Crisologo Jose vs.

CA
G.R. No. 80599; September 15, 1989

Facts:

In 1980, plaintiff Ricardo S. Santos, Jr. was the vice-president of Mover Enterprises, Inc. in-charge
of marketing and sales; and the president of the said corporation was Atty. Oscar Z. Benares. On
April 30, 1980, Atty. Benares, in accommodation of his clients, the spouses Jaime and Clarita Ong,
issued Check No. 093553 drawn against Traders Royal Bank, dated June 14, 1980, in the amount of
P45,000.00 (Exh- 'I') payable to defendant Ernestina Crisologo-Jose. Since the check was under the
account of Mover Enterprises, Inc., the same was to be signed by its president, Atty. Oscar Z.
Benares, and the treasurer of the said corporation. However, since at that time, the treasurer of
Mover Enterprises was not available, Atty. Benares prevailed upon the plaintiff, Ricardo S. Santos,
Jr., to sign the aforesaid check as an alternate story. Plaintiff Ricardo S. Santos, Jr. did sign the
check.

It appears that the check (Exh. '1') was issued to defendant Ernestina Crisologo-Jose in
consideration of the waiver or quitclaim by said defendant over a certain property which the
Government Service Insurance System (GSIS) agreed to sell to the clients of Atty. Oscar Benares,
the spouses Jaime and Clarita Ong, with the understanding that upon approval by the GSIS of the
compromise agreement with the spouses Ong, the check will be encashed accordingly. However,
since the compromise agreement was not approved within the expected period of time, the aforesaid
check for P45,000.00 (Exh. '1') was replaced by Atty. Benares with another Traders Royal Bank
cheek bearing No. 379299 dated August 10, 1980, in the same amount of P45,000.00 (Exhs. 'A' and
'2'), also payable to the defendant Jose. This replacement check was also signed by Atty. Oscar Z.
Benares and by the plaintiff Ricardo S. Santos, Jr. When defendant deposited this replacement
check (Exhs. 'A' and '2') with her account at Family Savings Bank, Mayon Branch, it was
dishonored for insufficiency of funds. A subsequent redepositing of the said check was likewise
dishonored by the bank for the same reason. Hence, defendant through counsel was constrained to
file a criminal complaint for violation of Batas Pambansa Blg. 22 with the Quezon City Fiscal's
Office against Atty. Oscar Z. Benares and plaintiff Ricardo S. Santos, Jr. The investigating
Assistant City Fiscal, Alfonso Llamas, accordingly filed an amended information with the court
charging both Oscar Benares and Ricardo S. Santos, Jr., for violation of Batas Pambansa Blg. 22
docketed as Criminal Case No. Q-14867 of then Court of First Instance of Rizal, Quezon City.

Meanwhile, during the preliminary investigation of the criminal charge against Benares and the
plaintiff herein, before Assistant City Fiscal Alfonso T. Llamas, plaintiff Ricardo S. Santos, Jr.
tendered cashier's check No. CC 160152 for P45,000.00 dated April 10, 1981 to the defendant
Ernestina Crisologo-Jose, the complainant in that criminal case. The defendant refused to receive
the cashier's check in payment of the dishonored check in the amount of P45,000.00. Hence,
plaintiff encashed the aforesaid cashier's check and subsequently deposited said amount of
P45,000.00 with the Clerk of Court on August 14, 1981 (Exhs. 'D' and 'E'). Incidentally, the
cashier's check adverted to above was purchased by Atty. Oscar Z. Benares and given to the
plaintiff herein to be applied in payment of the dishonored check.

Issue:
WON Mover Enterprises is considered an accommodation party.

Held:

No. To be considered an accommodation party, a person must (1) be a party to the instrument,
signing as maker, drawer, acceptor, or indorser, (2) not receive value therefor, and (3) sign for the
purpose of lending his name for the credit of some other person.

