CASE DIGESTS

FOR
NEGOTIABLE INSTRUMENTS LAW

SUBMITTED BY:
CLASS 4-E, SCHOOL YEAR 2019-2020
SAN BEDA UNIVERSITY, COLLEGE OF LAW

SUBMITTED TO:
ATTY. TIMOTEO B. AQUINO
 FEDEX V. ANTONINO
G.R. No. 199455
June 27, 2018

Negotiable Instruments Law – Characteristics of a Negotiable Instrument

FACTS:

Eliza and Luwalhati Antonino were in the Philippines and in order to pay the monthly charges
due on the condominium unit owned by Eliza in New York, they decided to send several
Citibank checks to Veronica Sison, who was based in New York, to be applied to the
monthly chargws and the real estate tax due on the condominium. Citibank checks allegedly
amounting to US$17,726.18 taxes were sent by Luwalhati through the Federal Express
Corporation (FedEx). The package was addressed to Sison. Sison allegedly did not receive
the package, resulting in the non-payment of Luwalhati and Eliza's obligations and the
foreclosure of the Unit.

Sison contacted FedEx on February 9, 2004 to inquire about the non-delivery. She was
informed that the package was delivered to her neighbor but there was no signed receipt.
The Antoninos sent a demand letter to FedEx for payment of damages due to the non-
delivery of the package. FedEx contends that the respondents violated the terms of the Air
Waybill by shipping checks.

The RTC ruled for respondents, holding that that a check is not legal tender or a "negotiable
instrument equivalent to cash," as prohibited by the Air Waybill. The CA affirmed the RTC.

ISSUE:
Whether or not petitioner FedEx may be held liable for damages on account of its failure to
deliver the checks

RULING:
YES, FedEx may be held liable.

FedEx is unable to prove that it exercised extraordinary diligence in ensuring delivery

of the package to its designated consignee. The Civil Code mandates common carriers
to observe extraordinary diligence in caring for the goods they are transporting. This
responsibility lasts from the time the goods are unconditionally placed in their possession
until they are delivered "to the consignee, or to the person who has a right to receive them. It
claims to have made a delivery but it even admits that it was not to the designated
consignee.

Checks are not included in the items not acceptable for transportation provided in the
International Air Waybill The prohibition has a singular object: money. What follows the
phrase "transportation of money" is a phrase enclosed in parentheses, and commencing
with the words "including but not limited to." The additional phrase, enclosed as it is in
parentheses, is not the object of the prohibition, but merely a postscript to the word "money."
Moreover, its introductory words "including but not limited to" signify that the items that follow
are illustrative examples; they are not qualifiers that are integral to or inseverable from
"money." Despite the utterance of the enclosed phrase, the singular prohibition remains:
money.

Money is "what is generally acceptable in exchange for goods." 55 It can take many forms,
most commonly as coins and banknotes. Despite its myriad forms, its key element is its
general acceptability.
Checks, being only negotiable instruments, are only substitutes for money and are not legal
tender; more so when the check has a named payee and is not payable to bearer. The Air
Waybill's prohibition mentions "negotiable instruments" only in the course of making an
example. Thus, they are not prohibited items themselves

Checks with a specified payee are not negotiable instruments equivalent to cash. The
same must still be endorsed by the payee before it can be negotiated.

The contract between petitioner and respondents is a contract of adhesion; it was prepared
solely by petitioner for respondents to conform to. Accordingly, the prohibition against
transporting money must be restrictively construed against petitioner and liberally for
respondents.

Ultimately, in shipping checks, respondents were not violating petitioner's Air Waybill. From
this, it follows that they committed no breach of warranty that would absolve petitioner of
liability.
 UBAS, SR. VS. CHAN
G.R. NO. 215910
FEBRUARY 6, 2017

Negotiable Instruments Law – Delivery

Relevant facts:

Ubas alleged that Chan, doing business under the name Unimaster, was indebted to
him in the amount of P1,500,000 representing the price of construction materials. Chan
issued 3 bank checks payable to “CASH” in the amount of P500K each. The checks were
dishonored due to a stop payment order. Ubas sent a demand letter detailing the particulars
of the said checks. Chan admits to having issued the checks but avers that they were not
issued to Ubas, but were delivered to Engr. Merelos who, however, lost the same. Moreover,
Chan disclaims any personal transaction with Ubas stating that the checks were issued by
Unimasters and not him.

During trial, Unimaster’s comptroller testified that she was informed by the drawee
bank that the checks were deposited in the account of Ubas. There was no showing that
Unimasters and/or Chan commenced any action against Ubas to assert its interest over the
P1,500,000 that were supposedly stolen.

Issues::
(A) Does Ubas have a cause of action against Chan?
(B) Is Chan’s defense that the checks were not issued because they were lost valid?

Held::
(A) Yes. Section 24 of the NIL provides that every negotiable instrument is deemed
prima facile to have been issued for valuable consideration; and every person whose
signature appears Thereon have become a party thereto for value.

Petitioner had presented in evidence the 3 dishonored checks which were

undeniably signed by respondent. Hence, it is presumed that the subject checks
were issued for a valid consideration, which therefore, dispensed with the necessity
of any documentary evidence to support petitioners monetary claim. Unless
otherwise rebutted, the legal presumption of consideration under Section 24 stands.

(B) No. Section 16 of the NIL provides that when an instrument is no longer in the
possession of the person who signed it and it is complete in its terms, “a valid and
intentional delivery by him is presumed until the contrary is proved”, as in this case. It
would have been contrary to human nature and experience for petitioner to send to
respondent a demand letter detailing the particulars of the said checks if he indeed
unlawfully obtained the same. It is glaring the respondent did present Engr. Merelos,
the project engineer who had purportedly lost the checks, to personally testify on the
circumstances surrounding the lost checks. Also, the fact that no action against the
petitioner was commenced to assert it interest over the amount is inconsistent with
ordinary human nature and experience. Therefore, the presumption of intentional
delivery shall subsist.
 METROPOLITAN BANK AND TRUST COMPANY vs. WILFRED CHIOK
G.R. No. 172652
November 26, 2014

Subject/Topic: Manager’s Check/ Cashier’s Check

Facts:
Wilfred Chiok had been engaged in dollar trading for several years. He usually buys
dollars from Gonzalo Nuguid either in cash or manager’s check. For this purpose, Chiok
maintained accounts with petitioners Metropolitan Bank and Trust Company (Metrobank)
and Global Business Bank, Inc. (Global Bank), the latter being then referred to as the Asian
Banking Corporation (Asian Bank). Chiok likewise entered into a Bills Purchase Line
Agreement (BPLA) with Asian Bank. Under the BPLA, checks drawn in favor of, or
negotiated to, Chiok may be purchased by Asian Bank and upon such purchase, Chiok
receives a discounted cash equivalent of the amount of the check.
Pursuant to Chiok’s instruction, Asian Bank issued two manager’s checks to Gonzalo
Bernardo, who is the same person as Gonzalo Nuguid. Likewise, upon Chiok’s application,
Metrobank issued Cashier’s Check in the name of Gonzalo Bernardo. All were debited from
Chiok’s Savings Account.
Chiok then deposited the three checks in Nuguid’s account with Far East Bank &
Trust Company (FEBTC), the predecessor-in-interest of petitioner Bank of the Philippine
Islands (BPI). Nuguid was supposed to deliver US$1,022,288.50,4 the dollar equivalent of
the three checks as agreed upon, in the afternoon of the same day. Nuguid, however, failed
to do so, prompting Chiok to request that payment on the three checks be stopped. RTC
concluded that since Nuguid did not have a valid title to the proceeds of the manager’s and
cashier’s checks, Chiok is entitled to be paid back everything he had paid to the drawees for
the checks.

Issue:
Whether or not payment of manager’s and cashier’s checks are subject to the condition that
the payee thereof should comply with his obligations to the purchaser of the checks?

Held:
No. Both manager’s and cashier’s checks are still subject to regular clearing under
the regulations of the Bangko Sentral ng Pilipinas, a fact borne out by the BSP manual for
banks and intermediaries, which provides, among others, in its Section 1603.1(c):
x x x x c. Items for clearing. All checks and documents payable on demand and drawn
against a bank/branch, institution or entity allowed to clear may be exchanged through the
Clearing Office in Manila and the Regional Clearing Units in regional clearing centers
designated by the Central Bank x x x
While indeed, it cannot be said that manager’s and cashier’s checks are pre-cleared,
clearing should not be confused with acceptance. Manager’s and cashier’s checks are still
the subject of clearing to ensure that the same have not been materially altered or otherwise
completely counterfeited. However, manager’s and cashier’s checks are pre-accepted by the
mere issuance thereof by the bank, which is both its drawer and drawee. Long standing and
accepted banking practices do not countenance the countermanding of manager’s and
cashier’s checks on the basis of a mere allegation of failure of the payee to comply with its
obligations towards the purchaser. On the contrary, the accepted banking practice is that
such checks are as good as cash.
Even more telling is the Court’s pronouncement in Tan v. Court of Appeals, which
unequivocally settled the unconditional nature of the credit created by the issuance of
manager’s or cashier’s checks: A cashier’s check is a primary obligation of the issuing bank
and accepted in advance by its mere issuance. By its very nature, a cashier’s check is the
bank’s order to pay drawn upon itself, committing in effect its total resources, integrity and
honor behind the check. A cashier’s check by its peculiar character and general use in the
commercial world is regarded substantially to be as good as the money which it represents.
 In this case, Asian Bank and Metrobank by issuing the subject manager’s checks and
cashier check created an unconditional credit in favor of any collecting bank. Thus, the
payment of manager’s and cashier’s checks are not subject to the condition that the payee
thereof should comply with his obligations to the purchaser of the checks
 The Hong Kong and Shanghai Bank Corp. v. CIR G.R. No. 166018
June 4, 2014

Subject/Topic: Electronic Messages are Not Negotiable Instruments

Relevant facts:

HSBC performs custodial services on behalf of its investor-clients with respect to their
passive investments in the Philippines, particularly investments in shares of stocks in
domestic corporations. As a custodian bank, HSBC serves as the collection/payment agent.

HSBC’s investor-clients maintain Philippine peso and/or foreign currency accounts, which
are managed by HSBC through instructions given through electronic messages. The said
instructions are standard forms known in the banking industry as SWIFT, or “Society for
Worldwide Interbank Financial Telecommunication.”

Pursuant to the electronic messages of its investor-clients, HSBC purchased and paid
Documentary Stamp Tax (DST) from September to December 1997 and also from January
to December 1998 amounting to P19,572,992.10 and P32,904,437.30, respectively.

BIR, thru its then Commissioner, issued BIR Ruling to the effect that instructions or advises
from abroad on the management of funds located in the Philippines which do not involve
transfer of funds from abroad are not subject to DST. A documentary stamp tax shall be
imposed on any bill of exchange or order for payment purporting to be drawn in a foreign
country but payable in the Philippines. While the payor is residing outside the Philippines, he
maintains a local and foreign currency account in the Philippines from where he will draw the
money intended to pay a named recipient. The instruction or order to pay shall be made
through an electronic message. Consequently, there is no negotiable instrument to be made,
signed or issued by the payee.

With the above BIR Ruling as its basis, HSBC filed on an administrative claim for the refund
of allegedly representing erroneously paid DST to the BIR

As its claims for refund were not acted upon by the BIR, HSBC subsequently brought the
matter to the CTA, which ruled in favor of HSBC. However, the CA reversed decisions of the
CTA and ruled that the electronic messages in issue are subject to DST.

Issues relevant to Commercial Law:

Whether or not the electronic messages are considered negotiable instruments and be
subjected to DST.

Decision/Held:

No. The electronic messages are not considered to be negotiable instruments.

The Court favorably adopts the finding of the CTA that the electronic messages “cannot be
considered negotiable instruments as they lack the feature of negotiability, which, is the
ability to be transferred” and that the said electronic messages are “mere memoranda” of the
transaction consisting of the “actual debiting of the [investor-client-payor’s] local or foreign
currency account in the Philippines” and “entered as such in the books of account of the
local bank,” HSBC.

The instructions given through electronic messages that are subjected to DST in these
cases are not negotiable instruments as they do not comply with the requisites of
negotiability under Section 1 of the Negotiable Instruments Law.

The electronic messages are not signed by the investor-clients as supposed drawers of a bill
of exchange; they do not contain an unconditional order to pay a sum certain in money as
the payment is supposed to come from a specific fund or account of the investor-clients;
and, they are not payable to order or bearer but to a specifically designated third party. Thus,
the electronic messages are not bills of exchange. As there was no bill of exchange or order
for the payment drawn abroad and made payable here in the Philippines, there could have
been no acceptance or payment that will trigger the imposition of the DST under Section 181
of the Tax Code.
 RODRIGO RIVERA vs. SPOUSES SALVADOR CHUA AND VIOLETA S. CHUA
G.R. No. 184458
January 14, 2015
Subject: Negotiable Instruments Law- Requisites of Negotiability
Facts:
The parties were friends of long standing having known each other since 1973: Rivera and
Salvador are kumpadres, the former is the godfather of the Spouses Chua’s son.
On 24 February 1995, Rivera obtained a loan from the Spouses Chua:
PROMISSORY NOTE
120,000.00
FOR VALUE RECEIVED, I, RODRIGO RIVERA promise to pay spouses SALVADOR C.
CHUA and VIOLETA SY CHUA, the sum of One Hundred Twenty Thousand Philippine
Currency (₱120,000.00) on December 31, 1995.
It is agreed and understood that failure on my part to pay the amount of (120,000.00) One
Hundred Twenty Thousand Pesos on December 31, 1995. (sic) I agree to pay the sum
equivalent to FIVE PERCENT (5%) interest monthly from the date of default until the entire
obligation is fully paid for.
Should this note be referred to a lawyer for collection, I agree to pay the further sum
equivalent to twenty percent (20%) of the total amount due and payable as and for attorney’s
fees which in no case shall be less than ₱5,000.00 and to pay in addition the cost of suit and
other incidental litigation expense.
Any action which may arise in connection with this note shall be brought in the proper Court
of the City of Manila.
Manila, February 24, 1995[.]
(SGD.) RODRIGO RIVERA4
In October 1998, almost three years from the date of payment stipulated in the promissory
note, Rivera, as partial payment for the loan, issued and delivered to the Spouses Chua, as
payee, a check numbered 012467, dated 30 December 1998, drawn against Rivera’s current
account with the Philippine Commercial International Bank (PCIB) in the amount of
₱25,000.00.
On 21 December 1998, the Spouses Chua received another check presumably issued by
Rivera, likewise drawn against Rivera’s PCIB current account, numbered 013224, duly
signed and dated, but blank as to payee and amount. Ostensibly, as per understanding by
the parties, PCIB Check No. 013224 was issued in the amount of ₱133,454.00 with "cash"
as payee. Purportedly, both checks were simply partial payment for Rivera’s loan in the
principal amount of ₱120,000.00.
Upon presentment for payment, the two checks were dishonored for the reason "account
closed."
As of 31 May 1999, the amount due the Spouses Chua was pegged at ₱366,000.00
covering the principal of ₱120,000.00 plus five percent (5%) interest per month from 1
January 1996 to 31 May 1999.
The Spouses Chua alleged that they have repeatedly demanded payment from Rivera to no
avail. Because of Rivera’s unjustified refusal to pay, the Spouses Chua were constrained to
file a suit on 11 June 1999. The case was raffled before the MeTC, Branch 30, Manila and
docketed as Civil Case No. 163661.
In the main, Rivera claimed forgery of the subject Promissory Note and denied his
indebtedness thereunder.
Upon [order of the MeTC], Mr. Magbojos examined the purported signature of [Rivera]
appearing in the Promissory Note and compared the signature thereon with the specimen
signatures of [Rivera] appearing on several documents. After a thorough study, examination,
and comparison of the signature on the questioned document (Promissory Note) and the
specimen signatures on the documents submitted to him, he concluded that the questioned
signature appearing in the Promissory Note and the specimen signatures of [Rivera]
appearing on the other documents submitted were written by one and the same person.
After trial, the MeTC ruled in favor of the Spouses Chua
On appeal, the Regional Trial Court, Branch 17, Manila affirmed the Decision of the MeTC,
but deleted the award of attorney’s fees to the Spouses Chua.
Hence, these consolidated petitions for review on certiorariof Rivera in G.R. No. 184458 and
the Spouses Chua in G.R. No. 184472.

Issues:
1. whether or not the honorable court of appeals erred in upholding the ruling of the rtc and
m[e]tc that there was a valid promissory note executed by [rivera].
2. whether or not the honorable court of appeals erred in holding that demand is no longer
necessary and in applying the provisions of the negotiable instruments law.

