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208 SCRA 465
Reyes was engaged in the RTW business and held transactions with diferent
department stores. She was about to collect payments from the department
stores when she was informed that the payments had already been made, through
crossed checks issued in her business name and the same were deposited with
the bank. The bank consequently allowed its transfer to Sayson who later
encashed the checks. This prompted Reyes to sue the bank and its manager for the
return of the money. The trial and appellate court ruled in her faor.

There is no doubt that the checks were crossed checks and for payees
account only. Reyes was able to show that she has neer authori!ed Sayson
to deposit the checks nor to encash the same" that the bank had allowed all
checks to be deposited, cleared and paid to one Sayson in iolation of the
instructions in the said crossed checks that the same were for payees account
only" and that Reyes maintained a saings account with the bank which neer
cleared the said checks.
#nder accepted banking practice, crossing a check is done by writing two parallel
lines diagonally on the top left portion of the checks. The crossing is special where
the name of a bank or a business institution is written between the two
parallel lines, which means that the drawee should pay only with the
interention of the company. The crossing is general where the words written in
between are $%nd &o.' and $for payees account only', as in the case at bar. This
means that the drawee bank should not encash the check but merely accept it for

The efects of crossing a check are as follows(
). That the check may not be encashed but only deposited in the bank
*. That the check may be negotiated only once+to one who has an account with a
,. That the act of crossing the check seres as a warning to the holder
that the check has been issued for a de-nite purpose so that he must inquire
if he has receied the check pursuant to the purpose

The sub.ect checks were accepted for deposit by the bank for the account of Sayson
although they were crossed checks and the payee wasn/t Sayson but Reyes. The
bank stamped thereon its guarantee that all prior endorsements and0or lack
of endorsements guaranteed. 1y such deliberate and positie act, the bank
had for all legal intents and purposes treated the said checks as negotiable
instruments and accordingly assumed the warranty of the endorser.

When the bank paid the checks so indorsed notwithstanding that title has not passed
to the endorser, it did so at its peril and became liable to the payee for the alue of
the checks.
Fa!s( 2laintif was entitled to the sum of 234,555 from the surplus earnings of
2hilippine 6iber 7 2roduce &ompany 8262&9 which was placed to his credit on the
companys books. The 262& treasurer requested from 2:1 ;anila that a telegraphic
transfer of S<=,555 should be made to the plaintif in :> upon account of 262&. The
treasurer drew and deliered a check for the amount of 235,,== on the 2:1 which is
the total costs o said transfer. %s eidence, a document was made out and deliered
to the 262& treasurer which is referred to by the banks assistant cashier as its
o?cial receipt.
@n the same day the 2hilippine :ational 1ank dispatched to its :ew >ork agency a
cablegram to the following efect(
2ay Aeorge %. Baufman, :ew >ork, account 2hilippine 6iber 2roduce &o., C<=,555.
8Sgd.9 2DEFE22E:G :%TE@:%F 1%:B, Manila.
#pon receipt of the telegraphic message, the banks representatie adised the
withholding of the money from Baufman, in iew of his reluctance to accept certain
bills of the 262&. The 2:1 agreed and sent to its :> agency another message to
withhold the payment as suggested.
#pon adice of the 262& treasurer that S<=,555 had been placed to his credit, he
presented himself at the 2:1 :> and demanded the money but was refused due to
the direction of the withholding of payment.
Iss"#( W@: plaintif has a right oer the money withhold.
H#$%( :o. 2roisions of the :EF can come into operation there must be a document in
eHistence of the character described in section ) of the Faw" and no rights properly
speaking arise in respect to said instrument until it is deliered.
The order transmitted by 2:1 to its :> branch, for the payment of a speci-ed sum of
money to the plaintif was not made payable $to order' or $to bearer', as required in
subsection 8d9 of that %ct" and inasmuch as it neer left he possession of the bank,
or its representatie in :>, there was no deliery in the sense intended in section )I
of the same Faw.
En connection, it is unnecessary to point out that the o?cial receipt deliered by the
bank to the purchaser of the telegraphic order cannot itself be iewed in the light of
a negotiable instrument, although it afords complete proof of the obligation actually
assumed by the bank.
CALTE& V. CA' N#()!*a+$# I,s!-".#,!s
2/2 SCRA 448
Security bank issued &erti-cates of Time Jeposits to %ngel dela &ru!. The same
were gien by Jela &ru! to petitioner in connection to his purchase of fuel products
of the latter. @n a later date, Jela &ru! approached the bank manager,
communicated the loss of the certi-cates and requested for a reissuance.
#pon compliance with some formal requirements, he was issued replacements.
Thereafter, he secured a loan from the bank where he assigned the certi-cates as
security. Dere comes the petitioner, aerred that the certi-cates were not
actually lost but were gien as security for payment for fuel purchases. The bank
demanded some proof of the agreement but the petitioner failed to comply.
The loan matured and the time deposits were terminated and then applied to the
payment of the loan. 2etitioner demands the payment of the certi-cates but
to no aail.

SG&#RET> 1%:B
%:J TR#ST &@;2%:>
IKK4 %yala %e., ;akati :o. 35)5)
;etro ;anila, 2hilippines
S#&%T @66E&G2 <,555.55
Rate )IL

Jate of ;aturity 6G1. *,, )34< 6G1 **, )34*, )3MMMM

This is to &ertify that 1 G % R G R has deposited in this 1ank the sum of
2GS@S( 6@#R TD@#S%:J @:F>, SG&#RET> 1%:B S#&%T @66E&G 2<,555 7
55 &TS 2esos, 2hilippine &urrency, repayable to said depositor K,) days.
after date, upon presentation and surrender of this certi-cate, with interest
at the rate of )IL per cent per annum.

8Sgd. Ellegible9 8Sgd. Ellegible9

++++++++++ +++++++++++

&TJs are negotiable instruments. The documents proide that the amounts
deposited shall be repayable to the depositor. %nd who, according to the
document, is the depositorO Et is the Pbearer.P The documents do not say that the
depositor is %ngel de la &ru! and that the amounts deposited are
repayable speci-cally to him. Rather, the amounts are to be repayable to the
bearer of the documents or, for that matter, whosoeer may be the bearer at
the time of presentment.

Ef it was really the intention of respondent bank to pay the amount to %ngel
de la &ru! only, it could hae with facility so eHpressed that fact in clear and
categorical terms in the documents, instead of haing the word P1G%RGRP stamped
on the space proided for the name of the depositor in each &TJ. @n the
wordings of the documents, therefore, the amounts deposited are repayable
to whoeer may be the bearer thereof. Thus, petitioner/s aforesaid witness
merely declared that %ngel de la &ru! is the
depositor Pinsofar as the bank is concerned,P but obiously other parties not
priy to the transaction between them would not be in a position to know
that the depositor is not the bearer stated in the &TJs. Dence, the situation would
require any party dealing with the &TJs to go behind the
plain import of what is written thereon to unrael the agreement of the
parties thereto through facts aliunde. This need for resort to eHtrinsic
eidence is what is sought to be aoided by the :egotiable Enstruments Faw
and calls for the application of the elementary rule that the
interpretation of obscure words or stipulations in a contract shall not faor the party
who caused the obscurity.

The neHt query is whether petitioner can rightfully recoer on the &TJs. This
time, the answer is in the negatie. The records reeal that %ngel de la &ru!, whom
petitioner chose not to implead in this suit for reasons of its own, deliered the &TJs
amounting to 2),)*5,555.55 to petitioner without informing respondent bank
thereof at any time. #nfortunately for petitioner, although the &TJs are
bearer instruments, a alid negotiation thereof for the true purpose and
agreement between it and Je la &ru!, as ultimately ascertained, requires both
deliery and indorsement. 6or, although petitioner seeks to deQect this fact,
the &TJs were in reality deliered to it as a security for Je la &ru!/ purchases of
its fuel products. %ny doubt as to whether the &TJs were deliered as payment for
the fuel products or as a security has been dissipated and resoled in faor of the
latter by petitioner/s own authori!ed and responsible representatie himself.

En a letter dated :oember *I, )34* addressed to respondent Security 1ank,
R.S. %ranas, Rr., &alteH &redit ;anager, wrote( P. . . These certi-cates of
deposit were negotiated to us by ;r. %ngel dela &ru! to guarantee his
purchases of fuel products.P This admission is conclusie
upon petitioner, its protestations notwithstanding. #nder the doctrine of
estoppel, an admission or representation is rendered conclusie upon the
person making it, and cannot be denied or disproed as against the person relying
0SIS vs CA1 F#+. 221 /383
Fa!s: Spouses Racho together with Spouses Fagasca eHecuted a deed of mortgage
in faor of ASES in connection with * loans granted by the latter in the sums of
p)),=55.55 and p,,555.55, respectiely. % parcel of land coTowned by the mortgagor
spouses was goern as security under the aforesaid deeds and eHecuted a
promissory note promising to pay the said amounts to ASES .ointly, seerally and
The Fagasca spouses eHecuted an instrument obligating themseles in the
assumption of the aforesaid obligation and to secure the release of the mortgage.
6ailing to comply with the conditions of the mortgage, ASES eHtra.udicially foreclosed
the mortgage and caused the property to be sold at public auction.
;ore than * years after, Spouses Racho -led a complaint against ASES and Spouses
Fagasca praying that the eHtra.udicial foreclosure be declared null and oid. They
allege that they signed the mortgage contracts not as sureties for the Fagasca
spouses but merely as accommodation party
Iss"#( W@: the promissory note and mortgage deeds are negotiable.
H#$%( :o. Section *3 of the :EF proides that an accommodation party is one who
has signed an instrument as maker, drawer, acceptor of indorser without receiing
alue therefore, but is held liable on the instrument to a holder for alue although
the latter knew him to be only an accommodation party.
1oth parties appears to be misdirected and their reliance misplaced. The promissory
note, as well as the mortgage deeds sub.ect of this case, are clearly not negotiable
instrument because it did not comply with the fourth requisite to be considered as
such under Sec. ) of the :EF U they are neither payable to order nor to bearer. The
note is payable to a speci-ed party, the ASES.
/55 SCRA /88

1J@ drew checks payable to member establishments. Subsequently, the checks
were deposited in Trencios account with Gquitable. The checks were sent for
clearing and was thereafter cleared. %fterwards, 1J@ discoered that the
indorsements in the back of the checks were forged. Et then demanded that
Gquitable credit its account but the latter refused to do so. This prompted 1J@
to -le a complaint against Gquitable and 2&D&. The trial court and RT& held in faor
of the Gquitable and 2&D&.

6irst, 2&D& has .urisdiction oer the case in question. The articles of
incorporation of 2DD& eHtended its operation to clearing checks and other clearing
items. :o doubt transactions on nonTnegotiable checks are within the ambit of its
.urisdiction. 6urther, the participation of the two banks in the clearing operations is
submission to the .urisdiction of the 2&D&.

