Negotiable Instrument Case Digest (MidTerms)

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Negotiable Instruments Law

Case Digest
1. Lozano vs. Martinez, 146 SCRA 323 (Jerald)
Commercial Law – Negotiable Instruments Law – Constitutionality of BP 22
FACTS:
This case is a consolidation of 8 cases regarding violations of the Bouncing Checks Law or
Batas Pambansa Blg. 22 (enacted April 3, 1979). In one of the eight cases, Judge David
Nitafan of RTC Manila declared the law unconstitutional. Among the arguments against the
constitutionality of the law are a.) it is violative of the constitutional provision on non-
imprisonment due to debt, and b.) it impairs freedom of contract.
ISSUE: Whether or not BP 22 is constitutional.
HELD: Yes, BP 22 is constitutional.
The Supreme Court first discussed the history of the law. The SC explained how the law on
estafa was not sufficient to cover all acts involving the issuance of worthless checks; that in
estafa, it only punishes the fraudulent issuance of worthless checks to cover prior or
simultaneous obligations but not pre-existing obligations.
BP 22 is aimed at putting a stop to or curbing the practice of issuing checks that are worthless,
i.e. checks that end up being rejected or dishonored for payment. The practice is proscribed
by the state because of the injury it causes to public interests.
BP 22 is not violative of the constitutional prohibition against imprisonment for debt. The “debt”
contemplated by the constitution are those arising from contracts (ex contractu). No one is
going to prison for non-payment of contractual debts.
However, non-payment of debts arising from crimes (ex delicto) is punishable. This is precisely
why the mala prohibita crime of issuing worthless checks as defined in BP 22 was enacted by
Congress. It is a valid exercise of police power.
The enactment of BP 22 is a declaration by the legislature that, as a matter of public policy,

the making and issuance of a worthless check is deemed public nuisance to be abated by the
imposition of penal sanctions.
Checks are widely used due to the convenience it brings in commercial transactions and
confidence is the primary basis why merchants rely on it for their various commercial
undertakings. If such confidence is shaken, the usefulness of checks as currency substitutes
would be greatly diminished or may become nil. Any practice therefore tending to destroy that
confidence should be deterred for the proliferation of worthless checks can only create havoc
in trade circles and the banking community. Thus, the Congress, through their exercise of
police power, declared that the making and issuance of a worthless check is deemed a public
nuisance which can be abated by the imposition of penal sanctions.
The Supreme Court however also explained that (regardless of their previous explanation on
ex delicto debts) the non-payment of a debt is not the gravamen of the violations of BP 22.
The gravamen of the offense punished by BP 22 is the act of making and issuing a worthless
check or a check that is dishonored upon its presentation for payment. It is not the non-
payment of an obligation which the law punishes. The law is not intended or designed to
Indigestion – Pokémon Group - NIL

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coerce a debtor to pay his debt. The thrust of the law is to prohibit, under pain of penal
sanctions, the making of worthless checks and putting them in circulation. Because of its
deleterious effects on the public interest, the practice is proscribed by the law. The law
punishes the act not as an offense against property, but an offense against public order.
2. Far East Bank & Trust Company vs. Queremit; G.R. No. 148582, January 16, 2002
(Jerald)
Facts: Respondent Estrella Querimit opened a dollar savings account in FEBTC for which
she was issued 4 Certificates of Deposit. In 1989, respondent accompanied her husband to
the US for medical treatment. In 1993, her husband died and Estrella Querimit returned to the
Philippines. She went to petitioner FEBTC to withdraw her deposit but she was told that her
husband had withdrawn the money in deposit. Respondent demanded payment including
interests earned. Respondent filed a complaint upon refusal of petitioner to pay.
The trial court rendered its judgment in favor of respondent. Petitioner appealed but the CA
affirmed the trial court’s decision. It ruled that FEBTC failed to prove that the certificates of
deposit had been paid out of its funds.
Issue: Whether or not petitioner bank is liable in paying the certificates of deposit without the
production of such certificates.
Held: Yes. A certificate of deposit is defined as a written acknowledgement by a bank or

banker of the receipt of a sum of money on deposit which the bank or banker promises to pay
to the depositor, to the order of the depositor, or to some other person or his order, whereby
the relation of debtor and creditor between the bank and the depositor is created. The principle
that payment, in order to discharge a debt, must be made to someone authorized to receive it
is applicable to the payment of certificates of deposit.
In this case, the certificates of deposit were clearly marked payable to “bearer”, which means
– to the “person in possession of an instrument, document of title or security payable to bearer
or indorsed in blank”. Petitioner should not have paid respondent’s husband or any third party
without requiring the surrender of the certificates of deposit. The subject certificates of deposit
until now remain unendorsed, undelivered and not withdrawn by respondent Estrella Querimit.
Petitioner FEBTC thus failed to exercise that degree of diligence required by the nature of its
business.
3. Caltex [Phil.], Inc. vs. CA, 212 SCRA 448 (1992) (Jerald)
212 SCRA 448 – Mercantile Law – Negotiable Instruments Law – Negotiable Instruments in
General – Bearer Instrument – Certificate of Time Deposit
FACTS:
In 1982, Angel de la Cruz obtained certificates of time deposit (CTDs) from Security Bank and
Trust Company for the former’s deposit with the said bank amounting to P1,120,000.00. The
said CTDs are couched in the following manner:
This is to Certify that B E A R E R has deposited in this Bank the sum of _______ Pesos,
Philippine Currency, repayable to said depositor _____ days. after date, upon presentation
and surrender of this certificate, with interest at the rate of ___ % per cent per annum.
Angel de la Cruz subsequently delivered the CTDs to Caltex in connection with the purchase
of fuel products from Caltex.

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In March 1982, Angel de la Cruz advised Security Bank that he lost the CTDs. He executed
an affidavit of loss and submitted it to the bank. The bank then issued another set of CTDs. In
the same month, Angel de la Cruz acquired a loan of P875,000.00 and he used his time
deposits as collateral.
In November 1982, a representative from Caltex went to Security Bank to present the CTDs
(delivered by de la Cruz) for verification. Caltex advised Security Bank that de la Cruz delivered
Caltex the CTDs as security for purchases he made with the latter. Security Bank refused to
accept the CTDs and instead required Caltex to present documents proving the agreement
made by de la Cruz with Caltex. Caltex however failed to produce said documents.
In April 1983, de la Cruz’ loan with Security bank matured and no payment was made by de
la Cruz. Security Bank eventually set-off the time deposit to pay off the loan.
Caltex sued Security Bank to compel the bank to pay off the CTDs. Security Bank argued that
the CTDs are not negotiable instruments even though the word “bearer” is written on their face
because the word “bearer” contained therein refer to depositor and only the depositor can
encash the CTDs and no one else.
ISSUE: Whether or not the certificates of time deposit are negotiable.
HELD: Yes. The CTDs indicate that they are payable to the bearer; that there is an implication
that the depositor is the bearer but as to who the depositor is, no one knows. It does not say
on its face that the depositor is Angel de la Cruz. If it was really the intention of respondent
bank to pay the amount to Angel de la Cruz 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.
Thus, 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.
However, Caltex may not encash the CTDs because although the CTDs are bearer
instruments, a valid negotiation thereof for the true purpose and agreement between Caltex
and De la Cruz, requires both delivery and indorsement. As discerned from the testimony of
Caltex’ representative, the CTDs were delivered to them by de la Cruz merely for guarantee
or security and not as payment.
4. Government Service Insurance System vs. CA and Mr. and Mrs. Isabelo R. Racho,
170 SCRA 533 [1989] (Jerald)
(Negotiable Instruments – payable to order or to bearer)
Facts: Private respondents, Mr. and Mrs. Isabelo R. Racho, together with the spouses Mr.
and Mrs Flaviano Lagasca, executed a deed of mortgage, dated November 13, 1957, in favor
of petitioner Government Service Insurance System (hereinafter referred to as GSIS) and
subsequently, another deed of mortgage, dated April 14, 1958, in connection with two loans
granted by the latter in the sums of P 11,500.00 and P 3,000.00, respectively.
They also executed a 'promissory note" which states in part:
... for value received, we the undersigned ... JOINTLY, SEVERALLY and SOLIDARILY,
promise to pay the GOVERNMENT SERVICE INSURANCE SYSTEM the sum of . . . (P

