1
HSBC Ltd. v Commissioner of Internal Revenue
NATURE: Petitions for review on certiorari assailing the Decision and Resolution of the CA.
The respective Decisions in the said cases similarly reversed and set aside the decisions of the
CTA and dismissed the petition of Petitioner HSBC.
FACTS:
1. HSBC performs custodial services on behalf of its investor-clients with respect to
their passive investments in the Philippines, particularly investments in shares of
stocks in domestic corporations. As a custodian bank, HSBC serves as the
collection/payment agent.
2. HSBC’s investor-clients maintain Philippine peso and/or foreign currency accounts,
which are managed by HSBC through instructions given through electronic
messages. The said instructions are standard forms known in the banking industry
as SWIFT, or "Society for Worldwide Interbank Financial Telecommunication." In
purchasing shares of stock and other investment in securities, the investor-clients
would send electronic messages from abroad instructing HSBC to debit their local
or foreign currency accounts and to pay the purchase price therefor upon receipt
of the securities.
3. Pursuant to the electronic messages of its investor-clients, HSBC purchased and
paid Documentary Stamp Tax (DST) from September to December 1997 and also
from January to December 1998 amounting to P19,572,992.10 and P32,904,437.30,
respectively.
4. BIR, thru its then Commissioner, issued BIR Ruling to the effect that instructions or
advises from abroad on the management of funds located in the Philippines which
do not involve transfer of funds from abroad are not subject to DST. A
documentary stamp tax shall be imposed on any bill of exchange or order for
payment purporting to be drawn in a foreign country but payable in the
Philippines.
a. While the payor is residing outside the Philippines, he maintains a local
and foreign currency account in the Philippines from where he will draw
the money intended to pay a named recipient. The instruction or order
to pay shall be made through an electronic message. Consequently,
there is no negotiable instrument to be made, signed or issued by the
payee.
b. Such electronic instructions by the non-resident payor cannot be
considered as a transaction per se considering that the same do not
involve any transfer of funds from abroad or from the place where the
instruction originates. Insofar as the local bank is concerned, such
instruction could be considered only as a memorandum and shall be
entered as such in its books of accounts. The actual debiting of the
payor’s account, local or foreign currency account in the Philippines, is
the actual transaction that should be properly entered as such. Under the
Documentary Stamp Tax Law, the mere withdrawal of money from a
bank deposit, local or foreign currency account, is not subject to DST,
unless the account so maintained is a current or checking account, in
which case, the issuance of the check or bank drafts is subject to the
documentary stamp tax.
c. Likewise, the receipt of funds from another bank in the Philippines for
deposit to the payee’s account and thereafter upon instruction of the
non-resident depositor-payor, through an electronic message, the
depository bank to debit his account and pay a named recipient shall not
be subject to documentary stamp tax. It should be noted that the receipt
of funds from another local bank in the Philippines by a local depository
bank for the account of its client residing abroad is part of its regular
banking transaction which is not subject to documentary stamp tax.
5. With the above BIR Ruling as its basis, HSBC filed on an administrative claim for the
refund of allegedly representing erroneously paid DST to the BIR
6. As its claims for refund were not acted upon by the BIR, HSBC subsequently
brought the matter to the CTA, which favored HSBC and ordered payment of
refund or issuance of tax credit.
7. However, the CA reversed decisions of the CTA and ruled that the electronic
messages of HSBC’s investor-clients are subject to DST.
a. DST is levied on the exercise by persons of certain privileges conferred by
law for the creation, revision, or termination of specific legal relationships
through the execution of specific instruments, independently of the legal
status of the transactions giving rise thereto.
ISSUE: Whether or not the electronic messages are considered transactions pertaining to
negotiable instruments that warrant the payment of DST.
HELD:
NO. The Court agrees with the CTA that the DST under Section 181 of the Tax Code is levied
on the acceptance or payment of "a bill of exchange purporting to be drawn in a foreign
country but payable in the Philippines" and that "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
 2

sum certain in money to order or to bearer."

The Court further agrees with the CTA that the electronic messages of HSBC’s investor-clients
containing instructions to debit their respective local or foreign currency accounts in the
Philippines and pay a certain named recipient also residing in the Philippines is not the
transaction contemplated under Section 181 of the Tax Code as such instructions are
"parallel to an automatic bank transfer of local funds from a savings account to a checking
account maintained by a depositor in one bank." The Court favorably adopts the finding of
the CTA that the electronic messages "cannot be considered negotiable instruments as they
lack the feature of negotiability, which, is the ability to be transferred" and that the said
electronic messages are "mere memoranda" of the transaction consisting of the "actual
debiting of the [investor-client-payor’s] local or foreign currency account in the Philippines"
and "entered as such in the books of account of the local bank," HSBC.

The instructions given through electronic messages that are subjected to DST in these cases
are not negotiable instruments as they do not comply with the requisites of negotiability
under Section 1 of the Negotiable Instruments Law. The electronic messages are not signed
by the investor-clients as supposed drawers of a bill of exchange; they do not contain an
unconditional order to pay a sum certain in money as the payment is supposed to come from
a specific fund or account of the investor-clients; and, they are not payable to order or bearer
but to a specifically designated third party. Thus, the electronic messages are not bills of
exchange. As there was no bill of exchange or order for the payment drawn abroad and
made payable here in the Philippines, there could have been no acceptance or payment that
will trigger the imposition of the DST under Section 181 of the Tax Code.

In these cases, the electronic messages received by HSBC from its investor-clients abroad
instructing the former to debit the latter's local and foreign currency accounts and to pay the
purchase price of shares of stock or investment in securities do not properly qualify as either
presentment for acceptance or presentment for payment. There being neither presentment
for acceptance nor presentment for payment, then there was no acceptance or payment that
could have been subjected to DST to speak of.

