law, delay in the presentment of checks discharges the drawer.
However, Section 186 refers only to delay in presentment of
checks but is silent on delay in giving notice of dishonor.
Luis S. Wong vs. Court of Appeals
G.R. No. 117857, February 2, 2001
FACTS:
Luis S. Wong was an agent of Limtong Press Inc.
(LPI), a manufacturer of calendars. LPI would print sample
calendars, then give them to agents to present to customers. The
agents would get the purchase orders of customers and forward
them to LPI. After printing the calendars, LPI would ship the
calendars directly to the customers. Thereafter, the agents
would come around to collect the payments. Wong, however,
had a history of unremitted collections, which he duly
acknowledged in a confirmation receipt he co-signed with his
wife. Hence, Wong's customers were required to issue
postdated checks before LPI would accept their purchase
orders.
In early December 1985, Wong issued 6 postdated
checks which were initially intended to guarantee the calendar
orders of customers who failed to issue post-dated checks.
38
However, following company policy, LPI refused to accept the
checks as guarantees. Instead, the parties agreed to apply the
checks to the payment of Wong's unremitted collections for
1984. Before the maturity of the checks, Wong prevailed upon
LPI not to deposit the checks and promised to replace them
within 30 days. However, Wong reneged on his promise.
Hence, on 5 June 1986, LPI deposited the checks with Rizal
Commercial Banking Corporation (RCBC). The checks were
returned for the reason "account closed." The dishonor of the
checks was evidenced by the RCBC return slip. On 20 June
1986, LPI through counsel notified Wong of the dishonor.
Wong failed to make arrangements for payment within 5
banking days.
On 6 November 1987, Wong was charged with 3
counts of violation of BP 22 under three separate Informations
for the three checks amounting to P5,500.00, P3,375.00, and
P6,410.00. Upon arraignment, Wong pleaded not guilty. The
trial court issued its decision, finding Wong guilty beyond
reasonable doubt of the offense of Violations of Section 1 of BP
22 in 3 Counts and sentencing Wong to serve an imprisonment
of 4 months for each count; to pay Limtong the sums of
P5,500.00, P6,410.00 and P3,375.00 together with the legal rate
of interest from the time of the filing of the criminal charges in
Court and pay the costs. Wong appealed his conviction to the
Court of Appeals but it affirmed the trial court's decision in toto.
Wong filed the petition for review on certiorari.
ISSUE:
Whether or not the presumption of knowledge of lack
of funds under Section 2 of BP 22 should not apply to Wong,
as he avers that LPI deposited the checks 157 days after the
maturity date, and that he should not be expected to keep his
bank account active and funded beyond the 90-day period.
HELD:
Contrary to Wong's assertions, nowhere in said
provision does the law require a maker to maintain funds in his
bank account for only 90 days. Rather, the clear import of the
law is to establish a prima facie presumption of knowledge of
such insufficiency of funds under the following conditions (1)
presentment within 90 days from date of the check, and (2) the
dishonor of the check and failure of the maker to make
arrangements for payment in full within 5 banking days after
notice thereof. That the check must be deposited within 90 days
is simply one of the conditions for the prima facie presumption
of knowledge of lack of funds to arise. It is not an element of
the offense. Neither does it discharge Wong from his duty to
maintain sufficient funds in the account within a reasonable
time thereof.
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 the loss caused by the delay."
By current banking practice, a check becomes stale after more
than 6 months, or 180 days. LPI deposited the checks 157 days
after the date of the check. Hence said checks cannot be
considered stale. Only the presumption of knowledge of
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
insufficiency of funds was lost, but such knowledge could still
be proven by direct or circumstantial evidence.
State Investment House, Inc. vs. Court of Appeals
G.R. No. 101163, January 11, 1993
FACTS:
Nora B. Moulic (Moulic) issued to Corazon
Victoriano, as security for pieces of jewelry to be sold on
commission, 2 post-dated Equitable Banking Corporation
checks in the amount of P50,000 each, one dated August 30,
1979 and the other, September 30, 1979. Thereafter, the payee
negotiated the checks to the State Investment House Inc. (SIHI).
Moulic failed to sell the pieces of jewelry, so she returned them
to the payee before maturity of the checks. The checks,
however, could no longer be retrieved as they had already been
negotiated. Consequently, before their maturity dates, Moulic
withdrew her funds from the drawee bank. Upon presentment
for payment, the checks were dishonored for insufficiency of
funds. On December 20, 1979, SIHI allegedly notified Moulic
of the dishonor of the checks and requested that it be paid in
cash instead, although Moulic avers that no such notice was
given to her.