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11,500.00) Philippine Currency, with interest at the rate of six (6%) per centum compounded
monthly payable in . . . (120)equal monthly installments of . . . (P 127.65) each.
On July 11, 1961, the Lagasca spouses executed an instrument denominated "Assumption of
Mortgage" under which they obligated themselves to assume the aforesaid obligation to the
GSIS and to secure the release of the mortgage covering that portion of the land belonging to
herein private respondents and which was mortgaged to the GSIS. This undertaking was not
fulfilled.
Upon failure of the mortgagors to comply with the conditions of the mortgage, GSIS
extrajudicially foreclosed the mortgage and caused the property to be sold at public auction.
More than 2 years after, Spouses Racho filed a complaint against GSIS and Spouses Lagasca
praying that the extrajudicial foreclosure be declared null and void. They allege that they
signed the mortgage contracts not as sureties for the Lagasca spouses but merely as
accommodation party.
Issue: WON the promissory note and mortgage deeds are negotiable.
Held: No. Section 29 of the NIL provides that an accommodation party is one who has signed
an instrument as maker, drawer, acceptor of indorser without receiving value therefore, but is
held liable on the instrument to a holder for value although the latter knew him to be only an
Both parties appears to be misdirected and their reliance misplaced. The promissory note,
as well as the mortgage deeds subject of this case, are clearly not negotiable instrument
because it did not comply with the fourth requisite to be considered as such under Sec. 1 of
the NIL – they are neither payable to order nor to bearer. The note is payable to a specified
party, the GSIS. Absent the aforesaid requisite, the provisions of Act No. 2031 would not
apply; governance shall be afforded, instead, by the provisions of the Civil Code and special
laws on mortgages.
5. Salas vs. CA, et al., 181 SCRA 296 [1990] (Jerald)
FACTS:
on February 6, 1980, Juanita Salas (hereinafter referred to as petitioner) bought a motor
vehicle from the Violago Motor Sales Corporation (VMS for brevity) for P58,138.20 as
evidenced by a promissory note.
P58,138.20
San Fernando, Pampanga, Philippines
Feb. 11, 1980
For value received, I/We jointly and severally, promise to pay Violago Motor Sales Corporation
or order, at its office in San Fernando, Pampanga, the sum of FIFTY EIGHT THOUSAND ONE
HUNDRED THIRTY EIGHT & 201/100 ONLY (P58,138.20) Philippine currency, which amount
includes interest at 14% per annum based on the diminishing balance, the said principal sum,
to be payable, without need of notice or demand, in installments of the amounts following and
at the dates hereinafter set forth, to wit: P1,614.95 monthly for "36" months due and payable
on the 21st day of each month starting March 21, 1980 thru and inclusive of February 21,
1983. P_________ monthly for ______ months due and payable on the ______ day of each
month starting _____198__ thru and inclusive of _____, 198________ provided that interest
at 14% per annum shall be added on each unpaid installment from maturity hereof until fully
paid.
xxx xxx xxx

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Maker; Co-Maker:
(SIGNED) JUANITA SALAS
This note was subsequently endorsed to Filinvest Finance & Leasing Corporation (hereinafter
referred to as private respondent) which financed the purchase.
Petitioner defaulted in her installments beginning May 21, 1980 allegedly due to a discrepancy
in the engine and chassis numbers of the vehicle delivered to her and those indicated in the
sales invoice, certificate of registration and deed of chattel mortgage, which fact she
discovered when the vehicle figured in an accident on 9 May 1980.
This failure to pay prompted private respondent to initiate Civil Case No. 5915 for a sum of
money against petitioner before the Regional Trial Court of San Fernando, Pampanga.
RTC ordered the petitioner to pay private respondent, which was affirmed by CA; hence this
petition.
ISSUE: Whether the promissory note in question is a negotiable instrument which will bar
completely all the available defenses of the petitioner against private respondent.
RULING: A careful study of the questioned promissory note shows that it is a negotiable
instrument, having complied with the requisites under the law as follows: [a] it is in writing and
signed by the maker Juanita Salas; [b] it contains an unconditional promise to pay the amount
of P58,138.20; [c] it is payable at a fixed or determinable future time which is "P1,614.95
monthly for 36 months due and payable on the 21st day of each month starting March 21,
1980 thru and inclusive of Feb. 21, 1983;" [d] it is payable to Violago Motor Sales Corporation,
or order and as such, [e] the drawee is named or indicated with certainty.
It was negotiated by indorsement in writing on the instrument itself payable to the Order of
Filinvest Finance and Leasing Corporation and it is an indorsement of the entire instrument.
Under the circumstances, there appears to be no question that Filinvest is a holder in due
course, having taken the instrument under the following conditions: [a] it is complete and
regular upon its face; [b] it became the holder thereof before it was overdue, and without notice
that it had previously been dishonored; [c] it took the same in good faith and for value; and [d]
when it was negotiated to Filinvest, the latter had no notice of any infirmity in the instrument
or defect in the title of VMS Corporation.
Accordingly, respondent corporation holds the instrument free from any defect of title of prior
parties, and free from defenses available to prior parties among themselves, and may enforce
payment of the instrument for the full amount thereof. This being so, petitioner cannot set up
against respondent the defense of nullity of the contract of sale between her and VMS.
6. Banco de Oro vs. Equitable Bank. 157 SCRA 188 (1988) (Jerald)
FACTS: It appears that some time in March, April, May and August 1983, plaintiff through its
Visa Card Department, drew six crossed Manager's check (Exhibits "A" to "F", and herein
referred to as Checks) having an aggregate amount of Forty Five Thousand Nine Hundred
and Eighty Two & 23/100 (P45,982.23) Pesos and payable to certain member establishments
of Visa Card. Subsequently, the Checks were deposited with the defendant to the credit of its
depositor, a certain Aida Trencio.
Following normal procedures, and after stamping at the back of the Checks the usual
endorsements. All prior and/or lack of endorsement guaranteed the defendant sent the checks

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for clearing through the Philippine Clearing House Corporation (PCHC). Accordingly, plaintiff
paid the Checks; its clearing account was debited for the value of the Checks and defendant's
clearing account was credited for the same amount,
Thereafter, plaintiff discovered that the endorsements appearing at the back of the Checks
and purporting to be that of the payees were forged and/or unauthorized or otherwise belong
to persons other than the payees.
Pursuant to the PCHC Clearing Rules and Regulations, plaintiff presented the Checks directly
to the defendant for the purpose of claiming reimbursement from the latter. However,
defendant refused to accept such direct presentation and to reimburse the plaintiff for the value
of the Checks; hence, this case.
ISSUE: Were the subject checks non-negotiable and if not, does it fall under the ambit of the
power of the PCHC?
RULING: In presenting the Checks for clearing and for payment, the defendant made an
express guarantee on the validity of "all prior endorsements." Thus, stamped at the back of
the checks are the defendant's clear warranty; ALL PRIOR ENDORSEMENTS AND/OR LACK
OF ENDORSEMENTS GUARANTEED. Without such warranty, plaintiff would not have paid
on the checks.
The petitioner having stamped its guarantee of "all prior endorsements and/or lack of
endorsements" is now estopped from claiming that the checks under consideration are not
negotiable instruments. The checks were accepted for deposit by the petitioner stamping
thereon its guarantee, in order that it can clear the said checks with the respondent bank. By
such deliberate and positive attitude of the petitioner it has for all legal intents and purposes
treated the said cheeks as negotiable instruments and accordingly assumed the warranty of
the endorser when it stamped its guarantee of prior endorsements at the back of the checks.
It led the said respondent to believe that it was acting as endorser of the checks and on the
strength of this guarantee said respondent cleared the checks in question and credited the
account of the petitioner. Petitioner is now barred from taking an opposite posture by claiming
that the disputed checks are not negotiable instrument.
A commercial bank cannot escape the liability of an endorser of a check and which may turn
out to be a forged endorsement. Whenever any bank treats the signature at the back of the
checks as endorsements and thus logically guarantees the same as such there can be no
doubt said bank has considered the checks as negotiable.
7. Rivera vs. Spouses Chua; G.R. No. 184458, January 14, 2015 (Jerald)
FACTS: The parties to this case are long standing friends who have known each other since
1973. On February of 1995, Rivera obtained a loan from Spouses Chua for an amount of
P120,000.00, as evidenced by a promissory note payable on December 31, 1995.
120,000.00
FOR VALUE RECEIVED, I, RODRIGO RIVERA promise to pay spouses SALVADOR C.

CHUA and VIOLETA SY CHUA, the sum of One Hundred Twenty Thousand Philippine
Currency (₱120,000.00) on December 31, 1995.
It is agreed and understood that failure on my part to pay the amount of (120,000.00) One
Hundred Twenty Thousand Pesos on December 31, 1995. (sic) I agree to pay the sum
equivalent to FIVE PERCENT (5%) interest monthly from the date of default until the entire
obligation is fully paid for.

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Should this note be referred to a lawyer for collection, I agree to pay the further sum equivalent
to twenty percent (20%) of the total amount due and payable as and for attorney’s fees which
in no case shall be less than ₱5,000.00 and to pay in addition the cost of suit and other
incidental litigation expense.
Any action which may arise in connection with this note shall be brought in the proper Court
of the City of Manila.
Manila, February 24, 1995[.]

(SGD.) RODRIGO RIVERA
In October 1998, Rivera, as payee, issued as partial payment for his loan, a check drawn
against his current account with Phil. Commercial International Bank (PCIB) in the amount of
P25,000.00. In December 1998, the Spouses again received a check, presumably issued by
Rivera that was blank as to payee and amount. The check was issued in the amount of
P133,454.00 with “cash” as payee. Purportedly, both checks were partial payments for
Rivera’s loan.
Upon presentment for payment, however, the two checks were dishonored for the reason
“account closed.” Despite repeatedly demanding payment from Rivera, the latter refused to
pay. As such, the Spouses filed a suit against him before the MeTC. For his defense, Rivera
claimed that the Promissory Note was forged, and denied his indebtedness thereunder. The
spouses, on the other hand, submitted the testimony of an NBI Document Examiner who
concluded that the signature on the promissory note was indeed Rivera’s. After trial, the MeTC
ruled in favour of the Spouses Chua. The decision was affirmed by both the RTC and the CA.
ISSUE: Whether or not the subject promissory note is negotiable and the provisions of the NIL
will apply.
RULING: The subject promissory note is not a negotiable instrument and the provisions of the
NIL do not apply to this case.
The Promissory Note in this case is made out to specific persons, herein respondents, the
Spouses Chua, and not to order or to bearer, or to the order of the Spouses Chua as payees.
However, even if Rivera’s Promissory Note is not a negotiable instrument and therefore
outside the coverage of Section 70 of the NIL which provides that presentment for payment is
not necessary to charge the person liable on the instrument, Rivera is still liable under the
terms of the Promissory Note that he issued.
The Promissory Note is unequivocal about the date when the obligation falls due and becomes
demandable—31 December 1995. As of 1 January 1996, Rivera had already incurred in delay
when he failed to pay the amount of ₱120,000.00 due to the Spouses Chua on 31 December
1995 under the Promissory Note.
8. Philippine National Bank vs. Rodriguez, et al., 566 SCRA 513 [2008] (Jerald)
FACTS: Respondents-Spouses Erlando and Norma Rodriguez were clients of petitioner

Philippine National Bank (PNB), Amelia Avenue Branch, Cebu City. The spouses were
engaged in the informal lending business. In line with their business, they had a discounting
arrangement with the Philnabank Employees Savings and Loan Association (PEMSLA), an
association of PNB employees. Naturally, PEMSLA was likewise a client of PNB Amelia
Avenue Branch. The association maintained current and savings accounts with petitioner
bank.