Held:
1. On the issue of the supposed forgery of the promissory note, we are not inclined to depart
from the lower courts’ uniform rulings that Rivera indeed signed it.
Rivera offers no evidence for his asseveration that his signature on the promissory note was
forged, only that the signature is not his and varies from his usual signature.
we cannot give credence to such a naked claim of forgery over the testimony of the National
Bureau of Investigation (NBI) handwriting expert on the integrity of the promissory note.
[Rivera] failed to adduce clear and convincing evidence that the signature on the promissory
note is a forgery. The fact of forgery cannot be presumed but must be proved by clear,
positive and convincing evidence. Mere variance of signatures cannot be considered as
conclusive proof that the same was forged. Save for the denial of Rivera that the signature
on the note was not his, there is nothing in the records to support his claim of forgery. And
while it is true that resort to experts is not mandatory or indispensable to the examination of
alleged forged documents, the opinions of handwriting experts are nevertheless helpful in
the court’s determination of a document’s authenticity.
We agree that the subject promissory note is not a negotiable instrument and the provisions
of the NIL do not apply to this case. Section 1 of the NIL requires the concurrence of the
following elements to be a negotiable instrument:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty.
The Promissory Note in this case is made out to specific persons, herein respondents, the
Spouses Chua, and not to order or to bearer, or to the order of the Spouses Chua as
payees.
2. However, even if Rivera’s Promissory Note is not a negotiable instrument and therefore
outside the coverage of Section 70 of the NIL which provides that presentment for payment
is not necessary to charge the person liable on the instrument, Rivera is still liable under the
terms of the Promissory Note that he issued.
The Promissory Note is unequivocal about the date when the obligation falls due and
becomes demandable—31 December 1995. As of 1 January 1996, Rivera had already
incurred in delay when he failed to pay the amount of ₱120,000.00 due to the Spouses Chua
on 31 December 1995 under the Promissory Note.
Article 1169 of the Civil Code explicitly provides:
Art. 1169. Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be rendered was
a controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power
to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not
ready to comply in a proper manner with what is incumbent upon him. From the moment one
of the parties fulfills his obligation, delay by the other begins. (Emphasis supplied)
There are four instances when demand is not necessary to constitute the debtor in default:
(1) when there is an express stipulation to that effect; (2) where the law so provides; (3)
when the period is the controlling motive or the principal inducement for the creation of the
obligation; and (4) where demand would be useless. In the first two paragraphs, it is not
sufficient that the law or obligation fixes a date for performance; it must further state
expressly that after the period lapses, default will commence.
The date of default under the Promissory Note is 1 January 1996, the day following 31
December 1995, the due date of the obligation. On that date, Rivera became liable for the
stipulated interest which the Promissory Note says is equivalent to 5% a month. In sum, until
31 December 1995, demand was not necessary before Rivera could be held liable for the
principal amount of ₱120,000.00. Thereafter, on 1 January 1996, upon default, Rivera
became liable to pay the Spouses Chua damages, in the form of stipulated interest.
 PEOPLE VS. WAGAS
G.R. No. 157943
SETEMBER 4, 2013

Negotiable Instruments Law- Checks Payable to Bearer

Facts:
Wagas appeals his conviction for estafa under the decision rendered by the RTC.
The prosecution through its witness, Alberto Ligaray, established that Wagas placed
an order for 200 bags of rice over the telephone. Ligaray released the goods to Wagas and
at the same time received Bank of the Philippine Islands (BPI) Check No. 0011003 for
₱200,000.00 payable to cash and postdated May 8, 1997. Ligaray later deposited the check
with Solid Bank, his depository bank, but the check was dishonored due to insufficiency of
funds.
On the other hand, Wagas testified that he issued BPI Check No. 0011003 to
Cañada, his brother-in-law, not to Ligaray. He denied having any telephone conversation or
any dealings with Ligaray. He explained that the check was intended as payment for a
portion of Cañada’s property that he wanted to buy, but when the sale did not push through,
he did not anymore fund the check.

Issue:
Whether or not Wagas could be held guilty of estafa.

Held:
No. Wagas could not be held guilty of estafa. The Prosecution did not establish
beyond reasonable doubt that it was Wagas who had defrauded Ligaray by issuing the
check. Further, the Prosecution established that Ligaray had released the goods to Cañada
because of the postdated check the latter had given to him; and that the check was
dishonored when presented for payment because of the insufficiency of funds.
The check delivered to Ligaray was made payable to cash. Under the Negotiable
Instruments Law, this type of check was payable to the bearer and could be negotiated by
mere delivery without the need of an indorsement. This rendered it highly probable that
Wagas had issued the check not to Ligaray, but to somebody else like Cañada, his brother-
in-law, who then negotiated it to Ligaray. Relevantly, Ligaray confirmed that he did not
himself see or meet Wagas at the time of the transaction and thereafter, and expressly
stated that the person who signed for and received the stocks of rice was Cañada.
It bears stressing that the accused, to be guilty of estafa as charged, must have used
the check in order to defraud the complainant. What the law punishes is the fraud or deceit,
not the mere issuance of the worthless check. Wagas could not be held guilty of estafa
simply because he had issued the check used to defraud Ligaray. The proof of guilt must still
clearly show that it had been Wagas as the drawer who had defrauded Ligaray by means of
the check.
 SONNY LO, v. KJS ECO-FORMWORK SYSTEM PHIL., INC
G.R. No. 149420
October 8, 2003.

Subject/Topic: Negotiable Instruments Law – Assignment of Credit

FACTS: Respondent KJS ECO-FORMWORK System Phil., Inc. is a corporation engaged in

the sale of steel scaffoldings, while petitioner Sonny L. Lo, doing business under the name
and style San’s Enterprises, is a building contractor. Petitioner ordered scaffolding
equipment from respondent worth P540,425.80. He paid a downpayment in the amount of
P150,000.00. The balance was made payable in ten monthly installments. Respondent
delivered the scaffoldings to petitioner. Petitioner was able to pay the first two monthly
installments. His business, however, encountered financial difficulties and he was unable to
settle his obligation. Later, petitioner and respondent executed a Deed of Assignment,
whereby petitioner assigned to respondent his receivables in the amount of P335,462.14
from Jomero Realty Corporation. However, when respondent tried to collect the said credit
from Jomero Realty Corporation, the latter refused to honor the Deed of Assignment
because it claimed that petitioner was also indebted to it. Respondent sent a letter to
petitioner demanding payment of his obligation, but petitioner refused to pay claiming that
his obligation had been extinguished when they executed the Deed of Assignment.

Respondent filed an action for recovery of a sum of money against the petitioner. The trial
court rendered a decision dismissing the complaint on the ground that the assignment of
credit extinguished the obligation. Respondent appealed the decision to the Court of
Appeals, where the court reverses the appealed Decision and ordering Sonny Lo to pay the
Kjs Eco-Formwork System Philippines, Inc. The Court of Appeals found that the Deed of
Assignment did not extinguish the obligation of the petitioner to the respondent.

ISSUE: 1. Whether or not the Deed of Assignment extinguished the obligation despite the
contention that, allegedly, the receivables cannot be assigned because of the indebtedness
of the party? (No.)

2. Whether or not there was a breach of the Deed of Assignment? (Yes)

HELD: 1. No. The Deed of Assignment did not extinguish the obligation.

Ratio: An assignment of credit is an agreement by virtue of which the owner of a credit,

known as the assignor, by a legal cause, such as sale, dacion en pago, exchange or
donation, and without the consent of the debtor, transfers his credit and accessory rights to
another, known as the assignee, who acquires the power to enforce it to the same extent as
the assignor could enforce it against the debtor.1Corollary thereto, in dacion en pago, as a
special mode of payment, the debtor offers another thing to the creditor who accepts it as
equivalent of payment of an outstanding debt. The undertaking really partakes in one
sense of the nature of sale, that is, the creditor is really buying the thing or property
of the debtor, payment for which is to be charged against the debtor’s debt. As such,
the vendor in good faith shall be responsible, for the existence and legality of the
credit at the time of the sale but not for the solvency of the debtor, in specified
circumstances. Hence, it may well be that the assignment of credit, which is in the
nature of a sale of personal property, produced the effects of a dation in payment
which may extinguish the obligation.

However, as in any other contract of sale, the vendor or assignor is bound by

certain warranties. More specifically, the first paragraph of Article 1628 of the Civil Code
provides: The vendor in good faith shall be responsible for the existence: and legality of the
credit at the time of the sale, unless it should have been sold as doubtful; but not for the
solvency of the debtor, unless it has been so expressly stipulated or unless the insolvency
was prior to the sale and of common knowledge.
From the above provision, Petitioner, as vendor or assignor, is bound to warrant the
existence and legality of the credit at the time of the sale or assignment.

In the case at bar: When Jomero claimed that it was no longer indebted to petitioner since
the latter also had an unpaid obligation to it, it essentially meant that its obligation to
petitioner has been extinguished by compensation. KJS ECO-FORMWORK System, thus,
only alleged the non-existence of the credit and asserted its claim to petitioner’s warranty
under the assignment. Therefore, it behooved on petitioner to make good its warranty and
paid the obligation.

2. Furthermore, petitioner breached his obligation under the Deed of Assignment. Indeed,
by warranting the existence of the credit, petitioner should be deemed to have
ensured the performance thereof in case the same is later found to be inexistent. He
should be held liable to pay to respondent the amount of his indebtedness. The decision of
the Court of Appeals is affirmed.

Note: Requisites of dation in payment: (1) There must be the performance of the prestation
in lieu of payment (animo solvendi) which may consist in the delivery of a corporeal thing or
a real right or a credit against the third person;
(2) There must be some difference between the prestation due and that which is given in
substitution (aliud pro alio);
(3) There must be an agreement between the creditor and debtor that the obligation is
immediately extinguished by reason of the performance of a prestation different from that
due
 ASIA BREWERY, INC. and CHARLIE S. GO vs. EQUITABLE PCI BANK (now BANCO
DE ORO-EPCI, INC.)
G.R. No. 190432
April 25, 2017

Negotiable Instruments Law- Delivery, when effectual; when presumed

Facts: Within September 1996 to July 1998, 10 checks and 16 demand drafts were issued
in the name of Charlie Go. The instruments, with a total value of ₱3,785,257.38, bore the
annotation “endorsed by PCI Bank, Ayala Branch, All Prior Endorsement And/Or Lack of
Endorsement Guaranteed.” It was alleged by petitioners that none of the instrument reached
the payee, Go and these instruments however fell into the hands of one Raymond Keh,
Sales Accounting Manager of Asia Brewery, Inc., who falsely misrepresented to be the
payee and succeeded in opening accounts with defendant EPB in the name of Charlie Go
and thereafter deposited the said checks and demand drafts in said accounts and withdrew
the proceeds thereof to the damage and prejudice of ABI. ABI then filed a complaint against
EPB for payment, reimbursement, or restitution. On the other hand, EPB argued that Go is
not entitled to reimbursement since he never became a holder or owner of the instruments
because they were not delivered to him thus, he did not acquire any interest or right thereto.
The RTC agreed with respondent. Hence, this petition.

Issue: Is EPB and the RTC’s contention correct that Go has no right claim reimbursement
since the instruments were not delivered to him?

Ruling: No, it was erroneous for EPB and the RTC to have concluded that there was no
delivery, just because the checks did not reach the payee. It failed to consider Section 16 of
the Negotiable Instruments Law, which envisions instances when instruments may have
been delivered to a person other than the payee. Under Section 16 of the Negotiable
Instruments of Law, when the instrument is no longer in the possession of a party whose
signature appears thereon, a valid and intentional delivery by him is presumed until the
contrary is proved. Also, in the case of Associated Bank vs. Court of Appeals, it was held
that the possession of a check on a forged or unauthorized indorsement is wrongful, and
when the money is collected on the check, the bank can be held for moneys had and
received. Here, EPB failed to present any evidence to dispute the presumption that there
was already a valid and intentional delivery to plaintiff Go. Furthermore, EPB allowed the
forged checks to be deposited and the proceeds thereof be withdrawn from their account.
They also correlative obligation to pay, having guaranteed all prior endorsements. Therefore,
Charlie Go is entitled to reimbursement.
 San Miguel Corporation vs Puzon Jr.
G.R. No. 167567
September 22, 2010

Subject/Topic: Negotiable Instrument Law- Delivery for the purpose of giving

effect to an instrument (antedated and postdated)

Facts: Respondent Bartolome V. Puzon, Jr., (Puzon) owner of Bartenmyk

Enterprises, was a dealer of beer products of petitioner San Miguel Corporation
(SMC) for Parañaque City. Puzon purchased SMC products on credit. SMC
required him to issue postdated checks equivalent to the value of the products
purchased on credit as a security and said checks are to be returned to Puzon
when the transactions covered by these checks were paid or settled in full.

On December 31, 2000, Puzon purchased products on credit amounting to

P11,820,327 for which he issued, and gave to SMC, Bank of the Philippine Islands
(BPI) Check Nos. 27904 (for P309,500.00) and 27903 (for P11,510,827.00) to
cover the said transaction.

On January 23, 2001, Puzon, together with his accountant, visited the SMC Sales
Office in Parañaque City to reconcile his account with SMC. During that visit Puzon
allegedly requested to see BPI Check No. 17657. However, when he got hold of
BPI Check No. 27903 which was attached to a bond paper together with BPI
Check No. 17657 he allegedly immediately left the office with his accountant,
bringing the checks with them.

SMC sent a letter to Puzon on March 6, 2001 demanding the return of the said
checks. Puzon ignored the demand hence SMC filed a complaint against him for
theft with the City Prosecutor's Office of Parañaque City.

Issue: Whether or not the postdated checks issued by Puzon were issued in
payment of his beer purchases?

Held: No, the checks were issued merely as security to ensure payment of
Puzon’s obligation. Negotiable Instruments Law provides:
Sec. 12. Antedated and postdated
The instrument is not invalid for the reason only that it is antedated or
postdated, provided this is not done for an illegal or fraudulent purpose. The
person to whom an instrument so dated is delivered acquires the title thereto as
of the date of delivery.

Note however that delivery as the term is used in the aforementioned provision
means that the party delivering did so for the purpose of giving effect thereto.
Otherwise, it cannot be said that there has been delivery of the negotiable
instrument. Once there is delivery, the person to whom the instrument is delivered
gets the title to the instrument completely and irrevocably. If the subject check was
given by Puzon to SMC in payment of the obligation, the purpose of giving effect to
the instrument is evident thus title to or ownership of the check was transferred
upon
delivery. However, if the check was not given as payment, but being mere security for
debt, there being no intent to give effect to the instrument, then ownership of the
check was not transferred to SMC. Furthermore, the evidence of SMC failed to
establish that the check was given in payment of the obligation of Puzon. There was
no provisional receipt or official receipt issued for the amount of the check. What was
issued was a receipt for the document, a "POSTDATED CHECK SLIP."

Since the checks were given merely as security and not as payment for the credit,
then the checks were not delivered so as to give effect to them . As such, ownership
was not transferred to SMC. Hence, the checks that Puzon allegedly took were not
properties belonging to another. Consequently there is no probable cause for theft
 Dino vs. Judal-Loot
G.R no. 170913
April 19, 2010

Negotiable Instruments Law – Holders in Due Cours/Checks

Facts: Sometime in December 1992, a syndicate, approached petitioner and induced him to
lend the group P3,000,000.00 to be secured by a real estate mortgage on the properties.
Enticed and convinced by the syndicate's offer, petitioner issued three Metrobank checks
totaling P3,000,000.00, one of which is Check No. C-MA-142119406-CA postdated 13 February
1993 in the amount of P1,000,000.00 payable to Vivencia Ompok Consing and/or Fe Lobitana.
c

Upon scrutiny, petitioner discovered that the documents covered rights over government
properties. Realizing he had been deceived, petitioner advised Metrobank to stop payment of
his checks. However, only the payment of Check No. C-MA- 142119406-CA was ordered
stopped. The other two checks were already encashed by the payees.

Meanwhile, Lobitana negotiated and indorsed Check No. C-MA- 142119406-CA to respondents
in exchange for cash in the sum of P948,000.00, which respondents borrowed from Metrobank
and charged against their credit line. Before respondents accepted the check, they first inquired
from the drawee bank, Metrobank, Cebu-Mabolo Branch which is also their depositary bank, if
the subject check was sufficiently funded, to which Metrobank answered in the positive.
However, when respondents deposited the check with Metrobank, Cebu-Mabolo Branch, the
same was dishonored by the drawee bank for reason "PAYMENT STOPPED."

Respondents filed a collection suit against petitioner and Lobitana before the trial court. In their
Complaint, respondents alleged, among other things, that they are holders in due course and for
value of Metrobank Check No. C-MA-142119406-CA and that they had no prior information
concerning the transaction between defendants.

Issue: Whether or Not Respondets were Holders in Due Course?