On October 6, 1983, SIHI sued to recover the value of
the checks plus attorney's fees and expenses of litigation. In her
Answer, Moulic contends that she incurred no obligation on the
checks because the jewelry was never sold and the checks were
negotiated without her knowledge and consent. She also
instituted a Third-Party Complaint against Corazon Victoriano,
who later assumed full responsibility for the checks. The trial
court dismissed the Complaint as well as the Third-Party
Complaint, and ordered SIHI to pay Moulic P3,000.00 for
attorney's fees. SIHI elevated the order of dismissal to the Court
of Appeals, but the appellate court affirmed the trial court’s
decision on the ground that the Notice of Dishonor to Moulic
was made beyond the period prescribed by the Negotiable
Instruments Law and that even if SIHI did serve such notice on
Moulic within the reglementary period it would be of no
consequence as the checks should never have been presented
for payment.
ISSUE:
Whether or not the alleged issuance of the post-dated
checks as security is a ground for the discharge of the
instrument as against a holder in due course.
HELD:
Section 119 of the Negotiable Instruments Law
outlined the grounds in which an instrument is discharged. The
provision states that "A negotiable instrument is discharged: (a)
By payment in due course by or on behalf of the princiWhether
the post-dated checks, issued as security, is a ground for the
discharge of the instrument as against a holder in due course.
pal debtor; (b) By payment in due course by the party
accommodated, where the instrument is made or accepted for
his accommodation; (c) By the intentional cancellation thereof
by the holder; (d) By any other act which will discharge a
39
simple contract for the payment of money; (e) When the
principal debtor becomes the holder of the instrument at or after
maturity in his own right." Obviously, Moulic may only invoke
paragraphs (c) and (d) as possible grounds for the discharge of
the instrument. But, the intentional cancellation contemplated
under paragraph (c) is that cancellation effected by destroying
the instrument either by tearing it up, burning it, or writing the
word "cancelled" on the instrument. The act of destroying the
instrument must also be made by the holder of the instrument
intentionally. Since Moulic failed to get back possession of the
post-dated checks, the intentional cancellation of the said
checks is altogether impossible. On the other hand, the acts
which will discharge a simple contract for the payment of
money under paragraph (d) are determined by other existing
legislations since Section 119 does not specify what these acts
are, e.g., Art. 1231 of the Civil Code which enumerates the
modes of extinguishing obligations. Again, none of the modes
outlined therein is applicable in the instant case as Section 119
contemplates of a situation where the holder of the instrument
is the creditor while its drawer is the debtor. Herein, the payee,
Corazon Victoriano, was no longer Moulic's creditor at the time
the jewelry was returned. Correspondingly, Moulic may not
unilaterally discharge herself from her liability by the mere
expediency of withdrawing her funds from the drawee bank.
She is thus liable as she has no legal basis to excuse herself from
liability on her checks to a holder in due course.
Republic of the Philippines vs. Philippine National Bank
G.R. No. L-16106, December 30, 1961
FACTS:
On September 25, 1957, the Republic of the
Philippines (RP) filed before the Court of First Instance of
Manila a complaint for escheat of certain unclaimed bank
deposits balances under the provisions of Act No. 3936 against
several banks, among them the First National City Bank of New
York (FNCB). It was prayed that all credits and deposits held
by defendant banks in favor of persons known to be dead or
who have not made further deposits or withdrawals during the
period of 10 years or more be escheated to the RP by ordering
defendant banks to deposit them to its credit with the Treasurer
of the Philippines. In its answer, FNCB claims that it has
inadvertently included in its report certain items which were not
credits or deposits within the contemplation of Act No. 3936
and prayed that said items be not included in the claim of
plaintiff.
The court a quo rendered judgment holding that
cashier’s or manager’s checks and demand drafts as those
which defendants wants excluded from the complaint come
within the purview of Act No. 3936, but not the telegraphic
transfer payment orders which are of different category. But
after a motion to reconsider was filed by defendant, the court a
quo changed its view and held that even said demand drafts do
not come within the purview of said Act. The Plaintiff appealed
claiming that under Section 1 of the Act, “unclaimed balances”
include credits or deposits of money, bullion, security or other
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
evidence of indebtedness of any kind, and interest thereon with
banks.
ISSUE:
Whether or not demand drafts and telegraphic orders
come within the meaning of the term “credits” or “deposits”
employed in the law.
HELD:
The term “credit” in its usual meaning is a sum
credited on the books of a company to a person who appears to
be entitled to it. It presupposes a creditor-debtor relationship,
and may be said to imply ability, by reason of property or
estates to make a promised payment. It is the correlative debt or
indebtedness, and that which is due to any person as
distinguished from that which he asks.
A demand draft is a bill of exchange payable on
demand. Considered as a bill of exchange, a draft is said to be
an order by, one person on another to pay a sum of money
therein mentioned to a third person, on demand or at a future
time therein specified. As a matter of fact, the term draft is often
used, and is the common term, for all bills of exchange. And the
words “draft” and “bill of exchange” are used indiscriminately.