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PEMSLA regularly granted loans to its members. Spouses 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 their own checks issued in
the name of the members.
It was PEMSLA’s policy not to approve applications for loans of members with outstanding
debts. To subvert this policy, some PEMSLA officers devised a scheme to obtain additional
loans despite their outstanding loan accounts. They took out loans in the names of unknowing
members, without the knowledge or consent of the latter. The PEMSLA checks issued for
these loans were then given to the spouses for rediscounting. The officers carried this out by
forging the indorsement of the named payees in the checks.
In return, the spouses issued their personal checks (Rodriguez checks) in the name of the
members and delivered the checks to an officer of PEMSLA. The PEMSLA checks, on the
other hand, were deposited by the spouses 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 November 1998 to February 1999, the spouses issued sixty nine (69) checks,
in the total amount of P2,345,804.00. These were payable to forty seven (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 incurred losses from the rediscounting
transactions.
ISSUE: Whether the subject checks are payable to order or to bearer and who bears the loss?
RULING: 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.
The distinction between bearer and order instruments lies in their manner of negotiation.
Under Section 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.
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 payee may nevertheless be considered as a
bearer instrument if it is payable to the order of a fictitious or non-existing person, and such
fact is known to the person making it so payable. 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 non-existent.
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.

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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.
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 bank’s 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.
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.
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.
9. People vs. Wagas, 705 SCRA 17 [2013] (Kat)
Doctrine: The check delivered to was made payable to cash. Under the Negotiable
Instruments Law, this type of check was payable to the bearer and could be negotiated by
mere delivery without the need of an indorsement.
Facts: Alberto Ligaray (Ligaray) transacted business with Gilbert Wagas (Wagas) in which the
latter placed an order of 200 bags of rice over the telephone. Ligaray released the goods to
Wagas and at the same time received the a check for P200,000 payable to cash. Upon
depositing the said check, the same was dishonoured because of insufficient funds. Ligaray
demanded from Wagas for the payment of the check but the latter did not pay the former.
Wagas was charged with estafa in an information stating that he issued a check in the amount
of P200,000; however, when the check was presented for encashment, it was dishonoured
because it was “drawn against insufficient funds.” Despite of notice and several demands upon
Wagas to make good said check, he failed to do so.
On arraignment, Wagas pleaded not guilty. On pre-trial, Wagas admitted that the check
alleged in the information had been dishonoured due to insufficient funds. Trial ensued and
on cross examination, Ligaray admitted that he did not personally meet Wagas because they
transacted through telephone only; and he release the 200 bags of rice directly to Robert
Cañada (Cañada), the brother-in-law of Wagas, who signed the delivery receipt upon receiving
the rice. In his defense, Wagas admitted that he issued the check to Cañada for the payment
of Cañada’s property and denied he had any dealings with Ligaray. The trial court convicted
Wagas of the crime charged against him. After denial of Wagas’ motion for new trial/
consideration, he appealed directly to the Supreme Court.
Issue: Did the prosecution establish beyond reasonable doubt the identity of the perpetrator
of the crime?

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Ruling: No, the prosecution was not able to establish beyond reasonable doubt the identity of
the perpetrator of the crime.
The prosecution established that Ligaray had released the goods to Cañada because of the
postdated check the latter had given to him; and that the check was dishonoured when
resented for payment because of the insufficiency of funds.
In every criminal prosecution, the identity of the offender must be established by proof beyond
reasonable doubt. However, in this case, the prosecution did not establish beyond reasonable
doubt that it was Wagas who had defrauded Ligaray by issuing the check..
First, even after the dishonour of the check, Ligaray expressly admitted that he did not
personally meet the person with whom he was transacting over the telephone.
Second, the check was payable to cash. This type of check was payable to the bearer and
could be negotiated by mere delivery without the need of an indorsement.
Third, Ligaray admitted that it was Cañada who received the rice from and who delivered the
check to him Considering that the records are bereft of any showing that Cañada was then
acting in behalf of Wagas, the trial court had no factual and legal bases to conclude and find
that Cañada had been an agent of Wagas.
Finally, Ligaray’s declaration that it was Wagas who had transacted with him over the
telephone was not reliable because the same should be authenticated first before it could be
received in evidence.
A fundamental rule in criminal procedure that the State carries the onus probandi in
establishing the guilt of the accused beyond a reasonable doubt. The State has the burden of
proof to show: (1) the correct identification of the author of the crime, and (2) the actuality of
the commission of the offence with the participation of the accused. The accused, being
presumed innocent, carries no burden of proof on his shoulders. For this reason, the first duty
of the Prosecution is not to prove the crime but to prove the identity of the criminal. For even
if the commission of the crime can be established, without competent proof of the identity of
the accused beyond reasonable doubt, there can be no conviction.
10. Borromeo v. Sun, 317 SCRA 176 (Yana)
Facts: Amancio Sun brought before the then Court of the First Instance of Rizal an action
against Lourdes O. Borromeo (in her capacity as corporate secretary), Federico O. Borromeo
and Federico O. Borromeo (F.O.B.), Inc., to compel the transfer to his name in the books of
F.O.B., Inc., shares of stock registered in the name of Federico O. Borromeo, as evidenced
by a Deed of Assignment. Private respondent averred that all the shares of stock of F.O.B.
Inc. registered in the name of Federico O. Borromeo belong to him, as the said shares were
placed in the name of Federico O. Borromeo 'only to give the latter personality and importance
in the business world.' On the other hand, petitioner Federico O. Borromeo disclaimed any
participation in the execution of the Deed of Assignment, theorizing that his supposed
signature thereon was forged. LL
The lower court of origin came out with a decision declaring the questioned signature on
subject Deed of Assignment as the genuine signature of Federico O. Borromeo. After
considering the testimonies of the two expert witnesses for the parties and after a careful and
judicious study and analysis of the questioned signature as compared to the standard
signatures. On appeal by petitioners, the Court of Appeals adjudged as forgery the
controverted signature of Federico O. Borromeo. Amancio Sun interposed a motion for
reconsideration of the said decision, contending that Segundo Tabayoyong, petitioners' expert

11
witness, is not a credible witness. Acting on the aforesaid motion for reconsideration, the Court
of Appeals reconsidered its decision.
Issue: WON the signature of Frederico O. Borromeo in the Deed of Assignments is a genuine
signature.
Held: YES
Pertinent records reveal that the subject Deed of Assignment is embodied in blank form for
the assignment of shares with authority to transfer such shares in the books of the corporation.
It was clearly intended to be signed in blank to facilitate the assignment of shares from one
person to another at any future time. This is similar to Section 14 of the Negotiable Instruments
Law where the blanks may be filled up by the holder, the signing in blank being with the
assumed authority to do so. Indeed, as the shares were registered in the name of Federico O.
Borromeo just to give him personality and standing in the business community, private
respondent had to have a counter evidence of ownership of the shares involved. Thus, the
execution of the deed of assignment in blank, to be filled up whenever needed. The same
explains the discrepancy between the date of the deed of assignment and the date when the
signature was affixed thereto.
While it is true that the 1974 standard signature of Federico O. Borromeo is to the naked eye
dissimilar to his questioned signature circa 1954-1957, which could have been caused by
sheer lapse of time, Col. Jose Fernandez, respondent's expert witness, found the said
signatures similar to each other after subjecting the same to stereomicroscopic examination
and analysis because the intrinsic and natural characteristic of Federico O. Borromeo's
handwriting were present in all the exemplar signatures used by both Segundo Tabayoyong
and Col. Jose Fernandez.
11. Development Bank of Rizal v. Wei, et al., 219 SCRA 736 (Edward)
FACTS: Sima Wei executed a promissory note in consideration of a loan secured from
DBR in the amount of P1,820,000. Sima Wei was able to pay partially for the loan but failed
to pay the balance. Subsequently, Sima Wei issued two crossed checks payable to DBR.
These two checks however were not delivered to the DBR but instead came into the
possession of respondent Lee Kian Huat, who deposited the checks without DBR's
indorsement to the account of respondent Plastic Corporation with Producers Bank. Inspite
of the fact that the checks were crossed and payable to DBR and bore no indorsement of the
latter, the Branch Manager of Producers Bank authorized the acceptance of the checks for
deposit and credited them to the account of said Plastic Corporation. DBR instituted actions
against the Sima Wei and the other defendants.
The trial court dismissed the case stating that DBR had no cause of action against the
defendants-respondents.
CA affirmed this decision.
ISSUE: Whether petitioner Bank has a cause of action
RULING: NO. A negotiable instrument, of which a check is, is not only a written evidence of a
contract right but is also a species of property. Just as a deed to a piece of land must be
delivered in order to convey title to the grantee, so must a negotiable instrument be
delivered to the payee in order to evidence its existence as a binding contract.

