NEGO CASEZ

Abunales|Cauilan|Dansal|Frias Garcia|Pereña|Saclayan|Santiago

1. Wesleyan University Philippines v. Nowella Reyes, July 30, 2014

Facts: Petitioner, per its account, allegedly lost trust and confidence in respondent owing to any or an interplay
of the following events which were revealed after an external auditor has been engaged: (1) she encashed a
check payable to the University Treasurer in the amount of three hundred thousand pesos (PhP 300,000); (2)
she encashed crossed checks payable to the University Treasurer, when the intention of management in this
regard was to merely transfer funds from one of petitioner’s accounts to another in the same bank; (3) she
allowed the Treasury Department to encash the checks issued to WUP personnel rather than requiring the latter
to have said checks encashed by the bank, in violation of the imprest system of accounting; (4) she caused the
disbursement of checks without supporting check vouchers; (5) there were unliquidated cash advances; and (6)
spurious duplicate checks bearing her signature were encashed causing damage to petitioner. Hence, it
dismissed from service its university treasurer, Norma Reyes. As a consequence, thereof, Reyes filed a
complaint for illegal dismissal. The Labor Arbiter ruled that Reyes has been illegally dismissed.

Adopting a stance entirely opposite to that of the Labor Arbiter, the NLRC held upon petitioner’s appeal that
respondent failed to controvert and disprove the established charges of petitioner (as appellant-respondent) and
instead conveniently put the blame on other departments for her inculpatory acts. The NLRC opined that her
termination was not motivated by the change of petitioner’s officers but by the University’s goal to promote the
economy and efficiency of its Treasury Department.13

Holding that respondent’s termination was unjust, the CA, in virtual restoration of the findings and conclusions of
the Labor Arbiter, pointed out, among others, that: (1) respondent sufficiently countered all charges against her;
(2) it had been the practice of the previous and present administrations of petitioner to encash and
accommodate checks of WUP personnel; thus, it would be unjust to penalize respondent for observing a
practice already in place when she assumed office; (3) the duty to liquidate cash advances is assigned to the
internal auditor; (4) it has been established that the encashments of spurious duplicate checks were perpetrated
by individuals not connected with WUP, and that the bank admitted responsibility therefor and had returned the
amount involved to petitioner; (5) there was no imputation of any violation of the University’s Administration and
Personnel Policy Manual; (6) while the acts complained of violated the imprest system of cash management,
there was no showing that the said system had been adopted and observed in the school’s accounting and
financial procedures; and (7) there was no showing that respondent had the responsibility to implement changes
in petitioner’s accounting system even if it were not in accordance with the generally accepted principles of
accounting.

Issue: Whether or not Reyes was illegally dismissed.

Held: No, because Nowella C. Reyes has committed breach of trust and confidence in the conduct of her office.

a. Respondent’s encashment of checks

Jurisprudence has pronounced that the crossing of a check means that the check may not be encashed but only
deposited in the bank.29 As Treasurer, respondent knew or is at least expected to be aware of and abide by this
basic banking practice and commercial custom. Clearly, the issuance of a crossed check reflects management’s
intention to safeguard the funds covered thereby, its special instruction to have the same deposited to another
account and its restriction on its encashment.

By encashing the crossed checks, respondent put the funds covered thereby under the riskof being lost, stolen,
co-mingled with other funds or spent for other purposes. Furthermore, the accommodation and encashment by
the Treasury Department of checks issued to WUP personnel were highly irregular. First, WUP, not being a
bank, had no business encashing the checks of its personnel. 30 More importantly, in encashing the said checks,
the Treasury Department made disbursements contrary to the wishes of management because, in issuing said
checks, management has made clear its intention that monies therefor would be sourced from petitioner’s
deposit with Chinabank, under a specific account, and not from the cash available in the Treasury Department.

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That the encashment of crossed checks and payment of checks directly to WUP personnel had been the
practice of the previous and present administration of petitioner is of no moment. To Our mind, this was simply
respondent’s convenient excuse, a poorly disguised afterthought, when her unbecoming carelessness in
managing WUP’s finances was exposed.

b. Unliquidated cash advances

Even if there is truth in the contention of herein Respondent that she was no longer the one in charge of the
liquidation proceedings, the same would not absolve her from gross negligence of duties. The fact that the said
function was with her office until August 2008, with unliquidated cash advances even bigger, still showed that
she reneged in her duties which she had overlooked for so long. She now mistakenly points the responsibility to
the Office of the University Auditor. These informations are enough to be considered as Respondent’s acts
constitutive of breach of trust and confidence. 32

c. Other irregularities in respondent’s performance

In all, We find the Investigation Report of the HRDO a credible, extensive and thorough account of respondent’s
involvement in incidents which are sufficient grounds for petitioner’s loss of trust and confidence in her to wit;

During the investigation conducted, it was revealed that the check disbursement voucher attached by
Respondent on her answer to justify the regularity of its issuance and eventual encashment of crossed checks
was not exactly the same as the one filed at the Accounting Office. It showed that the photocopy of the original
CDV which was attached by Respondent bear some material alterations, namely:

1. The absence of entry of the Board Resolution which was reflected as a sort of inquiry by the Internal
Auditor, and which at present was left blank on the original, as compared to the photocopy submitted by
respondent bearing an entry of the Board Resolution number;

2. The word ATM on the payee portion of the CDV in the original as compared to the photocopy wherein
the entry ATM was crossed out.