Held: No. Responders are not Holders in Due Course

“Section 52 of the Negotiable Instruments Law defines a holder in due course, thus:

A holder in due course is a holder who has taken the instrument under the following conditions:

(a) That it is complete and regular upon its face;

(b) That he became the holder of it before it was overdue, and without notice that it has 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.”
In the case of a crossed check, as in this case, the following principles must additionally be
considered: A crossed check (a) may not be encashed but only deposited in the bank; (b) may
be negotiated only once - to one who has an account with a bank; and (c) warns the holder that
it has been issued for a definite purpose so that the holder thereof must inquire if he has
received the check pursuant to that purpose; otherwise, he is not a holder in due course. Based
on the foregoing, respondents had the duty to ascertain the indorser's, in this case Lobitana's,
title to the check or the nature of her possession. This respondents failed to do. Respondents'
verification from Metrobank on the funding of the check does not amount to determination of
Lobitana's title to the check. Failing in this respect, respondents are guilty of gross negligence
amounting to legal absence of good faith, contrary to Section 52(c) of the Negotiable
Instruments Law. Hence, respondents are not deemed holders in due course of the subject
check

The effect therefore of crossing a check relates to the mode of its presentment for payment.
Under Section 72 of the Negotiable Instruments Law, presentment for payment to be sufficient
must be made (a) by the holder, or by some person authorized to receive payment on his behalf
x x x As to who the holder or authorized person will be depends on the instructions stated on the
face of the check.

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.

In this case, there is no question that the payees of the check, Lobitana or Consing, were not
the ones who presented the check for payment. Lobitana negotiated and indorsed the check to
respondents in exchange for P948,000.00. It was respondents who presented the subject check
for payment; however, the check was dishonored for reason "PAYMENT STOPPED." In other
words, it was not the payee who presented the check for payment; and thus, there was no
proper presentment. As a result, liability did not attach to the drawer. Accordingly, no right of
recourse is available to respondents against the drawer of the check, petitioner herein, since
respondents are not the proper party authorized to make presentment of the subject check.

However, the fact that respondents are not holders in due course does not automatically mean
that they cannot recover on the check. The Negotiable Instruments Law does not provide that a
holder who is not a holder in due course may not in any case recover on the instrument. The
only disadvantage of a holder who is not in due course is that the negotiable instrument is
subject to defenses as if it were non-negotiable. Among such defenses is the absence or failure
of consideration, which petitioner sufficiently established in this case. Petitioner issued the
subject check supposedly for a loan in favor of Consing's group, who turned out to be a
syndicate defrauding gullible individuals. Since there is in fact no valid loan to speak of, there is
no consideration for the issuance of the check. Consequently, petitioner cannot be obliged to
pay the face value of the check.
 Bank of America NT & SA vs. Philippine Racing Club, Inc.
G.R. No. 150228
July 30, 2009

Negotiable Instruments Law – CHECKS

FACTS:

The President and Vice President of Philippine Racing Club, Inc. (PRCI) pre-signed several
checks relating to the current account of PRCI with Bank of America (BA). The checks were
done because of they were scheduled to go out of the country and in order not to disrupt the
operations in their absence. The pre-signed checks were entrusted to the accountant. Suddenly,
a John Doe presented to BA for encashment a couple of PRCI’s checks (P110,000.00 each).
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."
BA encashed the checks without 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. PRCI then demanded from BA but it fell on deaf ears. PRCI filed a complaint against
BA. The RTC rendered a decision in favor of PRCI. The CA then affirmed the decision when it
was appealed by BA. BA now contends that it merely fulfilled its obligation under law and
contract when it encashed the aforesaid checks. Moreover, BA contends that there only exists a
duty on the drawee bank to inquire from the drawer before encashing a check only when the
check bears a material alteration which is not present in the instant case.

ISSUE: Is BA’s failure to make a verification regarding the checks with PRIC in view of the
misplacement of entries on the face of the checks the proximate cause of the loss?

HELD:

Yes. It is well-settled that banks are engaged in a business impressed with public interest, and it
is their duty to protect in return their many clients and depositors who transact business with
them. They have the obligation to treat their client’s account meticulously and with the highest
degree of care, considering the fiduciary nature of their relationship. The diligence required of
banks, therefore, is more than that of a good father of a family.

In the case at bar, extraordinary diligence demands that BA should have ascertained from PRCI
the authenticity of the subject checks or the accuracy of the entries therein not only because of
the presence of highly irregular entries on the face of the checks but also of the decidedly
unusual circumstances surrounding their encashment. Respondent’s witness testified that for
checks in amounts greater than ₱20,000.00 it is the company’s practice to ensure that the
payee is indicated by name in the check. This was not rebutted by petitioner. Indeed, it is highly
uncommon for a corporation to make out checks payable to "CASH" for substantial amounts
such as in this case. If each irregular circumstance in this case were taken singly or isolated, the
bank’s employees might have been justified in ignoring them. However, the confluence of the
irregularities on the face of the checks and circumstances that depart from the usual banking
practice of respondent should have put petitioner’s employees on guard that the checks were
possibly not issued by the respondent in due course of its business. Petitioner’s subtle sophistry
cannot exculpate it from behavior that fell extremely short of the highest degree of care and
diligence required of it as a banking institution.
Moreover, the Court emphasized that the checks were not properly delivered to the person who
encashed the same based on the circumstances of the case. Hence, the subject checks are
properly characterized as incomplete and undelivered instruments thus making Section 15 of
the NIL applicable in this case. The Court, nevertheless enunciated that even if both parties be
assumed to be negligent, BA will still emerge as the party foremost liable in this case in
consonance with the application of the doctrine of last clear chance. However, the Court held
proper to consider PRCI’s own negligence to mitigate BA’s liability. The Court held that PRCI’s
practice of signing checks in blank whenever its authorized bank signatories would travel
abroad was a dangerous policy, especially considering the lack of evidence on record that
respondent had appropriate safeguards or internal controls to prevent the pre-signed blank
checks from falling into the hands of unscrupulous individuals and being used to commit a fraud
against the company.

Hence, Bank of America NT & SA was ordered by the Court to pay Philippine Racing Club sixty
percent (60%) of the sum of Two Hundred Twenty Thousand Pesos (₱220,000.00).
 DE OCAMPO VS. GATCHALIAN
G.R. NO. L-15126
NOVEMBER 30, 1961

Negotiable Instruments Law – Holder in Due Course

Facts: Anita C. Gatchalian, defendant, who was then interested in looking for a car, was shown
and offered a car by Manuel Gonzales. Gonzales represented to Gatchalian that he was duly
authorized by the owner of the car, Ocampo Clinic, to look for a buyer of the car, negotiate, and
accomplish said sale. Gonzales requested Gatchalian 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. Relying
on these representations of Gonzales and with this assurance that said check will be only for
safekeeping and which will be returned, Gatchalian drew and issued a check in the amount of
P600.00 that Gonzales executed and issued a receipt for said check. On the failure of Gonzales
to appear the day following and on his failure to bring the car and its certificate of registration
and to return the check on the following day as previously agreed upon, Gatchalian issued a
"Stop Payment Order" on the check with the drawee bank. Gonzales having received the check,
delivered the same to the Ocampo Clinic, in payment of the fees and expenses arising from the
hospitalization of his wife. De Ocampo, the plaintiff, accepted said check, applying P441.75
thereof to payment of said fees and expenses and delivering to Gonzales the amount of
P158.25 representing the balance on the amount of the said check.

De Ocampo subsequently filed an action for the recovery of the value of a check for P600
payable to him and drawn by Gatchalian. The Court of First Instance of Manila, sentenced
Gatchalian and Gonzales to pay De Ocampo the sum of P600. In their appeal, defendants
contend that the check is not a negotiable instrument and that De Ocampo is not a holder in due
course.

Issue: Should De Ocampo be considered as a holder in due course under the Negotiable
Instruments Law?

Held: No. Section 52, Negotiable Instruments Law, defines holder in due course as "A holder in
due course is a holder who has taken the instrument under the following conditions: (a) That it is
complete and regular upon its face; (b) That he became the holder of it before it was overdue,
and without notice that it had been previously dishonored, if such was the fact; (c) That he took
it in good faith and for value; (d) That at the time it was negotiated to him he had no notice of
any infirmity in the instrument or defect in the title of the person negotiating it." In the case at
bar, although De Ocampo was not aware of the circumstances under which the check was
delivered to Gonzales, the circumstances -- such as the fact that Gatchalian had no obligation
or liability to the Ocampo Clinic, that the amount of the check did not correspond exactly with
the obligation of Matilde Gonzales to De Ocampo; and that the check had two parallel lines in
the upper left hand corner, which practice means that the check could only be deposited but
may not be converted into cash, should have put De Ocampo to inquiry as to the why and
wherefore of the possession of the check by Gonzales, and why he used it to pay Matilde's
account. It was payee's duty to ascertain from the holder Gonzales what the nature of the
latter's title to the check was or the nature of his possession. Having failed in this respect, De
Ocampo was guilty of gross neglect in not finding out the nature of the title and possession of
Gonzales, amounting to legal absence of good faith, and it may not be considered as a holder of
the check in good faith. Hence, De Ocampo is not a holder in due course under the Negotiable
Instruments Law.
 BANK OF AMERICA, NT & SA v. ASSOCIATED CITIZENS BANK, BA-FINANCE
CORPORATION, MILLER OFFSET PRESS, INC., UY KIAT CHUNG, CHING UY
SENG, UY CHUNG GUAN SENG, and COURT OF APPEALS
G.R. No. 141018
May 21,2009

Topic: Negotiable Instruments-Warranties

FACTS:
BA-Finance Corp. granted Miller Offset Press, Inc., a credit line facility agreement
whereby Miller can discount and assign its trade receivables with BA-Finance. Miller
discounted and assigned several trade receivables to BA-Finance by excuting d Deeds
of assignment in favor of BA-Finance and in consideration thereof, BA-Finance issued
four checks payable to the “order of Miller Offset Press, Inc.” with the notation “For
Payees’s Account Only.”, drawn against Bank of America (drawee bank). The checks
were deposited by Ching Uy Seng, then corporate secretary of Miller, in a joint bank
account of Ching Uy Seng and Uy Guan Seng in Associated Citizens Bank (collecting
bank). Associated Bank stamped the checks with the notation “all prior endorsements
and/or lack of endorsements guaranteed” and sent them through clearing. Later Bank of
America honored the checks and paid the proceeds to the Associated Bank. When
Miller failed to deliver the proceeds of the assigned trade receivables, BA Finance filed
a collection suit against Miller and the three representatives of the latter.

Bank of America filed a third party complaint against Associated Bank. In its answer to
the third party complaint, Associated Bank admitted having received checks for deposit
in the joint account but alleged that Ching Uy Seng, being one of the corporate officers,
was duly authorized to act for and behalf of Miller.

ISSUES
1. WON Bank of America is liable to pay BA Finance the amount of four checks?
2. WON Associated Bank is liable to reimburse Bank of America the amount of the four
checks?

HELD
1. Yes. The bank on which a check is drawn, known as the drawee bank, is under strict
liability, based on the contract between the bank and its customer (drawer), to pay the
check only to the payee or the payee’s order. The drawer’s instructions are reflected on
the face and by the terms of the check. When the drawee bank pays a person other than
the payee named on the check, it does not comply with the terms of the check and
violates its duty to charge the drawer’s account only for properly payable items. A
drawee should charge to the drawer’s accounts only the payables authorized by the
latter; otherwise, the drawee will be violating the instructions of the drawer and shall be
liable for the amount charged to the drawer’s account.
 In this case, the four checks were drawn by BA-Finance and made payable to the "Order
of Miller Offset Press, Inc." The checks were also crossed and issued "For Payee’s
Account Only." Clearly, the drawer intended the check for deposit only by Miller Offset
Press, Inc. in the latter’s bank account. Thus, when a person other than Miller, i.e., Ching
Uy Seng, a.k.a. Robert Ching, presented and deposited the checks in his own personal
account (Ching Uy Seng’s joint account with Uy Chung Guan Seng), and the drawee
bank, Bank of America, paid the value of the checks and charged BA-Finance’s account
therefor, the drawee Bank of America is deemed to have violated the instructions of the
drawer, and therefore, is liable for the amount charged to the drawer’s account.

2. Yes. A collecting bank where a check is deposited, and which endorses the check upon
presentment with the drawee bank, is an endorser. Under Section 66 of the Negotiable
Instruments Law, an endorser warrants "that the instrument is genuine and in all
respects what it purports to be; that he has good title to it; that all prior parties had
capacity to contract; and that the instrument is at the time of his endorsement valid and
subsisting." The collecting bank or last endorser generally suffers the loss because it has
the duty to ascertain the genuineness of all prior endorsements considering that the act
of presenting the check for payment to the drawee is an assertion that the party making
the presentment has done its duty to ascertain the genuineness of the endorsements.
 PHILIPPINE NATIONAL BANK V. ERLANDO RODRIGUEZ and NORMA RODRIGUEZ
GR No. 170325
September 26, 2008

Negotiable Instruments Law – Negotiability

Facts:
Spouses Erlando and Norma Rodriguez were clients of PNB maintain a savings and a
checking account with the said bank. They were engaged in the informal lending business. In
line with the business, they had a discounting arrangement with Philnabank Employees Savings
and Loan Association (PEMSLA), an association of PNB employees. PEMSLA regularly granted
loans to its members. When the association was short on funds, spouses Rodriguez would
rediscount the postdated checks by replacing it with their own checks issued in the name of the
members. The PEMSLA checks were then deposited by the spouses in their account. PEMSLA
officers took out loans in the name of unknowing members without their consent. The PEMSLA
checks issued for these loans were given to the spouses for rediscounting. The officers forged
the indorsement of the named payees in the checks. The Rodriguez’s checks were deposited
directly by PEMSLA to its savings account without any indorsement from the named payees. A
total of 69 checks worth P2,345,804.00 were issued by the spouses payable to 47 payees. 
PNB found out about these fraudulent acts, which prompted them to close PEMSLA’s
current account resulting in the PEMSLA checks deposited by the spouses to be returned or
dishonored due to “Account Closed,” but the corresponding Rodriguez’ checks were deposited
to PEMSLA’s savings account, and debited from the spouses’ account therey incurring losses
from the transaction.
The Rodriguez filed with the RTC for damages alleging that PNB paid the wrong payees,
it should bear the loss. PNB, on the other hand, argued that the makers did not intend for the
named payees to receive the proceeds of the checks, they were merely “fictitious payees,” and
are bearer instruments negotiable by delivery. RTC ruled in favor of the spouses. CA reversed
the decision.

Issue:
Whether or not the subject checks are payable to order or to bearer, and who bears the loss?

Held:
As a rule, when the payee is fictitious or not intended to be the true recipient of the
proceeds, the check is considered as a bearer instrument. A check is "a bill of exchange drawn
on a bank payable on demand." It is either an order or a bearer instrument. Sections 9(c) of the
NIL states: (c) When it is payable to the order of a fictitious or non-existing person, and such
fact is known to the person making it so payable; 
The distinction between the bearer and order instrument lies in the manner of its
negotiation. An order instrument requires an indorsement from the payee or holder to be validly
negotiated while a bearer instrument is negotiated by mere delivery. A check payable to a
specified payee is an order instrument, but Section 9(c) of the NIL recognizes a check payable
to a specified payee, if it is payable to the order of a fictitious or non-existing person, and such
fact is known to the person making it so payable, as a bearer instrument. 
Accordinig to US jurisprudence, the term “fictitious” may be an actual, existing, and living
payee if the maker of the check did not intend for the payee to receive the proceeds of the
check, usually done to cover up an illegal activity. In a fictitious-payee situation, the drawee
bank is absolved from liability and the drawer bears the loss. When faced with a check payable
to a fictitious payee, it is treated as a bearer instrument that can be negotiated by delivery. The
underlying theory is that one cannot expect a fictitious payee to negotiate the check by placing
his indorsement thereon. And since the maker knew this limitation, he must have intended for
the instrument to be negotiated by mere delivery. Thus, in case of controversy, the drawer of the
check will bear the loss. This rule is justified for otherwise, it will be most convenient for the
maker who desires to escape payment of the check to always deny the validity of the
indorsement.
An exception to the fictitious-payee rule is commercial bad faith. Commercial bad faith is
present if the transferee of the check acts dishonestly, and is a party to the fraudulent scheme.
A showing of commercial bad faith on the part of the drawee bank, or any transferee of the
check for that matter, will work to strip it of this defense. The exception will cause it to bear the
loss. 
In this case, PNB failed to present sufficient evidence to show that the spouses did not
intend the named payees to receive the amount stated in the checks.  Considering that
respondents-spouses were transacting with PEMSLA and not the individual payees, it is
understandable that they relied on the information given by the officers of PEMSLA that the
payees would be receiving the checks. The bank failed to satisfy a requisite condition of a
fictitious-payee situation – that the maker of the check intended for the payee to have no
interest in the transaction. Verily the subject checks are presumed order instruments. The bank
was remiss in its duty to allow the deposit of the checks even without the payees indorsements.
It bears stressing that order instruments can only be negotiated with a valid indorsement. PNB
should be held liable for the amounts of the check.
 Aglibot vs. Santia
G.R. No. 185945
December 5, 2012

Subject/Topic: Negotiable Instruments Law – Accommodation Party

Relevant facts:
Respondent Santia loaned the amount of ₱2,500,000.00 to Pacific Lending & Capital
Corporation (PLCC), through its Manager and a major stockholder, petitioner Aglibot. The loan
was evidenced by a Promissory Note issued by Aglibot in behalf of PLCC. Allegedly as a
guaranty or security for the payment of the note, Aglibot also issued and delivered to Santia 11
post-dated personal checks drawn from her own demand account maintained at Metrobank,
Camiling Branch. Upon presentment for payment, the checks were dishonored for having been
drawn against insufficient funds or closed account.

