Negotiable Instruments Law

Case Digests
Caltex (Phil.), Inc. v. CA and Security Bank
and Trust Co.
G.R. No. 97753
August 10, 1992
Doctrine: Requisites of Negotiability (Sec.
1)

7.
8.
9.

Facts:
1.

2.
3.

4.

5.

6.

Private defendant, Security Bank and Trust

Co. (SBTC) issued 280 certificates of time
deposits (CTDs) in favor of Angel Dela Cruz
(Angel) who deposited with SBTC an
aggregate amount of P1.12M.
Angel then delivered the CTDs to Plaintiff
Caltex as payment of fuel products that she
purchased.
In 1982, Angel informed Mr. Tiangco (SBTC
Manager), that he lost all the CTDs in
dispute. Mr. Tiangco advised her to execute
a notarized Affidavit of Loss, if she desires
to replace said CTDs. Angel complied and
the corresponding replacement CTDs were
issued.
Angel then negotiated and obtained a loan
from SBTC in the amount of P875k. He
notarized a Deed of Assignment of Time
Deposit which stated that he surrenders to
SBTC "full control of the indicated time
deposits from and after date" of the
assignment and further authorizes said
bank to pre-terminate, set-off and "apply
the said time deposits to the payment of
whatever amount or amounts may be due"
on the loan upon its maturity
Later, Mr. Aranas, Credit Manager of Caltex
went to SBTC and presented for verification
the CTDs lost by Angel. Caltex later on
formally informed SBTC of the possession
of the CTDs and its decision to preterminate the same.
Caltex was requested by SBTC to furnish
the former "a copy of the document
evidencing the guarantee agreement
with Mr. Angel dela Cruz" as well as "the
details of Mr. Angel dela Cruz" obligation

against which Caltex proposed to apply the

time deposits. No copy was furnished. As a
consequence, SBTC denied the demand of
Caltex to pay the value of the CTDs.
When the loan of Angel matured, SBTC
applied and set-off the CTDs in question for
payment
Caltex the filed a complaint for the
payment of the CTDs plus interest. The
complaint was dismissed
The CA affirmed the decision of the trial
court

4.

Issues:
(1) WON the subject certificates of
deposit are non-negotiable despite
being clearly negotiable instruments;
(2) WON petitioner did not become a
holder in due course of the said
certificates of deposit; and
(3) WON there was disregard of the
pertinent provisions of the Code of
Commerce relating to lost instruments
payable to bearer.
Held:
1.
2.

The petition is bereft of merit

We hereby hold that the CTDs in question
are negotiable instruments. Sec. 1 of Act
No. 2031, otherwise known as the NIL,
enumerates the requisites for an
instrument to become negotiable, viz:

(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.
3.

5.

The CTDs in question undoubtedly meet

the requirements of the law for
negotiability. The parties' bone of
contention is with regard to requisite (d)
set forth above. It is noted that Mr. Tiangco,

6.

SBTCs Branch Manager way back in 1982,

testified in open court that the depositor
referred to in the CTDs is no other than Mr.
Angel de la Cruz.
The accepted rule is that the negotiability
or non-negotiability of an instrument is
determined from the writing, that is, from
the face of the instrument itself. In the
construction of a bill or note, the intention
of the parties is to control, if it can be
legally ascertained. While the writing may
be read in the light of surrounding
circumstances in order to more perfectly
understand the intent and meaning of the
parties, yet as they have constituted the
writing to be the only outward and visible
expression of their meaning, no other
words are to be added to it or substituted
in its stead. The duty of the court in such
case is to ascertain, not what the parties
may have secretly intended as
contradistinguished from what their words
express, but what is the meaning of the
words they have used. What the parties
meant must be determined by what they
said.
Contrary to what respondent court held,
the CTDs are negotiable instruments. The
documents provide that the amounts
deposited shall be repayable to the
depositor. And who, according to the
document, is the depositor? It is the
"bearer." The documents do not say that
the depositor is Angel and that the
amounts deposited are repayable
specifically to him. Rather, the amounts are
to be repayable to the bearer of the
documents or, for that matter, whosoever
may be the bearer at the time of
presentment.
If it was really the intention of SBTC to pay
the amount to Angel only, it could have
with facility so expressed that fact in clear
and categorical terms in the documents,
instead of having the word "BEARER"
stamped on the space provided for the
name of the depositor in each CTD. On the
wordings of the documents, therefore,
the amounts deposited are repayable
to whoever may be the bearer thereof.

7.

Thus, petitioner's aforesaid witness merely

declared that Angel de la Cruz is the
depositor "insofar as the bank is
concerned," but obviously other parties not
privy to the transaction between them
would not be in a position to know that the
depositor is not the bearer stated in the
CTDs.
8. Hence, the situation would require any
party dealing with the CTDs to go behind
the plain import of what is written thereon
to unravel the agreement of the parties
thereto through facts aliunde. This need for
resort to extrinsic evidence is what is
sought to be avoided by the NIL and calls
for the application of the elementary rule
that the interpretation of obscure words or
stipulations in a contract shall not favor the
party who caused the obscurity.
9. The next query is whether petitioner
can rightfully recover on the CTDs.
This time, the answer is in the
negative. The records reveal that Angel,
whom petitioner chose not to implead in
this suit for reasons of its own, delivered
the CTDs amounting to P1,120,000.00 to
Caltex without informing respondent bank
thereof at any time. Unfortunately for
petitioner, although the CTDs are bearer
instruments, a valid negotiation thereof for
the true purpose and agreement between
it and De la Cruz, as ultimately
ascertained, requires both delivery and
indorsement.
10. For, although petitioner seeks to
deflect this fact, the CTDs were in
reality delivered to it as a security for
De la Cruz' purchases of its fuel
products. Any doubt as to whether the
CTDs were delivered as payment for the
fuel products or as a security has been
dissipated and resolved in favor of the
latter by petitioner's own authorized and
responsible representative himself.
11. In a letter dated November 26, 1982
addressed to respondent Security Bank,
J.Q. Aranas, Jr., Caltex Credit Manager,
wrote: ". . . These certificates of deposit
were negotiated to us by Mr. Angel dela
Cruz to guarantee his purchases of fuel
products

12. This admission is conclusive upon

petitioner, its protestations
notwithstanding. Under the doctrine of
estoppel, an admission or representation is
rendered conclusive upon the person
making it, and cannot be denied or
disproved as against the person relying
thereon. A party may not go back on his
own acts and representations to the
prejudice of the other party who relied
upon them. In the law of evidence,
whenever a party has, by his own
declaration, act, or omission, intentionally
and deliberately led another to believe a
particular thing true, and to act upon such
belief, he cannot, in any litigation arising
out of such declaration, act, or omission,
be permitted to falsify it.
13. If it were true that the CTDs were delivered
as payment and not as security,
petitioner's credit manager could have
easily said so, instead of using the words
"to guarantee" in the letter aforequoted.
Besides, when respondent bank, as
defendant in the court below, moved for a
bill of particularity therein praying, among
others, that petitioner, as plaintiff, be
required to aver with sufficient definiteness
or particularity (a) the due date or dates of
payment of the alleged indebtedness of
Angel de la Cruz to plaintiff and (b)
whether or not it issued a receipt showing
that the CTDs were delivered to it by De la
Cruz as payment of the latter's alleged
indebtedness to it, plaintiff corporation
opposed the motion.
14. Had it produced the receipt prayed for, it
could have proved, if such truly was the
fact, that the CTDs were delivered as
payment and not as security. Having
opposed the motion, petitioner now labors
under the presumption that evidence
willfully suppressed would be adverse if
produced.
15. Under the foregoing circumstances, this
disquisition in Intergrated Realty Corp., et
al. vs. PNB, et al. is apropos:
. . . Adverting again to the Court's
pronouncements in Lopez, supra, we quote
therefrom:

The character of the transaction between the

parties is to be determined by their intention,
regardless of what language was used or what
the form of the transfer was. If it was intended
to secure the payment of money, it must be
construed as a pledge; but if there was some
other intention, it is not a pledge. However,
even though a transfer, if regarded by itself,
appears to have been absolute, its object and
character might still be qualified and explained
by contemporaneous writing declaring it to
have been a deposit of the property as
collateral security. It has been said that a
transfer of property by the debtor to a creditor,
even if sufficient on its face to make an
absolute conveyance, should be treated as a
pledge if the debt continues in inexistence and
is not discharged by the transfer, and that
accordingly the use of the terms ordinarily
importing conveyance of absolute ownership
will not be given that effect in such a
transaction if they are also commonly used in
pledges and mortgages and therefore do not
unqualifiedly indicate a transfer of absolute
ownership, in the absence of clear and
unambiguous language or other circumstances
excluding an intent to pledge.
16. Petitioner's insistence that the CTDs were
negotiated to it begs the question. Under
the NIL, an instrument is negotiated when
it is transferred from one person to another
in such a manner as to constitute the
transferee the holder thereof, and a holder
may be the payee or indorsee of a bill or
note, who is in possession of it, or the
bearer thereof.
17. In the present case, however, there was no
negotiation in the sense of a transfer of the
legal title to the CTDs in favor of petitioner
in which situation, for obvious reasons,
mere delivery of the bearer CTDs would
have sufficed. Here, the delivery thereof
only as security for the purchases of
Angel de la Cruz (and we even
disregard the fact that the amount
involved was not disclosed) could at
the most constitute petitioner only as
a holder for value by reason of his
lien. Accordingly, a negotiation for such

purpose cannot be effected by mere

delivery of the instrument since,
necessarily, the terms thereof and the
subsequent disposition of such security, in
the event of non-payment of the principal
obligation, must be contractually provided
for.
18. The pertinent law on this point is that
where the holder has a lien on the
instrument arising from contract, he is
deemed a holder for value to the
extent of his lien.
19. As such holder of collateral security, he
would be a pledgee but the requirements
therefor and the effects thereof, not being
provided for by the NIL, shall be governed
by the Civil Code provisions on pledge of
incorporeal rights, which inceptively
provide:
Art. 2095. Incorporeal rights, evidenced by
negotiable instruments, . . . may also be
pledged. The instrument proving the right
pledged shall be delivered to the creditor, and
if negotiable, must be indorsed.
Art. 2096. A pledge shall not take effect against
third persons if a description of the thing
pledged and the date of the pledge do not
appear in a public instrument.
20. Aside from the fact that the CTDs were only
delivered but not indorsed, the factual
findings of respondent court quoted at the
start of this opinion show that petitioner
failed to produce any document evidencing
any contract of pledge or guarantee
agreement between it and Angel de la
Cruz.
21. Consequently, the mere delivery of the
CTDs did not legally vest in petitioner any
right effective against and binding upon
respondent bank. The requirement under
Article 2096 aforementioned is not a mere
rule of adjective law prescribing the mode
whereby proof may be made of the date of
a pledge contract, but a rule of substantive
law prescribing a condition without which
the execution of a pledge contract cannot
affect third persons adversely.

22. On the other hand, the assignment of the

CTDs made by Angel de la Cruz in favor of
respondent bank was embodied in a public
instrument. With regard to this other mode
of transfer, the Civil Code specifically
declares:

d.
e.

Art. 1625. An assignment of credit, right or

action shall produce no effect as against third
persons, unless it appears in a public
instrument, or the instrument is recorded in the
Registry of Property in case the assignment
involves real property.
23. Respondent bank duly complied with this
statutory requirement. Contrarily,
petitioner, whether as purchaser, assignee
or lien holder of the CTDs, neither proved
the amount of its credit or the extent of its
lien nor the execution of any public
instrument which could affect or bind
private respondent. Necessarily, therefore,
as between petitioner and respondent
bank, the latter has definitely the better
right over the CTDs in question.
24. Finally, petitioner faults respondent court
for refusing to delve into the question of
whether or not private respondent
observed the requirements of the law in
the case of lost negotiable instruments and
the issuance of replacement certificates
therefor, on the ground that petitioner
failed to raised that issue in the lower
court.
25. On this matter, we uphold respondent
court's finding that the aspect of alleged
negligence of private respondent was not
included in the stipulation of the parties
and in the statement of issues submitted
by them to the trial court. The issues
agreed upon by them for resolution in this
case are:
a.
b.

c.