During a discussion with the external auditors, it was categorically stated by them that during the course of
external audit, said document was inexistent in the records presented by the Accounting and Treasurer’s
Offices. The production of the photocopy by Respondent already altered only after the suspension was effected
cast doubt on the regularity of its issuance, negating her otherwise claim. Another significant observation was
that the original copy of CDV and corresponding signatures of administrative heads who received payments
showed folded marks halfways, with the fastener holes unmatched, showing that those two documents were not
really filed together, as regularly done, and the same were not filed in the regular course and must have been
kept previously on a different manner in possession of person other than the office which must file the same.

On the last charge in the show cause order specifically the existence of duplicate checks in the account of the
University amounting to Php 1.050 Million included in Respondent’s defenses were that among the checks
duplicated, only two of them were encashed with the University Teller, and the check originally named to Norma
de Jesus as payee was paid by the pick-up teller only through the assistance of the University teller.

As found on the documents attached to the Investigation report of Dr. Garcia which had been expressly adopted
by herein respondent in her answer is an Affidavit of Norma de Jesus stating that she actually encashed the
check with the personnel of the Treasury Office particularly Shirley Punay, who gave her the amount equivalent
days after the check was handed to the Treasury office.

2. Cesar Areza and Lolita Areza v. Express Savings Bank, Inc. and Michael Potenciano G.R. No. 176697,
September 10, 2014

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FACTS: Petitioners Cesar V. Areza and LolitaB. Areza were engaged in the business of "buy and sell" of brand
new and second-hand motor vehicles. Petitioners maintained two bank deposits with respondent Express
Savings Bank. They received an order from a certain Gerry Mambuay (Mambuay) for the purchase of 2 cars.
The buyer, Mambuay, paid petitioners with nine (9) Philippine Veterans Affairs Office (PVAO) checks payable to
different payees and drawn against the Philippine Veterans Bank (drawee), each valued at 200K for a total of
1.8M.

Petitioners claimed that Michael Potenciano (Potenciano), the branch manager of respondent Express Savings
Bank (the Bank) was present during the transaction and immediately offered the services of the Bank for the
processing and eventual crediting of the said checks to petitioners’ account. Potenciano countered that he was
prevailed upon to accept the checks by way of accommodation of petitioners who were valued clients of the
Bank.

On May 2000, petitioners deposited the said checks in their savings account with the Bank. The Bank, inturn,
deposited the checks with its depositary bank, Equitable-PCI Bank, in Biñan,Laguna. Equitable-PCI Bank
presented the checks to the drawee, the Philippine Veterans Bank, which honored the checks.

Potenciano informed petitioners that the checks they deposited with the Bank were honored. He allegedly
warned petitioners that the clearing of the checks pertained only to the availability of funds and did not mean
that the checks were not infirmed. The entire amount was credited to petitioners’ savings account. Based on this
information, petitioners released the two cars to the buyer.

Sometime in July 2000, the subjectchecks were returned by PVAO to the drawee on the ground that the amount
on the face of the checks was altered from the original amount of ₱4,000.00 to ₱200,000.00. The drawee
returned the checks to Equitable-PCI Bank. In August 2000, the Bank was informed by Equitable-PCI Bank that
the drawee dishonored the checks on the ground of material alterations. Equitable-PCI Bank initially filed a
protest with the Philippine Clearing House. In February 2001, the latter ruled in favor of the drawee Philippine
Veterans Bank. Equitable-PCI Bank, in turn, debited the deposit account of the Bank.

The Bank insisted that they informed petitioners of said development in August 2000 by furnishing them copies
of the documents given by its depositary bank.7 On the other hand, petitioners maintained that the Bank never
informed them of these developments.

On 9 March 2001, petitioners issued a check for 500K; said check was dishonored by the Bank for the reason
"Deposit Under Hold." Despite request from petitioners to honor the check, he Bank refused and instead closed
the Special Savings Account of the petitioners and transferred its balance to the Petitioners savings account.
The Bank then withdrew the amount of 1.8M representing the returned checks from petitioners’ savings account.

Issue: What are the liabilities of: 1.) the drawee bank; 2.) the intermediary banks; and 3.) the petitioners for the
altered checks.

WON the 24 hour clearing rule applies to altered checks.

HELD:
Liability ofDrawee:
Section 63 of the Negotiable Instruments Law provides that the acceptor, by accepting the instrument, engages
that he will pay it according to the tenor of his acceptance. The acceptor is a drawee who accepts the bill. In
case the negotiable instrument is altered before acceptance, is the drawee liable for the original or the altered
tenor of acceptance?

First View: The obligation of the acceptor should not be limited to the tenor of the instrument as drawn by the
maker, but it should be enforceable in favor of a holder in due course against the acceptor according to its tenor
at the time of its acceptance or certification.

Second View: The acceptor/drawee despite the tenor of his acceptance is liable only to the extent of the bill prior
to alteration. This view appears to be in consonance with Section 124 of the Negotiable Instruments Law which

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statesthat a material alteration avoids an instrument except as against an assenting party and subsequent
indorsers, but a holder in due course may enforce payment according to its original tenor.

Court applied the Second View. Thus, when the drawee bank pays a materially altered check, it violates the
terms of the check, as well as its duty to charge its client’s account only for bona fide disbursements he had
made. If the drawee did not pay according to the original tenor of the instrument, as directed by the drawer, then
it has no right to claim reimbursement from the drawer, much less, the right to deduct the erroneous payment it
made from the drawer’s account which it was expected to treat with utmost fidelity. The drawee, however, still
has recourse to recover its loss. It may pass the liability back to the collecting bank which is what the drawee
bank exactly did in this case. It debited the account of Equitable-PCI Bank for the altered amount of the checks.