Santia thus demanded payment from PLCC and Aglibot of the face value of the checks, but
neither of them heeded his demand. Consequently, 11 Informations for violation of B.P. 22 were
filed against Aglibot before the MTCC. Aglibot admitted that she did obtain a loan from Santia,
but claimed that she did so in behalf of PLCC.

The MTCC rendered its decision acquitting Aglibot but ordered the latter to pay Santia the value
of the eleven checks plus interest. On appeal, the RTC further absolved Aglibot of any civil
liability towards Santia. On petition for review to the CA, the appellate court reversed the RTC's
decision and ordered Aglibot to pay Santia.

Issue: Is Aglibot personally liable for the checks which she issued in behalf of PLCC, which is
the true borrower and beneficiary of the loan?

Decision/Held:
Yes, Aglibot can be held personally liable to Santia.

As the manager of PLCC, Aglibot agreed to accommodate its loan to Santia by issuing her own
post-dated checks in payment thereof. Under the Negotiable Instruments Law, she is an
accommodation party. Section 29 of the said law provides:

Sec. 29. Liability of an accommodation party. — An accommodation party is one who

has signed the instrument as maker, drawer, acceptor, or indorser, without receiving
value therefor, and for the purpose of lending his name to some other person. Such a
person is liable on the instrument to a holder for value notwithstanding such holder at
the time of taking the instrument knew him to be only an accommodation party.

In lending his name to the accommodated party, the accommodation party is in effect a surety
for the latter. He lends his name to enable the accommodated party to obtain credit or to raise
money. He receives no part of the consideration for the instrument but assumes liability to the
other parties thereto because he wants to accommodate another. It is a settled rule that a surety
is bound equally and absolutely with the principal and is deemed an original promisor and
debtor from the beginning. The liability is immediate and direct.

By issuing her own post-dated checks, Aglibot thereby bound herself personally and solidarily to
pay Santia. Aglibot could have issued PLCC’s checks, but instead she chose to issue her own
checks, drawn against her personal account with Metrobank.

The mere fact, then, that Aglibot issued her own checks to Santia made her personally liable to
the latter on her checks without the need for Santia to first go after PLCC for the payment of its
loan. It would have been otherwise had it been shown that Aglibot was a mere guarantor,
except that since checks were issued ostensibly in payment for the loan, the provisions of the
Negotiable Instruments Law must take primacy in application.

Hence, Aglibot is an accommodation party and therefore liable to Santia.

 INTESTATE ESTATE OF VICTOR SEVILLA, SIMEON SADAYA vs. FRANCISCO SEVILLA.
G.R. No. L-17845
April 27, 1967

TOPIC: Accommodation Party/Requisites before an accommodation maker may seek

reimbursement from a co-accommodation maker.

FACTS:
Victor Sevilla, Oscar Varona and Simeon Sadaya executed, jointly and severally, in favor of the
Bank of the Philippine Islands, or its order, a promissory note for P15,000.00 payable on
demand.

The entire, amount of P15,000.00, proceeds of the promissory note, was received from the bank
by Oscar Varona alone. Victor Sevilla and Simeon Sadaya signed the promissory note as co-
makers only as a favor to Oscar Varona. The outstanding balance stood P4,850.00. No
payment thereafter made.

The bank collected from Sadaya the foregoing balance which, together with interest. Varona
failed to reimburse Sadaya despite repeated demands. Victor Sevilla died. Intestate estate
proceedings were started in the Court of First Instance.

Sadaya filed a creditor's claim but the administrator resisted the claim upon the averment that
the deceased Victor Sevilla "did not receive any amount as consideration for the promissory
note," but signed it only "as surety for Oscar Varona".

ISSUE:
Whether or not Sadaya may claim reimbursement from the estate of Sevilla.

HELD:
No, Sadaya cannot claim reimbursement from the estate of Sevilla. The requisites before one
accommodation maker can seek reimbursement from a co-accommodation maker.

ART. 2073. When there are two or more guarantors of the same debtor and for the same debt,
the one among them who has paid may demand of each of the others the share which is
proportionally owing from him.

If any of the guarantors should be insolvent, his share shall be borne by the others, including the
payer, in the same proportion.

The provisions of this article shall not be applicable, unless the payment has been made
in virtue of a judicial demand or unless the principal debtor is insolvent.

All of the foregoing postulate the following rules:

(1) A joint and several accommodation maker of a negotiable promissory note may demand
from the principal debtor reimbursement for the amount that he paid to the payee; and
(2) a joint and several accommodation maker who pays on the said promissory note may
directly demand reimbursement from his co-accommodation maker without first directing his
action against the principal debtor provided that (a) he made the payment by virtue of a
judicial demand, or (b) a principal debtor is insolvent.

Sadaya's payment to the bank "was made voluntarily and without any judicial demand," and that
"there is an absolute absence of evidence showing that Varona is insolvent". This combination
of fact and lack of fact epitomizes the fatal distance between payment by Sadaya and Sadaya's
right to demand of Sevilla "the share which is proportionately owing from him
 PATRIMONIO vs GUTIERREZ
G.R. No. 187769
June 4, 2014

Subject/ Topic:
Negotiable Instruments Law- Incomplete and Delivered (Blank) Checks
Negotiable Instruments Law- Holder in Due Course

Relevant Facts:

Patrimonio and Gutierrez entered into a business venture under the name of Slam Dunk
Corporation, a production related to basketball.

Patrimonio pre-signed several checks to answer for the expenses of Slam Dunk. Although
signed, these checks had no payee’s name, date or amount. The blank checks were entrusted
to Gutierrez with the specific instruction not to fill them out without previous notification to and
approval by the petitioner. Without the petitioner’s knowledge and consent, Gutierrez secured a
P200,000 loan from Marasigan on the excuse that the petitioner needed the money for the
construction of his house.
Gutierrez delivered to Marasigan one of the blank checks which petitioner pre-signed.
Marasigan deposited the check but it was dishonored for the reason “ACCOUNT CLOSED.”
Marasigan sought recovery from Gutierrez and petitioner to no avail. Consequently, he filed a
criminal case for violation of B.P. 22 against the petitioner.

The petitioner filed before the RTC a Complaint for Declaration of Nullity of Loan and Recovery
of Damages against Gutierrez and co-respondent Marasigan. He completely denied authorizing
the loan or the check’s negotiation, and asserted that he was not privy to the parties’ loan
agreement.

Issues Relevant to Commercial Law:

1. Whether there is basis to hold the petitioner liable for the payment of the ₱200,000.00 loan?
2. Whether Gutierrez completed the check strictly under authority?
3. Whether Marasigan is a holder in due course.

Decision/ Held:

1.None. The answer is supplied by the applicable statutory provision found in Section 14 of the
Negotiable Instruments Law (NIL).

This provision applies to an incomplete but delivered instrument. Under this rule, if the maker or
drawer delivers a pre-signed blank paper to another person for the purpose of converting it into
a negotiable instrument, that person is deemed to have prima facie authority to fill it up. It
merely requires that the instrument be in the possession of a person other than the drawer or
maker and from such possession, together with the fact that the instrument is wanting in a
material particular, the law presumes agency to fill up the blanks.
In order however that one who is not a holder in due course can enforce the instrument against
a party prior to the instrument’s completion, two requisites must exist: (1) that the blank must be
filled strictly in accordance with the authority given; and (2) it must be filled up within a
reasonable time. If it was proven that the instrument had not been filled up strictly in accordance
with the authority given and within a reasonable time, the maker can set this up as a personal
defense and avoid liability. However, if the holder is a holder in due course, there is a conclusive
presumption that authority to fill it up had been given and that the same was not in excess of
authority.

In the present case, the petitioner contends that there is no legal basis to hold him liable both
under the contract and loan and under the check because: first, the subject check was not
completely filled out strictly under the authority he has given and second, Marasigan was not a
holder in due course.

Hence, he cannot be held liable for the payment of the ₱200,000.00 loan.

2.No, Gutierrez has exceeded the authority to fill up the blanks and use the check. Petitioner
gave Gutierrez pre-signed checks to be used in their business provided that he could only use
them upon his approval. His instruction could not be any clearer as Gutierrez’ authority was
limited to the use of the checks for the operation of their business, and on the condition that the
petitioner’s prior approval be first secured.
In the present case, no evidence is on record that Gutierrez ever secured prior approval from
the petitioner to fill up the blank or to use the check. In his testimony, petitioner asserted that he
never authorized nor approved the filling up of the blank checks.

3.No, Marasigan is Not a Holder in Due Course.

Section 52(c) of the NIL states that a holder in due course is one who takes the instrument "in
good faith and for value." It also provides in Section 52(d) that in order that one may be a holder
in due course, it is necessary 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.
Acquisition in good faith means taking without knowledge or notice of equities of any sort which
could be set up against a prior holder of the instrument. It means that he does not have any
knowledge of fact which would render it dishonest for him to take a negotiable paper.
In the present case, Marasigan’s knowledge that the petitioner is not a party or a privy to
the contract of loan, and correspondingly had no obligation or liability to him, renders him
dishonest, hence, in bad faith. Thus, he is not a holder in due course.
 RCBC Savings Bank v. Noel Odrada
G.R. No. 219037
October 19, 2016

Negotiable Instruments Law – Good faith and of value in determining whether a holder is
a holder in due course; Personal defense set up against a holder not in due course

RELEVANT FACTS:
Respondent Noel Odrada sold a secondhand Mitsubishi Montero to Teodoro Lim for Php1.5
Million, of which, P610,000 was initially paid by the latter. The remaining balance was financed
by petitioner RCBC Savings Bank through a car loan obtained by Lim. To approve the loan,
RCBC required Lim to submit to them original copies of the Certificate of Registration (CR) and
the Official Receipts (OR) in his name. Lim was unable to do so, and instead asked RCBC to
inform Odrada that his (Lim) application for a car loan had been approved. Later, RCBC notified
Lim that the balance of the loan would be delivered to Odrada once the OR and CR are finally
submitted to them. Odrada, meanwhile, executed a Deed of Absolute Sale in favor of Lim, who
now took possession of the Montero. Upon receipt of the documents, RCBC then issued two
manager’s checks, one worth P900,000 and another worth P13,500 (both dated April 12, 2002),
both payable to Odrada. As the said checks were already issued and delivered in favor of
Odrada but before its presentation, Lim notified him of his complaints, through a letter, regarding
the Montero’s roadworthiness and instructed him not to encash the checks until the complaints
have been addressed. Odrada, however, deposited the checks with the International Exchange
Bank (Ibank), but the same was dishonored, prompting him a collection suit against Lim and
RCBC. Lim, in his Answer, admitted that he initiated the cancellation of the loan because of
Odrada’s misrepresentation of the Montero’s roadworthiness. This was also alleged by RCBC,
which also contends that even if there was a failure of consideration, Odrada still proceeded
with presenting the said checks. Later, it was disclosed that RCBC sent a formal notice of
cancellation of the loan to both Odrada and Lim. Both the RTC and the CA ruled in Odrada’s
favor.

ISSUES:
1. Is Respondent Noel Odrada a holder in due course?
2. May RCBC refuse payment of the Manager’s Checks?
3. Who is liable, if any?

RULING OF THE COURT:

1. NO, Respondent Odrada is not a holder in due course.
Section 52 of the Negotiable Instruments Law defines a holder in due course as one who
has taken the instrument under the following conditions: (a) That it is complete and regular
upon its face; (b) That he became the holder of it before it was overdue, and without notice
that it has 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. To be a holder in
due course, the law requires that a party must have acquired the instrument in good
faith and for value. Good faith means that the person taking the instrument has acted with
due honesty with regard to the rights of the parties liable on the instrument and that at the
time he, took the instrument, the holder has no knowledge of any defect or infirmity of the
instrument. Value, on the other hand, is defined as any consideration sufficient to support a
simple contract.

In the present case, Odrada attempted to deposit the manager's checks on 16 April 2002, a
day after Lim had informed him that there was a serious problem with the Montero. Instead
of addressing the issue, Odrada decided to deposit the manager's checks. Odrada's actions
do not amount to good faith. Clearly, Odrada failed to make an inquiry even when the
circumstances strongly indicated that there arose, at the very least, a partial failure of
consideration due to the hidden defects of the Montero. Odrada's action in depositing the
manager's checks despite knowledge of the Montero's defects amounted to bad faith.
Moreover, when Odrada redeposited the manager's checks on 19 April 2002, he was
already formally notified by RCBC the previous day of the cancellation of Lim's auto loan
transaction. In this case, the Court of Appeals gravely erred when it considered Odrada as a
holder in due course.

2. YES, RCBC may refuse payment of the Manager’s Checks

As can be gleaned in a long line of cases decided by this Court, a manager's check is
accepted by the bank upon its issuance. As compared to an ordinary bill of exchange where
acceptance occurs after the bill is presented to the drawee, the distinct feature of a
manager's check is that it is accepted in advance. Notably, the mere issuance of a
manager's check creates a privity of contract between the holder and the drawee bank, the
latter primarily binding itself to pay according to the tenor of its acceptance. The drawee
bank, as a result, has the unconditional obligation to pay a manager's check to a holder in
due course irrespective of any available personal defenses. However, while this Court has
consistently held that a manager's check is automatically accepted, a holder other than a
holder in due course is still subject to defenses. In short, the purchaser of a manager's
check may validly countermand payment to a holder who is not a holder in due course.
Accordingly, the drawee bank may refuse to pay the manager's check by interposing a
personal defense of the purchaser.

RCBC may refuse payment by interposing a personal defense of Lim - that the title of
Odrada had become defective when there arose a partial failure or lack of consideration.
RCBC acted in good faith in following the instructions of Lim. The records show that Lim
notified RCBC of the defective condition of the Montero before Odrada presented the
manager's checks.75 Lim informed RCBC of the hidden defects of the Montero including a
misaligned engine, smashed condenser, crippled bumper support, and defective
transmission. RCBC also received a formal notice of cancellation of the auto loan from Lim
and this prompted RCBC to cancel the manager's checks since the auto loan was the
consideration for issuing the manager's checks. RCBC acted in good faith in stopping the
payment of the manager's checks. Since Odrada was not a holder in due course, the
instrument becomes subject to personal defenses under the Negotiable Instruments Law.
Hence, RCBC may legally act on a countermand by Lim, the purchaser of the manager's
checks.

3. Lim is the one liable to Odrada

Since Lim's testimony involving the Montero's hidden defects was stricken off the record by
the trial court, Lim failed to prove the existence of the hidden defects and thus Lim remains
liable to Odrada for the purchase price of the Montero. Lim's failure to file an appeal from the
 decision of the Court of Appeals made the decision of the appellate court final and executory
as to Lim.

FAR EAST BANK & TRUST COMPANY vs GOLD PALACE JEWELLERY CO.
G.R. No. 168274
August 20, 2008

TOPIC: NEGOTIOBALE INSTRUMENTS— MATERIAL ALTERATION

FACTS:
Sometime in June 1998, Samuel Tagoe, purchased from Gold Palace Jewellery Co.’s (Gold
Palace’s) several pieces of jewelry valued at Php 258,000.00. In payment of the same, he
offered Foreign Draft No. M-069670 issued by the United Overseas Bank (Malaysia) BHD
Medan Pasar, Kuala Lumpur Branch (UOB), addressed to the Land Bank of the Philippines,
Manila (LBP), and payable to the respondent company for Php 380,000.00.
Before receiving the draft, respondent Judy Yang, the assistant general manager of Gold
Palace, inquired from Far East’s SM North EDSA Branch the nature of the draft. The teller
informed her that the same was similar to a manager’s check, but advised her not to release the
pieces of jewelry until the draft had been cleared. This advise was followed by Yang.
Respondent Julie Yang-Go then deposited the draft in the company’s account with the
aforementioned Far East branch on June 2, 1998.
Far East, the collecting bank, presented the draft for clearing to LBP, the drawee bank and the
latter cleared the same. UOB’s account with LBP was debited, and Gold Palace’s account with
Far East was credited with the amount stated in the draft.
The pieces of jewelry were released to Tagoe only after ascertaining that the draft had been
cleared.
After around three weeks, LBP informed Far East that the amount in the foreign draft had been
materially altered from Php 300.00 to Php 380,000.00, and that it was returning the same. The
material alteration was discovered by UOB after LBP had informed it that its funds were being
depleted following the encashment of the subject draft. Far East subsequently refunded the Php
380,000.00 earlier paid by LBP.
Far East debited the outstanding balance of Gold Palace, without prior notice and only notified
by the phone the representative of respondent’s company. Far East then demanded payment
for the difference between the materially altered draft and the amount debited from the company
account.