A bill of exchange within the meaning of our Negotiable
Instruments Law does not operate as an assignment of funds in
the hands of the drawee who is not liable on the instrument until
he accepts it. With regard to drafts or bills of exchange there is
need that they be presented either for acceptance or for payment
within a reasonable time after their issuance or after last
negotiation thereof as the case may be. Failure to make such
presentment will discharge the drawer from liability or to the
extent of the loss caused by the delay.
A cashier’s or manager’s check is a primary obligation
of the bank which issues it and constitutes its written promise
to pay upon demand.
In a telegraphic payment order, being a transaction for
the establishment of a telegraphic or cable transfer the
agreement to remit creates a contractual obligation and has been
termed a purchase and sale transaction. The purchaser of a
telegraphic transfer upon making payment completes the
transaction insofar as he is concerned though insofar as the
remitting bank is concerned the contract is executor until the
credit is established.
New Pacific Timber vs. Judge Seneris (G.R. No. L-41764
December 19, 1980)
FACTS:
Ricardo A. Tong filed a complaint for collection of
money against New Pacific Timber & Supply Co. Inc. Parties
entered into an amicable settlement stating that, petitioner
(NPTSCI) will pay to private respondent (Tong) P54,500.00 at
6% interest per annum and P6,000.00 as attorney's fee of which
40
P5,000.00 has been paid. From this, Judge Seneris rendered a
compromise judgment. However, petitioner failed to pay the
judgment obligation, hence, a writ of execution worth
₱63,130.00 was issued levied on its personal properties. Before
the date of the auction sale, petitioner deposited with the Clerk
of Court in his capacity as the Ex-Officio Sheriff ₱50,000.00
in Cashier's Check of the Equitable Banking Corporation and
₱13,130.00 in cash for a total of P63,130.00. However, Tong
refused to accept the check and the cash and requested for the
auction sale to proceed. The properties were sold for only
₱50,000.00 to the highest bidder with a deficiency of
₱13,130.00.
Petitioner filed an ex-parte motion for issuance of
certificate of satisfaction of judgment which Judge Seneris
denied. He cited Article 1249 of the New Civil Code which
provides that payments of debts shall be made in the currency
which is the legal tender of the Philippines and Section 63 of
the Central Bank Act which provides that checks representing
deposit money do not have legal tender power. He also cited
Article 1248 of the New Civil Code which provides that
creditor cannot be compelled to accept partial payment unless
there is an express stipulation to the contrary.
ISSUE: Whether a check can be considered a valid
payment of a judgment obligation
RULING:
YES. It is a well-known and accepted practice in the
business sector that a Cashier's Check is deemed cash.
Moreover, since the check has been certified by the drawee
bank, this certification implies that the check is sufficiently
funded in the drawee bank and the funds will be applied
whenever the check is presented for payment. The object of
certifying a check is to enable the holder to use it as money.
When the holder procures the check to be certified, it operates
as an assignment of a part of the funds to the creditors. Hence,
the exception provided in Section 63 of the Central Bank Act
which states that checks which have been cleared and credited
to the account of the creditor shall be equivalent to a delivery to
the creditor in cash the amount equal to that which is credited
to his account. The Cashier's Check and the cash are valid
payment of the obligation of the petitioner. The private
respondent has no valid reason to refuse the acceptance of the
check and cash as full payment of the obligation.
PNB vs. National City Bank of New York
Facts:
Unknown persons claiming to be associated with
Pangasinan Transportation Company paid checks to Motor
Services Company as part of an agreement in payment for tires,
and the latter believed the signatures on the check were genuine.
Said checks were later deposited in the company’s account in
National City Bank of New York (NCBNY) and were cleared.
The PNB then credited the NCBNY the amounts in the checks.
Later, PNB discovered that the signatures in the check were
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
forged. It then demanded reimbursement of the amount it
credited to NCBNY.
Issue: Whether acceptance is the same as payment
Ruling:
No. A check is a bill of exchange payable on demand
and only the rules governing bills of exchange payable on
demand are applicable to it, according to section 185 of the
Negotiable Instruments Law. Acceptance is a step unnecessary
for bills of exchange payable on demand (Sec. 143).
Acceptance implies, subsequent negotiation of the instrument.
From the moment a check is paid it is withdrawn from
circulation. The payment of a check does not include or imply
its acceptance in the sense that this word is used in Section 62
of the Negotiable Instruments Law. Payment (in checks) is a
final act which extinguishes a bill while acceptance (in certified
checks) is a promise to pay in the future and it continues the life
of the bill.