Liability of Depositary Bank and Collecting Bank:

A depositary bank is the first bank to take an item even though it is also the payor bank, unless the item is
presented for immediate payment over the counter. It is also the bank to which a check is transferred for deposit
in an account at such bank, even if the check is physically received and indorsed first by another bank. A
collecting bank is defined as any bank handling an item for collection except the bank on which the check is
drawn.

When petitioners deposited the check with the Bank, they were designating the latter as the collecting bank.
This is in consonance with the rule that a negotiable instrument, such as a check, whether a manager's check or
ordinary check, is not legal tender. As such, after receiving the deposit, under its own rules, the Bank shall credit
the amount in petitioners’ account or infuse value thereon only after the drawee bank shall have paid the
amount of the check or the check has been cleared for deposit.

The Bank and Equitable-PCI Bank are both depositary and collecting banks.

A depositary/collecting bank where a check is deposited, and which endorses the check upon presentment with
the drawee bank, is an endorser. Under Section 66 of the Negotiable Instruments Law, an endorser warrants
"that the instrument is genuine and in all respects what it purports to be; that he has good title to it; that all prior
parties had capacity to contract; and that the instrument is at the time of his endorsement valid and subsisting."
It has been repeatedly held that in check transactions, the depositary/collecting bank or last endorser generally
suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements considering that
the act of presenting the check for payment to the drawee is an assertion that the party making the presentment
has done its duty to ascertain the genuineness of the endorsements. If any of the warranties made by the
depositary/collecting bank turns out to be false, then the drawee bank may recover from it up to the amount of
the check.

The law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it for the purpose
of determining their genuineness and regularity. As collecting banks, the Bank and Equitable-PCI Bank are
both liable for the amount of the materially altered checks. Since Equitable-PCI Bank is not a party to this
case and the Bank allowed its account with Equitable PCI Bank to be debited, it has the option to seek recourse
against the latter in another forum.

Liability of Petitioners: Not liable

Thus, considering that, in this case, petitioners are protected by Section 62 of the NIL, its collecting agent,
should not have debited the money paid by the drawee bank from respondent company's account. When
petitioners deposited the check with the Bank, the latter, under the terms of the deposit and the provisions of the
NIL, became an agent of the former for the collection of the amount in the check. The subsequent payment by
the drawee bank and the collection of the amount by the collecting bank closed the transaction insofar as the
drawee and the holder of the check or his agent are concerned, converted the check into a mere voucher, and
foreclosed the recovery by the drawee of the amount paid.

As the transaction in this case had been closed and the principal agent relationship between the petitioners and
the collecting bank had already ceased, the latter in returning the amount to the drawee bank was already acting
on its own and should now be responsible for its own actions. Likewise, the Bank cannot invoke the warranty of
the payee/depositor who indorsed the instrument for collection to shift the burden it brought upon itself. This is

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precisely because the said indorsement is only for purposes of collection which, under Section 36 of the NIL, is
a restrictive indorsement. It did not in any way transfer the title of the instrument to the collecting bank. The
Bank did not own the check, it merely presented it for payment. Considering that the warranties of a general
indorser as provided in Section 66 of the NIL are based upon a transfer of title and are available only to holders
in due course, these warranties did not attach to the indorsement for deposit and collection made by petitioners
to The Bank. Without any legal right to do so, the collecting bank, therefore, could not debit petitioners’ account
for the amount it refunded to the drawee bank.

The Bank cannot debit the savings account of petitioners. A depositary/collecting bank may resist or defend
against a claim for breach of warranty if the drawer, the payee, or either the drawee bank or depositary bank
was negligent and such negligence substantially contributed to the loss from alteration. In the instant case, no
negligence can be attributed to petitioners. We lend credence to their claim that at the time of the sales
transaction, the Bank’s branch manager was present and even offered the Bank’s services for the processing
and eventual crediting of the checks.

Applicability of 24hr clearing Rule: Not applicable to altered checks.

The 24hr rule is now modified. The 24-hour rule is still in force, that is, any check which should be refused by
the drawee bank in accordance with long standing and accepted banking practices shall be returned through the
PCHC/local clearing office, as the case may be, not later than the next regular clearing (24-hour). The
modification, however, is that items which have been the subject of material alteration or bearing forged
endorsement may be returned even beyond 24 hours so long that the same is returned within the prescriptive
period fixed by law. The consensus among lawyers is that the prescriptive period is ten (10)years because a
check or the endorsement thereon is a written contract. Moreover, the item need not be returned through the
clearing house but by direct presentation to the presenting bank.