12
Section 16 provides that every contract on a negotiable instrument is incomplete and

revocable until delivery of the instrument for the purpose of giving effect thereto. Thus,
the payee of the negotiable instrument acquires no interest with respect thereto
until its delivery to him. Without the initial delivery of the instrument from the drawer to the
payee, there can be no liability on the instrument. Moreover, such delivery must be intended
to give effect to the instrument.
Since petitioner Bank never received the checks on which it based its action against
said respondents, it never owned them (the checks) nor did it acquire any interest
therein. Thus, anything which the respondents may have done with respect to said checks
could not have prejudiced petitioner Bank. It had no right or interest in the checks which could
have been violated by said respondents. Petitioner Bank has therefore no cause of action
against said respondents, in the alternative or otherwise. If at all, it is Sima Wei, the drawer,
who would have a cause of action against her co-respondents, if the allegations in the
complaint are found to be true.
Note: Petitioner however has a right of action against Sima Wei for the balance due on the
promissory note.
12. De La Victoria v. Burgos; G.R. No. 111190, June 27, 1995 (Jued)
FACTS
Private respondent filed a complaint for damages against certain Fiscal Mabanto, Jr., whose
judgment is favorable to the former. The decision became final and executory and notice of
garnishment was served on petitioner to withhold Mabanto’s salary checks.
ISSUES
(a) Whether or not a check in the hands of the drawer is already owned by the payee.
(b) Whether or not an undelivered salary check may already transfer title to the payee.
RULING
(a) NO. Section 16 of the Negotiable Instruments Law is clear that “…where the instrument is
no longer in the possession of a party whose signature appears thereon, a valid and intentional
delivery by him is presumed until the contrary is proved.” Proof to the contrary is its own finding
that the checks were in the custody of petitioner. In this case, as said checks had not yet been
delivered to Mabanto, Jr., they did not belong to him and still had the character of public funds.
(b) NO. Under Section 16 of the Negotiable Instruments Law, every contract on a negotiable
instrument is incomplete and revocable until delivery of the instrument for the purpose of giving
effect thereto. As ordinarily understood, delivery means the transfer of the possession of the
instrument by the maker or drawer with intent to transfer title to the payee and recognize him
as the holder thereof. Here, there is no delivery to speak of as the salary check is not yet in
the hands of Mabanto Jr. as the holder.
13. Lim v. CA; G.R. No. 107898, December 19, 1995 (Alcheon)
Facts:
Manuel Lim and Rosita Lim are the president and treasurer, respectively, of Rigi Bilt Industries,
Inc. (RIGI). RIGI had been transacting business with LINTON for years, the latter supplying
the former with steel plates, steel bars, flat bars and purlin sticks which it uses in the
fabrication, installation and building of steel structures.

13
Lims ordered 100 pieces of mild steel plates worth from LINTON which were delivered on the
same day at their place of business. To pay LINTON for the delivery the Lims issued
SOLIDBANK Check postdated 3 September 1983 in the amount of P51,800.00.1
On 30 May 1983 the Lims ordered another 65 pieces of mild steel plates worth P63,455.00
from LINTON which were delivered at their place of business on the same day. They issued
as payment SOLIDBANK Check in the amount of P63,455.00 postdated 20 August 1983.2
The Lim spouses also ordered 2,600 "Z" purlins worth P241,800.00 which were delivered to
them.To pay for the deliveries, they issued seven SOLIDBANK five. checks
When those seven (7) checks were deposited with the Rizal Commercial Banking Corporation
they were dishonored for "insufficiency of funds" with the additional notation "payment
stopped" stamped thereon. Despite demand Manuel and Rosita refused to make good the
checks or pay the value of the deliveries.
Manuel Lim admitted having issued the seven (7) checks in question to pay for deliveries
made by LINTON but denied that his company's account had insufficient funds to cover the
amounts of the checks. He presented the bank ledger showing a balance of P65,752.75. Also,
he claimed that he ordered SOLIDBANK to stop payment because the supplies delivered by
LINTON were not in accordance with the specifications in the purchase orders.
RTC held both accused guilty of estafa and violation of B.P. Blg. 22
Court of Appeals acquitted accused-appellants of estafa on the ground that indeed the checks
were not made in payment of an obligation contracted at the time of their issuance. However
it affirmed the finding of the trial court that they were guilty of having violated B.P. Blg. 22.
Petitioners were charged of violating B.P. No. 22 by issuing worthless checks in

Navotas, which were dishonored in Kalookan City.
Issue: Whether or not the place of “issue” should be the place where checks were dishonored.
Held: No. In determining proper venue in these cases, the following acts material and
essential to each crime and requisite to its consummation must be considered: (a) the seven
(7) checks were issued to LINTON at its place of business in Balut, Navotas; b) they
were delivered to LINTON at the same place; (c) they were dishonored in Kalookan City;
and, (d) petitioners had knowledge of the insufficiency of their funds in SOLIDBANK at the
time the checks were issued. Since there is no dispute that the checks were dishonored in
Kalookan City, it is no longer necessary to discuss where the checks were dishonored.
Under Sec. 191 of the Negotiable Instruments Law the term "issue" means the first delivery of
the instrument complete in form to a person who takes it as a holder. On the other hand, the
term "holder" refers to the payee or indorsee of a bill or note who is in possession of it or the
bearer thereof.
Although LINTON sent a collector who received the checks from petitioners at their
place of business in Kalookan City, they were actually issued and delivered to LINTON
at its place of business in Balut, Navotas. The receipt of the checks by the collector of
LINTON is not the issuance and delivery to the payee in contemplation of law. The
collector was not the person who could take the checks as a holder, i.e., as a payee or
indorsee thereof, with the intent to transfer title thereto. Neither could the collector be deemed
an agent of LINTON with respect to the checks because he was a mere employee.
Section 2 of B.P. Blg. 22 establishes a prima facie evidence of knowledge of insufficient funds.

14
The prima facie evidence has not been overcome by petitioners in the cases before us
because they did not pay LINTON the amounts due on the checks; neither did they make
arrangements for payment in full by the drawee bank within five (5) banking days after
receiving notices that the checks had not been paid by the drawee bank.
Consequently, venue or jurisdiction lies either in the Regional Trial Court of Kalookan City or
Malabon. Moreover, we ruled in the same Grospe and Manzanilla cases as reiterated in Lim
v. Rodrigo30 that venue or jurisdiction is determined by the allegations in the Information. The
Informations in the cases under consideration allege that the offenses were committed in the
Municipality of Navotas which is controlling and sufficient to vest jurisdiction upon the Regional
Trial Court of Malabon.31
We therefore sustain likewise the conviction of petitioners by the Regional Trial Court of
Malabon for violation of B.P. Blg.
14. RCBC v. Hi-Tri Development Corporation, et al.; G.R. No. 192413, June 13, 2012
(JB)
Facts: Luz Bakunawa and her husband Manuel, now deceased (Spouses Bakunawa) are
registered owners of six (6) parcels of land covered by TCT Nos. 324985 and 324986 of the
Quezon City Register of Deeds, and TCT Nos. 103724, 98827, 98828 and 98829 of the
Marikina Register of Deeds. These lots were sequestered by the Presidential Commission
on Good Government [(PCGG)]. Sometime in 1990, a certain Teresita Millan (Millan),
through her representative, Jerry Montemayor, offered to buy said lots for ₱6,724,085.71,
with the promise that she will take care of clearing whatever preliminary obstacles there may
be to effect a completion of the sale. The Spouses Bakunawa gave to Millan the Owners
Copies of said TCTs and in turn, Millan made a downpayment of ₱1,019,514.29 for the
intended purchase. However, for one reason or another, Millan was not able to clear said
obstacles. As a result, the Spouses Bakunawa rescinded the sale and offered to return to
Millan her downpayment of ₱1,019,514.29. However, Millan refused to accept back the
₱1,019,514.29 down[]payment. Consequently, the Spouses Bakunawa, through their
company, the Hi-Tri Development Corporation (Hi-Tri) took out on October 28, 1991, a
Managers Check from RCBC-Ermita in the amount of ₱1,019,514.29, payable to Millan’s
company Rosmil Realty and Development Corporation (Rosmil) c/o Teresita Millan and used
this as one of their basis for a complaint against Millan and Montemayor which they filed with
the Regional Trial Court of Quezon City, Branch 99. On January 31, 2003, during the
pendency of the above mentioned case and without the knowledge of [Hi-Tri and Spouses
Bakunawa], RCBC reported the ₱1,019,514.29-credit existing in favor of Rosmil to the
Bureau of Treasury as among its unclaimed balances as of January 31, 2003. Allegedly, a
copy of the Sworn Statement executed by Florentino N. Mendoza, Manager and Head of
RCBCs Asset Management, Disbursement & Sundry Department (AMDSD) was posted
within the premises of RCBC-Ermita.
Issue: Whether or not the escheat of the account in RCBC is proper.
Held: No. An ordinary check refers to a bill of exchange drawn by a depositor (drawer) on a
bank (drawee), requesting the latter to pay a person named therein (payee) or to the order
of the payee or to the bearer, a named sum of money. The issuance of the check does not
of itself operate as an assignment of any part of the funds in the bank to the credit of the
drawer. Here, the bank becomes liable only after it accepts or certifies the check. After the
check is accepted for payment, the bank would then debit the amount to be paid to the holder
of the check from the account of the depositor-drawer.
There are checks of a special type called managers or cashiers checks. These are bills of
exchange drawn by the banks manager or cashier, in the name of the bank, against the bank
itself. Typically, a managers or a cashiers check is procured from the bank by allocating a
particular amount of funds to be debited from the depositors account or by directly paying or