The provision of the Negotiable Instruments Law which holds an accommodation party liable on
the instrument to a holder for value, although such holder at the time of taking the instrument knew
him to be only an accommodation party, does not include nor apply to corporations which are
accommodation parties. This is because the issue or indorsement of negotiable paper by a
corporation without consideration and for the accommodation of another is ultra vires. Hence, one
who has taken the instrument with knowledge of the accommodation nature thereof cannot recover
against a corporation where it is only an accommodation party. If the form of the instrument, or the
nature of the transaction, is such as to charge the indorsee with knowledge that the issue or
indorsement of the instrument by the corporation is for the accommodation of another, he cannot
recover against the corporation thereon.
HSBC vs. Catalan
G.R. Nos. 159590-91; October 18, 2004

Facts:
Sometime in March 1997, Thomson issued five HSBANK checks payable to Catalan. The checks
when deposited were returned by HSBANK purportedly for reason of "payment stopped" pending
confirmation, despite the fact that the checks were duly funded. On March 18, 1997, Thomson
wrote a letter to a certain Ricky Sousa of HSBANK confirming the checks he issued to Catalan and
requesting that all his checks be cleared. On March 20, 1997, Thomson wrote another letter to
Sousa of HSBANK requesting an advice in writing to be sent to the Philippine National Bank,
through the fastest means, that the checks he previously issued to Catalan were already cleared.
Thereafter, Catalan demanded that HSBANK make good the checks issued by Thomson. On May
16, 1997, Marilou A. Lozada, personal secretary and attorney-in-fact of Thomson, wrote a letter to
Sousa of HSBANK informing him that HSBANK’s failure to clear all the checks had saddened
Thomson and requesting that the clearing of the checks be facilitated. Subsequently, Thomson died
and Catalan forwarded her demand to HSBC TRUSTEE. Catalan sent photocopies of the returned
checks to HSBC TRUSTEE. Not satisfied, HSBC TRUSTEE through deceit and trickery, required
Catalan, as a condition for the acceptance of the checks, to submit the original copies of the
returned checks, purportedly, to hasten payment of her claim. HSBC TRUSTEE succeeded in its
calculated deception because on April 21, 1999, Catalan and her former counsel went to Hongkong
at their own expense to personally deliver the originals of the returned checks to the officers of
HSBC TRUSTEE, anxious of receiving the money value of the checks but HSBC TRUSTEE
despite receipt of the original checks, refused to pay Catalan’s claim. Having seen and received the
original of the checks, upon its request, HSBC TRUSTEE is deemed to have impliedly accepted the
checks. Moreover, the refusal of HSBANK and HSBC TRUSTEE to pay the checks is equivalent to
illegal freezing of one’s deposit. On the assurance of HSBC TRUSTEE that her claim will soon be
paid, as she was made to believe that payments of the checks shall be made by HSBC TRUSTEE
"upon sight," the unsuspecting Catalan left the originals of the checks with HSBC TRUSTEE and
was given only an acknowledgment receipt. Catalan made several demands and after several more
follow ups, on August 16, 1999, Phoenix Lam, Senior Vice President of HSBC TRUSTEE, in
obvious disregard of her valid claim, informed Catalan that her claim is disapproved. No reason or
explanation whatsoever was made why her claim was disapproved, neither were the checks returned
to her. Catalan appealed for fairness and understanding, in the hope that HSBC TRUSTEE would
act fairly and justly on her claim but these demands were met by a stonewall of silence. On June 9,
2000, Catalan through counsel sent a last and final demand to HSBC TRUSTEE to remit the
amount covered by the checks but despite receipt of said letter, no payment was made. Clearly, the
act of the HSBANK and HSBC TRUSTEE in refusing to honor and pay the checks validly issued
by Thomson violates the abuse of rights principle under Article 19 of the Civil Code which requires
that everyone must act with justice, give everyone his due and observe honesty and good faith. The
refusal of HSBANK and HSBC TRUSTEE to pay the checks without any valid reason is intended
solely to prejudice and injure Catalan. When they declined payment of the checks despite
instructions of the drawer, Thomson, to honor them, coupled with the fact that the checks were duly
funded, they acted in bad faith, thus causing damage to Catalan. A person may not exercise his right
unjustly or in a manner that is not in keeping with honesty or good faith, otherwise he opens himself
to liability for abuse of right.
Issue:
WON there is a cause of action against HSBC
Held:
Yes. Catalan anchors her complaint for damages on Article 19 of the Civil Code. It speaks of the
fundamental principle of law and human conduct that a person "must, in the exercise of his rights
and in the performance of his duties, act with justice, give every one his due, and observe honesty
and good faith." It sets the standards which may be observed not only in the exercise of one’s rights
but also in the performance of one’s duties. When a right is exercised in a manner which does not
