Digests Nego Jason Arteche

1 Negotiable Instruments Law for Atty.
Caldona by Jason Arteche
Roman Catholic Bishop of Malolos Inc. vs IAC

Facts
Roman Inc. and IAC entered into a contract with the latter buying Land X from the former for a sum
of money. Payment would be made in 4-years from date. The 4 years came and went but no payment
arrived. Roman Inc. granted IAC a 5-day extension to pay the principal plus interest. IAC offered a
check as payment on the last day but Roman Inc. refused it. Roman Inc. then revoked the contract and
considered the land reconveyed to its name.
Issue
Is Roman Inc’s check offer a valid tender of payment?
Held
No.
The check is a certified a personal check that is neither legal tender of payment nor the currency
stipulated in the contract.
A negotiable instrument is only a substitute for money and not money, the delivery of such an
instrument doesn’t by itself operate as payment.
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2 Negotiable Instruments Law for Atty. Caldona by Jason Arteche
BPI Express Card Corporation vs. CA

Facts
Marasigan (complainant) is a credit card holder of BPI Corp. Marasigan had overdue accounts with
BPI and the latter demanded payment otherwise Marasigan’s credit card will be cancelled. Marasigan
sent a check to BPI Corp. to settle his account. However, the bank still cancelled his credit card and
sent a letter informing Marasigan of such cancellation and demanding payment. Marasigan didn’t
receive the letter and believing his credit card was good to go, used it at a restaurant. The restaurant
rejected the credit card and Marasigan suffered embarrassment as a result.
Marasigan sent a demand letter to BPI Corp. demanding an explanation for why his credit card was
cancelled and informed it that he was canceling the check he earlier sent. BPI Corp. countered with a
demand for Marasigan to settle his account. Marasigan then filed suit for the embarrassment he
suffered from the cancelled credit card.
Issue
Was BPI Corp. justified in suspending Marasigan’s credit card?
Held
Yes.
Prior to BPI suspending Marasigan’s credit card both parties entered into an agreement with the latter
providing immediate payment of his outstanding account to prevent his credit card’s cancellation.
However, Marasigan failed to comply with his obligation by sending a check as payment. A check is
only substitute for money and not money, the delivery of which doesn’t by itself operate as payment.
Further, the check was postdated and consequently can’t be considered ‘immediate’ payment.
Caltex vs. CA
Facts
Angela deposited money with Security Bank and Trust Company (respondent) evidenced by a
Certificate of Time Deposit (CTD). Angela then bought supplies from Caltex using the CTD. Angela
then informed Security Bank that he lost his CTD causing Security Bank to issue him new copies.
Afterwards, Angela took out a loan from Security Bank secured by the new CTD. Later, Caltex then
sought payment from Security Bank using the original CTD. Security Bank refused and when
Angela’s loan becomes due it used the new CTD to recover the loan. Caltex then filed suit for the
value of the CTD.
Issue
Is the CTD a negotiable instrument?
Held
Yes || Bearer Instrument
The main issue is if the CTD fulfills the requirement of being payable to order or bearer. The accepted
rule is an instrument’s negotiability/non-negotiability is determined from the writing on the
instrument’s face itself. The parties have constituted the writing to be the only outward and visible
expression of their meaning, no other words are to be added to it or substituted in its stead.
The CTD provides the amounts deposited will be repayable to the depositor and according to the
document the depositor is the bearer of the instrument. The CTD doesn’t say the depositor is Person A
and such deposits are repayable specifically to him. The CTD merely states such deposits are
repayable to the document’s bearer. Security Bank may have intended Person A to be the only bearer
but they failed to express such intent in the words used in the instrument.
Baldomero Inciong vs. CA

Facts
Baldomero along with 2 other people agreed to take out a loan from Philippine Bank of
Communications (respondent). One of his co-defendants brought 5 promissory notes to Baldomer
which he all signed indicating in one copy that he bound himself only for a total loan worth P5
thousand.
The loan became due and Philippine Bank went after all 3 for the entire amount. Baldomer then
discovered he was made solidarily liable for a loan worth P50 thousand.
Issue
Is Baldomero liable for the whole amount?
Held
Yes.
As a general rule, bills, notes and other instruments of a similar nature aren’t subject to be varied or
contradicted by parol or extrinsic evidence. But if an oral agreement was the main cause of the written
contract, fraud may be shown by oral evidence. However, fraud must be proven by clear and
convincing evidence and Baldomero’s self-serving testimony falls short.
Further, the promissory note states Baldomer and the 2 other people are jointly and severally liable for
the entire amount. Consequently, Baldomero’s obligation is solidary.
Traders Royal Bank vs. CA