WHEREFORE, the petitions are hereby GRANTED and the Decisions dated May 2, 2002 in CTA
Case No. 6009 and dated December 18, 2002 in CT A Case No. 5951 of the Court of Tax
Appeals are REINSTATED. SO ORDERED.
 3

FIRST DIVISION (a) It must be in writing and signed by the maker or drawer;

G.R. No. 184458 January 14, 2015 (b) Must contain an unconditional promise or order to pay a sum certain in money;

(c) Must be payable on demand, or at a fixed or determinable future time;

RODRIGO RIVERA, Petitioner,
vs.
SPOUSES SALVADOR CHUA AND VIOLETA S. CHUA, Respondents. (d) Must be payable to order or to bearer; and

(e) Where the instrument is addressed to a drawee, he must be named or otherwise

FACTS
indicated therein with reasonable certainty.
Rivera and Salvador are kumpadres. Rivera obtained a loan from the Spouses Chua, secured
On the other hand, Section 184 of the NIL defines what negotiable promissory note is:
by a promissory note. Almost three years from the date of payment stipulated in the
SECTION 184. Promissory Note, Defined. – A negotiable promissory note within the meaning
promissory note, Rivera, as partial payment for the loan, issued and delivered to the Spouses
of this Act is an unconditional promise in writing made by one person to another, signed by
Chua, as payee, a check drawn against Rivera’s current account with the PCIB. The Spouses
the maker, engaging to pay on demand, or at a fixed or determinable future time, a sum
Chua received another check presumably issued by Rivera, likewise drawn against Rivera’s
certain in money to order or to bearer. Where a note is drawn to the maker’s own order, it is
PCIB current account, duly signed and dated, but blank as to payee and amount. Ostensibly,
not complete until indorsed by him. The Promissory Note in this case is made out to “specific
as per understanding by the parties, PCIB Check2 was issued in the amount of P133,454.00
persons”, herein respondents, the Spouses Chua, and not to order or to bearer, or to the
with "cash" as payee. Purportedly, both checks were simply partial payment for Rivera’s loan
order of the Spouses Chua as payees. However, even if Rivera’s Promissory Note is not a
in the principal amount of P120,000.00. Upon presentment for payment, the two checks
negotiable instrument and therefore outside the coverage of Section 70 of the NIL which
were dishonored for the reason "account closed." Despite repeated demands and due to
provides that presentment for payment is not necessary to charge the person liable on the
Rivera’s unjustified refusal to pay, the Spouses Chua were constrained to file a suit. In his
instrument, Rivera is still liable under the terms of the Promissory Note that he issued. The
Answer, Rivera claimed forgery of the subject Promissory Note and denied his indebtedness
Promissory Note is unequivocal about the date when the obligation falls due and becomes
thereunder. After trial, the MeTC ruled in favor of the Spouses Chua. On appeal, the RTC
demandable. Rivera had already incurred in delay when he failed to pay the amount due to
affirmed the MeTC decision. Both trial courts found the Promissory Note as authentic and
the Spouses Chua on the date specified under the Promissory Note. Article 1169 of the Civil
validly bore the signature of Rivera. Undaunted, Rivera (kapal mo gerl) appealed to the CA
Code explicitly provides:
which affirmed Rivera’s liability under the Promissory Note. Hence, the petition.
Art. 1169. Those obliged to deliver or to do something incur in delay from the time the
ISSUE: WON the subject promissory note is a negotiable instrument.
obligee judicially or extrajudicially demands from them the fulfillment of their obligation.
RULING:
However, the demand by the creditor shall not be necessary in order that delay may exist:
The Court ruled in the negative.
(1) When the obligation or the law expressly so declare; or
Petitioner’s contention: (Rivera) that even assuming the validity of the Promissory Note,
(2) When from the nature and the circumstances of the obligation it appears that the
demand was still necessary in order to charge him liable thereunder. Rivera argues that it
designation of the time when the thing is to be delivered or the service is to be rendered was
was grave error on the part of the appellate court to apply Section 70 of the Negotiable
a controlling motive for the establishment of the contract; or
Instruments Law (NIL).
(3) When demand would be useless, as when the obligor has rendered it beyond his power
We agree that the subject promissory note is not a negotiable instrument and the provisions
to perform.
of the NIL do not apply to this case. Section 1 of the NIL requires the concurrence of the
following elements to be a negotiable instrument: We refer to the clause in the Promissory Note containing the stipulation of interest:
 4

It is agreed and understood that failure on my part to pay the amount of (P120,000.00) 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.

The parties evidently agreed that the maturity of the obligation at a date certain, 31
December 1995, will give rise to the obligation to pay interest. The Promissory Note
expressly provided that after 31 December 1995, default commences and the stipulation on
payment of interest starts. Given this circumstance, demand by the creditor is no longer
necessary in order that delay may exist since the contract itself already expressly so declares.
The mere failure of [Spouses Chua] to immediately demand or collect payment of the value
of the note does not exonerate [Rivera] from his liability therefrom.

The petition is dismissed

 5

SPS. PEDRO AND FLORENCIA VIOLAGO, Petitioners, vs. BA FINANCE CORPORATION and ISSUE:
AVELINO VIOLAGO, Respondents.
1. WON the subject note is a negotiable instrument.
2. 2. WON BA Finance is a holder in due course.
FACTS:
Avelino Violago, President of Violago Motor Sales Corporation (VMSC), offered to sell a car to RULING:
his cousin, Pedro F. Violago, and the latter’s wife, Florencia. The spouses would just have to
1. The Court ruled in the affirmative.
pay a down payment and the balance would be financed by respondent BA Finance. The
Petitioners’ contention: that Article 1318 of the Civil Code should be applied since
spouses would pay the monthly installments to BA Finance while Avelino would take care of
their consent was vitiated by fraud, and, thus, the promissory note does not carry
the documentation and approval of financing of the car. Under these terms, the spouses
any legal effect despite its negotiation.
then agreed to purchase a car. The spouses and Avelino signed a promissory note under
which they bound themselves to pay jointly and severally to the order of VMSC the principal
amount of the car pa in 36 monthly installments. The spouses executed a chattel mortgage The promissory note is clearly negotiable. The appellate court was correct in finding all the
over the car in favor of VMSC as security. VMSC, through Avelino, endorsed the promissory requisites of a negotiable instrument present. The NIL provides:
note to BA Finance without recourse. After receiving the principal amount, VMSC executed a
Deed of Assignment of its rights and interests under the promissory note and chattel Section 1. Form of Negotiable Instruments. – An instrument to be negotiable must conform
mortgage in favor of BA Finance. to the following requirements:

The sales invoice issued by the VMSC was filed with the LTO Baliwag Branch which issued
Certificate of Registration in the name of Pedro. The spouses were unaware that the same
car had already been sold previously to Esmeraldo Violago, another cousin of Avelino, and
registered in Esmeraldo’s name by the LTO-San Rafael Branch. Despite the spouses’ demand
for the car and Avelino’s repeated assurances, there was no delivery of the vehicle. Since
VMSC failed to deliver the car, Pedro did not pay any monthly amortization to BA Finance. BA
Finance filed with the RTC a complaint for Replevin with Damages against the spouses and
obtained a favourable decision. A writ of execution was thereafter issued, followed by an
alias writ of execution. The spouses Violago filed a MR and Motion to Quash Writ of
Execution on the basis of lack of a valid service of summons on them, among other reasons.
The RTC denied the motions. Hence, the spouses elevated the case before the CA. The CA
nullified the RTC’s order and such decision became final and executory.
The spouses filed their Answer before the RTC, alleging the following: they never received
the vehicle from VMSC; the vehicle was previously sold to Esmeraldo; BA Finance was not a
holder in due course under Section 59 of the Negotiable Instruments Law (NIL); and the
recourse of BA Finance should be against VMSC. The RTC rendered a decision in favor of BA
Finance and as such ordered the spouses to deliver the car to BA Fnance or to pay the
remaining the balance. Petitioners-spouses appealed to the CA. The spouses argued that the
promissory note is a negotiable instrument; hence, the trial court should [have applied the
Civil Code and not the NIL]. The spouses also asserted that since VMSC was not the owner of
the vehicle at the time of sale, the sale was null and void for the failure in the "cause or
consideration" of the promissory note, which in this case was the sale and delivery of the
vehicle. The appellate court ruled that the promissory note was a negotiable instrument.
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty.
The promissory note clearly satisfies the requirements of a negotiable instrument under the
NIL. It is in writing; signed by the Violago spouses; has an unconditional promise to pay a
certain amount, i.e., PhP 209,601, on specific dates in the future which could be determined
from the terms of the note; made payable to the order of VMSC; and names the drawees
with certainty. The indorsement by VMSC to BA Finance appears likewise to be valid and
regular.
2. The Court ruled in the affirmative.
Section 52. What constitutes a holder in due course.––A holder in due course is a holder who
has taken the instrument under the following conditions:
(a)That it is complete and regular upon its face;
(b)That he became the holder of it before it was overdue, and without notice that it had
been previously dishonored, if such was the fact;
(c)That he took it in good faith and for value;
(d)That at the time it was negotiated to him he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it.
 6

The law presumes that a holder of a negotiable instrument is a holder thereof in due course.
In this case, the CA is correct in finding that BA Finance meets all the foregoing requisites. In
the present recourse, on its face, (a) the "Promissory Note", Exhibit "A", is complete and
regular; (b) the "Promissory Note" was endorsed by the VMSC in favor of the Appellee; (c)
the Appellee, when it accepted the Note, acted in good faith and for value; (d) the Appellee
was never informed, before and at the time the "Promissory Note" was endorsed to the
Appellee, that the vehicle sold to the Defendants-Appellants was not delivered to the latter
and that VMSC had already previously sold the vehicle to Esmeraldo Violago. Although Jose
Olvido mortgaged the vehicle to Generoso Lopez, who assigned his rights to the BA Finance
Corporation (Cebu Branch), the same occurred only on May 8, 1987, much later than August
4, 1983, when VMSC assigned its rights over the "Chattel Mortgage" by the Defendants-
Appellants to the Appellee.

In the hands of one other than a holder in due course, a negotiable instrument is subject to
the same defenses as if it were non-negotiable. A holder in due course, however, holds the
instrument free from any defect of title of prior parties and from defenses available to prior
parties among themselves, and may enforce payment of the instrument for the full amount
thereof. Since BA Finance is a holder in due course, petitioners cannot raise the defense of
non-delivery of the object and nullity of the sale against the corporation. The NIL considers
every negotiable instrument prima facie to have been issued for a valuable consideration. In
Salas, we held that a party holding an instrument may enforce payment of the instrument for
the full amount thereof. As such, the maker cannot set up the defense of nullity of the
contract of sale. Thus, petitioners are liable to respondent corporation for the payment of
the amount stated in the instrument.
The petition is dismissed.
 7

Consolidated Plywood Industries v IFC Leasing and Acceptance Corporation

FACTS:
Petitioner bought from Atlantic Gulf and Pacific Company, through its sister company
Industrial Products Marketing, two used tractors. Petitioner was issued a sales invoice for the
two used tractors. At the same time, the deed of sale with chattel mortgage with promissory
note was issued.
Simultaneously, the seller assigned the deed of sale with chattel mortgage and promissory
note to respondent. The used tractors were then delivered but barely 14 days after, the
tractors broke down. The seller sent mechanics but the tractors were not repaired
accordingly as they were no
longer serviceable. Petitioner would delay the payments on the promissory notes until the
seller completes its obligation under the warranty.
Thereafter, a collection suit was filed against petitioner for the payment of the promissory
note.
HELD:
It is patent that the seller is liable for the breach in warranty against the petitioner. This
liability as a general rule extends to the corporation to whom it assigned its rights and
interests unless the assignee is a holder in due course of the promissory note in question,
assuming the note is negotiable, in which case, the latter’s rights are based on a negotiable
instrument and assuming further that the petitioner’s defense may not prevail against it.
The promissory note in question is not a negotiable instrument. The promissory note in
question lacks the so-called words of negotiability. And as such, it follows that the
respondent can never be a holder in due course but remains merely an assignee of the note
in question. Thus, the petitioner may raise against the respondents all defenses available to it
against the seller.