conform with the norms enshrined in Article 19 and results in damage to another, a legal wrong is
thereby committed for which the wrongdoer must be held responsible.
HSBANK claims that Catalan has no cause of action because under Section 189 of the Negotiable
Instruments Law, "a check of itself does not operate as an assignment of any part of the funds to the
credit of the drawer with the bank, and the bank is not liable to the holder unless and until it accepts
or certifies it." However, HSBANK is not being sued on the value of the check itself but for how it
acted in relation to Catalan’s claim for payment despite the repeated directives of the drawer
Thomson to recognize the check the latter issued. Catalan may have prayed that she be paid the
value of the checks but it is axiomatic that what determines the nature of an action, as well as which
court has jurisdiction over it, are the allegations of the complaint, irrespective of whether or not the
plaintiff is entitled to recover upon all or some of the claims asserted therein.
International Corporate Bank vs. Spouses Gueco
G.R. No. 141968; February 12, 2001
The respondents Gueco Spouses obtained a loan from petitioner International Corporate Bank (now
Union Bank of the Philippines) to purchase a car a Nissan Sentra 1600 4DR, 1989 Model. In
consideration thereof, the Spouses executed promissory notes which were payable in monthly
installments and chattel mortgage over the car to serve as security for the notes.
The Spouses defaulted in payment of installments. Consequently, the Bank filed on August 7, 1995
a civil action docketed as Civil Case No. 658-95 for Sum of Money with Prayer for a Writ of
Replevin before the Metropolitan Trial Court of Pasay City, Branch 45. On August 25, 1995, Dr.
Francis Gueco was served summons and was fetched by the sheriff and representative of the bank
for a meeting in the bank premises. Desi Tomas, the Banks Assistant Vice President demanded
payment of the amount of P184,000.00 which represents the unpaid balance for the car loan. After
some negotiations and computation, the amount was lowered to P154,000.00, However, as a result
of the non-payment of the reduced amount on that date, the car was detained inside the banks
compound.
On August 28, 1995, Dr. Gueco went to the bank and talked with its Administrative Support, Auto
Loans/Credit Card Collection Head, Jefferson Rivera. The negotiations resulted in the further
reduction of the outstanding loan to P150,000.00.
On August 29, 1995, Dr. Gueco delivered a managers check in the amount of P150,000.00 but the
car was not released because of his refusal to sign the Joint Motion to Dismiss. It is the contention
of the Gueco spouses and their counsel that Dr. Gueco need not sign the motion for joint dismissal
considering that they had not yet filed their Answer. Petitioner, however, insisted that the joint
motion to dismiss is standard operating procedure in their bank to effect a compromise and to
preclude future filing of claims, counterclaims or suits for damages.
After several demand letters and meetings with bank representatives, the respondents Gueco
spouses initiated a civil action for damages before the Metropolitan Trial Court of Quezon City,
Branch 33.The Metropolitan Trial Court dismissed the complaint for lack of merit.
Issue:
WON the Court of Appeals erred in holding that the petitioner return the subject car to the
respondents, without making any provision for the issuance of the new managers/cashiers check by
the respondents in favor of the petitioner in lieu of the original cashiers check that already became
stale
Held:
No. the check involved is not an ordinary bill of exchange but a managers check. A managers
check is one drawn by the banks manager upon the bank itself. It is similar to a cashiers check both
as to effect and use. A cashiers check is a check of the banks cashier on his own or another
check. In effect, it is a bill of exchange drawn by the cashier of a bank upon the bank itself,
and accepted in advance by the act of its issuance. It is really the banks own check and may be
treated as a promissory note with the bank as a maker. The check becomes the primary obligation of
the bank which issues it and constitutes its written promise to pay upon demand. The mere issuance
of it is considered an acceptance thereof. If treated as promissory note, the drawer would be the
maker and in which case the holder need not prove presentment for payment or present the bill to
the drawee for acceptance.
Even assuming that presentment is needed, failure to present for payment within a reasonable time
will result to the discharge of the drawer only to the extent of the loss caused by the delay. Failure
to present on time, thus, does not totally wipe out all liability. In fact, the legal situation amounts to
an acknowledgment of liability in the sum stated in the check. In this case, the Gueco spouses have
not alleged, much less shown that they or the bank which issued the managers check has suffered
damage or loss caused by the delay or non-presentment. Definitely, the original obligation to pay
certainly has not been erased.
Papa vs. A.U. Valencia
G.R. No. 105188; January 23, 1998