ASSOCIATED BANK vs. CA
FACTS:
The Province of Tarlac was disbursing funds to
Concepcion Emergency Hospital via checks drawn against its
account with the Philippine National Bank (PNB). These
checks were drawn payable to the order of Concepcion
Emergency Hospital. Fausto Pangilinan was the cashier of
Concepcion Emergency Hospital in Tarlac until his retirement
in 1978. He used to handle checks issued by the provincial
government of Tarlac to the said hospital. However, after his
retirement, the provincial government still delivered checks to
him until its discovery of this irregularity in 1981. By forging
the signature of the chief payee of the hospital (Dr. Adena
Canlas), Pangilinan was able to deposit 30 checks amounting to
₱203,000.00 to his account with the Associated Bank. When the
province of Tarlac discovered this irregularity, it demanded
PNB to reimburse the said amount. PNB in turn demanded
Associated Bank to reimburse said amount. PNB averred that
Associated Bank is liable to reimburse because of its
indorsement borne on the face of the checks: “All prior
endorsements guaranteed ASSOCIATED BANK.”
ISSUE: What are the liabilities of each party?
HELD: Since the checks involved in this case are order
instruments, both banks are liable in the following:
Associated Bank
Where the instrument is payable to order at
the time of the forgery, such as the checks in this case,
the signature of its rightful holder (the payee hospital)
is essential to transfer title to the same instrument.
When the holder’s indorsement is forged, all parties
prior to the forgery may raise the real defense of
forgery against all parties subsequent thereto.
A collecting bank (Associated Bank) where a
check is deposited and which indorses the check upon
41
presentment with the drawee bank (PNB), is such an
indorser. So even if the indorsement on the check
deposited by the banks’s client is forged, Associated
Bank is bound by its warranties as an indorser and
cannot set up the defense of forgery as against the
PNB.
However, If it can be shown that the drawee
bank (PNB) unreasonably delayed in notifying the
collecting bank (Associated Bank) of the fact of the
forgery so much so that the latter can no longer collect
reimbursement from the depositor-forger.
PNB
The drawee bank (PNB), is under strict
liability to pay the check to the order of the payee
(Provincial Government of Tarlac). Payment under a
forged indorsement is not to the drawer’s order. When
the drawee bank pays a person other than the payee, it
does not comply with the terms of the check and
violates its duty to charge its customer’s (the drawer)
account only for properly payable items. Since the
drawee bank did not pay a holder or other person
entitled to receive payment, it has no right to
reimbursement from the drawer. The general rule then
is that the drawee bank may not debit the drawer’s
account and is not entitled to indemnification from the
drawer. The risk of loss must perforce fall on the
drawee bank.
However,if the drawee bank (PNB) can prove
a failure by the customer/drawer (Tarlac Province) to
exercise ordinary care that substantially contributed to
the making of the forged signature, the drawer is
precluded from asserting the forgery.
In sum, by reason of Associated Bank’s indorsement
and warranties of prior indorsements as a party after the forgery,
it is liable to refund the amount to PNB. The Province of Tarlac
can ask reimbursement from PNB because the Province is a
party prior to the forgery. Hence, the instrument is inoperative.
HOWEVER, it has been proven that the Provincial Government
of Tarlac has been negligent in issuing the checks especially
when it continued to deliver the checks to Pangilinan even when
he already retired. Due to this contributory negligence, PNB is
only ordered to pay 50% of the amount or half of ₱203,000.
BUT THEN AGAIN, since PNB can pass its loss to Associated
Bank (by reason of Associated Bank’s warranties), PNB can
ask the 50% reimbursement from Associated Bank and
Associated Bank can ask reimbursement from Pangilinan.
BATAAN CIGAR vs. CA
FACTS:
Bataan Cigar & Cigarette Factory, Inc. (BCCFI),
engaged with King Tim Pua George, to deliver 2,000 bales of
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
tobacco leaf. BCCFI issued post dated crossed checks in
exchange. Trusting King's words, BCCFI issued another post-
dated crossed check for another purchase of tobacco leaves.
During these times, King was dealing with State Investment
House Inc.. On two separate occasions, King sold the post-
dated crossed 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. SIHI then failing to claim, filed a claim against BCCFI.
The RTC ruled that SIHI is a holder in due course and can
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.
The purpose of crossed checks is to avoid the 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 holder that it has been issued for a definite
purpose, thus making SIHI not a holder in due course. However,
SIHI can still collect from the immediate indorser, George
King.
STATE INVESTMENT HOUSE v. IAC, GR No. 72764,
1989-07-13
Facts:
New Sikatuna Wood Industries, Inc. requested for a loan from
private respondent Harris Chua. The latter agreed to grant the
same subject to the condition that the former should wait until
December 1980 when he would have the money.