ROMEO C. GARCIA v. DIONISIO V. LLAMAS
G.R. No. 154127 December 8, 2003
Doctrine:
Novation cannot be presumed. It must be clearly and unequivocally shown that it indeed
took place, either by the express assent of the parties or by the complete incompatibility
between the old and the new agreements.
An accommodation party is liable for the instrument to a holder for value even if, at the time
of its taking, the latter knew the former to be only an accommodation party. The relation
between an accommodation party and the party accommodated is, in effect, one of principal
and surety — the accommodation party being the surety. It is a settled rule that a surety is
bound equally and absolutely with the principal and is deemed an original promissor and
debtor from the beginning.
Facts:
Petitioner and Eduardo De Jesus borrowed P400,000.00 from respondent. Both executed a
promissory note wherein they bound themselves jointly and severally to pay the loan on or
before 23 January 1997 with a 5% interest per month. The loan has long been overdue and,
despite repeated demands, both have failed and refused to pay it. Hence, a complaint was
filed against both.
Resisting the complaint, Garcia averred that he assumed no liability because he signed
merely as an accommodation party for De Jesus; and that he is relieved from any liability
arising from the note inasmuch as the loan had been paid by De Jesus by means of a check
dated 17 April 1997; and that, in any event, the issuance of the check and respondent’s
acceptance thereof novated or superseded the note.
Respondent answered that there was no novation to speak of because the check bounced.
Issues:
1. Whether or not there was novation in the obligation
2. Whether or not the defense that petitioner was only an accommodation party had any
basis
8
Held:
1. No. In order to change the person of the debtor, the old one must be expressly released
from the obligation, and the third person or new debtor must assume the former’s place in
the relation (Reyes v. CA). Well-settled is the rule that novation is never presumed (Security
Bank v. Cuenca). Consequently, that which arises from a purported change in the person of
the debtor must be clear and express. It is thus incumbent on petitioner to show clearly and
unequivocally that novation has indeed taken place. Petitioner failed to do this. In the
present case, petitioner has not shown that he was expressly released from the obligation,
that a third person was substituted in his place, or that the joint and solidary obligation was
cancelled and substituted by the solitary undertaking of De Jesus.
Novation is a mode of extinguishing an obligation by changing its objects or principal
obligations, by substituting a new debtor in place of the old one, or by subrogating a third
person to the rights of the creditor (Idolor v. CA, February 7, 2001). Article 1293 of the Civil
Code defines novation as follows:
“Art. 1293. Novation which consists in substituting a new debtor in the place of the original
one, may be made even without the knowledge or against the will of the latter, but not
without the consent of the creditor. Payment by the new debtor gives him rights mentioned
in articles 1236 and 1237.”
In general, there are two modes of substituting the person of the debtor: (1) expromision
and (2) delegacion. In expromision, the initiative for the change does not come from — and
may even be made without the knowledge of — the debtor, since it consists of a third
person’s assumption of the obligation. As such, it logically requires the consent of the third
person and the creditor. In delegacion, the debtor offers, and the creditor accepts, a third
person who consents to the substitution and assumes the obligation; thus, the consent of
these three persons are necessary. Both modes of substitution by the debtor require the
consent of the creditor.
Novation may also be extinctive or modificatory. It is extinctive when an old obligation is
terminated by the creation of a new one that takes the place of the former. It is merely
modificatory when the old obligation subsists to the extent that it remains compatible with
the amendatory agreement (Babst v. CA). Whether extinctive or modificatory, novation is
made either by changing the object or the principal conditions, referred to as objective or
real novation; or by substituting the person of the debtor or subrogating a third person to
the rights of the creditor, an act known as subjective or personal novation (Spouses Bautista
v. Pilar Development Corporation, 371 Phil. 533, August 17, 1999).
 9

For novation to take place, the following requisites must concur:

1) There must be a previous valid obligation.

2) The parties concerned must agree to a new contract.

3) The old contract must be extinguished.

4) There must be a valid new contract (Security Bank v Cuenca, October 3, 2000)

Novation may also be express or implied. It is express when the new obligation declares in
unequivocal terms that the old obligation is extinguished. It is implied when the new
obligation is incompatible with the old one on every point (Article 1292, NCC). The test of
incompatibility is whether the two obligations can stand together, each one with its own
independent existence (Molino v. Security Diners International Corporation, August 16,
2001).

2. No. The note was made payable to a specific person rather than to bearer or to order — a
requisite for negotiability under the Negotiable Instruments Law (NIL). Hence, petitioner
cannot avail himself of the NIL’s provisions on the liabilities and defenses of an
accommodation party.

Even granting arguendo that the NIL was applicable, still, petitioner would be liable for the
promissory note. Under Article 29 of the NIL, an accommodation party is liable for the
instrument to a holder for value even if, at the time of its taking, the latter knew the former
to be only an accommodation party. The relation between an accommodation party and the
party accommodated is, in effect, one of principal and surety — the accommodation party
being the surety. It is a settled rule that a surety is bound equally and absolutely with the
principal and is deemed an original promissor and debtor from the beginning.
 10

(Applicability of NIL) Ruling:

Title: FIRESTONE TIRE & RUBBER COMPANY OF THE PHILIPPINES v.

COURT OF APPEALS and LUZON DEVELOPMENT BANK No, a special withdrawal slip is a non-negotiable instrument and the Negotiable Instrument

(GR No. 113236; March 5, 2001) Law is not applicable in the case.

The Supreme Court ruled that the essence of negotiability which characterizes a negotiable
Facts:
paper as a credit instrument lies in its freedom to circulate freely as a substitute for money.
Fojas-Arca Enterprise Company is maintaining a special savings account with the respondent
The withdrawal slips lacked this character and therefore the rules governing the giving of
(Luzon Development Bank). The respondent authorized and allowed withdrawals of funds
immediate notice of dishonor of negotiable instrument do not apply
through the medium of special withdrawal slips which are supplied by Fojas-Arca.

Fojas-Arca delivered six (6) special withdrawal slips and these were deposited by the

petitioner to its bank account in Citibank. The petitioner was informed that withdrawal slips

No. 42127 dated June 15, 1978 (Php P1,198,092.80) and

No. 42129 dated August 15, 1978 (Php 880,000.00)

were dishonored and not paid by the respondent due to insufficiency of Fojas-Arca”s funds

on deposit.

The Citibank debited petitioner’s account representing the aggregate amount of the two

dishonored special withdrawal slips. The petitioner filed a complaint for damages against the

respondent and argued that the pecuniary losses it suffered was caused by the respondent.

Issue: Is a special withdrawal slip a negotiable instrument and is the Negotiable Instrument

Law applicable in the case?