Facts:
Sometime in June 1982, herein private respondents A.U. Valencia and Co., Inc. (hereinafter
referred to as respondent Valencia, for brevity) and Felix Pearroyo (hereinafter called respondent
Pearroyo), filed with the Regional Trial Court of Pasig, Branch 151, a complaint for specific
performance against herein petitioner Myron C. Papa, in his capacity as administrator of the Testate
Estate of one Angela M. Butte.
The complaint alleged that on 15 June 1973, petitioner Myron C. Papa, acting as attorney-in-fact of
Angela M. Butte, sold to respondent Pearroyo, through respondent Valencia, a parcel of land,
consisting of 286.60 square meters, located at corner Retiro and Cadiz Streets, La Loma, Quezon
City, and covered by Transfer Certificate of Title No. 28993 of the Register of Deeds of Quezon
City; that prior to the alleged sale, the said property, together with several other parcels of land
likewise owned by Angela M. Butte, had been mortgaged by her to the Associated Banking
Corporation (now Associated Citizens Bank); that after the alleged sale, but before the title to the
subject property had been released, Angela M. Butte passed away; that despite representations made
by herein respondents to the bank to release the title to the property sold to respondent Pearroyo, the
bank refused to release it unless and until all the mortgaged properties of the late Angela M. Butte
were also redeemed; that in order to protect his rights and interests over the property, respondent
Pearroyo caused the annotation on the title of an adverse claim as evidenced by Entry No. P.E. -
6118/T-28993, inscribed on 18 January 1977.
On 29 June 1987, the trial court rendered a decision in favor of the respondent Pearroyo.
Petitioner appealed the aforesaid decision of the trial court to the Court of Appeals, alleging among
others that the sale was never consummated as he did not encash the check (in the amount
of P40,000.00) given by respondents Valencia and Pearroyo in payment of the full purchase price of
the subject lot. He maintained that what said respondents had actually paid was only the amount
of P5,000.00 (in cash) as earnest money.
Issue:
WON there was already payment by the delivery of the checks
Held:
Yes. While it is true that the delivery of a check produces the effect of payment only when it is
cashed, pursuant to Art. 1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced by
the creditors unreasonable delay in presentment. The acceptance of a check implies an undertaking
of due diligence in presenting it for payment, and if he from whom it is received sustains loss by
want of such diligence, it will be held to operate as actual payment of the debt or obligation for
which it was given. It has, likewise, been held that if no presentment is made at all, the drawer
cannot be held liable irrespective of loss or injury unless presentment is otherwise excused. This is
in harmony with Article 1249 of the Civil Code under which payment by way of check or other
negotiable instrument is conditioned on its being cashed, except when through the fault of the
creditor, the instrument is impaired. The payee of a check would be a creditor under this provision
and if its non-payment is caused by his negligence, payment will be deemed effected and the
obligation for which the check was given as conditional payment will be discharged.
Ilusorio vs. CA
G.R. No. 139130; November 27, 2002
Facts:
Petitioner is a prominent businessman who, at the time material to this case, was the Managing
Director of Multinational Investment Bancorporation and the Chairman and/or President of several
other corporations. He was a depositor in good standing of respondent bank, the Manila Banking
Corporation, under current Checking Account No. 06-09037-0. As he was then running about 20
corporations, and was going out of the country a number of times, petitioner entrusted to his
secretary, Katherine E. Eugenio, his credit cards and his checkbook with blank checks. It was also
Eugenio who verified and reconciled the statements of said checking account.
Between the dates September 5, 1980 and January 23, 1981, Eugenio was able to encash and
deposit to her personal account about seventeen (17) checks drawn against the account of the
petitioner at the respondent bank, with an aggregate amount of P119,634.34. Petitioner did not
bother to check his statement of account until a business partner apprised him that he saw Eugenio
use his credit cards. Petitioner fired Eugenio immediately, and instituted a criminal action against
her for estafa thru falsification before the Office of the Provincial Fiscal of Rizal. Private
respondent, through an affidavit executed by its employee, Mr. Dante Razon, also lodged a
complaint for estafa thru falsification of commercial documents against Eugenio on the basis of
petitioners statement that his signatures in the checks were forged.
Petitioner then requested the respondent bank to credit back and restore to its account the value of
the checks which were wrongfully encashed but respondent bank refused.

