Nego Cases (Part 1 of 2)

Decided Cases on Negotiable Instruments Law based on the outline of Atty. Rene Alexis P.
Villarente (PART 1 of 2)
(See outline of Atty. Villarente for notes)
Introduction: Function & Importance Of Negotiable
Instruments
A. Substitute for Money but not legal tender
PAPA vs. A!"N#IA $% No. &'(&))* +an. ,-* &..)
ISS/": If the holder intentionally did not encash the check, will
the sale be consummated in the light of Article 12! of the "i#il
"ode$
Article 12!. %he &ayment of debts in money shall be made in
the currency sti&ulated, and if it is not &ossible to deli#er such
currency, then in the currency which is legal tender in the
'hili&&ines.
%he deli#ery of &romissory notes &ayable to order, or bills of
e(change or other mercantile documents shall &roduce the effect
of &ayment only when they ha#e been cashed, or when through
the fault of the creditor they ha#e been im&aired.
In the meantime, the action deri#ed from the original
obligation shall be held in abeyance.
0"!1: )o, the sale is not consummated.
*hile it is true that the deli#ery of a check &roduces the effect
of &ayment only when it is cashed, &ursuant to Art. 12! of the
"i#il "ode, the rule is otherwise if the debtor is &re+udiced by the
creditor,s unreasonable delay in &resentment. 23e acceptance of
a c3ec4 implies an underta4ing of due diligence in
presenting it for payment* and if 3e from 53om it is
received sustains loss by 5ant of suc3 diligence* it 5ill be
3eld to operate as actual payment of t3e debt or obligation
for 53ic3 it 5as given.

It has, likewise, been held that if no
&resentment is made at all, the drawer cannot be held liable
irres&ecti#e of loss or in+ury

unless &resentment is otherwise
e(cused. %his is in harmony with Article 12! of the "i#il "ode
under which &ayment by way of check or other negotiable
instrument is conditioned on its being cashed, e(ce&t when through
the fault of the creditor, the instrument is im&aired. %he &ayee of a
check would be a creditor under this &ro#ision and if its no-&ayment
is caused by his negligence, &ayment will be deemed effected and
the obligation for which the check was gi#en as conditional
&ayment will be discharged.
#"6/ IN2"%NA2IONA! vs. #A $% No. &,-'-& Oct. &,*
&...
FA#2S: Alegre in#ested with "I." '/001 and "I." issued a '2).
"I." issued a check which was dishonored by 3'I with the
annotation 4"heck sub+ect of an In#estigation.5 Alegre made a
formal demand. "I." &romised to re&lace the check but re6uired an
im&ossible condition that the original must first be surrendered.
Alegre filed a com&laint. 3'I encashed and deducted the said
amount from the account of "I.", but the &roceeds, as well as the
check remained in 3'I7s custody. %he trial court rendered +udgment
in fa#or of Alegre. %he "A affirmed it.
ISS/": *hat law go#erns the money market transaction of "I."
with Alegre8 Article 12! of the "i#il "ode or Section 19: of the
)egotioable Instruments ;aw$
Section19:. ;iability of drawee retaining or destroying bill -
*here a drawee to whom a bill is deli#ered for acce&tance
destroys the same, or refuses within twenty-four hours after such
deli#ery or such other &eriod as the holder may allow, to return
the bill acce&ted or non-acce&ted to the <older, he will be
deemed to ha#e acce&ted the same.
0"!1: Article 12! is a&&licable in this case. A 4money market is
a market dealing in standardi=ed short-term credit instruments
(in#ol#ing large amounts) where lenders and borrowers do not deal
directly with each other but through a middle man or dealer in o&en
market. In a money market transaction, the in#estor is a lender
who loans his money to a borrower through a middleman or dealer.
In the case at bar, the money market transaction between the
&etitioner and the &ri#ate res&ondent is in the nature of a loan.
ISS/": Is a check a legal tender$
0"!1: A check is not a legal tender, and therefore cannot
constitute #alid tender of &ayment. A check, whether a manager7s
check or ordinary check, is not legal tender, and an offer of a check
in &ayment of a debt is not a #alid tender of &ayment and may be
refused recei&t by the obligee or creditor. >ere deli#ery of checks does
not discharge the obligation under a +udgment. %he obligation is not
e(tinguished and remains sus&ended until the &ayment by commercial
document is actually reali=ed.
ISS/": *as Alegre bound by the com&romise agreement of "I". and
3'I$
0"!1: )o, Alegre was not bound by the com&romise agreement.
%he com&romise agreement could not bind a &arty who did not sign
the com&romise agreement nor a#ail of its benefits. %hus, the
sti&ulations in the com&romise agreement are unenforceable against
Vicente Alegre, not a &arty thereto. <is money could not be the
sub+ect of an agreement between "I." and 3'I. Although Alegre7s
money was in custody of the bank, the bank7s &ossession of it was not
in the conce&t of an owner. 3'I cannot #alidly a&&ro&riate the money
as its own.
ISS/": *hen the 3'I deducted the amount of the check from "I."7s
current account, did this i&so facto o&erate as a discharge or &ayment
of the check$
0"!1: *hen the bank deducted the amount of the "<?"1 from
"I."7s current account, this did not i&so facto o&erate as a discharge
or &ayment of the instrument. Although the #alue of the "<?"1 was
deducted from the funds of "I.", it was not deli#ered to the &ayee,
Vicente Alegre. Instead, 3'I offset the amount against the losses it
incurred from forgeries of "I." checks, allegedly committed by Alegre.
%he confiscation of the #alue of the check was agreed u&on by "I."
and 3'I.
%/"1A vs. SAN1I$AN6A7AN $% No. &,.'89 Nov. ,.* ,'''
ISS/": *hat does 4cash5 mean in a generally acce&ted auditing
&ractice$ Are negotiable instruments cash$
0"!1: Standard te(t in accounting defines 4"ash5 as consisting of
those items that ser#e as a medium of e(change and &ro#ide a basis
for accounting measurement. %o be re&orted as 4cash,5 an item must
be readily a#ailable and not restricted for use in the &ayment of
current obligations. A general guideline is whether an item is
acce&table for de&osit at face #alue by a bank or other financial
institution.
Items that are classified as cash include coin and currency on
hand, and unrestricted funds a#ailable on de&osit in a bank, which are
often called demand de&osits since they can be withdrawn u&on
demand. 'etty cash funds or change funds and negotiable
instruments, such as &ersonal checks, tra#elers7 checks, cashiers7
checks, bank drafts, and money orders are also items commonly
re&orted as cash. %he total of these items &lus unde&osited coin and
currency is sometimes called cash on hand. Interest-bearing accounts,
or time de&osits, also are usually classified as cash, e#en though a
bank legally can demand &rior notification before a withdrawal can be
made. In &ractice, banks generally do not e(ercise this legal right.
@e&osits that are not immediately a#ailable due to withdrawal or
other restrictions re6uire se&arate classification as Arestricted cash7 or
Atem&orary in#estments.7 %hey are not Acash7.
6A%%"22O vs. #A $% No. &-,-8, +une ,)* ,''&
ISS/": *hat is the effect of the deli#ery of the check$ Is it not that
&ayment takes effect only when the check is encashed$
0"!1: *hile deli#ery of a check &roduces the effect of &ayment only
when it is encashed, the rule is otherwise if the debtor was &re+udiced
by the creditor,s unreasonable delay in &resentment. Acce&tance of a
check im&lies an undertaking of due diligence in &resenting it for
&ayment. If no such &resentment was made, the drawer cannot be
held liable irres&ecti#e of loss or in+ury sustained by the &ayee.
'ayment will be deemed effected and the obligation for which the
check was gi#en as conditional &ayment will be discharged.
In this case, &ri#ate res&ondent >oslares ne#er 6uestioned the
tender done three (9) years earlier.
6. Medium of #ommercial 2ransactions
P"OP!" vs. 2ON$:O $% No. &,-(8; +une (* &..)
ISS/": *hat is the history of Article 91/ (2) (d) of the Be#ised 'enal
"ode$ Is a negotiable instrument a medium of commercial
transaction$
Prepared by: Norliza Mamukid & Jazzie M. Sarona (4-Manresa 2008-2009)
1
Decided Cases on Negotiable Instruments Law based on the outline of Atty. Rene Alexis P. Villarente (PART 1 of 2)
0"!1: %he legislature was not thoughtless in im&osing se#ere
&enalties for #iolation of &ar. 2(d) of Article 91/ of the Be#ised
'enal "ode. %he history of the law will show that the se#ere
&enalties were intended to sto& the u&surge of swindling by
issuance of bouncing checks. It was felt that unless aborted, this
kind of estafa C. . . would erode the &eo&le,s confidence in the use
of negotiable instruments as a medium of commercial transaction
and conse6uently result in the retardation of trade and commerce
and the undermining of the banking system of the country.
#. Medium of credit transaction
<"vidence of indebtedness=
PA#0"#O vs. #A $% No. &,88;' 1ec. ,* &...
ISS/": *hat are the elements of the felony of estafa under Article
91/ (2) (d) of the Be#ised 'enal "ode$
0"!1: %he essential elements in order to sustain a con#iction
under the abo#e &aragra&h are8
1. that the offender &ostdated or issued a check in &ayment of
an &ayment obligation contracted at the time the check was
issuedD
2. that such &ostdating or issuing a check was done when the
offender had no funds in the bank, or his funds de&osited
therein were not sufficient to co#er the amount of the checkD
9. deceit or damage to the &ayee thereof.
ISS/": "an one wai#e the negotiable character of the check and
treat it sim&ly as &roof of an obligation (e#idence of indebtedness)$
0"!1: 3y mutual agreement of the &arties, the negotiable
character of a check may be wai#ed and the instrument may be
treated sim&ly as &roof of an obligation. %here cannot be deceit on
the &art of the obligor, &etitioners herein, because they agreed with
the obligee at the time of the issuance and &ostdating of the checks
that the same shall not be encashed or &resented to the banks. As
&er assurance of the lender, the checks are nothing but e#idence of
the loan or security thereof in lieu of and for the same &ur&ose as a
&romissory note. 3y their own co#enant, therefore, the checks
became mere e#idence of indebtedness. It has been ruled that a
drawer who issues a check as security or e#idence of in#estment is
not liable for estafa. >rs. Vicencio could not ha#e been decei#ed
nor defrauded by &etitioners in order to obtain the loans because
she was informed that they no longer ha#e funds in their B"3"
accounts. In 1!!2, when the Vicencio family asked Virginia to &lace
a date on the check, the latter again informed >rs. Vicencio that
their account with B"3" was already closed as early as August
1!E!. *ith the assurance, howe#er, that the check will only stand
as a firm e#idence of indebtedness, Virginia &laced a date on the
check. Fnder these circumstances, >rs. Vicencio cannot claim that
she was decei#ed or defrauded by &etitioners in obtaining the loan.
In the absence of the essential element of deceit, no estafa was
committed by &etitioners.
ISS/": <ow material is the fact that the check was issued
undated$
0"!1: 3oth courts below relied so much on the fact that >rs.
Vicencio,s husband is a former Gudge who knows the law. <e should
ha#e known, then, that he need not e#en ask the &etitioners to
&lace a date on the check, because as holder of the check, he could
ha#e inserted the date &ursuant to Section 19 of the )egotiable
Instruments ;aw ()I;).
Section19. *hen date may be inserted. *here an instrument
e(&ressed to be &ayable at a fi(ed &eriod after date is issued
undated, or where the acce&tance of an instrument &ayable at a
fi(ed &eriod after sight is undated, any holder may insert therein
the true date of issue or acce&tance, and the instrument shall be
&ayable accordingly. %he insertion of a wrong date does not
a#oid the instrument in the hands or a subse6uent holder in due
courseD but as to him, the date so inserted is to be regarded as
the true date.
As stated in Section 1 thereof, com&lainant, as the &erson in
&ossession of the check, has &rima facie authority to com&lete it by
filling u& the blanks therein.
Section 1. 3lanks, when may be filled. H *here the instrument
is wanting in any material &articular, the &erson in &ossession
thereof has a &rima facie authority to com&lete it by filling u& the
the blanks therein. And a signature on a blank &a&er deli#ered
by the &erson making the signature in order that the &a&er may be
con#erted into a negotiable instrument o&erates as a &rima facie
authority to fill it u& as such for any amount. In order, howe#er,
that any such instrument when com&leted may be enforced against
any &erson who became a &arty thereto &rior to its com&letion, it
must be filled u& strictly in accordance with the authority gi#en and
within a reasonable time. 3ut if any such instrument, after
com&letion, is negotiated to a holder in due course, it is #alid and
effectual for all &ur&oses in his hands, and he may enforce it as if it
had been filled u& stricutly in accordance with the authority gi#en
and within a reasonable time.
ISS/": *hat is the effect of a stale check$
0"!1: A check must be &resented within a reasonable time from
issue. 3y current banking &ractice, a check becomes stale after more
than si( (I) months. In fact a check long o#erdue for more than two
and one-half years is considered stale.
()ote8 ?to lang iyong nakita ko na related sa 6uestion )
$O vs. 6A#A%ON $% No. &(.'9) October &&* ,''(
ISS/": Are checks e#idence of indebtedness$
0"!1: "hecks ha#e the character of negotiability. At the same time,
they may constitute e#idence of indebtedness.
SPS. 2AN vs. I!!APA> $% No. &8')., Nov. ,,* ,''(
ISS/": "an a check &ro#e a loan transaction that was re6uired to be
in writing under Article 19/E of the "i#il "ode (All other contracts
where the amount in#ol#ed e(ceeds ' /00.00 must a&&ear in writing,
e#en &ri#ate one)$ (See Article 19/E of the "i#il "ode )
0"!1: J?S, it can. %he lower "ourt mis&laced its reliance on Article
19/E of the "i#il "ode &ro#iding that to be enforceable, contracts
where the amount in#ol#ed e(ceed fi#e hundred &esos, must a&&ear in
writing. Such re6uirement, it has been held, is only for con#enience,
not for #alidity. It bears em&hasis that at the time &laintiff-a&&ellant
deli#ered the crossed-check to defendants-a&&ellees, &laintiff-a&&ellant
had no account whatsoe#er with them.
At all e#ents, a check, the entries of which are no doubt in
writing, could &ro#e a loan transaction.
#0/A $A? vs. #0/A $% No. &8')(( April &8* ,'')
ISS/": Is the check e#idence of indebtedness$
0"!1: It is well to remember that a check may be e#idence of
indebtedness. A check, the entries of which are in writing, could &ro#e
a loan transaction.
Section &
Section 1. .orm of negotiable instruments H An instrument to be
negotiable must conform to the following re6uirements8
(a) It must be in writing and signed by the make or drawerD
(b) >ust contain an unconditional &romise or order to &ay a
sum certain in moneyD
(c) >ust be &ayable on demand, or at a fi(ed or determinable
future timeD
(d) >ust be &ayable to order or to bearerD and
(e) *here the instrument is addressed to a drawee, he must
be named or otherwise indicated therein with
reasonable certainty.
2%A1"%S vs. #A $% No. .--.; Marc3 -* &..;
ISS/": Is a "entral 3ank "ertificate of Indebtedness ("3"I) a
negotiable instrument$
0"!1: Admittedly, the sub+ect "3"I is not a negotiable instrument in
the absence of words of negotiability within the meaning of the
negotiable instruments law (Act 2091).
%he &ertinent &ortions of the sub+ect "3"I read8
((( ((( (((
%he "entral 3ank of the 'hili&&ines (the 3ank) for #alue recei#ed,
hereby &romises to &ay bearer, of if this "ertificate of
indebtedness be registered, to .I;BI%?BS KFABA)%J
ASSFBA)"? "LB'LBA%IL), the registered owner hereof, the
&rinci&al sum of .IV? <F)@B?@ %<LFSA)@ '?SLS.
2
((( ((( (((
'ro&erly understood, a certificate of indebtedness &ertains to
certificates for the creation and maintenance of a &ermanent
im&ro#ement re#ol#ing fund, is similar to a Cbond,C. 3eing
e6ui#alent to a bond, it is &ro&erly understood as acknowledgment
of an obligation to &ay a fi(ed sum of money. It is usually used for
the &ur&ose of long term loans.
ISS/": *hat is negotiability and what is its relation to the rights
conferred to a holder in due course$
0"!1: %he language of negotiability which characteri=e a
negotiable &a&er as a credit instrument is its freedom to circulate as
a substitute for money. <ence, freedom of negotiability is the
touchtone relating to the &rotection of holders in due course, and
the freedom of negotiability is the foundation for the &rotection
which the law throws around a holder in due course. %his freedom
in negotiability is totally absent in a certificate indebtedness as it
merely to &ay a sum of money to a s&ecified &erson or entity for a
&eriod of time.
ISS/": *hen the "3"I was transferred to 'hilfinance and %B3,
what was it that trans&ired, a negotiation or an assignment$
0"!1: %he transfer of the instrument from 'hilfinance to %B3 was
merely an assignment, and is not go#erned by the negotiable
instruments law.
%he acce&ted rule is that the negotiability or non-negotiability
of an instrument is determined from the writing, that is, from the
face of the instrument itself. In the construction of a bill or note,
the intention of the &arties is to control, if it can be legally
ascertained. *hile the writing may be read in the light of
surrounding circumstance in order to more &erfectly understand the
intent and meaning of the &arties, yet as they ha#e constituted the
writing to be the only outward and #isible e(&ression of their
meaning, no other words are to be added to it or substituted in its
stead. %he duty of the court in such case is to ascertain, not what
the &arties may ha#e secretly intended as contradistinguished from
what their words e(&ress, but what is the meaning of the words
they ha#e used. *hat the &arties meant must be determined by
what they said.
FI%"S2ON" vs. #A $% No. &&-,-8 Marc3 (* ,''&
ISS/": Are s&ecial withdrawal sli&s negotiable$ @o the rules
go#erning the gi#ing of immediate notice of dishonor of )I a&&ly in
this case$
0"!1: %he withdrawal sli&s in 6uestion were non-negotiable.
<ence, the rules go#erning the gi#ing of immediate notice of
dishonor of negotiable instruments do not a&&ly in this case.
"itibank could not ha#e missed the non-negotiable nature of
the withdrawal sli&s. %he essence of negotiability which
characteri=es a negotiable &a&er as a credit instrument lies in its
freedom to circulate freely as a substitute for money. %he
withdrawal sli&s in 6uestion lacked this character.
%he withdrawal sli&s de&osited with &etitioner,s current
account with "itibank were not checks, as &etitioner admits.
"itibank was not bound to acce&t the withdrawal sli&s as a #alid
mode of de&osit. 3ut ha#ing erroneously acce&ted them as such,
"itibank and &etitioner as account-holder must bear the risks
attendant to the acce&tance of these instruments.
AS2%O vs. P0I! "@PO%2 $% No. &-8;,. Sept. ,-* ,''-
ISS/": *hether or not Bo(as should be +ointly and se#erally liable
with Astro for the sum awarde by the B%"
0"!1: J?S, Bo(as should be +ointly and se#erally liable with Astro.
%he &romissory notes are #alid and binding against Astro and
Bo(as. As it a&&ears on the notes, Bo(as signed twice8 first, as
&resident of Astro and second, in his &ersonal ca&acity. In signing
his name aside from being the 'resident of Asro, Bo(as became a
co-maker of the &romissory notes and cannot esca&e any liability
arising from it.
ISS/": *hat is a maker and what is its liability$
0"!1: Fnder the )egotiable Instruments ;aw, &ersons who write
their names on the face of &romissory notes are makers, &romising
that they will &ay to the order of the &ayee or any holder according
to its tenor. %hus, e#en without the &hrase 4&ersonal ca&acity,5
Bo(as will still be &rimarily liable as a +oint and se#eral debtor under
the notes considering that his intention to be liable as such is
manifested by the fact that he affi(ed his signature on each of the
&romissory notes twice which necessarily would im&ly that he is
undertaking the obligation in two different ca&acities, official and
&ersonal.
$A%#IA vs. !!AMAS $% No. &(9&,; 1ec. )* ,''-
FA#2S: 'etitioner a#ers that he signed the &romissory note merely as
an accommodation &artyD and that, as such, he was released as
obligor when res&ondent agreed to e(tend the term of the obligation.
%he note reads8
4'BL>ISSLBJ )L%?