 11

PEOPLE v. GILBERT WAGAS, G.R. No. 157943, September 4, 2013 Wagas could not be held guilty of estafa simply because he had issued the check used to
defraud Ligaray. The proof of guilt must still clearly show that it had been Wagas as the
FACTS: drawer who had defrauded Ligaray by means of the check.

1. Ligaray claims that Gilbert Wagas placed an order of 200 sacks of rice for delivery. Thirdly, Ligaray admitted that it was Cañada who received the rice from him and who
2. Ligaray was met by Cañada, brother in law, of Wagas who delivered the check to him. Considering that the records are bereft of any showing that
handed him a check payable to cash in the amount of 200,000 Cañada was then acting on behalf of Wagas, the RTC had no factual and legal bases to
php. It was also Cañada who signed the delivery receipt. conclude and find that Cañada had been acting for Wagas.
3. The Check was dishonored for insufficiency of funds by Solid Bank.
4. Despite repeated demands, no payment to Ligaray was made.
5. Ligaray filed a criminal complaint for estafa against Wagas.
6. RTC convicted Wagas for estafa.

ISSUE:

WON Wagas is guilty beyond reasonable doubt of the crime of estafa. NO.

RULING:

In order to constitute estafa under estafa, the act of postdating or issuing a check in payment
of an obligation must be the efficient cause of the defraudation. This means that the
offender must be able to obtain money or property from the offended party by reason of the
issuance of the check, whether dated or postdated. In other words, the prosecution must
show that the person to whom the check was
delivered would not have parted with his money or property were it not for the issuance of
the check by the offender.

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 dishonored when
presented for payment because of the insufficiency of funds.

In every criminal prosecution, however, the identity of the offender, like the crime itself,
must be established by proof beyond reasonable doubt. In that regard, the prosecution did
not establish beyond reasonable doubt that it was Wagas who had defrauded
Ligaray by issuing the check.

Firstly, Ligaray expressly admitted that he did not personally meet the person with whom he
was transacting over the telephone.

Secondly, the check delivered to Ligaray 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. This rendered it highly probable that
Wagas had issued the check not to Ligaray, but to somebody else like Cañada, his brother-
in-law, who then negotiated it to Ligaray. Relevantly, Ligaray confirmed that he did not
himself see or meet Wagas at the time of the transaction and thereafter.
 12

PNB v. Rodriguez
GR No. 170325
Facts:
Respondents-Spouses Erlando and Norma Rodriguez were clients of petitioner Philippine
National Bank (PNB), Amelia Avenue Branch, Cebu City. They maintained savings and
demand/checking accounts, namely, PNBig Demand Deposits (Checking/Current Account No.
810624-6 under the account name Erlando and/or Norma Rodriguez), and PNBig Demand
Deposit (Checking/Current Account No. 810480-4 under the account name Erlando T.
Rodriguez).
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.
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?
Held:
In the case at bar, respondents-spouses were the bank’s depositors. The checks were drawn
against respondents-spouses’ accounts. PNB, as the drawee bank, had the responsibility to
ascertain the regularity of the indorsements, and the genuineness of the signatures on the
checks before accepting them for deposit. Lastly, PNB was obligated to pay the checks in
strict accordance with the instructions of the drawers. Petitioner miserably failed to
discharge this burden.

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.
The checks were presented to PNB for deposit by a representative of PEMSLA absent any
type of indorsement, forged or otherwise. The facts clearly show that the bank did not pay
the checks in strict accordance with the instructions of the drawers, respondents-spouses.
Instead, it paid the values of the checks not to the named payees or their order, but to
PEMSLA, a third party to the transaction between the drawers and the payees.
Moreover, PNB was negligent in the selection and supervision of its employees. The
trustworthiness of bank employees is indispensable to maintain the stability of the banking
industry. Thus, banks are enjoined to be extra vigilant in the management and supervision of
their employees.

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 ofP2,345,804.00. These were payable to forty seven (47) individual payees who
were all members of PEMSLA.
 13

John Dy vs People W.L. Foods' accountant had no authority to fill the amounts.

FACTS: ISSUE: Whether or not Dy is liable for estafa and in violation of BP 22. Acquitted for the

Since 1990, John Dy under the business name Dyna Marketing has been the distributor of criminal cases in relation to the first check.
W.L. Food Products (W.L. Foods). Dy would pay W.L. Foods in either cash or check upon pick
up of stocks of snack foods. At times, he would entrust the payment to one of his drivers. HELD:

June 24, 1992: Dy's driver went to the branch office of W.L. Foods to pick up stocks of snack YES but only for the 2nd check. Estafa under Article 315, paragraph 2(d) of the Revised Penal
foods. He introduced himself to the checker, Mary Jane D. Maraca, who upon confirming Dy's Code, as amended by Republic Act No. 4885 elements
credit with the main office, gave him merchandise worth P106,579.60.
1. Postdating or issuance of a check in payment of an obligation contracted at the time the
In return, the driver handed her a blank Far East Bank and Trust Company (FEBTC) Check check was issued
postdated July 22, 1992 signed by Dy.
2. Insufficiency of funds to cover the check - including the uncollected deposit he had more
July 1, 1992: the driver obtained snack foods worth P226,794.36 in exchange for a blank than enough funds to cover the first check
FEBTC Check postdated July 31, 1992.
3. Damage to the payee
In both instances, the driver was issued an unsigned delivery receipt. When presented for
Section 191 of the Negotiable Instruments Law "issue" - first delivery of an instrument,
payment, FEBTC dishonored the checks for insufficiency of funds.
complete in form, to a person who takes it as a holder.
Later, Gonzales sent Atty. Jimeno another letter advising her that FEBTC Check for
Significantly, delivery is the final act essential to the negotiability of an instrument. Delivery
P106,579.60 was returned to the drawee bank for the reasons stop payment order and
denotes physical transfer of the instrument by the maker or drawer coupled with an
drawn against uncollected deposit (DAUD), and not because it was drawn against insufficient
intention to convey title to the payee and recognize him as a holder. It means more than
funds as stated in the first letter.
handing over to another; it imports such transfer of the instrument to another as to enable
Dy's savings deposit account ledger reflected a balance of P160,659.39 as of July 22, 1992. the latter to hold it for himself.
This, however, included a regional clearing check for P55,000 which he deposited on July 20,
Even if the checks were given to W.L. Foods in blank, this alone did not make its issuance
1992, and which took 5 banking days to clear.
invalid.
When William Lim, owner of W.L. Foods, phoned Dy about the matter, the latter explained
When the checks were delivered to Lim, through his employee, he became a holder with
that he could not pay since he had no funds yet. This prompted the former to send petitioner
prima facie authority to fill the blanks.
a demand letter, which the latter ignored.
SEC. 14. Blanks; when may be filled.-Where the instrument is wanting in any material
July 16, 1993: Lim charged Dy with 2 counts of estafa under Article 315, paragraph 2(d) of
particular, the person in possession thereof has a prima facie authority to complete it by
RPC and 2 counts of violation of B.P. Blg. 22.
filling up the blanks therein. And a signature on a blank paper delivered by the person
RTC convicted Dy on two counts each of estafa and violation of B.P. Blg. 22. making the signature in order that the paper may be converted into a negotiable instrument
operates as a prima facie authority to fill it up as such for any amount.
CA: affirmed