15
depositing to the bank the value of the check to be drawn. Since the bank issues the check
in its name, with itself as the drawee, the check is deemed accepted in advance. Ordinarily,
the check becomes the primary obligation of the issuing bank and constitutes its written
promise to pay upon demand.
Nevertheless, the mere issuance of a managers check does not ipso facto work as an
automatic transfer of funds to the account of the payee. In case the procurer of the managers
or cashiers check retains custody of the instrument, does not tender it to the intended payee,
or fails to make an effective delivery, we find the following provision on undelivered
instruments under the Negotiable Instruments Law applicable:
Sec. 16. Delivery; when effectual; when presumed. Every contract on a negotiable
instrument is incomplete and revocable until delivery of the instrument for the purpose
of giving effect thereto. As between immediate parties and as regards a remote party
other than a holder in due course, the delivery, in order to be effectual, must be made
either by or under the authority of the party making, drawing, accepting, or indorsing,
as the case may be; and, in such case, the delivery may be shown to have been
conditional, or for a special purpose only, and not for the purpose of transferring the
property in the instrument. But where the instrument is in the hands of a holder in due
course, a valid delivery thereof by all parties prior to him so as to make them liable to
him is conclusively presumed. And where the instrument is no longer in the possession
of a party whose signature appears thereon, a valid and intentional delivery by him is
presumed until the contrary is proved.
Since there was no delivery, presentment of the check to the bank for payment did not occur.
An order to debit the account of respondents was never made. In fact, petitioner confirms
that the Managers Check was never negotiated or presented for payment to its Ermita
Branch, and that the allocated fund is still held by the bank. As a result, the assigned fund is
deemed to remain part of the account of Hi-Tri, which procured the Managers Check. The
doctrine that the deposit represented by a managers check automatically passes to the
payee is inapplicable, because the instrument although accepted in advance remains
undelivered. Hence, respondents should have been informed that the deposit had been left
inactive for more than 10 years, and that it may be subjected to escheat proceedings if left
unclaimed.
15. The Philippine Bank of Commerce v. Aruego; G.R. Nos. L-25836-37, January 31,
1981 (Kat)
G.R. No. L-25836-37 January 31, 1981

Fernandez, J.
Doctrines:
1. An accommodation party is one who has signed the instrument as maker, drawer,
indorser, without receiving value therefor and for the purpose of lending his name to some
other person. Such person is liable on the instrument to a holder for value, notwithstanding
such holder, at the time of the taking of the instrument knew him to be only an
accommodation party. One cannot be an accommodation party if he signs as a
drawee/acceptor.
2. As long as a commercial paper conforms with the definition of a bill of exchange, that
paper is considered a bill of exchange. The nature of acceptance is important only in the
determination of the kind of liabilities of the parties involved, but not in the determination of
whether a commercial paper is a bill of exchange or not.

16
Facts: Plaintiff instituted against Aruego a case for the recovery of Php. 35,000.00 with daily
interest plus attorney’s fees. The sum sought to be recovered represents the cost of the
printing of “World Current Events,” a periodical published by the defendant. To facilitate the
payment of the printing the defendant obtained a credit accommodation from the plaintiff.
Thus, for every printing, the printer, Encal Press and Photo Engraving (EPPE), collected the
cost of printing by drawing a draft against the plaintiff, said draft being sent later to the
defendant for acceptance. As an added security for the payment of the amounts advanced
to Encal Press and Photo-Engraving, the plaintiff bank also required defendant Aruego to
execute a trust receipt in favor of said bank wherein said defendant undertook to hold in trust
for plaintiff the periodicals and to sell the same with the promise to turn over to the plaintiff
the proceeds of the sale of said publication to answer for the payment of all obligations
arising from the draft.
Defendant argued that he is an accommodating party hence shall be liable only secondarily.
The defendant also contends that the drafts signed by him were not really bills of exchange
but mere pieces of evidence of indebtedness because payments were made before
acceptance.
Issues:
1. Whether or not the defendant is an accommodation party-- NO
2. Whether or not the drafts signed were bills of exchange-- YES
Held:
1. No. Section 29 of the Negotiable Instruments Law (NIL) provides:
An accommodation party is one who has signed the instrument as maker, drawer, indorser,
without receiving value therefor and for the purpose of lending his name to some other
person. Such person is liable on the instrument to a holder for value, notwithstanding such
holder, at the time of the taking of the instrument knew him to be only an accommodation
party.
In lending his name to the accommodated party, the accommodation party is in effect a
surety for the latter. He lends his name to enable the accommodated party to obtain credit
or to raise money. He receives no part of the consideration for the instrument but assumes
liability to the other parties thereto because he wants to accommodate another.
In the instant case, the defendant signed as a drawee/acceptor. Under the Negotiable
Instrument Law, a drawee is primarily liable. Thus, the defendant should not have signed as
an acceptor/drawee. In doing so, he became primarily and personally liable for the drafts.
2. Yes. Pursuant to Section 126 of the NIL, a bill of exchange is an unconditional order in
writing addressed by one person to another, signed by the person giving it, requiring the
person to whom it is addressed to pay on demand or at a fixed or determinable future time
a sum certain in money to order or to bearer.
As long as a commercial paper conforms with the definition of a bill of exchange, that paper
is considered a bill of exchange. The nature of acceptance is important only in the
determination of the kind of liabilities of the parties involved, but not in the determination of
whether a commercial paper is a bill of exchange or not.
16. Associated Bank v. Court of Appeals, et al.; G.R. No. 107382, January 31, 1996
(Yana)

17
DOCTRINE: When a check is deposited to the collecting bank, it takes a risk on its depositor.
It is only logical that this bank (Associated Bank) be held accountable for checks deposited
by its customers. It is important to mention that Payee whose signature was forged may
directly proceed against the collecting bank. However, the drawer cannot opt to recover from
the collecting bank. There is no privity of contract between the drawer and the collecting
bank.
FACTS: The Province of Tarlac maintains a current account with the Philippine National Bank
(PNB Tarlac Branch) where the provincial funds are deposited. Portions of the funds were
allocated to the Concepcion Emergency Hospital. Checks were issued to it and were received
by the hospital’s administrative officer and cashier (Fausto Pangilinan). Pangilinan, after
forging the signature of the hospital’s chief (Adena Canlas), was able to deposit the checks in
his personal account with the help of Associated Bank. All the checks bore the stamp “All prior
endorsement guaranteed Associated Bank.” Through post-audit, the province discovered that
the hospital did not receive several allotted checks, and sought the restoration of the debited
amounts from PNB. In turn, PNB demanded reimbursement from Associated Bank. Both
banks resisted payment. Hence, the present action.
ISSUE: W/N PNB and Associated Bank should be held liable
HELD: YES. PARTIALLY GRANTED. The collecting bank, Associated Bank, shall be liable to
PNB for 50% of P203,300
Sec. 23. FORGED SIGNATURE, EFFECT OF. — When a signature is forged or made without
authority of the person whose signature it purports to be, it is wholly inoperative, and no right
to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against
any party thereto, can be acquired through or under such signature unless the party against
whom it is sought to enforce such right is precluded from setting up the forgery or want of
authority.
■ General Rule
■ A forged signature, whether it be that of the drawer or the payee, is wholly
inoperative and no one can gain title to the instrument through it.
■ A person whose signature to an instrument was forged was never a party
and never consented to the contract which allegedly gave rise to such
instrument.
■ Exemption: where "a party against whom it is sought to enforce a right is

precluded from setting up the forgery or want of authority."
■ Parties who warrant or admit the genuineness of the signature in question
and those who, by their acts, silence or negligence are estopped from
setting up the defense of forgery, are precluded from using this defense.
■ Indorsers, persons negotiating by delivery and acceptors are warrantors of
the genuineness of the signatures on the instrument
■ In bearer instruments, the signature of the payee or holder is unnecessary to pass

title to the instrument. Hence, when the indorsement is a forgery, only the person
whose signature is forged can raise the defense of forgery against a holder in due
course.
■ In order instruments, the signature of its rightful holder (here, the payee hospital)
is essential to transfer title to the same instrument. When the holder's indorsement
is forged all parties prior to the forgery may raise the real defense of forgery against
all parties subsequent thereto.
■ An indorser of an order instrument warrants "that the instrument is genuine and in
all respects what it purports to be; that he has a good title to it; that all prior parties