4' 00,000.00
4B?"?IV?@ .BL> A%%J. @IL)ISIL V. ;;A>AS, the
sum of .LFB <F)@B?@ %<LFSA)@ '?SLS, 'hili&&ine
"urrency &ayable on or before Ganuary 29, 1!!: at )o.
1 1-10 St. 1amias, Mue=on "ity, with interest at the rate
of /N &er month or fraction thereof.
4It is understood that our liability under this loan is
+ointly and se#erally OsicP.
4@one at Mue=on "ity, >etro >anila this 29
rd
day of @ecember,
1!!I.5
ISS/": Is the 6uoted note a negotiable instrument$ Assuming that it
is, what is the liability of the accommodation &arty$
Section 2!. ;iability of accommodation &arty. An accommodation
&arty is one who has signed the instrument as maker, drawer,
acce&tor, or indorser, without recei#ing the #alue therefore, and for
the &ur&ose of lending his name to some other &erson. Such a
&erson is liable on the instrument to a holder for #alue,
notwithstanding such holder at the time of taking the instrument
knew him to be only an accommodation &arty.
0"!1: %he note herein is not a negotiable instrument.
3y its terms, the note was made &ayable to a s&ecific &erson
rather than to bearer or to order -- a re6uisite for negotiability under
Act 2091, the )egotiable Instruments ;aw ()I;). <ence, &etitioner
cannot a#ail himself of the )I;7s &ro#isions on the liabilities and
defenses of an accommodation &arty. 3esides, a non-negotiable note
is merely a sim&le contract in writing and is e#idence of such intangible
rights as may ha#e been created by the assent of the &arties. %he
&romissory note is thus co#ered by the general &ro#isions of the "i#il
"ode, not by the )I;.
?#en granting arguendo that the )I; was a&&licable, still,
&etitioner would be liable for the &romissory note. Fnder Article 2! of
Act 2091, an accommodation &arty is liable for the instrument to a
holder for #alue e#en if, at the time of its taking, the latter knew the
former to be only an accommodation &arty. %he relation between an
accommodation &arty and the &arty accommodated is, in effect, one of
&rinci&al and surety -- the accommodation &arty being the surety. It is
a settled rule that a surety is bound e6ually and absolutely with the
&rinci&al and is deemed an original &romissor and debtor from the
beginning. %he liability is immediate and direct.
2%ANSFI"!1 vs. !/>ON 071%O $% No. &98;&; Nov. ,,*
,''9
ISS/": *hat is a letter of credit$ Is it a negotiable instrument$ <ow
about a draft drawn from a letter of credit$
0"!1: 3y definition, a letter of credit is a written instrument
whereby the writer re6uests or authori=es the addressee to &ay money
or deli#er goods to a third &erson and assumes res&onsibility for
&ayment of debt therefor to the addressee. A letter of credit,
howe#er, changes its nature as different transactions occur and if
carried through to com&letion ends u& as a binding contract between
the issuing and honoring banks without any regard or relation to the
underlying contract or dis&utes between the &arties thereto.
;etters of credit are em&loyed by the &arties desiring to enter into
commercial transactions, not for the benefit of the issuing bank but
mainly for the benefit of the &arties to the original transactions.
A letter of credit is not a third-&arty beneficiary contract because
the issuer must honor drafts drawn against a letter regardless of
&roblems subse6uently arising in the underlying contract. Since the
bank7s customer cannot draw on the letter, it does not function as an
assignment by the customer to the beneficiary.
It is not in itself a negotiable instrument, because it is not &ayable
to order or bearer and is generally conditional, yet the draft &resented
under it is often negotiable.
3
P"OP!" vs. %"7"S $% No. &(9&(. Marc3 -&* ,''(
ISS/": *hat is a negotiable order of withdrawal ()L*)$ Is it a
negotiable instrument$ Is negotiability the gra#amen of estafa$
0"!1: Section Q229 of the >anual of Begulations for 3anks
defines )egotiable Lrder of *ithdrawal ()L*) Accounts as
interest-bearing de&osit accounts that combine the &ayable on
demand feature of checks and the in#estment feature of sa#ings
accounts.
%he fact that a )L* check shall be &ayable only to a s&ecific
&erson, and not #alid when made &ayable to 43?AB?B5 or to
4"AS<5 or when indorsed by the &ayee to another &erson, is
inconse6uential. %he same restriction is &roduced when a check is
crossed8 only the &ayee named in the check may de&osit it in his
bank account. If a third &erson acce&ts a cross check and &ays cash
for its #alue des&ite the warning of the crossing, he cannot be
considered in good faith and thus not a holder in due course. %he
&ur&ose of the crossing is to ensure that the check will be encashed
by the rightful &ayee only. Jet, des&ite the restriction on the
negotiability of cross checks, we held that they are negotiable
instruments.
%o be sure, negotiability is not the gra#amen of the crime of
estafa through bouncing checks. It is the fraud or deceit em&loyed
by the accused in issuing a worthless check that is &enali=ed.
AN1A7A vs. P"OP!" $% No. &8)9)8 +une ,;* ,''8
ISS/": Are disbursement #ouchers commercial documents
(negotiable instruments)$
0"!1: %he sub+ect #oucher is a &ri#ate document onlyD it is not a
commercial document because it is not a document used by
merchants or businessmen to &romote or facilitate trade or credit
transactions nor is it defined and regulated by the "ode of
"ommerce or other commercial law. Bather, it is a &ri#ate
document, which has been defined as a deed or instrument
e(ecuted by a &ri#ate &erson without the inter#ention of a &ublic
notary or of other &erson legally authori=ed, by which some
dis&osition or agreement is &ro#ed, e#idenced or set forth, because
it acted as the authori=ation for the release of the '21,000.00
finder7s fee to Kuilas and as the recei&t e#idencing the &ayment of
this finder7s fee.
6A2/!ANON vs. P"OP!" $% No. &-.)(; Sept. &(* ,''8
ISS/": Are cash #ouchers negotiable instruments$
0"!1: Sub+ect #ouchers are &ri#ate documents and not
commercial documents because they are not documents used by
merchants or businessmen to &romote or facilitate trade or credit
transactions nor are they defined and regulated by the "ode of
"ommerce or other commercial law. Bather, they are &ri#ate
documents, which ha#e been defined as deeds or instruments
e(ecuted by a &ri#ate &erson without the inter#ention of a &ublic
notary or of other &erson legally authori=ed, by which some
dis&osition or agreement is &ro#ed, e#idenced or set forth.
Section & <NI! and 2aA=
6ABAS vs. #A $% No. &',.8; Feb. &'* ,'''
FA#2S: 3aRas Gr. sold to Ayala In#estment "or&oration (AJA;A) a
&arcel of land for '2,90E,::0.00. %he @eed of Sale &ro#ided that
u&on the signing of the contract AJA;A shall &ay 'I1,:/.00. %he
balance of '1,E:,01I.00 was to be &aid in e6ual consecuti#e
annual installments, with 12N interest &er annum on the
outstanding balance. AJA;A issued one &romissory note co#ering
e6ual annual installments.
%he same day, &etitioner discounted the &romissory note with
AJA;A, for its face #alue of '1,E:,01I.00. AJA;A issued ! checks
to &etitioner, all dated .ebruary 20, 1!:I, drawn against 3'I with
the uniform amount of '20/,22.00 &esos.
In the succeeding years, &etitioner re&orted a uniform income
of '290,E::.00 as gain from sale of ca&ital asset. In his 1!E0
income ta( amnesty return, &etitioner also re&orted the same
amount of '290,E::.00 as the reali=ed gain on dis&osition of ca&ital
asset for the year.
%a( e(aminers disco#ered that &etitioner had no outstanding
recei#able from the 1!:I land sale to AJA;A and concluded that the
sale was cash and the entire &rofit should ha#e been ta(able in
1!:I since the income was wholly deri#ed in 1!:I. 'etitioner was
informed of his ta( deficiency.
'etitioner asserts that his sale of the land to AJA;A was not on
cash basis but on installment.
ISS/": *hat is re-discounting$ *hat is unusual with the re-
discounting in this case$ *hen the &romissory note was re-discounted
in this manner, was it correct to re&ort it as sale on installment$
0"!1: 'etitioner discounted the &romissory note co#ering the
future installments. %he discounting seems 6uestionable because
ordinarily, when a bill is discounted, the lender (e.g. banks, financial
institution) charges or deducts a certain &ercentage from the &rinci&al
#alue as its com&ensation. <ere, the discounting was done by the
buyer.
*here an installment obligation is discounted at a bank or finance
com&any, a ta(able dis&osition results, e#en if the seller guarantees its
&ayment, continues to collect on the installment obligation, or handles
re&ossession of merchandise in case of default. %hus, by analogy, all
the more would a ta(able dis&osition result when the discounting of
the &romissory note is done by the seller himself. "learly, the
indebtedness of the buyer is discharged, while the seller ac6uires
money for the settlement of his recei#ables. ;ogically then, the income
should be re&orted at the time of the actual gain. .or income ta(
&ur&oses, income is an actual gain or an actual increase of wealth.
Although the &roceeds of a discounted &romissory note is not
considered initial &ayment, still it must be included as ta(able income
on the year it was con#erted to cash. *hen &etitioner had the
&romissory notes co#ering the succeeding installment &ayments of the
land issued by AJA;A, discounted by AJA;A itself, on the same day of
the sale, he lost entitlement to re&ort the sale as a sale on installment
since, a ta(able dis&osition resulted and &etitioner was re6uired by law
to re&ort in his returns the income deri#ed from the discounting. *hat
&etitioner did is tantamount to an attem&t to circum#ent the rule on
&ayment of income ta(es gained from the sale of the land to AJA;A
for the year 1!:I. <ence, it was not correct to re&ort it as sale on
installment.
()ote8 @id not see any clear definition of re-discounting in the case
.or more details, read the case and research about re-discounting ..
hehe )
6PI vs. #A $% No. &&;-&. +uly &.* ,''8
ISS/": Are %-3ills and "3-3ills &romissory notes or de&osit
substitutes such that it is e(em&t from @S%$
0"!1: %-bills and "entral 3ank bills, under its go#erning laws, BA )o.
2/, as amended by '@ )o. 12, and B.A. )o. 2I/, are denominated
as e#idence of indebtedness, hence, are deemed the same as
certificates of obligations or certificates of indebtedness.
%reasury bills are e#idence of indebtedness, issued by the
)ational Ko#ernment on a discount basis and offered for sale either at
auction on com&etiti#e or non-com&etiti#e basis, &ayable at any date
not later than one year from the date of issue. "entral 3ank bills are
also e#idence of indebtedness issued by the "entral 3ank conformably
with Section !E of B.A. )o. 2I/, which authori=es the "entral 3ank to
issue and negotiate "entral 3ank obligations, and to &lace, buy, and
sell freely its negotiable e#idence of indebtedness.
%he confirmations of sale of go#ernment securities made by the
&etitioner to &ri#ate indi#iduals2entities are sub+ect to documentary
stam& ta( &ursuant to Section 22/ of the )IB".
ISS/": *hat is the difference between de&osit substitutes and
certificates of indebtedness$ *hat is the difference between
certificate of indebtedness and &romissory notes$
0"!1: A certificate of indebtedness includes only instruments ha#ing
the general character of in#estment securities as distinguished from
instruments e#idencing debts arising in ordinary transactions between
indi#iduals. As distinguished from a &romissory note which is an
unconditional &romise in writing made by one &erson to another,
signed by the maker, engaging to &ay on demand, or at a fi(ed or
determinable future time, a sum certain in money, to order or bearer,
%-bills and "entral 3ank bills are in#estment securities of a &ublic
character, issued by the 'hili&&ine Ko#ernment, thru the "entral 3ank
of the 'hili&&ines.
Ln the other hand, the chief feature of a de&osit substitute is
borrowing. In this case, &etitioner sells go#ernment securities to
&ri#ate indi#iduals2entities, in which its confirmations of sale are being
sub+ected to documentary stam& ta(. %here is no borrowing or debt
instrument in#ol#ed in this case. <ere, the &etitioner, as the seller,
sim&ly con#eys through sale, s&ecific go#ernment securities to the
buyer, who thereby ac6uires title thereto, including the &lenary right of
4
dis&osal. As there is no borrowing, there is no debt with res&ect to
which the seller can be &rimarily bound. )or is the seller
subsidiarily bound to res&ond in case the issuer of the said
securities defaults, hy&othetically assuming that the 'hili&&ine
Ko#ernment, as issuer of the securities sold, could default.
'recisely, the sale of said go#ernment securities is always Cwithout
recourse.C
6PI vs. #I% $% No. &-;'', +uly ,;* ,''8
ISS/": *hat does Section 1E2 of the )IB" co#er$
Sec. 1E2. Stam& ta( on foreign bills of e(change and letters of
credit. Ln all foreign bills of e(change and letters of credit
(including orders, by telegra&h or otherwise, for the &ayment of
money issued by e(&ress or steamshi& com&anies or by any
&erson or &ersons) drawn in but &ayable out of the 'hili&&ines in
a set of three or more according to the custom of merchants and
bankers, there shall be collected a documentary stam& ta( of
thirty centa#os on each two hundred &esos, or fractional &art
thereof, of the face #alue of such bill of e(change or letter of
credit, or the 'hili&&ine e6ui#alent of such face #alue, if
e(&ressed in foreign country.
0"!1: Section 1E2 im&oses a documentary stam& ta( on (1)
foreign bills of e(change, (2) letters of credit, and (9) orders, by
telegra&h or otherwise, for the &ayment of money issued by
e(&ress or steamshi& com&anies or by any &erson or &ersons. %his
enumeration is further limited by the 6ualification that they should
be drawn in the 'hili&&ines and &ayable outside of the 'hili&&ines.
ISS/": *hat is the definition of a 3ill of ?(change (32?)$
0"!1: A definition of a 4bill of e(change5 is &ro#ided by Section 9!
of Begulations )o. 2I, the rules go#erning documentary ta(es
&romulgated by the 3ureau of Internal Be#enue (3IB) in 1!28
Sec. 9!. @efinition of 4bill of e(change5. %he term bill of
e(change denotes checks, drafts, and all other kinds of orders for
the &ayment of money, &ayable at sight, or on demand or after a
s&ecific &eriod after sight or from a stated date.
Section 12I of %he )egotiable Instruments ;aw (Act )o. 2091)
reiterates that it is an 4order for the &ayment of money5 and
s&ecifies the &articular re6uisites that make it negotiable.
Sec. 12I. 3ill of e(change defined. H A bill of e(change is an
unconditional order in writing addressed by one &erson to
another, signed by the &erson gi#ing it, re6uiring the &erson to
whom it is addressed to &ay on demand or at fi(ed or
determinable future time a sum certain in money to order or to
bearer.
Section 12! of the same law classifies bills of e(change as
inland and foreign, the distinction is laid down by where the bills
are drawn and &aid. %hus, a 4foreign bill of e(change5 may be
drawn outside the 'hili&&ines, &ayable outside the 'hili&&ines, or
both drawn and &ayable outside of the 'hili&&ines.
Sec. 12!. Inland and foreign bills of e(change. -- An inland bill
of e(change is a bill which is, or on its face &ur&orts to be, both
drawn and &ayable within the 'hili&&ines. Any other bill is a
foreign bill. ( ( (
ISS/": *hat is the distincition between a 32? and a letter of
credit$
0"!1: A bill of e(change and a letter of credit may differ as to
their negotiability, and as to who owns the funds used for the
&ayment at the time &ayment is made. <owe#er, in both bills of
e(change and letters of credit, a &erson orders another to &ay
money to a third &erson.
%he "ode of "ommerce loosely defines a 4letter of credit5 and
&ro#ides for its essential conditions, thus8
Art. /I:. ;etters of credit are those issued by one merchant to
another or for the &ur&ose of attending to a commercial
transaction.
Art /IE. %he essential conditions of letters of credit shall be8
1. %o be issued in fa#or of a definite &erson and not to order.
2. %o be limited to a fi(ed and s&ecified amount, or to one or more
undetermined amounts, but within a ma(imum the limits of which
has to be stated e(actly.
A more e(&licit definition of a letter of credit can be found in the
commentaries8
A letter of credit is one whereby one &erson re6uests some other
&erson to ad#ance money or gi#e credit to a third &erson, and
&romises that he will re&ay the same to the &erson making the
ad#ancement, or acce&t the bills drawn u&on himself for the like
amount.
ISS/": *hat is a telegra&hic transfer$
0"!1: %he &hrase 4orders, by telegra&h or otherwise, for the
&ayment of money5 used in reference to documentary stam& ta(es
may be found in an earlier documentary ta( &ro#ision, Section 1!(i)
of the Administrati#e "ode of 1!1:, which was substantially
re&roduced in Section 1!/ (now Section 1E2) of the )IB". Begulations
)o. 2I, which &ro#ided the rules and guidelines for the documentary
stam& ta( im&osed under the Administrati#e "ode of 1!1:, contains an
e(&lanation for the &hrase 4orders, by telegra&h or otherwise, for the
&ayment of money58
*hat may be regarded as telegra&hic transfer.Sa local bank cables
to a certain bank in a foreign country with which bank said local
bank has a credit, and directs that foreign bank to &ay to another
bank or &erson in the same locality a certain sum of money, the
document for and in res&ect such transaction will be regarded as a
telegra&hic transfer, ta(able under the &ro#isions of Section 1!(i)
of the Administrati#e "ode.
ISS/": *hat is the nature of a @S%$
0"!1: A documentary stam& ta( (@S%) is an e(cise u&on the facilities
used in the transaction of the business se&arate and a&art from the
business itself. It is not a ta( u&on the business itself which is so
transacted, but it is a duty u&on the facilities made use of and actually
em&loyed in the transaction of the business, and se&arate and a&art
from the business itself.
ISS/": *hat is a draft$
0"!1: A draft is a form of a bill of e(change used mainly in
transactions between &ersons &hysically remote from each other. It is
an order made by one &erson, say the buyer of goods, addressed to a
&erson ha#ing in his &ossession funds of such buyer ordering the
addressee to &ay the &urchase &rice to the seller of the goods. *here
the order is made by one bank to another, it is referred to as a bank
draft.
S"#/%I27 6AN: vs. #I% $% No. &-')-) August ,,* ,''8
ISS/": @oes the term securities include negotiable &romissory notes$
0"!1: )L, the term securities does not include negotiable &romissory
notes.
%he issue of @S% assessment on sales of securities with
re&urchase agreement, which was the sub+ect of the reassessment
being 6uestioned in this case, is definitely not within the sco&e of the
com&romise agreement, being limited as it is to @S% on &romissory
notes issued &rior to Lctober 1/, 1!E. %he @S% assessed on the
former arises from the act of 4selling5 securities (&resently ta(ed
under Section 1:I), while the @S% assessed in the latter is on the act
of 4issuing5 &romissory notes (ta(ed under Section 1E0). It is
e#ident from the se&arate &ro#isions go#erning the two that the law
treats these two instruments differently. %his "ourt sim&ly cannot
agree with S3" that securities and &romissory notes for &ur&oses of
the sub+ect "om&romise Agreement are one and the same thing.
3esides, e#en assuming, in gratia argumenti, that &romissory notes
may be included under the generic term 4securities,5 securities
cannot be included under the s&ecific term 4&romissory notes5 so as
to be deemed within the sco&e of the same com&romise agreement.
%o be sure, the term 4&romissory note5 has a definite meaning under
the negotiable instruments law, which does not include 4securities,5
and this definite meaning is what is deemed incor&orated in the
com&romise agreement entered into by and between S3" and the
3IB, unless a different definition is therein e(&ressly agreed u&on,
which is not the case.
IN2"%NA2IONA! vs. #I% $% No. &;&,88 April 9* ,'';
5
ISS/": Are the Sa#ings Account-.i(ed Sa#ings @e&osit (.S@s)
sub+ect to @S%$
S?". 1E0 of the %a( "ode. Stam& ta( on all loan agreements,
&romissory notes, bills of e(change, drafts, instruments and
securities issued by the go#ernment or any of its
instrumentalities, certificates of de&osit bearing interest and
others not &ayable on sight or demand. - Ln all loan agreements
signed abroad wherein the ob+ect of the contract is located or
used in the 'hili&&inesD bills of e(change (between &oints within
the 'hili&&ines), drafts, instruments and securities issued by the
Ko#ernment or any of its instrumentalities or certificates of
deposits dra5ing interest* or orders for the &ayment of any
sum of money otherwise than at sight or on demand, or on all
&romissory notes, whether negotiable or non-negotiable, e(ce&t
bank notes issued for circulation, and on each renewal of any
such note, there shall be collected a documentary stam& ta(
0"!1: "ertificates of time de&osit are sub+ect to the @S% and
that a certificate of time de&osit is but a ty&e of a certificate of
de&osit drawing interest.%he .S@, like a time de&osit, &ro#ides for a
higher interest rate when the de&osit is not withdrawn within the
re6uired fi(ed &eriodD otherwise, it earns interest &ertaining to a
regular sa#ings de&osit. <a#ing a fi(ed term and the reduction of
interest rates in case of &re-termination are essential features of a
time de&osit.