2etitioner is likewise estopped from raising the nonTnegotiability of the
checks in issue. Et stamped its guarantee at the back of the checks and
subsequently presented it for clearing and it was in the basis of these
endorsements by the petitioner that the proceeds were credited in its
clearing account. The petitioner cannot now deny its liability as it assumed
the liability of an indorser by stamping its guarantee at the back of the checks.

6urthermore, the bank cannot escape liability of an indorser of a check and which
may turn out to be a forged indorsement. Wheneer a bank treats the signature at
the back of the checks as indorsements and thus logically guarantees the same as
such there can be no doubt that said bank had considered the checks as

% long line of cases also held that in the matter of forgery in
endorsements, it is the collecting bank that generally sufers the loss because
it had the duty to ascertain the genuineness of all prior indorsements
considering that the act of presenting the check for payment
to the drawee is an assertion that the party making the presentment has done its
duty to ascertain the genuineness of the indorsements.
P6*$*77*,# Ba,8 )9 C)..#-# vs. A-"#()
0R L'25826'251 2/ :a,"a-; /38/1 /02 s-a 520''a(#,!s
To facilitate payment of the printing of a periodical called $World &urrent Gents.',
%ruego, its publisher, obtained a credit accommodation from the 2hilippine 1ank of
&ommerce. 6or eery printing of the periodical, the printer collected the cost of
printing by drawing a draft against the bank, said draft being sent later to %ruego for
acceptance. %s an added security for the payment of the amounts adanced to the
printer, the bank also required %ruego to eHecute a trust receipt in faor of the bank
wherein %ruego undertook to hold in trust for the bank the periodicals and to sell the
same with the promise to turn oer to the bank the proceeds of the sale to answer
for the payment of all obligations arising from the draft. The bank instituted an
action against %ruego to recoer the cost of printing of the latters
periodical. %ruego howeer argues that he signed the supposed bills of eHchange
only as an agent of the 2hilippine Gducation 6oundation &ompany where he is
Whether %ruego can be held liable by the petitioner although he signed the
supposed bills of eHchange only as an agent of 2hilippine Gducation 6oundation
%ruego did not disclose in any of the drafts that he accepted that he was signing as
representatie of the 2hilippine Gducation 6oundation &ompany. 6or failure to
disclose his principal, %ruego is personally liable for the drafts he accepted, pursuant
to Section *5 of the :EF which proides that when a person adds to his signature
words indicating that he signs for or on behalf of a principal or in a representatie
capacity, he is not liable on the instrument if he was duly authori!ed" but the mere
addition of words describing him as an agent or as -ling a representatie character,
without disclosing his principal, does not eHempt him from personal liability.
RaiT%lai &orp s 12E
RaiT%lai &orp. of the 2hil. s. 1ank of the 2hil. Eslands
A.R. :o. FT*3<,* %ugust I, )3K= II S&R% *3
2etitioner deposited )5 checks in its current account with 12E. The checks which
were acquired by petitioner from Ramire!, a sales agent of the EnterTEsland Aas were
all payable to EnterTEsland Aas Serice, Enc. or order. %fter the checks had been
submitted to EnterTbank clearing, EnterTEsland Aas discoered that all the
indorsements made on the checks purportedly by its cashiers were forgeries. 12E
thus debited the alue of the checks against petitioner/s current account and
forwarded to the latter the checks containing the forged indorsements which
petitioner refused to accept.

Whether 12E had the right to debit from petitioner/s current account the alue of the
checks with the forged indorsements.
12E acted within legal bounds when it debited the petitioner/s account. Daing
indorsed the checks to respondent bank, petitioner is deemed to hae gien the
warranty prescribed in Section II of the :EF that eery single one of those checks Pis
genuine and in all respects what it purports to be.P Respondent which relied upon
the petitioner/s warranty should not be held liable for the resulting loss.
VVThe depositor of a check as indorser warrants that it is genuine and in all respects
what it purports to be. Having indorsed the checks to respondent bank, petitioner is
deemed to have given the warranty prescribed in Section 66 of the N! that every
single one of those checks " is genuine and in all respects what it purports to be."
Fa!s( The spouses Gangelista -led a complaint for annulment of titles against the
respondents, claiming to be the registered owners of -e 8=9 parcels of land
contained in the real estate mortgage eHecuted by them and Gmbassy 6arms Enc. in
faor of ;ercator 6inancing &orporation 8$;ercator'9. The mortgage was in
consideration of certain loans and credit accommodationsamounting to 24<<,
The spouses alleged the following( 8)9 that they eHecuted the said real estate
mortgage merely as o?cers of Gmbassy 6arms" 8*9 that they did not receie the
proceeds of the loan eidenced by thepromissory note, as all went to Gmbassy
6arms" 8,9 that the real estate mortgage is oid due to absence of a principal
obligation on which it rests" 8<9 that since the real estate mortgage is oid, the
foreclosure proceedings, the subsequent sale as well as the issuance of transfer
certi-cates of title are likewise oid. 2etitioners further alleged ambiguity in the
wording of the promissory note, which should be resoled against ;ercator who
proided the form thereof.
;ercator admitted that petitioners were the owners of the sub.ect parcels of land. Et,
howeer, contended that the spouses eHecuted a ;ortgage in faor of ;ercator
6inance &orporation Wfor and in consideration of certain loans, and0or other forms of
creditaccommodations obtained from the ;ortgagee 8defendant ;ercator 6inance
&orporation9 amounting to GEADT D#:JRGJ 6@RT>T6@#R TD@#S%:J SEX D#:JRGJ
TWG:T>T6EYG 7 K40)55 824<<,I*=.K49 and to secure the payment of the same and
those others that the ;@RTA%AGG may eHtend to the ;@RTA%A@R 8plaintifs9 H H
H.' Et contended that since petitioners and Gmbassy 6arms signed the promissory
note as coTmakers 8the note being worded as $6or alue receied, E0We .ointly and
seerally promise to pay to the order of ;ercatorZ'9, aside from the &ontinuing
Suretyship %greement subsequently eHecuted to guarantee the indebtedness, the
petitioners are .ointly and seerally liable with Gmbassy 6arms. Jue to their failure to
pay the obligation, the foreclosure and subsequent sale of the mortgaged properties
are thus alid. Respondents Sala!ar and Famecs asserted that they are innocent
purchasers for alue and in good faith.
Iss"#( ;ay the spouses be held solidarily liable with Gmbassy 6armsO
H#$%( >GS. &ourts can interpret a contract only if there is doubt in its letter. 1ut,
an eHamination of the promissory note shows no such ambiguity. 1esides, assuming
arguendo that there is an ambiguity, Section )K of the :egotiable Enstruments Faw
states, i!(
SG&TE@: )K. &onstruction where instrument is ambiguous. U Where the language of
the instrument is ambiguous or there are omissions therein, the following rules of
construction apply( 8g9 Where an instrument containing the word $E promise to pay'
is signed by two or more persons, they are deemed to be .ointly and seerally liable
2etitioners also insist that the promissory note does not coney their true intent in
eHecuting the document. The defense is unaailing. Gen if petitioners intended to
sign the note merely as o?cers of Gmbassy 6arms, still this does not erase the fact
that they subsequently eHecuted a continuing suretyship agreement. % surety is one
who is solidarily liable with the principal. 2etitioners cannot claim that they did not
personally receie any consideration for the contract for wellTentrenched is the rule
that the consideration necessary to support a surety obligation need not pass
directly to the surety, a consideration moing to the principal alone being su?cient.
% surety is bound by the same consideration that makes the contract efectie
between the principal parties thereto. Daing eHecuted the suretyship agreement,
there can be no dispute on the personal liability of petitioners.
263 SCRA /5
6ilriters through a Jetached %greement transferred ownership to 2hil-nance
a &entral 1ank &erti-cate of Endebtedness. Et was only through one of its o?cers by
which the &1&E was coneyed without authori!ation from the company.
2etitioner and 2hil-nance later entered into a Repurchase agreement, on
which petitioner bought the &1&E from 2hil-nance. The latter agreed to
repurchase the &1&E but failed to do so. When the petitioner tried to hae it
registered in its name in the &1, the latter didn/t want to recogni!e the transfer.

The &1&E is not a negotiable instrument. The instrument proides for a
promise to pay the registered owner 6ilriters. Yery clearly, the instrument was only
payable to 6ilriters. Et lacked the words of negotiability which should hae
sered as an eHpression of the consent that the instrument may be transferred
by negotiation.

The language of negotiability which characteri!e a negotiable paper as a
credit instrument is its freedom to circulate as a substitute for money.
Dence, freedom of negotiability is the touchstone relating to the protection of
holders in due course, and the freedom of negotiability is the foundation
for the protection, which the law throws around a holder in due course. This
freedom in negotiability is totally absent in a certi-cate of indebtedness
as it merely acknowledges to pay a sum of money to a speci-ed person or
entity for a period of time.

The transfer of the instrument from 2hil-nance to TR1 was merely an
assignment, and is not goerned by the negotiable instruments law. The pertinent
question then is+was the transfer of the &1&E from 6ilriters to 2hil-nance
and subsequently from 2hil-nance to TR1, in accord with
eHisting law, so as to entitle TR1 to hae the &1&E registered in its name with the
&entral 1ankO &learly shown in the record is the fact that 2hil-nances title
oer &1&E is defectie since it acquired the instrument from 6ilriters
-ctitiously. %lthough the deed of assignment stated that the transfer was for
Walue receiedW, there was really no consideration inoled. What happened
was 2hil-nance merely borrowed &1&E from 6ilriters, a sister corporation. Thus,
for lack of any consideration, the
assignment made is a complete nullity. 6urthermore, the transfer wasn/t in
conformity with the regulations set by the &1. Aiing more credence to rule
that there was no alid transfer or assignment to petitioner.
25/ SCRA 408

Spouses Fim were charged with estafa and iolations of 12** for allegedly
purchasing goods from Finton &ommercial &orporation and issuing checks as
payment thereof. The checks when presented to the bank were dishonored
for insu?ciency of funds or the payment for the checks has been stopped.

Et is settled that enue in criminal cases is a ital ingredient of .urisdiction. Et shall
be where the crime or ofense was committed or any one of the essential
ingredients thereof took place. En determining the proper enue for these cases, the
following are material facts+the checks were issued at the place of business of
Finton" they were deliered to Finton at the same place" they were dishonored in
Balookan &ity" petitioners had knowledge of the insu?ciency of funds in their

#nder Section )3) of the :egotiable Enstruments Faw, issue means the -rst
deliery of the
instrument complete in its form to a person who takes it as holder. The term
holder on the other hand refers to the payee or indorsee of a bill or note who is in
possession of it or the bearer thereof. The important place to consider in the
consummation of a negotiable instrument is the place of deliery. Jeliery is the
-nal act essential to its consummation as an obligation.
245 SCRA 254

Sesbreno -led a case against ;abanto Rr. among other people wherein the court
decided in faor of the plaintif, ordering the defendants to pay former a
de-nite amount of cash. The decision had become -nal and eHecutory and a
writ of eHecution was issued. This was questioned in the &% by the defendants.
En the meanwhile, a notice of garnishment was issued to petitioner who was
then the &ity 6iscal. She was asked to withhold any check or whatnot in
faor of ;abanto Rr. The &% then dismissed the defendants petition and the
garnishment was commenced only to -nd out that petitioner didn/t follow
instructions of sherif. She is now being held liable.