18
had capacity to contract; and that the instrument is at the time of his indorsement
valid and subsisting
■ A collecting bank where a check is deposited and which indorses the check upon
presentment with the drawee bank = indorser
■ So even if the indorsement on the check deposited by the banks's client is forged,
the collecting bank is bound by his warranties as an indorser and cannot set up
the defense of forgery as against the drawee bank.
■ The bank on which a check is drawn, known as the drawee bank, is under strict
liability to pay the check to the order of the payee.
■ The drawer's instructions are reflected on the face and by the terms of the
check.
■ Payment under a forged indorsement is not to the drawer's order. then is
that the drawee bank may not debit the drawer's account and is not entitled
to indemnification from the drawer. 25 The risk of loss must perforce fall on
the drawee bank.
■ General Rule: drawee bank may not debit the drawer's account and is not entitled
to indemnification from the drawer - risk of loss must perforce fall on the drawee
bank
■ Exemption:
■ If the drawee bank can prove a failure by the customer/drawer to
exercise ordinary care that substantially contributed to the making of
the forged signature, the drawer is precluded from asserting the
forgery.
■ If at the same time the drawee bank was also negligent to the point of
substantially contributing to the loss, then such loss from the forgery
can be apportioned between the negligent drawer and the negligent
bank.
In cases involving a forged check, where the drawer's signature is forged, the drawer can
recover from the drawee bank. In cases involving checks with forged indorsements, the
drawee bank can seek reimbursement or a return of the amount it paid from the presentor
bank or person. However, a drawee bank has the duty to promptly inform the presentor of the
forgery upon discovery. If the drawee bank delays in informing the presentor of the forgery,
thereby depriving said presentor of the right to recover from the forger, the former is deemed
negligent and can no longer recover from the presentor.
Under Section 4(c) of CB Circular No. 580, items bearing a forged endorsement shall be
returned within twenty-Sour (24) hours after discovery of the forgery but in no event beyond
the period fixed or provided by law for filing of a legal action by the returning bank. Section 23
of the PCHC Rules deleted the requirement that items bearing a forged endorsement should
be returned within twenty-four hours.
Since PNB did not return the questioned checks within twenty-four hours, but several
days later, Associated Bank alleges that PNB should be considered negligent and not
entitled to reimbursement of the amount it paid on the checks.
More importantly, by reason of the statutory warranty of a general indorser in section 66 of the
Negotiable Instruments Law, a collecting bank which indorses a check bearing a forged
indorsement and presents it to the drawee bank guarantees all prior indorsements, including
the forged indorsement.
In this case, the checks were indorsed by the collecting bank (Associated Bank) to the drawee
bank (PNB).

19
The stamp guaranteeing prior indorsements is not an empty rubric which a bank must fulfill for
the sake of convenience
It is within the bank's discretion to receive a check for no banking institution would consciously
or deliberately accept a check bearing a forged indorsement. When a check is deposited with
the collecting bank, it takes a risk on its depositor.
17. Francisco v. Court of Appeals, et al.; G.R. No. 116320, November 29, 1999 (Edward)
FACTS:
Francisco Realty & Development Corporation (AFRDC), of which petitioner Francisco is the
president, entered into a Land Development and Construction Contract with private
respondent Herby Commercial & Construction Corporation (HCCC), represented by its
President and General Manager private respondent Ong.
Under the contract, HCCC was to be paid on the basis of the completed houses and
developed lands delivered to and accepted by AFRDC and the GSIS. Sometime in 1979,
Ong discovered that Diaz and Francisco, the Vice-President of GSIS, had executed and
signed seven checks of various dates and amounts payable to HCCC for completed and
delivered work under the contract. Ong, however, claims that these checks were never
delivered to HCCC.
It turned out that Francisco forged the indorsement of Ong on the checks and indorsed
the checks for a second time by signing her name at the back of the checks, petitioner
then deposited said checks in her savings account.
A case was brought by private respondents against petitioner to recover the value of said
checks. Petitioner however claims that she was authorized to sign Ong's name on the
checks by virtue of the Certification executed by Ong in her favor giving her the authority to
collect all the receivables of HCCC from the GSIS, including the questioned checks.
ISSUE: Whether petitioner cannot be held liable on the questioned checks by virtue of the
Certification executed by Ong giving her the authority to collect such checks from the GSIS.
RULING: Petitioner is liable.
The Negotiable Instruments Law provides that where any person is under obligation to
indorse in a representative capacity, he may indorse in such terms as to negative personal
liability. An agent, when so signing, should indicate that he is merely signing in behalf
of the principal and must disclose the name of his principal; otherwise he shall be
held personally liable. Even assuming that Francisco was authorized by HCCC to sign
Ong's name, still, Francisco did not indorse the instrument in accordance with law. Instead
of signing Ong's name, Francisco should have signed her own name and expressly indicated
that she was signing as an agent of HCCC. Thus, the Certification cannot be used by
Francisco to validate her act of forgery.
18. Gempesaw v. CA and PBCom; G.R. No. 92244, February 9, 1993 (Jued)
Facts:
Natividad O. Gempesaw owns and operates four grocery stores and that she maintains a
checking account with the Philippine Bank of Communications (drawee Bank) for easier
payment of debts to her suppliers.

20
Her customary practice were as follows:

Checks were prepared by her trusted bookkeeper, Alicia Galang; Checks, together with the
invoice receipts reflecting her obligations with the suppliers, were submitted to her for
signature; That she signs all the checks without bothering to verify the accuracy of the checks
against the corresponding invoices considering the trust and confidence she reposed upon
her bookkeeper; Issuance and delivery of the checks to the payees were left to the
bookkeeper; that she did not verify whether checks were actually delivered to their respective
payees.
Although the drawee Bank notified her of all checks presented to and paid by the bank,
Gempesaw did not verify the correctness of the returned checks nor if the payees actually
received the checks in payment for the supplies she received.
Gempesaw issued 82 checks in favor of several suppliers for the span of 2 years and the
drawee bank debited the total amount of P1,208,606.89 against her checking account since
all of the issued checks were honored by the drawee bank. These checks were all crossed
checks.
It was only after the lapse of more than 2 years that Gempesaw found out about the fraudulent
manipulations of her bookkeeper. Gempesaw made a written demand on respondent drawee
Bank to credit her account with the money value of the 82 checks totalling P1,208,606.89 for
having been wrongfully charged against her account. Drawee Bank refused to grant her
demand.
About 30 of the payees whose names were specifically written on the checks testified that
they did not receive nor even see the subject checks and that the indorsements appearing at
the back of the checks were not theirs.
It was learned that all the 82 checks with forged signatures of the payees were brought to
Ernest L. Boon, Chief Accountant of drawee who, without authority therefor, accepted them
all for deposit to the credit and/or in the accounts of Alfredo Y. Romero and Benito Lam.
The Regional Trial Court, tried the case and rendered a decision dismissing the complaint as
well as the drawee Bank's counterclaim. On appeal, the Court of Appeals in a decision affirmed
the decision of the RTC on two grounds, namely (1) that Gempesaw’s gross negligence in
issuing the checks was the proximate cause of the loss and (2) assuming that the bank was
also negligent, the loss must nevertheless be borne by the party whose negligence was the
proximate cause of the loss. Hence, a petition for review was filed before SC
Issue: Whether or not the petitioner can raise the defense of forgery, therefore the drawee
bank alone shall bear the loss.
Ruling:
Gempesaw precluded from using forgery as a defense; Gempesaw’s negligence was
proximate cause of her loss.
Had Gempesaw examined her records more carefully, she would have noticed discrepancies.
Had Gempesaw been more vigilant in going over her current account by taking careful note of
the daily reports made by the drawee Bank on her issued checks, or at least made random
scrutiny of her cancelled checks returned by drawee Bank at the close of each month, she
could have easily discovered the fraud being perpetrated by Alicia Galang, and could have
reported the matter to the drawee Bank.
The drawee Bank then could have taken immediate steps to prevent further commission of
such fraud. Thus, Gempesaw's negligence was the proximate cause of her loss. And since it
was her negligence which caused the drawee Bank to honor the forged checks or prevented

21
it from recovering the amount it had already paid on the checks, Gempesaw cannot now
complain should the bank refuse to recredit her account with the amount of such checks.
Under Section 23 of the NIL, she is now precluded from using the forgery to prevent the bank's
debiting of her account.
Section 23 of the NIL provides that "when a signature is forged or made without the authority
of the person whose signature it purports to be, it is wholly inoperative, and no right to retain
the instrument, or to give a discharge therefor, or to enforce payment thereof against any party
thereto, can be acquired through or under such signature, unless the party against whom it is
sought to enforce such right is precluded from setting up the forgery or want of authority."
Two types of cases of problems arising from forged indorsements of checks

Problems arising from forged indorsements of checks may generally be broken into two types
of cases: (1) where forgery was accomplished by a person not associated with the drawer [for
example a mail robbery]; and (2) where the indorsement was forged by an agent of the drawer.
This difference in situations would determine the effect of the drawer's negligence with respect
to forged indorsements.
Duty of drawer; Effect of negligence

A depositor is under a duty to set up an accounting system and a business procedure as are
reasonably calculated to prevent or render difficult the forgery of indorsements, particularly by
the depositor's own employees. And if the drawer (depositor) learns that a check drawn by
him has been paid under a forged indorsement, the drawer is under duty promptly to report
such fact to the drawee bank. For his negligence or failure either to discover or to report
promptly the fact of such forgery to the drawee, the drawer loses his right against the drawee
who has debited his account under the forged indorsement. In other words, he is precluded
from using forgery as a basis for his claim for recrediting of his account.
Banking business impressed with public interest; Utmost diligence required