Issue:
WON Section 23 of the NIL applies in this case
Held:
No. It is a rule that when a signature is forged or made without the authority of the person whose
signature it purports to be, the check is wholly inoperative. No right to retain the instrument, or to
give a discharge therefor, or to enforce payment thereof against any party, can be acquired through
or under such signature. However, the rule does provide for an exception, namely: unless the party
against whom it is sought to enforce such right is precluded from setting up the forgery or
want of authority. In the instant case, it is the exception that applies. In our view, petitioner is
precluded from setting up the forgery, assuming there is forgery, due to his own negligence in
entrusting to his secretary his credit cards and checkbook including the verification of his
statements of account.
Bataan Cigar and Cigarette Factory vs. CA
G.R. No. 93048; March 3, 1994

Facts:
Petitioner, Bataan Cigar & Cigarette Factory, Inc. (BCCFI), a corporation involved in the
manufacturing of cigarettes, engaged one of its suppliers, King Tim Pua George (herein after
referred to as George King), to deliver 2,000 bales of tobacco leaf starting October 1978. In
consideration thereof, BCCFI, on July 13, 1978 issued crossed checks post dated sometime in
March 1979 in the total amount of P820,000.00.
Relying on the supplier's representation that he would complete delivery within three months from
December 5, 1978, petitioner agreed to purchase additional 2,500 bales of tobacco leaves, despite
the supplier's failure to deliver in accordance with their earlier agreement. Again petitioner issued
post dated crossed checks in the total amount of P1,100,000.00, payable sometime in September
1979.
During these times, George King was simultaneously dealing with private respondent SIHI. On July
19, 1978, he sold at a discount check TCBT 5518265 bearing an amount of P164,000.00, post dated
March 31, 1979, drawn by petitioner, naming George King as payee to SIHI. On December 19 and
26, 1978, he again sold to respondent checks TCBT Nos. 608967 & 608968, both in the amount of
P100,000.00, post dated September 15 & 30, 1979 respectively, drawn by petitioner in favor of
George King.
In as much as George King failed to deliver the bales of tobacco leaf as agreed despite petitioner's
demand, BCCFI issued on March 30, 1979, a stop payment order on all checks payable to George
King, including check TCBT 551826. Subsequently, stop payment was also ordered on checks
TCBT Nos. 608967 & 608968 on September 14 & 28, 1979, respectively, due to George King's
failure to deliver the tobacco leaves.
Efforts of SIHI to collect from BCCFI having failed, it instituted the present case, naming only
BCCFI as party defendant. The trial court pronounced SIHI as having a valid claim being a holder
in due course. It further said that the non-inclusion of King Tim Pua George as party defendant is
immaterial in this case, since he, as payee, is not an indispensable party.
Issue:
WON SIHI is a holder in due course
Held:
No. It is then settled that crossing of checks should put the holder on inquiry and upon him devolves
the duty to ascertain the indorser's title to the check or the nature of his possession. Failing in this
respect, the holder is declared guilty of gross negligence amounting to legal absence of good faith,
contrary to Sec. 52(c) of the Negotiable Instruments Law, and as such the consensus of authority is
to the effect that the holder of the check is not a holder in due course.
In the present case, BCCFI's defense in stopping payment is as good to SIHI as it is to George King.
Because, really, the checks were issued with the intention that George King would supply BCCFI
with the bales of tobacco leaf. There being failure of consideration, SIHI is not a holder in due
course. Consequently, BCCFI cannot be obliged to pay the checks.
Prudencio vs. CA
G.R. No. 34539; July 14, 1986