Aarnishment is considered as the species of attachment for reaching credits
belonging to the .udgment debtor owing to him from a stranger in litigation.
Gmphasis is laid on the phrase belonging to the .udgment debtor since it is the focal
point of resoling the issues raised.

%s %ssistant &ity 6iscal, the source of ;abantos salary is public funds. #nder
Section )I of the :EF, eery contract on a negotiable instrument is incomplete and
reocable until deliery of the instrument for the purpose of giing efect thereto.
%s ordinarily understood, deliery means the transfer of the possession of the
instrument by the maker or drawer with intent to transfer title to the payee and
recogni!e him as the holder thereof.

The petitioner is the custodian of the checks. Enasmuch as said checks were
in the custody of the petitioner and not yet deliered to ;abanto, they didn/t
belong to him and still had the character of public funds. The salary check of a
goernment o?cer or employee doesn/t belong to him
before it has been physically deliered to him. #ntil that time the check
belongs to the goernment. %ccordingly, before there is actual deliery of the check,
the payee has no power oer it, he cannot assign it without the consent of the

VEf public funds would be allowed to be garnished, then basic serices of the
goernment may be hampered.
88 PHIL /58
Ramos, as a disbursing o?cer of an army diision of the #S%6G, made cash
adancements w0 the 2roincial Treasurer of Fanao. En eHchange, the 2rol
Treasurer of Fanao gae him a 2=55,555 check. Thereafter, Ramos presented the
check to Faya for encashment. Faya in his capacity as 2roincial Treasurer
of ;isamis @riental as drawer, issued a check to Ramos in the sum of 2)55555,
on the 2hilippines :ational 1ank as drawee" the 2<55555 alue of the check was
paid in military notes.
Ramos was unable to encash the said check for he was captured by the
Rapanese. 1ut after his release, he sold 2,5555 of the check to ;ontinola for 235555
Rapanese ;ilitary notes, of which only 2<=555 was paid by the latter. The writing
made by Ramos at the back of the check was to the efect that he was
assigning only 2,5555 of the alue of the document with an instruction to the bank
to pay 2,5555 to ;ontinola and to deposit the balance to Ramos/s credit. This
writing was, howeer, mysteriously obliterated and in its place, a supposed
indorsement appearing on the back of the check was made for the whole amount of
the check. %t the time of the transfer of this check to ;ontinola, the check was
long oerdue by about *T)0* years.
;ontinola instituted an action against the 2:1 and the 2roincial Treasurer of
;isamis @riental to collect the sum of 2)55,555, the amount of the aforesaid
check. There now appears on the face of said check the words in parenthesis
P%gent, 2hil. :ational 1ankP under the signature of Faya purportedly showing
that Faya issued the check as agent of the 2hilippine :ational 1ank.
The words P%gent, 2hil. :ational 1ankP now appearing on the face of the check
were added or placed in the instrument after it was issued by the 2roincial
Treasurer Faya to Ramos. The check was issued by only as 2roincial Treasurer
and as an o?cial of the Aoernment, which was under obligation to proide the
#S%6G with adance funds, and not as agent of the bank, which had no such
obligation. The addition of those words was made after the check had been
transferred by Ramos to ;ontinola. The insertion of the words P%gent, 2hil.
:ational 1ank,P which conerts the bank from a mere drawee to a drawer and
therefore changes its liability, constitutes a material alteration of the
instrument without the consent of the parties liable thereon, and so discharges
the instrument
A,( T#8 L*a, vs CA
A,( T#8 L*a, vs. C)"-! )9 A77#a$s
0.R. N). L'25/6 S#7!#.+#- 251 /350
''7a;a+$# !) +#a-#-
2etitioner drew a check payable to PcashPknowing that he had no funds in his
account. De deliered said check to Dong for which the latter handed him
money. When the check was presented for payment it was dishonored for
insu?ciency of funds. %n information for the crime of estafa was -led against %ng
Tek Fian. 2etitioner howeer argues that he is not guilty of the ofense charged
because he did not endorse the check which was made payable to PcashP.
Whether a check payable to PcashP requires an indorsement by the drawer for it to
be encashed.
:o. #nder Section 38d9 of the :EF, a check drawn payable to the order of PcashP is a
check payable to bearer and the bank may pay it to the person presenting it for
payment without the drawer/s indorsement.
A!-*". Ma,a(#.#,! C)-7)-a!*), vs. C)"-! )9 A77#a$s
[AR )53<3), *4 6ebruary *55)\, also #e !eon vs. $ourt of %ppeals &'( )*)+,-.
6irst Jiision, 2ardo 8R9( < concur
DiT&ement &orporation through its corporate signatories, Fourdes ;. de Feon,
treasurer, and the late%ntonio de las %las, &hairman, issued checks in faor of G.T.
Denry and &o. Enc., as payee. G.T. Denry and&o., Enc., in turn, endorsed the four
checks to %trium ;anagement &orporation for aluable consideration.#pon
presentment for payment, the drawee bank dishonored all four checks for the
common reason PpaymentstoppedP. @n , Ranuary )34,, %trium ;anagement
&orporation -led with the Regional Trial &ourt, ;anila anaction for collection of the
proceeds of four postdated checks in the total amount of 2* million, after itsdemand
for payment of the alue of the checks was denied. %fter due proceedings, on *5 Ruly
)343, the trialcourt rendered a decision ordering Fourdes ;. de Feon, her husband
Rafael de Feon, G.T. Denry and &o., Enc.and DiT&ement &orporation to pay %trium
.ointly and seerally, the amount of 2* million corresponding tothe alue of the four
checks, plus interest and attorney/s fees. @n appeal to the &ourt of %ppeals, on )K
;arch)33,, the &ourt of %ppeals promulgated its decision modifying the decision of
the trial court, absoling DiT&ement &orporation from liability and dismissing the
complaint as against it. The appellate court ruled that(8)9 Fourdes ;. de Feon was
not authori!ed to issue the sub.ect checks in faor of G.T. Denry, Enc." 8*9
Theissuance of the sub.ect checks by Fourdes ;. de Feon and the late %ntonio de las
%las constituted ultra iresacts" and 8,9 The sub.ect checks were not issued for
aluable consideration. Dence, %trium -led the petition.
Issue [1]:
Whether the issuance of the checks was an ultra ires act.
Held [1]:
The record reeals that DiT&ement &orporation issued the four 8<9 checks to eHtend
-nancialassistance to G.T. Denry, not as payment of the balance of the 2,5 million
pesos cost of hydro oil deliered byG.T. Denry to DiT&ement. Why else would
petitioner de Feon ask for counterpart checks from G.T. Denry if the checks were in
payment for hydro oil deliered by G.T. Denry to DiT&ementO DiT&ement,
howeer,maintains that the checks were not issued for consideration and that
Fourdes and G.T. Denry engaged in aPkiting operationP to raise funds for G.T. Denry,
who admittedly was in need of -nancial assistance. Therewas no su?cient eidence
to show that such is the case. Fourdes ;. de Feon is the treasurer of thecorporation
and is authori!ed to sign checks for the corporation. %t the time of the issuance of
the checks,there were su?cient funds in the bank to coer payment of the amount
of 2* million pesos. Thus, the act of issuing the checks was well within the ambit of a
alid corporate act, for it was for securing a loan to -nancethe actiities of the
corporation, hence, not an ultra ires act. %n ultra ires act is one committed outside
theob.ect for which a corporation is created as de-ned by the law of its organi!ation
and therefore beyond thepower conferred upon it by lawP The term Pultra iresP is
Pdistinguished from an illegal act for the former ismerely oidable which may be
enforced by performance, rati-cation, or estoppel, while the latter is oid andcannot
be alidated.
Issue [2]:
Whether Fourdes ;. de Feon and %ntonio de las %las were personally liable for the
checks issuedas corporate o?cers and authori!ed signatories of the check.
Held [2]:
2ersonal liability of a corporate director, trustee or o?cer along 8although not
necessarily9 with thecorporation may so alidly attach, as a rule, only when( 8)9 De
assents 8a9 to a patently unlawful act of thecorporation, or 8b9 for bad faith or gross
negligence in directing its afairs, or 8c9 for conQict of interest,resulting in damages
to the corporation, its stockholders or other persons" 8*9 De consents to the issuance
of =I watered down stocks or who, haing knowledge thereof, does not forthwith -le
with the corporate secretaryhis written ob.ection thereto" 8,9 De agrees to hold
himself personally and solidarily liable with thecorporation" or 8<9 De is made, by a
speci-c proision of law, to personally answer for his corporate action.PDerein,
Fourdes ;. de Feon and %ntonio de las %las as treasurer and &hairman of DiT&ement
wereauthori!ed to issue the checks. Doweer, ;s. de Feon was negligent when she
signed the con-rmation letter requested by ;r. >ap of %trium and ;r. Denry of G.T.
Denry for the rediscounting of the crossed checksissued in faor of G.T. Denry. She
was aware that the checks were strictly endorsed for deposit only to thepayee/s
account and not to be further negotiated. What is more, the con-rmation letter
contained a clause thatwas not true, that is, Pthat the checks issued to G.T. Denry
were in payment of Dydro oil bought by DiT&ementfrom G.T. DenryP. Der negligence
resulted in damage to the corporation. Dence, ;s. de Feon may be heldpersonally
liable therefor
M#s*,a vs IAC
Ma-#$) A. M#s*,a vs. I,!#-.#%*a!# A77#$$a!# C)"-!
0.R. N). 50/45 N)v#.+#- /21 /3861 /45 SCRA 435
''6)$%#- *, %"# )"-s#
Rose Ao purchased from %ssociated 1ank a cashier/s check for 2455,555.55.
#nfortunately, he left said check on the top of the desk of the bank manager when
he left the bank. The bank manager entrusted the check for safekeeping to a bank
o?cial, a certain %lbert #y. While #y went to the men/s room, the check was stolen
by his isitor in the person of %leHander Fim. #pon discoering that the check was
lost, Rose Ao accomplished a PST@2 2%>;G:TP order. Two days later, %ssociated
1ank receied the lost check for clearing from 2rudential 1ank. %fter dishonoring the
same check twice, %ssociated 1ank receied summons and copy of a complaint for
damages of ;arcelo ;esina who was in possession of the lost check and is
demanding payment. 2etitioner claims that a cashier/s check cannot be
countermanded in the hands of a holder in due course.
Whether or not petitioner can collect on the stolen check on the ground that he is a
holder in due course.
:o. 2etitioner failed to substantiate his claim that he is a holder in due course and
for consideration or alue as shown by the established facts of the case. %dmittedly,
petitioner became the holder of the cashier/s check as endorsed by %leHander Fim
who stole the check. De refused to say how and why it was passed to him. De had
therefore notice of the defect of his title oer the check from the start. The holder of
a cashier/s check who is not a holder in due course cannot enforce such check
against the issuing bank which dishonors the same.
/03 PHIL 506

Tam Bim issued )) checks payable to cash or bearer. &han Wan presented these
for payment but were dishonored for insu?ciency of funds. This prompted
&han Wan to institute an action against Tam Bim. She didn/t take the witness
stand and merely presented the checks for payment. Tan Bim on the other hand
alleged that the checks were for mere receipts only. The trial court dismissed the
complaint as &han Wan failed to show that she was a holder in due course.