Whether or not the CTDs as worded are

negotiable instruments.
Whether or not defendant could legally
apply the amount covered by the CTDs
against the depositor's loan by virtue of the
assignment (Annex "C").
Whether or not there was legal
compensation or set off involving the

f.

amount covered by the CTDs and the

depositor's outstanding account with
defendant, if any.
Whether or not plaintiff could compel
defendant to preterminate the CTDs before
the maturity date provided therein.
Whether or not plaintiff is entitled to the
proceeds of the CTDs.
Whether or not the parties can recover
damages, attorney's fees and litigation
expenses from each other.

26. As respondent court correctly observed,

with appropriate citation of some doctrinal
authorities, the foregoing enumeration
does not include the issue of negligence on
the part of respondent bank. An issue
raised for the first time on appeal and not
raised timely in the proceedings in the
lower court is barred by estoppel.
Questions raised on appeal must be within
the issues framed by the parties and,
consequently, issues not raised in the trial
court cannot be raised for the first time on
appeal.
27. Pre-trial is primarily intended to make
certain that all issues necessary to the
disposition of a case are properly raised.
Thus, to obviate the element of surprise,
parties are expected to disclose at a pretrial conference all issues of law and fact
which they intend to raise at the trial,
except such as may involve privileged or
impeaching matters. The determination of
issues at a pre-trial conference bars the
consideration of other questions on appeal.
28. To accept petitioner's suggestion that
respondent bank's supposed negligence
may be considered encompassed by the
issues on its right to preterminate and
receive the proceeds of the CTDs would be
tantamount to saying that petitioner could
raise on appeal any issue. We agree with
private respondent that the broad ultimate
issue of petitioner's entitlement to the
proceeds of the questioned certificates can
be premised on a multitude of other legal
reasons and causes of action, of which
respondent bank's supposed negligence is
only one. Hence, petitioner's submission, if

accepted, would render a pre-trial

delimitation of issues a useless exercise.
29. Still, even assuming arguendo that said
issue of negligence was raised in the court
below, petitioner still cannot have the
odds in its favor. A close scrutiny of
the provisions of the Code of
Commerce laying down the rules to be
followed in case of lost instruments
payable to bearer, which it invokes,
will reveal that said provisions, even
assuming their applicability to the
CTDs in the case at bar, are merely
permissive and not mandatory. The
very first article cited by petitioner speaks
for itself.

the instrument. Significantly, none of the

provisions cited by petitioner categorically
restricts or prohibits the issuance a
duplicate or replacement instrument sans
compliance with the procedure outlined
therein, and none establishes a mandatory
precedent requirement therefor.
33. Wherefore, the petition is DENIED

Art 548. The dispossessed owner, no matter for

what cause it may be, may apply to the judge
or court of competent jurisdiction, asking that
the principal, interest or dividends due or about
to become due, be not paid a third person, as
well as in order to prevent the ownership of the
instrument that a duplicate be issued him.

Facts:

30. The use of the word "may" in said

provision shows that it is not
mandatory but discretionary on the
part of the "dispossessed owner" to
apply to the judge or court of
competent jurisdiction for the
issuance of a duplicate of the lost
instrument.
31. Where the provision reads "may," this word
shows that it is not mandatory but
discretional. The word "may" is usually
permissive, not mandatory. It is an auxiliary
verb indicating liberty, opportunity,
permission and possibility.
32. Moreover, as correctly analyzed by private
respondent, Art. 548 to 558 of the Code of
Commerce, on which petitioner seeks to
anchor respondent bank's supposed
negligence, merely established, on the one
hand, a right of recourse in favor of a
dispossessed owner or holder of a bearer
instrument so that he may obtain a
duplicate of the same, and, on the other,
an option in favor of the party liable
thereon who, for some valid ground, may
elect to refuse to issue a replacement of

Republic Planters Bank v. CA and Canlas

G.R. No. 93073
Dec. 21, 1992
Doctrine: Promissory Notes; Joint and
Several v. Joint and Solidary

1.

2.

3.

4.

5.
6.

Shozo Yamaguchi and private respondent

Ferminc Canlas were President/COO and
Treasurer, respectively of Worldwide
Garment Manufacturing.
By virtue of a Board Resolution, they were
authorized to apply for credit facilities with
petitioner RPB in the forms of export
advances and LC/Trust Receipts
accommodations.
RPB issued 9 Promissory Notes (PNs). On
the right bottom margin of the PNs
appeared the signatures of the two above
their printed names with the phrase "and
(in) his personal capacity" typewritten
below. At the bottom of the promissory
notes appeared: "Please credit proceeds of
this note to:
In the PNs, the name Worldwide Garment
Manufacturing, Inc. was apparently rubber
stamped above the signatures of
defendant and private respondent.
In 1982, Worldwide Garment Manufacturing
noted to change its corporate name to
Pinch Manufacturing Corporation
RPB filed a complaint for recovery of sums
of money on the 9 PNs. Defendant Pinch
Manufacturing Corp. and Yamaguchi failed
to appear. Only Canlas filed an amended
Answer wherein he denied having issued
the PNs in question because she was not
an officer of Pinch but by Worldwide and
that when he issued said PNs in behalf of

7.
8.

Worldwide Garment Manufacturing, Inc.,

the same were in blank, the typewritten
entries not appearing therein prior to the
time he affixed his signature.
The RTC ordered all the defendants to pay
the amounts of the PNs to RPB.
On appeal, the decision was affirmed but it
absolved Canlas from liability.

Issue: WON the unconditional signing of

Canlas in the PNs makes him solidarily
liable with Yamaguchi for the said PNs
Held:
1.

We hold that private respondent Canlas is

solidarily liable on each of the promissory
notes bearing his signature.
2. The PNs are negotiable instruments and
must be governed by the NIL
3. Under the NIL, persons who write
their names on the face of promissory
notes are makers and are liable as
such. By signing the notes, the maker
promises to pay to the order of the
payee or any holder according to the
tenor thereof. Based on the above
provisions of law, there is no denying
that private respondent Fermin Canlas
is one of the co-makers of the
promissory notes. As such, he cannot
escape liability arising therefrom.
4. Where an instrument containing the words
"I promise to pay" is signed by two or more
persons, they are deemed to be jointly and
severally liable thereon.
5. An instrument which begins" with "I" ,We" ,
or "Either of us" promise to, pay, when
signed by two or more persons, makes
them solidarily liable.
6. The fact that the singular pronoun is used
indicates that the promise is individual as
to each other; meaning that each of the cosigners is deemed to have made an
independent singular promise to pay the
notes in full.
7. In the case at bar, the solidary liability of
private respondent Fermin Canlas is made
clearer and certain, without reason for
ambiguity, by the presence of the phrase
"joint and several" as describing the

unconditional promise to pay to the order

of RPB
8. A joint and several note is one in which the
makers bind themselves both jointly and
individually to the payee so that all may be
sued together for its enforcement, or the
creditor may select one or more as the
object of the suit.
9. A joint and several obligation in common
law corresponds to a civil law solidary
obligation; that is, one of several debtors
bound in such wise that each is liable for
the entire amount, and not merely for his
proportionate share.
10. By making a joint and several promise
to pay to the order of RPB, private
respondent Canlas assumed the
solidary liability of a debtor and the
payee may choose to enforce the
notes against him alone or jointly with
Yamaguchi and Pinch Manufacturing
Corporation as solidary debtors.
11. As to whether the interpolation of the
phrase "and (in) his personal capacity"
below the signatures of the makers in the
notes will affect the liability of the makers,
We do not find it necessary to resolve and
decide, because it is immaterial and will
not affect to the liability of private
respondent Fermin Canlas as a joint and
several debtor of the notes. With or
without the presence of said phrase,
private respondent Fermin Canlas is
primarily liable as a co-maker of each
of the notes and his liability is that of
a solidary debtor.
12. Finally, the respondent Court made a grave
error in holding that an amendment in a
corporation's Articles of Incorporation
effecting a change of corporate name, in
this case from Worldwide Garment
manufacturing Inc to Pinch Manufacturing
Corporation extinguished the personality of
the original corporation.
13. The corporation, upon such change in its
name, is in no sense a new corporation, nor
the successor of the original corporation. It
is the same corporation with a different
name, and its character is in no respect
changed.

14. A change in the corporate name does not

make a new corporation, and whether
effected by special act or under a general
law, has no affect on the identity of the
corporation, or on its property, rights, or
liabilities.
15. The corporation continues, as before,
responsible in its new name for all debts or
other liabilities which it had previously
contracted or incurred.
16. As a general rule, officers or directors
under the old corporate name bear no
personal liability for acts done or contracts
entered into by officers of the corporation,
if duly authorized. Inasmuch as such
officers acted in their capacity as agent of
the old corporation and the change of
name meant only the continuation of the
old juridical entity, the corporation bearing
the same name is still bound by the acts of
its agents if authorized by the Board.
17. Under the NIL, the liability of a person
signing as an agent is specifically provided
for as follows:
Sec. 20. Liability of a person signing as
agent and so forth. Where the instrument
contains or a person adds to his signature
words indicating that he signs for or on behalf
of a principal , or in a representative capacity,
he is not liable on the instrument if he was duly
authorized; but the mere addition of words
describing him as an agent, or as filling a
representative character, without disclosing his
principal, does not exempt him from personal
liability.
18. Where the agent signs his name but
nowhere in the instrument has he disclosed
the fact that he is acting in a
representative capacity or the name of the
third party for whom he might have acted
as agent, the agent is personally liable to
take holder of the instrument and cannot
be permitted to prove that he was merely
acting as agent of another and parol or
extrinsic evidence is not admissible to
avoid the agent's personal liability.
19. On the private respondent's contention
that the promissory notes were delivered to
him in blank for his signature, we rule

otherwise. A careful examination of the

notes in question shows that they are the
stereotype printed form of promissory
notes generally used by commercial
banking institutions to be signed by their
clients in obtaining loans.
20. Such printed notes are incomplete because
there are blank spaces to be filled up on
material particulars such as payee's name,
amount of the loan, rate of interest, date of
issue and the maturity date. The terms and
conditions of the loan are printed on the
note for the borrower-debtor 's perusal. An
incomplete instrument which has been
delivered to the borrower for his signature
is governed by Section 14 of the Negotiable
Instruments Law which provides, in so far
as relevant to this case, thus:
Sec. 14. Blanks: when may be filled.
Where the instrument is wanting in any
material particular, the person in possesion
thereof has a prima facie authority to complete
it by filling up the blanks therein. ... In order,
however, that any such instrument when
completed may be enforced against any person
who became a party thereto prior to its
completion, it must be filled up strictly in
accordance with the authority given and within
a reasonable time...
21. Proof that the notes were signed in blank
was only the self-serving testimony of
private respondent Fermin Canlas, as
determined by the trial court, so that the
trial court ''doubts the defendant (Canlas)
signed in blank the promissory notes".
22. We chose to believe the bank's
testimony that the notes were filled
up before they were given to private
respondent Fermin Canlas and
defendant Shozo Yamaguchi for their
signatures as joint and several
promissors.
23. For signing the notes above their
typewritten names, they bound themselves
as unconditional makers. We take judicial
notice of the customary procedure of
commercial banks of requiring their
clientele to sign promissory notes prepared
by the banks in printed form with blank

spaces already filled up as per agreed

terms of the loan, leaving the borrowersdebtors to do nothing but read the terms
and conditions therein printed and to sign
as makers or co-makers. When the notes
were given to private respondent Fermin
Canlas for his signature, the notes were
complete in the sense that the spaces for
the material particular had been filled up
by the bank as per agreement. The notes
were not incomplete instruments; neither
were they given to private respondent
Fermin Canlas in blank as he claims. Thus,
Section 14, NIL is not applicable.
24. In light of the foregoing, the decision
of the CA absolving Canlas is
REVERSED and SET ASIDE
PNB v. Sps. Rodriguez
G.R. No. 170325
September 26, 2008

5.

6.

7.

Doctrine: Bearer v. Order Instruments;

Fictitious Payee Rule; Commercial Bad
Faith as XPN to Fictitious Payee Rule
Facts:
1.

2.

3.
4.

Respondents Sps. Rodriguez were clients of

PNB were they maintained two (2)
demand/checking accounts, one in the
name of both spouses and another in the
name of Erlando only.
The Sps. Rodriguez are engaged in the
informal lending business (5-6 ba to?), in
line with their business, they had a
discounting arrangement with the
Philnabank Employees Savings and Loan
Assoc. (PEMSLA) an association of PNB
employees.
PEMSLA was likewise a client of PNB where
they maintained current and savings
accounts.
PEMSLA regularly granted loans to its
members. Sps. Rodriguez would rediscount
the postdated checks issued to members
whenever the association was short of
funds. As was customary, the spouses
would replace the postdated checks with

8.