In view of this agreement, private respondent-wife, Anita Peña
Chua issued three (3) crossed checks payable to New Sikatuna
Wood Industries, Inc. all postdated December 22, 1980. The
total value of the three (3) postdated checks amounted to
P299,450.00.
Subsequently, New Sikatuna Wood Industries, Inc. entered into
an agreement with herein petitioner State Investment House,
Inc. whereby for and in consideration of the sum of
P1,047,402.91 under a deed of sale, the former assigned and
discounted with petitioner... eleven (11) postdated checks
including the aforementioned three (3) postdated checks issued
by herein private respondent-wife Anita Peña Chua to New
Sikatuna Wood Industries, Inc.
When the three checks issued by private respondent Anita Peña
Chua were allegedly deposited by petitioner, these checks were
dishonored by reason of "insufficient funds", "stop payment"
and "account closed", respectively.
Petitioner claims that despite demands on private respondent
Anita Peña to make good said checks, the latter failed to pay the
42
same necessitating the former to file an action for collection
against the latter and her husband Harris Chua
Private respondents-defendants filed a third party complaint
against New Sikatuna Wood Industries, Inc. for reimbursement
and indemnification in the event that they be held liable to
petitioner-plaintiff. For failure of third party defendant to...
answer the third party complaint despite due service of
summons, the latter was declared in default.
RTC ruled against herein private respondents-spouses While
CA re versed such decision.
Petitioner submits that at the time of the negotiation and
endorsement of the checks in question by New Sikatuna Wood
Industries, it had no knowledge of the transaction and/or
arrangement made between the latter and private respondents.
Issue:
Whether or not petitioner is a holder in due course as to entitle
it to proceed against private respondents for the amount stated
in the dishonored checks.
Ruling:
No. CA is affirmed.
State Investment is not a holder in due course and cannot allege
that it had no knowledge of the transaction between New
Sikatuna and Chua because the Checks were crossed checks.
When it rediscounted such knowing that those were crossed
checks, it was knowingly violating the avowed intention of
crossing the checks. Its failure to inquire the purpose of the
crossed checks prevents him from being in good faith, thus is
not a holder in due course.
The three subject checks in the case at bar had been crossed
generally and issued payable to New Sikatuna Wood Industries,
Inc. which could only mean that the drawer had intended the
same for deposit only by the rightful person, i.e., the payee
named... therein. Apparently, it was not the payee who
presented the same for payment and therefore, there was no
proper presentment, and the liability did not attach to the
drawer. Thus, in the absence of due presentment, the drawer
did not become... liable. Consequently, no right of recourse is
available to petitioner against the drawer of the subject checks,
private respondent wife, considering that petitioner is not the
proper party authorized to make presentment of the... checks in
question.
PEOPLE v. DAVID G. NITAFAN, GR No. 75954, 1992-
10-22
Facts:
Private respondent K.T. Lim was charged before respondent
court with violation of B.P. 22
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
On 18 July 1986, private respondent moved to quash the
Information on the ground that the facts charged did not
constitute a felony as B.P. 22 was unconstitutional and that the
check he issued was a memorandum check which was in the
nature of a promissory note, perforce,... civil in nature. On 1
September 1986, respondent judge, ruling that B.P. 22 on which
the Information was based was unconstitutional, issued the
questioned Order quashing the Information. Hence, this petition
for review on certiorari filed by the Solicitor General in... behalf
of the government.
Private respondent contends that although a memorandum
check may not differ in form and appearance from an ordinary
check, such a check is given by the drawer to the payee more...
in the nature of a memorandum of indebtedness and, as such,
partakes of the nature of a promissory note, and should be sued
upon in a civil action.
Issues:
Whether a memorandum check issued post-dated in partial
payment of a pre-existing obligation is within the coverage of
B.P. 22
Ruling:
We are not persuaded.
A memorandum check is in the form of an ordinary check, with
the word "memorandum", "memo" or "mem" written across its
face, signifying that the maker or drawer engages to pay the
bona fide holder absolutely, without any condition concerning
its... presentment.[6] Such a check is an evidence of debt against
the drawer, and although may not be intended to be
presented,[7] has the same effect as an ordinary... check,[8] and
if passed to a third person, will be valid in his hands like any
other check.
It is clear that a memorandum check, which is in the form of an
ordinary check, is still drawn on a bank and should therefore be
distinguished from a promissory note, which is but a mere
promise to pay. If private respondent seeks to equate...
memorandum check with promissory note, as he does, to skirt
the provisions of B.P. 22, he could very well have issued a
promissory note, and this would have exempted him from the
coverage of the law. In the business community, a promissory
note, certainly, has less impact and... persuadability than a
check.