SA-.S@ is a de&osit account with a fi(ed term. *ithdrawal
before the e(&iration of said fi(ed term results in the reduction of
the interest rate. <a#ing a fi(ed term and reduction of interest rate
in case of &re-termination are essentially the features of a time
de&osit.
%hus, a regular sa#ings account with a &assbook which is
withdrawable at any time is not sub+ect to @S%, unlike a time
de&osit which is &ayable on a fi(ed maturity date.
<ence, .S@s are sub+ect to @S%.
ISS/": Is the negotiability of an instrument material for the
im&osition of @S%$
0"!1: "ontrary to &etitioner7s claim, not all certificates of de&osit
are negotiable. A certificate of de&osit may or may not be
negotiable as gathered from the use of the con+unction or, instead
of and, in its definition. A certificate of de&osit may be &ayable to
the de&ositor, to the order of the de&ositor, or to some other
&erson or his order.
In any e#ent, the negotiable character of any and all
documents under Section 1E0 is immaterial for &ur&oses of
im&osing @S%.
Section ,
N"? SAMPA$/I2A vs. PN6 $% No. &9);(- +uly -'* ,''9
ISS/": "an banks unilaterally increase interest rates$
0"!1: %he "ourt holds that &etitioners7 accessory duty to &ay
interest did not gi#e res&ondent unrestrained freedom to charge
any rate other than that which was agreed u&on. )o interest shall
be due, unless e(&ressly sti&ulated in writing. It would be the
=enith of farcicality to s&ecify and agree u&on rates that could be
subse6uently u&graded at whim by only one &arty to the
agreement.
%he 4unilateral determination and im&osition5 of increased
rates is 4#iolati#e of the &rinci&le of mutuality of contracts ordained
in Article 190E of the "i#il "ode.5 Lne-sided im&ositions do not
ha#e the force of law between the &arties, because such
im&ositions are not based on the &arties7 essential e6uality.
Article 190E. %he contracts must bind both contracting &artiesD
its #alidity or com&liance cannot be left to the will of one of
them.
Although escalation clauses are #alid in maintaining fiscal
stability and retaining the #alue of money on long-term contracts,
gi#ing res&ondent an unbridled right to ad+ust the interest
inde&endently and u&wardly would com&letely take away from
&etitioners the 4right to assent to an im&ortant modification in their
agreement5 and would also negate the element of mutuality in their
contracts. %he clause cited earlier made the fulfillment of the
contracts 4de&endent e(clusi#ely u&on the uncontrolled will5 of
res&ondent and was therefore #oid. 3esides, the &ro forma
&romissory notes ha#e the character of a contract d7adhTsion,
4where the &arties do not bargain on e6ual footing, the weaker
&arty7s Othe debtor7sP &artici&ation being reduced to the alternati#e Ato
take it or lea#e it.75
ISS/": *hat is the effect of the re&eal of the Fsury ;aw$
0"!1: *hile the Fsury ;aw ceiling on interest rates was lifted by
O"entral 3ankP "ircular )o. !0/, nothing in the said "ircular grants
lenders carte blanche authority to raise interest rates to le#els which
will either ensla#e their borrowers or lead to a hemorrhaging of their
assets. )either this "ircular nor '@ 1IE, which further amended the
Fsury ;aw, 4authori=ed either &arty to unilaterally raise the interest
rate without the other7s consent. Bates found to be ini6uitous or
unconscionable are #oid, as if it there were no e(&ress contract
thereon. Abo#e all, it is undoubtedly against &ublic &olicy to charge
e(cessi#ely for the use of money.
ISS/": *hat is the use of the %ruth in ;ending Act$
0"!1: %he time is now ri&e to gi#e teeth to the often ignored forty-
one-year old 4%ruth in ;ending Act5 and thus transform it from a
sni#elling &a&er tiger to a growling financial watchdog of ha&less
borrowers.
)o &enalty charges or increases thereof a&&ear either in the
@isclosure Statements or in any of the clauses in the second and the
third "redit Agreements earlier discussed. *hile a standard &enalty
charge of I &ercent &er annum has been im&osed on the amounts
stated in all three 'romissory )otes still remaining un&aid or
unrenewed when they fell due, there is no sti&ulation therein that
would +ustify any increase in that charges. %he effect, therefore, when
the borrower is not clearly informed of the @isclosure Statements --
&rior to the consummation of the a#ailment or drawdown -- is that the
lender will ha#e no right to collect u&on such charge or increases
thereof, e#en if sti&ulated in the )otes.
ISS/": "an attorney7s fees mentioned in the ')s reduced$
0"!1: Jes, it can be reduced.
*e affirm the e6uitable reduction in attorney7s fees. %hese
are not an integral &art of the cost of borrowing, but arise only when
collecting u&on the )otes becomes necessary. %he &ur&ose of these
fees is not to gi#e res&ondent a larger com&ensation for the loan than
the law already allows, but to &rotect it against any future loss or
damage by being com&elled to retain counsel H in-house or not -- to
institute +udicial &roceedings for the collection of its credit. "ourts
ha#e has the &ower to determine their reasonableness based on
6uantum meruit and to reduce the amount thereof if e(cessi#e.
Section ;
IN2"%NA2C! vs. $/"#O $% No. &9&.8) Feb. &,* ,''&
ISS/": *hat is a stale check$
0"!1: A stale check is one which has not been &resented for
&ayment within a reasonable time after its issue. It is #alueless and,
therefore, should not be &aid. Fnder the negotiable instruments law,
an instrument not &ayable on demand must be &resented for &ayment
on the day it falls due. *hen the instrument is &ayable on demand,
&resentment must be made within a reasonable time after its issue. In
the case of a bill of e(change, &resentment is sufficient if made within
a reasonable time after the last negotiation thereof.
ISS/": *hat is meant by reasonable time after issue that a check
must be &resented for &ayment$
0"!1: A check must be &resented for &ayment within a reasonable
time after its issue, and in determining what is a Creasonable time,C
regard is to be had to the nature of the instrument, the usage of trade
or business with res&ect to such instruments, and the facts of the
&articular case. %he test is whether the &ayee em&loyed such diligence
as a &rudent man e(ercises in his own affairs. %his is because the
nature and theory behind the use of a check &oints to its immediate
use and &ayability. In a case, a check &ayable on demand which was
long o#erdue by about 2-122 years was considered a stale check.
.ailure of a &ayee to encash a check for more than 10 years
undoubtedly resulted in the check becoming stale. %hus, e#en a delay
of 1 week or 2 days, under the s&ecific circumstances of the cited
cases constituted unreasonable time as a matter of law.
ISS/": *hat is the nature of a manager7s check$
0"!1: A manager,s check is one drawn by the bank,s manager u&on
the bank itself. It is similar to a cashier,s check both as to effect and
use. A cashier,s check is a check of the bank,s cashier on his own or
6
another check. In effect, it is a bill of e(change drawn by the
cashier of a bank u&on the bank itself, and acce&ted in ad#ance by
the act of its issuance. It is really the bank,s own check and may be
treated as a &romissory note with the bank as a maker. %he check
becomes the &rimary obligation of the bank which issues it and
constitutes its written &romise to &ay u&on demand. %he mere
issuance of it is considered an acce&tance thereof. If treated as
&romissory note, the drawer would be the maker and in which case
the holder need not &ro#e &resentment for &ayment or &resent the
bill to the drawee for acce&tance.
Section . <6earer Instruments=
"%2/1"S vs. 6/"NAF!O% $% No. &(-&88 1ec. &8* ,''(
FA#2S: 3uenaflor com&lained of ha#ing been con#inced by
&etitioner into &aying the total amount of ':!,000.00 in e(change
for the &rocessing of her #isa, &ass&ort and other tra#el documents
for Ga&an. 'ri#ate res&ondent deli#ered to &etitioner Security 3ank
"hecks in the amounts of '90,000.00 and '20,000.00, res&ecti#ely,
and cash worth '2!,000.00. <owe#er, no #isa was deli#ered.
'ri#ate res&ondent insisted that &etitioner return her money, to no
a#ail. 'etitioner admitted ha#ing recei#ed, and encashed, the two
checks from &ri#ate res&ondent but offered the e(cuse that the
same was e(tended to her as a loan.
ISS/": *hat is the effect of the issuance of bearer checks that
were not crossed$
0"!1: %he two checks were made &ayable to Ccash,C a bearer
instrument, and was not e#en crossed on its face, hence, can be
encashed by any &erson holding the negotiable instrument.
ISS/": Is this &roof that the transaction was not for loan but the
&romise for tra#el document to Ga&an$
0"!1: J?S, it is &roof that the transaction was not for a loan.
Aside from &etitioner7s testimony and that of her household hel&ers
to &ro#e this assertion, no other inde&endent and unbiased
e#idence was offered to &ro#e the fact of loan. As it is, her theory
of loan stands on flimsy ground and is not sufficient enough to
o#erthrow the fact established by com&lainant. %his considering
that it is highly im&robable and e#en contrary to human e(&erience
for a &erson to loan a huge amount of money as ' /0,000.00
without any document e#idencing such loan nor a collateral to
secure its &ayment.
)ote e#en that the two checks were made &ayable to Ccash,C a
bearer instrument, and was not e#en crossed on its face, hence,
can be encashed by any &erson holding the negotiable instrument.
If, indeed, &ri#ate res&ondent ga#e the two checks to &etitioner as
a clean loan (without any collateral) without any se&arate document
embodying their loan agreement, the latter should ha#e at least
been made the &ayee of the checks and a memorandum written at
the back of the check to the effect that it is being e(tended as a
loan, in order to &rotect the interest of the lender. %his is
con#entional business &ractice which is altogether absent in the
case at bar, hence, &etitioner,s theory of loan must necessarily
crumble.
Sections &9D&(D&8
6O%%OM"O vs. S/N $% No. ;(.') Oct. ,,* &...
ISS/": Is document sub+ect in this case e(ecuted with similar
effects as Section 1 of the )egotiable Instruments ;aw$
0"!1: J?S, it is e(ecuted with similar effects as Section 1.
%hat the @eed of Assignment is dated Ganuary 1I, 1!: while
the 6uestioned signature was found to be circa 1!/-1!/:, and not
that of 1!:, is of no moment. It does not necessarily mean, that
the deed is a forgery. 'ertinent records re#eal that the sub+ect
@eed of Assignment is embodied in a blank form for the assignment
of shares with authority to transfer such shares in the books of the
cor&oration. It was clearly intended to be signed in blank to
facilitate the assignment of shares from one &erson to another at
any future time. %his is similar to Section 1 of the )egotiable
Instruments ;aw where the blanks may be filled u& by the holder,
the signing in blank being with the assumed authority to do so.
Indeed, as the shares were registered in the name of .ederico L.
3orromeo +ust to gi#e him &ersonality and standing in the business
community, &ri#ate res&ondent had to ha#e a counter e#idence of
ownershi& of the shares in#ol#e. %hus the e(ecution of the deed of
assignment in blank, to be filled u& whene#er needed. %he same
e(&lains the discre&ancy between the date of the deed of assignment
and the date when the signature was affi(ed thereto.
?(&ert witnesses confirmed the signature of 3orromeo in the
@eed of Assignment.
E/I%INO vs. #A $% No. &,8(8) April -'* ,''-
FA#2S: 'etitioners, to secure certain ad#ances from Be&ublic 'lanters
3ank in connection with MK;",s e(&ortation of logs, e(ecuted a
&romissory note in 1!I in fa#or of the 3ank. %hey were to e(ecute
three more &romissory notes in 1!I:.
Alleging non-&ayment of the balance of MK;",s obligation after
the &roceeds of the foreclosure sale were a&&lied thereto, and non-
&ayment of the &romissory notes des&ite re&eated demands, the 3ank
filed a com&laint for Csum of moneyC. 'etitioners assert that the
com&laint states no cause of action, and assuming that it does, the
same is2are barred by &rescri&tion or null and #oid for want of
consideration.
'etitioners, admission of the genuineness and due e(ecution of
the &romissory notes notwithstanding, they raise want of consideration
thereof.
'etitioners seek to e#ade liability by claiming that &etitioners
Muirino and ?ufemia Kon=ales signed the &romissory notes in blank.
ISS/": @id the &romissory note com&ly with Section 1 of the
)egotiable Instruments ;aw$ *hat is the &resum&tion of
consideration$
0"!1: J?S. %he &romissory notes a&&ear to be negotiable as they
meet the re6uirements of Section 1 of the )egotiable Instruments
;aw. Such being the case, the notes are &rima facie deemed to ha#e
been issued for consideration. It bears noting that no sufficient
e#idence was adduced by &etitioners to show otherwise.
ISS/": *hat is the conse6uence of an instrument issued in blank$
0"!1: %he genuineness and due e(ecution of the notes had,
howe#er, been deemed admitted by &etitioners, they ha#ing failed to
deny the same under oath. %heir claim that they signed the notes in
blank does not thus lie.
In any case, it is no defense that the &romissory notes were
signed in blank as Section 1
E
of the )egotiable Instruments ;aw
concedes the &rima facie authority of the &erson in &ossession of
negotiable instruments, such as the notes herein, to fill in the blanks.
SPS. O+"1A vs. O%6"2A $% No. &9,'9; +uly &'* ,''8
FA#2S: S&ouses L+eda obtained #arious loans they would use as
additional ca&ital from Lrbeta.
)otwithstanding all their &romises, howe#er, the s&ouses,
obligations remained un&aid. ?#entually, >ilagros L+eda issued a
check re&resenting full settlement of all obligations due in fa#or of
Lrbeta. *hen &resented for &ayment, howe#er, the check was
dishonored for ha#ing been drawn against an account already closed.
'etitioners maintain that any obligation arising from the check is
in#alid and illegal since the same was issued in blank e(ce&t for the
signature of >ilagros L+eda.
ISS/": *hat is the effect of a blank check that was deli#ered$
0"!1: ?#en if the check was deli#ered to Lrbeta in blank, we must
stress that the &resum&tion is that the latter had &rima facie authority
to com&lete the check by filling u& the same. <ere, the &ro#ision of
Section 1 of the )egotiable Instruments ;aw is &ertinent.
%he law merely re6uires that the instrument be in the &ossession
of a &erson other than the drawer or maker, and from such
&ossession, together with the fact that the instrument is wanting in a
material &articular, the law &resumes agency to fill u& the blanks.
3ecause of the &resum&tion of authority, the burden of &ro#ing that
there was no authority or that the authority granted was e(ceeded is
&laced on the &erson 6uestioning such authority. %here is nothing on
record to show that the &rima facie &resum&tion created by the afore-
6uoted section was successfully refuted by the s&ouses. %herefore,
the cou&le,s stance that they cannot be held liable for the check
because they were not the ones who wrote the date, the name of the
&ayee and the amount, is untenable.
#0IN$ vs. NI#1AO $% No. &9&&)& April ,;* ,'';
7
FA#2S: "hing instituted criminal com&laints for 11 counts of
#iolation of 3' 22 against res&ondent )icdao. "hing a#erred that
the checks were issued to him by )icdao as security for the loans
that she obtained from him. %heir transaction began when
res&ondent )icdao, &ro&rietor2manager of Vignette Su&erstore,
together with her husband, a&&roached him to borrow money in
order for them to settle their financial obligations. %hey agreed that
res&ondent )icdao would lea#e the checks undated and that she
would &ay the loans within one year. <owe#er, when "hing went
to see her after the la&se of one year to ask for &ayment, )icdao
allegedly said that she had no cash.
3ecause of )icdao,s alleged refusal to &ay her obligations,
"hing de&osited the checks that she issued to him. %he checks
were dishonored by the bank for being 4@AI..5 Shortly thereafter,
&etitioner "hing, together with ?mma )uguid, wrote a demand
letter to )icdao which, howe#er, went unheeded. Accordingly, they
se&arately filed the criminal com&laints against the latter.
"hing reiterated that, u&on their agreement, the checks were
all signed by res&ondent )icdao but she left them undated. "hing
admitted that he was the one who wrote the date, Lctober I, 1!!:,
on those checks when res&ondent )icdao refused to &ay him.
*ith res&ect to the '20,000,000.00 check, "hing e(&lained
that he wrote the date and amount thereon when, u&on his
estimation, the money that he regularly lent to res&ondent )icdao
beginning Lctober 1!!/ reached the said sum. <e likewise
intimated that &rior to 1!!/, they had another transaction
amounting to '1,200,000.00 and, as security therefor, )icdao
similarly issued in his fa#or checks in #arying amounts of
'100,000.00 and '/0,000.00. *hen the said amount was fully
&aid, "hing returned the checks to res&ondent )icdao.
"hing e(&lained that from Lctober 1!!/ u& to 1!!:, he
regularly deli#ered money to res&ondent )icdao, in the amount of
'1,000,000.00 until the total amount reached '20,000,000.00. <e
did not ask )icdao to acknowledge recei#ing these amounts. "hing
claimed that he was confident that he would be &aid by res&ondent
)icdao because he had in his &ossession her blank checks. Ln the
other hand, the latter allegedly had no cause to fear that he would
fill u& the checks with +ust any amount because they had trust and
confidence in each other. *hen asked to &roduce the &iece of
&a&er on which he allegedly wrote the amounts that he lent to
)icdao, "hing could not &resent itD he reasoned that it was not with
him at that time.
)icdao stated that she only dealt with )uguid. She
#ehemently denied the allegation that she had borrowed money
from both &etitioner "hing and )uguid in the total amount of
'22,!/0,000.00. )icdao admitted, howe#er, that she had obtained
a loan from )uguid but only for '2,100,000.00 and the same was
already fully &aid. As &roof of such &ayment, she &resented a
'lanters 3ank demand draft in the amount of '1,200,000.00. %he
annotation at the back of the said demand draft showed that it was
endorsed and negotiated to the account of "hing. )icdao said that
she &ur&osely left the checks undated because she would still ha#e
to notify )uguid if she already had the money to fund the checks.
)icdao could not e(&lain how the said check came into "hing7s
&ossession. She e(&lained that she ke&t her checks in an ordinary
cash bo( together with a sta&ler and the cigarette wra&&ers that
contained )uguid7s com&utations. <er saleslady had access to this
bo(. )icdao a#erred that it was )uguid who offered to gi#e her a
loan as she would allegedly need money to manage Vignette
Su&erstore. )uguid used to run the said store before )icdao7s
daughter bought it from )uguid7s family, its &re#ious owner.
According to )icdao, it was )uguid who regularly deli#ered the cash
to )icdao or, if she was not at the grocery store, to her saleslady.
)icdao denied any knowledge that the money loaned to her by
)uguid belonged to "hing. *hen shown the '20,000,000.00
check, )icdao admitted that the signature thereon was hers but she
denied issuing it as a blank check to "hing.
)icdao stressed, howe#er, that the '20,000,000.00 check was
the one that was re&orted to her as lost or missing by her saleslady
sometime in 1!!/. She ne#er re&orted the matter to the bank
because she was confident that it would +ust surface when it would
be &resented for &ayment.
>"%" con#icted )icdao. B%" affirmed the con#iction of
)icdao. "A ac6uitted )icdao.
"A em&hasi=ed that the '20,000,000.00 check was ne#er
deli#ered by res&ondent )icdao to &etitioner "hing. As such, the
said check without the details as to the date, amount and &ayee,
was an incom&lete and undeli#ered instrument when it was stolen
and ended u& in &etitioner "hing7s hands. Ln this &oint, the "A
a&&lied Sections 1/ and 1I of the )egotiable Instruments ;aw.
ISS/": *hat is the effect of Sections 1/ and 1I of the )I;$
S?". 1/. Incom&lete instrument not deli#ered. H *here an
incom&lete instrument has not been deli#ered, it will not, if
com&leted and negotiated without authority, be a #alid contract in
the hands of any holder, as against any &erson whose signature was
&laced thereon before deli#ery.

