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1. Bataan Cigar v.

CA
BATAAN CIGAR AND CIGARETTE FACTORY, INC. ,
petitioner, vs. THE COURT OF APPEALS and STATE
INVESTMENT HOUSE, INC. , respondents.
SYLLABUS
COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS LAW;
HOLDER IN DUE COURSE; REQUISITES. The Negotiable
Instruments Law states what constitutes a holder in due
course, thus: "Sec. 52 - A holder in due course is a holder
who has taken the instrument under the following
conditions: (a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue,
and without notice that it had been previously dishonored, if
such was the fact; (c) That he took it in good faith and for
value; (d) That at the time it was negotiated to him he had
no notice of any infirmity in the instrument or defect in the
title of the person negotiating it."
ID.; ID.; EVERY HOLDER DEEMED PRIMA FACIE HOLDER IN
DUE COURSE. Section 59 of the NIL further states that
every holder is deemed prima facie a holder in due course.
However, when it is shown that the title of any person who
has negotiated the instrument was defective, the burden is
on the holder to prove that he or some person under whom
he claims, acquired the title as holder in due course.
ID.; ID.; CHECK; DEFINED. A check is defined by law as a
bill of exchange drawn on a bank payable on demand.
ID.; ID.; ID.; CROSSED CHECK; KINDS. Crossed check is
one where two parallel lines are drawn across its face or
across a corner thereof. It may crossed generally or

specially. A check is crossed specially when the name of a


particular banker or a company is written between the
parallel lines drawn. It is crossed generally when only the
words "and company" are written or nothing is written at all
between the parallel lines. It may be issued so that
presentment can be made only by a bank. Veritably the
Negotiable Instruments Law (NIL) does not mention "crossed
checks," although Article 541 of the Code of Commerce
refers to such instruments.
ID.; ID.; ID.; NEGOTIABILITY NOT AFFECTED BY ITS BEING
CROSSED. According to commentators, the negotiability
of a check is not a ected by its being crossed, whether
specially or generally. It may legally be negotiated from one
person to another as long as the one who encashes the
check with the drawee bank is another bank, or if it is
especially crossed, by the bank mentioned between the
parallel lines. This is specially true in England where the
Negotiable Instrument Law originated.
ID.; ID.; ID.; EFFECTS OF CROSSING A CHECK. Crossing of
a check should have the following e ects: (a) the check may
not be encashed but only deposited in the bank; (b) the
check may be negotiated only once to one who has an
account with a bank; (c) and the act of crossing the check
serves as warning to the holder that the check has been
issued for a definite purpose so that he must inquire if he
has received the check pursuant to that purpose, otherwise,
he is not a holder in due course.
ID.; ID.; ID.; CROSSING OF CHECK SHOULD PUT HOLDER ON
INQUIRY; EFFECT OF OMISSION THEREOF. It is then settled
that crossing of checks should put the holder on inquiry and
upon him devolves the duty to ascertain the indorser's title
to the check or the nature of his possession. Failing in this
respect, the holder is declared guilty of gross negligence
amounting to legal absence of good faith, contrary to Sec.

52(c) of the Negotiable Instruments Law, and as such the


consensus of authority is to the effect that the holder of the
check is not a holder in due course.
ID.; ID.; ID.; ID.; ID.; DRAWER NOT OBLIGED TO PAY CHECKS;
CASE AT BAR. In the present case, BCCFI's defense in
stopping payment is as good to SIHI as it is to George King.
Because, really, the checks were issued with the intention
that George King would supply BCCFI with the bales of
tobacco leaf. There being failure of consideration, SIHI is not
a holder in due course. Consequently, BCCFI cannot be
obliged to pay the checks.
ID.; ID.; ID.; ID.; ID.; ID.; HOLDER CAN STILL COLLECT FROM
IMMEDIATE INDORSER. The foregoing does not mean,
however, that respondent could not recover from the
checks. The only disadvantage of a holder who is not a
holder in due course is that the instrument is subject to
defenses as if it were non-negotiable. Hence, respondent
can collect from the immediate indorser, in this case,
George King.
FACTS:
Petitioner, Bataan Cigar & Cigarette Factory, Inc.
(BCCFI), a corporation involved in the manufacturing of
cigarettes, engaged one of its suppliers, King Tim Pua
George (herein after referred to as George King), to deliver
2,000 bales of tobacco leaf starting October 1978.
In consideration thereof, BCCFI, on July 13, 1978
issued crossed checks post-dated sometime in March 1979
in the total amount of P820,000.00.
Relying on the supplier's representation that he
would complete delivery within three months from
December 5, 1978, petitioner agreed to purchase additional

2,500 bales of tobacco leaves, despite the supplier's failure


to deliver in accordance with their earlier agreement. Again
petitioner issued postdated crossed checks in the total
amount of P1,100,000.00, payable sometime in September
1979.
During these times, George King was simultaneously
dealing with private respondent SIHI. On July 19, 1978, he
sold at a discount check TCBT 551826 5 bearing an amount
of P164,000.00, post dated March 31, 1979, drawn by
petitioner, naming George King as payee to SIHI. On
December 19 and 26, 1978, he again sold to respondent
checks TCBT Nos. 608967 & 608968, 6 both in the amount
of P100,000.00, post dated September 15 & 30, 1979
respectively, drawn by petitioner in favor of George King.
In as much as George King failed to deliver the bales
of tobacco leaf as agreed despite petitioner's demand,
BCCFI issued on March 30, 1979, a stop payment order on
all checks payable to George King, including check TCBT
551826. Subsequently, stop payment was also ordered on
checks TCBT Nos. 608967 & 608968 on September 14 & 28,
1979, respectively, due to George King's failure to deliver
the tobacco leaves.
Efforts of SIHI to collect from BCCFI having failed, it
instituted the present case, naming only BCCFI as party
defendant.
ISSUE:
Whether SIHI, a second indorser, a holder of crossed
checks, is a holder in due course, to be able to collect from
the drawer, BCCFI.

RULING:
RTC: The trial court pronounced SIHI as having a valid claim
being a holder in due course. It further said that the noninclusion of King Tim Pua George as party defendant is
immaterial in this case, since he, as payee, is not an
indispensable party.
CA: Affirmed RTCs decision.
SC: Reversed CAs decision.
SIHI is not a holder in due course and BCCFI cannot
be obliged to pay the checks.
It is then settled that crossing of checks should put
the holder on inquiry and upon him devolves the duty to
ascertain the indorser's title to the check or the nature of his
possession. Failing in this respect, the holder is declared
guilty of gross negligence amounting to legal absence of
good faith, contrary to Sec. 52(c) of the Negotiable
Instruments Law, 13 and as such the consensus of authority
is to the effect that the holder of the check is not a holder in
due course.
In the present case, BCCFI's defense in stopping
payment is as good to SIHI as it is to George King. Because,
really, the checks were issued with the intention that George
King would supply BCCFI with the bales of tobacco leaf.
There being failure of consideration, SIHI is not a holder in
due course. Consequently, BCCFI cannot be obliged to pay
the checks.

The foregoing does not mean, however, that


respondent could not recover from the checks. The only
disadvantage of a holder who is not a holder in due course is
that the instrument is subject to defenses as if it were nonnegotiable. Hence, respondent can collect from the
immediate indorser, in this case, George King.
2. Cayanan v. North Star
Cayanan v. North Star Intl Travel
172954
10-5-11

GR

No.

Petitioner: Engr. Jose Cayanan, owner/gen.manager of JEAC


Intl Mgt. & Contractor Services (recruitment agency)
Respondent: North Star Intl Travel Inc. (engaged in travel
agency business)
Case: Appeal on CA decision finding Cayanan civilly liable
for the value of the five checks which are the subject of
Criminal Case Nos. 166549-53.
FACTS:
1. On March 17, 1994, Virginia Balagtas, the General
Manager of North Star, in accommodation and upon
the instruction of Cayanan, sent the amount of
US$60,000 to View Sea Ventures Ltd., in Nigeria from
her personal account in Citibank Makati.
2. On March 29, 1994, Virginia again sent US$40,000 to
View Sea Ventures by telegraphic transfer, with
US$15,000 coming from petitioner.
3. North Star extended credit to petitioner for the
airplane tickets of his clients, with the total amount
of such indebtedness under the credit extensions
eventually reaching P510,035.47.
To cover payment of the foregoing obligations, petitioner
issued the following five checks to North Star:

1. Check No: 246822 -- Drawn Against


: Republic
Planters Bank Amount: 695K Dated/Postdated:
May 15, 1994 --- Payable to: North Star
2. Check No: 246823 -- Drawn Against: Republic
Planters Bank Amount: 278K Dated/Postdated:
May 15, 1994 --- Payable to: North Star
3. Check No: 246824 -- Drawn Against: Republic
Planters Bank --- Amount: 22,703.00
Dated/Postdated: May 15, 1994 Payable to
North Star
4. Check No: 687803 Drawn Against: PCIB
Amount: 1.5M
Dated/Postdated: April 14, 1994
Payable to North Star
5. Check No: 687804 Drawn Against: PCIB --Amount: 35K
Dated/Postdated: April 14, 1994
--- Payable to: North Star
-

Upon presentment: Checks amounting to 1.5M and


35K bounced for insufficiency of funds. The other 3
checks were dishonored due to a stop order payment
from Cayanan.
North Star, through its counsel, wrote to Cayanan
informing him of the dishonor. North Star demanded
payment but Cayanan failed to comply with its
obligation. Hence the filing of Information for
Criminal Case for violation of BP22 in MeTC of Makati.
Petitioner pleaded NOT GUILTY. But the MeTC
rendered judgment finding Cayanan guilty beyond
reasonable doubt. (1 year of imprisonment plus
2,530,703.00 for the amounts of checks, 400,078.02
for interest deducting 220,000 which was already
paid).
On appeal, the RTC acquitted petitioner of the
criminal charges. RTC also ruled that no civil liability
as there was no crime committed.
North Star elevated the case to the CA. On May 31,
2006, the CA (affirming MeTC decision) reversed the
decision of the RTC insofar as the civil aspect is
concerned and held petitioner civilly liable for the

value of the subject checks he issued since he never


denied having issued the five postdated checks
which were dishonored.
Hence, this appeal.
o Petitioners contention: Not civilly liable since
North Star did not give any valuable
consideration
o Respondent: Checks were for value. Payment
of 220K is proof.

Issue: WON CA erred in making him civilly liable and WON


the instrument was for value
Held: CA decision affirmed.
We have held that upon issuance of a check, in the absence
of evidence to the contrary, it is presumed that the same
was issued for valuable consideration which may consist
either in some right, interest, profit or benefit accruing to
the party who makes the contract, or some forbearance,
detriment, loss or some responsibility, to act, or labor, or
service given, suffered or undertaken by the other side.
Under the Negotiable Instruments Law, it is presumed that
every party to an instrument acquires the same for a
consideration or for value. As petitioner alleged that there
was no consideration for the issuance of the subject checks,
it devolved upon him to present convincing evidence to
overthrow the presumption and prove that the checks were
in fact issued without valuable consideration. Sadly,
however, petitioner has not presented any credible evidence
to rebut the presumption, as well as North Stars assertion,
that the checks were issued as payment for the US$85,000
petitioner owed.
Petitioner claims that North Star did not give any
valuable consideration for the checks since the US$85,000
was taken from the personal dollar account of Virginia and
not the corporate funds of North Star. The contention,
however, deserves scant consideration. The subject checks,
bearing petitioners signature, speak for themselves. The
fact that petitioner himself specifically named North Star as
the payee of the checks is an admission of his liability to

North Star and not to Virginia Balagtas, who as manager


merely facilitated the transfer of funds. Indeed, it is highly
inconceivable that an experienced businessman like
petitioner would issue various checks in sizeable amounts to
a payee if these are without consideration.
3. State Investment House v. IAC
Petitioner State Investment House seeks a review of the
decision of respondent Intermediate Appellate Court
(now Court of Appeals) in AC-G.R. CV No. 04523
reversing the decision of the Regional Trial Court of
Manila, Branch XXXVII dated April 30, 1984 and
dismissing the complaint for collection filed by petitioner
against private respondents Spouses Anita Pena Chua
and Harris Chua.
It appears that shortly before September 5, 1980, New
Sikatuna Wood Industries, Inc. requested for a loan from
private respondent Harris Chua. The latter agreed to grant
the same subject to the condition that the former should
wait until December 1980 when he would have the money.
In view of this agreement, private respondent-wife, Anita
Pena Chua issued three (3) crossed checks payable to New
Sikatuna Wood Industries, Inc. all postdated December 22,
1980 as follows:
DRAWEE BANK

CHECK NO.