Dy contends that the checks were ineffectively issued.

 14

Law merely requires that the instrument be in the possession of a person other than the
drawer or maker. From such possession, together with the fact that the instrument is
wanting in a material particular, the law presumes agency to fill up the blanks. Burden of
proving want of authority or that the authority granted was exceeded, is placed on the
person questioning such authority Dy didn't fulfill this.

Estafa punished under Article 315, paragraph 2(d) of the Revised Penal Code is committed
when a check is dishonored for being drawn against insufficient funds or closed account, and
not against uncollected deposit. Corollarily, the issuer of the check is not liable for estafa if
the remaining balance and the uncollected deposit, which was duly collected, could satisfy
the amount of the check when presented for payment.

B.P. Blg. 22 elements = malum prohibitum the making, drawing and issuance of any check to
apply to account or for value the knowledge of the maker, drawer or issuer that at the time
of issue he does not have sufficient funds in or credit with the drawee bank for the payment
of such check in full upon its presentment subsequent dishonor of the check by the drawee
bank for insufficiency of funds or credit or dishonor for the same reason had not the drawer,
without any valid cause, ordered the bank to stop payment - considered by the bank to
retroactively have had P160,659.39 in his account on July 22, 1992 which was more than
enough to cover the first check.

Dy admitted that he issued the checks, and that the signatures appearing on them were his.

Section 2 of B.P. Blg. 22, petitioner was prima facie presumed to know of the inadequacy of
his funds with the bank when he did not pay the value of the goods or make arrangements
for their payment in full within 5 banking days upon notice.

G.R. No. 187769
ALVIN PATRIMONIO, Petitioner, VS. NAPOLEON GUTIERREZ and OCTAVIO MARASIGAN III,
Respondents.
June 4, 2014
FACTS:
Alvin Patrimonio, a professional basketball player, and Nap Gutierrez, a prominent sports
columnist, entered into a venture (Slam Dunk Corporation) to produce mini-concerts and
shows related to basketball. In the course of business, Alvin pre-signed several checks to
answer for the expenses of the company. Though signed, theses checks had no payee’s
name, date, or amount. These blank checks were entrusted to Nap with specific instruction
not to fill them out without notice to and approval by Alvin so that Alvin could verify the
validity of the payment and make the proper arrangements to fund the account. Nap secured
a loan from Marasigan (Alvin’s teammate) of P200,000.00 allegedly for Alvin’s construction of
his house, Gutierrez This was done without the knowledge also assured Marasigan that he
would be paid 5% interest per month from March to May 1994. Marasigan gave in to
Gutierrez’ request and gave him p200,000.00. Thereafter, Gutierrez delivered to Marasigan a
blank check which Patrimonio pre-signed with Pilipinas Bank and wherein which with the
blank portions filled out with the words "Cash" "Two Hundred Thousand Pesos Only", and
the amount of "P200,000.00" When it was deposited to the drawee bank, it was dishonoured
for reason “ACCOUNT CLOSED”, the account having been closed since March, 1993.
Marasigan sought recovery to Gutierrez, to no avail. He then sent several demand letters for
the payment of P200,000.00 but his demands were unheeded. Marasigan then filed a case
for violation of BP 22 against the petitioner. Patrimonio on the other hand filed a case for
Declaration of Nullity of Loan and Damages against Gutierrez and Marasigan. He denied
having authorised the loan or the check’s negotiation. He averred that he is not a party to the
loan between Gutierrez and Marasigan.
The RTC ruled in favour of Marasigan and ordered Patrimonio to pay the face value of the
check, with a right of reimbursement from Gutierrez. The court held that Marasigan is a
holder in due course of the check. In issuing the pre-signed check, Patrimonio had the
intention of issuing a negotiable instrument, although with specific instruction to Gutierrez
not to issue it without his knowledge and consent, which the former abused.
Gutierrez appealed the case to the Court of Appeals, which turned down his appeal. Although
it agreed with Patrimonio that Marasigan is not a holder in due course of the check, it still
found Patrimonio liable for the loan, as it is an obligation arising from law. It ruled that
Gutierrez acted within his authority in filling up the check.
15
Patrimonio then elevated his case to the Supreme Court.
ISSUE: Whether or not Marasigan is a holder in due course thus may hold Petitioner liable
HELD:
NO. Section 14 of the Negotiable Instruments Law provides for when blanks may be filled.
This provision applies to an incomplete but delivered instrument. Under this rule, if the
maker or drawer delivers a pre-signed blank paper to another person for the purpose of
converting it into a negotiable instrument, that person is deemed to have prima facie
authority to fill it up. It merely requires that the instrument be in the possession of a person
other than the drawer or maker and from such possession, together with the fact that the
instrument is wanting in a material particular, the law presumes agency to fill up the blanks.
In order however that one who is not a holder in due course can enforce the instrument
against a party prior to the instrument’s completion, two requisites must exist:
(1) That the blank must be filled strictly in accordance with the authority given; and
(2) It must be filled up within a reasonable time.
If it was proven that the instrument had not been filled up strictly in accordance with the
authority given and within a reasonable time, the maker can set this up as a personal defense
and avoid liability. However, if the holder is a holder in due course, there is a conclusive
presumption that authority to fill it up had been given and that the same was not in excess of
authority. In the present case, the petitioner contends that there is no legal basis to hold him
liable both under the contract and loan and under the check because the subject check was
not completely filled out strictly under the authority he has given and because Marasigan
was not a holder in due course. Also, Gutierrez was only authorized to use the check for
business expenses; thus, he exceeded the authority when he used the check to pay the loan
he supposedly contracted for the construction of petitioner's house. This is a clear violation
of the petitioner's instruction to use the checks for the expenses of Slam Dunk. It cannot
therefore be validly concluded that the check was completed strictly in accordance with the
authority given by the petitioner. Therefore, petitioner can validly set up the personal
defense that the blanks were not filled up in accordance with the authority he gave.
Consequently, Marasigan has no right to enforce payment against the petitioner and the
latter cannot be obliged to pay the face value of the check..
 16