S?". 1I. @eli#eryD when effectualD when &resumed. H ?#ery contract
on a negotiable instrument is incom&lete and re#ocable until
deli#ery of the instrument for the &ur&ose of gi#ing effect thereto.
As between immediate &arties and as regards a remote &arty other
than a holder in due course, the deli#ery, in order to be effectual,
must be made either by or under the authority of the &arty making,
drawing, acce&ting or indorsing, as the case may beD and, in such
case, the deli#ery may be shown to ha#e been conditional, or for a
s&ecial &ur&ose only, and not for the &ur&ose of transferring the
&ro&erty. 3ut where the instrument is in the hands of a holder in
due course, a #alid deli#ery thereof by all &arties &rior to him so as
to make them liable to him is conclusi#ely &resumed. And where
the instrument is no longer in the &ossession of a &arty whose
signature a&&ears thereon, a #alid and intentional deli#ery by him is
&resumed until the contrary is &ro#ed.
0"!1: %he '20,000,000.00 check was filled u& by "hing without
)icdao7s authority. .urther, it was incom&lete and undeli#ered.
<ence, "hing did not ac6uire any right or interest therein and could
not assert any cause of action founded on the stolen checks.
Bes&ondent could not be held liable for #iolation of 3' 22.
ISS/": Is the check here an e#idence of indebtedness$
0"!1: Kenerally checks may constitute e#idence of indebtedness.
<owe#er, in #iew of the "A7s findings relating to the 11 checks - that
the '20,000,000.00 was a stolen check and the obligations secured by
the other 10 checks had already been fully &aid by )icdao H they can
no longer be gi#en credence to establish )icdao7s ci#il liability to
"hing. Such ci#il liability, therefore, must be established by
&re&onderant e#idence other than the discredited checks.
%he e(istence of )icdao7s ci#il liability to "hing in the amount of
'20,!/0,000.00 re&resenting her un&aid obligations to the latter has
not been sufficiently established by &re&onderant e#idence.
Sections &;
P"OP!" vs. %OM"%O $% No. &&,.)( April ,&* &...
S7NOPSIS: A&&ellants Bomero and Bodrigue=, Keneral >anager and
L&eration >anager, res&ecti#ely, of Surigao San Andres Industrial
@e#elo&ment "or&oration (SAI@?"LB), were charged with widescale
estafa and #iolation of 3' 22 based on a com&laint filed by ?rnesto A.
Bui=, a radio commentator. SAI@?"LB, engaged in solicitation of
funds and in#estments from the &ublic, guaranteed an E00N return on
in#estment within 1/ or 21 days. A&&ellants issued &ostdated a check
in the amount of '1,200,000.00, but when &resented, was dishonored
for insufficiency of funds. %he trial court ac6uitted a&&ellants of
#iolation of 3' 22 but con#icted them of ?stafa for widescale
swindling. %he trial court held that the crime was committed by a
syndicate and sentenced a&&ellants to life im&risonment. <ence, this
a&&eal. @uring the &endency of the a&&eal, a&&ellant Bodrigue= died.
%he a&&ealed decision was affirmed by the Su&reme "ourt but
modified the &enalty to an indeterminate one for failure of the
&rosecution to establish that the cor&oration was a syndicate as
defined under the law. %he "ourt found that dece&tion was em&loyed
on Bui= by a&&ellants and entered into a 'on=i scheme where
a&&ellant fraudulently re&resented that Bui=7 in#estment would ha#e
an E00N return in 1/ or 21 days. It is sometimes called a &yramid
scheme because a broader base of gullible in#estors must su&&ort the
structure as time &asses.
@eath of the accused &ending a&&eal e(tinguishes his criminal
liability as well as the ci#il liability e( delicto. <owe#er, the claim for
ci#il liability sur#i#es if based on a source of obligation other than
delict.
Accused-a&&ellant relies on the fact that there was a discre&ancy
between the amount in words and the amount in figures in the check
that was dishonored. %he amount in words was '1,000,200.00, while
the amount in figures was '1,200,000.00. It is admitted that the
cor&oration had in the bank '1,1,:I0.00 on Se&tember 2E,1!E!,
and '1,12,90:.1 on A&ril 2, 1!!0. %he check was &resented for
&ayment on Lctober /, 1!E!.
ISS/": Is Section 1: of the )I; a&&licable$
8
Section 1:. "onstruction where instrument is ambiguous. H
*here the language of the instrument is ambiguous, or there are
omissions therein, the following rules of construction a&&ly8
(a) *here the sum &ayable is e(&ressed in words and also in
figures and there is a discre&ancy between the two, the sum
denoted by the words is the sum &ayableD but if the words are
ambiguous or uncertain, reference may be had to the figures to
fi( the amountD (((
0"!1: )o, it is not a&&licable
%he rule in the )egotiable Instruments ;aw is that when there
is ambiguity in the amount in words and the amount in figures, it
would be the amount in words that would &re#ail. <owe#er, this
rule of inter&retation finds no a&&lication in the case. %he
agreement was &erfectly clear that at the end of 21 days, the
in#estment of '1/0,000.00 would become '1,200,000.00. ?#en if
the trial court admitted the sti&ulation of facts, it would not be
fa#orable to accused-a&&ellant.
SAPI"%A vs. #A $% No. &,).,; Sept. &9* &...
FA#2S: %he e#idence of the &rosecution shows that &etitioner
&urchased goods from the grocery store of &ri#ate res&ondent as
shown by the sales in#oices issued by &ri#ate res&ondentD that
these &urchases were &aid with the sub+ect checks issued by de
Ku=manD that &etitioner signed the same checks on the re#erse
sideD and when &resented for &ayment, the checks were dishonored
by the drawee bank due to the closure of the drawer7s accountD
and, &etitioner was informed of the dishonor.
ISS/": In what ca&acity did Sa&iera sign when there is doubt as
to her signature$ *hat is the rule of construction under Section
1:$
0"!1: @es&ite the conflicting #ersions of the &arties, it is
undis&uted that the four () checks issued by de Ku=man were
signed by &etitioner at the back without any indication as to how
she should be bound thereby and, therefore, she is deemed to be
an indorser thereof. %he )egotiable Instruments ;aw clearly
&ro#ides H
Sec. 1:. "onstruction where instrument is ambiguous. - *here
the language of the instrument is ambiguous, or there are
admissions therein, the following rules of construction a&&ly8 ( ( (
( (f) *here a signature is so &laced u&on the instrument that it is
not clear in what ca&acity the &erson making the same intended
to sign, he is deemed an indorser. ( ( ( (
ISS/": *ho are indorsers under Section I9$
0"!1:
Sec. I9. *hen &erson deemed indorser. - A &erson &lacing his
signature u&on an instrument otherwise than as maker, drawer or
acce&tor, is deemed to be an indorser unless he clearly indicates
by a&&ro&riate words his intention to be bound in some other
ca&acity.
ISS/": *hat is the liability of an indorser under Section II$
0"!1:
Sec. II. ;iability of general indorser. - ?#ery indorser who
indorses without 6ualification, warrants to all subse6uent holders
in due course8 (a) %he matters and things mentioned in
subdi#isions (a), (b) and (c) of the ne(t &receding sectionD and
(b) %hat the instrument is, at the time of the indorsement, #alid
and subsistingD
And, in addition, he engages that, on due &resentment, it shall be
acce&ted or &aid or both, as the case may be, according to its
tenor, and that if it be dishonored and the necessary &roceedings
on dishonor be duly taken, he will &ay the amount thereof to the
holder or to any subse6uent indorser who may be com&elled to
&ay it.
SPS "AN$"!IS2A v M"%#A2O% $% No. &9))89 Aug ,&*
,''-
FA#2S: %he &romissory note states8
.or #alue recei#ed, I2*e +ointly and se#erally &romise to &ay
to the order of >?B"A%LB .I)A)"? "LB'LBA%IL) at its office,
the &rinci&al sum of ?IK<% <F)@B?@ .LB%J-.LFB %<LFSA)@
SIQ <F)@B?@ %*?)%J-.IV? '?SLS U :E2100 (' E,I2/.:E),
'hili&&ine currency, ( ( (, in installments as follows8
Se&tember 1I, 1!E2 - '1/,2I:.E:
Lctober 1I, 1!E2 - '1/,2I:.E:
)o#ember 1I, 1!E2 - '1/,2I:.E:
@ecember 1I, 1!E2 - '1/,2I:.E:
Ganuary 1I, 1!E9 - '1/,2I:.E:
.ebruary 1I, 1!E9 - '1/,2I:.E:
( ( (
%he note was signed at the bottom by &etitioners ?duardo 3.
?#angelista and ?&ifania ". ?#angelista, and ?mbassy .arms, Inc. with
the signature of ?duardo 3. ?#angelista below it.
%he "ontinuing Suretyshi& Agreement also &ro#es the solidary
obligation of &etitioners, #i=8
(?mbassy .arms, Inc.)
'rinci&al
(?duardo 3. ?#angelista)
Surety
(?&ifania ". ?#angelista)
Surety
(>ercator .inance "or&oration)
"reditor
%o8 >?B"A%LB .I)A)"? "L'LBA%IL)
(1) .or #aluable and2or other consideration, ?@FAB@L 3.
?VA)K?;IS%A and ?'I.A)IA ". ?VA)K?;IS%A (hereinafter called
Surety), +ointly and se#erally unconditionally guarantees (sic) to
>?B"A%LB .I)A)"? "L'LBA%IL) (hereinafter called "reditor), the
full, faithful and &rom&t &ayment and discharge of any and all
indebtedness of ?>3ASSJ .AB>S, I)". (hereinafter called 'rinci&al) to
the "reditor.
( ( (
(9) %he obligations hereunder are +oint and se#eral and inde&endent of
the obligations of the 'rinci&al. A se&arate action or actions may be
brought and &rosecuted against the Surety whether or not the action is
also brought and &rosecuted against the 'rinci&al and whether or not
the 'rinci&al be +oined in any such action or actions.
( ( (
%he agreement was signed by &etitioners on .ebruary 1I, 1!E2.
%he &romissory notes subse6uently e(ecuted by &etitioners and
?mbassy .arms, restructuring their loan, likewise &ro#e that &etitioners
are solidarily liable with ?mbassy .arms.
'etitioners further allege that there is an ambiguity in the wording
of the &romissory note and claim that since it was >ercator who
&ro#ided the form, then the ambiguity should be resol#ed against it.
ISS/": *hat rule must be followed if there is no ambiguity$
0"!1: "ourts can inter&ret a contract only if there is doubt in its
letter. 3ut, an e(amination of the &romissory note shows no such
ambiguity.
ISS/": <ow will the document be inter&reted under Section 1: of the
)I; when the )I reads8 4I2*?5 and signed by two or more &ersons$
0"!1: Assuming arguendo that there is an ambiguity, Section 1: of
the )egotiable Instruments ;aw states, #i=8
Sec. 1:. "onstruction where instrument is ambiguous. H *here the
language of the instrument is ambiguous or there are omissions
therein, the following rules of construction a&&ly8
( ( ( ( ( ( ( ( (
(g) *here an instrument containing the word 4I &romise to &ay5 is
signed by two or more &ersons, they are deemed to be +ointly and
se#erally liable thereon.
Sections &.* ,'* 99* 8.
F%AN#IS#O vs. #A $% No. &&8-,' Nov. ,.* &...
FA#2S: 3ased u&on the findings of handwriting e(&erts from the )3I,
the trial court held that .rancisco had indeed forged the signature of
Lng to make it a&&ear that he had indorsed the checks.
ISS/": *hat are the effects of the finds of fact of the trial courts of
the e(istence of forgery$
0"!1: As regards the forgery, we concur with the lower courts,
finding that .rancisco forged the signature of Lng on the checks to
make it a&&ear as if Lng had indorsed said checks and that, after
indorsing the checks for a second time by signing her name at the
back of the checks, .rancisco de&osited said checks in her sa#ings
9
account with I3AA. %he forgery was satisfactorily established in the
trial court u&on the strength of the findings of the )3I handwriting
e(&ert. Lther than &etitioner,s self-ser#ing denials, there is nothing
in the records to rebut the )3I,s findings. *ell-entrenched is the
rule that findings of trial courts which are factual in nature,
es&ecially when affirmed by the "ourt of A&&eals, deser#e to be
res&ected and affirmed by the Su&reme "ourt, &ro#ided it is
su&&orted by substantial e#idence on record, as it is in the case at
bench.
ISS/": <ow a )I may be issued through an agent (Section 20) or
indorsed in a re&resentati#e ca&acity (Section )$
Section 20. ;iability of &erson signing as agent, and so forth. H
*here the instrument contains or a &erson adds to his signature
words indicating that he signs for or on behalf of a &rinci&al, or in
a re&resentati#e ca&acity, he is not liable on the instrument if the
was duly authori=edD but the mere addition of words describing
him as an agent, or as filling a re&resentati#e character, without
disclosing his &rinci&al, does not e(em&t him from &ersonal
liability.
Section . Indorsement in re&resentati#e ca&acity H *here any
&erson is under obligation to indorse in a re&resentati#e ca&acity,
he may indorse in such terms as to negati#e &ersonal liability.
0"!1: %he )egotiable Instruments ;aw &ro#ides that where any
&erson is under obligation to indorse in a re&resentati#e ca&acity,
he may indorse in such terms as to negati#e &ersonal liability. An
agent, when so signing, should indicate that he is merely signing in
behalf of the &rinci&al and must disclose the name of his &rinci&alD
otherwise he shall be held &ersonally liable. ?#en assuming that
.rancisco was authori=ed by <""" to sign Lng,s name, still,
.rancisco did not indorse the instrument in accordance with law.
Instead of signing Lng,s name, .rancisco should ha#e signed her
own name and e(&ressly indicated that she was signing as an agent
of <""". %hus, the "ertification cannot be used by .rancisco to
#alidate her act of forgery.
SO!I16AN: vs. MIN1ANAO $% No. &(-(-( +uly ,)* ,''(
FA#2S: >indanao .erroalloy "or&oration ("or&oration) secured an
omnibus line in the aggregate amount of '90,000,000.00 from the
Solidbank. %he "or&oration secured an ordinary time loan from the
Solidbank in the amount of '9,200,000.00. Another ordinary time
loan was granted by the 3ank to the "or&oration in the amount of
'1,E00,000.00 or in the total amount of '/,000,000.00. %he
"or&oration and the 3ank agreed to consolidate and, at the same
time, restructure the 2 loan a#ailments.
%he "or&oration e(ecuted 'romissory )ote )o. !I-!1-00EI/-I7
in fa#or of the 3ank e#idencing its loan. %eresita "u and Gong-*on
<ong (Vice-'residents of the "or&oration for .inance, >arketing
and Administration) affi(ed their signatures on the note. %he
"or&oration again failed to com&ly with the demand of the 3ank.
ISS/": *hat is the liability of an agent under Section 1! and 20
of the )I;$
Section 1!. Signature by agentD authorityD how shown. H %he
signature of any &arty may be made by a duly authori=ed agent.
)o &articular form of a&&ointment is necessary for this &ur&oseD
and the authority of the agent may be established as in other
cases of agency.
0"!1: %he 'romissory )ote in 6uestion is a negotiable
instrument. Fnder Section 1! of the )egotiable Instruments ;aw,
agents or re&resentati#es may sign for the &rinci&al. %heir
authority may be established, as in other cases of agency. Section
20 of the law &ro#ides that a &erson signing 4for and on behalf of a
OdisclosedP &rinci&al or in a re&resentati#e ca&acity ( ( ( is not
liable on the instrument if he was duly authori=ed.5
Bes&ondents "u and <ong signed the 'romissory )ote without
the word 4by5 &receding their signatures, ato& the designation
4>aker23orrower5 and the &rinted name of the cor&oration.
*hile their signatures a&&ear without 6ualification, the
inference that they signed in their indi#idual ca&acities is negated
by the following facts8 1) the name and the address of the
cor&oration a&&eared on the s&ace &ro#ided for 4>aker23orrower5D
2) Bes&ondents "u and <ong had only one set of signatures on the
instrument, when there should ha#e been two, if indeed they had
intended to be bound solidarily -- the first as re&resentati#es of the
cor&oration, and the second as themsel#es in their indi#idual
ca&acitiesD 9) they did not sign under the s&aces &ro#ided for 4"o-
maker,5 and neither were their addresses reflected thereD and ) at the
back of the 'romissory )ote, they signed abo#e the words 4Authori=ed
Be&resentati#e.5
%he authority of Bes&ondents "u and <ong to sign for and on
behalf of the cor&oration has been am&ly established by the Besolution
of >infaco7s 3oard of @irectors.
In the totality of the circumstances, Bes&ondents "u and <ong
clearly signed the )ote merely as re&resentati#es of >infaco. <ence,
they are not solidarily liable since they acted merely as agents.
Since solidary liability is not clearly e(&ressed in the 'romissory
)ote and is not re6uired by law or the nature of the obligation in this
case, no conclusion of solidary liability can be made.
Section ,,
A2%I/M vs. #A $% No. &'.9.& Feb. ,)* ,''&
1" !"ON vs. #A $% No. &,&;.9 Feb. ,)* ,''&
FA#2S: %he record re#eals that <i-"ement "or&oration issued the
four () checks to e(tend financial assistance to ?.%. <enry, not as
&ayment of the balance of the '90 million &esos cost of hydro oil
deli#ered by ?.%. <enry to <i-"ement. *hy else would &etitioner de
;eon ask for counter&art checks from ?.%. <enry if the checks were in
&ayment for hydro oil deli#ered by ?.%. <enry to <i-"ement$
<i-"ement, howe#er, maintains that the checks were not issued
for consideration and that ;ourdes and ?.%. <enry engaged in a Ckiting
o&erationC to raise funds for ?.%. <enry, who admittedly was in need
of financial assistance. %he "ourt finds that there was no sufficient
e#idence to show that such is the case. ;ourdes >. de ;eon is the
treasurer of the cor&oration and is authori=ed to sign checks for the
cor&oration. At the time of the issuance of the checks, there were
sufficient funds in the bank to co#er &ayment of the amount of '2
million &esos.
ISS/": *hat is an ultra #ires act$
0"!1: It is, howe#er, our #iew that there is basis to rule that the act
of issuing the checks was well within the ambit of a #alid cor&orate
act, for it was for securing a loan to finance the acti#ities of the
cor&oration, hence, not an ultra #ires act.
CAn ultra vires act is one committed outside the ob+ect for which
a cor&oration is created as defined by the law of its organi=ation and
therefore beyond the &ower conferred u&on it by lawC. %he term Cultra
#iresC is Cdistinguished from an illegal act for the former is merely
#oidable which may be enforced by &erformance, ratification, or
esto&&el, while the latter is #oid and cannot be #alidated.C
ISS/": In what instances will &ersonal liability of cor&orate officers
attach$
0"!1: C'ersonal liability of a cor&orate director, trustee or officer
along (although not necessarily) with the cor&oration may so #alidly
attach, as a rule, only when8
C1. <e assents (a) to a &atently unlawful act of the cor&oration,
or (b) for bad faith or gross negligence in directing its affairs, or
(c) for conflict of interest, resulting in damages to the
cor&oration, its stockholders or other &ersonsD
C2. <e consents to the issuance of watered down stocks or who,
ha#ing knowledge thereof, does not forthwith file with the
cor&orate secretary his written ob+ection theretoD
C9. <e agrees to hold himself &ersonally and solidarily liable with
the cor&orationD or
C. <e is made, by a s&ecific &ro#ision of law, to &ersonally
answer for his cor&orate action.C
In the case at bar, ;ourdes >. de ;eon and Antonio de las Alas as
treasurer and "hairman of <i-"ement were authori=ed to issue the
checks. <owe#er, >s. de ;eon was negligent when she signed the
confirmation letter re6uested by >r. Ja& of Atrium and >r. <enry of
?.%. <enry for the rediscounting of the crossed checks issued in fa#or
of ?.%. <enry. She was aware that the checks were strictly endorsed
for de&osit only to the &ayee,s account and not to be further
negotiated. *hat is more, the confirmation letter contained a clause
that was not true, that is, Cthat the checks issued to ?.%. <enry were
in &ayment of <ydro oil bought by <i-"ement from ?.%. <enryC. <er
negligence resulted in damage to the cor&oration. <ence, >s. de ;eon
may be held &ersonally liable therefor.