Subsequently, New Sikatuna Wood Industries, Inc. entered


into an agreement with herein petitioner State Investment
House, Inc. whereby for and in consideration of the sum of
Pl,047,402.91 under a deed of sale, the former assigned and
discounted with petitioner eleven (11) postdated checks
including the aforementioned three (3) postdated checks
issued by herein private respondent-wife Anita Pea Chua to
New Sikatuna Wood Industries, Inc.
When the three checks issued by private respondent Anita
Pena Chua were allegedly deposited by petitioner, these
checks were dishonored by reason of "insufficient funds",
"stop payment" and "account closed", respectively.
Petitioner claims that despite demands on private
respondent Anita Pea to make good said checks, the latter
failed to pay the same necessitating the former to file an
action for collection against the latter and her husband
Harris Chua before the Regional Trial Court of Manila, Branch
XXXVII docketed as Civil Case No. 82-10547.
Private respondents-defendants filed a third party complaint
against New Sikatuna Wood Industries, Inc. for
reimbursement and indemnification in the event that they
be held liable to petitioner-plaintiff. For failure of third party
defendant to answer the third party complaint despite due
service of summons, the latter was declared in default.
On April 30, 1984, the lower court 1 rendered judgment
against herein private respondents spouses, the dispositive
DATE
portion of which reads:

1. China Banking Corporation

589053

2. International Corporate Bank

04045549

WHEREFORE, judgment is hereby rendered in favor of the


Dec. 22, 1980
plaintiff or against the defendants ordering the defendants
to pay jointly and severally to the plaintiff the following
Dec. 22, 1980
amounts:

3. Metropolitan Bank & Trust Co.

036512

1. P 229,450.00 with interest at the rate of 12% per annum


Dec. 22, 1980
from February 24,1981 until fully paid;

The total value of the three (3) postdated checks amounted


to P 299,450.00.

2. P 29,945.00 as and for attorney's fees; and


3. the costs of suit.

On the third party complaint, third party defendant New


Sikatuna Wood Industries, Inc. is ordered to pay third party
plaintiffs Anita Pena Chua and Harris Chua all amounts said
defendants' third- party plaintiffs may pay to the plaintiff on
account of this case. 2
On appeal filed by private respondents in AC-G.R. CV No.
04523, the Intermediate Appellate Court 3 (now Court of
Appeals) reversed the lower court's judgment in the now
assailed decision, the dispositive portion of which reads:
WHEREFORE, finding this appeal meritorious, We Reverse
and Set Aside the appealed judgment, dated April 30, 1984
and a new judgment is hereby rendered dismissing the
complaint, with costs against plaintiff-appellee. 4
Hence, this petition.
The pivotal issue in this case is whether or not petitioner is a
holder in due course as to entitle it to proceed against
private respondents for the amount stated in the dishonored
checks.
Section 52(c) of the Negotiable Instruments Law defines a
holder in due course as one who takes the instrument "in
good faith and for value". On the other hand, Section 52(d)
provides that in order that one may be a holder in due
course, it is necessary that "at the time the instrument was
negotiated to him he had no notice of any x x x defect in the
title of the person negotiating it." However, under Section
59 every holder is deemed prima facie to be a holder in due
course.
Admittedly, the Negotiable Instruments Law regulating the
issuance of negotiable checks as well as the lights and
liabilities arising therefrom, does not mention "crossed
checks". But this Court has taken cognizance of the practice
that a check with two parallel lines in the upper left hand
corner means that it could only be deposited and may not
be converted into cash. Consequently, such circumstance
should put the payee on inquiry and upon him devolves the
duty to ascertain the holder's title to the check or the nature
of his possession. Failing in this respect, the payee is

declared guilty of gross negligence amounting to legal


absence of good faith and as such the consensus of
authority is to the effect that the holder of the check is not a
holder in good faith. 5
Petitioner submits that at the time of the negotiation and
endorsement of the checks in question by New Sikatuna
Wood Industries, it had no knowledge of the transaction
and/or arrangement made between the latter and private
respondents.
We agree with respondent appellate court.
Relying on the ruling in Ocampo v. Gatchalian (supra), the
Intermediate Appellate Court (now Court of Appeals),
correctly elucidated that the effects of crossing a check are:
the check may not be encashed but only deposited in the
bank; the check may be negotiated only once to one who
has an account with a bank; and the act of crossing the
check serves as a warning to the holder that the check has
been issued for a definite purpose so that he must inquire if
he has received the check pursuant to that purpose,
otherwise he is not a holder in due course. Further, the
appellate court said:
It results therefore that when appellee rediscounted the
check knowing that it was a crossed check he was knowingly
violating the avowed intention of crossing the check.
Furthermore, his failure to inquire from the holder, party
defendant New Sikatuna Wood Industries, Inc., the purpose
for which the three checks were cross despite the warning of
the crossing, prevents him from being considered in good
faith and thus he is not a holder in due course. Being not a
holder in due course, plaintiff is subject to personal
defenses, such as lack of consideration between appellants
and New Sikatuna Wood Industries. Note that under the
facts the checks were postdated and issued only as a loan to
New Sikatuna Wood Industries, Inc. if and when deposits
were made to back up the checks. Such deposits were not
made, hence no loan was made, hence the three checks are
without consideration (Sec. 28, Negotiable Instruments
Law).

Likewise New Sikatuna Wood Industries negotiated the three


checks in breach of faith in violation of Article (sic) 55,
Negotiable Instruments Law, which is a personal defense
available to the drawer of the check. 6
In addition, such instruments are mentioned in Section 541
of the Negotiable Instruments Law as follows:
Sec. 541. The maker or any legal holder of a check shall be
entitled to indicate therein that it be paid to a certain banker
or institution, which he shall do by writing across the face
the name of said banker or institution, or only the words
"and company."
The payment made to a person other than the banker or
institution shall not exempt the person on whom it is drawn,
if the payment was not correctly made.
Under usual practice, crossing a check is done by placing
two parallel lines diagonally on the left top portion of the
check. The crossing may be special wherein between the
two parallel lines is written the name of a bank or a business
institution, in which case the drawee should pay only with
the intervention of that bank or company, or crossing may
be general wherein between two parallel diagonal lines are
written the words "and Co." or none at all as in the case at
bar, in which case the drawee should not encash the same
but merely accept the same for deposit.
The effect therefore of crossing a check relates to the mode
of its presentment for payment. Under Section 72 of the
Negotiable Instruments Law, presentment for payment to be
sufficient must be made (a) by the holder, or by some
person authorized to receive payment on his behalf ... As to
who the holder or authorized person will be depends on the
instructions stated on the face of the check.
The three subject checks in the case at bar had been
crossed generally and issued payable to New Sikatuna Wood
Industries, Inc. which could only mean that the drawer had
intended the same for deposit only by the rightful person,
i.e., the payee named therein. Apparently, it was not the
payee who presented the same for payment and therefore,

there was no proper presentment, and the liability did not


attach to the drawer.
Thus, in the absence of due presentment, the drawer did not
become liable. 7 Consequently, no right of recourse is
available to petitioner against the drawer of the subject
checks, private respondent wife, considering that petitioner
is not the proper party authorized to make presentment of
the checks in question.
Yet it does not follow as a legal proposition that simply
because petitioner was not a holder in due course as found
by the appellate court for having taken the instruments in
question with notice that the same is for deposit only to the
account of payee named in the subject checks, petitioner
could not recover on the checks. The Negotiable
Instruments Law does not provide that a holder who is not a
holder in due course may not in any case recover on the
instrument for in the case at bar, petitioner may recover
from the New Sikatuna Wood Industries, Inc. if the latter has
no valid excuse for refusing payment. The only
disadvantage of a holder who is not in due course is that the
negotiable instrument is subject to defenses as if it were
non-negotiable. 8
That the subject checks had been issued subject to the
condition that private respondents on due date would make
the back up deposit for said checks but which condition
apparently was not made, thus resulting in the nonconsummation of the loan intended to be granted by private
respondents to New Sikatuna Wood Industries, Inc.,
constitutes a good defense against petitioner who is not a
holder in due course.
WHEREFORE, the decision appealed from is hereby
AFFIRMED with costs against petitioner.SO ORDERED.
4. Pineda v. dela Rama
FACTS:
Pineda was caught in a case against the NARIC

for his alleged misappropriation of many cavans of


palay. He hired Atty. Dela Rama to delay the filing of
the complaint against him, on alleged representation of the
lawyer that he is a friend of the NARIC administrator.

Melquiades P. de Leon for petitioner.

Pineda then issued a promissory note in favor of dela Rama


to pay for the advances that the lawyer made to the
administrator to delay the filing of the complaint. Dela
Rama on the other hand contended that the promissory
note was for the loan advanced to Pineda by him. Dela
Rama filed an action against Pineda for the collection of the
amount of the note.

FACTS:

HELD:
The presumption that a negotiable instrument was
issued for valuable consideration is a rebuttable
presumption. It can be rebutted by proof to the contrary.
In the case at bar, the claims of dela Rama that the
promissory note was for a loan advanced to Pineda is
unbelievable. The grant of a loan by a lawyer to a
moneyed client and whom he has known for only 3 months
can not be relied on. Pineda had actually just purchased
numerous properties. It is highly illogical that he would
loan from dela Rama P9500 for 5 days apart. Furthermore,
the note was void ab initio because the consideration
given was to influence the administrator to delay
charges against Pineda. The consideration was void for
being against law and public policy.
5. Crisologo-Jose v. CA
G.R. No. 80599

September 15, 1989

ERNESTINA CRISOLOGO-JOSE, petitioner,


vs.
COURT OF APPEALS and RICARDO S. SANTOS, JR. in his own
behalf and as Vice-President for Sales of Mover Enterprises,
Inc., respondents.

Rogelio A. Ajes for private respondent.

In 1980, plaintiff Ricardo S. Santos, Jr. was the vice-president


of Mover Enterprises, Inc. in-charge of marketing and sales;
and the president of the said corporation was Atty. Oscar Z.
Benares.
On
April
30,
1980,
Atty.
Benares,
in
accommodation of his clients, the spouses Jaime and Clarita
Ong, issued Check No. 093553 drawn against Traders Royal
Bank, dated June 14, 1980, in the amount of P45,000.00
(Exh- 'I') payable to defendant Ernestina Crisologo-Jose.
Since the check was under the account of Mover
Enterprises, Inc., the same was to be signed by its
president, Atty. Oscar Z. Benares, and the treasurer of the
said corporation. However, since at that time, the treasurer
of Mover Enterprises was not available, Atty. Benares
prevailed upon the plaintiff, Ricardo S. Santos, Jr., to sign the
aforesaid chEck as an alternate story. Plaintiff Ricardo S.
Santos, Jr. did sign the check.
It appears that the check (Exh. '1') was issued to defendant
Ernestina Crisologo-Jose in consideration of the waiver or
quitclaim by said defendant over a certain property which
the Government Service Insurance System (GSIS) agreed to
sell to the clients of Atty. Oscar Benares, the spouses Jaime
and Clarita Ong, with the understanding that upon approval
by the GSIS of the compromise agreement with the spouses
Ong, the check will be encashed accordingly. However, since
the compromise agreement was not approved within the
expected period of time, the aforesaid check for P45,000.00
(Exh. '1') was replaced by Atty. Benares with another Traders
Royal Bank cheek bearing No. 379299 dated August 10,
1980, in the same amount of P45,000.00 (Exhs. 'A' and '2'),
also payable to the defendant Jose. This replacement check
was also signed by Atty. Oscar Z. Benares and by the
plaintiff Ricardo S. Santos, Jr. When defendant deposited this
replacement check (Exhs. 'A' and '2') with her account at