3. Samsung Construction Company Philippines, Inc. vs. Far East Bank and Trust Company, 436 SCRA
402, G.R. No. 129015 August 13, 2004

FACTS:
 Samsung maintained a current account with FEBTC at the latter’s Bel-Air Makati branch
 The sole signatory to Samsung Constructions account was Jong Kyu Lee, its Project Manager
o Checks remained in the custody of company’s accountant Kyu Yong Lee
 In 1992, a certain Gonzaga presented for payment FEBTC check to the banks branch in Bel-Air Makati
o Payable to cash and drawn against Samsung in the amount of P999, 500.00
o Bank teller, Cleofe Justiani, first checked the balance of Samsung and compared the signature
appearing on the check with the specimen of Jong
o Bank teller was satisfied as to the authenticity of the signature
o Asked Gonzaga to submit proof of his identity; presented 3 identification cards
 Justiani forwarded to the branch Senior assistant the check, check was approved
 Assistant accountant Jose Sempio of Samsung Construction vouched for the genuineness of Jong’s
signature
 Kyu discovered that the last check was missing
 Jong learned the encashment of the check and realized that his signature was forged
 The bank manager told Jong that he would be reimbursed for the amount of the check
 Criminal case of qualified theft was filed against Sempio
 Samsung demanded that FEBTC credit to it the amount of P995, 500.00
o FEBTC said it was still conducting its investigation on the matter
 Samsung filed a complaint for the violation of Sec. 23 of the N.I. Law
 NBI Document Examiner Flores testified that Jong’s signature had been forged on the check
 PNP Crime Lab document examiner Perez testified that the signature on the check was genuine
 RTC: Held Jong’s signature was forged; directed the bank to pay or credit back to Samsung the amount
 Appeal!
 CA: reversed the decision; absolved FEBTC from liability
o Contradictory findings created doubt

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o Assuming there was forgery, Kyu was negligent in keeping the checks
 Would have prevented Sempio from gaining access thereto
 ISSUE: W/N Samsung was precluded from setting up the defense of forgery
 HELD: Appellate court failed to explain precisely how Kyu was negligent or how more care and
prudence on his part would have prevented the forgery
 In the absence of contrary evidence, it can be concluded that there was no negligence on Samsung’s
part
o Negligence is not presumed but must be proven by one who alleges it
 FEBTC should have aroused the suspicion of the bank as it is not ordinary practice for a check of
such large amount to be made payable to cash or to bearer
 Moreover, the check was presented for payment by Roberto Gonzaga who was not designated as the
payee of the check and did not carry any written proof that he was authorized by Samsung to
encash the check
o He was not even an employee of Samsung
 FEBTC should have ascertained from Jong personally that the signature in the questionable check
was his
 Even if the bank performed utmost diligence, a bank is liable irrespective of its good faith in paying of a
forged check
 Samsung not precluded from setting up defense of forgery
 Judgement REVERSED; petition granted!

4. Security Bank and Trust Company vs. Rizal Commercial Banking Corporation, 577 SCRA 407, G.R.
No. 170984 January 30, 2009

FACTS:
 Jan 9, 1981 - Security Bank and Trust Company (SBTC) issued a managers check for P8M, payable to CASH,
as proceeds of the loan granted to Guidon Construction and Development Corporation (GCDC).
 On the same day, the P8M check, along with other checks, was deposited by Continental Manufacturing
Corporation (CMC) in its Current Account with RCBC.
 RCBC immediately honored the P8M check and allowed CMC to withdraw the same
 On the next banking day (Jan 12) –GCDC issued a Stop Payment Order to SBTC, claiming that the P8M
check was released to a third party by mistake.
 SBTC dishonored and returned the manager’s check to RCBC.
 Feb 13, 1981 – RCBC filed a complaint for damages against SBTC
 Following the rules of the Philippine Clearing House, RCBC and SBTC stopped returning the checks to each
other. By way of a temporary arrangement pending resolution of the case, the P8M check was equally
divided between RCBC and SBTC.
 May 9, 2000 - the RTC ruled in favor of RCBC.
 CA affirmed with modification RTC Decision by adding interest
 RCBC’s contention:
 the managers check issued by SBTC is as good as the money it represents because by its peculiar
character, its issuance has the effect of an advance acceptance.
 it is a holder in due course when it credited the P8-million managers check to CMCs account.
 SBTCs refusal to honor its obligation justifies RCBC claim for lost interest income, exemplary damages
and attorney’s fees.
 SBTC’s contention:
 RCBC violated Monetary Board Resolution No. 2202 of the Central Bank of the Philippines mandating
all banks to verify the genuineness and validity of all checks before allowing drawings of the same.
 RCBC should bear the consequences of allowing CMC to withdraw the amount of the check before it
was cleared.

ISSUE: WON SBTC should be held liable for its manager’s check – YES

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 At the outset, it must be noted that the questioned check issued by SBTC is not just an ordinary check but a
manager’s check.
 A manager’s check is one drawn by a banks manager upon the bank itself. It stands on the same footing as
a certified check, which is deemed to have been accepted by the bank that certified it. As the banks own
check, a manager’s check becomes the primary obligation of the bank and is accepted in advance by the act
of its issuance.
 In this case, RCBC, in immediately crediting the amount of P8 million to CMCs account, relied on the integrity
and honor of the check as it is regarded in commercial transactions.
 Where the questioned check, which was payable to Cash, appeared regular on its face, and the bank found
nothing unusual in the transaction, as the drawer usually issued checks in big amounts made payable to
cash, RCBC cannot be faulted in paying the value of the questioned check.
 SBTC cannot escape liability by invoking Monetary Board Resolution No. 2202, prohibiting drawings
against uncollected deposits. Because following Central Bank’s Memorandum issued July 9, 1980, it states
that banks were given the discretion to allow immediate drawings on uncollected deposits of manager’s
checks, among others.
 RCBC, in allowing the immediate withdrawal against the subject managers check, only exercised a
prerogative expressly granted to it by the Monetary Board.
 SBTC’s liability as drawer remains the same − by drawing the instrument, it admits the existence of the
payee and his then capacity to indorse; and engages that on due presentment, the instrument will be
accepted, or paid, or both, according to its tenor.
 As to the award of damages - In addition to compensatory damages, it is also merited that exemplary
damages be awarded in order to set an example for the public good.
 The banking system has become an indispensable institution in the modern world and plays a vital role
in the economic life of every civilized society.. In this connection, it is important that banks should
guard against injury attributable to negligence or bad faith on its part. Since the banking business is
impressed with public interest, the trust and confidence of the public in it is of paramount importance.
Consequently, the highest degree of diligence is expected, and high standards of integrity and
performance are required of it.
 SBTC having failed in this respect, the award of exemplary damages to RCBC in the amount
of P50,000.00 is warranted