Gight of the checks were crossed checks specially to &hinabank and should hae
been presented for payment by &hinabank and not by &han Wan. Enasmuch
as &han Wan didn/t present them for payment himself, there was no proper
presentment, and the liability didn/t attach to the drawer.

The facts show that the checks were indeed deposited with &hinabank and were by
the latter presented for collection to the drawee bank. 1ut as the account had no
su?cient funds, they were unpaid and returned, some of them stamped $account
closed'. Dow it reached the hands of &han Wan, she didn/t indicate. ;ost
probably, as the trial court surmised, she acquired them after they hae been

&han Wan is then not a holder in due course. :onetheless, it doesn/t mean that she
couldn/t collect on the checks. De can still collect against Tan Bim if the latter has
no alid eHcuse for refusing payment. The only disadantage for &han Bim
is that she is susceptible to defenses of Tan Bim but what are the defenses of
latterO This has to be further deliberated by the trial court.
E"$a$*) P-"%#,*) vs CA
En )3==, &oncepcion and Tamayo &onstruction Gnterprise had a contract with
the 1ureau of 2ublic Works. The -rm needed fundto push through with
the contract so it coninced spouses Gulalio and Glisa 2rudencio to mortgage their
parcel of land with the 2hilippine :ational 1ank for 2)5,555.55. 2rudencio, without
consideration, agreed and so he mortgaged the land and eHecuted apromissory
note for 2)5k in faor of 2:1. 2rudencio also authori!ed 2:1 to issue the 2)5k check
to the construction -rm.
En Jecember )3==, the -rm eHecuted a Jeed of %ssignment in faor of 2:1 which
proides that any payment from the 1ureau of 2ublic Works in consideration of work
done 8by the -rm9 so far shall be paid directly to 2:1 U this will also ensure that
the loangets to be paid of before maturity.
:otwithstanding the proision in the Jeed of %ssignment, the 1ureau of 2ublic Works
asked 2:1 if it can make the payments instead to the -rm because the -rm needs
the money to buy construction materials to complete the pro.ect. :otwithstanding
the proision of the Jeed of %ssignment, 2:1 agreed. %nd so the loan matured
without 2:1 actually receiing any payment from the 1ureau of 2ublic Works.
2rudencio, upon learning that no payment was made on the loan, petitioned to
hae the mortgagecanceled 8to sae his property from foreclosure9. The trial court
ruled against 2rudencio" the &ourt of %ppeals a?rmed the trial court.
ISSUE: Whether or not 2rudencio should pay the promissory note to 2:1.
HELD: :o. 2:1 is not a holder in due course.
2rudencio is an accommodation party for he signed the promissory note as maker
but he did not receie alue or consideration therefor. De eHpected the -rm
8accommodated party9 to pay the loan U this obligation was shifted to the 1ureau of
2ublic Works by way of the Jeed of %ssignment9. %s a general rule, an
accommodation party is liable on the instrument to a holder for alue0in due course,
notwithstanding such holder at the time of taking the instrument knew him to be
only an accommodation party. The eHception is that if the holder, in this case 2:1, is
not a holder in due course. The court -nds that 2:1 is not a holder in
duecourse because it has not acted in good faith 8pursuant to Section =* of the
:egotiable Enstruments Faw9 when it waied the supposed payments from the
1ureau of 2ublic Works contrary to the Jeed of %ssignment. Dad the Jeed been
followed, the loanwould hae been paid of at maturity.
44 PHIL 655

6ernande! Dermanos placed an order with the products company for the
manufacturing of a chain gien a set of speci-cations. The chain was duly
prepared and deliered. % draft was drawn by the company and was accepted
by 6ernande! Dermanos. Thereafter, the draft was negotiated with 6ossum who
demanded payment on the instrument but was refused by 6ernande! on
alleged failure of the chain deliered to satisfy the speci-cations gien.

Et deoled around 6ernande! Dermanos to allege and proe its claim that which was
deliered and receied didn/t comply with the speci-cations and didn/t answer the
purposes for which it was intended. Et alleged that the chain didnt meet the
speci-cations gien by the contract. :onetheless, there was failure to identify
the soTcalled defects of the chain. Et was upon 6ernande! Dermanos to show that
indeed the chain was defectie. 1ut as the trial court found out, there was a failure
of proof.
PNB vs CA1 O!. 231 /368
En :oember )3I), ASES adised 2:1 that a check bearing check number I<=3)=T 1
has been lost. @n Ranuary )=, )3I*, %ugusto Fim, holding ASES &heck :o. I<=3)=T 1
which was in the amount of 2=K,<)=.55, went to 2&E1 to hae the check deposited in
his 2&E1 account. %pparently, the check was indorsed to him ;anuel Ao, which was
preiously indorsed by ;ariano 2ulido to Ao. 2ulido was the named payee in the
2&E1 did not encash the check in faor of %ugusto Fim but rather it deposited the
amount to Fims 2&E1 account. Fim cannot withdraw the amount yet as it needs
clearing. 2&E1 stamped the check with $%ll prior indorsements and0or Fack of
Gndorsement Auaranteed, 2hilippine &ommercial and Endustrial 1ank'. 2&E1 then
sent the check to 2:1 for clearing. 2:1 did not act on the check but it paid 2&E1 the
amount of the check. 2&E1 considered this as a manifestation that the check was
good hence it cleared Fim to withdraw the amount.
@n Ranuary ,), )3I*, ASES demanded 2:1 to restore the amount and 2:1 complied.
2:1 then demanded 2&E1 to refund the amount of the check. 2&E1 refused. The
lower court ruled in faor of 2&E1. This was a?rmed by the &ourt of %ppeals. 2:1
argued that the indorsements are forged hence it has no liability.
ISSUE: Whether or not 2&E1 should refund the amount to 2:1.
HELD: :o. The question whether or not the indorsements hae been falsi-ed is
immaterial to 2:1s liability as a drawee or to its right to recoer from the 2&E1 for,
as against the drawee, the indorsement of an intermediate bank does not guarantee
the signature of the drawer, since the forgery of the indorsement is not the cause of
the loss.
With respect to the warranty on the back of the check, it should be noted that the
2&E1 thereby guaranteed $all priorindorsements,' not the authenticity of
the signatures of the o?cers of the ASES who signed on its behalf, because the ASES
is notan indorser of the check, but its drawer. 6urther, 2:1 has been negligent. Et has
been noti-ed months before about the lost check.
C-*s)$)()':)s# v. CA1 /383
MThe YiceTpresident of ;oer Gnterprises, Enc. issued a check drawn against
Traders Royal 1ank, payable to petitioner Grnestina &risologoTRose, for the
accommodation of his client.
M2etitionerTpayee, was charged with the knowledge that the check was issued at
the instance and for the personal account of the 2resident who merely preailed
upon respondent iceTpresident to act as coTsignatory in accordance with the
arrangement of the corporation with its depository bank.
MWhile it was the corporation/s check which was issued to petitioner for the
amount inoled, petitoiner actually had no transaction directly with said
Whether priate respondent, one of the signatories of the check issued under the
account of ;oer Gnterprises, Enc., is an accommodation party under :EF and a
debtor of petitioner to the eHtent of the amount of said check.
>es. To be considered an accommodation party, a person must 8)9 be a party to the
instrument, signing as maker, drawer, acceptor, or indorser, 8*9 not receie alue
therefor, and 8,9 sign for the purpose of lending his name for the credit of some
other person.
Et is not a alid defense that the accommodation party did not receie any aluable
consideration when he eHecuted the instrument. De is liable to a holder for alue as
if the contract was not for accommodation, in whateer capacity such
accommodation party signed the instrument, whether primarily or secondarily. Thus,
it has been held that in lending his name to the accommodated party, the
accommodation party is in efect a surety for the latter.
The foregoing notwithstanding, the liability of an accommodation party to a holder
for alue, although such holder does not include nor apply to corporations which are
accommodation parties. This is because the issue or indorsement of negotiable
paper by a corporation without consideration and for the accommodation of another
is ultra ires. @ne who has taken the instrument with knowledge of the
accommodation nature thereof cannot recoer against a corporation where it is only
an accommodation party.
1y way of eHception, an o?cer or agent of a corporation shall hae the power to
eHecute or indorse a negotiable paper in the name of the corporation for the
accommodation of a third person only if speci-cally authori!ed to do so. &orollarily,
corporate o?cers, such as the president and iceTpresident, hae no power to
eHecute for mere accommodation a negotiable instrument of the corporation for
their indiidual debts or transactions arising from or in relation to matters in which
the corporation has no legitimate concern.
Since such accommodation paper cannot thus be enforced against the corporation,
especially since it is not inoled in any aspect of the corporate business or
operations, the signatories thereof 8president and iceTpresident9 shall be personally
liable therefor, as well as the consequences arising from their acts in connection
M2laintif bank instituted an action against defendant %ruego for recoery of
money it had paid on arious drafts drawn against it and signed by defendant as
follows( PR@SG %R#GA@ 8%cceptor9 8SAJ9 R@SG %R#GA@P.
De -led his answer interposing as defenses that he signed the drafts in a
representatie capacity, that he signed only as accommodation party, and that the
drafts were really no bills of eHchange.
MJeclared in default for haing -led his answer one day late, defendant moed to
set the order aside alleging that it could not hae been possible for him to -le his
answer, and that he had good and substantial defenses.
MThe court denied the motion and rendered .udgment by default.
MJefendant appealed from both the orders denying his motions to set aside the
default order and the .udgment by default, which appeals were consolidated and
certi-ed to the Supreme &ourt by the &ourt of %ppeals.
Whether the defendant has a good and substantial defense.
:o, the defendant/s appeal cannot prosper based on the defenses raised.
Representatie capacity
Section *5 of the :EF proides that PWhere the instrument contains or a person adds
to his signature words indicating that he signs for or on behalf of a principal or in a
representatie capacity, he is not liable on the instrument if he was duly authori!ed"
but the mere addition of words describing him as an agent or as -lling a
representatie character, without disclosing his principal, does not eHempt him from
personal liability.P
%n inspection of the drafts accepted by the defendant shows that nowhere has he
disclosed that he was signing as representatie of the 2hilippine Gducation
6oundation &ompany. De merely signed as follows( PR@SG %R#GA@ 8%cceptor9 8SAJ9
R@SG %R#GA@.P 6or failure to disclose his principal, %ruego is personally liable for the
drafts he accepted.
%ccommodation 2arty
%n accommodation party is one who has signed the instrument as maker, drawer,
acceptor, indorser, without receiing alue therefor and for the purpose of lending
his name to some other person. Such person is liable on the instrument to a holder
for alue, notwithstanding such holder, at the time of the taking of the instrument
knew him to be only an accommodation party.
En the instant case, the defendant signed as a drawee0acceptor. #nder the :EF, a
drawee is primarily liable. Thus, if the defendant who is a lawyer, really intended to
be secondarily liable only, he should not hae signed as an acceptor0drawee. En
doing so, he became primarily and personally liable for the drafts.
:ot 1ills of GHchange
The defendant also contends that the drafts signed by him were not really bills of
eHchange but mere pieces of eidence of indebtedness because payments were
made before acceptance. This is also without merit.
#nder the :EF, a bill of eHchange is an unconditional order in writing addressed by
one person to another, signed by the person giing it, requiring the person to whom
it is addressed to pay on demand or at a -Hed or determinable future time a sum
certain in money to order or to bearer. %s long as a commercial paper conforms with
the de-nition of a bill of eHchange, that paper is considered a bill of eHchange. The
nature of acceptance is important only in the determination of the kind of liabilities
of the parties inoled, but not in the determination of whether a commercial paper
is a bill of eHchange or not.
@rder denying petition for relief was a?rmed. M=SS vs CA1 :"$; /41 /386
M;WSS issued *, ]personali!ed checks against its account with 2:1 in faor of
diferent payees.
MJuring the same month, a second batch of *, checks were issued bearing the
same numbers as those of the )st batch.
M1oth batches were paid and cleared by 2:1 and debited against the account of
MThe second batchs payees deposited the said checks to their respectie
accounts with 2&E1 and 21&.
M%t the time of their presentation to 2:1 these checks bear the standard
indorsement which reads /all prior indorsement and0or lack of endorsement
MEnestigation howeer, conducted by the :1E showed that all the payees for the
*nd batch were all -ctitious persons.
M#pon learning this, ;WSS wrote 2:1 to restore the corresponding total amount
of the *nd batch payments on the *, checks claimed by ;WSS to be forged and0or
spurious checks.
M#pon refusal of 2:1 to credit back, ;WSS -led the instant complaint.
Whether the drawee bank 2:1 is liable to ;WSS.
:o. 6irst of all, there is no eHpress and categorical -nding that the *, questioned
checks were indeed signed by persons other than the authori!ed ;WSS signatories.
6orgery cannot be presumed. Et must be established by clear, positie, and
conincing eidence. This was not done in the present case.
6urther, the petitioner was using its own personali!ed checks, instead of the o?cial
2:1 &ommercial blank checks. &onsidering the absence of su?cient security in the
printing of the checks coupled with the ery close similarities between the genuine
signatures and the alleged forgeries, the *, checks in question could hae been
presented to the petitioner/s signatories without their knowing that they were bogus
checks. 2etitioner failed to proide the needed security measures. %nother factor
which facilitated the fraudulent encashment of the *, checks in question was the
failure of the petitioner to reconcile the bank statements with its own records.
Thus, een if the *, checks in question are considered forgeries, considering the
petitioner/s gross negligence, it is barred from setting up the defense of forgery
under Section *, of the :EF.
Jrawee 1ank 2:1 cannot be faulted for not haing detected the fraudulent
encashment of the checks because the printing of the petitioner/s personali!ed
checks was not done under the superision and control of the 1ank. There is no
eidence on record indicating that because of this priate printing, the petitioner
furnished the respondent 1ank with samples of checks, pens, and inks or took other
precautionary measures with the 2:1 to safeguard its interests. #nder the
circumstances, therefore, the petitioner was in a better position to detect and
preent the fraudulent encashment of its checks.
22 SCRA 5/2