Facts:
Appellants are the registered owners of a parcel of land located in Sampaloc, Manila, and covered
by T.C.T. 35161 of the Register of Deeds of Manila. On October 7, 1954, this property was
mortgaged by the appellants to the Philippine National Bank, hereinafter called PNB, to guarantee a
loan of P1,000.00 extended to one Domingo Prudencio.
Sometime in 1955, the Concepcion & Tamayo Construction Company, hereinafter called Company,
had a pending contract with the Bureau of Public Works, hereinafter called the Bureau, for the
construction of the municipal building in Puerto Princess, Palawan, in the amount of P36,800.00
and, as said Company needed funds for said construction, Jose Toribio, appellants' relative, and
attorney-in-fact of the Company, approached the appellants asking them to mortgage their property
to secure the loan of P10,000.00 which the Company was negotiating with the PNB.
After some persuasion appellants signed on December 23, 1955 the 'Amendment of Real Estate
Mortgage', mortgaging their said property to the PNB to guaranty the loan of P10,000.00 extended
to the Company. The terms and conditions of the original mortgage for Pl,000.00 were made
integral part of the new mortgage for P10,000.00 and both documents were registered with the
Register of Deeds of Manila. The promissory note covering the loan of P10,000.00 dated December
29, 1955, maturing on April 27, 1956, was signed by Jose Toribio, as attorney-in-fact of the
Company, and by the appellants. Appellants also signed the portion of the promissory note
indicating that they are requesting the PNB to issue the Check covering the loan to the Company.
On the same date (December 23, 1955) that the 'Amendment of Real Estate' was executed, Jose
Toribio, in the same capacity as attorney-in- fact of the Company, executed also the 'Deed of
Assignment' assigning all payments to be made by the Bureau to the Company on account of the
contract for the construction of the Puerto Princesa building in favor of the PNB.
This assignment of credit to the contrary notwithstanding, the Bureau; with approval, of the PNB,
conditioned, however that they should be for labor and materials, made three payments to the
Company on account of the contract price totalling P11,234.40. The Bureau's last request for
P5,000.00 on June 20, 1956, however, was denied by the PNB for the reason that since the loan was
already overdue as of April 28, 1956, the remaining balance of the contract price should be applied
to the loan.
The Company abandoned the work, as a consequence of which on June 30, 1956, the Bureau
rescinded the construction contract and assumed the work of completing the building. On
November 14, 1958, appellants wrote the PNB contending that since the PNB authorized payments
to the Company instead of on account of the loan guaranteed by the mortgage there was a change in
the conditions of the contract without the knowledge of appellants, which entitled the latter to a
cancellation of their mortgage contract.
Failing in their bid to have the real estate mortgage cancelled, appellants filed on June 27, 1959 this
action against the PNB, the Company, the latter's attorney-in-fact Jose Toribio, and the District
Engineer of Puerto Princesa, Palawan, seeking the cancellation of their real estate mortgage. The
complaint was amended to exclude the Company as defendant, it having been shown that its life as
a partnership had already expired and, in lieu thereof, Ramon Concepcion and Manuel M. Tamayo,
partners of the defunct Company, were impleaded in their private capacity as defendants.