ISSUE: Is Gold Palace liable to Far East Bank for the payment of the materially altered draft?

HELD:
No, Gold Palace is not liable to Far East Bank for the payment of the materially altered draft.
Sec 62 of the Negotiable Instruments Law provides that the acceptor, by accepting the
instrument, engages that he will pay it according to the tenor of his acceptance.
In the case at hand, the drawee bank cleared and paid the subject foreign draft and forwarded
the amount thereof to the collecting bank. The latter then credited to Gold Palace’s account the
payment it received. The drawee, by said payment, recognized and complied with its obligation
to pay in accordance with the tenor of its acceptance. LBP was liable on its payment of the
check according to the tenor of the check at time of payment, which was the raised amount.
Because of that engagement, LBP could no longer repudiate the payment it erroneously made
to a due course holder. Gold Palace was not a participant in the alteration of the draft and was a
holder in due course. Having relied on the drawee bank’s clearance and payment of the draft
and not being negligent, respondent Gold Palace is amply protected by Section 62.
Therefore, Gold Palace is not liable for the payment of the materially altered draft.

AREZA V. EXPRESS SAVINGS BANK

G.R. NO. 176697
SEPTEMBER 10, 2014

Subject/Topic: Material Alteration; Liability of Drawee Bank and Collecting Bank

Facts:
Gerry Mambuay bought two (2) secondhand vehicles from petitioners Cesar and Lolita Areza
and paid them nine (9) Philippine Veterans Affairs Office (PVAO) checks payable to different
payees and drawn against the Philippine Veterans Bank (drawee), each valued at ₱200,000.00.
In May 2000, Petitioners deposited the said checks in their savings account with respondent
Express Savings Bank, the Bank which, in turn, deposited the checks with its depositary bank,
Equitable-PCI Bank. Equitable-PCI presented the checks to the drawee, which honored the
checks.

The checks were returned by PVAO to the drawee on the ground that the amount on the face of
the checks was altered from the original amount of ₱4,000.00 to ₱200,000.00. In August 2000,
the Bank was informed by Equitable-PCI that the drawee dishonored the checks on the ground
of material alterations. Despite its protest, the Philippine Clearing House ruled in favor of the
drawee Bank. Equitable-PCI, in turn, debited the deposit account of the Bank in the amount of
₱1,800,000.00. In March 2001, Petitioners issued a check in the amount of ₱500,000.00 which
was dishonored by the Bank for the reason "Deposit Under Hold." The Bank refused to heed
petitioner’s demand to honor the check and instead, closed the Special Savings Account of the
petitioners with a balance of ₱1,179,659.69 and transferred said amount to their savings
account. The Bank then withdrew the amount of ₱1,800,000.00 representing the previous
returned checks from petitioners’ savings account.

Acting on the alleged arbitrary and groundless dishonoring of their checks and the unlawful and
unilateral withdrawal from their savings account, petitioners filed a Complaint for Sum of Money
with Damages against the Bank and Potenciano, the Bank manager, with the RTC. Initially, the
RTC ruled in favor of petitioners but was reversed by the same court upon reconsideration. The
subsequent ruling of the RTC and CA were one in declaring that petitioners should bear the
loss. Hence, this petition.

Issue:
Whether or not petitioners, as payees of the checks, are liable for altered checks that was
already accepted on its original tenor and honored by the drawee bank after alteration.

Held:
No, the collecting banks are the ones ultimately liable for the amount of the materially altered
checks. When petitioners deposited the check with the Bank, they were designating the latter as
the collecting bank. A depositary/collecting bank where a check is deposited, and which
endorses the check upon presentment with the drawee bank, is an endorser. Under Section 66
of the Negotiable Instruments Law, an endorser warrants "that the instrument is genuine and in
all respects what it purports to be; that he has good title to it; that all prior parties had capacity to
contract; and that the instrument is at the time of his endorsement valid and subsisting." It has
been repeatedly held that in check transactions, the depositary/collecting bank or last endorser
generally suffers the loss because it has the duty to ascertain the genuineness of all prior
endorsements considering that the act of presenting the check for payment to the drawee is an
assertion that the party making the presentment has done its duty to ascertain the genuineness
of the endorsements. If any of the warranties made by the depositary/collecting bank turns out
to be false, then the drawee bank may recover from it up to the amount of the check. As
collecting banks, the Bank and Equitable-PCI Bank are both liable for the amount of the
materially altered checks. Since Equitable-PCI Bank is not a party to this case and the Bank
allowed its account with Equitable PCI Bank to be debited, it has the option to seek recourse
against the latter in another forum.

As to the drawee bank, Section 63 of the Negotiable Instruments Law provides that the
acceptor, by accepting the instrument, engages that he will pay it according to the tenor of his
acceptance. The acceptor is a drawee who accepts the bill. However, the acceptor/drawee
despite the tenor of his acceptance is liable only to the extent of the bill prior to alteration. This
view appears to be in consonance with Section 124 of the Negotiable Instruments Law which
states that a material alteration avoids an instrument except as against an assenting party and
subsequent indorsers, but a holder in due course may enforce payment according to its original
tenor. Thus, when the drawee bank pays a materially altered check, it violates the terms of the
check, as well as its duty to charge its client’s account only for bona fide disbursements he had
made. If the drawee did not pay according to the original tenor of the instrument, as directed by
the drawer, then it has no right to claim reimbursement from the drawer, much less, the right to
deduct the erroneous payment it made from the drawer’s account which it was expected to treat
with utmost fidelity. The drawee, however, still has recourse to recover its loss. It may pass the
liability back to the collecting bank which is what the drawee bank exactly did in this case. It
debited the account of Equitable-PCI Bank for the altered amount of the checks.

As to petitioners, the Bank cannot debit the account of the former. Jurisprudence dictates that A
depositary/collecting bank may resist or defend against a claim for breach of warranty if the
drawer, the payee, or either the drawee bank or depositary bank was negligent and such
negligence substantially contributed to the loss from alteration. In the instant case, no
negligence can be attributed to petitioners. The collecting bank cannot pass the liability back to
petitioners.
 METROPOLITAN BANK & TRUST COMPANY v. JUNNEL’S MARKETING CORP.
G.R. NO. 235511
JUNE 20, 2018

Negotiable Instruments Law – Checks (Unauthorized Payment of Valid Checks);

Reimbursement (Rule on Sequence of Recovery in Cases of Unauthorized Payment of
Checks)

FACTS: Junnel's Marketing Corp. (JMC) is engaged in the business of selling wines and
liquors. It has a current account with Metrobank from which it draws checks to pay its suppliers
such as Jardine and Premiere. During an audit of its financial records, JMC discovered that the
eleven (11) crossed checks it had issued to the orders of Jardine and Premiere were charged
against its current account but were, for some reason, not covered by any official receipt. The
subject checks were revealed to have been deposited with Bankcom under Account No. 0015-
32987-7, an account which belongs to neither Jardine nor Premiere. Meanwhile, Purificacion
Delizo, JMC’s former accountant, executed a handwritten letter confessing that she stole several
company checks drawn against JMC's current account. JMC surmised that the subject checks
were among the checks purportedly stolen by Delizo. JMC filed before the RTC a complaint for
sum of money against Delizo, Bankcom and Metrobank.

RTC held that both Bankcom and Metrobank liable to JMC-on a 2/3 to 1/3 ratio, respectively,
but absolving Delizo from any liability. CA affirmed with modification.

ISSUES:
1. WON Metrobank is liable to return to JMC the entire amount of the subject checks
plus interest
2. WON Bankcom is liable to reimburse Metrobank the same amount plus interest

HELD: The instant case involves the unauthorized payment of valid checks, i.e., the payment of
checks to persons other than the payee named therein or his order. The subject checks herein
are considered valid because they are complete and bear genuine signatures. In the case of
Bank of America v. Associated Citizens Bank, the Court  held that, in cases involving the
unauthorized payment of valid checks, the drawee bank becomes liable to the drawer for the
amount of the checks but the drawee bank, in turn, can seek reimbursement from the
collecting bank.

1. YES. METROBANK, AS DRAWEE BANK, IS LIABLE TO RETURN TO JMC THE AMOUNT

OF THE SUBJECT CHECKS.
A drawee bank is contractually obligated to follow the explicit instructions of its drawer-clients
when paying checks issued by them. The drawer's instructions—including the designation of the
payee or to whom the check should be paid—are reflected on the face and by the terms thereof.
When a drawee bank pays a person other than the payee named on the check, it essentially
commits a breach of its obligation and renders the payment it made unauthorized. In such cases
and under normal circumstances, the drawee bank may be held liable to the drawer for the
amount charged against the latter's account.

The liability of the drawee bank to the drawer in cases of unauthorized payment of checks has
been regarded in jurisprudence to be strict by nature. This means that once an unauthorized
payment on a check has been made, the resulting liability of the drawee bank to the drawer for
such payment attaches even if the former had acted merely upon the guarantees of a collecting
bank. Indeed, it is only when the unauthorized payment of a check had been caused or was
attended by the fault or negligence of the drawer himself can the drawee bank be excused,
whether wholly or partially, from being held liable to the drawer for the said payment.

In the present case, it is apparent that Metrobank had breached JMC's instructions when it paid
the value of the subject checks to Bankcom for the benefit of a certain Account No. 0015-32987-
7. The payment to Account No. 0015-32987-7 was unauthorized as it was established that the
said account does not belong to Jardine or Premiere, the payees of the subject checks, or to
their indorsees. In addition, causal or concurring negligence on the part of JMC had not been
proven. Under such circumstances, Metrobank is clearly liable to return to JMC the amount of
the subject checks.

2. YES. BANKCOM IS LIABLE TO METROBANK.

While Metrobank's reliance upon the guarantees of Bankcom does not excuse it from being
liable to JMC, such reliance does enable Metrobank to seek reimbursement from Bankcom—the
collecting bank.

A collecting or presenting bank—i.e., the bank that receives a check for deposit and that
presents the same to the drawee bank for payment—is an indorser of such check. When a
collecting bank presents a check to the drawee bank for payment, the former thereby assumes
the same warranties assumed by an indorser of a negotiable instrument pursuant to Section 66
of the Negotiable Instruments Law.

Here, it is clear that Bankcom had assumed the warranties of an indorser when it forwarded the
subject checks to PCHC for presentment to Metrobank. By such presentment, Bankcom
effectively guaranteed to Metrobank that the subject checks had been deposited with it to an
account that has good title to the same. This guaranty, however, is a complete falsity because
the subject checks were, in truth, deposited to an account that neither belongs to the payees of
the subject checks nor to their indorsees. Hence, as the subject checks were paid under
Bankcom's false guaranty, the latter—as collecting bank—stands liable to return the value of
such checks to Metrobank.
Jurisprudence has it that a collecting bank's mere act of presenting a check for payment to the
drawee bank is itself an assertion, on the part of the former, that it had done its duty to ascertain
the validity of prior indorsements.

In the present case, all the subject checks have been transmitted by Bankcom to the PCHC for
clearing and presentment to Metrobank. As earlier adverted to, all of the said checks also bear
the PCHC machine sprayed tracer/ID band of Bankcom. Such circumstances, pursuant to
prevailing banking practices as laid out under the PCHC Rules and Regulations, are enough to
fix the liability of Bankcom as an indorser of the subject checks even sans the stamp "ALL
PRIOR ENDORSEMENTS AND/OR LACK OF ENDORSEMENT GUARANTEED" and "NON--
NEGOTIABLE." As the stamping of such guarantees are not required before the warranties of
an indorser could attach against Bankcom, we find the latter liable to reimburse Metrobank the
value of all the subject checks.

Recourse of Bankcom
The sequence of recovery in cases of unauthorized payment of checks, however, does not
ordinarily stop with the collecting bank. In the event that it is made to reimburse the drawee
bank, the collecting bank can seek similar reimbursement from the very persons who caused
the checks to be deposited and received the unauthorized payments. Such persons are the
ones ultimately liable for the unauthorized payments and their liability rests on their absolute
lack of valid title to the checks that they were able to encash.

Verily, Bankcom ought to have a right of recourse against the persons that caused the
anomalous deposit of the subject checks and received payments therefor. Unfortunately, as
none of such persons were impleaded in the case before us, no pronouncement as to this
matter can be made in favor of Bankcom.

Doctrine of Comparative Negligence Does Not Apply to the Instant Case

Instead of applying the rule on the sequence of recovery to the case at bench, the RTC and the
CA held both Metrobank and Bankcom liable to JMC in accordance with a fixed ratio. In so
doing, the RTC and the CA seemingly relied on the doctrine of comparative negligence.

Metrobank, though guilty of the unauthorized check payments, only acted upon the guarantees
deemed made by Bankcom under prevailing banking practices. While Metrobank's reliance
upon the guarantees of Bankcom did not excuse it from being answerable to JMC, such reliance
does enable Metrobank to seek reimbursement from Bankcom on the ground of the breach in
the latter's warranties as a collecting bank. Under such circumstances, we cannot deny
Metrobank's right to seek reimbursement from Bankcom.

Hence, we find that the doctrine of comparative negligence cannot be applied so as to apportion
the respective liabilities of Metrobank and Bankcom. The liabilities of Metrobank and Bankcom
must be governed by the rule on sequential recovery.
 ALLIED BANK CORPORATION V. LIM SIO WAN
G.R. NO. 133179
MARCH 27, 2008

Negotiable Instruments Law – Liabilities of Drawee and Collecting Bank in cases of

Forgery

Relevant facts: On November 14, 1983, respondent Lim Sio Wan deposited with petitioner
Allied Banking Corporation (Allied) at its Quintin Paredes Branch in Manila a money market
placement of PhP 1,152,597.35 for a term of 31 days. On December 5, 1983, a person claiming
to be Lim Sio Wan called up Cristina So, an officer of Allied, and instructed the latter to pre-
terminate Lim Sio Wan’s money market placement, to issue a manager’s check representing the
proceeds of the placement, and to give the check to one Deborah Dee Santos who would pick
up the check. Lim Sio Wan described the appearance of Santos so that So could easily identify
her. Later, Santos arrived at the bank and signed the application form for a manager’s check to
be issued. The bank issued Manager’s Check PhP 1,158,648.49, representing the proceeds of
Lim Sio Wan’s money market placement in the name of Lim Sio Wan, as payee. The check was
cross-checked "For Payee’s Account Only" and given to Santos. Thereafter, the manager’s
check was deposited in the account of Filipinas Cement Corporation (FCC) at respondent
Metropolitan Bank and Trust Co. (Metrobank), with the forged signature of Lim Sio Wan as
indorser which appeared earlier to be in payment of an obligation of Producer’s Bank (where
Santos worked as money market placement trader) to FCC. Hence, respondent herein filed a
complaint for sum of money against herein petitioner which in turn filed a third-party complaint
against Metrobank. RTC ruled against the petitioner as the sole liable party. CA modified the
ruling arguing that the petitioner and Metrobank is liable at a 60-40 ratio. Hence this petition.

Issues: Does a collecting bank’s guarantee of an indorsed check amount to a proximate cause
of the loss and should be held solely liable therefor?

Decision/Held: No, the collecting bank should not be held solely liable.

Section 66 in relation to Sec. 65 of the Negotiable Instruments Law provides:

Section 66. Liability of general indorser.—Every indorser who indorses without qualification,
warrants to all subsequent holders in due course;
 a) The matters and things mentioned in subdivisions (a), (b) and (c) of the next
preceding section; and

b) That the instrument is at the time of his indorsement valid and subsisting;

And in addition, he engages that on due presentment, it shall be accepted or paid, or both, as
the case may be according to its tenor, and that if it be dishonored, and the necessary
proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any
subsequent indorser who may be compelled to pay it.

Section 65. Warranty where negotiation by delivery, so forth.—Every person negotiating an

instrument by delivery or by a qualified indorsement, warrants:

a) That the instrument is genuine and in all respects what it purports to be;

b) That he has a good title of 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.