A memorandum check must therefore fall within the ambit of
B.P. 22 which does not distinguish but merely provides that
"[a]ny person who makes or draws and issues any check
knowing at the... time of issue that he does not have sufficient
funds in or credit with the drawee bank x x x which check is
subsequently dishonored x x x shall be punished by
imprisonment x x x x" Ubi lex non distinguit nec nos
distinguere debemus.
43
a memorandum check may carry with it the understanding that
it is not to be presented at the bank but will be redeemed by the
maker himself when the loan falls due. This understanding may
be manifested by writing across the check "Memorandum",
"Memo"... or "Mem". However, with the promulgation of B.P.
22, such understanding or private arrangement may no longer
prevail to exempt it from penal sanction imposed by the law. To
require that the agreement surrounding the issuance of checks
be first looked into and thereafter exempt... such issuance from
the punitive provisions of B.P. 22 on the basis of such
agreement or understanding would frustrate the very purpose
for which the law was enacted - to stem the proliferation of
unfunded checks. After having effectively reduced the
incidence of worthless checks... changing hands, the country
will once again experience the limitless circulation of bouncing
checks in the guise of memorandum checks if such checks will
be considered exempt from the operation of B.P. 22.
SPS. GEORGE MORAN AND LIBRADA P. MORAN v.
CA, GR No. 105836, 1994-03-07
Facts:
Petitioner spouses George and Librada Moran are the owners of
the Wack-Wack Petron gasoline station located at Shaw
Boulevard, corner Old Wack-Wack Road, Mandaluyong, Metro
Manila. They regularly purchased bulk fuel and other related
products from Petrophil Corporation on... cash on delivery
(COD) basis. Orders for bulk fuel and other related products
were made by telephone and payments were effected by
personal checks upon delivery.
Petitioner spouses Moran maintained three joint accounts with
respondent Citytrust Banking Corporation. As a special
privilege to the Morans, a pre-authorized transfer (PAT)
agreement was entered into by the parties. The PAT letter-
agreement contained the following provisions: (1) xxx “the
checks would be honored if the savings account has sufficient
balance to cover the overdraft; xxx (3) that the bank has the
right to refuse to effect transfer of funds at their sole and
absolute option and discretion; (4) Citytrust is free and harmless
for any and all omissions or oversight in executing this
automatic transfer of funds.” On December 12, 1983,
petitioners, through Librada Moran, drew a check payable to
Petrophil Corporation. The next day, petitioners issued another
check in favor of the same corporation. Later, the bank
dishonored the checks due to “insufficiency of funds”. As a
result, Petrophil refused to deliver the orders of petitioners on a
credit. The non-delivery of gasoline forced petitioners to
temporarily stop business operations. Petitioners wrote
Citytrust claiming the dishonor of the checks caused them
besmirched business and personal reputation, shame and
anxiety. Hence, they were contemplating filing legal actions,
unless the bank clears their name and paid for moral damages.
The trial court dismissed the complaint. The CA affirmed
Issues:
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
Whether or not petitioners had sufficient funds in their accounts
when the bank dishonored the checks in question
Ruling:
It is clear that the available balance on December 14, 1983 was
used by the bank in determining whether or not there was
sufficient cash deposited to fund the two checks, although what
was... stamped on the dorsal side of the two checks in question
was "DAIF/12-15-83," since December 15, 1983 was the actual
date when the, checks were processed. As earlier stated, when
petitioners' checks were dishonored due to insufficiency of
funds, the available balance of Savings
Account No. 1037001372, which was the subject of the PAT
agreement, was not enough to cover either of the two checks.
On December 14, 1983, when PNB, Pandacan branch presented
the checks for collection, the available balance for Savings
Account No. 1037001372, to repeat, was... only P26,104.30
while Current Account No. 37-0006-7 had no available balance.
It was only on December 15, 1983 at around ten o'clock in the
morning that the necessary funds were deposited, which
unfortunately was too late to prevent the dishonor of the checks.
A drawer must remember his responsibilities every time he
issues a check. He must personally keep track of his available
balance in the bank and not rely on the bank to notify him of the
necessity to fund... certain checks he previously issued. A
check, as distinguished from an ordinary bill of exchange, is
supposed to be drawn against a previous deposit of funds for it
is ordinarily intended for immediate payment.
HONGKONG v. CECILIA DIEZ CATALAN, GR No.
159590, 2004-10-18
Facts:
respondent filed before the RTC, a complaint for a sum of
money with damages against petitioner HSBANK... due to
HSBANK's alleged wanton refusal to pay her the value of five
HSBANK checks issued by Frederick Arthur Thomson
(Thomson) amounting to HK$3,200,000.00.
The checks when deposited were returned by HSBANK
purportedly for reason of "payment stopped" pending
confirmation, despite the fact that the checks were duly funded.