Ting issued a 21&om check payable to cash or bearer. This was indorsed by %ng at
the back and it was receied by plaintif. #pon encashment of the check, the
same was dishonored. 2laintif moed that the two make good the alue of
the check but despite demands, he was unheeded, prompting him to -le a
complaint. The trial court decided in his faor.

Gen on the assumption that the appellant was an accommodation indorser, as
he professes to be, he is neertheless by the clear mandate of section *3, liable on
the instrument to a holder for alue, notwithstanding that such holder at the time of
taking the instrument knew him to be an accommodation party. %nd assuming
that he was an accommodation party, he may obtain security from the maker
to protect himself against the danger of insolency of the latter but this doesn/t
afect his liability to the appellee, as the said remedy is a matter of recourse
between him and the maker.
1anco Je @ro drew siH crossed ;anager/s check payable to certain member
establishments of Yisa &ard.
The &hecks were deposited with Gquitable 1ank to the credit of its depositor, a
certain %ida Trencio.
%fter stamping at the back of the &hecks the usual endorsements( /%ll prior and0or
lack of endorsement guaranteed/ the defendant sent the checks for clearing through
the 2hilippine &learing Douse &orporation 82&D&9.
1anco Je @ro paid the &hecks and its clearing account was debited for the alue of
the &hecks and Gquitable 1anks clearing account was credited for the same
Thereafter, 1anco Je @ro discoered that the endorsements appearing at the back
of the &hecks and purporting to be that of the payees were forged and0or
unauthori!ed or otherwise belong to persons other than the payees.
1anco Je @ro presented the &hecks directly to Gquitable 1ank for the purpose of
claiming reimbursement from the latter.
Doweer, defendant refused to accept such direct presentation and to reimburse
1anco Je @ro for the alue of the &hecks
Dence, this case.
Whether 1anco Je @ro could collect reimbursement from Gquitable 1ank.
>es. The petitioner haing stamped its guarantee of Pall prior endorsements and0or
lack of endorsementsP is now estopped from claiming that the checks under
consideration are not negotiable instruments. Et led the said respondent to beliee
that it was acting as endorser of the checks and on the strength of this guarantee
said respondent cleared the checks in question and credited the account of the
petitioner. 2etitioner is now barred from taking an opposite posture by claiming that
the disputed checks are not negotiable instrument.
% commercial bank cannot escape the liability of an endorser of a check and which
may turn out to be a forged endorsement. Wheneer any bank treats the signature
at the back of the checks as endorsements and thus logically guarantees the same
as such there can be no doubt said bank has considered the checks as negotiable.
The collecting bank or last endorser generally sufers 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
While the drawer generally owes no duty of diligence to the collecting bank, the law
imposes a duty of diligence on the collecting bank to scrutini!e checks deposited
with it for the purpose of determining their genuineness and regularity. The
collecting bank being primarily engaged in banking holds itself out to the public as
the eHpert and the law holds it to a high standard of conduct.
=#s!.),! Ba,8 v. O,(1 2002
@ng was supposed to be the payee of the checks issued by Esland Securities. @ng
has a current account with petitioner bank. De opted to sell his shares of stock
through Esland Securities. The company in turn issued checks in faor of @ng but
unfortunately, the latter wasn/t able to receie any. Dis signatures were forged by
Tamlinco and the checks were deposited in his own account with petitioner. @ng then
sought to collect the money from the family of Tamlinco -rst before -ling a complaint
with the &entral 1ank. %s his eforts were futile to recoer his money, he -led an
action against the petitioner. The trial and appellate court decided in faor of @ng.
Since the signature of the payee was forged, such signature should be deemed
inoperatie and inefectual. 2etitioner, as the collecting bank, grossly erred in
making payment by irtue of said forged signature. The payee, herein respondent,
should therefore be allowed to collect from the collecting bank. Et should be liable for
the loss because it is its legal duty to ascertain that the payees endorsement was
genuine before cashing the check. %s a general rule, a bank or corporation who has
obtained possession of a check with an unauthori!ed or forged indorsement of the
payees signature and who collects the amount of the check other from the drawee,
is liable for the proceeds thereof to the payee or the other owner, notwithstanding
that the amount has been paid to the person from whom the check was obtained.
DOCTRINE OF DESIRABLE SHORT CUT+plaintif uses one action to reach, by
desirable short cut, the person who ought to be ultimately liable as among the
innocent persons inoled in the transaction. En other words, the payee ought to be
allowed to recoer directly from the collecting bank, regardless of whether the check
was deliered to the payee or not. @n the issue of laches, @ng didn/t sit on his rights.
De immediately sought the interention of Tamlincos family to collect the sum of
money, and later the &entral 1ank. @nly after eHhausting all the measures to settle
the issue amicably did he -le the action.
ILUSORIO BANK vs RPN1 O!. /01 2002
2etitioner entrusted to his secretary his credit cards and his checkbook with blank
Dis secretary, thru falsi-cation, encashed and deposited to her personal account
seenteen checks drawn against the account of the petitioner at respondent bank.
2etitioner then requested the respondent bank to credit back and restore to his
account the alue of the checks which were wrongfully encashed, but respondent
bank refused.
Dence, petitioner -led the instant case.
;anila 1ank sought the eHpertise of the :1E in determining the genuineness of the
signatures appearing on the checks.
Doweer, petitioner failed to submit his specimen signatures for purposes of
comparison with those on the questioned checks.
&onsequently, the trial court dismissed the case.
@n appeal, the &ourt of %ppeals held that petitioner/s own negligence was the
proHimate cause of his loss.
Dence, this petition.
Whether that ;anila 1ank is liable for damages for its negligence in failing to detect
the discrepant checks.
:o. To be entitled to damages, petitioner has the burden of proing negligence on
the part of the bank for failure to detect the discrepancy in the signatures on the
checks. Et is incumbent upon petitioner to establish the fact of forgery, i.e., by
submitting his specimen signatures and comparing them with those on the
questioned checks. &uriously though, petitioner failed to submit additional specimen
signatures as requested by the :1E from which to draw a conclusie -nding
regarding forgery.
6urther, the bank/s employees in the present case did not hae a hint as to the
secretaryus modus operandi because she was a regular customer of the bank,
haing been designated by petitioner himself to transact in his behalf.
Et was petitioner, not the bank, who was negligent. En the present case, it appears
that petitioner accorded his secretary unusual degree of trust and unrestricted
access to his credit cards, passbooks, check books, bank statements, including
custody and possession of cancelled checks and reconciliation of accounts.
2etitioner/s failure to eHamine his bank statements appears as the proHimate cause
of his own damage.
True, it is a rule that when a signature is forged or made without the authority of the
person whose signature it purports to be, the check is wholly inoperatie. Doweer,
the rule does proide for an eHception, namely( Punless the party against whom it is
sought to enforce such right is precluded from setting up the forgery or want of
authority.P En the instant case, it is the eHception that applies. 2etitioner is precluded
from setting up the forgery, assuming there is forgery, due to his own negligence in
entrusting to his secretary his credit cards and checkbook including the eri-cation
of his statements of account.
MONTINOLA vs PNB1 F#+. 261 /35/
Ramos, as a disbursing o?cer of an army diision of the #S%6G, made cash
adancements w0 the 2roincial Treasurer of Fanao. En eHchange, the 2rol Treasurer
of Fanao gae him a 2=55,555 check. Thereafter, Ramos presented the check to
Faya for encashment. Faya in his capacity as 2roincial Treasurer of ;isamis @riental
as drawer, issued a check to Ramos in the sum of 2)55555, on the 2hilippines
:ational 1ank as drawee" the 2<55555 alue of the check was paid in military notes.
Ramos was unable to encash the said check for he was captured by the Rapanese.
1ut after his release, he sold 2,5555 of the check to ;ontinola for 235555 Rapanese
;ilitary notes, of which only 2<=555 was paid by the latter. The writing made by
Ramos at the back of the check was to the efect that he was assigning only 2,5555
of the alue of the document with an instruction to the bank to pay 2,5555 to
;ontinola and to deposit the balance to Ramos/s credit. This writing was, howeer,
mysteriously obliterated and in its place, a supposed indorsement appearing on the
back of the check was made for the whole amount of the check. %t the time of the
transfer of this check to ;ontinola, the check was long oerdue by about *T)0*
;ontinola instituted an action against the 2:1 and the 2roincial Treasurer of
;isamis @riental to collect the sum of 2)55,555, the amount of the aforesaid check.
There now appears on the face of said check the words in parenthesis P%gent, 2hil.