9.

10.

11.

their own checks issued in the name of the

members.
One of the policy of PEMSLA is not to
grant loan applications of members
with outstanding debts. To subvert
this policy, some PEMSLA officers
devised a scheme to obtain additional
loans despite outstanding loans by
taking out loans from names of
unknowing members without their
knowledge or consent. The checks
issued for the loans was then
rediscounted by Sps. Rodriguez. The
officers carried this out by forging the
indorsement of the named payees in
the checks.
In return, Sps. Rodriguez will give their
checks in the name of the members and
delivered the checks to an officer of
PEMSLA. PEMSLA check was then deposited
by the Sps. Rodriguez to their account.
Meanwhile, the Rodriguez checks
were deposited directly by PEMSLA to
its savings account without any
indorsement from the named payees.
This was an irregular procedure made
possible through the facilitation of
Edmundo Palermo, Jr., treasurer of PEMSLA
and bank teller in the PNB Branch. It
appears that this became the usual
practice for the parties.
For the period of Nov. 1998 to Feb. 1999,
Sps. Rodriguez issued 69 checks, in the
amount of P2.3M which is payable to 47
individual payees who were all members of
PEMSLA.
Petitioner PNB eventually found out about
these fraudulent acts. To put a stop to this
scheme, PNB closed the current account of
PEMSLA.
As a result, the PEMSLA checks deposited
by the spouses were returned or
dishonored for the reason "Account
Closed." The corresponding Rodriguez
checks, however, were deposited as usual
to the PEMSLA savings account. The
amounts were duly debited from the
Rodriguez account.
Thus, because the PEMSLA checks given as
payment were returned, spouses Rodriguez

12.

13.

14.
15.

16.
17.

incurred losses from the rediscounting

transactions.
Sps. Rodriguez filed a civil complaint for
damages against PEMSLA and PNB for the
value of the checks that they deposited to
PEMSLA without indorsement with the RTC.
It argued that since they paid the wrong
payees, they should bear the loss.
In its Answer, PNB claimed that it was not
liable for the checks which it paid to
PEMSLA account since the Sps. Rodriguez
did not intend the payees to receive the
proceeds of the checks, thus they were
considered fictitious payees under the
NIL. And since they are bearer instruments,
they are negotiable by mere delivery
RTC held in favor of Sps. Rodriguez and
ordered PNB to return the value of the
checks.
On appeal, the CA reversed the decision of
the RTC. It concluded that the checks were
obviously means by the spouses to be
really paid to PEMSLA. It found that the
checks were bearer instruments, thus, they
do not require indorsement for negotiation
and that the payees are fictitious payees.
MR was filed by Sps. Rodriguez but it only
modified the award of damages.
Hence, this petition under Rule 45

Issue: WON the subject checks are

payable to order or to bearer and who
bears the loss
Held:
1.

As a rule, when the payee is fictitious or

not intended to be the true recipient of the
proceeds, the check is considered as a
bearer instrument. A check is "a bill of
exchange drawn on a bank payable on
demand." It is either an order or a bearer
instrument. Sec. 8 and 9 of the NIL states:

Sec. 8. When payable to order The

instrument is payable to order where it is
drawn payable to the order of a specified
person or to him or his order. It may be drawn
payable to the order of

(a) A payee who is not maker, drawer, or

drawee; or
(b) The drawer or maker; or
(c) The drawee; or
(d) Two or more payees jointly; or
(e) One or some of several payees; or
(f) The holder of an office for the time being.
Where the instrument is payable to order, the
payee must be named or otherwise indicated
therein with reasonable certainty.
Sec. 9. When payable to bearer The
instrument is payable to bearer
(a) When it is expressed to be so payable; or
(b) When it is payable to a person named
therein or bearer; or
(c) When it is payable to the order of a
fictitious or non-existing person, and
such fact is known to the person
making it so payable; or
(d) When the name of the payee does not
purport to be the name of any person; or
(e) Where the only or last indorsement is an
indorsement in blank.
2.

The distinction between bearer and

order instruments lies in their manner
of negotiation. Under Sec. 30 of the
NIL, an order instrument requires an
indorsement from the payee or holder
before it may be validly negotiated. A
bearer instrument, on the other hand,
does not require an indorsement to be
validly negotiated. It is negotiable by
mere delivery. The provision reads:

Sec. 30. What constitutes negotiation An

instrument is negotiated when it is transferred
from one person to another in such manner as
to constitute the transferee the holder thereof.
If payable to bearer, it is negotiated by
delivery; if payable to order, it is negotiated by
the indorsement of the holder completed by
delivery.
3. A check that is payable to a specified
payee is an order instrument.
However, under Section 9(c) of the
NIL, a check payable to a specified

4.

5.

6.

7.

8.

payee may nevertheless be considered

as a bearer instrument if it is payable
to the order of a fictitious or nonexisting person, and such fact is
known to the person making it so
payable. Thus, checks issued to
"Prinsipe Abante" or "Si Malakas at si
Maganda," who are well-known
characters in Philippine mythology,
are bearer instruments because the
named payees are fictitious and nonexistent.
We have yet to discuss a broader meaning
of the term "fictitious" as used in the NIL. It
is for this reason that We look elsewhere
for guidance. Court rulings in the U.S are a
logical starting point since our law on
negotiable instruments was directly lifted
from the Uniform Negotiable Instruments
Law of the United States.
A review of US jurisprudence yields that an
actual, existing, and living payee may
also be "fictitious" if the maker of the
check did not intend for the payee to
in fact receive the proceeds of the
check. This usually occurs when the maker
places a name of an existing payee on the
check for convenience or to cover up an
illegal activity.
Thus, a check made expressly payable to a
non-fictitious and existing person is not
necessarily an order instrument. If the
payee is not the intended recipient of the
proceeds of the check, the payee is
considered a "fictitious" payee and the
check is a bearer instrument.
In a fictitious-payee situation, the
drawee bank is absolved from liability
and the drawer bears the loss. When
faced with a check payable to a
fictitious payee, it is treated as a
bearer instrument that can be
negotiated by delivery.
The underlying theory is that one
cannot expect a fictitious payee to
negotiate the check by placing his
indorsement thereon. And since the
maker knew this limitation, he must
have intended for the instrument to
be negotiated by mere delivery.

9. Thus, in case of controversy, the drawer of

the check will bear the loss. This rule is
justified for otherwise, it will be most
convenient for the maker who desires to
escape payment of the check to always
deny the validity of the indorsement.
10. This despite the fact that the fictitious
payee was purposely named without any
intention that the payee should receive the
proceeds of the check.
11. Due care is not even required from the
drawee or depositary bank in
accepting and paying the checks. The
effect is that a showing of negligence
on the part of the depositary bank will
not defeat the protection that is
derived from this rule.
12. However, there is a commercial bad
faith exception to the fictitious-payee
rule. A showing of commercial bad
faith on the part of the drawee bank,
or any transferee of the check for that
matter, will work to strip it of this
defense. The exception will cause it to
bear the loss. Commercial bad faith is
present if the transferee of the check
acts dishonestly, and is a party to the
fraudulent scheme.
13. The fictitious-payee rule extends protection
even to non-bank transferees of the
checks.
14. In the case under review, the Rodriguez
checks were payable to specified payees. It
is unrefuted that the 69 checks were
payable to specific persons. Likewise, it is
uncontroverted that the payees were
actual, existing, and living persons who
were members of PEMSLA that had a
rediscounting arrangement with spouses
Rodriguez.
15. What remains to be determined is if
the payees, though existing persons,
were "fictitious" in its broader
context.
16. For the fictitious-payee rule to be available
as a defense, PNB must show that the
makers did not intend for the named
payees to be part of the transaction
involving the checks. At most, the banks
thesis shows that the payees did not have
knowledge of the existence of the checks.

This lack of knowledge on the part of the

payees, however, was not tantamount to a
lack of intention on the part of
respondents-spouses that the payees
would not receive the checks proceeds.
Considering that respondents-spouses were
transacting with PEMSLA and not the
individual payees, it is understandable that
they relied on the information given by the
officers of PEMSLA that the payees would
be receiving the checks.
17. Verily, the subject checks are presumed
order instruments. This is because, as
found by both lower courts, PNB failed to
present sufficient evidence to defeat the
claim of respondents-spouses that the
named payees were the intended
recipients of the checks proceeds. The
bank failed to satisfy a requisite condition
of a fictitious-payee situation that the
maker of the check intended for the
payee to have no interest in the
transaction.
18. Because of a failure to show that the
payees were "fictitious" in its broader
sense, the fictitious-payee rule does
not apply. Thus, the checks are to be
deemed payable to order.
Consequently, the drawee bank bears
the loss.
19. PNB was remiss in its duty as the drawee
bank. It does not dispute the fact that its
teller or tellers 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.
20. 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.
21. Wherefore, the appealed decision is
AFFIRMED

San Miguel Corporation v. Puzon, Jr.

G.R. No. 167567
September 22, 2010
Doctrine: Post-Dated Checks
Facts:
1.

2.

3.
4.

5.

6.

7.

8.

Respondent Puzon is owner of Bartenmyk

Enterprises, was a dealer of beer products
of petitioner SMC for Paranaque. Puzon
purchased SMC products on credit.
To ensure payment, SMC required Puzon to
issue postdated checks equivalent to the
value of the products purchased on credit.
The checks were returned to him when the
transactions are completed
In 2000, Puzon purchased products
amounting to P11M wherein he issued two
(2) postdated checks
In 2001, Puzon and his accountant went to
the SMC office. During the visit he allegedly
requested to see another check B.P. 17657
(different from the two he issued). He took
one (1) one of the checks and B.P. 17657
and immediately left the office
SMC demanded the return of the said
checks but Puzon ignored the demand.
Hence, a complaint for theft was filed
against him.
The Prosecutor dismissed the complaint
because the non-payment of beer empties
does not constitute theft. On appeal, the
DOJ affirmed the decision of the prosecutor
On petition for certiorari with the CA, it
held that the checks were given only as
security for the payment of his purchases
and was not intended to be encashed.
Hence, it affirmed the dismissal of the DOJ.
MR was denied
Hence, the present petition

Issue: WON the checks were issued as

security or payment of Puzon purchases
to SMC
Held:
1.

The RPC provides:

Art. 308. Who are liable for theft Theft is

committed by any person who, with intent to
gain but without violence against, or
intimidation of persons nor force upon things,
shall take personal property of another without
the latters consent.
2.

[T]he essential elements of the crime of

theft are the following:

(a) That there be a taking of personal

property;
(b) That said property belongs to another;
(c) That the taking be done with intent to gain;
(d) That the taking be done without the
consent of the owner; and
(e) That the taking be accomplished without
the use of violence or intimidation against
persons or force upon things."
3.

Considering that the second element

is that the thing taken belongs to
another, it is relevant to determine
whether ownership of the subject
check was transferred to petitioner.
On this point the NIL provides:

Sec. 12. Antedated and postdated The

instrument is not invalid for the reason only
that it is antedated or postdated, provided this
is not done for an illegal or fraudulent purpose.
The person to whom an instrument so dated is
delivered acquires the title thereto as of the
date of delivery.
4. Note however that delivery as the
term is used in the aforementioned
provision means that the party
delivering did so for the purpose of
giving effect thereto.
5. Otherwise, it cannot be said that there
has been delivery of the negotiable
instrument. Once there is delivery, the
person to whom the instrument is
delivered gets the title to the
instrument completely and
irrevocably.
6. If the subject check was given by Puzon to
SMC in payment of the obligation, the
purpose of giving effect to the instrument

is evident thus title to or ownership of the

check was transferred upon delivery.
However, if the check was not given as
payment, there being no intent to give
effect to the instrument, then ownership of
the check was not transferred to SMC.
7. The evidence of SMC failed to
establish that the check was given in
payment of the obligation of Puzon.
There was no provisional receipt or
official receipt issued for the amount
of the check. What was issued was a
receipt for the document, a
"POSTDATED CHECK SLIP."
8. Furthermore, the petitioner's demand letter
sent to respondent states "As per company
policies on receivables, all issuances are to
be covered by post-dated checks. However,
you have deviated from this policy by
forcibly taking away the check you have
issued to us to cover the December
issuance."
9. Notably, the term "payment" was not used
instead the terms "covered" and "cover"
were used.
10. Although the petitioner's witness, Gregorio
L. Joven III, states in paragraph 6 of his
affidavit that the check was given in
payment of the obligation of Puzon, the
same is contradicted by his statements in
paragraph 4, where he states that "As a
standard company operating procedure, all
beer purchases by dealers on credit shall
be covered by postdated checks equivalent
to the value of the beer products
purchased"; in paragraph 9 where he
states that "the transaction covered by the
said check had not yet been paid for," and
in paragraph 8 which clearly shows that
partial payment is expected to be made by
the return of beer empties, and not by the
deposit or encashment of the check.
11. Clearly the term "cover" was not meant to
be used interchangeably with "payment."
12. When taken in conjunction with the
counter-affidavit of Puzon where he states
that "As the [liquid beer] contents are paid
for, SMC return[s] to me the corresponding
PDCs or request[s] me to replace them with
whatever was the unpaid balance." it
becomes clear that both parties did not

intend for the check to pay for the beer

products.
13. The evidence proves that the check was
accepted, not as payment, but in
accordance with the long-standing policy of
SMC to require its dealers to issue
postdated checks to cover its receivables.
The check was only meant to cover the
transaction and in the meantime Puzon
was to pay for the transaction by some
other means other than the check. This
being so, title to the check did not transfer
to SMC; it remained with Puzon.
14. The second element of the felony of
theft was therefore not established.
Petitioner was not able to show that
Puzon took a check that belonged to
another. Hence, the prosecutor and
the DOJ were correct in finding no
probable cause for theft.
15. WHEREFORE, the petition is DENIED
Hi-Cement Corp. v. Insular Bank of Asia
and America
G.R. No. 132403
September 28, 2007
Doctrine: Crossed Checks; Holder in Due
Course

5.