Family Savings Bank, Mayon Branch, it was dishonored for


insufficiency of funds. A subsequent redepositing of the said
check was likewise dishonored by the bank for the same
reason. Hence, defendant through counsel was constrained
to file a criminal complaint for violation of Batas Pambansa
Blg. 22 with the Quezon City Fiscal's Office against Atty.
Oscar Z. Benares and plaintiff Ricardo S. Santos, Jr. The
investigating Assistant City Fiscal, Alfonso Llamas,
accordingly filed an amended information with the court
charging both Oscar Benares and Ricardo S. Santos, Jr., for
violation of Batas Pambansa Blg. 22 docketed as Criminal
Case No. Q-14867 of then Court of First Instance of Rizal,
Quezon City.
Meanwhile, during the preliminary investigation of the
criminal charge against Benares and the plaintiff herein,
before Assistant City Fiscal Alfonso T. Llamas, plaintiff
Ricardo S. Santos, Jr. tendered cashier's check No. CC
160152 for P45,000.00 dated April 10, 1981 to the
defendant Ernestina Crisologo-Jose, the complainant in that
criminal case. The defendant refused to receive the
cashier's check in payment of the dishonored check in the
amount of P45,000.00. Hence, plaintiff encashed the
aforesaid cashier's check and subsequently deposited said
amount of P45,000.00 with the Clerk of Court on August 14,
1981 (Exhs. 'D' and 'E'). Incidentally, the cashier's check
adverted to above was purchased by Atty. Oscar Z. Benares
and given to the plaintiff herein to be applied in payment of
the dishonored check. 3
After trial, the court a quo, holding that it was "not
persuaded to believe that consignation referred to in Article
1256 of the Civil Code is applicable to this case," rendered
judgment dismissing plaintiff s complaint and defendant's
counterclaim. 4
As earlier stated, respondent court reversed and set aside
said judgment of dismissal and revived the complaint for
consignation, directing the trial court to give due course
thereto.
ISSUE:

Whether or not it may be held liable on the accommodation


instrument, that is, the check issued in favor of herein
petitioner.
Held:
No.
The aforequoted provision of the Negotiable Instruments
Law which holds an accommodation party liable on the
instrument to a holder for value, although such holder at the
time of taking the instrument knew him to be only an
accommodation party, does not include nor apply to
corporations which are accommodation parties. This is
because the issue or indorsement of negotiable paper by a
corporation
without
consideration
and
for
the
accommodation of another is ultra vires. Hence, one who
has taken the instrument with knowledge of the
accommodation nature thereof cannot recover against a
corporation where it is only an accommodation party. If the
form of the instrument, or the nature of the transaction, is
such as to charge the indorsee with knowledge that the
issue or indorsement of the instrument by the corporation is
for the accommodation of another, he cannot recover
against the corporation thereon.
By way of exception, an officer or agent of a corporation
shall have the power to execute or indorse a negotiable
paper in the name of the corporation for the accommodation
of a third person only if specifically authorized to do so.
Corollarily, corporate officers, such as the president and
vice-president, have no power to execute for mere
accommodation a negotiable instrument of the corporation
for their individual debts or transactions arising from or in
relation to matters in which the corporation has no
legitimate concern. Since such accommodation paper
cannot thus be enforced against the corporation, especially
since it is not involved in any aspect of the corporate
business or operations, the inescapable conclusion in law
and in logic is that the signatories thereof shall be
personally liable therefor, as well as the consequences
arising from their acts in connection therewith.

The instant case falls squarely within the purview of the


aforesaid decisional rules. If we indulge petitioner in her
aforesaid postulation, then she is effectively barred from
recovering from Mover Enterprises, Inc. the value of the
check. Be that as it may, petitioner is not without recourse.
The fact that for lack of capacity the corporation is not
bound by an accommodation paper does not thereby
absolve, but should render personally liable, the signatories
of said instrument where the facts show that the
accommodation involved was for their personal account,
undertaking or purpose and the creditor was aware thereof.
Petitioner, as hereinbefore explained, was evidently charged
with the knowledge that the check was issued at the
instance and for the personal account of Atty. Benares who
merely prevailed upon respondent Santos to act as cosignatory in accordance with the arrangement of the
corporation with its depository bank. That it was a personal
undertaking of said corporate officers was apparent to
petitioner by reason of her personal involvement in the
financial arrangement and the fact that, while it was the
corporation's check which was issued to her for the amount
involved, she actually had no transaction directly with said
corporation.

the check, there was created a debtor-creditor relationship,


as between Atty. Benares and respondent Santos, on the
one hand, and petitioner, on the other. This circumstance
enables respondent Santos to resort to an action of
consignation where his tender of payment had been refused
by petitioner.
We interpose the caveat, however, that by holding that the
remedy of consignation is proper under the given
circumstances, we do not thereby rule that all the operative
facts for consignation which would produce the effect of
payment are present in this case. Those are factual issues
that are not clear in the records before us and which are for
the Regional Trial Court of Quezon City to ascertain in Civil
Case No. Q-33160, for which reason it has advisedly been
directed by respondent court to give due course to the
complaint for consignation, and which would be subject to
such issues or claims as may be raised by defendant and
the counterclaim filed therein which is hereby ordered
similarly revived.

6. Atrium Management Corp. v. CA

There should be no legal obstacle, therefore, to petitioner's


claims being directed personally against Atty. Oscar Z.
Benares and respondent Ricardo S. Santos, Jr., president and
vice-president, respectively, of Mover Enterprises, Inc.

ATRIUM MANAGEMENT CORPORATION, petitioner, vs. COURT


OF APPEALS, E.T. HENRY AND CO., LOURDES VICTORIA M. DE
LEON, RAFAEL DE LEON, JR., AND HI-CEMENT CORPORATION,
respondents.

Furthermore, respondent Santos is an accommodation party


and is liable for the value of the check. The fact that he was
only a co-signatory does not detract from his personal
liability. A co-maker or co-drawer under the circumstances in
this case is as much an accommodation party as the other
co-signatory or, for that matter, as a lone signatory in an
accommodation instrument. Under the doctrine in Philippine
Bank of Commerce vs. Aruego, supra, he is in effect a cosurety for the accommodated party with whom he and his
co-signatory, as the other co-surety, assume solidary
liability ex lege for the debt involved. With the dishonor of

[G.R. No. 121794. February 28, 2001]


LOURDES M. DE LEON, petitioner, vs. COURT OF APPEALS,
ATRIUM MANAGEMENT CORPORATION, AND HI-CEMENT
CORPORATION, respondents.
Hi-Cement Corporation through its corporate signatories,
petitioner Lourdes M. de Leon,[2] treasurer, and the late
Antonio de las Alas, Chairman, issued checks in favor of E.T.
Henry and Co. Inc., as payee. E.T. Henry and Co., Inc., in
turn, endorsed the four checks to petitioner Atrium
Management Corporation for valuable consideration. Upon

presentment for payment, the drawee bank dishonored all


four checks for the common reason payment stopped.
Atrium, thus, instituted this action after its demand for
payment of the value of the checks was denied.
Trial Court:
Lourdes M. de Leon, her husband Rafael de Leon, E.T. Henry
and Co., Inc. and Hi-Cement Corporation are liable to Atrium,
jointly and severally.
Court of Appeals:
Hi-Cement Corporation was absolved from liability and
dismissing the complaint as against it. The appellate court
ruled that: (1) Lourdes M. de Leon was not authorized to
issue the subject checks in favor of E.T. Henry, Inc.; (2) The
issuance of the subject checks by Lourdes M. de Leon and
the late Antonio de las Alas constituted ultra vires acts; and
(3) The subject checks were not issued for valuable
consideration.
The issues raised are the following:
In G. R. No. 109491 (Atrium, petitioner):
1. Whether the issuance of the questioned checks was an
ultra vires act;
2. Whether Atrium was not a holder in due course and for
value; and
3. Whether the Court of Appeals erred in ruling that
petitioner Lourdes M. de Leon as signatory of the checks
was personally liable for the value of the checks, which were
declared to be issued without consideration;
Ruling:
We first resolve the issue of whether the issuance of the
checks was an ultra vires act. The record reveals that HiCement Corporation issued the four (4) checks to extend
financial assistance to E.T. Henry, not as payment of the
balance of the P30 million pesos cost of hydro oil delivered
by E.T. Henry to Hi-Cement. Why else would petitioner de

Leon ask for counterpart checks from E.T. Henry if the


checks were in payment for hydro oil delivered by E.T. Henry
to Hi-Cement?
The act of issuing the checks was well within the ambit of a
valid corporate act, for it was for securing a loan to finance
the activities of the corporation, hence, not an ultra vires
act. (An ultra vires act is one committed outside the object
for which a corporation is created as defined by the law of
its organization and therefore beyond the power conferred
upon it by law)
The next question to determine is whether Lourdes M. de
Leon and Antonio de las Alas were personally liable for the
checks issued as corporate officers and authorized
signatories of the check.
In the case at bar, Lourdes M. de Leon and Antonio de las
Alas as treasurer and Chairman of Hi-Cement were
authorized to issue the checks. However, Ms. de Leon was
negligent when she signed the confirmation letter requested
by Mr. Yap of Atrium and Mr. Henry of E.T. Henry for the
rediscounting of the crossed checks issued in favor of E.T.
Henry. She was aware that the checks were strictly endorsed
for deposit only to the payees account and not to be further
negotiated. What is more, the confirmation letter contained
a clause that was not true, that is, that the checks issued to
E.T. Henry were in payment of Hydro oil bought by HiCement from E.T. Henry. Her negligence resulted in damage
to the corporation. Hence, Ms. de Leon may be held
personally liable therefor.
The next issue is whether or not petitioner Atrium was a
holder of the checks in due course.
In the instant case, the checks were crossed checks and
specifically indorsed for deposit to payees account only.
From the beginning, Atrium was aware of the fact that the
checks were all for deposit only to payees account, meaning
E.T. Henry. Clearly, then, Atrium could not be considered a
holder in due course.
Disposition:

However, it does not follow as a legal proposition that


simply because petitioner Atrium was not a holder in due
course for having taken the instruments in question with
notice that the same was for deposit only to the account of
payee E.T. Henry that it was altogether precluded from
recovering on the instrument. The Negotiable Instruments
Law does not provide that a holder not in due course can
not recover on the instrument.[19]
The disadvantage of Atrium in not being a holder in due
course is that the negotiable instrument is subject to
defenses as if it were non-negotiable.[20] One such defense
is absence or failure of consideration.[21] We need not rule
on the other issues raised, as they merely follow as a
consequence of the foregoing resolutions.
WHEREFORE, the petitions are hereby DENIED. The decision
and resolution of the Court of Appeals in CA-G. R. CV No.
26686, are hereby AFFIRMED in toto.
7. PNB v. CA
G.R. No. 107508 April 25, 1996
PHILIPPINE
NATIONAL
BANK,
petitioner,
vs.
COURT OF APPEALS, CAPITOL CITY DEVELOPMENT BANK,
PHILIPPINE BANK OF COMMUNICATIONS, and F. ABANTE
MARKETING, respondents.
**An alteration is said to be material if it alters the effect of
the
instrument.
**In other words, a material alteration is one which changes
the items which are required to be stated under Section 1 of
the Negotiable Instruments Law.
This is a petition for review on certiorari under Rule 45 of the
Rules of Court assailing the decision dated April 29, 1992 of
respondent Court of Appeals in CA-G.R. CV No. 24776 and its
resolution dated September 16, 1992, denying petitioner
Philippine National Bank's motion for reconsideration of said
decision.