On March 18, 1997, Thomson wrote a letter to a certain Ricky
Sousa[7] of HSBANK confirming... the checks he issued to
Catalan and requesting that all his checks be cleared. On March
20, 1997, Thomson wrote another letter to Sousa of HSBANK
requesting an advice in writing to be sent to the Philippine
National Bank, through the fastest means, that the checks he
previously... issued to Catalan were already cleared. Thereafter,
44
Catalan demanded that HSBANK make good the checks issued
by Thomson.
Subsequently, Thomson died and Catalan forwarded her
demand to HSBC TRUSTEE. Catalan sent photocopies of the
returned checks to HSBC TRUSTEE. Not satisfied, HSBC
TRUSTEE... through deceit and trickery, required Catalan, as a
condition for the acceptance of the checks, to submit the
original copies of the returned checks, purportedly, to hasten
payment of her claim. HSBC TRUSTEE succeeded in its
calculated deception because on April 21, 1999,... Catalan and
her former counsel went to Hongkong at their own expense to
personally deliver the originals of the returned checks to the
officers of HSBC TRUSTEE, anxious of receiving the money
value of the checks but HSBC TRUSTEE despite receipt of the
original checks, refused to... pay Catalan's claim.
The unsuspecting Catalan left the originals of the checks with
HSBC TRUSTEE and was given only an acknowledgment...
receipt. Catalan made several demands and after several more
follow ups, on August 16, 1999, Phoenix Lam, Senior Vice
President of HSBC TRUSTEE, in obvious disregard of her
valid claim, informed Catalan that her claim is disapproved. No
reason or explanation whatsoever was made... why her claim
was disapproved, neither were the checks returned to her.
Catalan appealed for fairness and understanding, in the hope
that HSBC TRUSTEE would act fairly and justly on her claim
but these demands were met by a stonewall of silence
HSBANK claims that Catalan has no cause of action because
under Section 189 of the Negotiable Instruments Law, "a check
of itself does not operate as an assignment of any part of the
funds to the credit of the drawer with the bank, and the bank is
not liable to the holder unless... and until it accepts or certifies
it."
Issues:
Issue: Whether or not the claim has no cause of action under
Sec 189 of NIL.
Ruling:
We are convinced that the allegations therein are in the nature
of an action based on tort under Article 19 of the Civil Code. It
is evident that Catalan is suing HSBANK and HSBC
TRUSTEE for unjustified and... willful refusal to pay the value
of the checks.
HSBANK is not being sued on the value of the check itself but
for how it acted in relation to Catalan's claim for payment
despite the repeated directives of the drawer Thomson to
recognize the check the latter issued. Catalan may... have
prayed that she be paid the value of the checks but it is
axiomatic that what determines the nature of an action, as well
as which court has jurisdiction over it, are the allegations of the
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
complaint, irrespective of whether or not the plaintiff is entitled
to recover upon... all or some of the claims asserted therein.
MARCELO A. MESINA VS. INTERMEDIATE
APPELLATE COURT
G.R. NO. 70145 NOVEMBER 13, 1986, 145 SCRA 497
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 so 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
**A person who became the holder of a cashier's check as
endorsed by the person who stole it and who refused to say how
and why it was passed to him is not a holder in due course.
JOSEPHINE DOMAGSANG VS. CA AND THE PEOPLE
G.R. NO. 139292. DECEMBER 5, 2000
FACTS:
Petitioner approached Ignacio Garcia, an Assistant Vice
President of METROBANK, to ask for financial assistance.
Garcia accommodated petitioner and gave the latter a loan in
the sum of P573,800.00. In exchange, petitioner issued and
45
delivered to the complainant 18 postdated checks for the
repayment of the loan. When the checks were, in time,
deposited, the instruments were all dishonored by the drawee
bank for this reason: “Account closed.” The complainant
demanded payment allegedly by calling up petitioner at her
office. Failing to receive any payment for the value of the
dishonored checks, the complainant referred the matter to his
lawyer who supposedly wrote petitioner a letter of demand but
that the latter ignored the demand.(Note: the said demand letter
was not presented as evidence)Hence, 18 cases for the violation
of BP 22 were filed against Domagsang.
RTC Ruling as affirmed by CA:
Petitioner was convicted by the Regional Trial Court of Makati
of having violated Anti-Bouncing Check Law, on eighteen (18)
counts, and sentenced her to suffer the penalty of One (1) Year
imprisonment for each count. The judgment, when appealed to
the Court of Appeals was affirmed in toto by the appellate court.
A petition for certiorari was filed by petitioner to SC.
Defense raised by Domagsang:
There was no proper written letter of demand served upon her
person, thus she must not be charged for the violation of BP 22.