:ational 1ankP under the signature of Faya purportedly showing that Faya issued the
check as agent of the 2hilippine :ational 1ank.
Whether the words, /%gent, 2hil, :ational 1ank/ were added after Faya had issued
the check and thus constitutes material alteration which discharges the instrument.
>es. The words P%gent, 2hil. :ational 1ankP now appearing on the face of the check
were added or placed in the instrument after it was issued by the 2roincial
Treasurer Faya to Ramos. The check was issued by only as 2roincial Treasurer and
as an o?cial of the Aoernment, which was under obligation to proide the #S%6G
with adance funds, and not as agent of the bank, which had no such obligation. The
addition of those words was made after the check had been transferred by Ramos to
;ontinola. The insertion of the words P%gent, 2hil. :ational 1ank,P which conerts
the bank from a mere drawee to a drawer and therefore changes its liability,
constitutes a material alteration of the instrument without the consent of the parties
liable thereon, and so discharges the instrument
2laintif drew its check on DS1& with whom it had an account, payable to the order
of ;elicor.
;aasim fraudulently obtained possession of the check, forged ;elicor/s signature, as
an endorser, and then personally endorsed and presented it to 2:1 where the
amount of the check was placed to his credit.
%fter haing paid the check, 2:1 endorsed the check to DS1&, which paid it, and
charged the amount of the check to the account of the plaintif.
DS1& rendered a bank statement to the plaintif showing that the amount of the
check was charged to its account, and no ob.ection was then made to the statement.
%bout four months after the check was charged to the account of the plaintif, it
discoered that ;elicor, to whom the check was made payable, had neer receied
it, and that his signature, as an endorser, was forged by ;aasim.
2laintif promptly made a demand upon DS1& that it should be gien credit for the
amount of the forged check.
The bank refused to do, and thus the plaintif commenced this action to recoer the
amount paid on the forged check.
Whether DS1& is responsible for the refund to the drawer of the amount of the check
drawn and payable to order, when its alue was collected by a third person by
means of forgery of the signature of the payee.
>es. 2laintif authori!ed and directed DS1& to pay ;elicor, or his order and not to any
other person. :either is the plaintif estopped or bound by the bank statement,
which was made to it by the DS1&. This is not a case where the plaintif/s own
signature was forged to one of its checks. En such a case, the plaintif would hae
known of the forgery, and it would hae been its duty to hae promptly noti-ed the
bank of any forged signature, and any failure on its part would hae released the
bank from any liability. 2laintif had a right to assume that ;elicor had personally
endorsed the check, and that, otherwise, the bank would not hae paid it.
DS1& is liable to plaintif and 2:1 is in turn liable to DS1& as it had no license or
authority to pay the money to ;aasim or anyone else upon a forged signature. Et
was its legal duty to know that ;elicor/s endorsement was genuine before cashing
the check. 2:1s remedy is against ;aasim to whom it paid the money.
Pa"$*,) 0"$$as v. PNB1 /325
#nited States Yeterans 1ureau issued a warrant payable to the order of 6rancisco
Sabectoria 1acos.
2aulino Aullas and 2edro Fope! signed as indorsers of this check.
Thereupon it was cashed by the 2hilippine :ational 1ank.
Subsequently the treasury warrant was dishonored.
The bank sent notices by mail to ;r. Aullas which could not be deliered to him at
that time because he was in ;anila.
The bank then proceeded to apply the outstanding balances of ;r. Aullas current
accounts with it to the part payment of the sub.ect check.
Whether 2:1 properly set of the account of Aullas with the payment of the indorsed
:o. %lthough 2:1 had with respect to the deposit of Aullas a right of set of, its
remedy was not enforced properly.
:otice of dishonor is necessary in order to charge an indorser and that the right of
action against him does not accrue until the notice is gien. 2rior to the mailing of
notice of dishonor, and without waiting for any action by Aullas, the bank made use
of the money standing in his account to make good for the treasury warrant. The
action of the bank was pre.udicial to Aullas. %s such Aullas should be awarded
nominal damages because of the premature action of the bank.
Fa!s: Aeorge and Fibrada ;oran maintained , .oint accounts with &ityTrust 1anking
&orporation. The ;orans issued checks in faor of 2etrophil &orporation, which were
dishonored for insu?ciency of funds. ;oran deposited the amount that would coer
the checks the day after the checks clearing. 2etrophil did not delier the ;orans
fuel orders for their WackTWack 2etron Aasoline station, prompting the latter to
temporarily stop business operations. The ;orans sued the bank for damages.
Whether a bank is liable for its refusal to pay a check on account of insu?cient
funds, notwithstanding the fact the fact that a deposit was made later in the day.
% check is a bill of eHchange drawn on a bank payable on demand. Where the bank
possesses funds of a depositor, it is bound to honor his checks to the eHtent of the
amount of the deposits. 6ailure to do so, when deposit is su?cient, entitles the
drawer to substantial damages without proof of actual damages. Derein, howeer,
the balance of the account maintained in the bank was not enough to coer either of
the two checks when they were dishonored. % check, as distinguished from an
ordinary bill of eHchange, is supposed to be drawn against a preious deposit of
funds. %s such, a drawer must remember his responsibilities eery time he issues a
check. De must personally keep track of his aailable balance in the bank and not
rely on the bank to notify him of the necessity to fund the checks he preiously
issued. % bank is under no obligation to make part payment on a check, up to only
the amount of the drawers funds, where the check is drawn for an amount larger
than what the drawer has on deposit. % check is intended not only to transfer a right
to the amount named in it, but to sere the further purpose of afording eidence for
the bank of the payment of such amount when the check is taken up. &learly, a bank
is not liable for its refusal to pay a check on account of insu?cient funds,
notwithstanding the fact that a deposit may be made later in the day. 1efore a bank
depositor may maintain a suit to recoer a speci-c amount from his bank, he must
-rst show that he had on deposit su?cient funds to meet his demand.
CLARK V. SELINER' L*a+*$*!; O9 A, A)..)%a!*), Pa-!;
42 PHIL 284
Sellner with two other persons, signed a promissory note solidarily binding
themseles to pay to the order of R.: &lark. The note matured but the
amount wasn/t paid. The defendant alleges that he didn/t receie any
amount of the debt" that the instrument wasn/t presented to him for
payment and being an accommodation party, he is not liable unless the
note is negotiated, which wasn/t done.
@n the -rst issue, the liability of Sellner as one of the signers of the note, is not
dependent on whether he has or has not, receied any part of the debt. The
defendant is really and eHpressly one of the .oint and seeral debtors of
the note and as such he is liable under the proisions of Section I5 of the
:egotiable Enstruments Faw.
%s to the presentment for payment, such action is not necessary in order to
charge the person primarily liable, as is the defendant Sellner.
%s to whether or not Sellner is an accommodation party, it should be taken into
account that by putting his signature to the note, he lent his name, not to the
creditor, but to those who signed with him placing him in the same position and
with the same liability as the said signers. Et should be noted that the
phrase'without receiing alue therefore' as used in section *3 means
$without receiing alue by irtue of the instrument' and not, as it apparently
is supposed to mean, $without receiing payment for lending his name.' Et is
immaterial as far as the creditor is concerned, whether one of the signers has
or has not receied anything in payment for the use of his name. En this case,
the legal situation of Sellner is that of a .oint surety who upon the maturity
of the note, pay the debt, demand the collateral
security and dispose of it to his bene-t. %s to the plaintif, he is a holder for
A.R :o. FT44<<, Jecember )I, )3)< 8*4 2DEF I<59
The action was brought by 6ernando ;aulini, plaintif, upon the contract of
indorsement alleged to hae been made in his faor by %ntonio Serrano,
defendant, upon the following promissory note(
,,555. Jue =th of September, )3)*.We .ointly and seerally agree to pay to the
order of Jon %ntonio A. Serrano on or before the =th day of September, )3)*,
the sum of three thousand pesos 82,,5559 for alue
receied for commercial operations. :otice and protest renounced.
Ef the sum herein mentioned is not completely paid on the =thday of September
, )3)*, this instrument will draw interest at the rate of ))^* per cent per
month from the date when due until
the date of its complete payment. The makers hereof agree to pay the
additional sum of 2=55 as attorney/s fees in case of failure to pay the note.
;anila, Rune =, )3)*.8Sgd.9 6or 2adern, ;oreno 7 &o., by 6. ;oreno, member of
the -rm. 6or Rose 2adern, by 6. ;oreno. %ngel Aimine!. The note was indorsed
on the back as follows( 2ay note to the order of Jon 6ernando ;aulini, alue
receied. ;anila, Rune =, )3)*. 8Sgd.9 %.A. Serrano.
Whether or not %.A. Serrano, the defendant, was an accommodation party as
described in the :egotiable Enstruments Faw.