In 1981, 20 checks of Hi-Cement (which

were crossed and which bore the restriction
"deposit to payees account only") were
dishonored.
6. IBAA then filed a complaint for sum of
money against E.T. Henry, Sps. Tan and HiCement alleging that it suffered damages
because of the dishonor of the checks.
7. For its defense, Hi-Cement argued that
their officers were not authorized to issue
postdated checks to E.T. Henry and
respondent was not a holder in due course
as it should not have discounted them for
being "crossed checks.
8. Sps. Tan argued that the interest on the
loans are usurious
9. The CFI held in favor of IBAA and ordered
the defendant parties to pay their
obligation
10. Hi-Cement and Sps. Tan appealed. The CA
affirmed in toto the decision of the CFI.
11. Hence, this petition
Issue: WON IBAA is a Holder in Due
Course
Respondent Bank Not a Holder In Due
Course
1.

Facts:
1.

2.
3.

4.

Petitioner Sps. Tan were the controlling

stockholders of E.T. Henry Co., Inc., a
company engaged in the business of
processing and distributing bunker fuel.
Petitioner Hi-Cement is one of the
customers.
For its purchases, it issued postdated
checks to E.T. Henry.
In 1979, Respondent Insular Bank of Asia
and America (IBAA) granted E.T. Henry a
credit facility wherein they were able to
encash the postdated checks of their
clients with pre-deducted interest (in other
words, re-discounting)
For every transaction, IBAA required the
execution of PNs and a deed of assignment
bearing conformity of the client to the rediscounting.

The Negotiable Instruments Law (NIL),

specifically Section 191, provides:

"Holder" means the payee or indorsee of a bill

or a note, or the person who is in possession of
it, or the bearer thereof.
2.

On the other hand, Section 52 states:

A holder in due course is a holder who has

taken the instrument under the following
conditions:
(a) it is complete and regular on its face;
(b) he became the holder of it before it was
overdue, and without notice that it has
previously been dishonored, if such was the
fact;
(c) he took it in good faith and for value and
(d) 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.
3. Absent any of the elements set forth
in Sec. 52, the holder is not a holder in
due course. In the case at bar, the last
two requirements were not met.
4. In Bataan Cigar and Cigarette Factory, Inc.
(BCCF) v. CA, we held that the holder of
crossed checks was not a holder in due
course. There, the drawer (BCCF) issued
postdated crossed checks in favor of one of
its suppliers (George King) who promised to
deliver bales of tobacco leaf but failed.
George King, however, sold the checks on
discount to State Investment House, Inc.
(SIHI) and upon the latters presentment to
the drawee bank, BCCF ordered a "stop
payment." Thereafter, SIHI filed a collection
case against it. In ruling that SIHI was not a
holder in due course, we explained:
In order to preserve the credit worthiness of
checks, jurisprudence has pronounced that
crossing of a check should have the following
effects:
(a) the check may not be encashed but only
deposited in the bank;
(b) the check may be negotiated only once to
one who has an account with a bank [and];
(c) the act of crossing the checks 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.
5.

Likewise, in Atrium Management Corp. v.

CA, where E.T. Henry, Hi-Cement and its
treasurer again engaged in a legal scuffle
over four postdated crossed checks, we
held that Atrium (with which the checks
were re-discounted) was not a holder in
due course. In that case, E.T. Henry was
the payee of four Hi-Cement postdated
checks which it endorsed to Atrium. When
the latter presented the crossed checks to
the drawee bank, Hi-Cement stopped
payment. We held that Atrium was not a
holder in due course:

In the instant case, the checks were crossed

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.
6. In the case at bar, respondent's claim
that it acted in good faith when it
accepted and discounted Hi-Cements
postdated crossed checks from E.T.
Henry (as payee therein) fails to
convince us. Good faith becomes
inconsequential amidst proof of
respondent's grossly negligent
conduct in dealing with the subject
checks.
7. Respondent was all too aware that subject
checks were crossed and bore restrictions
that they were for deposit to payee's
account only; hence, they could not be
further negotiated to it. The records
likewise reveal that respondent completely
disregarded a telling sign of irregularity in
the re-discounting of the checks when the
general manager did not acquiesce to it as
only the treasurer's signature appeared on
the deed of assignment.
8. As a banking institution, it behooved
respondent to act with extraordinary
diligence in every transaction. Its business
is impressed with public interest, thus, it
was not expected to be careless and
negligent, specially so where the checks it
dealt with were crossed.
9. In Bataan Cigar and Cigarette Factory, Inc.,
we ruled:
10.
It is then settled that crossing of checks should
put the holder on inquiry and upon him
devolves the duty to ascertain the indorsers
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 faithand as such[,]
the consensus of authority is to the effect that
the holder of the check is not a holder in due
course.

11. The next query is whether Hi-Cement can

still be made liable for the checks. We
answer in the negative.
12. In State Investment House, Inc. (SIHI) v.
IAC, SIHI re-discounted crossed checks and
was declared not a holder in due course. As
a result, when it presented the checks for
deposit, we deemed that its presentment
to the drawee bank was not proper, hence,
the liability did not attach to the drawer of
the checks. We ruled that:
The three subject checks in the case at bar had
been crossedwhich 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.
13. Our resolution in the foregoing case was
reiterated in Atrium Management
Corporation v. CA, where we affirmed the
CA ruling that the drawer of the postdated
crossed checks was not liable to the holder
who was deemed not a holder in due
course.
14. We note, however, that in the two
aforementioned cases, we made it clear
that the NIL does not absolutely bar a
holder who is not a holder in due course
from recovering on the checks.
15. In both, we ruled that it may recover
from the party who indorsed/encashed
the checks "if the latter has no valid
excuse for refusing payment."
16. Here, there was no doubt that it was E.T.
Henry that re-discounted Hi-Cement's
checks and received their value from
respondent. Since E.T. Henry had no
justification to refuse payment, it should
pay respondent.
17. Wherefore, the assailed the decision of the
CA is AFFIRMED.
Gonzales v. Philippine Commercial and
International Bank

G.R. No. 180257

February 23, 2011
Doctrine: Accommodation Party
Facts:
1.

Petitioner Gonzales, a PCIB client for 15

years, was granted a credit line through
the execution of a Credit-On-Hand Loan
Agreement (COHLA) wherein his accounts
with the bank served as collateral.
2. At the institution of the instant case,
Gonzales had a Foreign Currency Deposit
(FCD) of USD 8,715.72 with PCIB.
3. Gonzales & wife obtained loan from PCIB.
Subsequently, Sps. Panlillo and petitioner
obtained 2 additional loans from PCIB, all
loans now amounting to P1.8M, covered by
3 PNs and a real estate mortgage. It was
the Sps. Panlillo who received all the
proceeds of the loan.
4. Sps. Panlillo defaulted in the payment of
interest dues. As a result, a check issued
by petitioner (in favor of Unson) was
dishonored by PCIB. The dishonor was due
to the termination of the credit line under
the COHLA because of the unpaid interest.
PCIB also froze petitioners FCD.
5. Petitioner filed action for damages for the
alleged unjust dishonor of the check and
demanded the return of his FCD.
Petitioner said that PCIB knew that
the actual borrowers were the Sps.
Panlillo and that he never benefited
from the proceeds of the loan.
Issue: WON Petitioner Gonzales may be
held liable on the three (3) PNs as an
accommodation party
Held:
1.

Yes. For signing as borrower and coborrower on the PNs with the proceeds of
the loans going to the Sps. Panlilio,
Gonzales has extended an accommodation
to said spouses. As an accommodation
party, Gonzales is solidarily liable with
the Sps. Panlilio for the loans.

2.

An accommodation party is one who meets

all the three requisites, viz:

(a) he must be a party to the instrument,

signing as maker, drawer, acceptor, or
indorser;
(b) he must not receive value therefor; and
(c) he must sign for the purpose of lending his
name or credit to some other person.
3.

An accommodation party lends his name to

enable the accommodated party to obtain
credit or to raise money; he receives no
part of the consideration for the instrument
but assumes liability to the other party/ies
thereto.
4. The accommodation party is liable on the
instrument to a holder for value even
though the holder, at the time of taking the
instrument, knew him or her to be merely
an accommodation party, as if the contract
was not for accommodation.
5. As petitioner acknowledged it to be, the
relation between an accommodation party
and the accommodated party is one of
principal and surety the accommodation
party being the surety.
6. As such, he is deemed an original promisor
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.
7. 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.
8. 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.
9. Whether it was proper for PCIB to dishonor
the check issued by Gonzales against the
credit line under the COHLA NO, because
there was no proper notice to Gonzales of

the default and delinquency of the

P1.8million-loan
10. It must be borne in mind that while
solidarily liable with the Sps. Panlilio on the
PhP 1.8M loan covered by the three PNs,
Gonzales is only an accommodation party
and as such only lent his name and credit
to the Sps. Panlilio.
11. While not exonerating his solidary liability,
Gonzales has a right to be properly
apprised of the default or delinquency of
the loan precisely because he is a cosignatory of the promissory notes and of
his solidary liability.
12. Without a clear and determinate demand
through a formal written notice for the
exact periodic interest dues for the loans,
Gonzales cannot be expected to pay for
them.
BPI v. Roxas
G.R. No. 157833
October 15, 2007
Doctrine: Holder in Due Course; Cashiers
Check; What Constitutes Value
Facts:
1.

2.

3.

4.
5.
6.

Respondent Roxas is a trader. In 1993, he

delivered stocks of vegetable oil to Sps.
Cawili. As payment Sps. Cawili issued a
personal check in the amount of P348k.
However, when presented for encashment,
it was dishonored by BPI. Sps. Cawili
assured Roxas that they would replace the
bounced check with a cashiers check of
BPI.
Roxas and Rodrigo Cawili went to BPI. A
cashiers check was issued drawn against
the account of Marissa Cawili. It was
handed to Roxas
When Roxas was about to encash the
cashiers check it was dishonored because
the account was closed.
Roxas filed with the RTC a complaint for
sum of money against BPI.
For its defense, BPI denied the allegations
in the complaint claiming that the check
was issued by mistake in good faith.

7.

BPI then filed a third-party complaint

impleading Sps. Cawili. They were later on
declared in default for failure to answer
8. The RTC rendered a decision in favor of
Roxas and ordered BPI to pay the amount
of the cashiers check. While Sps. Cawili
are ordered to pay indemnify BPI.
9. On appeal, the CA affirmed the RTC
decision
10. Hence, this petition
Issue:
(1) WON Rodrigo is a holder in due course
(2) WON BPI is liable for the cashiers
check
Held:
1.

Section 52 of the NIL provides:

Sec. 52. What constitutes a holder in due

course. A holder in due course is a holder
who has taken the instrument under the
following conditions:
(a) That it is complete and regular upon its
face;
(b) That he became the holder of 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 person
negotiating it.
2.

3.