According to Domagsang, even if she was informed of the
dishonour by Garcia through a telephone call, the same is not
sufficient to convict her.
ISSUE:
Whether or not lack of written letter of demand is a ground for
acquittal from the criminal violation of BP 22.
SC RULING:
The SC ruled in the positive.
Ratio / Doctrine:
To secure conviction for the vilation of BP 22, the
prosecution must establish the fact that the check was
dishonoured AND that the accused has been notified in
writing of the fact of dishonour.
While, indeed, Section 2 of B.P. 22 does not state that the notice
of dishonor be in writing, taken in conjunction, however, with
Section 3 of the law, i.e., "that where there are no sufficient
funds in or credit with such drawee bank, such fact shall always
be explicitly stated in the notice of dishonor or refusal," a mere
oral notice or demand to pay would appear to be insufficient
for conviction under the law.
The Court is convinced that both the spirit and letter of the
Bouncing Checks Law would require for the act to be punished
thereunder not onlythat the accused issued a check that is
dishonored, but thatlikewise the accused has actually been
notified in writing of the fact of dishonour.
 Negotiable Instruments – Atty. Joanne Ranada – CASE DIGESTS
Evidently, the appellate court did not give weight and credence
to the assertion that a demand letter was sent by a counsel of the
complainant because of the failure of the prosecution to
formally offer it in evidence. Courts are bound to consider as
part of the evidence only those which are formally offered,for
judges must base their findings strictly on the evidence
submitted by the parties at the trial. Without the written notice
of dishonor, there can be no basis, considering what has
heretofore been said, for establishing the presence of "actual
knowledge of insufficiency of funds.
Related Doctrine:
There is no prima facie presumption of the knowledge of
dishonour in BP 22, thus notice of dishonour (written) is
required to secure conviction.
The law enumerates the elements of the crime to be :
(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 the
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.
There is deemed to be a prima facie evidence of knowledge on
the part of the maker, drawer or issuer of insufficiency of funds
in or credit with the drawee bank of the check issued if the
dishonored check is presented within 90 days from the date of
the check and the maker or drawer fails to pay thereon or to
make arrangement with the drawee bank for that purpose.
The statute has created the prima facie presumption evidently
because "knowledge" which involves a state of mind would be
difficult to establish. The presumption does not hold, however,
when the maker, drawer or issuer of the check pays the holder
thereof the amount due thereon or makes arrangement for
payment in full by the drawee bank of such check within 5
banking days after receiving notice that such check has not been
paid by the drawee bank.
It has been observed that the State, under this statute, actually
offers the violator a compromise by allowing him to perform
some act which operates to preempt the criminal action, and if
he opts to perform it the action is abated. This was also
compared to certain laws allowing illegal possessors of firearms
a certain period of time to surrender the illegally possessed
firearms to the Government, without incurring any criminal
liability. In this light, the full payment of the amount appearing
in the check within five banking days from notice of dishonor
is a complete defense. The absence of a notice of dishonor
necessarily deprives an accused an opportunity to preclude a
criminal prosecution. Accordingly, procedural due process
46
clearly enjoins that a notice of dishonor be actually served
on petitioner. Petitioner has a right to demand – and the
basic postulates of fairness require – that the notice of
dishonor be actually sent to and received by her to afford
her the opportunity to avert prosecution under B.P. Blg. 22.
RAMOS V. COURT OF APPEALS
[G.R. NO. L-64129-31. NOVEMBER 18, 1991]
FACTS:
Petitioner, as acting bank manager, allowed withdrawals on
uncleared checks deposited into the accounts of her co-accused.
Petitioner repeatedly granted accommodations in at least
fourteen (14) instances and despite her knowledge that prior
checks deposited by her co-accused turned out to be unfunded.
ISSUE:
Whether or not petitioner is engaged in “check kiting” which
amounts to estafa with unfaithfulness or abuse of confidence.
RULING:
YES. The act of utilizing the float status of uncleared checks
constitutes “check kiting”. Check kiting is the deliberate
issuance of a check for which there is not sufficient cash to
pay the stated amount. The mechanics of this fraud scheme
are as follows:
1. Write a check for which there is not sufficient cash
in the payer's account.
2. Create a checking account at a different bank.
3. Deposit the fraudulent check in the checking
account that was just opened.
4. Withdraw the funds from the new checking
account.
The crime committed by the accused was estafa with
unfaithfulness or abuse of confidence under Article 315
subparagraph 1 (b) of the Revised Penal Code. In this case,
petitioner acted maliciously or in bad faith by assuming to
dispose the money of the bank as if it were her own, thereby
committing conversion and a clear breach of trust. She
performed an indispensable act necessary to enable her and her
co-accused to accomplish the criminal purpose they had in
mind.