Facts:
A check with serial number 7-3666-223-3, dated August 7,
1981 in the amount of P97,650.00 was issued by the
Ministry of Education and Culture (now Department of
Education, Culture and Sports [DECS]) payable to F. Abante
Marketing. This check was drawn against Philippine National
Bank (herein petitioner).
On August 11, 1981, F. Abante Marketing, a client of Capitol
City Development Bank (Capitol), deposited the questioned
check in its savings account with said bank. In turn, Capitol
deposited the same in its account with the Philippine Bank
of Communications (PBCom) which, in turn, sent the check
to petitioner for clearing.
Petitioner cleared the check as good and, thereafter, PBCom
credited Capitol's account for the amount stated in the
check. However, on October 19, 1981, petitioner returned
the check to PBCom and debited PBCom's account for the
amount covered by the check, the reason being that there
was a "material alteration" of the check number. PBCom, as
collecting agent of Capitol, then proceeded to debit the
latter's account for the same amount, and subsequently,
sent the check back to petitioner. Petitioner, however,
returned the check to PBCom.
On the other hand, Capitol could not, in turn, debit F. Abante
Marketing's account since the latter had already withdrawn
the amount of the check as of October 15, 1981. Capitol
sought clarification from PBCom and demanded the recrediting of the amount. PBCom followed suit by requesting
an explanation and re-crediting from petitioner.
Since the demands of Capitol were not heeded, it filed a civil
suit with the Regional Trial Court of Manila against PBCom
which, in turn, filed a third-party complaint against
petitioner for reimbursement/indemnity with respect to the
claims of Capitol. Petitioner, on its part, filed a fourth-party
complaint against F. Abante Marketing.
RTC Ruling:
WHEREFORE, judgment is hereby rendered as follows:

1.) On plaintiffs complaint, defendant Philippine Bank of


Communications is ordered to re-credit or reimburse plaintiff
Capitol City Development Bank the amount of P97,650.00,
plus interest of 12 percent thereto from October 19, 1981
until
the
amount
is
fully
paid;
2.) On Philippine Bank of Communications third-party
complaint third-party defendant PNB is ordered to reimburse
and indemnify Philippine Bank of Communications for
whatever
amount
PBCom
pays
to
plaintiff;
3.) On Philippine National Bank's fourth-party complaint, F.
Abante Marketing is ordered to reimburse and indemnify
PNB for whatever amount PNB pays to PBCom;
4.) On attorney's fees, Philippine Bank of Communications is
ordered to pay Capitol City Development Bank attorney's
fees in the amount of Ten Thousand (P10,000.00) Pesos; but
PBCom is entitled to reimbursement/indemnity from PNB;
and Philippine National Bank to be, in turn reimbursed or
indemnified by F. Abante Marketing for the same amount;
5.) The Counterclaims of PBCom and PNB are hereby
dismissed;
6.) No pronouncement as to costs.
SO ORDERED.
Court of Appeals Ruling:
WHEREFORE, the judgment appealed from is modified by
exempting PBCom from liability to plaintiff-appellee for
attorney's fees and ordering PNB to honor the check for
P97,650.00, with interest as declared by the trial court, and
pay plaintiff-appellee attorney's fees of P10,000.00. After
the check shall have been honored by PNB, PBCom shall recredit plaintiff-appellee's account with it with the amount.
No pronouncement as to costs.
SO ORDERED.
Hence, this petition.
Issue:

Whether or not an alteration of the serial number of a check


is a material alteration under the Negotiable Instruments
Law?
Ruling:
No.
Petitioner anchors its position on Section 125 of the
Negotiable Instruments Law (ACT No. 2031) 5 which
provides:
Sec. 125. What constitutes a material alteration. Any
alteration which changes:
(a)
The
date;
(b) The sum payable, either for principal or interest;
(c)
The
time
or
place
of
payment;
(d) The number or the relations of the parties;
(e) The medium or currency in which payment is to be
made;
(f) Or which adds a place of payment where no place of
payment is specified, or any other change or addition which
alters the effect of the instrument in any respect, is a
material alteration.
Petitioner alleges that there is no hard and fast rule in the
interpretation of the aforequoted provision of the Negotiable
Instruments Law. It maintains that under Section 125(f), any
change that alters the effect of the instrument is a material
alteration.
We do not agree.
An alteration is said to be material if it alters the effect of
the instrument. It means an unauthorized change in an
instrument that purports to modify in any respect the
obligation of a party or an unauthorized addition of words or
numbers or other change to an incomplete instrument
relating to the obligation of a party. In other words, a
material alteration is one which changes the items which are
required to be stated under Section 1 of the Negotiable
Instruments Law.
Section 1 of the Negotiable Instruments Law provides:

Sec. 1. Form of negotiable instruments. An instrument to


be negotiable must conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a
sum
certain
in
money;
(c) Must be payable on demand, or at a fixed or
determinable
future
time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must
be named or otherwise indicated therein with reasonable
certainty.
The case at bench is unique in the sense that what was
altered is the serial number of the check in question, an
item which, it can readily be observed, is not an essential
requisite for negotiability under Section 1 of the Negotiable
Instruments Law. The aforementioned alteration did not
change the relations between the parties. The name of the
drawer and the drawee were not altered. The intended
payee was the same. The sum of money due to the payee
remained
the
same.
The check's serial number is not the sole indication of its
origin.. As succinctly found by the Court of Appeals, the
name of the government agency which issued the subject
check was prominently printed therein. The check's issuer
was therefore sufficiently identified, rendering the referral to
the serial number redundant and inconsequential.
Petitioner, thus cannot refuse to accept the check in
question on the ground that the serial number was altered,
the same being an immaterial or innocent one.
WHEREFORE, premises considered, except for the deletion
of the award of attorney's fees, the decision of the Court of
Appeals is hereby AFFIRMED.
SO ORDERED.
8. Maulini v. Serrano

FACTS:
promissory note:

3,000. Due 5th of September,

1912.

We jointly and severally agree to pay to the


order of Don Antonio G. Serrano on or before the 5th day of
September, 1912, the sum of three thousand pesos (P3,000)
for value received for commercial operations. Notice and
protest renounced. If the sum herein mentioned is not
completely paid on the 5th day of September, 1912, this
instrument will draw interest at the rate of 1 per cent per
month from the date when due until the date of its complete
payment. The makers hereof agree to pay the additional
sum of P500 as attorney's fees in case of failure to pay the
note.
Manila, June 5, 1912.
(Sgd.) For Padern, Moreno & Co., by F. Moreno, member of
the firm. For Jose Padern, by F. Moreno. Angel Gimenez.

The note was indorsed on the back as follows:


Pay note to the order of Don Fernando Maulini, value
received. Manila, June 5, 1912. (Sgd.) A.G. Serrano.

Maulini's business as a broker consisted in looking up


and ascertaining persons who had money to loan as well as
those who desired to borrow money and, acting as a
mediary, negotiate a loan between the two

Method usually followed: the broker delivered


the money personally to the borrower, took note in his own
name and immediately transferred it by indorsement to the
lender

done at the special request of the indorsee


and simply as a favor to him, the latter stating to the broker

that he did not wish his name to appear on the books of the
borrowing company as a lender of money and that he
desired that the broker take the note in his own name,
immediately transferring to him title thereto by indorsement

Trial Court: immaterial whether there was a


consideration for the transfer or not, as the indorser, under
the evidence offered, was an accommodation indorser.

9. Equitable Banking v. Special Steel


Equitable Banking Corporation v. Special Steel Products,
Inc.
G.R. No. 175350, June 13, 2012
Parties

ISSUES: W/N Serrano was an accomodation indorser


HELD: Judgment reversed.

never was a moment when Serrano was the real


owner of the note

The only payment that the broker received


was for his services in negotiating the loan.

In cases of accommodation indorsement the indorser


makes the indorsement for the accommodation of the
maker. Such an indorsement is generally for the purpose of
better securing the payment of the note

lend his name to the maker, NOT to the holder

indorsement is made as a favor to the indorsee, who


requests it, not the better to secure payment, but to relieve
himself from a distasteful situation, and where the only
consideration for such indorsement passes from the indorser
to the indorsee, the situation does not present one creating
an accommodation indorsement, nor one where there is a
consideration sufficient to sustain an action on the
indorsement.

Parol evidence was admissible for the purpose


named.

Special Steel Products, Inc. (SSPI) a private domestic


corporation selling steel products
Pardo - SSPIs President and majority stockholder
International Copra Export Corporation (Interco)- regular
customer of SSPI
Uy - Interco employee, in charge of the purchasing
department, and the son-in-law of its majority stockholder
Equitable Banking Corporation (Equitable or bank)
depository bank of Interco and of Uy

Facts
In 1991, SSPI sold welding electrodes to Interco. The
invoices provided that Interco would pay interest at the rate of
36% per annum in case of delay. In payment for the above
welding electrodes, Interco issued three checks payable to the
order of SSPI. Each check was crossed with the notation account
payee only and was drawn against Equitable. The records do not
identify the signatory for these three checks, or explain how Uy,
Intercos purchasing officer, came into possession of these checks.
The records only disclose that Uy presented each crossed check
to Equitable on the day of its issuance and claimed that he had
good title thereto. He demanded the deposit of the checks in his
personal accounts in Equitable, and the latter acceded to Uys
demands on the assumption that Uy, as the son-in-law of Intercos
majority stockholder, was acting pursuant to Intercos orders. The

bank also relied on Uys status as a valued client. Thus, Equitable


accepted the checks for deposit in Uys personal accounts and
stamped ALL PRIOR ENDORSEMENT AND/OR LACK OF
ENDORSEMENT GUARANTEED on their dorsal portion. Uy
promptly withdrew the proceeds of the checks.
In October 1991, SSPI reminded Interco of the unpaid
welding electrodes. Interco replied that it had already issued
three checks payable to SSPI and drawn against Equitable. SSPI
denied receipt of these checks. On August 6, 1992, SSPI
requested information from Equitable regarding the three checks.
The bank refused to give any information invoking the
confidentiality of deposits.

Yes. Equitable is solidarily liable with Uy to compensate


SSPI for the damages it suffered. This Court also allows
Equitables cross-claim against Uy.

Equitable argues that SSPI cannot assert a right against


the bank based on the undelivered checks, arguing that a payee,
who did not receive the check, cannot require the drawee bank to
pay it the sum stated on the checks. This argument is misplaced.
SSPIs cause of action is not based on the three checks, but
instead asserts a cause of action based on quasi-delict..
Crossed checks:

It was determined that Uy, not SSPI, received the


proceeds of the three checks that were payable to SSPI. Thus, on
June 30, 1993 (twenty-three months after the issuance of the
three checks), Interco finally paid the value of the three checks to
SSPI, plus a portion of the accrued interests. Interco refused to
pay the entire accrued interest of on the ground that it was not
responsible for the delay. Hence, Pardo filed a complaint for
damages.
Issue
Whether or not SSPI has a cause of action against Equitable for
quasi-delict and whether SSPI can recover, as actual damages,
the stipulated 36% per annum interest from Equitable
Held

The checks that Interco issued in favor of SSPI were all


crossed, made payable to SSPIs order, and contained the
notation account payee only. This creates a reasonable
expectation that the payee alone would receive the proceeds of
the checks and that diversion of the checks would be averted.
This expectation arises from the accepted banking practice that
crossed checks are intended for deposit in the named payees
account only and no other. At the very least, the nature of
crossed checks should place a bank on notice that it should
exercise more caution or expend more than a cursory inquiry, to
ascertain whether the payee on the check has authorized the
holder to deposit the same in a different account. In this
connection, it is important that banks should guard against injury
attributable to negligence or bad faith on its part. As repeatedly
emphasized, since the banking business is impressed with public
interest, the trust and confidence of the public in it is of
paramount importance. Consequently, the highest degree of
diligence is expected, and high standards of integrity and
performance are required of it.
Equitable did not observe the required degree of diligence
expected of a banking institution under the existing factual
circumstances. It should have verified if the payee (SSPI)

authorized the holder (Uy) to present the same in its behalf, or


indorsed it to him. Considering however, that the named payee
does not have an account with Equitable (hence, the latter has no
specimen signature of SSPI by which to judge the genuineness of
its indorsement to Uy), the bank knowingly assumed the risk of
relying solely on Uys word that he had a good title to the three
checks. Such misplaced reliance on empty words is tantamount
to gross negligence.
Equitable contends that its knowledge that Uy is the sonin-law of the majority stockholder of the drawer, Interco, made it
safe to assume that the drawer authorized Uy to countermand
the order appearing on the check. In other words, Equitable
theorizes that Interco reconsidered its original order and decided
to give the proceeds of the checks to Uy. That the bank arrived at
this conclusion without anything on the face of the checks to
support it is demonstrative of its lack of caution. It is troubling
that Equitable proceeded with the transaction based only on its
knowledge that Uy had close relations with Interco. The bank did
not even make inquiries with the drawer, Interco (whom the bank
considered a valued client), to verify Uys representation.