ISS/": *hat is a holder in due course$
0"!1: %he )egotiable Instruments ;aw, Section /2 defines a holder
in due course, thus8
Section /2. A holder in due course is a holder who has taken
the instrument under the following conditions8
(a) %hat it is com&lete and regular u&on its faceD
10
(b) %hat he became the holder of it before it was
o#erdue, and without notice that it had been &re#iously
dishonored, if such was the factD
(c) %hat he took it in good faith and for #alueD
(d) %hat at the time it was negotiated to him he had no
notice of any infirmity in the instrument or defect in the
title of the &erson negotiating it.
ISS/": Is Atrium a holder in due course when it re-discounted the
crossed checks$
0"!1: In the instant case, the checks were crossed checks and
s&ecifically indorsed for de&osit to &ayee,s account only. .rom the
beginning, Atrium was aware of the fact that the checks were all for
de&osit only to &ayee,s account, meaning ?.%. <enry. "learly, then,
Atrium could not be considered a holder in due course.
ISS/": Are holders not in due course &recluded from reco#ering
on the instrument$
0"!1: <owe#er, it does not follow as a legal &ro&osition that
sim&ly because &etitioner Atrium was not a holder in due course for
ha#ing taken the instruments in 6uestion with notice that the same
was for de&osit only to the account of &ayee ?.%. <enry that it was
altogether &recluded from reco#ering on the instrument. %he
)egotiable Instruments ;aw does not &ro#ide that a holder not in
due course can not reco#er on the instrument.
%he disad#antage of Atrium in not being a holder in due
course is that the negotiable instrument is sub+ect to defenses as if
it were non-negotiable. Lne such defense is absence or failure of
consideration.
Section ,- <Forgery=
ASSO#IA2"1 vs. #A $% No. &';-), +an. -&* &..8
PN6 vs. #A $% No. &';8&, +an. -&* &..8
FA#2S: %he 'ro#ince of %arlac maintains a current account with
the ')3 %arlac 3ranch where the &ro#incial funds are de&osited. A
&ortion of the funds of the &ro#ince is allocated to the "once&cion
?mergency <os&ital. F&on audit, it was disco#ered that the
hos&ital did not recei#e se#eral allotment checks drawn by the
'ro#ince.
It was learned that there were 90 checks amounting to
'209,900.00 which were encashed by .austo 'angilinan, with the
Associated 3ank acting as collecting bank. 'angilinan was the
administrati#e officer and cashier of &ayee hos&ital until his
retirement on .ebruary 2E, 1!:E. <e collected the 6uestioned
checks and claimed to be assisting or hel&ing the hos&ital follow u&
the release of the checks and had official recei&ts.
*hen 'angilinan sought to encash the first check with
Associated 3ank, the manager of Associated 3ank refused and
suggested that 'angilinan de&osit the check in his &ersonal sa#ings
account with the same bank. 'angilinan was able to withdraw the
money when the check was cleared and &aid by the drawee bank,
')3. After forging the signature of @r. Adena "anlas, who was
chief of the &ayee hos&ital, 'angilinan followed the same &rocedure
for the other checks. All the checks bore the stam& of Associated
3ank which reads 4All &rior endorsements guaranteed ASSL"IA%?@
3A)1.5
%he 'ro#incial %reasurer wrote to ')3 seeking the restoration
of the #arious amounts debited. ')3 then demanded
reimbursement from the Associated 3ank. As both banks resisted
&ayment, the 'ro#ince of %arlac brought suit against ')3 which, in
turn, im&leaded Associated 3ank as third-&arty defendant. %he
latter then filed a fourth-&arty com&laint against Adena "anlas and
.austo 'angilinan.
%he lower court ruled that ')3 &ay the 'ro#ince of %arlac and
that Associated 3ank to reimburse ')3. "A affirmed the decision of
the trial court. %he fourth-&arty com&laint was dismissed for lack of
cause of action against "anlas and lack of +urisdiction o#er
'angilinan.
ISS/": Ki#e a re#iew of the effects of a forged indorsement
0"!1: A forged signature, whether it be that of the drawer or the
&ayee, is wholly ino&erati#e and no one can gain title to the
instrument through it. A &erson whose signature to an instrument
was forged was ne#er a&arty and ne#er consented to the contract
which allegedly ga#e rise to such instrument. Section 29 does not
a#oid the instrument but only the forged signature. %hus, a forged
indorsement does not o&erate as the &ayee7s indorsement.
%he e(ce&tion to the general rule in Section 29 is where 4a
&arty against whom it is sought to enforce a right is &recluded from
setting u& the forgery or want of authority.5 'arties who warrant or
admit the genuineness of the signature in 6uestion and those who, by
their acts, silence or negligence, are esto&&ed from setting u& the
defense of forgery are &recluded from using this defense. Indorsers,
&ersons negotiating by deli#ery and acce&tors are warrantors of the
genuineness of the signatures on the instrument.
In bearer instruments, the signature of the &ayee or holder is
unnecessary to &ass title to the instrument. <ence, when the
indorsement is a forgery, only the &erson whose signature is forged
can raise the defense of forgery against a holder in due course.
*here the instrument is &ayable to order at the time of the
forgery, such as the checks in this case, the signature of its rightful
holder (here, the &ayee hos&ital) is essential to transfer title to the
same instrument. *hen the holder7s indorsement is forged, all &arties
&rior to the forgery may raise the real defense of forgery against all
&arties subse6uent thereto
An indorser of an order instrument warrants 4that the instrument
is genuine and in all res&ects what it &ur&orts to beD that he has a
good title to itD that all &rior &arties had ca&acity to contractD and that
the instrument is at the time of his indorsement #alid and subsisting.5
<e cannot inter&ose the defense that signatures &rior to him are
forged.
A collecting bank where a check is de&osited and which indorses
the check u&on &resentment with the drawee bank, is such an
indorser. So e#en if the indorsement on the check de&osited by the
banks7s client is forged, the collecting bank is bound by his warranties
as an indorser and cannot set u& the defense of forgery as against the
drawee bank.
%he bank on which a check is drawn, known as the drawee bank,
is under strict liability to &ay the check to the order of the &ayee. %he
drawer7s instructions are reflected on the face and by the terms of the
check. 'ayment under a forged indorsement is not to the drawer7s
order. *hen the drawee bank &ays a &erson other than the &ayee, it
does not com&ly with the terms of the check and #iolates its duty to
charge its customer7s (the drawer) account only for &ro&erly &ayable
items. Since the drawee bank did not &ay a holder or other &erson
entitled to recei#e &ayment, it has no right to reimbursement from the
drawer. %he general rule then is that the drawee bank may not debit
the drawer7s account and is not entitled to indemnification from the
drawer. %he risk of loss must &erforce fall on the drawee bank.
If the drawee bank can &ro#e a failure by the customer2drawer to
e(ercise ordinary care that substantially contributed to the making of
the forged signature, the drawer is &recluded from asserting the
forgery. If at the same time the drawee bank was also negligent to the
&oint of substantially contributing to the loss, then such loss from the
forgery can be a&&ortioned between the negligent drawer and the
negligent bank.
In cases in#ol#ing a forged check, where the drawer7s signature is
forged, the drawer can reco#er from the drawee bank. )o drawee
bank has a right to &ay a forged check. If it does, it shall ha#e to
recredit the amount of the check to the account of the drawer. %he
liability chain ends with the drawee bank whose res&onsibility it is to
know the drawer7s signature since the latter is its customer.
In cases in#ol#ing checks with forged indorsements, such as the
&resent &etition, the chain of liability does not end with the drawee
bank. %he drawee bank may not debit the account of the drawer but
may generally &ass liability back through the collection chain to the
&arty who took from the forger and, of course, to the forger himself, if
a#ailable. In other words, the drawee bank can seek reimbursement or
a return of the amount it &aid from the &resentor bank or &erson.
%heoretically, the latter can demand reimbursement from the &erson
who indorsed the check to it and so on. %he loss falls on the &arty who
took the check from the forger, or on the forger himself. Since a
forged indorsement is ino&erati#e, the collecting bank had no right to
be &aid by the drawee bank. %he former must necessarily return the
money &aid by the latter because it was &aid wrongfully.
In this case, the checks were indorsed by the collecting bank
(Associated 3ank) to the drawee bank (')3). %he former will
necessarily be liable to the latter for the checks bearing forged
indorsements. If the forgery is that of the &ayee7s or holder7s
indorsement, the collecting bank is held liable, without &re+udice to the
latter &roceeding against the forger.
>ore im&ortantly, by reason of the statutory warranty of a
general indorser in Section II of the )egotiable Instruments ;aw, a
collecting bank which indorses a check bearing a forged indorsement
and &resents it to .the drawee bank guarantees all &rior indorsements,
including the forged indorsement. It warrants that the instrument is
genuine, and that it is #alid and subsisting at the time of his
indorsement. 3ecause the indorsement is a forgery, the collecting bank
commits a breach of this warranty and will be accountable to the
drawee bank. %his liability scheme o&erates without regard to fault on
the &art of the collecting2&resenting bank. ?#en if the latter bank was
not negligent, it would still be liable to the drawee bank because of its
indorsement. %he "ourt has consistently ruled that 4the collecting bank
11
or last endorser generally suffers the loss because it has the duty to
ascertain the genuineness of all &rior endorsements considering
that the act of &resenting the check for &ayment to the drawee is
an assertion that the &arty making the &resentment has done its
duty to ascertain the genuineness of the endorsements.5 >oreo#er,
the collecting bank is made liable because it is &ri#y to the
de&ositor who negotiated the check. %he bank knows him, his
address and history because he is a client. It has taken a risk on his
de&osit. %he bank is also in a better &osition to detect forgery,
fraud or irregularity in the indorsement.
%he drawee bank is not similarly situated as the collecting
bank because the former makes no warranty as to the genuineness
of any indorsement. %he drawee bank7s duty is but to #erify the
genuineness of the drawer7s signature and not of the indorsement
because the drawer is its client.
%he drawee bank can reco#er the amount &aid on the check
bearing a forged indorsement from the collecting bank. <owe#er, a
drawee bank has the duty to &rom&tly inform the &resentor of the
forgery u&on disco#ery. If the drawee bank delays in informing the
&resentor of the forgery, thereby de&ri#ing said &resentor of the
right to reco#er from the forger, the former is deemed negligent
and can no longer reco#er from the &resentor.
ISS/": *here thirty checks beraing forged endorsements are
&aid, who bears the loss, the drawer, the drawee bank or the
collecting bank$
0"!1: A&&lying these rules to the case at bench, ')3, the drawee
bank, cannot debit the current account of the 'ro#ince of %arlac
because it &aid checks which bore forged indorsements. <owe#er, if
the 'ro#ince of %arlac as drawer was negligent to the &oint of
substantially contributing to the loss, then the drawee bank ')3
can charge its account. If both drawee bank-')3 and drawer-
'ro#ince of %arlac were negligent, the loss should be &ro&erly
a&&ortioned between them. %he loss incurred by drawee bank-')3
can be &assed on to the collecting bank-Associated 3ank which
&resented and indorsed the checks to it. Associated 3ank can, in
turn, hold the forger, .austo 'angilinan, liable. If ')3 negligently
delayed in informing Associated 3ank of the forgery, thus de&ri#ing
the latter of the o&&ortunity to reco#er from the forger, it forfeits its
right to reimbursement and will be made to bear the loss.
After careful e(amination of the records, the "ourt finds that
the 'ro#ince of %arlac was e6ually negligent and should, therefore,
share the burden of loss from the checks bearing a forged
indorsement. %he 'ro#ince of %arlac &ermitted .austo 'angilinan to
collect the checks when the latter, ha#ing already retired from
go#ernment ser#ice, was no longer connected with the hos&ital.
*ith the e(ce&tion of the first check, all the checks were issued and
released after 'angilinan7s retiremen. After nearly three years, the
%reasurer7s office was still releasing the checks to the retired
cashier. In addition, some of the aid allotment checks were released
to 'angilinan and the others to ?li=abeth Guco, the new cashier. %he
fact that there were now two &ersons collecting the checks for the
hos&ital is an unmistakable sign of an irregularity which should ha#e
alerted em&loyees in the %reasurer7s office of the fraud being
committed. %here is also e#idence indicating that the &ro#incial
em&loyees were aware of 'angilinan7s retirement and conse6uent
dissociation from the hos&ital. %he failure of the 'ro#ince of %arlac
to e(ercise due care contributed to a significant degree to the loss
tantamount to negligence. <ence, the 'ro#ince of %arlac should be
liable for &art of the total amount &aid on the 6uestioned checks.
%he drawee bank ')3 also breached its duty to &ay only
according to the terms of the check. <ence, it cannot esca&e
liability and should also bear &art of the loss. %he "ourt finds as
reasonable, the &ro&ortionate sharing of fifty &ercent - fifty &ercent
(/0N-/0N). @ue to the negligence of the 'ro#ince of %arlac in
releasing the checks to an unauthori=ed &erson (.austo 'angilinan),
in allowing the retired hos&ital cashier to recei#e the checks for the
&ayee hos&ital for a &eriod close to three years and in not &ro&erly
ascertaining why the retired hos&ital cashier was collecting checks
for the &ayee hos&ital in addition to the hos&ital7s real cashier,
res&ondent 'ro#ince contributed to the loss amounting to
'209,900.00 and shall be liable to the ')3 for fifty (/0N) &ercent
thereof. In effect, the 'ro#ince of %arlac can only reco#er fifty
&ercent (/0N) of '209,900.00 from ')3. %he collecting bank,
Associated 3ank, shall be liable to ')3 for fifty (/0N) &ercent of
'209,900.00. It is liable on its warranties as indorser of the checks
which were de&osited by .austo 'angilinan, ha#ing guaranteed the
genuineness of all &rior indorsements, including that of the chief of
the &ayee hos&ital, @r. Adena "anlas. Associated 3ank was also
remiss in its duty to ascertain the genuineness of the &ayee7s
indorsement.
A delay in informing the collecting bank (Associated 3ank) of
the forgery, which de&ri#es it of the o&&ortunity to go after the
forger, signifies negligence on the &art of the drawee bank (')3) and
will &reclude it from claiming reimbursement.
SPS AN2ONIO vs. SPS OMN"S $% No. &9'.)' Marc3 &* ,'''
FA#2S: Barecrafts 'hili&&ines (Barecrafts), a handicrafts e(&ort
business owned by &etitioners, hired res&ondent Alice Lmnes as its
accountant-bookkee&er. <er duties included the &re&aration of checks
for the &ayment of bills to the su&&liers of rarecrafts.
Sometime in Guly 1!!1, &etitioner .rancisco S. Antonio recei#ed a
call from res&ondent Standard "hartered 3ank seeking confirmation of
the issuance of a check for '10/,:/0.00 &ayable to cash. <e then
asked >rs. Lmnes about the check in 6uestion, after which he went
back to his office, while she went to her desk, &resumably to #erify the
issuance of the check from the records. *hen >rs. Lmnes failed to
return after some time, >r. Antonio decided to follow u& the matter
with her. As he was going out of his office, >r. Antonio saw >rs.
Lmnes crossing the street and taking a +ee&ney bound for 'asig.
Alarmed, >r. Antonio looked for the stub to the check, which he found
and saw that the amount indicated therein was '99/.1/.
;ater on the same day, res&ondent bank called >r. Antonio
regarding a check for '!:,/00.00 &ayable to cash. F&on #erification,
>r. Antonio found that the stub of the check indicated a different
amount.
It was found that the 2 checks were credited to the sa#ings
account of >rs. Lmnes at the .ar ?ast 3ank and %rust "om&any,
%anay 3ranch. At the re6uest of >r. Antonio, res&ondent bank
furnished him with &hotoco&ies of the 2 checks, which he denied
ha#ing signed.
>r. Antonio conducted an e(amination of the records. <e found
that :0 checks, in#ol#ing a total amount of ',:20,I00.00, were issued
for amounts different from those indicated in the corres&onding stubs.
'etitioners (>r. Antonio and his wife Amor) filed an action against
res&ondents with the trial court, and +udgment was rendered in their
fa#or. "A re#ersed the decision of the trial court.
ISS/": Are the Antonio7s &recluded from reco#ering from Standard
"hartered 3ank due to negligence$
0"!1: Jes, they are &recluded from reco#ering.
'etitioners failed to meet the 6uantum of &roof necessary to
establish forgery, the e(istence of which cannot be &resumed. the
failure of >r. Antonio for o#er three years to detect the re&eated
commission of fraud within his business, which he claims e#entually
in#ol#ed the total amount of ',:20,I00.00, des&ite the fact that
res&ondent bank sent monthly statements to Barecrafts, is indicati#e
of his e(treme negligence. It a&&ears that >r. Antonio com&letely left
to >rs. Lmnes the management of such an im&ortant as&ect of his
business. *hile the general rule is that a drawee bank which clears a
forged check for &ayment should reimburse the drawer, this does not
a&&ly when the failure of the latter to e(ercise ordinary care made the
loss &ossible. <ence, e#en is the signatures in the checks were forged,
&etitioners ha#e no right of recourse against res&ondent bank.
M"2%O6AN: vs. SANA% $% No. &9(.&8 +an. ,.* ,''&
FA#2S: Isabela State Fni#ersity issued 2 @3' checks to res&ondent
San#ar @e#elo&ment "or&. as final &ayment for res&ondent7s
construction of the school7s farm structures in Isabela. %he 2 checks
were gi#en to res&ondent7s re&resentati#e, ?ngr. Gesus Frrea, who in
turn entrusted them to one ?duardo %alaue. %alaue was su&&osed to
bring the 2 checks to res&ondent in order to enable him (%alaue) to
clarify the alleged obligation one Isidro "alueng (res&ondent7s sub-
contractor) owed him. <owe#er, instead of forwarding the checks to
res&ondent, ?duardo %alaue forged the indorsements of ?ngr. Gesus
Frrea and de&osited the checks with &etitioner >etrobank under the
account of ;ily 3allesteros.
.or failure of &etitioner to &ay the 2 checks amounting to
'9IE,!!I.0I, res&ondent filed a case for collection against &etitioner
and ?duardo %alaue.
%he trial court granted the motion to dismiss, holding that
&etitioner credited the 2 checks to the account of ;ily 3allesteros only
after @3' (drawee bank) had acce&ted, cleared, and honored the
same and that, under VI2 of the )egotiable Instruments ;aw, @3', as
the acce&tor2drawee bank, was &rimarily liable for acce&ting the
checks. "A re#ersed the decision of the trial court and the case was
remanded to the trial court for further &roceedings.
ISS/": *hether or not San#ar7s com&laint states a cause of action
against >etrobank, the collecting bank, as to the two checks$
0"!1: %he answer is in the affirmati#e. Bes&ondent7s com&laint
alleges that %alaue, instead of bringing the same to res&ondent7s office
in Mue=on "ity and contrary to his re&resentation, de&osited the
12
checks to the account of ;ily 3allesteros with &etitioner bank, by
falsifying the indorsements of ?ngr. FrreaD that &etitioner bank,
des&ite the falsification of the indorsements of ?ngr. Frrea and the
ob#ious irregularity of his alleged indorsements, acce&ted the
de&osit of the 2 checks to the account of ;ily 3allesterosD and that
by #irtue of the negligent acts of &etitioner bank, together with that
of ?duardo %alaue, res&ondent had been damaged and &re+udiced
in the total amount of '9IE,!!I.0I.
'etitioner contends that res&ondent7s com&laint does not state
a cause of action against it, since the same does not allege that
&etitioner committed any wrongdoing or fraud but only alleges that
&etitioner agreed to act as collecting bank and did not honor the
checks.
%his contention is without merit. Section 29 of the )egotiable
Instruments ;aw &ro#ides that when a signature is forged or made
without authority of the &erson whose signature it &ur&orts to be, it
is wholly ino&erati#e and no right to retain the instrument or to gi#e
a discharge therefor or to enforce &ayment thereof against any
&arty thereto can be ac6uired through or under such signature
unless the &arty against whom it is sought to enforce such right is
&recluded from setting u& the forgery or want of authority. %alaue
forged the indorsements of ?ngr. Frrea which allowed the former to
de&osit the checks to the account of ;ily 3allesteros. %he checks
were then indorsed by &etitioner >etrobank (as collecting bank) to
@3', as drawee bank. 'etitioner acted as a general indorser when it
stam&ed 4all &rior indorsements and2or lack of indorsements
guaranteed5 because it thereby warranted the genuineness of all
&rior indorsenients. 'etitioner is thus liable to @3' for the two
checks as a forged indorsement does not o&erate as the &ayee7s
indorsement.