4.

As a general rule, under the above

provision, every holder is presumed prima
facie to be a holder in due course. One who
claims otherwise has the onus probandi to
prove that one or more of the conditions
required to constitute a holder in due
course are lacking.
In this case, petitioner contends that the
element of "value" is not present,
therefore, respondent could not be a holder
in due course.
Petitioners contention lacks merit. Sec. 25
of the same law states:

SEC. 25. Value, what constitutes Value is

any consideration sufficient to support a simple
contract. An antecedent or pre-existing debt
constitutes value; and is deemed as such
whether the instrument is payable on demand
or at a future time.
In Walker Rubber Corp. v. Nederlandsch
Indische & Handelsbank, N.V. and South
Sea Surety & Insurance Co., Inc.2 this Court
ruled that value "in general terms may
be some right, interest, profit or
benefit to the party who makes the
contract or some forbearance,
detriment, loan, responsibility, etc. on
the other side."
6. Here, there is no dispute that respondent
received Rodrigo Cawilis cashiers check
as payment for the formers vegetable oil.
The fact that it was Rodrigo who purchased
the cashiers check from petitioner will not
affect respondents status as a holder for
value since the check was delivered to him
as payment for the vegetable oil he sold to
Sps. Cawili. Verily, the CA did not err in
concluding that respondent is a holder in
due course of the cashiers check.
7. Furthermore, it bears emphasis that
the disputed check is a cashiers
check. In International Corporate Bank
v. Sps. Gueco, this Court held that a
cashiers check is really the banks
own check and may be treated as a
promissory note with the bank as the
maker. The check becomes the primary
obligation of the bank which issues it and
constitutes a written promise to pay upon
demand.
8. In New Pacific Timber & Supply Co. Inc. v.
Seeris, this Court took judicial notice of
the "well-known and accepted practice in
the business sector that a cashiers check
is deemed as cash." This is because the
mere issuance of a cashiers check is
considered acceptance thereof.
9. In view of the above pronouncements,
petitioner bank became liable to
respondent from the moment it issued
the cashiers check. Having been
accepted by respondent, subject to no

condition whatsoever, petitioner

should have paid the same upon
presentment by the former.
10. WHEREFORE, the petition is DENIED.
Ang v. Associated Bank and Ang Eng
Liong
G.R. NO. 146511
September 5, 2007

5.

Doctrine: Consideration and

Accommodation Party
Facts:
1.

2.
3.
4.

5.

6.
7.

August 28, 1990: Associated Bank filed a

collection suit against Antonio Ang Eng
Liong (principal debtor) and petitioner
Tomas Ang (co-maker) for the 2 PNs
October 3 and 9, 1978: obtained a loan of
P50,000 and P30,000 evidenced by
promissory note payable, jointly and
severally, on January 31, 1979 and
December 8, 1978.
Despite repeated demands for payment,
they failed to settle their obligations
totalling to P539k as of July 31, 1990.
Ang Eng Liong only admitted to have
secured a loan amounting to P80,000.
Tomas Ang, on the other hand, stated that
bank is not the real party in interest as it is
not the holder of the promissory notes,
much less a holder for value or a holder in
due course; the bank knew that he did not
receive any valuable consideration for
affixing his signatures on the notes but
merely lent his name as an accommodation
party.
Bank granted his co-defendant successive
extensions of time within which to pay,
without his knowledge and consent. The
bank imposed new and additional
stipulations on interest, penalties, services
charges and attorney's fees more onerous
than the terms of the notes, without his
knowledge and consent.
The RTC held Ang Eng Lion to pay the
principal amount of P80,000.
On appeal, the CA ordered Ang to pay the
bank ruling that the bank is a holder. The

8.

9.

CA observed that the bank, as the payee,

did not indorse the notes to the Asset
Privatization Trust despite the execution of
the Deeds of Transfer and Trust Agreement
and that the notes continued to remain
with the bank until the institution of the
collection suit. With the bank as the
"holder" of the promissory notes, the CA
held that Tomas Ang is accountable
therefor in his capacity as an
accommodation party.
Tomas Ang cannot validly set up the
defense that he did not receive any
consideration therefor as the fact that the
loan was granted to the principal debtor
already constitutes a sufficient
consideration.
Hence, this petition.

This is patent even from the first sentence

of the promissory note which states as
follows:
"Ninety one (91) days after date, for value
received, I/we, JOINTLY and SEVERALLY promise
to pay to the PHILIPPINE BANK OF
COMMUNICATIONS at its office in the City of
Cagayan de Oro, Philippines the sum of FIFTY
THOUSAND ONLY (P50,000.00) Pesos,
Philippine Currency, together with interest x xx
at the rate of SIXTEEN (16) per cent per annum
until fully paid."
5.

Issue: WON Ang is liable as an

accommodation party even without
consideration and his co-accommodation
party was granted accommodation
without his knowledge
Held:
1.

2.

3.

Yes. At the time the complaint was filed in

the trial court, it was the Asset Privatization
Trust which had the authority to enforce its
claims against both debtors.
An accommodation party is a person "who
has signed the instrument as maker,
drawer, acceptor, or indorser, without
receiving value therefor, and for the
purpose of lending his name to some other
person."
As gleaned from the text, an
accommodation party is one who meets all
the three requisites, viz:

(1) he must be a party to the instrument,

signing as maker, drawer, acceptor, or
indorser;
(2) he must not receive value therefor; and
(3) he must sign for the purpose of lending his
name or credit to some other person.
4.

Petitioner signed the promissory note as a

solidary co-maker and not as a guarantor.

It is immaterial so far as the bank is

concerned whether one of the signers,
particularly petitioner, has or has not
received anything in payment of the use of
his name. Since the liability of an
accommodation party remains not only
primary but also unconditional to a holder
for value, even if the accommodated party
receives an extension of the period for
payment without the consent of the
accommodation party, the latter is still
liable for the whole obligation and such
extension does not release him because as
far as a holder for value is concerned, he is
a solidary co-debtor.
Travel-On Inc. v. CA and Miranda
G.R. No. L-56169
June 26, 1992

4.

5.

6.

7.
8.

Issue: WON Miranda is an accommodation

party
Held:
1.

Doctrine: Accommodation Party

Facts:
1.

2.
3.

Petitioner Travel-On is a travel agency

selling airline tickets on commission basis
for an in behalf of different airline
companies. Private respondent Miranda
had a revolving credit line with petitioner.
Miranda procured tickets from petitioner on
behalf of airline passengers and derived
commissions therefrom.
Travel-on filed with the CFI of Manila to
collect on 6 checks issued by private
respondents amounting to P115k with writ
of preliminary attachment.

In his Answer, Miranda alleged that the

obligation has fully paid and even overpaid
his obligations and that refunds were in
fact due to him and that he issued the
checks for purposes of accommodation.
Travel-On's witness, Elita Montilla, on the
other hand explained that the
"accommodation" extended to Travel-On by
private respondent related to situations
where one or more of its passengers
needed money in Hongkong, and upon
request of Travel-On respondent would
contact his friends in Hongkong to advance
Hongkong money to the passenger. The
passenger then paid Travel-On upon his
return to Manila and which payment would
be credited by Travel-On to respondent's
running account with it
The CFI held in favor of Miranda and
ordered Travel-on to pay the net
overpayments plus damages ruling that
Miranda was merely an accommodation
party. MR was denied
On appeal, the CA affirmed the decision of
the CFI but reduced the award of moral
damages. MR was denied.
Hence, this petition for review

2.

We are unable to accept the CAs

conclusion that the checks here involved
were issued for "accommodation" and that
accordingly private respondent maker of
those checks was not liable thereon to
petitioner payee of those checks.
In the first place, while the NIL does refer
to accommodation transactions, no such
transaction was here shown. Sec. 29 of the
NIL provides as follows:

Sec. 29. Liability of accommodation party An

accommodation party is one who has signed
the instrument as maker, drawer, acceptor, or
indorser, without receiving value therefor, and
for the purpose of lending his name to some
other person. Such a person is liable on the
instrument to a holder for value,

notwithstanding such holder, at the time of

taking the instrument, knew him to be only an
accommodation party.
3.

4.

5.

6.

7.

8.

9.

In accommodation transactions recognized

by the NIL, an accommodating party lends
his credit to the accommodated party, by
issuing or indorsing a check which is held
by a payee or indorsee as a holder in due
course, who gave full value therefor to the
accommodated party.
The latter, in other words, receives or
realizes full value which the
accommodated party then must repay to
the accommodating party, unless of course
the accommodating party intended to
make a donation to the accommodated
party.
But the accommodating party is bound on
the check to the holder in due course who
is necessarily a third party and is not the
accommodated party. Having issued or
indorsed the check, the accommodating
party has warranted to the holder in due
course that he will pay the same according
to its tenor.
In the case at bar, Travel-On was payee of
all six (6) checks, it presented these checks
for payment at the drawee bank but the
checks bounced. Travel-On obviously was
not an accommodated party; it realized no
value on the checks which bounced.
Travel-On was entitled to the benefit of the
statutory presumption that it was a holder
in due course, that the checks were
supported by valuable consideration.
Private respondent maker of the checks did
not successfully rebut these presumptions.
The only evidence aliunde that private
respondent offered was his own selfserving uncorroborated testimony.
He claimed that he had issued the checks
to Travel-On as payee to "accommodate"
its General Manager who allegedly wished
to show those checks to the Board of
Directors of Travel-On to "prove" that
Travel-On's account receivables were
somehow "still good." It will be seen that
this claim was in fact a claim that the
checks were merely simulated, that private

respondent did not intend to bind himself

thereon.
10. Only evidence of the clearest and most
convincing kind will suffice for that
purpose; no such evidence was submitted
by private respondent. The latter's
explanation was denied by Travel-On's
General Manager; that explanation, in any
case, appears merely contrived and quite
hollow to us. Upon the other hand, the
"accommodation" or assistance extended
to Travel-On's passengers abroad as
testified by petitioner's General Manager
involved, not the accommodation
transactions recognized by the NIL, but
rather the circumvention of then existing
foreign exchange regulations by
passengers booked by Travel-On, which
incidentally involved receipt of full
consideration by private respondent.
11. Thus, we believe and so hold that
private respondent must be held
liable on the six (6) checks here
involved. Those checks in themselves
constituted evidence of indebtedness
of private respondent, evidence not
successfully overturned or rebutted
by private respondent.
12. ACCORDINGLY, the Court Resolved to
GRANT
Allied Banking Corp. v. CA, G.G.
Sportswear Manufacturing Corp., et. al.
G.R. No. 125851
July 11, 2006
Doctrine: Indorsement v. Guaranty and
Suretyship
Facts:
1.

2.

In 1981, Allied Bank purchased an Export

Bill in the amount of $20,000 from GG
Sportswear. With the purchase of the bill,
Allied credited GGS the peso value of the
bill amounting to P151k
On the same date, respondents Nari
Gidwani and Alcron International Ltd.
(Alcron) executed their respective Letters
of Guaranty, holding themselves liable on

the export bill if it should be dishonored or

retired by the drawee for any reason.
3. Subsequently, the spouses Leon and Leticia
de Villa and Nari Gidwani also executed a
Continuing Guaranty/Comprehensive
Surety (surety, for brevity), guaranteeing
payment of any and all such credit
accommodations which ALLIED may extend
to GGS.
4. When ALLIED negotiated the export
bill to Chekiang, payment was refused
due to some material discrepancies in
the documents submitted by GGS
relative to the exportation covered by
the letter of credit. Consequently,
ALLIED demanded payment from all
the respondents based on the Letters
of Guaranty and Surety executed in
favor of ALLIED. However,
respondents refused to pay,
prompting ALLIED to file an action for
a sum of money.
5. In their joint answer, respondents GGS and
Nari Gidwani admitted the due execution of
the export bill and the Letters of Guaranty
in favor of ALLIED, but claimed that they
signed blank forms of the Letters of
Guaranty and the Surety, and the blanks
were only filled up by ALLIED after they
had affixed their signatures. They also
added that the documents did not cover
the transaction involving the subject export
bill.
6. The complaint was dismissed.
7. On appeal, the CA reversed the decision
and made GGS liable to reimburse ALLIED
the peso equivalent of the export bill. MR
was denied.
8. Hence, this appeal
Issue: WON respondents as guarantors
and surety, be held jointly and severally
liable under the the Letters of Guaranty
and Continuing Guaranty/Comprehensive
Surety, in the absence of protest on the
bill in accordance with Sec. 152 of the NIL
Held:
1.