Bank of America vs. Philippine Racing Club mitigate the petitioner's liability. Moreover, the person who stole the checks is also an
employee of the plaintiff, a cleck in its accounting department at that. As the employer, PRC
G.R. 150228 July 30, 2009 supposedly should have control and supervision over its own employees.

Facts: 3. The court held that the petitioner is liable for 60% of the total amount of damages while
PRC should shoulder 40% of the said amount.
1. Plaintiff PRCI is a domestic corporation which maintains a current account with petitioner
Bank of America. Its authorized signatories are the company President and Vice-President. By
virtue of a travel abroad for these officers, they pre-signed checks to accommodate any
expenses that may come up while they were abroad for a business trip. The said pre-signed
checks were left for safekeeping by PRCs accounting officer. Unfortunately, the two (2) of
said checks came into the hands of one of its employees who managed to encash it with
petitioner bank. The said check was filled in with the use of a check-writer, wherein in the
blank for the 'Payee', the amount in words was written, with the word 'Cash' written above
it.

2. Clearly there was an irregularity with the filling up of the blank checks as both showed
similar infirmities and irregularities and yet, the petitioner bank did not try to verify with the
corporation and proceeded to encash the checks.

3. PRC filed an action for damages against the bank. The lower court awarded actual and
exemplary damages. On appeal, the CA affirmed the lower court's decision and held that the
bank was negligent. Hence this appeal. Petitioner contends that it was merely doing its
obligation under the law and contract in encashing the checks, since the signatures in the
checks are genuine.

Issue: Whether or not the petitioner can be held liable for negligence and thus should pay
damages to PRC

Both parties are held to be at fault but the bank has the last clear chance to prevent the
fraudulent encashment hence it is the one foremost liable.

1. There was no dispute that the signatures in the checks are genuine but the presence of
irregularities on the face of the check should have alerted the bank to exercise caution
before encashing them. It is well-settled that banks are in the business impressed with public
interest that they are duty bound to protect their clients and their deposits at all times.
They must treat the accounts of these clients with meticulousness and a highest degree of
care considering the fiduciary nature of their relationship. The diligence required of banks
are more than that of a good father of a family.

2. The PRC officers' practice of pre-signing checks is a seriously negligent and highly risky
behavior which makes them also contributor to the loss. It's own negligence must therefore
 17

G.R. No. 150228 July 30, 2009 chance, the law provides that “who had a last clear opportunity to avoid the impending
harm but failed to do so is chargeable with the consequences thereof. At the most, the
BANK OF AMERICA NT & SA vs. PHILIPPINE RACING CLUB INCORPORATED respondents liability is meely contributory

Facts: In the interest of fairness, however, we believe it is proper to consider respondent’s own
 Respondent PRCI is a domestic corporation which maintains several accounts with
different banks in the Metro Manila area; among the accounts maintained was negligence to mitigate petitioner’s liability. Article 2179 of the Civil Code provides:
with Bank of America- The authorize signatories are the president and the vice-
president of the corporation, respectively. Art. 2179. When the plaintiff’s own negligence was the immediate
 Sometime in Dec 1988. The president and the vice-president of the corporation and proximate cause of his injury, he cannot recover damages. But if his
went abroad. So, in order to insure continuity of business operation, the president negligence was only contributory, the immediate and proximate cause of
and the vice-president of the corporation left a pre-signed check and entrusted to the injury being the defendant’s lack of due care, the plaintiff may
the accountant; recover damages, but the courts shall mitigate the damages to be
 It turned out that on December 16, 1988, a John Doe presented two (2) checks to awarded.
Bank of America for encashment; the two (2) checks had similar entries with similar
infirmities and irregularities.
Following established jurisprudential precedents, we believe the allocation of sixty percent
 Under the line for the payee, the upper line has a typewritten word “CASH” and the
lower line has a type written word “ONE HUNDRED TEN THOUSAND PESOS ONLY.” (60%) of the actual damages involved in this case (represented by the amount of the checks
 Despite the highly irregular entries on the face of the checks bank of America with legal interest) to petitioner is proper under the premises. Respondent should, in light of
encashed said checks.
its contributory negligence, bear forty percent (40%) of its own loss.
 The RTC ordered Bank of America to pay respondent PRCI the value of the two (2)
checks, plus damages and attorney’s fees. RCBC vs. Hi-Tri Development Corp. and Luz R. Bakunawa, G.R. No. 192413, June 13, 2012
 Petitioner bank of America contended that since the instrument is incomplete but
delivered or complete but undelivered, it could validly presume upon presentation
of the checks, that the party who filled up the blanks had authority and that a valid
and intentional delivery to the party presenting the checks had taken place. And
the proximate cause of the encashment was the respondent’s negligent practice of
delivering pre-signed check to its accountant.
Issue: Whether or not petitioner bank is obligated to verify said checks to respondent.

Held: Anent Petitioner’s contention that it could validly presume that the check was
filled up with authority and intentionally delivered:
It would have been correct if the subject checks were correctly and properly filled
out by the thief and presented to the bank in good order. In that instance, there would be
nothing to give notice to the bank of any infirmity in the title of the holder of the checks and
it could validly presume that there was proper delivery to the holder.
The irregularities on the check would have prompted the Bank of America’s
employee to verify it with respondent. Petitioner could have made a simple phone call to its
client to clarify the irregularities and the loss to respondent due to the encashment of the
stolen checks would have been prevented.