5. Sps. Violago vs. BA Finance, G.R. No. 158262; July 21, 2008

FACTS:
 1983 – Avelino Violago: President of VMSC – offered to sell a car to his cousin Pedro and his wife,
Florencia
o Avellino needed to sell a vehicle to increase the sales quota of VMSC
 The spouses would just have to pay a downpayment of 60,500K while the balance would be financed
by BA Finance
o The spouses would pay monthly installments to BA Finance while Avelino would take care of
documentation and approval of financing of the car
 Under these terms, the spouses then agreed to purchase a Toyota Cressida Model 1983 from VMSC
 Aug 4, 1983 – spouses and Avelino signed a promissory note
o They bound themselves to pay jointly and severally to the order of VMCE the amount of P208,
601 in 36 monthly installments
 Avelino prepared a Disclosure Statement of Loan/Credit Transportation which showed the net
purchase price of the vehicle, down payment, balance, and finance charges.
o VMSC then issued a sales invoice in favor of the spouses with a detailed description of the
Toyota Cressida car.
 The spouses executed a chattel mortgage over the car in favor of VMSC as security for the amount of
PhP 209,601.

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 VMSC, through Avelino, endorsed the promissory note to BA Finance without recourse. After
receiving the amount of PhP 209,601,
 VMSC executed a Deed of Assignment of its rights and interests under the promissory note and
chattel mortgage in favor of BA Finance
o Spouses remitted the amount of P60,500K to VMSC
 Sales invoice was filed with the LTO Baliwag branch – but the spouses were unaware that the same car
had already sold in 1982 to Esmeraldo and registered in LTO – San Rafael branch
 VMSC failed to deliver the car to the spouses and because of this, Pedro did not pay any
monthly amortization to BA Finance
 BA Finance filed with the RTC a complaint for Replevin and Damages against the spouses
o Prayed for the delivery of the vehicle or if delivery cannot be effected, for the payment of
199,049K
o RTC: issued order of replevin
 In the meantime, Esmeraldo conveyed the vehicle to Jose
o Jose executed a chattel mortgage over the vehicle in favor of Generose Lopez as security for a
loan covered by a promissory note for 260,664K
o The promissory note was endorsed to BA Finance, Cebu City branch
 CA: nullified the RTC’s order
 Spouses filed their Answer before the RTC
 CA ruled that the promissory note was a negotiable instrument and that BA Finance was a holder in due
course, applying Secs. 8, 24, and 52 of the NIL. The CA faulted petitioners for failing to implead VMSC,
the seller of the vehicle and creditor in the promissory note, as a party in their Third Party
Complaint. The appellate court reasoned that since VMSC is an indispensable party, any judgment will
not bind it or be enforced against it. The absence of VMSC rendered the proceedings in the RTC and
the judgment in the Third Party Complaint null and void, not only as to the absent party but also to the
present parties, namely the Defendants-Appellants (petitioners herein) and the Third-Party-Defendant-
Appellant (Avelino Violago). The CA set aside the trial courts order holding Avelino liable for damages to
the spouses without prejudice to the action of the spouses against VMSC and Avelino in a separate
action.
 The spouses Violago sought but were denied reconsideration by the CA per its Resolution

ISSUES:
 WON HOLDER OF AN INVALID NEGOTIABLE PROMISSORY NOTE MAY BE CONSIDERED A
HOLDER IN DUE COURSE
 WON CHATTEL MORTGAGE SHOULD BE CONSIDERED VALID DESPITE VITIATION OF
CONSENT OF, AND THE FRAUD COMMITTED ON, THE MORTGAGORS BY AVELINO, AND THE
CLEAR ABSENCE OF OBJECT CERTAIN

HELD:
 The promissory note clearly satisfies the requirements of a negotiable instrument under the NIL. The
law presumes that a holder of a negotiable instrument is a holder thereof in due course.
 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. 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.
 RTC Decision is reinstated. Also Avelino is held to be liable since as a cousin of the spouses, it was
such relation which was used to perpetrate the fraud of selling the car which was previously sold to
another person.

6. Eusebio Gonzales v. Philippine Commercial & International Bank, et al., G.R. No. 180257, February 23,
2011

Facts:

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Petitioner Eusebio Gonzales (Gonzales) was a client of PCIB for 15 years before he filed the case. His account
with PCIB was handled by respondent Edna Ocampo (Ocampo) until she was replaced by respondent Roberto
Noceda (Noceda).
- PCIB granted a credit line to Gonzales through the execution of a Credit-On-Hand Loan Agreement
(COHLA), to which drew from said credit line through the issuance of check.
- Gonzales had a Foreign Currency Deposit (FCD) of USD 8,715.72 with PCIB.