But when the negotiation is by delivery only, the warranty extends in favor of no holder other
than the immediate transferee.

The provisions of subdivision (c) of this section do not apply to persons negotiating public or
corporation securities, other than bills and notes. (Emphasis supplied.)

The warranty "that the instrument is genuine and in all respects what it purports to be" covers all
the defects in the instrument affecting the validity thereof, including a forged indorsement. Thus,
the last indorser will be liable for the amount indicated in the negotiable instrument even if a
previous indorsement was forged. We held in a line of cases that "a collecting bank which
indorses a check bearing a forged indorsement and presents it to the drawee bank guarantees
all prior indorsements, including the forged indorsement itself, and ultimately should be held
liable therefor."

However, this general rule is subject to exceptions. One such exception is when the issuance of
the check itself was attended with negligence. Thus, in the cases cited above where the
collecting bank is generally held liable, in two of the cases where the checks were negligently
issued, this Court held the institution issuing the check just as liable as or more liable than the
collecting bank.

In the instant case, the trial court correctly found Allied negligent in issuing the manager’s check
and in transmitting it to Santos without even a written authorization. In fact, Allied did not even
ask for the certificate evidencing the money market placement or call up Lim Sio Wan at her
residence or office to confirm her instructions. Both actions could have prevented the whole
fraudulent transaction from unfolding. Allied’s negligence must be considered as the proximate
cause of the resulting loss.
 EVANGELISTA v. SCREENEX, INC.
G. R. No. 211564
November 20, 2017

Subject/Topic: Discharge of a Check

Facts: Sometime in 1991, Benjamin Evangelista issued two (2) open-dated checks as security
for the payment of a loan obligation to Screenex Inc. From the time the checks were issued by
Evangelista, they were held in safe keeping together with the other documents and papers of
the company by Philip Gotuaco, Sr., father-in-law of respondent Alexander Yu, until the former's
death in 2004. When the checks were presented for payment after more than 10 years from its
issuance, the checks were dishonored due to reason of “ACCOUNT CLOSED”. In a case for
collection for the amount appearing in the face of the checks, Evangelista interposed the
defense of prescription, contending that the late presentment of the checks for payment in the
drawee bank barred Screenex Inc. from collection.

Issue: Is Evangelista still liable for the total amount of P1.5 million indicated in the two checks?

Held: No, Evangelista is no longer liable. Section 119 of the Negotiable Instruments Law, states
that a negotiable instrument like a check may be discharged by any other act which will
discharge a simple contract for the payment of money. A check, therefore, is subject to
prescription of actions upon a written contract. Under Article 1144 of the Civil Code, actions
must be brought within 10 years from the time the right of action acrues upon a written contract.

In cases of check, the cause of action reckoned from the date indicated on the check. If the
check is undated, the cause of action is reckoned from the date of the issuance of the check.
This is so because regardless of the omission of the date indicated on the check, Section 17 of
NIL instructs that an undated check is presumed dated as of the time of its issuance. While the
space for the date on a check may also be filled, it must, however, be filled up strictly in
accordance with the authority given and within a reasonable time.

Here, the checks in question were undated but were issued on 1991. Assuming that Yu had
authority to insert the dates in the checks, the fact that he did so after a lapse of more than 10
years from their issuance certainly cannot qualify as changes made within a reasonable time.
Thus, the cause of action on the checks of Screenex, Inc. has become stale, hence, time-
barred.

BDO Unibank vs. Lao

G.R. No. 227005
June 19, 2007

Subject/Topic:
Negotiable Instruments Law – Liability of a Drawee Bank vs. Collecting Bank
Negotiable Instruments Law – Crossed Checks

Relevant facts:
Mr. Lao entered into a transaction with Everlink, through its representative Wu. The
agreement was Everlink would supply Mr. Lao with HCG sanitary wares. As downpayment, Mr.
Lao issued 2 BDO crossed-checks payable to Everlink. When the checks were encashed, he
contacted Everlink for the delivery of the sanitary but to no avail.
Later, Mr. Lao learned that the checks were deposited in 2 different bank accounts at
Union Bank, belonging to Wu and a company named New Wave. Consequently, Lao file a
collection suit against BDO for allowing the encashment of the 2 checks and Union bank for
allowing the deposit of the crossed checks in 2 bank accounts other than the payee’s in violation
of its obligation to deposit the same only to the payee’s account.
BDO (drawee bank) argued that it could not be held liable because it merely relied on
Union Bank’s express guarantee. Hence, Union Bank, as the collecting bank and last endorser,
must suffer the loss because it had the duty to ascertain the genuineness of all prior
endorsement.
Union Bank (collecting bank) argued that it was under no obligation to deposit the
checks only in the account of Everlink because there was nothing on the checks which would
indicate such restriction; and that a crossed check continues to be negotiable, the only limitation
being that it should be presented for payment by a bank.
The RTC, in its Decision, absolved BDO from any liability, and found Union Bank liable
for being negligent in allowing the deposit and encashment of the said check without proper
endorsement.
Union Bank appealed the RTC’s Decision with the Court of Appeals. The CA affirmed
the ruling of the RTC, with modification, finding BDO also liable for violating its duty to charge to
the drawer’s account only those authorized by the drawee.

Issues relevant to Commercial Law:

A. What is a crossed check? What is/are the effects of crossing a check?
 B. Between the drawee bank (BDO) and the collecting bank (Union Bank), who shall bear
the loss?
C. To whom can recovery of the loss be made?

Decision/Held:
A. A crossed check is one where two parallel lines are drawn across its face or across the
comer thereof. A check may be crossed generally or specially. A check is crossed
especially when the name of a particular banker or company is written between the
parallel lines drawn. It is crossed generally when only the words "and company" are
written at all between the parallellines.

The effects of crossing a check are: (1) that the check may not be encashed but only
deposited in the bank; (2) that the check may be negotiated only once · to one who has
an account with a bank; and (3) that the act of crossing the check serves as a warning to
the holder that the check has been issued for a definite purpose so that he must inquire
if he has received the check pursuant to that purpose.

B. The collecting bank (Union Bank) shall bear the loss. In check transactions, the
collecting bank generally suffers the loss because it has the duty to ascertain the
genuineness of all prior endorsements considering that the act of presenting the check
for payment to the drawee is an assertion that the party making the presentment has
done its duty to ascertain the genuineness of the endorsements. If any of the warranties
made by the collecting bank turns out to be false, then the drawee bank may recover
from it up to the amount of the check.
Here, Union Bank stamped at the back of the check the phrase “all prior endorsements
and/or lack of it guaranteed,” which means that Union Bank had, for all intents and
purposes treated the check as a negotiable instrument and, accordingly, assumed the
warranty of an endorser. Without such warranty, BDO would not have paid the proceeds
of the check to Union Bank which in turn, credited the amount to New Wave’s account.
Hence, Union Bank cannot deny liability after the aforesaid warranty turned out to be
false.

Further, the fact that the check involved are crossed checks, indicated that Lao, the
drawer, had intended the same for deposit only to the account of Everlink, the payee
named therein. Despite this clear intention, however, Union Bank negligently allowed the
deposit of the proceeds of the said check in the account of New Wave. Hence Union
Bank must suffer the loss.

C. The aggrieved party may be allowed to recover directly from the person which caused
the loss when circumstances warrant.

Here, Mr. Lao, the drawer of the subject check, has a right of action against BDO for its
failure to comply with its duty as the drawee bank. BDO, in turn, would have a right of
action against Union Bank because of the falsity of its warranties as the collecting bank.
Considering, however, that BDO was not made a party in the appeal, it could no longer
be held liable to Lao. Thus, following Associated Bank, the proceedings for recovery
must be simplified and Lao should be allowed to recover directly from Union Bank.
 LAND BANK OF THE PHILIPPINES, Petitioner
vs.
NARCISO L. KHO, Respondent

G.R. No. 205840

MA.LORENA FLORES and ALEXANDER CRUZ, Petitioners,

vs.
NARCISO L. KHO, Respondent.

GR. No. 205839

July 7, 2016

SUBJECT/TOPIC: Negotiable Instruments Law - Defenses, Forgery, Checks

FACTS:

Respondent Narciso Kho, the sole proprietor of United Oil Petroleum, entered into a verbal
agreement to purchase lubricants from Red Orange International Trading. Red Orange insisted
that it would only accept a Land Bank manager’s check as payment, so Kho, accompanied by
the former’s representative, Rudy Medel, opened a Savings Account at the Araneta Branch of
petitioner Land Bank of the Philippines. Kho purchased Land Bank Manager’s Check No.
07410, postdated to January 2, 2006, valued at ₱25,000,000.00 and made payable to Red
Orange. He also requested a photocopy of the manager’s check to provide Red Orange with
proof that he had available funds for the transaction, and he gave the photocopy of the check to
Medel.

Kho’s deal with Red Orange did not push through. However, he was later informed by Land
Bank that the check was cleared and paid by the BPI. Kho informed Flores that he never
negotiated the check because the deal did not materialize and that the actual check was still in
his possession. He went to Land Bank twice to demand the cancellation of the check and the
release of the remaining money in his account, but there was a standing freeze order on his
account due to the ongoing investigation on the fraudulent withdrawal of the manager’s check.
When his final demand letter was unheeded, Kho filed a Complaint for Specific Performance
and Damages against Land Bank, represented by the bank’s officers, Flores and Cruz.

Land Bank argued that Kho was negligent because he handed Medel a photocopy of the
manager’s check and that this was the proximate cause of his loss. The RTC dismissed the
complaint, ruling that the failure of the drawer to exercise ordinary care that substantially
contributed to the making of the forged check precludes him from asserting the forgery. It held
that (1) Kho’s act of giving Medel a photocopy of the check and (2) his failure to inform the bank
that the transaction with Red Orange did not push through were the proximate causes of his
loss. Upon Kho’s appeal, the CA set aside the RTC’s decision and remanded the case for
further proceedings, ruling that the outcome of Land Bank’s investigation, then pending, was
crucial to the resolution of the case.

ISSUE:

Whether or not Kho’s act of giving a photocopy of a check amounts to negligence which
precludes him from asserting the forgery

RULING:

No, Kho’s act of giving Medel a photocopy of check No. 07410 and his failure to inform Land
Bank that his deal with Red Orange did not push through does not amount to negligence which
precludes him from asserting the forgery.
Banks are obligated to treat their depositors’ accounts with meticulous care, always keeping in
mind the fiduciary nature of their relationship. Stemming from their primordial duty of diligence,
one of a bank’s prime duties is to ascertain the genuineness of the drawer’s signature on check
being encashed. This holds especially true for manager’s checks - a bill of exchange drawn by a
bank upon itself, and is accepted by its issuance. It is an order of the bank to pay, drawn upon
itself, committing in effect its total resources, integrity, and honor behind its issuance. A drawer
or a depositor of the bank is precluded from asserting the forgery only if the drawee bank can
prove his failure to exercise ordinary care and if this negligence substantially contributed to the
forgery or the perpetration of the fraud.

While Kho’s act of giving Medel a photocopy of the check may have allowed the latter to create
a duplicate, this cannot possibly excuse Land Bank’s failure to recognize that the check itself,
not just the signatures, was a fake instrument. More importantly, Land Bank itself furnished Kho
the photocopy without objecting to the latter’s intention of giving it to Medel. Further, the check
remained in Kho's possession. He was entitled to a reasonable expectation that the bank would
not release any funds corresponding to the check. However, Land Bank’s officers cleared the
counterfeit check. When Land Bank’s CCD forwarded the deposited check to its Araneta branch
for inspection, its officers had every opportunity to recognize the forgery of their signatures or
the falsity of the check, but the bank failed to do so, which led to the withdrawal and eventual
loss of the ₱25,000,000.00.

Land Bank breached its duty of diligence and assumed the risk of incurring a loss on account of
a forged or counterfeit check. Hence, Kho should not suffer the resulting damage.

NEIL B. AGUILAR AND RUBEN CALIMBAS, v. LIGHTBRINGERS CREDIT COOPERATIVE

G.R. No. 209605
January 12, 2015

SUBJECT/TOPIC: Negotiable Instruments - Checks

FACTS: This case stemmed from the three (3) complaints for sum of money separately filed by
respondent Lightbringers Credit Cooperative (respondent) on July 14, 2008 against petitioners
Aguilar and Calimbas, and one Perlita Tantiangco (Tantiangco) which were consolidated before
the First Municipal Circuit Trial Court, Dinalupihan, Bataan (MCTC). The complaints alleged that
Tantiangco, Aguilar and Calimbas were members of the cooperative who borrowed the
following funds:

In Civil Case No. 1428, Tantiangco allegedly borrowed P206,315.71 as evidenced by Cash
Disbursement Voucher No. 4010 but the net loan was only P45,862.00 as supported by PNB
Check No. 0000005133.

In Civil Case No. 1429, petitioner Calimbas allegedly borrowed P202,800.18 as evidenced by
Cash Disbursement Voucher No. 3962 but the net loan was only P60,024.00 as supported by
PNB Check No. 0000005088;

In Civil Case No. 1430, petitioner Aguilar allegedly borrowed P126,849.00 as evidenced by
Cash Disbursement Voucher No. 3902 but the net loan was only P76,152.00 as supported by
PNB Check No. 0000005026;

Tantiangco, Aguilar and Calimbas uniformly claimed that the discrepancy between the principal
amount of the loan evidenced by the cash disbursement voucher and the net amount of loan
reflected in the PNB checks showed that they never borrowed the amounts being collected.
They also asserted that no interest could be claimed because there was no written agreement
as to its imposition.

MCTC Ruling

In Civil Case No. 1428 the MCTC dismissed the complaint against Tantiangco because there
was no showing that she received the amount being claimed. Moreover, the PNB check was
made payable to “cash” and was encashed by a certain Violeta Aguilar. There was, however, no
evidence that she gave the proceeds to Tantiangco. Further, the dates indicated in the cash
disbursement voucher and the PNB check varied from each other and suggested that the
voucher could refer to a different loan.

The decisions in Civil Case No. 1429 and 1430, however, found both Calimbas and Aguilar
liable to respondent for their respective debts. The PNB checks issued to the petitioners proved
the existence of the loan transactions. Their receipts of the loan were proven by their signatures
appearing on the dorsal portions of the checks as well as on the cash disbursement vouchers.

RTC Ruling

It held that the PNB checks were concrete evidence of the indebtedness of the petitioners to
respondent. The RTC relied on the findings of the MCTC that the checks bore no endorsement
to another person or entity. The checks were issued in the name of the petitioners and, thus,
they had the right to encash the same and appropriate the proceeds.

The CA denied the appeal due to procedural grounds.

ISSUE: Are checks sufficient evidence of a loan transaction?

HELD: Yes, checks are sufficient evidence of a loan transaction.

In Pacheco v. Court of Appeals, the Court has expressly recognized that a check constitutes an
evidence of indebtedness and is a veritable proof of an obligation, like a loan.

In the case, there is no dispute that the signatures of the petitioners were present on both the
PNB checks and the cash disbursement vouchers. Also, the checks were made payable to the
order of the petitioners. Hence, such checks can be shown as evidence of their loan transaction
with the respondent and the latter can properly demand that they pay the amounts borrowed.

Therefore, the checks are sufficient evidence of the loan transaction.

CITYTRUST BANKING CORPORATION (now Bank of the Philippine Islands) vs.

CARLOS ROMULO N. CRUZ
G.R. No. 157049
August 11, 2010

Negotiable Instruments Law – Liability of a Bank

FACTS
Respondent maintained savings and checking accounts at petitioner’s Loyola Heights Branch.
The savings account was considered closed due to the oversight committed by one of the
latter’s tellers. The closure resulted in the extreme embarrassment of the respondent, for checks
that he had issued could not be honored although his savings account was sufficiently funded
and the accounts were maintained under the petitioner’s check-o-matic arrangement (whereby
the current account was maintained at zero balance and the funds from the savings account
were automatically transferred to the current account to cover checks issued by the depositor
like the respondent).

The RTC found that the petitioner had failed to properly supervise its teller; and that the
petitioner’s negligence had made the respondent suffer entitling him to damages. The petitioner
appealed to the Court of Appeals (CA), arguing that the RTC erred in ordering it to pay moral
and exemplary damages. However, the CA affirmed the RTC, explaining that the erroneous
closure of the respondent’s account would not have been committed in the first place if the
petitioner had not been careless in supervising its employees. According to the CA, "the
fiduciary relationship and the extent of diligence that is to be expected from a banking institution,
like herein appellant Citytrust, in handling the accounts of its depositors cannot be relaxed
behind the shadow of an employee whether or not he/she is new on the job." Moreover, the CA
said that the negligence of the petitioner’s personnel was the proximate cause that had set in
motion the events leading to the damage caused to the respondent; hence, the RTC correctly
opined that "while a bank is not expected to be infallible, it must bear the blame for not
discovering the mistake of its teller for lack of proper supervision." The petitioner sought
reconsideration, but the CA denied its motion for reconsideration for lack of merit. Hence, this
appeal.