3y reason of the statutory warranty of a general indorser in
Section II of the )egotiable Instruments ;aw, a collecting bank
which indorses a check bearing a forged indorsement and &resents
it to the drawee bank guarantees all &rior indorsements, including
the forged indorsement. It warrants that the instrument is genuine,
and that it is #alid and subsisting at the time of his indorsement.
3ecause the indorsement is a forgery, the collecting bank commits
a breach of this warranty and will be accountable to the drawee
bank. %his liability scheme o&erates without regard to fault on the
&art of the collecting2&resenting bank. ?#en if the latter bank was
not negligent, it would still be liable to the drawee bank because of
its indorsement.
ISS/": *ho bears the loss in case of a forged instrument$
0"!1: %he "ourt has consistently ruled that Cthe collecting bank
or last indorser generally suffers the loss because it has the duty to
ascertain the genuineness of all &rior indorsements considering that
the act of &resenting the check for &ayment to the drawee is an
assertion that the &arty making the &resentment had done its duty
to ascertain the genuineness of the indorsements.5
%he drawee bank is not similarly situated as the collecting
bank because the former makes no warranty as to the genuineness
of any indorsement. %he drawee bank7s duty is but to #erify the
genuineness of the drawer7s signature and not of the indorsement
because the drawer is its client.
>oreo#er, the collecting bank is made liable because it is &ri#y
to the de&ositor who negotiated the check. %he bank knows him,
his address and history because he is a client. It has taken a risk on
his de&osit. %he bank is also in a better &osition to detect forgery,
fraud or irregularity in the indorsement.
?"S2MON2 6AN: vs. ON$ $% No. &-,(8' +an. -'* ,'',
ISS/": *hat is the effect of forgery$
0"!1: Fnder Section 29 of the )egotiable Instruments ;aw8
Section 29. *hen a signature is forged or made without the
authority of the &erson whose signature it &ur&orts to be, it is
wholly ino&erati#e, and no right to retain the instrument, or to
gi#e a discharge therefor, or to enforce &ayment thereof against
any &arty thereto, can be ac6uired through or under such
signature, unless the &arty against whom it is sought to enforce
such right is &recluded from setting u& the forgery or want of
authority.
Since the signature of the &ayee, in the case at bar, was
forged to make it a&&ear that he had made an indorsement in fa#or
of the forger, such signature should be deemed as ino&erati#e and
ineffectual. 'etitioner, as the collecting bank, grossly erred in
making &ayment by #irtue of said forged signature. %he &ayee,
herein res&ondent, should therefore be allowed to reco#er from the
collecting bank.
ISS/": *hat is the nature of the liability of a collecting bank in
forgeries of indorsements$
0"!1: %he collecting bank is liable to the &ayee and must bear the
loss because it is its legal duty to ascertain that the &ayee7s
endorsement was genuine before cashing the check. As a general rule,
a bank or cor&oration who has obtained &ossession of a check u&on an
unauthori=ed or forged indorsement of the &ayee7s signature and who
collects the amount of the check from the drawee, is liable for the
&roceeds thereof to the &ayee or other owner, notwithstanding that
the amount has been &aid to the &erson from whom the check was
obtained.
ISS/": Is Lng a holder under Section /1 and 1!1 when he was
ne#er in actual or &hysical &ossession of the checks$
Section /1. Bight of holder to sueD &ayment H %he holder of a
negotiable instrument may sue thereon in his own nameD and
&ayment to him in due course discharges the instrument.
Section 1!1. @efinitions and meaning of terms H In this Act, unless
the conte(t otherwise re6uires H (((
4<older5 means the &ayee or indorsee of a bill or note, who is in
&ossession of it, or the bearer thereofD (((
0"!1: Jes, Lng is a holder e#en if he ne#er had &ossession of the
checks nor did he authori=e anybody.
'etitioner7s claim that since there was no deli#ery yet and
res&ondent has ne#er ac6uired &ossession of the checks, res&ondent7s
remedy is with the drawer and not with &etitioner bank. 'etitioner
relies on the #iew to the effect that where there is no deli#ery to the
&ayee and no title #ests in him, he ought not to be allowed to reco#er
on the ground that he lost nothing because he ne#er became the
owner of the check and still retained his claim of debt against the
drawer. <owe#er, another #iew in certain cases holds that e#en if the
absence of deli#ery is considered, such consideration is not material.
ISS/": *hat is the conce&t of a 4desirable short cut5$
0"!1: A desirable shortcut is to reach the &arty who ought in any
e#ent to be ultimately liable. %he &laintiff uses one action to reach, by
a desirable short cut, the &erson who ought in any e#ent to be
ultimately liable as among the innocent &ersons in#ol#ed in the
transaction. In other words, the &ayee ought to be allowed to reco#er
directly from the collecting bank, regardless of whether the check was
deli#ered to the &ayee or not.
ISS/": *hat is the degree of care re6uired for banks considering the
nature of its business$ *hy was there negligence here$
0"!1: 3anks are engaged in a business im&ressed with &ublic
interest, and it is their duty to &rotect in return their many clients and
de&ositors who transact business with them. %hey ha#e the obligation
to treat their client7s account meticulously and with the highest degree
of care, considering the fiduciary nature of their relationshi&. %he
diligence re6uired of banks, therefore, is more than that of a good
father of a family. In the &resent case, &etitioner was held to be
grossly negligent in &erforming its duties. As found by the trial court8
((( (A)t the time the 6uestioned checks were acce&ted for de&osit to
'aciano %anlimco7s account by defendant bank, defendant bank,
admittedly had in its files s&ecimen signatures of &laintiff who
maintained a current account with them. Ki#en the substantial face
#alue of the two checks, totalling '1,:/,:E:./0, and the fact that they
were being de&osited by a &erson not the &ayee, the #ery least
defendant bank should ha#e done, as any reasonable &rudent man
would ha#e done, was to #erify the genuineness of the indorsements
thereon. %he "ourt cannot hel& but note that had defendant
conducted e#en the most cursory com&arison with &laintiff7s s&ecimen
signatures in its files it would ha#e at once seen that the alleged
indorsements were falsified and were not those of the &laintiff-&ayee.
<owe#er, defendant a&&arently failed to make such a #erification or,
what is worse did so but, chose to disregard the ob#ious dissimilarity
of the signatures. %he first omission makes it guilty of gross
negligenceD the second of bad faith. In either case, defendant is liable
to &laintiff for the &roceeds of the checks in 6uestion.
ISS/": *as Lng barred by laches since it took him fi#e (/) months
to demand from *estmont$
0"!1: In the case at bar, it cannot be said that res&ondent sat on his
rights. <e immediately acted after knowing of the forgery by
&roceeding to seek hel& from the %anlimco family and later the "entral
3ank, to remedy the situation and reco#er his money from the forger,
13
'aciano %anlimco. Lnly after he had e(hausted &ossibilities of
settling the matter amicably with the family of %anlimco and
through the "3, about fi#e months after the unlawful transaction
took &lace, did he resort to making the demand u&on the &etitioner
and e#entually before the court for reco#ery of the money #alue of
the two checks. %hese acts cannot be construed as undue delay in
or abandonment of the assertion of his rights.
>oreo#er, the claim of &etitioner that res&ondent should be
barred by laches is clearly a #ain attem&t to deflect res&onsibility
for its negligent act. As e(&lained by the a&&ellate court, it is
&etitioner which had the last clear chance to sto& the fraudulent
encashment of the sub+ect checks had it e(ercised due diligence
and followed the &ro&er and regular banking &rocedures in clearing
checks. As we had earlier ruled, the one who had the last clear
o&&ortunity to a#oid the im&ending harm but failed to do so is
chargeable with the conse6uences thereof.
2%A1"%S vs. %A1IO $% No. &-)(&' Oct. &'* ,'',
FA#2S: 3IB assessed &laintiffs B'), I3", and 33" of their ta(
obligations. 'laintiffs &urchased from defendant %raders Boyal
3ank (%B3) 9 manager7s checks to be used as &ayment for their ta(
liabilities. %he 9 checks were &ayable to the 3IB. It was
established, howe#er, that said checks were ne#er deli#ered or &aid
to the &ayee 3IB but were in fact &resented for &ayment by some
unknown &ersons who, in order to recei#e &ayment therefor, forged
the name of the &ayee. %he checks were &resented for &ayment by
unknown &ersons to defendant Security 3ank and %rust "om&any
(S3%"), %aytay 3ranch. @es&ite this fraud, &etitioner %B3 &aid the
9 checks in the total amount of '!,:!0,:1I.E:.
ISS/": *hether or not %B3 should be held solely liable when it
&aid the amount of the checks in 6uestion to a &erson other than
the &ayee indicated on the face of the check, the 3IB$
0"!1: J?S, %B3 is solely liable. 'etitioner ought to ha#e known
that, where a check is drawn &ayable to the order of one &erson
and is &resented for &ayment by another and &ur&orts u&on its face
to ha#e been duly indorsed by the &ayee of the check, it is the
&rimary duty of &etitioner to know that the check was duly indorsed
by the original &ayee and, where it &ays the amount of the check to
a third &erson who has forged the signature of the &ayee, the loss
falls u&on &etitioner who cashed the check. Its only remedy is
against the &erson to whom it &aid the money.
Since %B3 did not &ay the rightful holder or other &erson or
entity entitled to recei#e &ayment, it has no right to reimbursement.
'etitioner %B3 was remiss in its duty and obligation, and must
therefore suffer the conse6uences of its own negligence and
disregard of established banking rules and &rocedures.
ISS/": *hat is the effect of Section 29 of the )I;$ *hat is the
conse6uence of a bank &aying a forged check$
0"!1: *hen a signature is forged or made without the authority
of the &erson whose signature it &ur&orts to be, it is wholly
ino&erati#e, and no right to retain the instrument, or to gi#e a
discharge therefor, or to enforce &ayment thereof against any &arty
thereto, can be ac6uired through or under such signature.5
"onse6uently, if a bank &ays a forged check, it must be
considered as &aying out of its funds and cannot charge the
amount so &aid to the account of the de&ositor.
ISS/": *hat is a crossed check$
0"!1: It should be noted further that one of the sub+ect checks
was crossed. %he crossing of one of the sub+ect checks should
ha#e &ut &etitioner on guardD it was duty-bound to ascertain the
indorser7s title to the check or the nature of his &ossession.
'etitioner should ha#e known the effects of a crossed check8 (a)
the check may not be encashed but only de&osited in the bankD (b)
the check may be negotiated only once to one who has an account
with a bank and (c) the act of crossing the check ser#es as a
warning to the holder that the check has been issued for a definite
&ur&ose so that he must in6uire if he has recei#ed the check
&ursuant to that &ur&ose, otherwise, he is not a holder in due
course.
ISS/": *as %B3 negligent$
0"!1: J?S, %B3 was negligent. 3y encashing in fa#or of unknown
&ersons checks which were on their face &ayable to the 3IB, a
go#ernment agency which can only act only through its agents,
&etitioner did so at its &eril and must suffer the conse6uences of
the unauthori=ed or wrongful endorsement. In this light, &etitioner
%B3 cannot e(cul&ate itself from liability by claiming that res&ondent
networks were themsel#es negligent.
A bank is engaged in a business im&ressed with &ublic interest
and it is its duty to &rotect its many clients and de&ositors who
transact business with it. It is under the obligation to treat the
accounts of the de&ositors and clients with meticulous care, whether
such accounts consist only of a few hundreds or millions of &esos.
ISS/": *hat is a collecting bank$
0"!1: A collecting bank where a check is de&osited and which
indorses the check u&on &resentment with the drawee bank, is such
an indorser. So e#en if the indorsement on the check de&osited by the
bank7s client is forged, the collecting bank is bound by his warranties
as an indorser and cannot set u& the defense of forgery as against the
drawee bank. A collecting bank which indorses a check bearing a
forged indorsement and &resents it to the drawee bank guarantees all
&rior indorsements, including the forged indorsement itself, and
ultimately should be held liable therefor.
ISS/": Fnder the circumstances, is Security 3ank and %rust
"om&any (S3%") a collecting bank$
0"!1: )L, S3%" is not a collecting bank. It is doubtful if the sub+ect
checks were e#er &resented to and acce&ted by S3%" so as to hold it
liable as a collecting bank
ISS/": *ho are deemed indorsers$
0"!1:
Sec. I9. *hen &erson deemed indorser. - A &erson &lacing his
signature u&on an instrument otherwise than as maker, drawer or
acce&tor, is deemed to be an indorser unless he clearly indicates by
a&&ro&riate words his intention to be bound in some other ca&acity.
I!/SO%IO vs. #A $% No. &-.&9' November ,;* ,'',
FA#2S: Ilusorio is a &rominent businessman who was the >anaging
@irector of >ultinational In#estment 3ancor&oration and the "hairman
and2or 'resident of se#eral other cor&orations. <e was a de&ositor in
good standing of the >anila 3anking "or&oration. As he was then
running about 20 cor&orations, and was going out of the country a
number of times, &etitioner entrusted to his secretary, 1atherine ?.
?ugenio, his credit cards and his checkbook with blank checks. It was
also ?ugenio who #erified and reconciled the statements of said
checking account.
3etween the dates Se&tember /, 1!E0 and Ganuary 29, 1!E1,
?ugenio was able to encash and de&osit to her &ersonal account about
1: checks drawn against the account of the &etitioner at the
res&ondent bank, with an aggregate amount of '11!,I9.9.
'etitioner did not bother to check his statement of account until a
business &artner a&&rised him that he saw ?ugenio use his credit
cards. 'etitioner fired ?ugenio immediately, and instituted a criminal
action against her for estafa thru falsification.
'etitioner then re6uested the res&ondent bank to credit back and
restore to its account the #alue of the checks which were wrongfully
encashed but res&ondent bank refused.

<ence, &etitioner filed the
instant case.
%he trial court dismissed the case for lack of sufficient basis. Ln
a&&eal, the a&&ellate court held that &etitioner7s own negligence was
the &ro(imate cause of his loss.
ISS/": *hat is the effect of the negligence of the drawer on the rule
that when the signature of the drawer is forged (Section 29) the
drawee bears the loss$
0"!1: It was &etitioner, not the bank, who was negligent.
)egligence is the omission to do something which a reasonable man,
guided by those considerations which ordinarily regulate the conduct
of human affairs, would do, or the doing of something which a &rudent
and reasonable man would do. 'etitioner accorded his secretary
unusual degree of trust and unrestricted access to his credit cards,
&assbooks, check books, bank statements, including custody and
&ossession of cancelled checks and reconciliation of accounts.
A&&ellant had &ut so much trust and confidence in the said
secretary, by entrusting not only his credit cards with her but also his
checkbook with blank checks. <e also entrusted to her the #erification
and reconciliation of his account. *hile the bank was sending him the
monthly Statements of Accounts, he was not &ersonally checking the
same. <is testimony did not indicate that he was out of the country
during the &eriod co#ered by the checks. %hus, he had all the
o&&ortunities to #erify his account as well as the cancelled checks
14
issued thereunder -- month after month. 3ut he did not, until his
&artner asked him whether he had entrusted his credit card to his
secretary because the said &artner had seen her use the same.
'etitioner7s failure to e(amine his bank statements a&&ears as the
&ro(imate cause of his own damage. 'ro(imate cause is that
cause, which, in natural and continuous se6uence, unbroken by any
efficient inter#ening cause, &roduces the in+ury, and without which
the result would not ha#e occurred. In the instant case, the bank
was not shown to be remiss in its duty of sending monthly bank
statements to &etitioner so that any error or discre&ancy in the
entries therein could be brought to the bank7s attention at the
earliest o&&ortunity. 3ut, &etitioner failed to e(amine these bank
statements not because he was &re#ented by some cause in not
doing so, but because he did not &ay sufficient attention to the
matter. <ad he done so, he could ha#e been alerted to any
anomaly committed against him. In other words, &etitioner had
sufficient o&&ortunity to &re#ent or detect any misa&&ro&riation by
his secretary had he only re#iewed the status of his accounts based
on the bank statements sent to him regularly.
'etitioner further contends that under Section 29 of the
)egotiable Instruments ;aw a forged check is ino&erati#e, and that
>anila 3ank had no authority to &ay the forged checks. %rue, it is a
rule that when a signature is forged or made without the authority
of the &erson whose signature it &ur&orts to be, the check is wholly
ino&erati#e. <owe#er, the rule does &ro#ide for an e(ce&tion,
namely8 4unless t3e party against 53om it is soug3t to
enforce suc3 rig3t is precluded from setting up t3e forgery
or 5ant of aut3ority.5 In the instant case, it is the e(ce&tion that
a&&lies. 'etitioner is &recluded from setting u& the forgery,
assuming there is forgery, due to his own negligence in entrusting
to his secretary his credit cards and checkbook including the
#erification of his statements of account.
OSM"BA vs. #I2I6AN: $% No. &9&,;) Marc3 ,-* ,''9
FA#2S: 'etitioner &urchased from the "itibank >anager7s "heck in
the amount of '1,//,000 &ayable to res&ondent .rank %anD the
&etitioner later recei#ed information that the aforesaid manager7s
check was de&osited with the res&ondent Associated 3ank, Bosario
3ranch, to the account of a certain Gulius @i=onD the clearing and2or
&ayment by the res&ondents of the check to an im&ro&er &arty and
the absence of any indorsement by the &ayee thereof, res&ondent
.rank %an, is a clear #iolation of the res&ondents7 obligations under
the )egotiable Instruments ;aw and standard banking &racticeD
considering that the &etitioner7s intended &ayee for the check, the
res&ondent .rank %an, did not recei#e the #alue thereof, the
&etitioner demanded from the res&ondents "itibank and the
Associated 3ank the &ayment or reimbursement of the #alue of the
checkD the res&ondents, howe#er, obstinately refused to heed his
re&eated demands for &ayment and2or reimbursement of the
amount of the checkD hence, the &etitioner was com&elled to file
this com&laint &raying for the restitution of the amount of the
check, and for moral damages and attorney7s fees.
ISS/": *as there negligence on the &art of the banks in &aying
the amount of the check without the indorsement of .rank %an$ Is
the ruling in the Associated 3ank case (1!!I) on the liability of a
collecting bank a&&licable int his case$
0"!1: )L, there was no negligence.
)L, it is not a&&licable for, as has been am&ly demonstrated,
the &etitioner failed to establish that the &roceeds of the check was
indeed wrongfully &aid by the res&ondents 3anks to a &erson other
than the intended &ayee. In addition, the )egotiable Instruments
;aw was enacted for the &ur&ose of facilitating, not hindering or
ham&ering transactions in commercial &a&er. %hus, the said statute
should not be tam&ered with ha&ha=ardly or lightly. )or should it
be brushed aside in order to meet the necessities in a single case.
%he &etitioner7s allegation that res&ondent %an did not recei#e
the &roceeds of the check is belied by the e#idence on record and
attendant circumstances. 'etitioner ne#er bothered to find out
from the said res&ondent whether the latter recei#ed the check
from his messenger. And if it were to be su&&osed that res&ondent
%an did not recei#e the check, gi#en that his need for the money
was urgent, it strains credulity that res&ondent %an ne#er e#en
made an effort to get in touch with the &etitioner to inform the
latter that he did not recei#e the check as agreed u&on, and to
in6uire why the check had not been deli#ered to him.
6PI vs. #ASA MON2"SSO%I $% No. &9.9(9 May ,)* ,''9
#ASA MON2"SSO%I vs. 6PI $% No. &9.('; May ,)* ,''9
ISS/": *hat is forgery under Section 29$
0"!1: Fnder Section 29, a forged signature is a real or absolute
defense, and a &erson whose signature on a negotiable instrument is
forged is deemed to ha#e ne#er become a &arty thereto and to ha#e
ne#er consented to the contract that allegedly ga#e rise to it.
%he counterfeiting of any writing, consisting in the signing of
another7s name with intent to defraud, is forgery.
In the &resent case, there was forgery of the drawer7s signature
on the check.
ISS/": *hat are the factual findings of the sole negligence of 3'I$
0"!1: J?S, negligence is attiributable to 3'I alone. <a#ing
established the forgery of the drawer7s signature, 3'I -- the drawee --
erred in making &ayments by #irtue thereof. %he forged signatures are
wholly ino&erati#e, and "ASA -- the drawer whose authori=ed
signatures do not a&&ear on the negotiable instruments -- cannot be
held liable thereon. )either is the latter &recluded from setting u&
forgery as a real defense.