Gonzales and his wife obtained three loans amounting to PhP 1,800,000 were covered by three promissory
notes.The promissory notes specified, among others, the solidary liability of Gonzales and the spouses Panlilio
for the payment of the loans. However, it was the spouses Panlilio who received the loan proceeds of PhP
1,800,000.

The spouses Panlilio defaulted in the payment which prompted PCIB allegedly called the attention of Gonzales.

In the meantime, Gonzales issued a check in favor of Rene Unson (Unson) for PhP 250,000 drawn against the
credit line (COHLA). However it was dishonored by PCIB due to the termination by PCIB of the credit line under
COHLA on October 7, 1998 for the unpaid periodic interest dues from the loans of Gonzales and the spouses
Panlilio. PCIB likewise froze the FCD account of Gonzales.

With demands from Unson and after a heated argument, Gonzales was forced to source out and pay the PhP
250,000 he owed to Unson in cash.

Gonzales, through counsel, wrote PCIB insisting that the check he issued had been fully funded, and demanded
the return of the proceeds of his FCD as well as damages for the unjust dishonor of the check, reminding PCIB
that it knew well that the actual borrowers were the spouses Panlilio and he never benefited from the proceeds
of the loans, which were serviced by the PCIB account of the spouses Panlilio.

PCIB stood its ground in freezing Gonzales accounts due to the outstanding dues of the loans.

Gonzales filed case for damages with the RTC, on account of the alleged unjust dishonor of the check issued in
favor of Unson.

Ruling of the RTC: rendered a Decision in favor of PCIB.

The RTC found Gonzales solidarily liable with the spouses Panlilio on the three promissory notes relative to the
outstanding REM loan. The trial court found no fault in the termination by PCIB of the COHLA with Gonzales
and in freezing the latters accounts to answer for the past due PhP 1,800,000 loan. The trial court ruled that the
dishonor of the check issued by Gonzales in favor of Unson was proper considering that the credit line under the
COHLA had already been terminated or revoked before the presentment of the check.

Ruling of the CA: dismissed Gonzales appeal and affirming in toto the RTC Decision.
The CA, first, confirmed the RTCs findings that Gonzales was indeed solidarily liable with the spouses Panlilio
for the three promissory notes executed for the REM loan; second, it likewise found neither fault nor negligence
on the part of PCIB in dishonoring the check issued by Gonzales in favor of Unson, ratiocinating that PCIB was
merely exercising its rights under the contractual stipulations in the COHLA brought about by the outstanding
past dues of the REM loan and interests for which Gonzales was solidarily liable with the spouses Panlilio to pay
under the promissory notes.

Issues:
1. whether Gonzales is liable for the three promissory notes covering the PhP 1,800,000 loan he made with the
spouses Panlilio - YES
2. whether PCIB properly dishonored the check of Gonzales drawn against the COHLA he had with the bank. -
NO

Held:

1. YES, GONZALES IS SOLIDARILY LIABLE. Gonzales is liable for the loans covered by the above promissory
notes. First, Gonzales admitted that he is an accommodation party which PCIB did not dispute. In his testimony,

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Gonzales admitted that he merely accommodated the spouses Panlilio at the suggestion of Ocampo, who was
then handling his accounts, in order to facilitate the fast release of the loan. Moreover, the first note for PhP
500,000 was signed by Gonzales and his wife as borrowers, while the two subsequent notes showed the
spouses Panlilio sign as borrowers with Gonzales. It is, thus, evident that Gonzales signed, as borrower, the
promissory notes covering the PhP 1,800,000 loan despite not receiving any of the proceeds. For signing as
borrower and co-borrower on the promissory notes with the proceeds of the loans going to the spouses Panlilio,
Gonzales has extended an accommodation to said spouses.

Third, as an accommodation party, Gonzales is solidarily liable with the spouses Panlilio for the loans. In Ang v.
Associated Bank,[19] quoting the definition of an accommodation party under Section 29 of the Negotiable
Instruments Law, the Court cited that an accommodation party is a person who has signed the instrument as
maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name
to some other person.

An accommodation party is one who meets all the three requisites:

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

An accommodation party lends his name to enable the accommodated party to obtain credit or to raise money;
he receives no part of the consideration for the instrument but assumes liability to the other party/ies thereto.
The accommodation party is liable on the instrument to a holder for value even though the holder, at the time of
taking the instrument, knew him or her to be merely an accommodation party, as if the contract was not for
accommodation.

As petitioner acknowledged it to be, the relation between an accommodation party and the accommodated party
is one of principal and suretythe accommodation party being the surety. As such, he is deemed an original
promisor and debtor from the beginning; he is considered in law as the same party as the debtor in relation to
whatever is adjudged touching the obligation of the latter since their liabilities are interwoven as to be
inseparable. Although a contract of suretyship is in essence accessory or collateral to a valid principal
obligation, the suretys liability to the creditor is immediate, primary and absolute; he is directly and equally
bound with the principal. As an equivalent of a regular party to the undertaking, a surety becomes liable to the
debt and duty of the principal obligor even without possessing a direct or personal interest in the obligations nor
does he receive any benefit therefrom

Thus, the knowledge, acquiescence, or even demand by Ocampo for an accommodation by Gonzales in order
to extend the credit or loan of PhP 1,800,000 to the spouses Panlilio does not exonerate Gonzales from liability
on the three promissory notes.