PROXIMATE CAUSE
On the contention that it was respondent’ act of issuing pre-signed check, the Supreme Court
held that, although the respondent was also negligent, but under the doctrine of Last clear

Facts:
Millan paid the spouses Bakunawa P1,019,514.29 as down payment for the purchase of six
(6) lots with the Spouses Bakunawa giving Millan the Owner’s Copies of TCTs of said lots.
Due to some obstacles, the sale did not push through; so Spouses Bakunawa rescinded the
sale and offered to return to Millan her down. However, Millan refused to accept back the
down payment. Consequently, the Spouses Bakunawa, through their company, Hi-Tri took
out on October 28, 1991, a Manager’s Check from RCBC-Ermita in the amount
of P 1,019,514.29, payable to Millan’s company Rosmil and used this as one of their basis for
a complaint against Millan.
The Spouses Bakunawa retained custody of RCBC Manager’s Check and refrained from
cancelling or negotiating it. Millan was also informed that the Manager’s Check was available
for her withdrawal, she being the payee.
On January 31, 2003, without the knowledge of Spouses Bakunawa, RCBC reported the
"P 1,019,514.29-credit existing in favor of Rosmil to the Bureau of Treasury as among its
"unclaimed balances" as of January 31, 2003. On December 14, 2006, the Republic, through
the Office of the Solicitor General (OSG), filed with the RTC the action for Escheat.
On April 30, 2008, Spouses Bakunawa settled amicably their dispute with Millan. Spouses
Bakunawa tried to recover the P1,019,514.29 under Manager’s Check but they were
informed that the amount was already subject of the escheat proceedings before the RTC.
The trial court ordered the deposit of the escheated balances with the Treasurer and
credited in favor of the Republic. Respondents claim that they were not able to participate in
the trial, as they were not informed of the ongoing escheat proceedings. Later motion for
reconsideration was denied.
CA reversed the RTC ruling. CA pronounced that RTC Clerk of Court failed to issue individual
notices directed to all persons claiming interest in the unclaimed balances. CA held that the
Decision and Order of the RTC were void for want of jurisdiction.
Issue:
Whether or not the allocated funds may be escheated in favor of the Republic
Held:
There are sufficient grounds to affirm the CA on the exclusion of the funds allocated for the
payment of the Manager’s Check in the escheat proceedings.
18
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 manager’s or cashier’s checks. These are bills of
exchange drawn by the bank’s manager or cashier, in the name of the bank, against the bank
itself. Typically, a manager’s or a cashier’s check is procured from the bank by allocating a
particular amount of funds to be debited from the depositor’s account or by directly paying
or depositing to the bank the value of the check to be drawn. Since the bank issues the check
in its name, with itself as the drawee, the check is deemed accepted in advance. Ordinarily,
the check becomes the primary obligation of the issuing bank and constitutes its written
promise to pay upon demand.
Nevertheless, the mere issuance of a manager’s check does not ipso facto work as an
automatic transfer of funds to the account of the payee. In case the procurer of the
manager’s or cashier’s check retains custody of the instrument, does not tender it to the
intended payee, or fails to make an effective delivery, we find the following provision on
undelivered instruments under the Negotiable Instruments Law applicable:
Sec. 16. Delivery; when effectual; when presumed. – Every contract on a negotiable
instrument is incomplete and revocable until delivery of the instrument for the purpose of
giving effect thereto. As between immediate parties and as regards a remote party other
than a holder in due course, the delivery, in order to be effectual, must be made either by or
under the authority of the party making, drawing, accepting, or indorsing, as the case may
be; and, in such case, the delivery may be shown to have been conditional, or for a special
purpose only, and not for the purpose of transferring the property in the instrument. But
where the instrument is in the hands of a holder in due course, a valid delivery thereof by all
parties prior to him so as to make them liable to him is conclusively presumed. And where
the instrument is no longer in the possession of a party whose signature appears thereon, a
valid and intentional delivery by him is presumed until the contrary is proved.
Petitioner acknowledges that the Manager’s Check was procured by respondents, and that
the amount to be paid for the check would be sourced from the deposit account of Hi-
Tri. When Rosmil did not accept the Manager’s Check offered by respondents, the latter
retained custody of the instrument instead of cancelling it. As the Manager’s Check neither
went to the hands of Rosmil nor was it further negotiated to other persons, the instrument
 19

remained undelivered. Petitioner does not dispute the fact that respondents retained
custody of the instrument.

Since there was no delivery, presentment of the check to the bank for payment did not
occur. An order to debit the account of respondents was never made. In fact, petitioner
confirms that the Manager’s 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 Manager’s Check.
The doctrine that the deposit represented by a manager’s 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.
 20

G.R. No. 85419 March 9, 1993

DEVELOPMENT BANK OF RIZAL, plaintiff-petitioner, vs. SIMA WEI and/or LEE KIAN HUAT,
MARY CHENG UY, SAMSON TUNG, ASIAN INDUSTRIAL PLASTIC CORPORATION and
PRODUCERS BANK OF THE PHILIPPINES, defendants-respondents

FACTS:

Respondent Sima Wei executed and delivered to petitioner Bank a promissory note engaging
to pay the petitioner Bank or order the amount of P1,820,000.00. Inasmuch as respondent
Sima Wei failed to pay the balance of the aforesaid loan,the latter subsequently issued two
crossed checks payable to petitioner bank, drawn against China Banking Corporation in full
settlement of the drawer's account,as evidenced by the promissory note. These two checks,
however, were not delivered to the petitioner-payee or to any of its authorized
representatives, but instead came into the possession of respondent Lee KianHuat, who
deposited the checks without the petitioner-payee's indorsement to the account of
respondent Plastic Corporation with Producers Bank. Despite the fact that the checks were
crossed and payable to petitioner bank and had 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.

ISSUE:

Whether or not petitioner bank has a cause of action against Sima Wei for the undelivered
checks.

RULING:

The petitioner has no cause of action against respondents in this case. A negotiable
instrument must be delivered to the payee in order to evidence its existence as a binding
contract. Section 16 of the Negotiable Instruments Law 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 a 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 did not receive the checks on which it based its action against said
respondents, it never owned such checks nor did it acquire any interest thereto. Thus, it had
no right or interest in the checks which could have been violated by respondents in this case.
Thus, petitioner has no cause of action against respondents.