The banking business is so impressed with public interest where the trust and confidence of
the public in general is of paramount importance such that the appropriate standard of
diligence must be a high degree of diligence, if not the utmost diligence. Surely, drawee Bank
cannot claim it exercised such a degree of diligence that is required of it. There is no way that
it be allowed to escape liability for such negligence. Its liability as obligor is not merely vicarious
but primary wherein the defense of exercise of due diligence in the selection and supervision
of its employees is of no moment.
Premises considered, respondent drawee Bank is adjudged liable to share the loss with the
petitioner on a fifty-fifty ratio in accordance with Article 172 which provides:
“Responsibility arising from negligence in the performance of every kind of obligation

is also demandable, but such liability may be regulated by the courts according to the
circumstances.”
19. Samsung Construction Co. v. Far East Bank (G.R. No. 129015, August 13, 2004)
(Jerald)
Facts: Petitioner maintains a current account with the respondent bank. The petitioner
authorized Jong Kyu Lee (Jong), its Project Manager to sign checks in behalf of the company.
The checks are in the custody of an accountant Kyu Yong Lee (Kyu). On one occasion, a
certain Roberto Gonzaga presented a check to FEBTC purportedly drawn by the Company in
the amount of P999,500. The check was payable to cash and appeared to be signed by Jong.
FEBTC upon ascertaining that there are sufficient fund to cover the check and finding the
signature of Jong appears to be genuine paid Gonzaga. Later, the forgery was discovered.
Samsung demanded that the amount paid to Gonzaga be credited back to its account because

22
they have not authorized the encashment of the check. On the other hand, the respondent
bank claimed negligence on the part of the petitioner in protecting its check.
Issue: Whether or not petitioner may recover from the drawee bank.
Ruling: Yes.
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. If
payment is made, the drawee cannot charge it to the drawer’s account. The traditional
justification for the result is that the drawee is in a superior position to detect a forgery because
he has the maker’s signature and is expected to know and compare it. The rule has a healthy
cautionary effect on banks by encouraging care in the comparison of the signatures against
those on the signature cards they have on file. Moreover, the very opportunity of the drawee
to insure and to distribute the cost among its customers who use checks makes the drawee
an ideal party to spread the risk to insurance.
Under Section 23 of the Negotiable Instruments Law, forgery is a real or absolute defense by
the party whose signature is forged. On the premise that Jong’s signature was indeed forged,
FEBTC is liable for the loss since it authorized the discharge of the forged check. 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. 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.
We recognize that Section 23 of the Negotiable Instruments Law bars a party from setting up
the defense of forgery if it is guilty of negligence. Yet, we are unable to conclude that Samsung
Construction was guilty of negligence in this case. The appellate court failed to explain
precisely how the Korean accountant was negligent or how more care and prudence on his
part would have prevented the forgery. We cannot sustain this tar and feathering resorted to
without any basis. The bare fact that the forgery was committed by an employee of the party
whose signature was forged cannot necessarily imply that such party’s negligence was the
cause for the forgery.
In this case, not only did the amount in the check nearly total one million pesos, it was also
payable to cash. That latter circumstance should have aroused the suspicion of the bank, as
it is not ordinary business practice for a check for such large amount to be made payable to
cash or to bearer, instead of to the order of a specified person. Moreover, the check was
presented for payment by one Roberto Gonzaga, who was not designated as the payee of the
check, and who did not carry with him any written proof that he was authorized by Samsung
Construction to encash the check. Gonzaga, a stranger to FEBTC, was not even an employee
of Samsung Construction.
Still, 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. After all, Section 23 of the Negotiable Instruments Law plainly states that
no right to enforce the payment of a check can arise out of a forged signature. Since the
drawer, Samsung Construction, is not precluded by negligence from setting up the forgery,
the general rule should apply. 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.
20. Travel-On, Inc. v. Court of Appeals and Arturo S. Miranda; G.R. No. L- 56169, June
26, 1992 (Yana)

23
Facts: Travel-On (petitioner) is a travel agency, selling airline tickets on commission basis
for and in behalf of different airline companies. Arturo Miranda (respondent) had a running
credit line with said agency. He procured tickets from Travel-On on behalf of airline
passengers and derived commissions therefrom. Travel-On filed a suit to collect six (6)
checks issued by the respondent totalling 115,000 pesos. Respondent avers that he has no
obligations to petitioner and argues that the checks that the petitioner is seeking to collect
from him were for purposes of “accommodation.” The respondent’s story is that the
General Manager of Travel-On asked respondent to write the checks because she used
them as “evidence” to show the Board of Directors of Travel-On that the financial condition
of the company was in good and sound condition. Petitioner denies this accusation.
Issue: Whether or not the checks are evidence of the liability of the respondent to the
petitioner even assuming that they were for purposes of accommodation.
Held: YES. The checks are evidence of the liability of the respondent.
Ratio:
A check which is regular on its face is deemed prima facie to have been issued for a valuable
consideration and every person whose signature appears thereon is deemed to have
become a party thereto for value.
A negotiable instrument is presumed to have been given or indorsed for a sufficient

consideration unless otherwise contradicted and overcome by other competent evidence.
Those checks in themselves constituted evidence of indebtedness of Miranda, evidence not
successfully overturned or rebutted by private respondent. Even if the checks were for
purposes of accommodation, as described in Sec. 29 of the Negotiable Instruments Law, the
respondent would still be liable considering that the petitioner is a holder for value. “A
check which is regular on its face is deemed prima facie to have been issued for a
valuable consideration and every person whose signature appears thereon is deemed
to have become a party thereto for value.” “The rule is quite settled that a negotiable
instrument is presumed to have been given or indorsed for a sufficient consideration unless
otherwise contradicted by other competent evidence.” The facts that all checks issued by the
respondent to petitioner were presented for payment by the latter would lead to no other
conclusion than that these checks were intended for encashment.
There is nothing in the checks themselves or in any other document that states otherwise.
The argument of the respondent that the checks were merely “simulated” cannot stand
without the clearest and most convincing kinds of evidence. No such evidence was submitted
by the respondent.
21. Pineda vs. dela Rama, 121 SCRA 671 (Jued)
FACTS: Pineda was caught in a case against the National Rice and Corn
Administration NARIC for his alleged misappropriation of many cavans of palay. He hired
Atty. Dela Rama to delay the filing of the complaint against him, on alleged representation of
the lawyer that he is a friend of the NARIC administrator. Pineda then issued a promissory
note in favor of dela Rama to pay for the advances that the lawyer made to the administrator
to delay the filing of the complaint. Dela Rama on the other hand contended that the

24
promissory note was for the loan advanced to Pineda by him. Dela Rama filed an action
against Pineda for the collection of the amount of the note.
ISSUE: Whether or not the note was issued for valuable consideration.
HELD: No. The presumption that a negotiable instrument was issued for valuable
consideration is a rebuttable presumption. It can be rebutted by proof to the contrary. In the
case at bar, the claims of dela Rama that the promissory note was for a loan advanced
to Pineda is unbelievable. The grant of a loan by a lawyer to a moneyed client and whom he
has known for only 3 months cannot be relied on. Pineda had actually just purchased
numerous properties. It is highly illogical that he would loan from dela Rama P9500 for 5 days
apart. Furthermore, the note was void ab initio because the consideration given was to
influence the administrator to delay charges against Pineda. The consideration was void for
being against law and public policy.
22. Caltex (Philippines), Inc. v. CA and SBTC; G.R. No. 97753, August 10, 1992 (Erica)
FACTS:
● Security Bank and Trust Company (Security Bank), a commercial banking institution,
through its Sucat Branch issued 280 certificates of time deposit (CTDs) in favor of
Angel dela Cruz who deposited with Security Bank the total amount of P1,120,000
● Angel delivered the CTDs to Caltex for his purchase of fuel products
● March 18, 1982: Angel informed Mr. Tiangco, the Sucat Branch Manager that he lost
all CTDs, submitted the required Affidavit of Loss and received the replacement
● March 25, 1982: Angel dela Cruz negotiated and obtained a loan from Security Bank
in the amount of P875,000 and executed a notarized Deed of Assignment of Time
Deposit
● November, 1982: Mr. Aranas, Credit Manager of Caltex went to the Sucat branch to
verify the CTDs declared lost by Angel
● November 26, 1982: Security Bank received a letter from Caltex formally informing it
of its possession of the CTDs in question and of its decision to pre-terminate the same.
● December 8, 1982: Caltex was requested by Security Bank to furnish:
● a copy of the document evidencing the guarantee agreement with Mr. Angel dela Cruz
● the details of Mr. Angel's obligation against which Caltex proposed to apply the time
deposits
● Security Bank rejected Caltex demand for payment bec. it failed to furnish a copy of its
agreement w/ Angel
● April 1983, the loan of Angel dela Cruz with Security Bank matured
● August 5, 1983: CTD were set-off w/ the matured loan
● Caltex filed a complaint praying the bank to pay 1,120,000 plus 16% interest

25
● CA affirmed RTC to dismiss complaint
ISSUE: W/N Caltex as holder in due course can rightfully recover on the CTDs
HELD: No.
Ratio:
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
CTDs were in reality delivered to it as a security for De la Cruz' purchases of

its fuel products
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.
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.
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 Negotiable
Instruments Law, shall be governed by the Civil Code provisions on pledge of
incorporeal rights:
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.
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. Travel-On, Inc. v. Court of Appeals and Arturo S. Miranda; G.R. No. L-56169, June
26, 1992 (Edward)
-Supra
24. Aglibot v. Santia; G.R. No. 185945, December 5, 2012 (Bryan)
FACTS
Private respondent-complainant Engr. Ingersol L. Santia loaned the amount of P2,500,000.00
to Pacific Lending & Capital Corporation (PLCC), through its Manager, petitioner Fideliza J.
Aglibot. The loan was evidenced by a Promissory Note dated July 1, 2003, issued by Aglibot
in behalf of PLCC, payable in one year subject to interest at 24% per annum. Allegedly as a
guaranty or security for the payment of the note, Aglibot also issued and delivered to Santia
eleven (11) post-dated personal checks drawn from her own demand account maintained at
Metrobank, Camiling Branch. Aglibot is a major stockholder of PLCC, with headquarters at 27
Casimiro Townhouse, Casimiro Avenue, Zapote, Las Piñas, Metro Manila, where most of the