ISSUE
Whether or not petitioner as a banking institution had failed to properly supervise its teller; and
that the petitioner is negligent in handling the accounts of its depositors

HELD
Yes. Petitioner as a banking institution had failed to properly supervise its teller; and that the
petitioner is negligent in handling the accounts of its depositors.

Unquestionably, the petitioner, being a banking institution, had the direct obligation to supervise
very closely the employees handling its depositors’ accounts, and should always be mindful of
the fiduciary nature of its relationship with the depositors. Such relationship required it and its
employees to record accurately every single transaction, and as promptly as possible,
considering that the depositors’ accounts should always reflect the amounts of money the
depositors could dispose of as they saw fit, confident that, as a bank, it would deliver the
amounts to whomever they directed. If it fell short of that obligation, it should bear the
responsibility for the consequences to the depositors, who, like the respondent, suffered
particular embarrassment and disturbed peace of mind from the negligence in the handling of
the accounts.

It is never overemphasized that the public always relies on a bank’s profession of diligence and
meticulousness in rendering irreproachable service. Its failure to exercise diligence and
meticulousness warranted its liability for exemplary damages and for reasonable attorney’s
fees.
 BENJAMIN EVANGELISTA, Petitioner
vs.
SCREENEX,INC., represented by ALEXANDER G, YU, Respondent
G.R. No. 211564
November 20, 2017
Subject/Topic: (Ex: Negotiable Instruments Law – Defenses)

Facts:
In 1991, Evangelista obtained a loan from respondent Screenex, Inc. which issued two (2)
checks to Evangelista. The first check was UCPB Check No. 275345 for ₱l,000,000 and the
other one is China Banking Corporation Check No. BDO 8159110 for ₱500,000. As security for
the payment of the loan, Evangelista gave two (2) open-dated checks: both pay to the order of
Screenex, Inc.

In 2005, petitioner was charged with violation of Batas Pambansa (BP) Blg. 22. With respect to
the civil aspect of the case the METC ruled in favor of respondents because there was no
evidence of payment. It further held that the creditor's possession of the instrument of credit was
sufficient evidence that the debt claimed had not yet been paid. Petitioner invokes the defense
of prescription claiming that the 10-year prescriptive period under Article 1144 applies in this
case. The lower court however dismissed the contention, because the reckoning point of the
prescription has not been established. On the other hand, petitioner contends that the reckoning
time for the prescriptive period began when the instrument was issued.

Issues: May negotiable instrument be discharged by prescription? And if so, when is the
reckoning point of the period of prescription in case the instrument is undated?

Decision/Held:

Section 119 of the NIL, however, states that a negotiable instrument like a check may be
discharged by any other act which will discharge a simple contract for the payment of money. A
check therefore is subject to prescription of actions upon a written contract. Article 1144 of the
Civil Code provides: The following actions must be brought within ten years from the time the
right of action accrues:1) Upon a written contract; 2) Upon an obligation created by law; 3) Upon
a judgment. Barring any extrajudicial or judicial demand that may toll the 10-year prescription
period and any evidence which may indicate any other time when the obligation to pay is due,
the cause of action based on a check is reckoned from the date indicated on the check.

If the check is undated, however, as in the present petition, the cause of action is reckoned from
the date of the issuance of the check. This is so because regardless of the omission of the date
indicated on the check, Section 17 of the Negotiable Instruments Law instructs that an undated
check is presumed dated as of the time of its issuance .Given the foregoing, the cause of action
on the checks has become stale, hence, time-barred.

EQUITABLE BANKING CORPORATION, INC. vs. SPECIAL STEEL PRODUCTS

G.R. No. 175350
June 13, 2012

Negotiable Instruments Law - Crossed Checks

Facts: SSPI sold welding electrodes to Interco. In payment for the materials, Interco issued
three checks payable to the order of SSPI on July 10, 1991, July 16, 1991, and July 29, 1991.
Each check was crossed with the notation "account payee only" and was drawn against
Equitable. Jose Isidro Uy presented each crossed check to Equitable on the day of its issuance
and claimed that he had good title thereto. He demanded the deposit of the checks in his
personal accounts in Equitable. The bank acceded to Uy’s demands on the assumption that Uy,
as the son-in-law of Interco’s majority stockholder, was acting pursuant to Interco’s orders. Uy
promptly withdrew the proceeds of the checks. Later on, it was discovered that Uy, not SSPI,
received the proceeds of the three checks. Thus, Interco finally paid the value of the three
checks to SSPI, plus a portion of the accrued interests. Interco, however, refused to pay the
entire accrued interest on the ground that it was not responsible for the delay.

Issue: Does SSPI have a cause of action against Equitable for quasi-delict?

Held: Yes. The checks that Interco issued in favor of SSPI were all crossed, made payable to
SSPI’s order, and contained the notation "account payee only." This creates a reasonable
expectation that the payee alone would receive the proceeds of the checks. This expectation
arises from the accepted banking practice that crossed checks are intended for deposit in the
named payee’s account only and no other.

The banking business is impressed with public interest, the trust and confidence of the public in
it is of paramount importance. Consequently, the highest degree of diligence is expected, and
high standards of integrity and performance are required of it. Equitable did not observe the
required degree of diligence expected of a banking institution under the existing factual
circumstances. The fact that a person, other than the named payee of the crossed check, was
presenting it for deposit should have put the bank on guard. It should have verified if the payee
(SSPI) authorized the holder (Uy) to present the same in its behalf, or indorsed it to him.
Considering however, that the named payee does not have an account with Equitable (hence,
the latter has no specimen signature of SSPI by which to judge the genuineness of its
indorsement to Uy), the bank knowingly assumed the risk of relying solely on Uy’s word that he
had a good title to the three checks. Such misplaced reliance on empty words is tantamount to
gross negligence.

For its role in the conversion of the checks, which deprived SSPI of the use thereof, Equitable is
solidarily liable with Uy to compensate SSPI for the damages it suffered.

PHILIPPINE NATIONAL BANK vs. SPOUSES CHEAH CHEE CHONG and OFELIA
CAMACHO CHEAH
G.R. No. 170865
April 25, 2012
Topic: Negotiable Instruments Law: Liabilities; Diligence of the Bank

Facts: Ofelia accommodated the request of Filipina Tuazon, the friend of her friend, Adelina, in
clearing and encashing a Bank of America check with a face amount of $300,000.00, payable to
cash because Adelina does not have a dollar account in which to deposit the check. Ofelia
agreed and the clearing process started. Philadelphia National Bank then credited the proceeds
of the subject check to PNB’s account.
However, Philadelphia National Bank then informed PNB of the subject check for
insufficient funds. Informed about the bounced check and upon demand by PNB Buendia
Branch to return the money withdrawn, Ofelia immediately contacted Filipina to get the money
back. But the latter told her that all the money had already been given to several people who
asked for the check’s encashment. Subsequently, PNB sent a demand letter to spouses Cheah
for the return of the amount of the check, froze their peso and dollar deposits in the amounts of
₱275,166.80 and $893.46, and filed a complaint against them for Sum of Money with Regional
Trial Court (RTC) of Manila. In said complaint, PNB demanded payment of around
₱8,202,220.44, plus interests and attorney’s fees, from the spouses Cheah. As a defense, the
spouses Cheah claimed that the proximate cause of PNB’s injury was its own negligence of
paying a US dollar denominated check without waiting for the 15-day clearing period, in violation
of its bank practice as mandated by its own bank circular, i.e., PNB General Circular No. 52-
101/88.26 Because of this, spouses Cheah averred that PNB is barred from claiming what it had
lost. Hence, this petition.

Issue: Are PNB and Spouses Cheah liable for the amount of the check subject of the case?

Ruling: Yes. This Court already held that the payment of the amounts of checks without
previously clearing them with the drawee bank especially so where the drawee bank is a foreign
bank and the amounts involved were large is contrary to normal or ordinary banking practice.
Also, in Associated Bank v. Tan, wherein the bank allowed the withdrawal of the value of a
check prior to its clearing, we said that "[b]efore the check shall have been cleared for deposit,
the collecting bank can only ‘assume’ at its own risk x x x that the check would be cleared and
paid out." Clearly, PNB’s disregard of its preventive and protective measure against the
possibility of being victimized by bad checks had brought upon itself the injury of losing a
significant amount of money. The highest degree of diligence is expected." PNB miserably failed
to do its duty of exercising extraordinary diligence and reasonable business prudence.
In any case, the complaint against the spouses Cheah could not be dismissed. As PNB’s
client, Ofelia was the one who dealt with PNB and negotiated the check such that its value was
credited in her and her husband’s account. Being the ones in privity with PNB, the spouses
Cheah are therefore the persons who should return to PNB the money released to them.

INTERNATIONAL CORPORATE BANK (Now Union Bank) v. SPOUSES GUECO

G.R. No. 141968
February 12, 2001

Negotiable Instruments Law – Bill of Exchange; Presentment for Payment

FACTS:
In 1989, the respondent, Gueco Spouses, obtained a loan from petitioner International
Corporate Bank (now Union Bank) to purchase a car. The spouses executed a promissory note,
payable in monthly installments, and chattel mortgage over the car as security. When the
spouses defaulted, the bank filed a civil action for a sum of money. The bank demanded P184,
000 for the unpaid car loan, but it was lowered to P154,000 after some negotiations, but the car
was detained in the bank’s compound. On August 28, the spouses went to the bank and made
negotiations resulting to the reduction of the loan to P150,000. Then, the spouses delivered a
manager’s check but the car remained detained because of the spouse’s refusal to sign the
Joint Motion to Dismiss. After several demands, the spouses filed a civil action for damages
before the MeTC but was dismissed. RTC reversed the decision and ruled that there was
meeting of the minds with respect to the reduction of loan but not as to the signing of a joint
motion to dismiss, thus, ordering the return of the car. CA affirmed the decision, without any
order for the issuance of a new check in lieu of the original check which already became stale.
Hence, a petition for review was filed before the SC. Respondents contended that petitioner
should suffer the loss since the delivery of the manager’s check produced the effect of payment,
thus, petitioner was negligent not to deposit or use said check.

ISSUE/S:
Did the CA err in holding that the petitioner bank should return the car without making
any order for the issuance of a new manager’s/cashier’s check in lieu of the original check that
already became stale.

HELD:
Yes, the appellate court erred in not making any order for the issuance of a new
manager’s check. Justice and fair play would not countenance petitioner’s position.

A stale check is one which has not been presented for payment within a reasonable time
after its issue. It is valueless and, therefore, should not be paid. Under the negotiable
instruments law, an instrument not payable on demand must be presented for payment on the
day it falls due. When the instrument is payable on demand, presentment must be made within
a reasonable time after its issue. In the case of a bill of exchange, presentment is sufficient if
made within a reasonable time after the last negotiation thereof. A check must be presented for
payment within a reasonable time after its issue, and in determining what is a "reasonable time,"
regard is to be had to the nature of the instrument, the usage of trade or business with respect
to such instruments, and the facts of the particular case. 

In the case at bar, however, the check involved is not an ordinary bill of exchange but a
manager's check. A manager's check is one drawn by the bank's manager upon the bank itself.
It is similar to a cashier's check both as to effect and use. It is really the bank's own check and
may be treated as a promissory note with the bank as a maker. The check becomes the primary
obligation of the bank which issues it and constitutes its written promise to pay upon demand.
The mere issuance of it is considered an acceptance thereof. If treated as promissory note, the
drawer would be the maker and in which case the holder need not prove presentment for
payment or present the bill to the drawee for acceptance. It has been held that, if the check had
become stale, it becomes imperative that the circumstances that caused its non-presentment be
determined. In the case at bar, there is no doubt that the petitioner bank held on the check and
refused to encash the same because of the controversy surrounding the signing of the joint
motion to dismiss.
 Therefore, the respondents should be ordered to issue a new manager’s/cashier’s check
in light of the surrounding circumstances.

PRODUCERS BANK OF THE PHILIPPINES, VS. EXCELSA INDUSTRIES, INC.

G.R. No. 152071, May 08, 2009

Topic: Negotiable Instruments Law- Notice of Dishonor

Credit Transaction- Extrajudicial Foreclosure of Real Estate Mortgage
Facts:
Respondent Exclesia Industries, Inc, a manufacturer and exporter of charcoal briquettes,
applied for a packing credit line with petitioner Producers Bank of the Philippines. The
application was supported by a Letter of Credit issued by Kwang Ju Bank, Ltd. of Seoul, Korea,
through its correspondent bank, the Bank of the Philippine Islands for the account of Shin Sung
Commercial Co., Ltd., also located in Seoul, Korea. Prior to the application of the packing line
credit, respondent was already indebted to petitioner. The loan was secured by a real estate
mortgaged over respondent’s properties in Marikina. The real estate mortgaged also contained
a clause, wherein, the mortgaged may extend to future obligations which respondent may incur
from petitioner.
The application was approved. After which, respondent presented to petitioner for
negotiation drafts which were drawn under the letter of credit and corresponding export
documents in consideration thereof. Petitioner purchased the drafts and export documents by
paying the peso value of the drawing. The purchased was subject to conditions laid down in two
undertakings executed by respondent dated 17 March 1987 and 10 April 1987. Petitioner was
informed by Kwang Ju Bank, Ltd., that the buyer refused to pay the export documents on
account of typographical errors and they would be returned for non-acceptance by the importer.
Hence, petitioner demanded for the peso equivalent of the export document and other due and
demandable debts from respondent.
Due to respondent’s failure to pay, petitioner moved for the extrajudicial foreclosure over
respondent’s properties. On January 5, 1988 a Certificate of Sale was issued in favour of
petitioner as the highest bidder. The Certificate was registered on March 24, 1988. On June 12,
1989, because of respondent’s failure to redeem the properties, a new certificate of title was
issued in the name of petitioner. On November, 1989, respondent filed a case for the annulment
of the extrajudicial foreclosure for failure to comply with personal notice requirement under the
agreement.

Issues:
a) Whether respondent should be liable for the dishonor of the drafts and export
documents despite failure of petitioner to comply with the requirements of dishonor and
protest under sections 89 and 152 of the Negotiable Instruments Law.
b) Whether the real estate mortgaged also served as security for respondent’s drafts that
were not paid and accepted by Kwang Ju Bank, Ltd.
c) Whether the extrajudicial foreclosure of the mortgaged was void for failure to comply
with the personal notice of the sale as stipulated in the real estate mortgage agreement.
d) Whether respondent may still question the foreclosure sale.

Held:
a) Yes, respondent should be liable for the dishonour of the drafts and export documents
because of the two undertakings it executed as a condition for the negotiation of the drafts. As
held in Velasquez vs Solidbank, the drawer can still be made liable under the letter of
undertaking even if he is discharged due to the bank’s failure to protest the non-acceptance of
the bank. This is because the letter of undertaking is a separate contract from the sight draft.
The liability of petitioner under the letter of undertaking is direct and primary. It is independent
from his liability under the sight draft. Here, under the two undertaking, respondent would be
liable if the drafts were not accepted. Hence, respondent is liable for the drafts and export
document.
b) Yes, the real estate mortgaged can serve as a security for the unpaid drafts. Respondent
executed a real estate mortgage containing a “blanket mortgage clause” also known as “dragnet
clause”. It has been settled in a long line of decisions that mortgages given to secure future
advancements are valid and legal contracts, and the amounts named as consideration in said
contracts do not limit the amount for which the mortgage may stand as security if from the four
corners of the instrument the intent to secure future and other indebtedness can be gathered. In
the case at bar, the intention of the parties to extend the mortgaged over future debts is clear
from the reading of the agreement. Thus, petitioner was not precluded from seeking the
foreclosure of the real estate mortgaged based on the unpaid drafts.
c) No, the extrajudicial foreclosure is valid. Under paragraph 12 of the real estate mortgage
agreement, petitioner was required to furnish respondent with notice of the sale. Based on
evidence, a notice of sheriff’s sale was sent by petitioner to respondent through registered mail
and was received in due course. Since paragraph 12 only required petitioner to send out a
notice of sale to respondent and does not obliged the former to ensure that the latter actually
received the notice, then the requirement is complied with. Thus, the extrajudicial foreclosure is
valid.
d) No, respondent cannot question the foreclosure sale. The respondent is found guilty of
laches considering that petitioner made several demands for payment of respondent’s
outstanding loan as early as July 1987 and respondent acknowledged the failure to pay the loan
and advances. In addition, the subject foreclosure was done in accordance with the prescribed
rules as supported by the evidence on record. Hence, for respondent’s default in paying its
obligations and redeeming his properties, it is estopped from questioning the foreclosure sale.