10. RCBC v. Hi-Tri


RCBC vs. Hi-Tri
Bakunawa,

Development

Corp.

and

Luz

R.

G.R. No. 192413, June 13, 2012


Facts:
Millan paid the spouses Bakunawa P1,019,514.29 as down
payment for the purchase of six (6) lots with the Spouses
Bakunawa giving Millan the Owners Copies of TCTs of said
lots.

Due to some obstacles, the sale did not push through; so


Spouses Bakunawa rescinded the sale and offered to return
to Millan her down. However, Millan refused to accept back
the down payment. Consequently, the Spouses Bakunawa,
through their company, Hi-Tri took out on October 28, 1991,
a Managers Check from RCBC-Ermita in the amount
of P 1,019,514.29, payable to Millans company Rosmil and
used this as one of their basis for a complaint against Millan.
The Spouses Bakunawa retained custody of RCBC Managers
Check and refrained from cancelling or negotiating it. Millan
was also informed that the Managers Check was available
for her withdrawal, she being the payee.
On January 31, 2003, without the knowledge of Spouses
Bakunawa, RCBC reported the "P 1,019,514.29-credit
existing in favor of Rosmil to the Bureau of Treasury as
among its "unclaimed balances" as of January 31, 2003. On
December 14, 2006, the Republic, through the Office of the
Solicitor General (OSG), filed with the RTC the action for
Escheat.
On April 30, 2008, Spouses Bakunawa settled amicably their
dispute with Millan. Spouses Bakunawa tried to recover
the P1,019,514.29 under Managers Check but they were
informed that the amount was already subject of the
escheat proceedings before the RTC.
The trial court ordered the deposit of the escheated
balances with the Treasurer and credited in favor of the
Republic. Respondents claim that they were not able to
participate in the trial, as they were not informed of the
ongoing
escheat
proceedings.
Later
motion
for
reconsideration was denied.
CA reversed the RTC ruling. CA pronounced that RTC Clerk of
Court failed to issue individual notices directed to all
persons claiming interest in the unclaimed balances. CA
held that the Decision and Order of the RTC were void for
want of jurisdiction.
Issue:

Whether or not the allocated funds may be escheated in


favor of the Republic
Held:
There are sufficient grounds to affirm the CA on the
exclusion of the funds allocated for the payment of the
Managers Check in the escheat proceedings.
An ordinary check refers to a bill of exchange drawn by a
depositor (drawer) on a bank (drawee), requesting the latter
to pay a person named therein (payee) or to the order of the
payee or to the bearer, a named sum of money. The
issuance of the check does not of itself operate as an
assignment of any part of the funds in the bank to the credit
of the drawer. Here, the bank becomes liable only after it
accepts or certifies the check. After the check is accepted for
payment, the bank would then debit the amount to be paid
to the holder of the check from the account of the depositordrawer.
There are checks of a special type called managers or
cashiers checks. These are bills of exchange drawn by the
banks manager or cashier, in the name of the bank, against
the bank itself. Typically, a managers or a cashiers check is
procured from the bank by allocating a particular amount of
funds to be debited from the depositors account or by
directly paying or depositing to the bank the value of the
check to be drawn. Since the bank issues the check in its
name, with itself as the drawee, the check is deemed
accepted in advance. Ordinarily, the check becomes the
primary obligation of the issuing bank and constitutes its
written promise to pay upon demand.
Nevertheless, the mere issuance of a managers check does
not ipso facto work as an automatic transfer of funds to the
account of the payee. In case the procurer of the managers
or cashiers check retains custody of the instrument, does
not tender it to the intended payee, or fails to make an
effective delivery, we find the following provision on
undelivered instruments under the Negotiable Instruments
Law applicable:

Sec. 16. Delivery; when effectual; when presumed. Every


contract on a negotiable instrument is incomplete and
revocable until delivery of the instrument for the purpose of
giving effect thereto. As between immediate parties and as
regards a remote party other than a holder in due course,
the delivery, in order to be effectual, must be made either
by or under the authority of the party making, drawing,
accepting, or indorsing, as the case may be; and, in such
case, the delivery may be shown to have been conditional,
or for a special purpose only, and not for the purpose of
transferring the property in the instrument. But where the
instrument is in the hands of a holder in due course, a valid
delivery thereof by all parties prior to him so as to make
them liable to him is conclusively presumed. And where the
instrument is no longer in the possession of a party whose
signature appears thereon, a valid and intentional delivery
by him is presumed until the contrary is proved.
Petitioner acknowledges that the Managers Check was
procured by respondents, and that the amount to be paid for
the check would be sourced from the deposit account of HiTri. When Rosmil did not accept the Managers Check offered
by respondents, the latter retained custody of the
instrument instead of cancelling it. As the Managers Check
neither went to the hands of Rosmil nor was it further
negotiated to other persons, the instrument remained
undelivered. Petitioner does not dispute the fact that
respondents retained custody of the instrument.
Since there was no delivery, presentment of the check to
the bank for payment did not occur. An order to debit the
account of respondents was never made. In fact, petitioner
confirms that the Managers Check was never negotiated or
presented for payment to its Ermita Branch, and that the
allocated fund is still held by the bank. As a result, the
assigned fund is deemed to remain part of the account of HiTri, which procured the Managers Check. The doctrine that
the deposit represented by a managers check automatically
passes to the payee is inapplicable, because the instrument
although accepted in advance remains undelivered.
Hence, respondents should have been informed that the

deposit had been left inactive for more than 10 years, and
that it may be subjected to escheat proceedings if left
unclaimed.

Thereafter, several demand letters were sent to Gonzales


with the threat of legal action. With his FCD account that
PCIB froze, Gonzales was forced to source out and pay the
P250,000 he owed to Unson in cash.

11. Gonzalez v. PCIB


EUSEBIO GONZALES vs. PCIB
G.R. No. 180257 | February 23, 2011
FACTS:
Eusebio Gonzales was a client of PCIB to which it granted a
credit line to Gonzales through Credit-On-Hand-Loan
Agreement (COHLA). Gonzales drew from said credit line
through
the
issuance
of
check.
At the institution of the instant case, Gonzales had a Foreign
Currency Deposit (FCD) with PCIB.
Gonzales and his wife obtained a loan for P500,000 and
subsequently spouses Panlilio and Gonzales obtained two
additional loans in the amounts of P1,000,000 and
P300,000, respectively. These three loans amounting to
P1,800,000 were covered by three promissory notes. A Real
Estate Mortgage (REM) over a parcel of land was executed
by Gonzales and the spouses Panlilio to secure the loans.
Notably, the promissory notes specified, among others, the
solidary liability of Gonzales and the spouses Panlilio for the
payment of the loans. However, it was the spouses Panlilio
who received the loan proceeds.
PCIB allegedly called the attention of Gonzales but to no
avail when spouses Panlilio defaulted in paying the monthly
interest dues of the loans. In the meantime, Gonzales issued
a check for P250,000 drawn against the credit line in favor
of Rene Unson. But said check was dishonored by PCIB due
to the termination by PCIB of the credit line for the unpaid
periodic interest dues from the loans of Gonzales and
Panlilio. PCIB likewise froze the FCD account of Gonzales.

Gonzales thru his counsel, wrote PCIB reminding that it


knew well that the actual borrowers were the spouses
Panlilio and he never benefited from the proceeds of the
loans, which were serviced by the PCIB account of the
spouses Panlilio. The RTC found Gonzales solidarily liable
with the spouses Panlilio on the three promissory notes
relative to the outstanding REM loan. The CA affirmed the
RTCs decision.
ISSUE:
1. W/N Gonzales is liable for the three promissory notes
covering PHP1.8M loan he made with spouses Panlilio?
RULING:
1. Yes. Gonzales was an accommodation party of the loan.
An accommodation party is one who meets all the three
requisites according to Section 29 of Negotiable
Instruments Law:
1. He must be a party to the instrument, signing as a
maker, drawer, acceptor, or indorser
2. He must not receive value therefor
3. He must sign for the purpose of lending his name
or credit to some other person.

An accommodation party lends his name to enable the


accommodated party to obtain credit or raise money. He
receives no part but assumed liability.
The relation between an accommodation party and the
accommodated party is one of principal and suretythe
accommodation party being the surety. As such, he is
deemed an original promissor and debtor from the
beginning, he is considered in law as the same party as
the debtor in relation to whatever is adjudged touching
the obligation of the latter since their liabilities are
interwoven as to be inseparable. Although a contract of
suretyship is in essence accessory or collateral to a valid
principal obligation, the suretys liability to the creditor is
immediate,
primary and absolute;
he
is directly and equally bound with the principal. As an
equivalent of a regular party to the undertaking, a surety
becomes liable to the debt and duty of the principal
obligor even without possessing a direct or personal
interest in the obligations nor does he receive any
benefit therefrom.

No. C-MA- 142119406-CA in the amount of P1,000,000.00


payable to Vivencia Ompok Consing and/or Fe Lobitana.
Petitioner discovered that the documents covered rights
over government properties. Realizing he had been
deceived, petitioner advised Metrobank to stop payment of
his checks. However, only the payment of Check No. C-MA142119406-CA was ordered stopped. The other two checks
were already encashed by the payees.
Meanwhile, Lobitana negotiated and indorsed Check No. CMA- 142119406-CA to respondents in exchange for cash in
the sum of P948,000.00, which respondents borrowed from
Metrobank and charged against their credit line. Before
respondents accepted the check, they first inquired from the
drawee bank, Metrobank, if the subject check was
sufficiently funded, to which Metrobank answered in the
positive. However, when respondents deposited the check
with Metrobank, Cebu-Mabolo Branch, the same was
dishonored by the drawee bank for reason "PAYMENT
STOPPED."

12. Dino v. Loot


ROBERT DINO vs. MARIA LUISA JUDAL-LOOT
The Facts
A syndicate, one of whose members posed as an owner of
several parcels of land situated in Canjulao, Lapu-lapu City,
approached petitioner and induced him to lend the
group P3,000,000.00 to be secured by a real estate
mortgage on the properties. Enticed and convinced by the
syndicates offer, petitioner issued three Metrobank checks
totaling P3,000,000.00, one of which is a postdated Check

Respondents filed a collection suit against petitioner and


Lobitana before the trial court. Respondents alleged that
they are holders in due course and for value and that they
had no prior information concerning the transaction
between defendants. The trial court ruled in favor of
respondents and declared them due course holders of the
subject check, since there was no privity between
respondents and defendants. The Court of Appeals affirmed
the trial courts finding that respondents are holders in due
course.
Issue

Whether or not the respondents were holders in due course


considering that the check is a crossed check, which
constitutes sufficient warning to the respondents to exercise
extraordinary diligence to determine the title of the indorser.
The Ruling
Respondents are not holders in due course.
Section 52 of the Negotiable Instruments Law defines a
holder in due course, thus:
A holder in due course is a holder who has taken the
instrument under the following conditions:
(a) That it is complete and regular upon its
face;
(b) That he became the holder of it before it
was overdue, and without notice that it has
been previously dishonored, if such was the
fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him,
he had no notice of any infirmity in the
instrument or defect in the title of the person
negotiating it.
In the case of a crossed check, as in this case, the following
principles must additionally be considered: A crossed check
(a) may not be encashed but only deposited in the bank; (b)
may be negotiated only once to one who has an account
with a bank; and (c) warns the holder that it has been issued
for a definite purpose so that the holder thereof must
inquire if he has received the check pursuant to that
purpose; otherwise, he is not a holder in due course.