The petitioner contends that part of the

CAs decision exonerating respondents Nari

Gidwani, Alcron International Ltd., and

spouses Leon and Leticia de Villa as
guarantors and/or sureties. Respondents
rely on Section 152 of the Negotiable
Instruments Law to support their
contention.
2. Under, Section 152 of the NIL pertaining to
indorsers, relied on by respondents, is not
pertinent to this case.
3. There are well-defined distinctions between
the contract of an indorser and that of a
guarantor/surety of a commercial paper,
which is what is involved in this case.
4. The contract of indorsement is primarily
that of transfer, while the contract of
guaranty is that of personal security.
5. The liability of a guarantor/surety is
broader than that of an indorser. Unless the
bill is promptly presented for payment at
maturity and due notice of dishonor given
to the indorser within a reasonable time, he
will be discharged from liability thereon.
6. On the other hand, except where required
by the provisions of the contract of
suretyship, a demand or notice of default is
not required to fix the surety's liability. He
cannot complain that the creditor has not
notified him in the absence of a special
agreement to that effect in the contract of
suretyship.
7. Therefore, no protest on the export
bill is necessary to charge all the
respondents jointly and severally
liable with G.G. Sportswear since the
respondents held themselves liable
upon demand in case the instrument
was dishonored and on the surety,
they even waived notice of dishonor
as stipulated in their Letters of
Guarantee.
8. As to respondent Alcron, it is bound by the
Letter of Guaranty executed by its
representative Hans-Joachim Schloer. As to
the other respondents, not to be
overlooked is the fact that, the "Suretyship
Agreement" they executed, expressly
contemplated a solidary obligation,
providing as it did that " the sureties
hereby guarantee jointly and severally the
punctual payment of any and all such
credit accommodations, instruments, loans,

which is/are now or may hereafter

become due or owing by the borrower".
9. It is a cardinal rule that if the terms of a
contract are clear and leave no doubt as to
the intention of the contracting parties, the
literal meaning of its stipulation shall
control.
10. In the present case, there can be no
mistaking about respondents' intent, as
sureties, to be jointly and severally
obligated with respondent G.G. Sportswear.
Bank of America NT & SA v. Phil. Racing
Club
G.R. No. 150228
July 30, 2008
Doctrine: Sec. 14, 15, 16, NIL
Facts:
1.

PRCI is a domestic corporation which

maintains several accounts with different
banks in Metro Manila, one of which is with
Bank of America.
2. The joint signatories in their Current
Account are President A. Reyes and VP G.
Reyes
3. In 1998, the joint signatories pre-signed
several checks drawn against said Current
Account (out of town sila). These checks
were entrusted to the accountant to be
used when the need arose. The internal
arrangement was, in the event there
was need to make use of the checks,
the accountant would prepare the
corresponding voucher and thereafter
complete the entries on the presigned checks.
4. In 1988, a certain John Doe presented
some of the checks with indicated value of
P110k. These two (2) checks was among
the pre-signed checks of the joint
signatories.
5. The two (2) checks had similar entries
with similar infirmities and
irregularities. On the space where the
name of the payee should be indicated
(Pay To The Order Of) the following 2line entries were instead typewritten:
on the upper line was the word

"CASH" while the lower line had the

following typewritten words, viz: "ONE
HUNDRED TEN THOUSAND PESOS
ONLY."
6. Despite the highly irregular entries on the
face of the checks, defendant-appellant
bank, without as much as verifying and/or
confirming the legitimacy of the checks
considering the substantial amount
involved and the obvious infirmity/defect of
the checks on their faces, encashed said
checks.
7. Upon investigation of PRCI, there was no
transaction calling for the payment of
P220,000. It was handed to a certain
Clarita Mesina who completed the authority
the entries in the pre-signed checks.
8. PRCI asked for the payment but it fell on
deaf ears.
9. PRCI filed a complaint with the RTC for sum
of money. It ruled in favor of PRCI and
ordered BA to pay the amount.
10. On appeal, CA affirmed the decision of the
RTC. MR was denied.
11. Hence, this petition.
Issue: WON BA is at fault for its failure to
verify the wrongful encashment of the
check
Held:
1.

2.

3.

In defense of its cashier/tellers

questionable action, petitioner insists that
pursuant to Sections 14 and 16 of the NIL,
it could validly presume, upon presentation
of the checks, that the party who filled up
the blanks had authority and that a valid
and intentional delivery to the party
presenting the checks had taken place.
Thus, in petitioners view, the sole blame
for this debacle should be shifted to
respondent for having its signatories presign and deliver the subject checks.
Petitioner argues that there was indeed
delivery in this case because, following
American jurisprudence, the gross
negligence of respondents accountant in
safekeeping the subject checks which
resulted in their theft should be treated as
a voluntary delivery by the maker who is

4.

5.

6.

7.

8.

9.

estopped from claiming non-delivery of the

instrument.
Petitioners contention would have been
correct if the subject checks were correctly
and properly filled out by the thief and
presented to the bank in good order.
In that instance, there would be nothing to
give notice to the bank of any infirmity in
the title of the holder of the checks and it
could validly presume that there was
proper delivery to the holder.
The bank could not be faulted if it
encashed the checks under those
circumstances. However, the undisputed
facts plainly show that there were
circumstances that should have alerted the
bank to the likelihood that the checks were
not properly delivered to the person who
encashed the same. In all, we see no
reason to depart from the finding in the
assailed CA Decision that the subject
checks are properly characterized as
incomplete and undelivered instruments
thus making Section 15 of the NIL
applicable in this case.
However, we do agree with petitioner that
respondents officers practice of presigning of blank checks should be deemed
seriously negligent behavior and a highly
risky means of purportedly ensuring the
efficient operation of businesses.
It should have occurred to respondents
officers and managers that the pre-signed
blank checks could fall into the wrong
hands as they did in this case where the
said checks were stolen from the company
accountant to whom the checks were
entrusted.
Nevertheless, even if we assume that both
parties were guilty of negligent acts that
led to the loss, petitioner will still emerge
as the party foremost liable in this case. In
instances where both parties are at fault,
this Court has consistently applied the
doctrine of last clear chance in order to
assign liability.

International Corporate Bank v. CA and

PNB
G.R. No. 129910

September 5, 2006
TOPIC: Alteration of the instrument
(S124); What constitutes material
alteration (S125)
LESSON: 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
Instrument[s] Law.

3.

4.

5.

FACTS:
1.

2.

3.

4.

The Ministry of Education and Culture

issued 15 checks drawn against respondent
PNB which petitioner accepted for deposit
on various dates.
After 24 hours from submission of the
checks to respondent for clearing,
petitioner-bank paid the value of the
checks and allowed the withdrawals of the
deposits.
However, PNB returned all the checks to
petitioner without clearing them on the
ground that they were materially altered in
the serial numbers
Thus, petitioner instituted an action for
collection of sums of money against
respondent to recover the value of the
checks.

Issue: WON the checks are materially

altered

6.
7.

Metropolitan Bank and Trust Co. v. Cabilzo

G.R. No. 154469
December 6, 2006
Doctrine: Material Alterations
1.
2.

3.

Held:
1.

2.

No. The alterations in the checks were

made on their serial numbers. The question
on whether an alteration of the serial
number of a check is a material alteration
under the NIL is already a settled matter.
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 Sec. 1 of the
NIL
The serial number of the check in question,
an item which, it can readily be observed,
is not an essential requisite for
negotiability under Sec. 1 NIL.
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.
In the present case the alterations of the
serial numbers do not constitute material
alterations on the checks.
Thus, respondent PNB is liable to petitioner
for the value of the checks

4.

Respondent Cabilzo is one of Metrobanks

clients who maintained a current account .
In 1994, Cabilzo issued a check payable to
Cash and postdated Nov. 24, 1994 for
P1,000 against his account in Metrobank to
a certain Mr. Marquez, as his sales
commission.
Subsequently, it was indorsed to Westmont
Bank for payment. Westmont Bank, in turn,
indorsed it to Metrobank for clearing.
Metrobank cleared the check for
encashment.
Cabilzos representative went to Metrobank
when one of the bank personnel asked if he
had issued a check for P91,000. He
answered in the negative. Cabilzo called
Metrobank and asked them to return the
check worth P91,000

5.

It was then that he discovered that the

check he issued for P1,000 became
P91,000.
6. Cabilzo demanded the return of P91,000.
Metrobank refused.
7. Cabilzo filed a civil action for damages with
the RTC of Manila. For its defense,
Metrobank averted that it found no
alterations, erasures whatsoever upon the
clearing of the check. Further, it asserted
that Westmont Bank should be held liable
because it was an unqualified indorser of
the check.
8. The RTC held in favor of Cabilzo and
ordered to pay him.
9. On appeal, the CA affirmed the decision of
the RTC. MR was denied for lack of merit.
10. Hence, this petition
Issue: WON Metrobank, as drawee bank,
liable for the alterations on the subject
check bearing the authentic signature of
the drawer thereof
Held:
1.
2.

3.

4.
5.

We resolve to deny the petition.

An alteration is said to be material if it
changes the effect of the instrument. It
means that 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 NIL
Section 1 of the Negotiable Instruments
Law provides:
Also pertinent is the following provision in
the Negotiable Instrument Law which
states:

Section 125. What constitutes material

alteration Any alteration which changes:

(b) The sum payable, either for principal or

interest;
(c) The time or place of payment;
(d) The number or the relation of the parties;
(e) The medium or currency in which payment
is to be made;
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.
6.

In the case at bar, the check was altered so

that the amount was increased from
P1,000.00 to P91,000.00 and the date was
changed from 24 November 1994 to 14
November 1994.
7. Apparently, since the entries altered
were among those enumerated under
Section 1 and 125, namely, the sum of
money payable and the date of the
check, the instant controversy
therefore squarely falls within the
purview of material alteration.
8. Now, having laid the premise that the
present petition is a case of material
alteration, it is now necessary for us to
determine the effect of a materially altered
instrument, as well as the rights and
obligations of the parties thereunder. The
following provision of the NIL will shed us
some light in threshing out this issue:

11.

12.

Section 124. Alteration of instrument; effect of

Where a negotiable instrument is materially
altered without the assent of all parties liable
thereon, it is avoided, except as against a party
who has himself made, authorized, and
assented to the alteration and subsequent
indorsers.
But when the instrument has been materially
altered and is in the hands of a holder in due
course not a party to the alteration, he may
enforce the payment thereof according to its
original tenor.
9.

(a) The date;

10.

Indubitably, Cabilzo was not the one who

made nor authorized the alteration. Neither
did he assent to the alteration by his

13.

express or implied acts. There is no

showing that he failed to exercise such
reasonable degree of diligence required of
a prudent man which could have otherwise
prevented the loss.
As correctly ruled by the appellate court,
Cabilzo was never remiss in the
preparation and issuance of the check, and
there were no indicia of evidence that
would prove otherwise. Indeed, Cabilzo
placed asterisks before and after the
amount in words and figures in order to
forewarn the subsequent holders that
nothing follows before and after the
amount indicated other than the one
specified between the asterisks.
The degree of diligence required of a
reasonable man in the exercise of his tasks
and the performance of his duties has been
faithfully complied with by Cabilzo. In fact,
he was wary enough that he filled with
asterisks the spaces between and after the
amounts, not only those stated in words,
but also those in numerical figures, in order
to prevent any fraudulent insertion, but
unfortunately, the check was still
successfully altered, indorsed by the
collecting bank, and cleared by the drawee
bank, and encashed by the perpetrator of
the fraud, to the damage and prejudice of
Cabilzo.
Verily, Metrobank cannot lightly impute
that Cabilzo was negligent and is therefore
prevented from asserting his rights under
the doctrine of equitable estoppel when the
facts on record are bare of evidence to
support such conclusion. The doctrine of
equitable estoppel states that when one of
the two innocent persons, each guiltless of
any intentional or moral wrong, must suffer
a loss, it must be borne by the one whose
erroneous conduct, either by omission or
commission, was the cause of injury.
Metrobanks reliance on this dictum, is
misplaced. For one, Metrobanks
representation that it is an innocent party
is flimsy and evidently, misleading. At the
same time, Metrobank cannot asseverate
that Cabilzo was negligent and this
negligence was the proximate cause of the
loss in the absence of even a scintilla proof

14.

15.

16.