Fourth, the solidary liability of Gonzales is clearly stipulated in the promissory notes which uniformly begin, For
value received, the undersigned (the BORROWER) jointly and severally promise to pay x x x. Solidary liability
cannot be presumed but must be established by law or contract. Article 1207 of the Civil Code pertinently states
that there is solidary liability only when the obligation expressly so states, or when the obligation requires
solidarity.

2. NO, the dishonor of the check was improper.

First. There was no proper notice to Gonzales of the default and delinquency of the PhP 1,800,000 loan. It must
be borne in mind that while solidarily liable with the spouses Panlilio on the PhP 1,800,000 loan covered by the
three promissory notes, Gonzales is only an accommodation party and as such only lent his name and credit to
the spouses Panlilio. While not exonerating his solidary liability, Gonzales has a right to be properly apprised of
the default or delinquency of the loan precisely because he is a co-signatory of the promissory notes and of his
solidary liability.

A written notice on the default and deficiency of the PhP 1,800,000 loan covered by the three promissory notes
was required to apprise Gonzales, an accommodation party. PCIB is obliged to formally inform and apprise

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Gonzales of the defaults and the outstanding obligations, more so when PCIB was invoking the solidary liability
of Gonzales. This PCIB failed to do.

Second. PCIB was grossly negligent in not giving prior notice to Gonzales about its course of action to suspend,
terminate, or revoke the credit line, thereby violating the clear stipulation in the COHLA.

It is undisputed that the bank unilaterally revoked, suspended, and terminated the COHLA without giving
Gonzales prior notice as required by stipulation in the COHLA. The testimonies of PCIB officers clearly show
that not only did PCIB fail to give prior notice to Gonzales about the Offering Ticket for the process of
termination, suspension, or revocation of the credit line under the COHLA, but PCIB likewise failed to inform
Gonzales of the fact that his credit line has been terminated. Thus, we find PCIB grossly negligent in the
termination, revocation, or suspension of the credit line under the COHLA. While PCIB invokes its right on the
so-called cross default provisions, it may not with impunity ignore the rights of Gonzales under the COHLA.

Third. There is no dispute on the right of PCIB to suspend, terminate, or revoke the COHLA under the cross
default provisions of both the promissory notes and the COHLA. However, these cross default provisions do not
confer absolute unilateral right to PCIB, as they are qualified by the other stipulations in the contracts or specific
circumstances, like in the instant case of an accommodation party.

The pertinent default clause must be read in conjunction with the effectivity clause (No. 4 of the COHLA), which
expressly provides for the right of client to prior notice. The rationale is simple: in cases where the bank has the
right to terminate, revoke, or suspend the credit line, the client must be notified of such intent in order for the
latter to act accordinglywhether to correct any ground giving rise to the right of the bank to terminate the credit
line and to dishonor any check issued or to act in accord with such termination, i.e., not to issue any check
drawn from the credit line or to replace any checks that had been issued. This, the bankwith gross
negligencefailed to accord Gonzales, a valued client for more than 15 years.

Thus, due to PCIBs negligence in not giving Gonzales, an accommodation partyproper notice relative to the
delinquencies in the PhP 1,800,000 loan covered by the three promissory notes, the unjust termination,
revocation, or suspension of the credit line under the COHLA from PCIBs gross negligence in not honoring its
obligation to give prior notice to Gonzales about such termination and in not informing Gonzales of the fact of
such termination, treating Gonzales account as closed and dishonoring his PhP 250,000 check, was certainly a
reckless act by PCIB. This resulted in the actual injury of PhP 250,000 to Gonzales whose FCD account was
frozen and had to look elsewhere for money to pay Unson.

Ruling: PCIB was ordered to pay Eusebio Gonzales PhP 50,000 as nominal damages, PhP 50,000 as moral
damages, PhP 10,000 as exemplary damages, and PhP 50,000 as attorneys fees.

7. HSBC v. CIR, G.R. No. 166018, June 4, 2014

FACTS: As a custodian bank, HSBC serves as the collection/payment agent with respect to dividends
and other income derived from its investor-clients’ passive investments. HSBC’s investor-clients maintain
Philippine peso and/or foreign currency accounts, which are managed by HSBC through instructions given
through electronic messages.
In purchasing shares of stock and other investment in securities, the investor-clients would send
electronic messages (SWIFT forms) from abroad instructing HSBC to debit their local or foreign currency
accounts and to pay the purchase price therefor upon receipt of the securities. 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 ₱19,572,992.10 and ₱32,904,437.30,
respectively.
BIR, thru its then Commissioner, issued BIR Ruling 132-99 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.
Pursuant to the above ruling, HSBC filed administrative claims for refund of the erroneously paid DST’s.
As its claims for refund were not acted upon by the BIR, HSBC subsequently brought the matter to the CTA.

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The CTA ruled in favor of HSBC and ordered the respondent to refund reduced amounts in the former’s favor.
This was, however, reversed by the CA.
Petitioner’s contention (CTA decision): The instruction made through an electronic message by a
nonresident investor-client, which is to debit his local or foreign currency account in the Philippines and pay a
certain named recipient also residing in the Philippines is not the transaction contemplated in Section 181
(stamp tax on bills of exchange of the Code. These electronic message instructions cannot be considered
negotiable instruments as they lack the feature of negotiability, which, is the ability to be transferred. These
instructions are considered as mere memoranda and entered as such in the books of account of the local bank,
and the actual debiting of the payor’s local or foreign currency account in the Philippines is the actual
transaction that should be properly entered as such
Respondent’s contention: Claims that Section 181 of the 1997 Tax Code imposes DST on the
acceptance or payment of a bill of exchange or order for the payment of money. The DST under Section 180 of
the 1997 Tax Code is levied on HSBC’s exercise of a privilege which is specifically taxed by law.
ISSUE: w/n the electronic messages are considered transactions pertaining to negotiable instruments
that warrant imposition of Documentary Stamp Tax
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."
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 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.
Furthermore, 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.