The &ourt held that the accommodation to which reference is made in Section
*3 is not one to the person who takes the note but one to the maker or indorser
of the note. Et is true, that in the case at bar, it was an accommodation to the
plaintif, in the popular sense, to hae the
defendant indorse the note" but it wasn/t the accommodation described in the
law but rather a mere faor to him and one which
in no way bound Serrano. En cases of accommodation indorsement, the indorser
makes the indorsement for the accommodation of the maker. Such an
indorsement is generally for the purpose of better securing the payment of
thenote_that is, he lends his name to the maker and not the holder. Thus, an
accommodation note is one to which the accommodation party has put his
name, without consideration, for the purpose of accommodating some other
party who is to use it and is eHpected to pay it. The credit gien to the
accommodation party is su?cient consideration to bind the accommodation
maker. Where an indorsement is made as a faor to the indorsee, who requests
it, not the better to secure payment, but to reliee himself from a distasteful
situation, and where the only consideration for such indorsement passes from
the indorser to the indorsee, the situation does not present one creating an
accommodation indorsement, nor one where there is a consideration su?cient
to sustain an action on the indorsement.
48 PHIL 205

;a!a and ;acenas eHecuted a total of -e promissory notes. These were not
paid at maturity. %nd to recoer the amounts stated on the face of the
promissory notes, 2:1 initiated an action against the two. The special
defense posed by the two is that the promissory notes were deliered
them in blank by a certain Gnchaus and were made to sign the notes
so that the latter could secure a loan from the bank. They also alleged that
they neer negotiated the notes with the bank nor hae they receied any
alue thereof. They also prayed that Gnchaus be impleaded in the
complaint but such was denied. The trial court then held in faor of the

The defendants attested to the genuineness of the instruments sued on.
:either did they point out any mistake in regard to the amount and
interest that the lower court sentenced them to pay. Aien such, the
defendants are liable. They appear as the makers of the promissory notes
and as such, they must keep their engagement and pay as promised.
%nd assuming that they are accommodation parties, the defendants haing
signed the instruments without receiing alue thereof, for the purpose of
lending their names to some other person, are still liable for the promissory
notes. The law now is such that an accommodation party cannot claim no
bene-t as such, but he is liable according to the face of his
undertaking, the same as he himself -nancially interest in the transaction. Et is
also no defense to say that they didn/t receie the alue of the notes. To
liability howeer to an accommodation maker, it is not necessary that any
consideration should moe to him. The accommodation which supports the
promise of the accommodation maker is that parted with by the person
taking the note and receied by the person accommodated.
TO=N SAVIN0S AND LOAN BANK V. CA' A)..)%a!*), Pa-!;
222 SCRA 453
Spouses Dipolito applied for and was granted a loan by the bank, which
was secured by a promissory note. 6or failure to pay their monthly
payments, they were declared in default.
The spouses denied haing any liability. They stated that the real partyTinT
interest is the sister of the husband, 2ilarita Reyes. The spouses, not
haing receied part of the loan, were mere guarantors of Reyes. %s such, they
protested against being dragged into the litigation.
The trial court held that they were liable as accommodation parties to the
promissory note. This was reersed by the &ourt of %ppeals.
%n accommodation party is one who has signed the instrument as maker,
drawer, indorser, without receiing alue therefore and for the purpose of
lending his name to some other person. Such person is liable on the
instrument to a holder for alue, notwithstanding such holder, at the time of
the taking of the instrument knew him to be an accommodation party. En
lending his name to the accommodated party, the accommodation party is in
efect a surety for the latter. De lends his name to enable the
accommodated party to obtain credit or to raise money. De receies no
part of the consideration for the instrument but assumes liability to the
other parties thereto because he wants to accommodate another.
En the case at bar, it is indisputable that the spouses signed the promissory
note to enable Reyes to secure a loan from the bank. She was the actual
bene-ciary of the loan and the spouses accommodated her by signing the
/34 SCRA /63

Aome! opened an account with Aolden Saings bank and deposited ,4
treasury warrants. %ll these warrants were indorsed by the cashier of Aolden
Saings, and deposited it to the saings account in a ;etrobank branch.
They were sent later on for clearing by the branch o?ce to the principal
o?ce of ;etrobank, which forwarded them to the 1ureau of Treasury for
special clearing. @n persistent inquiries on whether the warrants hae been
cleared, the branch manager allowed withdrawal of the warrants, only to -nd out
later on that the treasury warrants hae been

The treasury warrants were not negotiable instruments. &learly, it is
indicated that it was nonTnegotiable and of equal signi-cance is the indication
that they are payable from a particular fund, 6und =5). This indication as
the source of payment to be made on the treasury warrant
makes the promise to pay conditional and the warrants themseles nonT