17.

to buttress such claim. Negligence is not

presumed but must be proven by the one
who alleges it.
Undoubtedly, Cabilzo was an innocent
party in this instant controversy. He was
just an ordinary businessman who, in order
to facilitate his business transactions,
entrusted his money with a bank, not
knowing that the latter would yield a
substantial amount of his deposit to fraud,
for which Cabilzo can never be faulted.
We never fail to stress the remarkable
significance of a banking institution to
commercial transactions, in particular, and
to the countrys economy in general. The
banking system is an indispensable
institution in the modern world and plays a
vital role in the economic life of every
civilized nation. Whether as mere passive
entities for the safekeeping and saving of
money or as active instruments of business
and commerce, banks have become an
ubiquitous presence among the people,
who have come to regard them with
respect and even gratitude and, most of
all, confidence.
Thus, even the humble wage-earner does
not hesitate to entrust his life's savings to
the bank of his choice, knowing that they
will be safe in its custody and will even
earn some interest for him. The ordinary
person, with equal faith, usually maintains
a modest checking account for security and
convenience in the settling of his monthly
bills and the payment of ordinary
expenses. As for a businessman like the
respondent, the bank is a trusted and
active associate that can help in the
running of his affairs, not only in the form
of loans when needed but more often in
the conduct of their day-to-day
transactions like the issuance or
encashment of checks.
In every case, the depositor expects the
bank to treat his account with the utmost
fidelity, whether such account consists only
of a few hundred pesos or of millions. The
bank must record every single transaction
accurately, down to the last centavo, and
as promptly as possible. This has to be
done if the account is to reflect at any

given time the amount of money the

depositor can dispose of as he sees fit,
confident that the bank will deliver it as
and to whomever he directs.
18. The point is that as a business affected
with public interest and because of the
nature of its functions, the bank is under
obligation to treat the accounts of its
depositors with meticulous care, always
having in mind the fiduciary nature of their
relationship. The appropriate degree of
diligence required of a bank must be a high
degree of diligence, if not the utmost
diligence.
19. In the present case, it is obvious that
Metrobank was remiss in that duty
and violated that relationship. As
observed by the Court of Appeals, there are
material alterations on the check that are
visible to the naked eye. Thus:
The number "1" in the date is clearly imposed
on a white figure in the shape of the number
"2". The appellants employees who examined
the said check should have likewise been put
on guard as to why at the end of the amount in
words, i.e., after the word "ONLY", there are 4
asterisks, while at the beginning of the line or
before said phrase, there is none, even as 4
asterisks have been placed before and after
the word "CASH" in the space for payee. In
addition, the 4 asterisks before the words "ONE
THOUSAND PESOS ONLY" have noticeably been
erased with typing correction paper, leaving
white marks, over which the word "NINETY"
was superimposed. The same can be said of
the numeral "9" in the amount "91,000", which
is superimposed over a whitish mark, obviously
an erasure, in lieu of the asterisk which was
deleted to insert the said figure. The
appellants employees should have again
noticed why only 2 asterisks were placed
before the amount in figures, while 3 asterisks
were placed after such amount. The word
"NINETY" is also typed differently and with a
lighter ink, when compared with the words
"ONE THOUSAND PESOS ONLY." The letters of
the word "NINETY" are likewise a little bigger
when compared with the letters of the words
"ONE THOUSAND PESOS ONLY".

20. Surprisingly, however, Metrobank failed to

detect the above alterations which could
not escape the attention of even an
ordinary person. This negligence was
exacerbated by the fact that, as found by
the trial court, the check in question was
examined by the cash custodian whose
functions do not include the examinations
of checks indorsed for payment against
drawers accounts.
21. Obviously, the employee allowed by
Metrobank to examine the check was not
verse and competent to handle such duty.
These factual findings of the trial court is
conclusive upon this court especially when
such findings was affirmed the appellate
court.
22. Apropos thereto, we need to reiterate that
by the very nature of their work the degree
of responsibility, care and trustworthiness
expected of their employees and officials is
far better than those of ordinary clerks and
employees. Banks are expected to exercise
the highest degree of diligence in the
selection and supervision of their
employees.
23. In addition, the bank on which the check is
drawn, known as the drawee bank, is under
strict liability to pay to the order of the
payee in accordance with the drawers
instructions as reflected on the face and by
the terms of the check. Payment made
under materially altered instrument is not
payment done in accordance with the
instruction of the drawer.
24. When the drawee bank pays a
materially altered check, it violates
the terms of the check, as well as its
duty to charge its clients account
only for bona fide disbursements he
had made. Since the drawee bank, in
the instant case, did not pay
according to the original tenor of the
instrument, as directed by the drawer,
then it has no right to claim
reimbursement from the drawer, much
less, the right to deduct the erroneous
payment it made from the drawers
account which it was expected to treat
with utmost fidelity.

25. Metrobank vigorously asserts that the

entries in the check were carefully
examined: The date of the instrument, the
amount in words and figures, as well as the
drawers signature, which after verification,
were found to be proper and authentic and
was thus cleared. We are not persuaded.
Metrobanks negligence consisted in the
omission of that degree of diligence
required of a bank owing to the fiduciary
nature of its relationship with its client.
Article 1173 of the Civil Code provides:
The fault or negligence of the obligor consists
in the omission of that diligence which is
required by the nature of the obligation and
corresponds with the circumstances of the
persons, of the time and of the place.
26. Beyond question, Metrobank failed to
comply with the degree required by the
nature of its business as provided by law
and jurisprudence. If indeed it was not
remiss in its obligation, then it would be
inconceivable for it not to detect an evident
alteration considering its vast knowledge
and technical expertise in the intricacies of
the banking business. This Court is not
completely unaware of banks practices of
employing devices and techniques in order
to detect forgeries, insertions,
intercalations, superimpositions and
alterations in checks and other negotiable
instruments so as to safeguard their
authenticity and negotiability. Metrobank
cannot now feign ignorance nor claim
diligence; neither can it point its finger at
the collecting bank, in order to evade
liability.
27. Metrobank argues that Westmont Bank, as
the collecting bank and the last indorser,
shall bear the loss. Without ruling on the
matter between the drawee bank and the
collecting bank, which is already under the
jurisdiction of another tribunal, we find that
Metrobank cannot rely on such
indorsement, in clearing the questioned
check. The corollary liability of such
indorsement, if any, is separate and
independent from the liability of Metrobank
to Cabilzo.

28. The reliance made by Metrobank on

Westmont Banks indorsement is clearly
inconsistent, if not totally offensive to the
dictum that being impressed with public
interest, banks should exercise the highest
degree of diligence, if not utmost diligence
in dealing with the accounts of its own
clients. It owes the highest degree fidelity
to its clients and should not therefore
lightly rely on the judgment of other banks
on occasions where its clients money were
involve, no matter how small or substantial
the amount at stake.
29. Metrobanks contention that it relied on the
strength of collecting banks indorsement
may be merely a lame excuse to evade
liability, or may be indeed an actual
banking practice. In either case, such act
constitutes a deplorable banking practice
and could not be allowed by this Court
bearing in mind that the confidence of
public in general is of paramount
importance in banking business.
30. What is even more deplorable is that,
having been informed of the alteration,
Metrobank did not immediately re-credit
the amount that was erroneously debited
from Cabilzos account but permitted a full
blown litigation to push through, to the
prejudice of its client. Anyway, Metrobank
is not left with no recourse for it can still
run after the one who made the alteration
or with the collecting bank, which it had
already done. It bears repeating that the
records are bare of evidence to prove that
Cabilzo was negligent. We find no
justifiable reason therefore why Metrobank
did not immediately reimburse his account.
31. WHEREFORE, premises considered, the
instant Petition is DENIED.

1.

2.

3.
4.

5.

6.

Issue: WON the bank be liable for the

check which was materially altered as to
its date
Held:
1.

Westmont Bank v. Dela Rosa-Ramos, et.

al.
G.R. No. 160260
October 24, 2012
Doctrine: Material Alteration as to date
Facts:

From 1986, Respondent Dela Rosa-Ramos

(DRR) maintained a checking/current
account with the United Overseas Bank
Philippines. In her several transactions, he
got acquainted with respondent Tan <3
In the course of their acquaintance, Tan
offered DRR a special arrangement
wherein he would finance or place
sufficient funds in checking/current account
whenever there would be an overdraft or
when the amount of said checks would
exceed the balance of her current account.
The transaction was for P50 a day for every
P40,000 he would finance.
In order to guarantee payment for such
funding, Dela Rosa-Ramos issued
postdated checks covering the principal
amount plus interest as computed by Tan
on specified date. There were also times
when she just paid in cash. Relative to their
said agreement, Dela Rosa-Ramos issued
and delivered to Tan the following
Associated Bank checks drawn against her
current account and payable to "cash,"
One of the checks is a stale guarantee
check. The date was altered. It was
deposited to the other respondent William
Co. It was charged to the account of DRR.
It was later discovered by DRR that the
amount was being deposited to William Co.

2.

As regards Check No. 467322, the Bank

avers that Dela Rosa- Ramos acquiesced
to the change of the date in the said check.
It argues that her continued acts of dealing
and transacting with the Bank like
subsequently issuing checks despite her
experience with this check only shows her
acquiescence which is tantamount to
giving her consent.
Obviously, the Bank has not taken to heart
its fiduciary responsibility to its clients.
Rather than ask and wonder why there
were indeed subsequent transactions, the
more paramount issue is why the Bank

through its several competent employees

and officers, did not stop, double check and
ascertain the genuineness of the date of
the check which displayed an obvious
alteration. This failure on the part of
the Bank makes it liable for that loss.
As the RTC held:
Defendant-bank is not faultless in the
irregularities of its signature-verifier. In the first
place, it should have readily rejected the
obviously altered plaintiffs P200,000.00-check,
thus, avoid its unwarranted deposit in
defendant-Cos account and its corollary loss
from plaintiffs deposit, had its other
employees, even excepting TAN, performed
their duties efficiently and well.
3.

The glaring error did not escape the

observation of the CA either. On the
matter, it hastened to add:

A careful scrutiny of the evidence shows that

indeed the date of Check No. 467322 had been
materially altered from August 1987 to May 8,
1988 in accordance with Sec. 125 of the
Negotiable Instruments Law.
It is worthy to take note of the fact that
such alteration was not countersigned by
the drawer to make it a valid correction of
its date as consented by its drawer as the
standard operating procedure of the
appellant bank in such situation as
admitted by its Sto. Cristo Branch
manager, Mabini Z. Millan.
4.

The Bank should only be made to answer

the value of Check No. 467322 in the
amount of P200,000.00

2.
3.

4.

5.

6.

7.
8.

9.

Issue: WON Manila Banking Corp., in filing

an estafa case against Kathy E., is barred
from raising the defense that the fact of
forgery was not established
Held:
1.

Ilusorio v. CA and Manila Banking Corp.

G.R. No. 139130
November 27, 2002
Doctrine: Setting up Defense of Forgery
1.

Ilusorio is a businessman who at the time

material to this case was a Managing
Director of Multinational Investment

Bancorporation and Chairmen/President of

several other corporations.
He was a depositor in good standing with
the respondent bank, Manila Banking Corp.
Because he was out of country, he
entrusted his credit cards and checkbook
with blank checks to her secretary
Katherine Eugenio (Kathy E.) who also
verified and reconciled the statements of
said checking accounts.
Kathy E. was able to draw 17 checks
against the account of the petitioner in the
amount of P100,000. He was only apprised
a business partner that Kathy E. was using
his credit cards. Kathy E. was then FIRED.
He instituted a case against Kathy for
estafa thru falsification. Respondent bank
also filed criminal case for estafa thru
falsification of commercial documents.
He then requested Respondent Bank to
return the amount of the checks drawn
against his account but Respondent Bank
refused. Hence, the petitioner filed this
case.
The trial court dismissed the criminal
actions finding no sufficient basis.
On appeal, the CA affirmed the decision of
the RTC holding that the negligence of the
petitioner was the proximate cause of his
loss.
Hence, this petition

2.