Issue:
WON Petitoners are released from their obligation.
Held:
Yes. There is no question that as accommodation makers, petitioners would be primarily and
unconditionally liable on the promissory note to a holder for value, regardless of whether they stand
as sureties or solidary co-debtors since such distinction would be entirely immaterial and
inconsequential as far as a holder for value is concerned. Consequently, the petitioners cannot
claim to have been released from their obligation simply because at the time of payment of such
obligation was temporarily deferred by the PNB without their knowledge and consent. There
has to be another basis for their claim of having been freed from their obligation. It has to be
determined if PNB was a holder for value.

A holder for value is one who meets the requirement of being a holder in due course except the
notice for want of consideration. In the case at bar, PNB may not be considered as a holder for
value. Not only was PNB an immediate party or privy to the promissory note, knowing
fully well that petitioners only signed as accommodation parties, but more importantly it was the
Deed of Assignment which moved the petitioners to sign the promissory note. Petitioners also
relied on the belief that there will be no alterations to the terms of the agreement. The deed
provided that there will no further conditions which could possibly alter the agreement without the
consent of the petitioner such as the grant of greater priority to obligations other than the
payment of the loan. This notwithstanding, the bank approved the release of payments to the
Company instead of the same to the bank. This was in violation of the deed of
assignment and prejudiced the rights of petitioners. The bank was not in good faith—a
requisite for a holder to be one in due course.
Dino vs. Judal-Loot
G.R. No. 170912; April 12, 2010

Facts:
Sometime in December 1992, a syndicate, one of whose members posed as an owner of several
parcels of land situated in Canjulao, Lapu-lapu City, approached petitioner and induced him to lend
the group P3,000,000.00 to be secured by a real estate mortgage on the properties. A member of the
group, particularly a woman pretending to be a certain Vivencia Ompok Consing, even offered to
execute a Deed of Absolute Sale covering the properties, instead of the usual mortgage
contract. Enticed and convinced by the syndicates offer, petitioner issued three Metrobank checks
totaling P3,000,000.00, one of which is Check No. C-MA-142119406-CA postdated 13 February
1993 in the amount of P1,000,000.00 payable to Vivencia Ompok Consing and/or Fe Lobitana.
Upon scrutinizing the documents involving the properties, petitioner discovered that the documents
covered rights over government properties. Realizing he had been deceived, petitioner advised
Metrobank to stop payment of his checks. However, only the payment of Check No. C-MA-
142119406-CA was ordered stopped. The other two checks were already encashed by the payees.
Meanwhile, Lobitana negotiated and indorsed Check No. C-MA- 142119406-CA to respondents in
exchange for cash in the sum of P948,000.00, which respondents borrowed from Metrobank and
charged against their credit line. Before respondents accepted the check, they first inquired from the
drawee bank, Metrobank, Cebu-Mabolo Branch which is also their depositary bank, if the subject
check was sufficiently funded, to which Metrobank answered in the positive. However, when
respondents deposited the check with Metrobank, Cebu-Mabolo Branch, the same was dishonored
by the drawee bank for reason PAYMENT STOPPED.
Issue:
WON the respondents are considered Holder in Due Course
Held:
No. In the case of a crossed check, as in this case, the following principles must additionally be
considered: A crossed check (a) may not be encashed but only deposited in the bank; (b) may be
negotiated only once to one who has an account with a bank; and (c) warns the holder that it has
been issued for a definite purpose so that the holder thereof must inquire if he has received the
check pursuant to that purpose; otherwise, he is not a holder in due course.
Based on the foregoing, respondents had the duty to ascertain the indorsers, in this case Lobitanas,
title to the check or the nature of her possession. This respondents failed to do. Respondents
verification from Metrobank on the funding of the check does not amount to determination of
Lobitanas title to the check. Failing in this respect, respondents are guilty of gross negligence
amounting to legal absence of good faith, contrary to Section 52(c) of the Negotiable Instruments
Law. Hence, respondents are not deemed holders in due course of the subject check.