;etrobank then cannot contend that by indorsing the warrants in general, AS
assumed that they were genuine and in all respects what they purport it to be, in
accordance to Section II of the :EF. The simple reason is that the law isnt
applicable to the nonTnegotiable treasury warrants. The indorsement was
made for the purpose of merely depositing them with ;etrobank for
clearing. Et was in fact ;etrobank which stamped on the back of the warrants(
$%ll prior indorsements and0or lack of endorsements guaranteedZ'
Fa!s( Samsung &onstruction held an account with 6ar Gast 1ank. @ne day a check
worth 355,555, payable to cash, was presented by one Roberto Aon!aga in the
;akati 1ranch of 6ar Gast 1ank. The check was certi-ed to be true by Rose Sempio,
the assistant accountant of Samsung, who was also present during the time the
check was cashed. Fater howeer it was discoered that no such check was eer
approed by the Samsungs head accountant, the president of the company also
neer signed any such check.
Iss"#( Whether or not 6ar Gast 1ank is liable to reimburse Samsung for cashing out
the forged check, which was drawn from the account of Samsung
H#$%( 6ar Gast 1ank is liable for reimbursement. Sec. *, of the :egotiable
Enstrument Faw states that a forged signature makes the instrument $wholly
inoperatie'. Ef payment is made the drawee 86ar Gast9 cannot charge it to the
drawers account 8Samsung9. The fact that the forgery is cleer is immaterial. The
forged signature may so closely resemble the genuine as to defy detection by the
depositor himself. %nd yet, if the bank pays the check, it is paying out with its own
money and not of the depositors. This rule of liability can be stated brieQy in these
words( $% bank is bound to know its depositors signature.' The accusation of
negligence on the part of Samsung was not clearly proen. %bsence of proof to the
contrary, the presumption is that the ordinary course of business was followed.
P#)7$# v. N*!a9a, 0.R. N). 55354 O!)+#- 221 /332 Fa!s:
@n Ranuary *5, )34=, aid accused did then and there wilfully, unlawfully
and feloniously make or draw and issue to 6atima &orte! Sasaki 2hilippine Trust
&ompany &heck :o. ))K,4, in the amount of 2)<,,555.55
De knew that at the time of issue he did not hae su?cient funds in or
credit with the drawee bank.
The check was subsequently dishonored by the drawee bank for
insu?ciency of funds, and despite receipt of notice of such dishonor, said
accused failed to pay Sasaki the amount of said check or to make arrangement
for full payment of the same within -e banking days after receiing said notice.
2riate respondent, ;ariano Fim moed to quash the Enformation of the
ground that the facts charged did not constitute a felony as 1.2. ** was
unconstitutional and that the check he issued was a memorandum check which
was in the nature of a promissory note in thus, is ciil in nature.
@n ) September )34I, respondent .udge, ruling that 1.2. ** on which the
Enformation was based was unconstitutional, issued the questioned @rder
quashing the Enformation. Dence, this petition for reiew on certiorari -led by the
Solicitor Aeneral in behalf of the goernment.
W0: 1.2. ** is unconstitutional
W0: a memorandum check issued postdated in partial payment of a preT
eHisting obligation is within the coerage of 1.2. **.
The constitutionality of the 1ouncing &heck Faw has already been
sustained by the S& through .urisprudence in Fo!ano . ;artine!, and the seen
other cases decided .ointly with it.
% memorandum check is in the form of an ordinary check, with the word
PmemorandumP, PmemoP or PmemP written across its face, signifying that the
maker or drawer engages to pay the bona -de holder absolutely, without any
condition concerning its presentment.
Such a check is an eidence of debt against the drawer, and although may
not be intended to be presented has the same efect as an ordinary check and if
passed to the third person will be alid in his hands like any other check.
% memorandum check comes within the meaning of Sec. )4= of the
:egotiable Enstruments Faw which de-nes a check as Pa bill of eHchange drawn
on a bank payable on demand.P
% memorandum check must therefore fall within the ambit of 1.2. ** which
does not distinguish but merely proides that Pany person who makes or draws
and issues any check knowing at the time of issue that he does not hae
su?cient funds in or credit with the drawee bank which check is subsequently
dishonored shall be punished by imprisonmentP
% memorandum check, upon presentment, is generally accepted by the
bank. Dence it does not matter whether the check issued is in the nature of a
memorandum as eidence of indebtedness or whether it was issued is partial
ful-llment of a preTeHisting obligation, for what the law punishes is the issuance
itself of a bouncing check )= and not the purpose for which it was issuance.
The mere act of issuing a worthless check, whether as a deposit, as a
guarantee, or een as an eidence of a preTeHisting debt, is malum prohibitum.
6rederick %rthur Thomson drew = checks payable to &atalan in the total amount
of DBC,.* million. &atalan presented these checks to DS1&[1ank\. The checks were
dishonored for haing insu?cient funds. Thomson demanded that the checks be
made good because he, in fact, had su?cient funds.
&atalan knowing that Thomson had communicated with the 1ank, asked DS1&1ank
to clear the checks and pay her the said amount. DS1& did not heed her.
Thomson died but &atalan was not paid yet. The account was transferred to DS1&
[Trustee\. &atalan then requested Trustee to pay her. They still refused and een
asked her to submit back to them the original checks for eri-cation.
&atalan and her lawyer went to Dongkong on their own eHpense to personally submit
the checks. They still were not honored, leading &atalan to -le a suit against DS1& to
collect her DBC,.*;
Whether or not DS1& 1ank and Trustee are liable to pay damages to &atalanon the
ground of %buse of right under %rticle )3 of the &iil &ode
%rticle )3 of the &iil &ode speaks of the fundamental principle of law and human
conduct that a person Pmust, in the eHercise of his rights and in the performance of
his duties, act with .ustice, gie eeryone his due, and obsere honesty and good
faith.P Et sets the standards which may be obsered not only in the eHercise of ones
rights but also in the performance of ones duties When a right is eHercised in a
manner which does not conform with the norms enshrined in %rticle )3 and results in
damage to another, a legal wrong is thereby committed for which the
wrongdoer must be held responsible. 1ut a right, though by itself legal because
recogni!ed or granted by law as such, may neertheless become the source of some
illegality. % person should be protected only when he acts in the legitimate eHercise
of his right, that is, when he acts with prudence and in good faith" but not when he
acts with negligence or abuse. There is an abuse of right when it is eHercised for the
only purpose of pre.udicing or in.uring another. The eHercise of a right must be in
accordance with the purpose for which it was established, and must not be eHcessie
or unduly harsh" there must be no intention to in.ure another. Thus, in order to be
liable under the abuse of rights principle, three elements must concur, to wit( 8a9
that there is a legal right or duty" 8b9 which is eHercised in bad faith" and 8c9 for the
sole intent of pre.udicing or in.uring another. DS1%:B is being sued for unwarranted
failure to pay the checks notwithstanding the repeated assurance of the drawer
Thomson as to the authenticity of the check sand frequent directies to pay the
alue thereof to &atalan. Der allegations in the complaint that the gross inaction of
DS1%:B on Thomsons instructions, as well as its eident failure to inform &atalan
of the reason for its continued inaction and nonTpayment of the checks, smack
of insouciance on its part, are su?cient statements of clear abuse of right for which
it may be held liable to &atalan for any damages she incurred resulting therefore.
DS1%:Bs actions or lack thereof, preented &atalan from seeking further redress
with Thomson for the recoery of her claim while the latter was alie.
0.R. N). L'28/26 N)v#.+#- 281 /355
Fa!s )9 !6# Cas#:
@n Rune *=, )3I=, Gmiliano Simeon and %lberta Yicencio, husband and wife, brought
an action in the &ourt of 6irst Enstance of Ri!al to compel spouses Yita #y Fe e and
Denry Fee to resell to them a parcel of land situated in Sitio 2aruganTEba 1arrio San
Rose, %ntipolo, Ri!al. The land, a homestead with an area of about *.K,<* hectares,
is presently coered by Transfer &erti-cate of Title :o. =K*K3 issued by the Register
of Jeeds of Ri!al in the names of defendants Yita #y Fee and Denry Fee. Jefendants
-led in due time their answer with a?rmatie defenses. %fter trial, the court decided
in faor of Simeon and Yicencio. The counter claims of the defendants are dismissed.
Jefendants 8now petitioners9 -led a motion for new trial and later an urgent motion
for reconsideration, which were both denied by the trial court in its orders of ;arch
*,, )3I< and Rune *=, )3I<. The case is now before us on a petition for certiorari
-led by spouses Yita #y Fee and Denry Fee. @n appeal to the &ourt of %ppeals, the
decision of the &ourt of 6irst Enstance of Ri!al was a?rmed in toto. % timely motion
for reconsideration was -led by defendantsTappellants 8now petitioners9 to no aail.
2etitioners maintain that the &ourt of %ppeals erred in not making Psu?cient and
complete -ndings of fact on all issues properly raised as to fully consere petitioners/
right to appeal to this Supreme &ourt on questions of law before it.P ;ore
speci-cally, petitioners assail the failure of the &ourt of %ppeals to include in its
decision the complete teHt of the three letters sent by respondent 8now substituted
by suriing spouse9 Gmiliano Simeon to petitioner Yita #y Fee before the eHpiration
of the period within which redemption could be made petitioners intimating that
such omission has impaired their position on appeal as another question is raised by
them on the basis of the terminology of the three letters.
Iss"#s: Whether or not the period to reconey the property, sub.ect of this case,
under the proisions of &ommonwealth %ct :o. )<) has prescribed 8eHpired or
R"$*,(: >es it has prescribed 8eHpired or lapsed9. The rule that tender of payment of
the repurchase price is necessary to eHercise the right of redemption -nds support in
ciil law. %rticle )I)I of the &iil &ode of the 2hilippines, in the absence of an
applicable proision in &ommonwealth %ct :o. )<), furnishes the guide, t o wit( PThe
endor cannot aail himself of the right of repurchase without returning to the
endee the price of the sale...P. Et is clear that the mere sending of letters by endor
Simeon eHpressing his des ire to repurchase the property without an accompanying
tender of redemption price fell short of the requirements of law. Daing failed to
properly eHercise his right of redemption within the statutory -eTyear period, the
right is lost and the same can no longer be reied by the -ling of an action to
compel redemption after the lapse of the period. 2etitioner Yita #y Fee was .usti-ed
in ignoring the letters sent her by respondent Gmiliano Simeon because the mere
mention t herein of respondent/s intention to redeem the property, without making
tender o f payment, did not constitute a bona -de ofer of repurchase. The rule that
ten der of the repurchase price is dispensed with where the endee has refused to
permit the repurchase is premised on the ground that under such circumstance the
endee will also refuse the tender of payment. 6rom petitioner Fee/s silence, which
we hae shown aboe to be .usti-ed, no such deduction can be made. #nlike a Qat
refusal, her silence did not close the door to respondent Simeon/s subsequent tender
of payment, had he wished to do so, proided that the same was made within -eT
year period. >et he neglected to tender payment and, instead, merely - led an action
to compel reconeyance after the eHpiration of the period. The Supreme &ourt,
therefore, in the light of the aboe ruling reersed the decision of the &ourt of
BANK OF AMERICA1 NT ? SA1petitioners,s.
FACTS : 1ank of %merica receied an Erreocable Fetter of &redit issued by 1ank
of %yudhya for the %ccount of Aeneral &hemicals Ftd., Enc. for the sale of
plastic ropes and agricultural -les with 1ank of %merica as adising bank and EnterT
Resin Endustrial &orp. as bene-ciary. #pon receipt of the letter adice with letter of
credit by EnterT Resin told 1ank of %merica to con-rm said letter of credit, but
the bank did not con-rm such. 1ank of %merica eHplained that there was no need for
con-rmation. EnterTResin made a partial aailment of the Fetter of &redit after
presentment of the required documents to 1ank of %merica. %fter con-rmation of
all the documents 1% issued a check in faor of ER. 1% adice 1ank of %yudhya of ERs
aailment under the letter of credit and asked for the corresponding reimbursement.
ER presented documents for the second aailment under the same F& but 1%
stopped the processing of such after they receied a teleH from 1ank of %yudhya
declaring that the F& fraudulent. 1% sued ER for the recoery of the -rst F& payment.
ISSUE : Whether or not 1ank of %merica may recoer what it has paid under the
letter of credit to EnterTResinO
HELD : En -ne, we hold that +6irst, gien the factual -ndings of the courts below,
we conclude that petitioner 1ank of %merica has acted merely as a notifying
bank and did not assume the responsibility of a con-rming bank" and Second,
petitioner bank, as a negotiating bank, is #,!*!$#% !) -#)v#- ), I,!#-'
R#s*,@s7a-!*a$ ava*$.#,! as +#,#A*a-; )9 !6# $#!!#- )9 -#%*! which has been
disowned by the alleged issuer bank. % letter of credit is a -nancial deice deeloped
by merchants as a conenient and relatiely safe mode of dealing with sales of
goods to satisfy the seemingly irreconcilable interests of a seller, who refuses to part
with his goods before he is paid, and a buyer, who wants to hae control of the
goods before paying.

To break the impasse, the buyer may be required to contract a bank to issue a letter
of credit in faor of the seller so that, by irtue of the latter of credit, the issuing
bank can authori!e the seller to draw drafts and engage to pay them upon their
presentment simultaneously with the tender of documents required by the letter
of credit.

The buyer and the seller agree on what documents are to be presented for payment,
but ordinarily they are documents of title eidencing or attesting to the shipment
of the goods to the buyer.
The bare statement of the bank employees, aforementioned, in responding to the
inquiry made by %tty. Tanay, EnterTResin/s representatie, on the authenticity of the
letter of credit certainly did not hae the efect of noating the letter of credit and
1ank of %mericas letter of adise, nor can it .ustify the conclusion that the bank
must now assume total liability on the letter of credit. Endeed, EnterTResin itself
cannot claim to hae been all that free from fault. %s the seller, the issuance of the
letter of credit should hae obiously been a great concern to it. Et would hae, in
fact, been strange if it did not, prior to the letter of credit, enter into a contract, or
negotiated at the eery least, with Aeneral &hemicals. En the ordinary course of
business, the perfection of contract precedes the issuance of a letter of credit.
FACTS: Je Reny 6abric Endustries, Enc. applied to the 1ank for four 8<9 irreocable
commercial letters of credit to coer the purchase by the corporation of goods
from its %merican supplier, the R.1. Jistributing &ompany. %s each shipment arried
in the 2hilippines, the Je Reny 6abric Endustries, Enc. made partial payments to the
1ank amounting. 6urther payments were, howeer, subsequently discontinued by
the corporation when it became established, as a result of a chemical test conducted
by the :ational Science Jeelopment 1oard, that the goods that arried in ;anila
were colored chalks instead of dyestufs. The corporation also refused to take
possession of these goods, and for this reason, the 1ank caused them to be
deposited with a bonded warehouse paying therefor the amount of 2)*, I53.I< up to
the -ling of its complaint with the court.
ISSUE: Whether or not Je Reny fabrics is liable under the letter of &reditO
U,%#- !6# !#-.s )9 !6#*- C)..#-*a$ L#!!#- )9 C-#%*! A(-##.#,!s B*!6 !6#
Ba,81 !6# a77#$$a,!s a(-##% !6a! !6# Ba,8 s6a$$ ,)! +# -#s7),s*+$#.
6or the PeHistence, character, quality, quantity, conditions, packing, alue, or
deliery of the property purporting to be represented by documents" for
any diference in character, quality, quantity, condition, or alue of the property from
that eHpressed in documents,P or for Ppartial or incomplete shipment, or failure or
omission to ship any or all of the property referred to in the &redit,P as well as Pfor
any deiation from instructions, delay, default or fraud by the shipper or anyone else
in connection with the property the shippers or endors and ourseles [purchasers\
or any of us.P Hav*,( a(-##% !) !6#s# !#-.s1 !6# a77#$$a,!s 6av#1 !6#-#9)-#1
,) -#)"-s# +"! !) ).7$; B*!6 !6#*- )v#,a,!.
1ut een without the stipulation recited aboe, the appellants cannot shift the
burden of loss to the 1ank on account of the iolation by their endor of its
prestation. Et was uncontroertibly proen by !6# Ba,8 during the trial below that
banks, in proiding -nancing in international business transactions such as those
entered into by the appellants, %) ,)! %#a$ B*!6 !6# 7-)7#-!; !) +# #C7)-!#% )-
s6*77#% !) !6# *.7)-!#-1 +"! %#a$ ),$; B*!6 %)".#,!s
.The eHistence of a custom in international banking and -nancing circles negating
any duty on the part of a bank to erify whether what has been described in letters
of credits or drafts or shipping documents actually tallies with what was loaded
aboard ship, haing been positiely proen as a fact, the appellants are bound by
this established usage. They were, after all, the ones who tapped the facilities
aforded by the 1ank in order to engage in international business