The tax is not upon the business transacted but is an excise upon the privilege, opportunity, or facility offered at
exchanges for the transaction of the business. It is an excise upon the facilities used in the transaction of the
business separate and apart from the business itself

8. Alvin Patrimonio v. Gutierrez, June 4, 2014

FACTS: Petitioner Patrimonio and Respondent Gutierrez entered into a business venture under the nameSlam
Dunk Corporation. In the course of their business, the Petitioner pre-signed several check for the expenses of
Slam Dunk. Although signed, however, there was no payee’s name, date or amount indicated in the said
checks. The blank checks were entrusted to Gutierrez with the instruction that he cannot fill them out without
previous notification to and approval by the petitioner.

Sometime in 1993, without petitioner’s knowledge and consent, Gutierrez went to secure a loan from Co-
Respondent Marasigan on the excuse that Petitioner Patrimonio needed the money for the construction of his
house. The latter acceded to Gutierrez’ request and gave him the amount. Gutierrez simultaneously delivered to

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Marasigan one of the blank checks pre-signed by the Petitioner. However, the same was dishonored by the
bank on the reason of closed account.

Marasigan sought recovery from Gutierrez, but to no avail. He thereafter sent several demand letters to the, but
his demands likewise went unheeded. Consequently, he filed a criminal case for violation of B.P. 22 against the
Petitioner. On the other hand, Petitioner filed with the Regional Trial Court a Complaint for Declaration of Nullity
of Loan and Recovery of Damages against the Respondents, invoking that he was not privy to the parties’ loan
agreement.

The trial court ruled in favor of Marasigan and found that the Petitioner, in issuing the pre-signed blank checks,
had the intention of issuing the check even without his approval. The appellate court affirmed the decision of the
RTC.

ISSUES:

1. Whether or not the contract of loan between Marasigan and Gutierrez may be nullified for being void?
2. Whether or not the petitioner should be held liable for the payment of loan that he was not privy of?
3. Whether or not Respondent Gutierrez has completely filled out the subject check strictly under the authority
given by the petitioner; and
4. Whether or not Respondent Marasigan is a holder in due course?

HELD:

1. Yes, the Contract of Loan entered into by Gutierrez in behalf of the Petitioner should be nullifiedfor being
void.Article 1878 paragraph 7 of the Civil Code expressly requires a special power of authority before an agent
can loan or borrow money in behalf of the principal. A review of the records reveals that Gutierrez did not have
any authority to borrow money in behalf of the petitioner. Records did not show that the Petitioner executed any
special power of attorney (SPA) in favor of Gutierrez. In fact, the Petitioner’s testimony confirmed that he never
authorized Gutierrez, whether verbally or in writing, to borrow money in his behalf, nor was he aware of any
such transaction. In the absence of any showing of any agency relations or special authority to act for and in
behalf of the petitioner, the loan agreement Gutierrez entered into with Marasigan is null and void.

2. No, the Petitioner cannot be held liable for the payment of loan on the ground that the contract lacked
the essential element of consent. Article 1318 of the Civil Code14 enumerates the essential requisites for a valid
contract, which includes: a. consent of the contracting parties; b. object certain which is the subject matter of the
contract; and c. cause of the obligation which is established. Gutierrez did not have the petitioner’s
written/verbal authority to enter into a contract of loan. While there may be a meeting of the minds between
Gutierrez and Marasigan, such agreement cannot bind the Petitioner whose consent was not obtained and who
was not privy to the loan agreement. Hence, only Gutierrez is bound by the contract of loan.

3. No, the check was not completed strictly under the authority given by the Petitioner.

Under Sec. 14 of the Negotiable Instruments Law, 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. The law used the term "prima facie" to
underscore the fact that the authority which the law accords to a holder is a presumption juris tantumonly;
hence, subject to subject to contrary proof. Thus, evidence that there was no authority or that the authority
granted has been exceeded may be presented by the maker in order to avoid liability under the instrument.

In this case, the Petitioner gave Gutierrez pre-signed checks to be used in their business provided that
the latter could only use them upon the Petitioner’s approval. The Petitioner’s instruction could not be any
clearer as Gutierrez’ authority was limited to the use of the checks for the operation of their business, and on the
condition that the Petitioner’s prior approval be first secured. No evidence is on record that Gutierrez ever
secured prior approval from the Petitioner to fill up the blank or to use the check.

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4. No, Marasigan is not a holder in due course.

Section 52(c) of the NIL states that a holder in due course is one who takes the instrument "in
good faith and for value." It also provides in Section 52(d) that in order that one may be a holder in due
course, it is necessary that at the time it was negotiated to him he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it.

In the present case, Marasigan’s knowledge that Petitioner Patrimonio is not a party or a privy to the
contract of loan, and correspondingly had no obligation or liability to him, the rule that a possessor of the
instrument is prima facie a holder in due course is inapplicable. Respondent Marasigan’s inaction and
failure to verify, despite knowledge that the Petitioner was not a party to the loan, may be construed as
gross negligence amounting to bad faith.

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