Based on the foregoing, respondents had the duty to


ascertain the indorsers, in this case Lobitanas, title to the
check or the nature of her possession. This respondent
failed to do. Respondents verification from Metrobank on
the funding of the check does not amount to determination
of Lobitanas title to the check. Failing in this respect,
respondents are guilty of gross negligence amounting to
legal absence of good faith, contrary to Section 52(c) of the
Negotiable Instruments Law. Hence, respondents are not
deemed holders in due course of the subject check.
In State Investment House v. Intermediate Appellate Court,
the Court also expounded on the effect of crossing a check,
thus:
Under usual practice, crossing a check is done by
placing two parallel lines diagonally on the left top
portion of the check. The crossing may be special
wherein between the two parallel lines is written the
name of a bank or a business institution, in which
case the drawee should pay only with the
intervention of that bank or company, or crossing
may be general wherein between two parallel
diagonal lines are written the words "and Co." or
none at all as in the case at bar, in which case the
drawee should not encash the same but merely
accept the same for deposit.
The effect therefore of crossing a check relates to the mode
of its presentment for payment. Under Section 72 of the
Negotiable Instruments Law, presentment for payment to be
sufficient must be made (a) by the holder, or by some
person authorized to receive payment on his behalf x x x As
to who the holder or authorized person will be depends on
the instructions stated on the face of the check.

In this case, there is no question that the payees of the


check, Lobitana or Consing, were not the ones who
presented the check for payment thus, there was no proper
presentment. As a result, liability did not attach to the
drawer. Accordingly, no right of recourse is available to
respondents against the drawer of the check, petitioner
herein, since respondents are not the proper party
authorized to make presentment of the subject check.
However, the fact that respondents are not holders in due
course does not automatically mean that they cannot
recover on the check. The Negotiable Instruments Law does
not provide that a holder who is not a holder in due course
may not in any case recover on the instrument. The only
disadvantage of a holder who is not in due course is that the
negotiable instrument is subject to defenses as if it were
non-negotiable. Among such defenses is the absence or
failure of consideration, which petitioner sufficiently
established in this case. Petitioner issued the subject check
supposedly for a loan in favor of Consings group, who
turned out to be a syndicate defrauding gullible individuals.
Since there is in fact no valid loan to speak of, there is no
consideration for the issuance of the check. Consequently,
petitioner cannot be obliged to pay the face value of the
check.
Respondents can collect from the immediate indorser, in this
case Lobitana.

13. Metrobank v. BA Finance


FACTS: Lamberto Bitanga (Bitanga) obtained from
respondent BA Finance Corporation (BA Finance) a P329,280
loan secured by his car. The mortgage contract required

Bitanga to obtain an insurance against loss or damage by


accident, theft and fire on the mortgaged car. Bitanga thus
had the mortgaged car insured by respondent Malayan
Insurance.
The car was stolen. On Bitangas claim, Malayan Insurance
issued a check payable to the order of "B.A. Finance
Corporation and Lamberto Bitanga" for P224,500, drawn
against China Banking Corporation (China Bank). The check
was crossed with the notation "For Deposit Payees Account
Only." Without the indorsement or authority of his co-payee
BA Finance, Bitanga deposited the check to his account with
the Asianbank, now merged with herein petitioner
Metrobank, and subsequently withdrew the entire proceeds
of the check. Bitangas loan became past due, but despite
demands, he failed to settle it.
BA Finance eventually learned of the loss of the car and of
Malayan Insurances issuance of a crossed check payable to
it and Bitanga, and of Bitangas depositing it in his account
at Asianbank and withdrawing the entire proceeds thereof.
BA Finance thereupon demanded the payment of the value
of the check from Asianbank but to no avail, prompting it to
file a complaint before the RTC for sum of money and
damages against Asianbank and Bitanga, alleging that, inter
alia, it is entitled to the entire proceeds of the check.
Asianbanks causes of actions:
1. In its answer with counterclaim - alleging BA Finance had
"instituted the complaint in bad faith to coerce it into
paying the whole amount of the CHECK knowing fully
well that its rightful claim, if any, is against Malayan
Insurance.
2. A cross-claim against Bitanga - alleging that he
fraudulently induced its personnel to release to him the
full amount of the check; and that on being later

informed that the entire amount of the check did not


belong to Bitanga, it took steps to get in touch with him
but he had changed residence without leaving any
forwarding address.
3. A third-party complaint against Malayan Insurance alleging that Malayan Insurance was grossly negligent in
issuing the check payable to both Bitanga and BA
Finance and delivering it to Bitanga without the consent
of BA Finance.
The RTC ruled:
1. Asianbank was negligent in allowing Bitanga to deposit
the check to his account and to withdraw the proceeds
thereof, without his co-payee BA Finance having either
indorsed it or authorized him to indorse it in its behalf,
found Asianbank and Bitanga jointly and severally liable
to BA Finance following Section 41 of the Negotiable
Instruments Law.
2. Bitanga was declared in default in Asianbanks crossclaim.
3. Malayan Insurance was not privy to the contract
between BA Finance and Bitanga, and noting the claim of
Malayan Insurance that it is its policy to issue checks to
both the insured and the financing company, held that
Malayan Insurance cannot be faulted for negligence for
issuing the check payable to both BA Finance and
Bitanga. The third-party complaint was dismissed.
The appellate court, affirming the trial courts decision, held
that BA Finance has a cause of action against Asianbank
even if the subject check had not been delivered to BA
Finance by the issuer itself. Hence, the present Petition for
Review on Certiorari filed by Metrobank to which Asianbank
was, as earlier stated, merged, faulting the appellate court.
ISSUES:

1. WON BA Finance has cause of action against Asianbank


(Metrobank).
2. WON the petitioner is liable for the full value of the
check.
HELD:
1. Yes. Affirming the decision of the CA, the SC held that
Section 41 of the Negotiable Instruments Law provides:
Where an instrument is payable to the order
of two or more payees or indorsees who are
not partners, all must indorse unless the one
indorsing has authority to indorse for the
others.
Bitanga alone endorsed the crossed check, and
petitioner allowed the deposit and release of the
proceeds thereof, despite the absence of authority of
Bitangas co-payee BA Finance to endorse it on its
behalf. The payment of an instrument over a missing
indorsement is the equivalent of payment on a forged
indorsement or an unauthorized indorsement in itself in
the case of joint payees. Clearly, petitioner, through its
employee, was negligent when it allowed the deposit of
the crossed check, despite the lone endorsement of
Bitanga, ostensibly ignoring the fact that the check did
not, it bears repeating, carry the indorsement of BA
Finance.
As has been repeatedly emphasized, the banking
business is imbued with public interest such that the
highest degree of diligence and highest standards of
integrity and performance are expected of banks in
order to maintain the trust and confidence of the public

in general in the banking sector. Undoubtedly, BA


Finance has a cause of action against petitioner.
2. The provisions of the Negotiable Instruments Law and
underlying jurisprudential teachings on the black-letter
law provide definitive justification for petitioners full
liability on the value of the check.
To be sure, a collecting bank, Asianbank in this case,
where a check is deposited and which indorses the check
upon presentment with the drawee bank, is an indorser.
This is because in indorsing a check to the drawee bank,
a collecting bank stamps the back of the check with the
phrase "all prior endorsements and/or lack of
endorsement guaranteed" and, for all intents and
purposes, treats the check as a negotiable instrument,
hence, assumes the warranty of an indorser. Without
Asianbanks warranty, the drawee bank (China Bank in
this case) would not have paid the value of the subject
check.
Petitioner, as the collecting bank or last indorser,
generally suffers the loss because it has the duty to
ascertain the genuineness of all prior indorsements
considering that the act of presenting the check for
payment to the drawee is an assertion that the party
making the presentment has done its duty to ascertain
the genuineness of prior indorsements.
Accordingly, one who credits the proceeds of a check to
the account of the indorsing payee is liable in conversion
to the non-indorsing payee for the entire amount of the
check.
Moreover, granting petitioners appeal for partial liability
would run counter to the existing principles on the
liabilities of parties on negotiable instruments,
particularly on Section 68 of the Negotiable Instruments
Law which instructs that joint payees who indorse are

deemed to indorse jointly and severally. Recall that


when the maker dishonors the instrument, the holder
thereof can turn to those secondarily liable the
indorser for recovery. And since the law explicitly
mandates a solidary liability on the part of the joint
payees who indorse the instrument, the holder thereof
(assuming the check was further negotiated) can turn to
either Bitanga or BA Finance for full recompense.
WHEREFORE, the Decision of the Court of Appeals is
AFFIRMED with MODIFICATION. Costs against petitioner.
14. Bank of America v. Associated Citizens Bank NO
DIGEST
The Bank is under strict liability, based on the
contract between the bank and its customer
(drawer), to pay the check only to the payee or the
payees order. The drawers instructions are reflected
on the face and by the terms of the check. When the
drawee bank pays a person other than the payee
named on the check, it does not comply with the
terms of the check and violates its duty to charge the
drawers account only for properly payable items.
Facts:
BA-Finance Corporation (BA Finance) and Miller
Offset Press, Inc. (Miller) entered into a credit line facility
agreement whereby Miller can discount and assign its trade
receivables with the BA Finance. At the same time, Uy Kiat
Chung, Ching Uy Seng, and Uy Chung Guan Seng, acting for
Miller, executed a Continuing Suretyship Agreement with
BA-Finance. Under the agreement, they jointly and
severally guaranteed the full and prompt payment of any
and all indebtedness which Miller may incur with BAFinance.
Miller discounted and assigned several trade receivables to
BA-Finance by executing Deeds of Assignment in favor of
the latter. In consideration thereof, BA-Finance issued four

checks payable to the order of Miller with the notation For


Payees Account Only. These checks were drawn against
Bank of America. The four checks were deposited by Ching
Uy Seng in Associated Citizens Bank with his joint account
with Uy Chung Seng. Associated Bank stamped the checks
and guaranteed all prior endorsements and/or lack of
endorsements and sent them through clearing. Later, Bank
of America as drawee bank honored the checks and paid the
proceeds to Associated Bank as the collecting bank. When
Miller failed to deliver to BA-Finance the proceeds of the
assigned trade receivables, BA-Finance filed a collection suit
against Miller and impleaded the three representative of the
latter.
Bank of America filed a third party complaint against
Associated Bank. In its answer to the third party complaint,
Associated Bank admitted having received the four checks
for deposit in the joint account of Ching Uy Seng and Uy
Chung Guan Seng, but alleged that Ching Uy Seng, being
one of the corporate officers of Miller, was duly authorized
to act for and on behalf of Miller.
Issues: Whether or not Bank of America is liable to pay BAFinance and whether or not Associated Bank should
reimburse Bank of America the amount of the four checks.
Held: The bank on which a check is drawn, known as the
drawee bank, is under strict liability, based on the contract
between the bank and its customer (drawer), to pay the
check only to the payee or the payees order. The drawers
instructions are reflected on the face and by the terms of
the check. When the drawee bank pays a person other than
the payee named on the check, it does not comply with the
terms of the check and violates its duty to charge the
drawers account only for properly payable items. On the
part of Associated Bank, the law imposes a duty of diligence
on the collecting bank to scrutinize checks deposited with it
for the purpose of determining their genuineness and
regularity. The collecting bank being primarily engaged in
banking holds itself out to the public as the expert and the
law holds it to a high standard of conduct. In presenting the

checks for clearing and for payment, the defendant


[collecting bank] made an express guarantee on the validity
of all prior endorsements. Thus, stamped at the back of
the checks are the defendants clear warranty. As the
warranty has proven to be false and inaccurate, Associated
Bank is liable for any damage arising out of the falsity of its
representation.
Held:
A bank that regularly processes checks that are
neither payable to the customer nor duly indorsed by the
payee is apparently grossly negligent in its operations. This
Court has recognized the unique public interest possessed
by the banking industry and the need for the people to have
full trust and confidence in their banks. For this reason,
banks are minded to treat their customers accounts with
utmost care, confidence, and honesty. In a checking
transaction, the drawee bank has the duty to verify the
genuineness of the signature of the drawer and to pay the
check strictly in accordance with the drawers instructions,
i.e., to the named payee in the check. It should charge to
the drawers accounts only the payables authorized by the
latter. Otherwise, the drawee will be violating the
instructions of the drawer and it shall be liable for the
amount charged to the drawers account. Rodriguez checks
are payable to order since the bank failed to prove that the
named payees therein are fictitious.
Hence, the fictitious-payee rule which will make the
instrument payable to bearer does not apply. PNB accepted
the 69 checks for deposit to the PEMSLA account even
without any indorsement from the named payees. It bears
stressing that order instruments can only be negotiated with
a valid indorsement.
15. Lunaria v. People
FACTS:
Sometime in October 1988 - petitioner entered into a
partnership agreement with private complainant Nemesio

Artaiz, in the conduct of a money-lending business, with the


former as industrial partner and the latter the financer.
Petitioner, who was then a cashier of Far East Bank and Trust
Company in Meycauayan, Bulacan, would offer loans to
prospective borrowers which his branch was unable to
accommodate.
At the start of the business, petitioner would first inform
Artaiz of the amount of the proposed loan, then the latter
would issue a check charged against his account in the bank
(proceeds of which will go to a borrower), while petitioner
would in turn issue a check to Artaiz corresponding to the
amount lent plus the agreed share of interest. The lending
business progressed satisfactorily between the parties and
sufficient trust was established between the parties that
they both agreed to issue pre-signed checks to each other,
for their mutual convenience. The checks were signed but
had no payee's name, date or amount, and each was given
the authority to fill these blanks based on each other's
advice.
November 1989 - The arrangement ended when Artaiz was
no longer willing to continue the partnership.
One of the checks issued by petitioner to Artaiz was
dishonored for insufficient funds.When Artaiz went to
petitioner to ask why the latter's check had bounced,
petitioner told Artaiz that he had been implicated in a
murder case and therefore could not raise the money
to fund the check.
Petitioner requested Artaiz not to deposit the other checks
that would become due as he still had a case.