3'I contends that it has a signature #erification &rocedure, in
which checks are honored only when the signatures therein are
#erified to be the same with or similar to the s&ecimen signatures on
the signature cards. )onetheless, it still failed to detect the eight
instances of forgery. Its negligence consisted in the omission of that
degree of diligence re6uired of a bank. It cannot now feign ignorance,
for #ery early on we ha#e already ruled that a bank is Cbound to know
the signatures of its customersD and if it &ays a forged check, it must
be considered as making the &ayment out of its own funds, and
cannot ordinarily charge the amount so &aid to the account of the
de&ositor whose name was forged.C
ISS/": *ho bears the loss in case of forgery of the drawer7s
signature$
0"!1: ;oss is borne the &ro(imate cause of negligence.
.or allowing &ayment on the checks to a wrongful and fictitious
&ayee, 3'I -- the drawee bank -- becomes liable to its de&ositor-
drawer. Since the encashing bank is one of its branches, 3'I can easily
go after it and hold it liable for reimbursement. It Cmay not debit the
drawer7s account and is not entitled to indemnification from the
drawer.C In both law and e6uity, when one of two innocent &ersons
Cmust suffer by the wrongful act of a third &erson, the loss must be
borne by the one whose negligence was the &ro(imate cause of the
loss or who &ut it into the &ower of the third &erson to &er&etrate the
wrong.5
3'I failed to conform to its internal banking rules and regulations.
.irst, Jabut was able to o&en a bank account in one of its branches
without &ri#ityD that is, without the &ro&er #erification of his
corres&onding identification &a&ers. Second, 3'I was unable to
disco#er early on not only this irregularity, but also the marked
differences in the signatures on the checks and those on the signature
card. %hird, des&ite the e(amination &rocedures it conducted, the bank
e#en &assed off these e#idently different signatures as genuine.
*ithout e(ercising the re6uired &rudence on its &art, 3'I acce&ted and
encashed the eight checks &resented to it. As a result, it &ro(imately
contributed to the fraud and should be held &rimarily liable for the
Cnegligence of its officers or agents when acting within the course and
sco&e of their em&loyment.C It must bear the loss.
ISS/": *hat is esto&&el$
0"!1: ?sto&&el &recludes indi#iduals from denying or asserting, by
their own deed or re&resentation, anything contrary to that established
as the truth, in legal contem&lation. Lur rules on e#idence e#en make
a +uris et de +ure &resum&tion that whene#er one has, by one7s own
act or omission, intentionally and deliberately led another to belie#e a
&articular thing to be true and to act u&on that belief, one cannot -- in
any litigation arising from such act or omission -- be &ermitted to
falsify that su&&osed truth.
ISS/": *as "asa esto&&ed in failing to make a re&ort$
0"!1: )L, "asa was not esto&&ed in failing to make a re&ort.
)either wai#er nor esto&&el results rom failure to re&ort error in bank
statement. "ASA ne#er made any deed or re&resentation that misled
3'I. %he former7s omission, if any, may only be deemed an innocent
mistake obli#ious to the &rocedures and conse6uences of &eriodic
audits. Since its conduct was due to such ignorance founded u&on an
innocent mistake, esto&&el will not arise. A &erson who has no
knowledge of or consent to a transaction may not be esto&&ed by it.
C?sto&&el cannot be sustained by mere argument or doubtful inference
( ( (.C "ASA is not barred from 6uestioning 3'I7s error e#en after the
la&se of the &eriod gi#en in the notice.
15
SAMS/N$ vs. FA% "AS2 $% No. &,.'&( Aug. &-* ,''9
FA#2S: Samsung maintained a current account with defendant .ar
?ast 3ank and %rust "om&any (.?3%"). %he sole signatory to
Samsung "onstruction7 account was Gong 1yu ;ee (Gong), its
'ro+ect >anager, while the checks remained in the custody of the
com&any7s accountant, 1yu Jong ;ee (1yu).
A certain Boberto Kon=aga &resented for &ayment an .?3%"
"heck. %he check, &ayable to cash and drawn against Samsung
"onstruction7s current account, was in the amount of '!!!,/00.00.
%he bank teller com&ared the signature a&&earing on the check
with the s&ecimen signature of Gong as contained in the s&ecimen
signature card with the bank. After com&aring the two signatures,
Gustiani (the bank teller) was satisfied as to the authenticity of the
signature a&&earing on the check. She then asked Kon=aga to
submit &roof of his identity, and the latter &resented 9 identification
cards. %he Senior Assistant "ashier likewise counterchecked the
signature on the check. Sem&io, the assistant accountant of
Samsung, was at the bank at that time. <e #ouched for the
genuineness of the signature. Satisfied with the genuineness of the
signature, the check was encashed.
%he ne(t day, 1yu checked the balance of the bank account.
Aware that he had not &re&ared such a check for Gong7s signature,
1yu &erused the checkbook and found that the last blank check was
missing. <e re&orted the matter to Gong, who then &roceeded to
the bank. Gong learned of the encashment of the check, and
reali=ed that his signature had been forged. %he 3ank >anager
re&utedly told Gong that he would be reimbursed for the amount of
the check.
ISS/": In case of forgery of the signature of the drawer without
negligence on its &art, who bears the loss$
0"!1: %he general rule remains that the drawee who has &aid
u&on the forged signature bears the loss. %he e(ce&tion to this rule
arises only when negligence can be traced on the &art of the
drawer whose signature was forged, and the need arises to weigh
the com&arati#e negligence between the drawer and the drawee to
determine who should bear the burden of loss.
%he "ourt finds no basis to conclude that Samsung
"onstruction was negligent in the safekee&ing of its checks. .or
one, the settled rule is that the mere fact that the de&ositor lea#es
his check book lying around does not constitute such negligence as
will free the bank from liability to him, where a clerk of the
de&ositor or other &ersons, taking ad#antage of the o&&ortunity,
abstract some of the check blanks, forges the de&ositor7s signature
and collect on the checks from the bank. And for another, in &oint
of fact Samsung "onstruction was not negligent at all since it
re&orted the forgery almost immediately u&on disco#ery.
ISS/": *hat are the factual findings as to the negligence of the
drawee bank$
0"!1: It might be so that the bank com&lied with its own internal
rules &rior to &aying out on the 6uestionable check. Jet, there are
se#eral troubling circumstances that lead us to belie#e that the
bank itself was remiss in its duty.
%he fact that the check was made out in the amount of nearly
one million &esos is unusual enough to re6uire a higher degree of
caution on the &art of the bank. Indeed, .?3%" confirms this
through its own internal &rocedures. "hecks below ' 2/,000 re6uire
only the a&&ro#al of the tellerD those between ' 2/,000 to '
100,000 necessitate the a&&ro#al of one bank officerD and should
the amount e(ceed ' 100,00, the concurrence of two bank officers
is re6uired.
In this case, not only did the amount in the check nearly total
one million &esos, it was also &ayable to cash. %hat latter
circumstance should ha#e aroused the sus&icion of the bank, as it is
not ordinary business &ractice for a check for such large amount to
be made &ayable to cash or to bearer, instead of to the order of a
s&ecified &erson. >oreo#er, the check was &resented for &ayment
by one Boberto Kon=aga, who was not designated as the &ayee of
the check, and who did not carry with him any written &roof that he
was authori=ed by Samsung "onstruction to encash the check.
Kon=aga, a stranger to .?3%", was not e#en an em&loyee of
Samsung "onstruction. %hese circumstances are already
sus&icious if taken inde&endently, much more so if they are
e#aluated in concurrence. It was not sufficient for .?3%" to ha#e
merely com&lied with its internal &rocedures, but mandatory that all
earnest efforts be undertaken to ensure the #alidity of the check,
and of the authority of Kon=aga to collect &ayment therefor.
According to .?3%" Senior Assistant "ashier Kemma Vele=, the
bank tried, but failed, to contact Gong o#er the &hone to #erify the
check. She added that calling the issuer or drawer of the check to
#erify the same was not &art of the standard &rocedure of the bank,
but an Ce(tra effort.C ?#en assuming that such &ersonal #erification is
tantamount to e(traordinary diligence, it cannot be denied that .?3%"
still &aid out the check des&ite the absence of any &roof of #erification
from the drawer. Instead, the bank seems to ha#e relied hea#ily on
the say-so of Sem&io, who was &resent at the bank at the time the
check was &resented.
.?3%" alleges that Sem&io was well-known to the bank officers,
as he had regularly transacted with the bank in behalf of Samsung
"onstruction. It was e#en claimed that e#erytime .?3%" would contact
Gong about &roblems with his account, Gong would hand the &hone
o#er to Sem&io. <owe#er, the only &roof of such allegations is the
testimony of Kemma Vele=, who also testified that she did not know
Sem&io &ersonally, and had met Sem&io for the first time only on the
day the check was encashed. Vele= had no &ersonal knowledge as to
the &ast relationshi& between .?3%" and Sem&io, and any a#erments
of her to that effect should be deemed hearsay e#idence.
?#en assuming that .?3%" had a standing habit of dealing with
Sem&io, the irregular circumstances attending the &resentment of the
forged check should ha#e &ut the bank on the highest degree of alert.
%he "ourt recently em&hasi=ed that the highest degree of care and
diligence is re6uired of banks.
6PI vs. 6/"NA"N2/%A $% No. &9)&.8 Sept. -'* ,''(
6/"NA"N2/%A vs. 6PI $% No.&9),(. Sept. -'* ,''(
ISS/": Since bank de&osits are considered loan, can banks
unilaterally free=e an account$
0"!1: 3'I-.3 has no unilateral right to free=e the current account of
3uena#entura, et al. based on the sus&icion that the funds in the
latter7s account are illegal or unauthori=ed ha#ing been sourced
from the unlawful transfer of funds from the account of .>I" to
%e#esteco and disallow any withdrawal therefrom to allegedly &rotect
its interest.
ISS/": *hat are the liabilities of banks on forgery$
0"!1: ?#ery bank that issues checks for the use of its customers
should know whether or not the drawer,s signature thereon is genuine,
whether there are sufficient funds in the drawers account to co#er
checks issued, and it should be able to detect alterations, erasures,
su&erim&ositions or intercalations thereon, for these instruments are
&re&ared, &rinted and issued by itself, it has control of the drawer,s
account, and it is su&&osed to be familiar with the drawer,s signature.
It should &ossess a&&ro&riate detecting de#ices for unco#ering
forgeries and2or alterations on these instruments. Fnless a forgery or
alteration is attributable to the fault or negligence of the drawer
himself, the remedy of the drawee bank that negligently clears a
forged and2or altered check for &ayment is against the &arty
res&onsible for the forgery or alteration, otherwise, it bears the loss.
ISS/": Is there a need for 3uena#entura et al. to ascertain the right
of .ranco on the check$
0"!1: <a#ing been negligent in detecting the forgery &rior to
clearing the check, 3'I-.3 should bear the loss and can7t shift the
blame to 3uena#entura, et al. ha#ing failed to show any &artici&ation
on their &art in the forgery. 3'I-.3 fails to &oint any circumstance
which should ha#e &ut 3uena#entura, et al. on in6uiry as to the why
and wherefore of the &ossession of the check by Amado .ranco.
3uena#entura, et al. were not &ri#ies to any transaction in#ol#ing
.>I", %e#esteco or .ranco. %hey thus had no obligation to ascertain
from .ranco what the nature of the latter7s title to the checks was, if
any, or the nature of his &ossession. %hey cannot be guilty of gross
neglect amounting to legal absence of good faith, absent any showing
that there was something amiss about .ranco7s ac6uisition or
&ossession of the check, which was &ayable to bearer.
ISS/": *hat is the nature of a bank7s relationshi& with its de&ositor$
0"!1: %he contract between a bank and its de&ositor is go#erned
by the &ro#isions of the "i#il "ode on sim&le loan. %hus, there is a
debtor-creditor relationshi& between a bank and its de&ositor. %he
bank is the debtor and the de&ositor is the creditor. %he de&ositor
lends the bank money and the bank agrees to &ay the de&ositor on
demand. %he sa#ings or current de&osit agreement between the bank
and the de&ositor is the contract that determines the rights and
obligations of the &arties.
16
A!!I"1 vs. !IM SIO ?AN $% No. &--&.; Marc3 ,;* ,'')
FA#2S: ;im Sio *an de&osited with Allied 3anking "or&oration
(Allied) a money market &lacement of ' 1,1/2,/!:.9/ for a term of
91 days to mature on @ecember 1/, 1!E9.
A &erson claiming to be ;im Sio *an called u& "ristina So, an
officer of Allied, and instructed the latter to &re-terminate ;im Sio
*an,s money market &lacement, to issue a manager,s check
re&resenting the &roceeds of the &lacement, and to gi#e the check
to one @eborah @ee Santos who would &ick u& the check. ;im Sio
*an described the a&&earance of Santos so that So could easily
identify her. Santos arri#ed at the bank and signed the a&&lication
form for a manager,s check to be issued. %he bank issued a
manager7s check re&resenting the &roceeds of ;im Sio *an,s money
market &lacement in the name of ;im Sio *an, as &ayee. %he
check was cross-checked C.or 'ayee,s Account LnlyC and gi#en to
Santos. %he said check was then de&osited in the account of
.ili&inas "ement "or&oration (."") at res&ondent >etrobank with
the forged signature of ;im Sio *an as indorser. ?arly on, .""
de&osited a money market &lacement with 'roducer7s 3ank wherein
Santos was the money market trader assigned to handle said
account. Ln the same date that So recei#ed the &hone call
instructing her to &re-terminate ;im Sio *an,s &lacement, the
manager,s check in the name of ;im Sio *an was de&osited in the
account of ."", &ur&ortedly re&resenting the &roceeds of ."",s
money market &lacement with 'roducers 3ank. In other words, the
Allied check was de&osited with >etrobank in the account of ."" as
'roducers 3ank,s &ayment of its obligation to ."".
%o clear the check and in com&liance with re6uirements,
>etrobank stam&ed a guaranty on the check, which reads8 CAll &rior
endorsements and2or lack of endorsement guaranteed.C F&on
&resentment, Allied funded the check e#en without checking the
authenticity of ;im Sio *an,s &ur&orted indorsement. %hus, the
amount on the face of the check was credited to the account of
."".
F&on the maturity date of the first money market &lacement,
;im Sio *an went to Allied to withdraw it. She was then informed
that it was &re-terminated u&on her instructions. She denied gi#ing
any instructions and recei#ing the &roceeds thereof. ;im Sio *an,
reali=ing that the &romise that her money would be reco#ered
would not materiali=e, sent a demand letter to Allied asking for the
&ayment of the first &lacement. Allied refused to &ay ;im Sio *an,
claiming that the latter had authori=ed the &re-termination of the
&lacement and its subse6uent release to Santos.
;im Sio *an filed with the B%" a "om&laint against Allied to
reco#er the &roceeds of her first money market &lacement. Allied
filed a third &arty com&laint against >etrobank and Santos. In turn,
>etrobank filed a fourth &arty com&laint against ."". ."" for its
&art filed a fifth &arty com&laint against 'roducers 3ank.
After more than I months, Allied informed >etrobank that the
signature on the check was forged.
%he B%" ordered Allied to &ay ;im Sio *an and dismissed the
cross-claim filed by Allied against >etrobank. %he other com&laints
were also dismissed. Ln a&&eal, "A ordered Allied to &ay I0N of
the amount and >etrobank to &ay 0N thereof.
ISS/": Ki#e the liabilities of the &arties by reason of forgery.
0"!1: *e held in a line of cases that Ca collecting bank which
indorses a check bearing a forged indorsement and &resents it to
the drawee bank guarantees all &rior indorsements, including the
forged indorsement itself, and ultimately should be held liable
therefor.C
<owe#er, this general rule is sub+ect to e(ce&tions. Lne such
e(ce&tion is when the issuance of the check itself was attended
with negligence.
In isolated cases where the checks were de&osited in an
account other than that of the &ayees on the strength of forged
indorsements, we held the collecting bank solely liable for the whole
amount of the checks in#ol#ed for ha#ing indorsed the same.
%he liability of Allied, howe#er, is concurrent with that of
>etrobank as the last indorser of the check.
ISS/": *hat is the effect of the negligence of Allied and
>etrobank$
0"!1: *hen >etrobank indorsed the check in com&liance with the
'"<" Bules and Begulations without #erifying the authenticity of
;im Sio *an,s indorsement and when it acce&ted the check des&ite
the fact that it was cross-checked &ayable to &ayee,s account only,
its negligent and ca#alier indorsement contributed to the easier release
of ;im Sio *an,s money and &er&etuation of the fraud.
Ki#en the relati#e &artici&ation of Allied and >etrobank to the
instant case, both banks cannot be ad+udged as e6ually liable. <ence,
the I080 ratio of the liabilities of Allied and >etrobank, as ruled by
the "A, must be u&held.
ISS/": *ho is ultimately liable and under what grounds$
0"!1: there is no reason that the &roceeds of ;im Sio *ans,
&lacement should be de&osited in ."",s account &ur&ortedly as
&ayment for ."",s money market &lacement and interest in 'roducers
3ank. *ith such &ayment, 'roducers 3ank,s indebtedness to ."" was
e(tinguished, thereby benefitting the former. "learly, 'roducers 3ank
was un+ustly enriched at the e(&ense of ;im Sio *an. 3ased on the
facts and circumstances of the case, 'roducers 3ank should reimburse
Allied and >etrobank for the amounts the two latter banks are ordered
to &ay ;im Sio *an.
(See outline of Atty. Villarente for notes)
#onsideration
Sections ,9* ,(* ,)* &.& <value=
%ule &-& Section - of t3e %ules of #ourt
I!!A!/> vs. #A $% No. &'8,&9 Sept. (* &..;
FA#2S: An=ures was the registered owner of a #essel. <e sold it to
Villalu= for and in consideration of the sum of <1W :/0,000.00, as
e#idenced by a 3ill of Sale and an agreement and "ertificate of
&ayment and @eli#ery. Accused issued a 'roducers 3ank "heck,
&ayable to An=ures, in the amount of '2,129,00.00, &ostdated. %he
check was de&osited but it bounced for the reason that the account of
the accused with the drawee bank, 'roducer,s 3ank, was already
closed.
ISS/": *hat is the &resum&tion of consideration under Section 2$
Section 2. 'resum&tion of consideration H ?#ery negotiable
instrument is deemed &rima facie to ha#e been issued for a #aluable
considerationD and e#ery &erson whose signature a&&ears thereon
to ha#e become a &arty thereto for #alue.
0"!1: It is not dis&uted that Villalu= bought a #essel from &ri#ate
res&ondents where they agreed that &ayment shall be made u&on
their arri#al in >anila for which the former issued the checks. In turn,
Villalu= allegedly sold to the latter certain &ro&erties where the
&ayment thereof will be set-off for the #alue of the #essel. %hese
circumstances show that &etitioner Villalu= is indeed obliged to &ri#ate
res&ondents for the #alue of the checks. She cannot claim that the
checks were worthless as they were allegedly issued without
consideration. As a negotiable instrument, the checks were &resumed
to ha#e been issued for some #aluable consideration,

which
&resum&tion &etitioner Villalu= failed to contro#ert.
ISS/": *hat is the effect of Villalu=7 issuance of a check for ' 2
>illion$
0"!1: %he amount reflected in the check was the total obligation due
the com&lainant from the accused at the time it was issued. It could
not be doubted that Villalu= bought a #essel from An=uresD that
accused did not &ay the &urchase &rice of the #esselD and that accused
issued a check in fa#or of com&lainant, in the amount of
'2,129,00.00, which, certainly, was the amount of accused,s
indebtedness to com&lainant. It is absurd for her to issue checks

in
such a huge amount to &ri#ate res&ondents had this not been for the
satisfaction of a monetary obligation. It is well to em&hasi=e at this
&oint, that though &etitioner was ac6uitted of the criminal offense, she
may still be held ci#illy liable for the checks she issued.
ON$ vs. P"OP!" $% No. &-.''8 Nov. ,;* ,'''
ISS/": *hat is the gra#ament of the offense &unished by 3' 22$
0"!1: %he gra#amen of the offense &unished by 3.'. 22 is the act of
making and issuing a worthless check or a check that is dishonored
u&on its &resentation for &ayment. It is not the non-&ayment of an
obligation which the law &unishes. %he law is not intended or
designed to coerce a debtor to &ay his debt. %he thrust of the law is
to &rohibit, under &ain of &enal sanctions, the making of worthless
checks and &utting them in circulation.