LUIS S. WONG vs. CA and PEOPLE OF THE PHILIPPINES,

G.R. No. 117857      

 February 2, 2001

Negotiable Instruments Law – BP 22

Facts:

Luis Wong is a collector of Limtong Press, Inc., a company which prints

calendars. Wong was assigned to collect check payments from LPI’ clients. One time, six of
LPI’s clients were not able to give the check payments to Wong. Wong then made
arrangements with LPI so that for the meantime, Wong can use his personal checks to
guarantee the calendar orders of the LPI’s clients. LPI however has a policy of not
accepting personal checks of its agents. LPI instead proposed that the personal checks
should be used to cover Wong’s debt with LPI which arose from unremitted checks by Wong
in the past. Wong agreed. So he issued 6 checks dated December 30, 1985.

Before the maturity of the checks, Wong persuaded LPI not to deposit the checks
because he said he’ll be replacing them within 30 days. LPI complied however Wong reneged
on the payment. On June 5, 1986 or 157 days from date of issue, LPI presented the check to
RCBC but the checks were dishonored (account closed).

On June 20, 1986, LPI sent Wong a notice of dishonor. Wong failed to make good
the amount of the checks within five banking days from his receipt of the notice. LPI then sued
Wong for violations of Batas Pambansa Blg. 22. RTC convicted Wong of 3 counts of BP 22
which the CA affirmed. Hence, Wong filed a Petition for Review on Certiorari alleging among
others that he is not guilty of the crime of charged because one of the elements of the crime
is missing, that is, prima facie presumption of “knowledge of lack of funds” against the
drawer. According to Wong, this element is lost by reason of the belated deposit of the checks
by LPI which was 157 days after the checks were issued; that he is not expected to
keep his bank account active beyond the 90-day period –90 days being the period required for
the prima facie presumption of knowledge of lack of fund to arise.

Issue:

Whether or not Wong is guilty of violation of BP22.

Held:

Yes. Wong is guilty of violating BP 22.

There are two (2) ways of violating B.P. Blg. 22:

(1) by making or drawing and issuing a check to apply on account or for value knowing at the
time of issue that the check is not sufficiently funded; and

(2) by having sufficient funds in or credit with the drawee bank at the time of issue but failing to
keep sufficient funds therein or credit with said bank to cover the full amount of the check when
presented to the drawee bank within a period of ninety (90) days.17

The elements of B.P. Blg. 22 under the first situation, pertinent to the present case, are:
1. The making, drawing and issuance of any check to apply for account or for value;
2. The knowledge of the maker, drawer, or issuer that at the time of issue he does not
have sufficient funds in or credit with the drawee bank for the payment of such check in full upon
its presentment; and
3. The subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit
or dishonor for the same reason had not the drawer, without any valid cause, ordered the bank
to stop payment.

Under the second element, the presumption of knowledge of the insufficiency arises if the check
is presented within 90 days from the date of issue of the check. This presumption is
lost, as in the case at bar, by failure of LPI to present it within 90 days. But this does
not mean that the second element was not attendant with respect to Wong. The
presumption is lost but lack of knowledge can still be proven, LPI did not deposit the
checks because of the reassurance of Wong that he would issue new checks.

Upon his failure to do so, LPI was constrained to deposit the said checks. After the checks
were dishonored, Wong was duly notified of such fact but failed to make arrangements
for full payment within five (5) banking days thereof. There is, on record, sufficient evidence
that Wong had knowledge of the insufficiency of his funds in or credit with the drawee
bank at the time of issuance of the checks.

The Supreme Court also noted that under Section 186 of the Negotiable Instruments Law, “a
check must be presented for payment within a reasonable time after its issue or the
drawer will be discharged from liability thereon to the extent of the loss caused by the delay.” By
current banking practice, a check becomes stale after more than six (6) months, or 180
days. LPI deposited the checks 157 days after the date of the check. Hence said
checks cannot be considered stale.

CALTEX (PHILIPPINES) INC v COURT OF APPEALS AND SECURITY BANK AND TRUST
COMPANY
G.R. No. 97753
August 10, 1992

Negotiable Instruments Law – Negotiability

Relevant facts:

On various dates, defendant through its Sucat Branch issued 280 Certificates of Time Deposit
(CTDs) in favor of one Angel dela Cruz who deposited with the defendant, the aggregate
amount of P1, 120, 000.00. These CTDs were delivered by Dela Cruz to plaintiff, Caltex, for the
purchase of fuel products. Sometime in 1982, Dela Cruz informed the Sucat Branch Manager
that he lost all certificates, with which he was advised to execute and submit a notarized
Affidavit of Loss for the replacement of the lost CTDs. On the basis of such, the new CTDs were
issued.

On the same year, Dela Cruz obtained a loan from the defendant bank in the amount of
P875,000. On the same date, Dela Cruz executed a Deed of Assignment of the Time Deposit
which stated that he surrenders full control of said CTDs and authorized the bank to apply the
same to the payment that may be due on the loan upon its maturity. Subsequently, Caltex
presented for verification the CTDs declared lost by Dela Cruz, alleging that the same were
delivered by the plaintiff as security for purchases made with Caltex. However, defendant
received a letter from Caltex informing it of its possession of the CTDs and its decision to pre-
terminate the same.

Accordingly, defendant received a demand from the plaintiff for payment but was rejected
through a letter. In April of 1983, the loan of Dela Cruz with defendant bank matured and fell
due, with the bank setting-off and applying the time deposits in question to the payment of the
matured loan. With this ,plaintiff filed a complaint for the payment of the CTDs. The complaint
was dismissed by the lower court, stating that the CTDs in question are non-negotiable thus,
petitioner is not a holder in due course.

ISSUE:
1. Are the subject CTDs in question, negotiable instruments?
2. Can Caltex be considered a Holder in Due Course, thus, can recover from Security
Bank?

Decision/Held:

1. Yes, the disputed CTDs are negotiable instruments. The Court held that the instrument
was able to comply with Sec. 1 of the Negotiable Instruments Law (NIL) While the
parties are in dispute with the requirement that the instrument must be payable to order
or to bearer, the accepted rule is that In its construction, the intention of the parties
control, if it can be legally ascertained. The word “bearer” in the instrument does not
pertain to the depositor of the CTDs in question, that is, Angel Dela Cruz. Furthermore,
there was no indication that the amounts are specifically repayable to him, but to the
bearer of the instrument, whoever it may be at the time of presentment. If the intention is
to make the CTDs repayable to him only, the instrument could have stated so in clear
and unequivocal terms.

2. No. Under Sec. 30 of the NIL, bearer instrument can be negotiated through delivery.
However, a valid negotiation thereof for the true purpose and agreement between it and
Dela Cruz, as ultimately ascertained, requires both delivery indorsement. The CTDs
were delivered as security, and not as payment, for the purchase of the fuel product,
thus, no valid negotiation took place. This was subsequently guaranteed by the bank, as
evidenced by a letter sent from its branch manager to Caltex.
 JUDE JOBY LOPEZ vs. PEOPLE
G.R. No. 166810
June 26, 2008

Negotiable Instruments Law – Notice of Dishonor

FACTS:
On March 1998, petitioner Jude Joby Lopez issued a check payable to Efren Ables in the
amount of 20,000 pesos with Development Bank of the Philippines (DBP). Upon presentment
for payment, the check was dishonored on the ground that the account of Lopez was already
closed and is without sufficient funds. As Ables’ repeated demands for payment went unheeded,
an Information for estafa was filed against petitioner in the RTC of Sorsogon. During trial, the
prosecution was able to present the testimony of the bank teller of the DBP as well as bank
records showing that the account was closed even before the said check was issued. Thus, the
trial court convicted Lopez of the crime of estafa. Upon appeal, the CA rendered its decision
affirming the ruling of the RTC. Hence, this petition.

Petitioner Lopez argues that no deceit was established by the prosecution because of the failure
of the latter to prove the fact of receipt by petitioner of the notice of dishonor of the check.
Because of this, no presumption or prima facie evidence of guilt would arise "since there would
simply be no way of reckoning the crucial 3-day period" from receipt of notice of dishonor of the
check within which the amount necessary to cover the check may be done.

ISSUE: Was notice of dishonor to Lopez necessary as the absence of such would preclude his
conviction for the crime of estafa?

HELD: No, notice of DBP’s refusal to honor the check was not necessary. Section 114(d) of the
Negotiable Instruments Law provides that notice of dishonor is not required to be given to the
drawer where the drawer has no right to expect or require that the drawee or acceptor will honor
the check.

The absence of proof as to receipt of the written notice of dishonor notwithstanding, the
evidence shows that petitioner had actual notice of the dishonor of the check because he was
verbally notified by the respondent and notice whether written or verbal was a surplusage and
totally unnecessary considering that almost two (2) months before the issuance of the check,
petitioner's current account was already closed. Under these circumstances, the notice of
dishonor would have served no useful purpose as no deposit could be made in a closed bank
account.

Therefore, since the petitioner's bank account was already closed even before the issuance of
the subject check, he had no right to expect or require the drawee bank to honor his check. By
virtue of the aforequoted provision of law, petitioner is not entitled to be given a notice of
dishonor.

Far East Realty Investment, Inc. vs. CA, Dy Hian Tat, Siy Chee and Gaw Suy An
G.R. No. L-36549
October 5, 1988
Negotiable Instruments Law- Presentment for Payment; Reasonable time for
presentment; Notice of Dishonor

FACTS: On September 13, 1960, private repondents approached petitioner and asked the latter
to extend to them an accommodation loan amounting to P4,500, which they promised to pay in
one month time. Respondents delivered to petitioner a check dated September 13, 1960, with
assurance that after one month from September 13, 1960, said check can be presented for
payment on or immediately after one month. Petitioner agreed and extended the
accommodation loan to respondents. On March 5, 1964, the check was presented for payment
to China Bank, but said check bounced and was not cashed by the bank because the current
account of the drawer thereof had already been closed. Subsequently, petitioner demanded
from the respondents the payment of the loan, but the latter failed and refused to pay. Petitioner
then filed an action before the CFI for collection of sum of money on May 9, 1968.

Respondents maintained that in order to charge the persons secondarily liable, such as drawers
or endorsers, the instrument must be presented for payment on the date or period mentioned in
the instrument, if it is payable on a fixed date, or within a reasonable time after issue, otherwise,
the drawer and indorsers are discharged from liability.

ISSUE: Whether or not presentment for payment and notice of dishonor of the questioned check
were made within reasonable time

HELD: No. Presentment for payment and notice of dishonor were not made within reasonable
time.

Section 71 of the Negotiable Instruments Law provides that where an instrument is not payable
on demand, presentment must be made on the day if falls due. Where it is payable on demand,
presentment must be made within a reasonable time after its issue, except that in the case of a
bill of exchange, presentment for payment will be sufficient if made within a reasonable time
after the last negotiation thereof. Furthermore, Section 102 of the same law states that notice
may be given as soon as the instrument is dishonored; and unless delay is excused must be
given within the time fixed by law. No hard and fast demarcation line can be drawn between
what may be considered as a reasonable or an unreasonable time, because “reasonable time”
depends upon the peculiar facts and circumstances of each case. In the present case, it is
obvious that presentment and notice of dishonor were not made within a reasonable time.
“Reasonable time” has been defined as so much time as is necessary under the circumstances
for a reasonable prudent and diligent man to do, conveniently, what the contract or duty requires
should be done, having a regard for the rights, and possibility of loss, if any, to the other party.
In the instant case, the check in question was issued on September 3, 1960, but was presented
to the drawee bank only on March 5, 1964, and dishonored on the same day. After dishonor by
the drawee bank, a formal notice of dishonor was made by petitioner through a letter date April
27, 1968. Under these circumstances, petitioner undoubtedly failed to exercise reasonable
prudence and diligence on what he ought to do as required by law. Petitioner likewise failed to
show any justification for the unreasonable delay.

Thus, respondents cannot be held liable.

FAR EAST BANK AND TRUST COMPANY VS. ESTRELLA O. QUERIMIT

G.R. NO. 148582
JANUARY 16, 2002
Negotiable Instruments Law – Bearer instrument

Relevant facts:

Querimit opened a dollar savings account in petitioner bank for which she was issued 4
Certificates of Deposit, each for $15,000 or a total amount of $60,000. The certificates were
payable to bearer at 4.5% per annum. The certificates bore the word “accrued” which meant
that if they were not presented for encashment or pre-terminated prior to maturity, the money
deposited with accrued interest would be “rolled over” by the bank and annual interest would
accumulate automatically. The petitioner bank’s manager assured respondent that her deposit
would be renewed and earn interest upon maturity even without the surrender of the certificates
if these were not indorsed and withdrawn.

Querimit used her savings in BPI to pay for the trip and for her husband’s medical
expenses to the United States. After his death, she went to petitioner bank to withdraw her
deposit but, to her dismay, she was told he husband had withdrawn the money in deposit. She
sent a demand letter. Petitioner bank refused her demands alleging that it had given her late
husband an “accommodation” to allow him to withdraw respondent’s deposit.

Issue: Did the bank correctly allow respondent’s husband to withdraw the deposit?

Held::

No. A certificate of deposit is defined as a written acknowledgement by a bank or banker

of the receipt of a sum of money on deposit which the bank or banker promised to pay to the
depositor, to the order of the depositor, or to some other person or his order, whereby the
relation of the debtor and creditor between the bank and the depositors is created. The
principles governing other types of bank deposits are applicable to certificates of deposit, as are
the rules governing promissory notes when they contain an unconditional promise to pay a sum
certain of money absolutely. The principle that payment, in order to discharge a debt, must be
made to someone authorized to receive it is applicable to the payment of certificates of deposit.
Thus, a bank will be protected in making payment to the holder of a certificate indorsed by the
payee, unless it has notice of the invalidity of the indorsment or the holder’s want of title. A bank
acts at its peril when it pays deposits evidenced by a certificate of deposit, without its production
and surrender after proper indorsement.

In this case, the certificates of deposit were clearly marked payable to “bearer”, which
means, to the person in possession of an instrument, document of title or security payable to
bearer or indorsed in blank. Petitioner should not have paid respondent’s husband or any this
party without requiring the surrender of the certificates of deposit.

STATE INVESTMENT HOUSE, INC. vs. COURT OF APPEALS and NORA B. MOULIC G.R.
No. 101163
January 11, 1993

Subject/Topic: Negotiable Instruments Law – Holder in Due Course

Facts:
Nora Moulic issued to Corazon Victoriano, as security for pieces of jewelry to be sold on
commission, two (2) post-dated checks. Thereafter, the payee negotiated the checks to State
Investment House Inc. Moulic failed to sell the pieces of jewelry, so she returned them to the
payee before maturity of the checks. The checks, however, could no longer be retrieved as they
had already been negotiated. Consequently, before their maturity dates, Moulic withdrew her
funds from the drawee bank. Upon presentment for payment, the checks were dishonored for
insufficiency of funds. Petitioner sued Moulic. 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.
RTC dismissed the complaint. CA affirmed on the ground, among others, that the checks
should never have been presented for payment. The sale of the jewelry was never effected; the
checks, therefore, ceased to serve their purpose as security for the jewelry.

Issue:
1. Whether or not State Investment House Inc. was a holder in due course?
2. Whether or not Moulic may unilaterally discharge herself from her liability by mere
expediency of withdrawing her funds from the drawee bank?

Held:
1. Yes. Section 52 of the Negotiable instruments Law provides that a holder in due course
is a holder who has taken the instrument under the following conditions: (a) That it is
complete and regular upon its face; (b) That he became the holder of it before it was
overdue, and without notice that it was 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. In this case, it clearly shows that: (a) on their faces the post-dated checks
were complete and regular: (b) petitioner bought these checks from the payee, Corazon
Victoriano, before their due dates; (c) petitioner took these checks in good faith and for
value, albeit at a discounted price; and, (d) petitioner was never informed nor made
aware that these checks were merely issued to payee as security and not for value.
Therefore, State Investment House Inc. is indeed a holder in due course.

2. No. Sec. 119 of the Negotiable Instruments Law provides that a negotiable instrument is
discharged: (a) By payment in due course by or on behalf of the principal 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 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. In this case, Moulic may only invoke paragraphs (c) and (d) as
possible grounds for the discharge of the instrument. 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, as for paragraph (d), we must correlate it to
Art. 1231 of the Civil Code which enumerates the modes of extinguishing obligations.
None of the modes outlined therein is applicable in the instant case as Sec. 119
contemplates of a situation where the holder of the instrument is the creditor while its
drawer is the debtor. In the present action, the payee, Corazon Victoriano, was no longer
Moulic's creditor at the time the jewelry was returned. Thus, 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.