December 1989 - Petitioner was charged with murder in


and detained until May 1990, when he was released on bail.
He was eventually acquitted in December 1990.

May 1990 - Artaiz went to the petitioner and demanded


payment for the
money owed but the petitioner again requested more time
to prepare the money and collect on the loans.
June 1990 - petitioner (allegedly) went to Artaiz's residence
where both had an accounting. It was supposedly agreed
that petitioner owed Artaiz P844,000.00 and petitioner
issued a check in that amount, post-dated to December
1990.
When the check became due and demandable, Artaiz
deposited it but the check was dishonored as the account
had been closed. A demand letter was subsequently sent to
petitioner, informing him of the dishonor of his check, with a
demand that he pay the obligation.
Artaiz also went to petitioner's house to get a settlement
and petitioner proposed that his house and lot be given as
security. But after Artaiz's lawyer had prepared the
document, petitioner refused to sign. At this point . Artaiz
filed the instant case.
The RTC Decision:
Petitioner guilty as charged and sentenced him to suffer the
penalty of imprisonment of one (1) year, and to pay Artaiz
the amount of P844,000.00, and the cost of suit

The CA affirmed the RTC decision in toto.


ISSUES:
Whether or not the petitioner is guilty of violation of B.P.
Bilang 22? And whether or not the elements of the crime
has been established?
HELD:
1
Yes, the petitioner is guilty with violation of B.P.
Bilang 22. And yes, the elements of the crime has been
established by the prosecution.
The elements of the crime established:
1
the making, drawing, and issuance of any check to
apply for account or for value;
2
the knowledge of the maker, drawer, or issuer that at
the time of issue he does not have sufficient funds in or
credit with the drawee bank for the payment of the check in
full upon its presentment; and (3) the subsequent dishonor
of the check by the drawee bank for insufficiency of funds or
credit or dishonor for the same reason had not the drawer,
without any valid cause, ordered the bank to stop payment.

the making, drawing, and issuance of any check


to apply for account or for value

Petitioner makes much of the argument that the check was


not "made" or "drawn" within the contemplation of the law,
nor was it for a consideration. The evidence on record belies
these assertions.

At the outset, it should be borne in mind that the exchange


of the pre-signed checks without date and amount between
the parties had been their practice for almost a year by
virtue of their money-lending business. They had authority
to fill up blanks upon information that a check can then be
issued.
Section 14 of the Negotiable Intruments Law
provides: "Blanks, when may be filled. Where the
instrument is wanting in any material particular, the
person in possession thereof has prima facie
authority to complete it by filling up the blanks
therein. . . ."
This practice is allowed because of the presumption of
authority. The burden of proof that there was no authority or
that authority granted was exceeded is carried by the
person who questions such authority. And such was not
proven by the petitioner. Having failed to prove lack of
authority, it can be presumed that Artaiz was within his
rights to fill up blanks on the check.

the knowledge of the maker, drawer, or issuer


that at the time of issue he does not have
sufficient funds in or credit with the drawee bank
for the payment of the check in full upon its
presentment.

Petitioner states that making and issuing of the check was


devoid of consideration but records show that there was an
amount due to Artaiz, such that he had his own version of
computation with respect to the amount he owed to
Artaiz.Consideration was duly established in Artaiz's
testimony.
It bears repeating that the lack of criminal intent on the part
of the accused is irrelevant.The law has made the mere
act of issuing a worthless check a malum prohibitum,
an act proscribed by legislature for being deemed
pernicious and inimical to public welfare. In fact, even
in cases where there had been payment, through

compensation or some other means, there could still be


prosecution for violation of B.P. 22. The gravamen of the
offense under this law is the act of issuing a
worthless check or a check that is dishonored upon
its presentment for payment, not the nonpayment of
the obligation.
The SC Decision:
1. The petition is DENIED and the Decision of the Court of
Appeals AFFIRMED with MODIFICATION.
2. Petitioner is ordered to indemnify Nemesio Artaiz in the
amount of P844,000.00 and the cost of suit, with legal
interest from date of judicial demand.
3. The sentence of imprisonment of one (1) year is SET
ASIDE and,in lieu thereof, a FINE in the amount of
P200,000.00 is imposed upon petitioner, with subsidiary
imprisonment not to exceed six months in case of
insolvency or nonpayment.
*Note: Since 1998, this Court has held that it would best
serve the ends of criminal justice if, in fixing the penalty to
be imposed for violation of B.P. 22, the same philosophy
underlying
the
Indeterminate
Sentence
Law
be
observed,i.e.,that of redeeming valuable human material
and preventing unnecessary deprivation of personal liberty
and economic usefulness with due regard to the protection
of the social order. This policy was embodied in Supreme
Court Administrative Circular No. 12-2000, authorizing the
non-imposition of the penalty of imprisonment in B.P. 22
cases. We also clarified in Administrative Circular No. 132001, as explained in Tan v. Mendez, that we are not
decriminalizing B.P. 22 violations, nor have we removed
imprisonment as an alternative penalty. Needless to say,
the determination of whether the circumstances
warrant the imposition of a fine alone rests solely
upon the judge. Should the judge decide that
imprisonment is the more appropriate penalty,
Administrative Circular No. 12-2000 ought not to be
deemed a hindrance.

16. Associated Bank v. CA


PETITION DENIED
Facts:
Merle Reyes is a businesswoman engaged in selling
ready-to-wear clothes. Her customers issued 6 checks as
payments for her services.
PAYOR BANK AMOUNT DATE
Payless Solid Bank P3,960.00 January 19, 1982
Robinson's FEBTC 4,140.00 December 18, 1981
Robinson's FEBTC 1,650.00 December 24, 1981
Robinson's FEBTC 1,980.00 January 12, 1982
Rempson TRB 1,575.00 January 9, 1982
Corona RCBC 2,500.00 December 22, 1981

The 6 checks were crossed checks which on their


faces are written: Payees account only. The checks
never reached the hands of Reyes. Instead, a certain Rafael
Sayson got hold of the checks and had them deposited, and
subsequently encashed, from his deposit account with
Associated Bank.

Reyes demanded refund from Associated Bank as she


averred that those checks are crossed checks and should
have only be deposited with Reyes account which is with
Prudential Bank. So Reyes filed a case in the RTC for
recovery of the said amount plus damages. RTC ruled in
favor of Reyes.
The Associated Bank appealed in the CA on the
ground that Reyes had no cause of action towards them and
should have ran after the companies who issued the check.
The CA however, affirmed the ruling of the RTC holding that
the bank violated the common practices of banks; Reyes
had a cause of action and; the act of Sayson was
unauthorized.

Issue:
Whether the bank was negligent and liable for the
loss.

the checks had been crossed and issued for payees


account only. It was done so by its own peril and became
liable to the payee for the value of the checks. The failure of
the bank to make an inquiry as to Saysons authority was a
breach of its duty.
Aside from that, even if indeed Eddie Reyes (husband
of Merle) indorsed the checks, Associated Bank is still liable
because in the first place, the husband is not authorized to
make indrosements. And even if the endorsements were
forged, as alleged, Associated Bank would still be liable to
Reyes for not verifying the endorsers authority. There is no
substantial difference between an actual forging of a name
to a check as an endorsement by a person not authorized to
make the signature and the affixing of a name to a check as
an endorsement by a person not authorized to endorse it.
Therefore, the Court ruled that the bank is negligent
and liable to Reyes.
17. Far East v. CA

Held:
Yes. As explained in the case, crossing a check
means that the drawee bank should not encash the
check but merely accept it for deposit, that the check
may be negotiated only once by one who has an account in
a bank, and that the check serves as warning that it was
issued for a definite purpose so that receiver of that check
must inquire if he has received the check pursuant to that
purpose. The effect, thus, relate to the mode of its
presentment for payment, in accordance with Section 72 of
the Negotiable Instruments Law wherein it stated that for
such presentment to be sufficient, it must be made by a
holder or by some person authorized to receive on his
behalf.
In relation with the case, the bank paid the checks
notwithstanding that title had not passed to the indorser, as

Facts:
Petitioners filed a complaint for the collection and payment
of P4,500 representing the face value of an unpaid and
dishonored check on May 9,1968 against private
respondent.
Petitioner alleged that on September 13, 1960, the private
respondents went to its office in Manila and asked the
former to extend to them an accommodation loan in the
sum of P4,500.00 which they needed in their business, and
which they promised to pay, jointly and severally, in one
month time at the rate of 14% per annum .They delivered to
the petitioner the China Banking Corporation Check on the
same date for P4,500.00, drawn by Dy Hian Tat, and signed
by them at the back of said check.

They assured that after one month, the said check would be
redeemed by them by paying cash in the same amount or
the said check can be presented for payment and the said
bank would honor the same.
Petitioner agreed and actually extended to the private
respondents an accommodation loan.

The appellate court found that the questioned check was


not given as collateral to guarantee a loan secured,that it
passed through other hands before reaching the petitioner
and the said check was not presented within a reasonable
time and after its issuance, reversed the decision.

On March 5, 1964, the aforesaid check was presented for


payment but said check bounced and was not cashed by
said bank, for the reason that the current account of the
drawer thereof had already been closed. Upon demand,
private
respondents
failed
and
refused
to
pay
notwithstanding repeated demands therefore.

Issue: whether or not presentment for payment and notice


of dishonor of the questioned check were made within
reasonable time.

Private respondent Gaw Suy alleged that the petitioner has


no cause of action against him because as it appears on the
endorsement at the back of CBC Check, he signed said
endorsement for his principal, the Victory Hardware and not
for his own individual account and granting that he acted in
his own capacity as the endorser, he has been wholly
discharged by delay in presentment of the check for
payment.

In order to charge the persons secondarily liable, such as


drawer and endorsers, the instrument must be presented for
payment on the date and period therein mentioned in the
instrument, if it is payable on a fixed date, or within a
reasonable time after issue, otherwise, the drawer and
endorsers are discharged from liability.

Private respondent Dy Hian Tat alleged that As far as he


could remember, said check was delivered by him to Sin
Chin Juat Grocery and not to the petitioner; and that
petitioner not being a holder of the check for value, has no
recourse against the immediate endorser Gaw Suy, and
neither with the drawer thereof, and considering that this
check in question was dated September 13, 1960 and
deposited only for payment on March 5, 1964, this
unreasonable delay in presentment wholly discharged not
only the endorser but also the drawer.
City Court of Manila rendered its decision in favor of the
petitioner.Court of First Instance of Manila affirmed the
decision of city court.

Held: No.