ISS/": Is it necessary to &ro#e consideration in 3' 22$
17
0"!1: 'etitioner,s argument that the sub+ect check was issued
without consideration is inconse6uential. %he law in#ariably
declares the mere act of issuing a worthless check as malum
&rohibitum.
In actions based u&on a negotiable instrument, it is
unnecessary to aver or prove consideration* for
consideration is imported and presumed from t3e fact t3at
it is a negotiable instrument. %he &resum&tion e(ists whether
the words C#alue recei#edC a&&ear on the instrument or not.
.urthermore, such contention is also inconse6uential in 3atas
'ambansa 3lg. 22.
?ON$ vs. #A $% No. &&;)(; Feb. ,* ,''&
FA#2S: *ong was an agent of ;imtong 'ress. Inc. (;'I), a
manufacturer of calendars. ;'I would &rint sam&le calendars, then
gi#e them to agents to &resent to customers. %he agents would get
the &urchase orders of customers and forward them to ;'I. After
&rinting the calendars, ;'I would shi& the calendars directly to the
customers. %hereafter, the agents would come around to collect the
&ayments. 'etitioner, howe#er, had a history of unremitted
collections, which he duly acknowledged in a confirmation recei&t
he co-signed with his wife. <ence, &etitioner7s customers were
re6uired to issue &ostdated checks before ;'I would acce&t their
&urchase orders.
In early @ecember 1!E/, *ong issued I &ostdated checks.
%hese checks were initially intended to guarantee the calendar
orders of customers who failed to issue &ost-dated checks.
<owe#er, following com&any &olicy, ;'I refused to acce&t the
checks as guarantees. Instead, the &arties agreed to a&&ly the
checks to the &ayment of &etitioner7s unremitted collections.
'etitioner &re#ailed u&on ;'I not to de&osit the checks and
&romised to re&lace them within 90 days. <owe#er, &etitioner
reneged on his &romise. <ence, ;'I de&osited the checks with
B"3". %he checks were returned for the reason Caccount closed.C
ISS/": *hat was the consideration for the issuance of the
checks$
0"!1: %he checks were in &ayment for unremitted collections, and
not as guarantee.
ISS/": In 3' 22, is there a necessity to determine the reason for
the issuance of the check$
0"!1: )L, there is no necessity. %o determine the reason for
which checks are issued, or the terms and conditions for their
issuance, will greatly erode the faith the &ublic re&oses in the
stability and commercial #alue of checks as currency substitutes,
and bring about ha#oc in trade and in banking communities. So
what the law &unishes is the issuance of a bouncing check and not
the &ur&ose for which it was issued nor the terms and conditions
relating to its issuance. %he mere act of issuing a worthless check is
malum &rohibitum.C
!"" vs. #A $% No. &&;.&- February &* ,'',
MI#O M"2A!S vs. #A $% No. &&;.&9 February &* ,'',
ISS/": *hat is the &resum&tion of consideration under Section 2
and Bule 191 Section 9 of the Bules of "ourt$
0"!1: Fnder Section 9, Bule 191 of the Bules of "ourt the
following &resum&tions, among others, are satisfactory if
uncontradicted8 a) %hat there was a sufficient consideration for a
contract and b) %hat a negotiable instrument was gi#en or indorsed
for sufficient consideration.
As obser#ed by the "A, a similar &resum&tion is found in
Section 2 of the )egotiable Instruments ;aw which &ro#ides that
e#ery negotiable instrument is deemed &rima facie to ha#e been
issued for #aluable consideration and e#ery &erson whose signature
a&&ears thereon to ha#e become a &arty for #alue.
ISS/": *hat are the re6uirements for a negotiable instrument to
be a substitute for money$
0"!1: )egotiable instruments which are meant to be substitutes
for money, must conform to the following re6uisites to be
considered as such a) it must be in writingD b) it must be signed by
the maker or drawerD c) it must contain an unconditional &romise or
order to &ay a sum certain in moneyD d) it must be &ayable on
demand or at a fi(ed or determinable future timeD e) it must be
&ayable to order or bearerD and f) where it is a bill of e(change, the
drawee must be named or otherwise indicated with reasonable
certainty. )egotiable instruments include &romissory notes, bills of
e(change and checks.
ISS/": *hat are letters of credit$
0"!1: %he letter of credit was de#elo&ed to facilitate the sale of
goods between, distant and unfamiliar buyers and sellers. It was an
arrangement under which a bank, whose credit was acce&table to the
seller, would at the instance of the buyer agree to &ay drafts drawn on
it by the seller, &ro#ided that certain documents are &resented such as
bills of lading accom&anied the corres&onding drafts. ?(&ansion in the
use of letters of credit was a natural de#elo&ment in commercial
banking. 'arties to a commercial letter of credit include (a) the buyer
or the im&orter, (b) the seller, also referred to as beneficiary, (c) the
o&ening bank which is usually the buyer7s bank which actually issues
the letter of credit, (d) the notifying bank which is the corres&ondent
bank of the o&ening bank through which it ad#ises the beneficiary of
the letter of credit, (e) negotiating bank which is usually any bank in
the city of the beneficiary. %he ser#ices of the notifying bank must
always be utili=ed if the letter of credit is to be ad#ised to the
beneficiary through cable, (f) the &aying bank which buys or discounts
the drafts contem&lated by the letter of credit, if such draft is to be
drawn on the o&ening bank or on another designated bank not in the
city of the beneficiary. As a rule, whene#er the facilities of the o&ening
bank are used, the beneficiary is su&&osed to &resent his drafts to the
notifying bank for negotiation and (g) the confirming bank which, u&on
the re6uest of the beneficiary, confirms the letter of credit issued by
the o&ening bank.
ISS/": Are letters of credit negotiable instruments$
0"!1: ;etters of credit and trust recei&ts are, howe#er, not
negotiable instruments.
ISS/": <ow about a draft$
0"!1: 3ut drafts issued in connection with letters of credit are
negotiable instruments.
ISS/": <ow are letters of credit transacted$
0"!1: >odern letters of credit are usually not made between natural
&ersons. %hey in#ol#e bank to bank transactions. .rom the foregoing,
it is clear that letters of credit, being usually bank to bank transactions,
in#ol#e more than +ust one bank.
SANSON vs. #A $% No. &,;;9( April ,,* ,''-
ISS/": *hat is the effect of Section 2 of the )I;$
0"!1: %he genuineness of the deceased7s signature ha#ing been
shown, he is &rima facie &resumed to ha#e become a &arty to the
check for #alue, following Section 2 of the )egotiable Instruments
;aw which reads8
Section 2. 'resum&tion of "onsideration. ?#ery negotiable
instrument is deemed &rima facie to ha#e been issued for a #aluable
considerationD and e#ery &erson whose signature a&&ears thereon
to ha#e become a &arty thereto for #alue.
Since, with res&ect to the checks issued to the >ontinolas, the
&rima facie &resum&tion was not rebutted or contradicted by the
administratri( who e(&ressly manifested that she was dis&ensing with
the &resentation of e#idence against their claims, it has become
conclusi#e.
6A7ANI vs. P"OP!" $% No. &(9.9; Aug. &&* ,''9
ISS/": *hat is the gra#amen of 3' 22$
0"!1: %he gra#amen of the offense &unished by 3' 22 is the act of
making and issuing a worthless check or a check that is dishonored
u&on its &resentation for &ayment. It is not the non-&ayment of an
obligation which the law &unishes. %he law is not intended or designed
to coerce a debtor to &ay his debt. %he thrust of the law is to &rohibit,
under &ain of &enal sanctions, the making of worthless checks and
&utting them in circulation. 3ecause of its deleterious effects on the
&ublic interest, the &ractice is &roscribed by the law. %he law &unishes
the act not as an offense against &ro&erty, but an offense against
&ublic order.
ISS/": *as ?#angelista considered a holder in due course$
18
0"!1: %he e#idence on record shows that ?#angelista
rediscounted the check and ga#e '//,000.00 to Bubia after the
latter endorsed the same. As such, ?#angelista is a holder of the
check in due course.
ISS/": *hat is the &resum&tion of consideration (Section 2)$
0"!1:
S?"%IL) 2. 'resum&tion of consideration. ?#ery negotiable
instrument is deemed &rima facie to ha#e been issued for a
#aluable considerationD and e#ery &erson whose signature
a&&ears thereon to ha#e become a &arty thereto for #alue.
Such &resum&tion cannot be o#ercome by the &etitioner7s bare
denial of recei&t of the amount of '//,000.00 from Bubia.
ISS/": *hat is the effect of want of consideration (Section 2E)$
0"!1: Fnder Section 2E of the )egotiable Instruments ;aw ()I;),
absence or failure of consideration is a matter of defense only as
against any &erson not a holder in due course, thus8
S?"%IL) 2E. ?ffect of want of consideration. Absence or failure
of consideration is a matter of defense as against any &erson not
a holder in due courseD and &artial failure of consideration is a
defense &ro tanto, whether the failure is an ascertained and
li6uidated amount or otherwise.
27 vs. P"OP!" $% No. &9.,;( September ,;* ,''9
ISS/": *hat is the basis of the &resum&tion of consideration$
0"!1: As to the issue of consideration, it is &resumed, u&on
issuance of the checks, in the absence of e#idence to the contrary,
that the same was issued for #aluable consideration. Section 2 of
the )egotiable Instruments ;aw creates a &resum&tion that e#ery
&arty to an instrument ac6uired the same for a consideration or for
#alue. In alleging otherwise, %y has the onus to &ro#e that the
checks were issued without consideration. She must &resent
con#incing e#idence to o#erthrow the &resum&tion. 'etitioner failed
to discharge her burden of &roof.
ISS/": Is it a #alid defense that no #aluable consideration
redowned to the maker &ersonally$
0"!1: Anent %y7s claim that the obligation to &ay the hos&ital bills
was not her &ersonal obligation because she was not the &atient,
and therefore there was no consideration for the checks, the case
of 3ridges #. Vann, et al. tells us that Cit is no defense to an action
on a &romissory note for the maker to say that there was no
consideration which was beneficial to him &ersonallyD it is sufficient
if the consideration was a benefit conferred u&on a third &erson, or
a detriment suffered by the &romisee, at the instance of the
&romissor. It is enough if the obligee foregoes some right or
&ri#ilege or suffers some detriment and the release and
e(tinguishment of the original obligation of Keorge Vann, Sr., for
that of a&&ellants meets the re6uirement. A&&ellee acce&ted one
debtor in &lace of another and ga#e u& a #alid, subsisting obligation
for the note e(ecuted by the a&&ellants. %his, of itself, is sufficient
consideration for the new notes.C
ON$SON vs. P"OP!" $% No. &(8&8. August &,* ,''(
ISS/": *hat constitutes #aluable consideration$
0"!1: A #aluable consideration may consist either in some right,
interest, &rofit or benefit accruing to the &arty who makes the
contract, or some forbearance, detriment, loss or some
res&onsibility, to act, or labor, or ser#ice gi#en, suffered or
undertaken by the other side. It is an obligation to do, or not to do
in fa#or of the &arty who makes the contract, such as the maker or
endorser.
ISS/": *hat is the &resum&tion of consideration$
0"!1: F&on issuance of a check, in the absence of e#idence to
the contrary, it is &resumed that the same was issued for #aluable
consideration.
ISS/": *hat is it that the law &unishes in 3' 22$
0"!1: %he gra#amen of the offense &unished by 3.'. 22 is the act
of making and issuing a worthless check, that is, a check that is
dishonored u&on its &resentation for &ayment. %he mere act of issuing
a worthless check is malum &rohibitum. So also, it is not the
non&ayment of the obligation that is being &unished, but the making
of worthless checks. *hat the law &unishes is such issuance of a bum
check and not the &ur&ose for which the check was issued nor the
terms or conditions relating to its issuance. %hus, e#en if there had
been &ayment through com&ensation or some other means, there
could still be &rosecution for #iolation of 3.'. 22.
6A7ANI vs. P"OP!" $% No. &((8&. Aug. &9* ,'';
FA#2S: 'etitioner ;eodegario 3ayani was con#icted of Violation of
3atas 'ambansa 3lg. 22 by the Begional %rial "ourt which was
affirmed by the "ourt of A&&eals.
ISS/": *hat are the elements of 3' 22$
%/!IN$: %he elements of the offense &enali=ed by 3atas 'ambansa
3lg. 22 are8
(1) the making, drawing, and issuance of any check to a&&ly for
account or for #alueD
(2) the knowledge of the maker, drawer, or issuer that at the time
of issue there are no sufficient funds in or credit with the
drawee bank for the &ayment of such check in full u&on its
&resentmentD and
(9) the subse6uent dishonor of the check by the drawee bank for
insufficiency of funds or credit or dishonor for the same reason
had not the drawer, without any #alid cause, ordered the bank
to sto& &ayment.
ISS/": *hat is the &resum&tion of consideration (Section 2)$
%/!IN$: As regards the first element, it is &resumed, u&on issuance
of the checks and in the absence of e#idence to the contrary, that the
same was issued for #aluable consideration. Fnder the )egotiable
Instruments ;aw, it is presumed t3at every party to an
instrument acFuired t3e same for a consideration or for value.
In alleging that there was no consideration for the sub+ect check, it
de#ol#ed u&on &etitioner to &resent con#incing e#idence to
o#erthrow the &resum&tion and &ro#e that the check was issued
without consideration.
ISS/": *hat constitutes #aluable consideration$
%/!IN$: Valuable consideration may consist either of some right,
interest, &rofit or benefit accruing to the &arty who makes the
contractD or some forbearance, detriment, loss of some res&onsibility
to actD or labor or ser#ice gi#en, suffered or undertaken by the other
side. It is an obligation to do or not to do, in fa#or of the &arty who
makes the contract, such as the maker or indorser. It was shown in
this case that the check was issued and e(changed for cash. %his was
the #aluable consideration for which the check was issued.
PA!ANA vs. P"OP!" $% No. &9...( Sept. ,)* ,'';
FA#2S: 'etitioner Isidro 'ablito 'alana and his wife borrowed money
from &ri#ate com&lainant in the amount of '/!0, 000.00. %o secure
the &ayment of the loan, &etitioner issued a &ostdated check for the
same amount in fa#or of the com&lainant. <owe#er, when the check
was &resented for &ayment, it was dishonored by the bank for
insufficiency of funds. Subse6uent demand notwithstanding, &etitioner
failed to make good the said dishonored check. 'etitioner was
con#icted of #iolation of 3atas 'ambansa (3.'.) 3lg. 22 otherwise
known as the 43ouncing "hecks ;aw5.
ISS/": *hat is the &resum&tion of consideration$
%/!IN$: F&on issuance of a check, in the absence of e#idence to
the contrary, it is presumed t3at t3e same 5as issued for
valuable consideration* 53ic3 may consist eit3er in some
rig3t* interest* profit or benefit accruing to t3e party 53o
ma4es t3e contract* or some forbearance* detriment* loss or
some responsibility* to act* or labor* or service given* suffered
or underta4en by t3e ot3er side. Since it was established that
&etitioner recei#ed money from &ri#ate com&lainant in #arious
amounts, &etitioner cannot now claim that the checks were not issued
for #alue.
ISS/": *hat is the meaning of issuance under Section 1!1 of the
)egotiable Instruments ;aw$
%/!IN$: Issuance, as defined under the )egotiable Instruments
;aw, is the first delivery of t3e c3ec4.
In a &rosecution for #iolation of 3.'. 22, the time of the issuance
19
of the sub+ect check is material since it forms &art of the second
element of the offense that at t3e time of its issuance*
petitioner 4ne5 of t3e insufficiency of funds. <owe#er, it
cannot be said that &etitioner was &re+udiced by such #ariance nor
was sur&rised by it. Becords show that &etitioner knew at the time
he issued the check that he does not ha#e sufficient funds in the
bank to co#er the amount of the check. Jet, he &roceeded to issue
the same claiming that the same would only be shown to
&ros&ecti#e su&&liers, a defense which is not #alid.
#A%IBO vs. 1" #AS2%O $% No. &;8')9 April -'* ,'')
FA#2S: Bes&ondent >erlin de "astro was charged with fi#e (/)
counts of #iolation of 3' 22 before the >etro&olitan %rial "ourt. %he
>%" dismissed the case and found that the checks were issued by
res&ondent without #aluable consideration. Begional %rial "ourt
affirmed the @ecision of the court a 6uo and dismissed the a&&eal
for lack of merit. "ourt of A&&eals dismissed the &etition.
ISS/": *as the check issued for consideration$
%/!IN$: )o. 3oth the >etro&olitan %rial "ourt and the Begional
%rial "ourt found that &etitioner was not duly authori=ed by the
owner of the sub+ect &ro&erty to collect and recei#e rentals thereon.
%hus, not only 5ere t3e c3ec4s 5it3out valuable
considerationG t3ey 5ere also issued for a nonDeAisting
account. *ith these undis&uted findings, we cannot reconcile
&etitioner,s allegation that she is the aggrie#ed &arty.
Section ,)
P"%P"2/A! vs. 6%ON1IA! $% No. &9888- Marc3 &9*
,''&
Facts: 'etitioner 3ank filed a com&laint for sum of money against
res&ondent @olores 3rondial and her husband. 'etitioner 3ank
alleged that, for #alue recei#ed, res&ondent @olores e(ecuted a
&romissory note (')) in the amount of 'E2I, 91/.00 in fa#or of
&etitioner 3ank &ayable in lum& sum on 11 .ebruary 1!E &lus
interests. %he ') had allegedly long matured but res&ondents failed
to &ay the amount thereon.
Bes&ondents raised the defense of lack of consideration for the ').
According to res&ondent @olores, she was re6uired to sign the loan
instruments and e(ecute the ') by &etitioner 3ank as condition to
her a&&ointment as Senior >anager of 'er&etual "a&ital
In#estments U .inance "or&. an affiliate of &etitioner 3ank.
3oth the B%" and "A ruled in fa#or of res&ondents.
ISS/"S: Is 'S3 a holder in due course$ @oes the &romissory note
ha#e consideration$ *hat is the effect of Section 2E of the )I;$
%/!IN$: Ln 11 .ebruary 1!E9, res&ondent @olores &ur&ortedly
a&&lied for a loan and simultaneously e(ecuted the sub+ect ').
?arlier, on 10 .ebruary 1!E9, "ity ?state @e#elo&ers, Inc. e(ecuted
a real estate mortgage of se#eral &arcels of land to secure, among
others, the loan of res&ondent @olores. %he check issued to
res&ondent @olores as &roceeds of the loan was endorsed and
de&osited on 1 .ebruary 1!E9 to >etro 3ank Account, the
&ersonal account of )ati#idad., )orofia, Kabriel and the 3aeses.
%he other documentary e#idence further showed that the
&ersonal account of )ati#idad, et al. was used to transfer the
&ur&orted loan of res&ondent @olores to &etitioner 3ank7s account.
%hus, petitioner 6an4 as 3older of t3e c3ec4 is not a 3older
in due course and accordingly not entitled to enforce or
collect payment from t3e ma4er <respondent 1olores=
because of absence or lac4 of consideration. Absence or
lac4 of consideration is a valid defense against any person
not a 3older in due course (Section 2E, )egotiable Interests
;aw).
ISS/"S: Is 3rondial an accommodation &arty under Section 2!$
*hat is the role of 'S3 (the &arty accommodated) in the
transaction$
%/!IN$: Bes&ondent @olores is not liable as an
4accommodation ma4er.5 Section 2! of the )I; defines the term
as S( one who has signed the instrument as maker, drawer,
acce&tor, or indorser, without recei#ing #alue therefor, and for the
&ur&ose of lending his name to some other &erson. Such a &erson
is liable on the instrument to a holder for #alue, notwithstanding
such holder, at the time of taking the instrument, knew him to be
only an accommodation &arty.
It 5as petitioner 6an4 53o 5as accommodated by
respondent 1olores 53en s3e eAecuted t3e PN* t3us*
petitioner 6an4 cannot collect from respondent 1olores.
20
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attractions.
- Albert Einstein
21

Nego Cases (Part 1 of 2)

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Nego Cases (Part 1 of 2)

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Decided Cases on Negotiable Instruments Law based on the outline of Atty. Rene Alexis P.

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