Petitioner further contends that under

Section 23 of the NIL a forged check is
inoperative, and that Respondent Bank had
no authority to pay the forged checks. True,
it is a rule that when a signature is forged
or made without the authority of the
person whose signature it purports to be,
the check is wholly inoperative.
No right to retain the instrument, or to give
a discharge therefor, or to enforce payment
thereof against any party, can be acquired
through or under such signature. However,

the rule does provide for an exception,

namely: "unless the party against whom it
is sought to enforce such right is precluded
from setting up the forgery or want of
authority."
3. In the instant case, it is the exception
that applies. In our view, petitioner is
precluded from setting up the forgery,
assuming there is forgery, due to his
own negligence in entrusting to his
secretary his credit cards and
checkbook including the verification of
his statements of account.
4. Petitioners reliance on Associated Bank vs.
CA and Philippine Bank of Commerce vs.
CA to buttress his contention that
respondent Manila Bank as the collecting or
last endorser generally suffers the loss
because it has the duty to ascertain the
genuineness of all prior endorsements is
misplaced. In the cited cases, the fact of
forgery was not in issue.
5. In the present case, the fact of forgery
was not established with certainty. In
those cited cases, the collecting banks
were held to be negligent for failing to
observe precautionary measures to detect
the forgery. In the case before us, both
courts below uniformly found that Manila
Banks personnel diligently performed their
duties, having compared the signature in
the checks from the specimen signatures
on record and satisfied themselves that it
was petitioners.
6. The fact that Respondent Bank had filed a
case for estafa against Kathy E. would not
estop it from asserting the fact that forgery
has not been clearly established. Petitioner
cannot hold private respondent in estoppel
for the latter is not the actual party to the
criminal action. In a criminal action, the
State is the plaintiff, for the commission of
a felony is an offense against the State.
7. Thus, under Section 2, Rule 110 of the
Rules of Court the complaint or information
filed in court is required to be brought in
the name of the "People of the Philippines."
8. Further, as petitioner himself stated in his
petition, respondent bank filed the estafa
case against Eugenio on the basis of
petitioners own affidavit, but without

9.

admitting that he had any personal

knowledge of the alleged forgery.
It is, therefore, easy to understand that the
filing of the estafa case by respondent
bank was a last ditch effort to salvage its
ties with the petitioner as a valuable client,
by bolstering the estafa case which he filed
against his secretary.

Samsung Construction Company Phil. v

Far East Bank and Trust Co and CA
G.R. No. 129015
August 13, 2004

Doctrines:
(a) Forgery is a real or absolute defense by the
party whose signature is forged.
(b) If a bank pays a forged check, it must be
considered as paying out of its funds and
cannot charge the amount so paid to the
account of the depositor.
(c) As a general rule, a forged signature is
wholly inoperative and payment made
through or under such signature is
ineffectual or does not discharge the
instrument.

4.
5.

6.

7.

8.

9.

Facts:
1.

2.

3.

Plaintiff Samsung Construction Company

Philippines, Inc. (Samsung Construction),
maintained a current account with
defendant Far East Bank and Trust
Company (FEBTC).
The sole signatory to Samsung
Constructions account was Jong Kyu Lee
(Jong), its Project Manager, while the
checks remained in the custody of the
companys accountant, Kyu Yong Lee
(Kyu).
IN 1992, a certain Roberto Gonzaga
presented for payment FEBTC Check No.
432100 to the bank. The check, payable to
cash and drawn against Samsung
Constructions current account, was in the
amount of P999k.

10.
11.

12.
13.

The bank teller, the Senior Asssitant

Cashier and another bank officer checked
the authenticity of the signature.
The bank official then noticed that Jose
Sempio III (Sempio), the assistant
accountant of Samsung Construction, was
also in the bank at that time. Sempio was
well-known to the bank personnel, he being
the assistant accountant of Samsung
Construction.
The bank officer showed the check to
Sempio, who vouched for the genuineness
of Jongs signature. Satisfied with the
genuineness of the signature of Jong, Syfu
authorized the banks encashment of the
check to Gonzaga.
The following day, the accountant of
Samsung Construction, Kyu, discovered
that a check in the amount of Nine
Hundred Ninety Nine Thousand Five
Hundred Pesos (P999,500.00) had been
encashed and found that the last blank
check was missing.
He reported the matter to Jong, who then
proceeded to the bank. Jong learned of the
encashment of the check, and realized that
his signature had been forged.
Samsung Construction filed a Complaint on
10 June 1992 for violation of Section 23 of
the Negotiable Instruments Law, and
prayed for the payment of the amount
debited as a result of the questioned check
plus interest, and attorneys fees.
During the trial, both sides presented their
respective expert witnesses to testify on
the claim that Jongs signature was forged.
Samsung Corporation, which had referred
the check for investigation to the NBI and
concluded that Jongs signature had been
forged on the check. On the other hand,
FEBTC, which had sought the assistance of
the PNP showed that Jongs signature on
the check was genuine.
RTC ruled in favor of Samsung.
CA reversed the decision of the RTC.
Contradictory findings of the NBI and the
PNP created doubt as to whether there was
forgery and that assuming there was
forgery, it occurred due to the negligence
of Samsung Construction, imputing blame
on the accountant Kyu for lack of care and

prudence in keeping the checks, which if

observed would have prevented Sempio
from gaining access thereto.
14. Thus this petition of Samsung.
Issue:
(1) WON Samsung Construction was
precluded from setting up the defense
of forgery under Sec. 23 of the NIL
(2) If a bank pays out on a forged check,
is it liable to reimburse the drawer
from whose account the funds were
paid out?
Held:
1. Petition is GRANTED.
2. As to the first issue, No. Under Section 23
of the Negotiable Instruments Law, forgery
is a real or absolute defense by the party
whose signature is forged.
3. On the premise that Jongs signature was
indeed forged, FEBTC is liable for the loss
since it authorized the discharge of the
forged check.
4. Such liability attaches even if the bank
exerts due diligence and care in preventing
such faulty discharge. Forgeries often
deceive the eye of the most cautious
experts; and when a bank has been so
deceived, it is a harsh rule which compels it
to suffer although no one has suffered by
its being deceived.
5. The forgery may be so near like the
genuine as to defy detection by the
depositor himself, and yet the bank is liable
to the depositor if it pays the check.
6. As to the second issue, Yes. Even if the
bank performed with utmost diligence, the
drawer whose signature was forged may
still recover from the bank as long as he or
she is not precluded from setting up the
defense of forgery.
7. After all, Section 23 of the NIL plainly states
that no right to enforce the payment of a
check can arise out of a forged signature.
8. Since the drawer, Samsung Construction, is
not precluded by negligence from setting
up the forgery, the general rule should
apply (The general rule is to the effect that

a forged signature is wholly inoperative,

and payment made through or under such
signature is ineffectual or does not
discharge the instrument).
9. Consequently, if a bank pays a forged
check, it must be considered as paying out
of its funds and cannot charge the amount
so paid to the account of the depositor. A
bank is liable, irrespective of its good faith,
in paying a forged check.
10. NoteIssue of whether a party is negligent
is a question of fact. (Thermochem
Incorporated vs. Naval, 344 SCRA 76
[2000]) In the case at bar, the Bank failed
to prove negligence on the part of the
drawer.
Metrobank v. BA Finance Corp. and
Malayan Insurance Co. Inc.
G.R. No. 179952
December 4, 2009
Facts:
1.

2.
3.

4.

5.
6.

7.

Bitanga obtained from BA Finance a P329k

loan to secure which, he mortgaged his car
to BA Finance which requires for it to be
insured
Bitanga insured the car with Malayan
Insurance, the insurance policy provides
that it shall be payable to BA Finance.
The car was stolen. Malayan Insurance
then issued a check payable to Bitanga and
BA Finance drawn against China Bank. The
check was crossed with the notation for
deposit payees account only
Without indorsment or authority, Bitanga
deposited the check to his account with
herein petitioner Metrobank and
subsequently withdrew the proceeds of the
sale.
In the meantime, Bitangas loan became
due, despite demands, he failed to settle.
BA Finance later on learned about the
katarantaduhan ni Bitanga. It then
demanded from Bitanga and Asiabank for
the return of the value of the check.
BA Finance filed a complaint with the RTC
for sum of money and damages against
Asiabank and Bitanga

8.

For its part, Asiabank alleged that it should

be Malayan Insurance that should pay the
said amount.
9. The trial court, holding that 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 NIL. They were both
made to pay
10. On appeal, the CA affirmed the decision of
the RTC
11. Hence, this petition
Issue: WON Asiabank should be held
liable for the encashment of the check
without BA Finance approval
Held:
1.
2.

The petition fails.

Section 41 of the NIL 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.
3.

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.
4. The provisions of the NIL and underlying
jurisprudential teachings on the black-letter
law provide definitive justification for
petitioners full liability on the value of the
check.
5. 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.
6. 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.
7. 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.
8. Accordingly, one who credits the proceeds
of a check to the account of the indorsing
payee is liable in conversion to the nonindorsing payee for the entire amount of
the check.
9. 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.
10. Recall that when the maker dishonors the
instrument, the holder thereof can turn to
those secondarily liable the indorser
for recovery.
11. 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.
Solidbank Corporation v. Mindanao
Ferroalloy Corp.
G.R. No. 153535
July 28, 2005
Doctrine: Sec. 19 and 20; Principal and
Agent

Note: Kinuha ko lang yung digest sa Corpo

case and issue naman ditto yung promissory
note.

11. Hence, this petition

2.
Issue:

Facts:
Maria Cristina Chemical Industries (MCCI)
and three (3) Korean corporations decided
to forge a joint venture and establish a
corporation under the name Mindanao
Ferroalloy Corp (MFC)
2. In a resolution issued by the Board of
Directors, the President and Chairman of
the Board was authorized to secure an
omnibus line in the amount of P30M with
petitioner Solidbank.
3. In April 1991, it started its operation but its
debts ballooned to P200M as compared to
its assets which is only P65M. Because of
this, MFC secured ordinary time loans with
Solidbank for P5M
4. These loans were consolidated and a
promissory note were executed where
Cu and Jong-Won Hong (Board of
Directors) affixed their signature.
5. Following the executions of the deeds, the
operation of MFC stopped and failed to pay
its loan availments.
6. Solidbank then filed a complaint with the
RTC for sum of money with prayer for
preliminary attachment.
7. For their defense, MFC averred that the
loan of P5M was a corporate undertaking of
defendant MFC.
8. The RTC dismissed the complaint as
against the individual respondents because
of the failure of Solidbank to adduce
evidence as to their individual liability
9. In the meantime, the motion for summary
judgment by petitioner was granted
holding MFC liable for the loan.
10. On appeal, the CA affirmed the decision of
the RTC

(1) WON Respondent Cu and Hong

may be held solidarily liable for
the promissory note

1.

Held:
1.

Respondents Cu and Hong signed the

Promissory Note without the word "by"
preceding their signatures, atop the
designation "Maker/Borrower" and the
printed name of the corporation, as follows:

3.

__(Sgd) Cu/Hong__
(Maker/Borrower)
MINDANAO FERROALLOY
While their signatures appear without
qualification, the inference that they signed in
their individual capacities is negated by the
following facts:
a. The name and the address of the
corporation appeared on the space
provided for "Maker/Borrower";
b. Respondents Cu and Hong had only one set
of signatures on the instrument, when
there should have been two, if indeed they
had intended to be bound solidarily -- the
first as representatives of the corporation,
and the second as themselves in their
individual capacities;
c. They did not sign under the spaces
provided for "Co-maker," and neither were
their addresses reflected there; and
d. at the back of the Promissory Note, they
signed above the words "Authorized
Representative."

4.

5.

The Promissory Note in question is a

negotiable instrument. Under Sec. 19, NIL,
agents or representatives may sign for the
principal. Their authority may be
established, as in other cases of agency.
Sect. 20 of the law provides that a person
signing "for and on behalf of a disclosed
principal or in a representative capacity is
not liable on the instrument if he was duly
authorized."
The authority of Respondents Cu and Hong
to sign for and on behalf of the corporation
has been amply established by the
Resolution of Minfacos Board of Directors,
stating that "Atty. Ricardo P. Guevara
(President and Chairman), or Ms. Teresita R.
Cu (Vice President), acting together with
Mr. Jong Won Hong (Vice President), be as
they are hereby authorized for and in
behalf of the Corporation to: 1. Negotiate
with and obtain from (petitioner) the
extension of an omnibus line in the
aggregate of P30 million x x x; and 2.
Execute and deliver all documentation
necessary to implement all of the
foregoing."
Further, the agreement involved here is a
"contract of adhesion," which was prepared
entirely by one party and offered to the
other on a "take it or leave it" basis.
Following the general rule, the contract
must be read against petitioner, because it
was the party that prepared it, more so
because a bank is held to high standards of
care in the conduct of its business.
In the totality of the circumstances, we
hold that Respondents Cu and Hong clearly
signed the Note merely as representatives
of Minfaco.