Where the instrument is not payable on demand,


presentment must be made on the day it fags due. Where it
is payable on demand, presentment must be made within a
reasonable time after issue, except that in the case of a bill
of exchange, presentment for payment will be sufficient if
made within a reasonable time after the last negotiation
thereof. (Section 71,NIL).
Notice may be given as soon as the instrument is
dishonored; and unless delay is excused must be given
within the time fixed by the law (Section 102, NIL).
No hard and fast demarcation line can be drawn between
what may be considered as a reasonable or an unreasonable
time, because "reasonable time" depends upon the peculiar
facts and circumstances in each case.
It is obvious in this case that presentment and notice of

dishonor were not made within a reasonable time.


In the instant case, the check in question was issued on
September 13, 1960, but was presented to the drawee bank
only on March 5, 1964, and dishonored on the same date.
After dishonor by the drawee bank, a formal notice of
dishonor was made by the petitioner through a letter dated
April 27, 1968. Under these circumstances, the petitioner
undoubtedly failed to exercise prudence and diligence on
what he ought to do as required by law. The petitioner
likewise failed to show any justification for the unreasonable
delay.
18. Natividad Gempesaw v. CA NO DIGEST
Facts:
Natividad O. Gempesaw owns and operates four grocery
stores and that she maintains a checking account with the
Philippine Bank of Communications (drawee Bank) for easier
payment of debts to her suppliers.
Her customary practice were as follows:
Checks were prepared by her trusted bookkeeper, Alicia
Galang; Checks, together with the invoice receipts reflecting
her obligations with the suppliers, were submitted to her for
signature; That she signs all the checks without bothering to
verify the accuracy of the checks against the corresponding
invoices considering the trust and confidence she reposed
upon her bookkeeper; Issuance and delivery of the checks to
the payees were left to the bookkeeper; that she did not
verify whether checks were actually delivered to their
respective payees.

Although the drawee Bank notified her of all checks


presented to and paid by the bank, Gempesaw did not verify
the correctness of the returned checks nor if the payees
actually received the checks in payment for the supplies she
received.
Gempesaw issued 82 checks in favor of several suppliers for
the span of 2 years and the drawee bank debited the total
amount of P1,208,606.89 against her checking account
since all of the issued checks were honored by the drawee
bank. These checks were all crossed checks.
It was only after the lapse of more than 2 years that
Gempesaw found out about the fraudulent manipulations of
her bookkeeper. Gempesaw made a written demand on
respondent drawee Bank to credit her account with the
money value of the 82 checks totalling P1,208,606.89 for
having been wrongfully charged against her account.
Drawee Bank refused to grant her demand.
About 30 of the payees whose names were specifically
written on the checks testified that they did not receive nor
even see the subject checks and that the indorsements
appearing at the back of the checks were not theirs.
It was learned that all the 82 checks with forged signatures
of the payees were brought to Ernest L. Boon, Chief
Accountant of drawee who, without authority therefor,
accepted them all for deposit to the credit and/or in the
accounts of Alfredo Y. Romero and Benito Lam.
The Regional Trial Court, tried the case and rendered a
decision dismissing the complaint as well as the drawee
Bank's counterclaim. On appeal, the Court of Appeals in a

decision affirmed the decision of the RTC on two grounds,


namely (1) that Gempesaws gross negligence in issuing the
checks was the proximate cause of the loss and (2)
assuming that the bank was also negligent, the loss must
nevertheless be borne by the party whose negligence was
the proximate cause of the loss. Hence, a petition for review
was filed before SC.
Issue: Whether or not the petitioner can raise the defense
of forgery, therefore the drawee bank alone shall bear the
loss.
Ruling:
Gempesaw precluded from using forgery as a
defense; Gempesaws negligence was proximate
cause of her loss.
Had Gempesaw examined her records more carefully, she
would have noticed discrepancies. Had Gempesaw been
more vigilant in going over her current account by taking
careful note of the daily reports made by the drawee Bank
on her issued checks, or at least made random scrutiny of
her cancelled checks returned by drawee Bank at the close
of each month, she could have easily discovered the fraud
being perpetrated by Alicia Galang, and could have reported
the matter to the drawee Bank.
The drawee Bank then could have taken immediate steps to
prevent further commission of such fraud. Thus,
Gempesaw's negligence was the proximate cause of her
loss. And since it was her negligence which caused the
drawee Bank to honor the forged checks or prevented it
from recovering the amount it had already paid on the

checks, Gempesaw cannot now complain should the bank


refuse to recredit her account with the amount of such
checks. Under Section 23 of the NIL, she is now precluded
from using the forgery to prevent the bank's debiting of her
account.
Section 23 of the NIL provides that "when a signature is
forged or made without the authority of the person whose
signature it purports to be, it is wholly inoperative, and no
right to retain the instrument, or to give a discharge
therefor, or to enforce payment thereof against any party
thereto, can be acquired through or under such signature,
unless the party against whom it is sought to enforce such
right is precluded from setting up the forgery or want of
authority."
Two types of cases of problems arising from forged
indorsements
of
checks
Problems arising from forged indorsements of checks may
generally be broken into two types of cases: (1) where
forgery was accomplished by a person not associated with
the drawer [for example a mail robbery]; and (2) where the
indorsement was forged by an agent of the drawer. This
difference in situations would determine the effect of the
drawer's negligence with respect to forged indorsements.
Duty of drawer; Effect of negligence

A depositor is under a duty to set up an accounting system


and a business procedure as are reasonably calculated to
prevent or render difficult the forgery of indorsements,
particularly by the depositor's own employees. And if the
drawer (depositor) learns that a check drawn by him has

been paid under a forged indorsement, the drawer is under


duty promptly to report such fact to the drawee bank. For
his negligence or failure either to discover or to report
promptly the fact of such forgery to the drawee, the drawer
loses his right against the drawee who has debited his
account under the forged indorsement. In other words, he is
precluded from using forgery as a basis for his claim for
recrediting of his account.
Banking business impressed with public interest;
Utmost
diligence
required
The banking business is so impressed with public interest
where the trust and confidence of the public in general is of
paramount importance such that the appropriate standard
of diligence must be a high degree of diligence, if not the
utmost diligence. Surely, drawee Bank cannot claim it
exercised such a degree of diligence that is required of it.
There is no way that it be allowed to escape liability for such
negligence. Its liability as obligor is not merely vicarious but
primary wherein the defense of exercise of due diligence in
the selection and supervision of its employees is of no
moment.
Premises considered, respondent drawee Bank is adjudged
liable to share the loss with the petitioner on a fifty-fifty ratio
in accordance with Article 172 which provides:
Responsibility arising from negligence in the
performance of every kind of obligation is also
demandable, but such liability may be
regulated by the courts according to the
circumstances.

19. Samson Ching v. Nacdao NO DIGEST


Facts:
Nicdao was charged eleven (11) counts of violation of Batas
Pambansa Bilang (BP) 22.
MTC found her of guilty of said offenses. RTC affirmed.
Nicdao filed an appeal to the Court of Appeals. CA reversed
the decision and acquitted accused.
Ching is now appealing the civil aspect of the case to the
Supreme Court.
Ching vigorously argues that notwithstanding respondent
Nicdaos acquittal by the CA, the Supreme Court has the
jurisdiction and authority to resolve and rule on her civil
liability. He anchors his contention on Rule 111, Sec 1B: The
criminal action for violation of Batas Pambansa Blg. 22 shall
be deemed to necessarily include the corresponding civil
action, and no reservation to file such civil action separately
shall be allowed or recognized. Moreover, under the abovequoted provision, the criminal action for violation of BP 22
necessarily includes the corresponding civil action, which is
the recovery of the amount of the dishonored check
representing the civil obligation of the drawer to the payee.
Nicdaos defense: Sec 2 of Rule 111 Except in the cases
provided for in Section 3 hereof, after the criminal action
has been commenced, the civil action which has been
reserved cannot be instituted until final judgment in the
criminal action. Accdg to her, CAs decision is equivalent to
a finding that the facts upon which her civil liability may
arise do not exist. The instant petition, which seeks to
enforce her civil liability based on the eleven (11) checks, is
thus allegedly already barred by the final and executory
decision acquitting her.
Issue:
1. WON Ching may appeal the civil aspect of the case within

the reglementary period? YES


2. WON Nicdao civilly liable? NO.
Held:
1. Ching is entitled to appeal the civil aspect of the case
within the reglementary period.
Every person criminally liable for a felony is also civilly
liable. Extinction of the penal action does not carry with it
extinction of the civil, unless the extinction proceeds from a
declaration in a final judgment that the fact from which the
civil might arise did not exist.
Petitioner Ching correctly argued that he, as the offended
party, may appeal the civil aspect of the case
notwithstanding respondent Nicdaos acquittal by the CA.
The civil action was impliedly instituted with the criminal
action since he did not reserve his right to institute it
separately nor did he institute the civil action prior to the
criminal action.
If the accused is acquitted on reasonable doubt but the
court renders judgment on the civil aspect of the criminal
case, the prosecution cannot appeal from the judgment of
acquittal as it would place the accused in double jeopardy.
However, the aggrieved party, the offended party or the
accused or both may appeal from the judgment on the civil
aspect of the case within the period therefor.
GENERAL RULE:
Civil liability is not extinguished by acquittal:
1. where the acquittal is based on reasonable doubt;
2. where the court expressly declares that the liability of the
accused is not criminal but only civil in nature; and
3. where the civil liability is not derived from or based on the
criminal act of which the accused is acquitted.
2. A painstaking review of the case leads to the conclusion
that respondent Nicdaos acquittal likewise carried with it
the extinction of the action to enforce her civil liability. There

is simply no basis to hold respondent Nicdao civilly liable to


petitioner Ching.
CAs acquittal of respondent Nicdao is not merely based on
reasonable doubt. Rather, it is based on the finding that she
did not commit the act penalized under BP 22. In particular,
the CA found that the P20,000,000.00 check was a stolen
check which was never issued nor delivered by respondent
Nicdao to petitioner Ching.
CA did not adjudge her to be civilly liable to petitioner
Ching. In fact, the CA explicitly stated that she had already
fully paid her obligations. The finding relative to the
P20,000,000.00 check that it was a stolen check necessarily
absolved respondent Nicdao of any civil liability thereon as
well.
Under the circumstances which have just been discussed
lengthily, such acquittal carried with it the extinction of her
civil liability as well.

20. Firestone v. CA NO DIGEST


FACTS:
Fojas-Arca Enterprises Company maintained a special
account with respondent Luzon Development Bank which
authorized and allowed the former to withdraw funds from
its account through the medium of special withdrawal
slips. Fojas-Arca purchased on credit products from
Firestone with a total amount of P4,896,000.00. In payment
of these purchases, Fojas-Arca delivered to plaintiff six
special withdrawal slips drawn upon the respondent
bank. In turn, these were deposited by the plaintiff with its
current account with the Citibank. All of them were honored
and paid by the defendant. However, in a subsequent
transaction involving the payment of withdrawal slips by
Fojas-Arca for purchases on credit from petitioner, two
withdrawal slips for the total sum of P2,078,092.80 were

dishonored and not paid by respondent bank for the reason


"NO ARRANGEMENT".
ISSUE:
Whether respondent bank should be held liable for damages
suffered by petitioner, due to its allegedly belated notice of
non-payment of the subject withdrawal slips.
RULING:
The essence of negotiability which characterizes a
negotiable paper as a credit instrument lies in its freedom to
circulate freely as a substitute for money. The withdrawal
slips in question lacked this character. As the withdrawal

slips in question were non-negotiable, the rules governing


the giving of immediate notice of dishonor of negotiable
instruments do not apply. The respondent bank was under
no obligation to give immediate notice that it would not
make payment on the subject withdrawal slips. Citibank
should have known that withdrawal slips were not
negotiable instruments. It could not expect these slips to be
treated as checks by other entities. Payment or notice of
dishonor from respondent bank could not be expected
immediately, in contrast to the situation involving
checks. Citibank was not bound to accept the withdrawal
slips as a valid mode of deposit. But having erroneously
accepted them as such, Citibank and petitioner as
account-holder must bear the risks attendant to the
acceptance of these instruments.