26
stockholders also reside. Upon presentment of the aforesaid checks for payment, they were
dishonored by the bank for having been drawn against insufficient funds or closed account.
Santia thus demanded payment from PLCC and Aglibot of the face value of the checks, but
neither of them heeded his demand.
ISSUE
Whether or not Aglibot is an accommodation party or a guaranteeing party? If she is the latter,
is she benefitted from excussion against Santia?
HELD
YES. Aglibot is an accommodation party and therefore liable to Santia
The facts below present a clear situation where Aglibot, as the manager of PLCC, agreed to
accommodate its loan to Santia by issuing her own post-dated checks in payment thereof.
She is what the Negotiable Instruments Law calls an accommodation party. Concerning the
liability of an accommodation party, Section 29 of the said law provides:
Sec. 29.
Liability of an accommodation party
An accommodation party is one who has signed the instrument as maker, drawer, acceptor,
or indorser, without receiving value therefor, and for the purpose of lending his name to some
other person. Such a person is liable on the instrument to a holder for value notwithstanding
such holder at the time of taking the instrument knew him to be only an accommodation party.
The mere fact, then, that Aglibot issued her own checks to Santia made her personally
liable to the latter on her checks without the need for Santia to first go after PLCC for
the payment of its loan. It would have been otherwise had it been shown that Aglibot
was a mere guarantor, except that since checks were issued ostensibly in payment for the
loan, the provisions of the Negotiable Instruments Law must take primacy in application.
25. Ang v. Associated Bank and Antonio Ang Eng Long, 532 SCRA 244 (JB)
Facts: On August 28, 1990, respondent Associated Bank (formerly Associated Banking
Corporation and now known as United Overseas Bank Philippines) filed a collection suit
against Antonio Ang Eng Liong and petitioner Tomas Ang for the two (2) promissory notes
that they executed as principal debtor and co-maker, respectively. In the Complaint,
respondent Bank alleged that on October 3 and 9, 1978, the defendants obtained a loan of
P50,000.00 evidenced by a promissory note bearing PN-No. DVO-78-382, and P30,000,
evidenced by a promissory note bearing PN No. DVO-78-390. As agreed, the loan would be
payable, jointly and severally, on January 31, 1979 and December 8, 1978, respectively. In
addition, subsequent amendments to the promissory notes as well as the disclosure
statements stipulated that the loan would earn 14% interest rate per annum, 2% service
charge per annum, 1% penalty charge per month from due date until fully paid, and attorney’s
fees equivalent to 20% of the outstanding obligation. Despite repeated demands for payment,
the latest of which were on September 13, 1988 and September 9, 1986, on Antonio Ang Eng
Liong and Tomas Ang, respectively, respondent Bank claimed that the defendants failed and
refused to settle their obligation, resulting in a total indebtedness of P 539,638.96 as of July
31, 1990. In his Answer, Antonio Ang Eng Liong only admitted to have secured a loan
amounting to P 80,000. He pleaded though that the bank “be ordered to submit a more
reasonable computation” considering that there had been “no correct and reasonable
statement of account” sent to him by the bank, which was allegedly collecting excessive

27
interest, penalty charges, and attorney’s fees despite knowledge that his business was
destroyed by fire, hence, he had no source of income for several years. For his part, petitioner
Tomas Ang filed an Answer with Counterclaim and Cross-claim. He interposed the affirmative
defenses that: the 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; he accepted the promissory notes in blank, with only the
printed provisions and the signature of Antonio Ang Eng Liong appearing therein.
Issue: Whether or not Petitioner is liable to the obligation despite being a mere co-maker and
Held: Yes. Notably, Section 29 of the NIL defines an accommodation party as 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. 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. 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.
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. from the beginning; As such, he is deemed an original promisor and debtor he is
considered in law as the same party as the debtor in relation to whatever is adjudged touching
the obligation of the latter since their liabilities are interwoven as to be inseparable. Although
a contract of suretyship is in essence accessory or collateral to a valid principal obligation, the
surety’s liability to the creditor is immediate, primary and absolute; he is directly and equally
bound with the principal. As an equivalent of a regular party to the undertaking, a surety
becomes liable to the debt and duty of the principal obligor even without possessing a direct
or personal interest in the obligations nor does he receive any benefit therefrom.
In the instant case, petitioner agreed to be “jointly and severally” liable under the two
promissory notes that he co-signed with Antonio Ang Eng Liong as the principal debtor. This
being so, it is completely immaterial if the bank would opt to proceed only against petitioner or
Antonio Ang Eng Liong or both of them since the law confers upon the creditor the prerogative
to choose whether to enforce the entire obligation against any one, some or all of the debtors.
Nonetheless, petitioner, as an accommodation party, may seek reimbursement from Antonio
Ang Eng Liong, being the party accommodated.
Consequently, in issuing the two promissory notes, petitioner as accommodating party

warranted to the holder in due course that he would pay the same according to its tenor. value
therefore It is no defense to state on his part that he did not receive any because the phrase
“without receiving value therefor” used in Sec. 29 of the NIL means “without receiving value
by virtue of the instrument” and not as it is apparently supposed to mean, “without receiving
payment for lending his name.” Stated differently, when a third person advances the face value
of the note to the accommodated party at the time of its creation, the consideration for the note
as regards its maker is the money advanced to the accommodated party. It is enough that
value was given for the note at the time of its creation. As in the instant case, a sum of money
was received by virtue of the notes, hence, it is immaterial so far as the bank is concerned

28
whether one of the signers, particularly petitioner, has or has not received anything in payment
of the use of his name.
Furthermore, 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.

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1

Negotiable Instruments Law

1. Lozano vs. Martinez, 146 SCRA 323 (Jerald)

Commercial Law – Negotiable Instruments Law – Constitutionality of BP 22

ISSUE: Whether or not BP 22 is constitutional.

HELD: Yes, BP 22 is constitutional.

The enactment of BP 22 is a declaration by the legislature that, as a matter of public policy,

Indigestion – Pokémon Group - NIL

Held: Yes. A certificate of deposit is defined as a written acknowledgement by a bank or

Indigestion – Pokémon Group - NIL

ISSUE: Whether or not the certificates of time deposit are negotiable.

(Negotiable Instruments – payable to order or to bearer)

They also executed a 'promissory note" which states in part:

Indigestion – Pokémon Group - NIL

5. Salas vs. CA, et al., 181 SCRA 296 [1990] (Jerald)

Indigestion – Pokémon Group - NIL

Indigestion – Pokémon Group - NIL

FOR VALUE RECEIVED, I, RODRIGO RIVERA promise to pay spouses SALVADOR C.

Indigestion – Pokémon Group - NIL

Manila, February 24, 1995[.]

FACTS: Respondents-Spouses Erlando and Norma Rodriguez were clients of petitioner

Indigestion – Pokémon Group - NIL

Indigestion – Pokémon Group - NIL

9. People vs. Wagas, 705 SCRA 17 [2013] (Kat)

Indigestion – Pokémon Group - NIL

10. Borromeo v. Sun, 317 SCRA 176 (Yana)

Indigestion – Pokémon Group - NIL

CA affirmed this decision.

ISSUE: Whether petitioner Bank has a cause of action

Indigestion – Pokémon Group - NIL

Section 16 provides that every contract on a negotiable instrument is incomplete and

Indigestion – Pokémon Group - NIL

Petitioners were charged of violating B.P. No. 22 by issuing worthless checks in

Indigestion – Pokémon Group - NIL

Issue: Whether or not the escheat of the account in RCBC is proper.

Indigestion – Pokémon Group - NIL

G.R. No. L-25836-37 January 31, 1981

Indigestion – Pokémon Group - NIL

Indigestion – Pokémon Group - NIL

ISSUE: W/N PNB and Associated Bank should be held liable

■ Exemption: where "a party against whom it is sought to enforce a right is

■ In bearer instruments, the signature of the payee or holder is unnecessary to pass

Indigestion – Pokémon Group - NIL

Indigestion – Pokémon Group - NIL

RULING: Petitioner is liable.

Indigestion – Pokémon Group - NIL

Her customary practice were as follows:

Indigestion – Pokémon Group - NIL

Two types of cases of problems arising from forged indorsements of checks

Duty of drawer; Effect of negligence

Banking business impressed with public interest; Utmost diligence required

“Responsibility arising from negligence in the performance of every kind of obligation

Indigestion – Pokémon Group - NIL

Indigestion – Pokémon Group - NIL

A negotiable instrument is presumed to have been given or indorsed for a sufficient

21. Pineda vs. dela Rama, 121 SCRA 671 (Jued)

Indigestion – Pokémon Group - NIL

● December 8, 1982: Caltex was requested by Security Bank to furnish:

● August 5, 1983: CTD were set-off w/ the matured loan

Indigestion – Pokémon Group - NIL

● CA affirmed RTC to dismiss complaint

CTDs were in reality delivered to it as a security for De la Cruz' purchases of

As such holder of collateral security, he would be a pledgee but the

24. Aglibot v. Santia; G.R. No. 185945, December 5, 2012 (Bryan)