Facts
Filriters (respondent) sold its Central Bank Certificate of Indebtedness (CBCI) to Philfinance. Traders
Royal Bank then entered into a repurchase agreement with Philfinance and the latter sold to the
former the CBCI.
Pursuant to the repurchase agreement, Philfinance agreed to repurchase the CBCI but failed to do so
upon maturity. Due to default, Philfinance then transferred its right to the CBCI to Traders Royal
Bank. Traders Royal Bank then requested Filriters to effect the transfer of the CBCI on its books and
to issue a new certificate in Traders Royal Bank’s name as absolute owner. Filriters refused to do so
causing Traders Royal Bank to file suit.
Issue
Is the CBCI a negotiable instrument?
Held
No.
The CBCI is payable only to Filriters rendering the instrument non-negotiable. A certificate of
indebtedness is merely a promise to pay a sum of money to a specified person or entity for a period of
time.
Consequently, the instrument’s transfer from Philfinance to Traders Royal Bank is merely an
assignment and isn’t governed by the negotiable instruments law.
The Central Bank of the Philippines (the Bank) for value received, hereby promises to pay bearer, or
if this Certificate of indebtedness be registered, to FILRITERS GUARANTY ASSURANCE
CORPORATION, the registered owner hereof, the principal sum of FIVE HUNDRED THOUSAND
PESOS.
Sesbreno vs. CA
Facts
Sesbreno invested money in Philfinance secured by a Delta Corporation Promissory Note, such note
marked non-negotiable. The Delta Note was in Pilipinas Bank’s custodianship. Philfinance also issued
post-dated checks to pay back Sesbreno upon her investment’s maturity.
When the investment matured, Sesbreno presented the checks for encashment but were dishonored.
Sesbreno then sought the Delta Note in Pilipinas Bank’s custody but the latter refused. Sesbreno also
made demands to Delta Corporation but the latter likewise refused arguing the promissory note was
offset by a debt Philfinance had with it.
Issue
Did Sesbreno acquire any right over the promissory note?
Held
Yes.
A negotiable instrument’s negotiation must be distinguished from assignment/transfer. Only a

negotiable instrument can be negotiated either by indorsement and delivery or by delivery alone if the
negotiable instrument is in bearer form. However, a negotiable instrument may instead of being
negotiated be assigned or transferred. The legal consequences of negotiation and assignment/transfer
are different.
The promissory note was marked non-negotiable but held no prohibition on its transfer or assignment.
Sesbreno validly acquired rights over it through assignment/transfer.
Serrano vs CA
Facts
In need of money, Serrano ordered her private secretary to pawn Jewelry A. The secretary pawned
Jewelry A with Long Life pawnshop but absconded with said amount and the pawn ticket.
Afterwards, Serrano heard the pawn ticket was being offered for sale at Long Life and she went there
to find out. Serrano discovered the missing Jewelry A was pledged there and told the manager not to
allow anyone to redeem Jewelry A. However, Long Life allowed another person to redeem Jewelry A
anyway.
Issue
Is the pawn ticket a negotiable instrument?
Held
No.
A pawn ticket, despite the words ‘redeemable on presentation by bearer’ is neither a negotiable
instrument under the Negotiable Instruments law nor a negotiable document under the Civil Code.
Bachrach vs Golingco
Facts
Bachrach filed suit to recover money due to him on a promissory note. The note included a provision
for attorney’s fees if it becomes necessary to employ counsel to enforce collection.
Issue
Is the promissory note a negotiable instrument?
Held
Yes.
The Negotiable Instruments Law expressly recognizes a stipulation for attorney’s fees in case of non-
payment at maturity in a negotiable instrument. Such stipulation however is subject to the court
deciding whether it’s unconscionable or not.
Abubakar vs Auditor General

Facts
The Auditor General refused to authorize payment of a Treasury warrant originally issued to a 3rd
person but is now in Abubakar’s hands. Abubakar filed suit to recover the value of the Treasury
Warrant.
Issue
Is the Treasury warrant a negotiable instrument?
Held
No.
The Treasury warrant indicates on its face ‘payable from the appropriation for food administration’
meaning there is a particular fund out of which payment must be made. Consequently, there’s no
unconditional promise to pay.
Metropolitan Bank vs CA
Facts
Eduardo Gomez deposited Treasury Warrants in Golden Savings (respondent) who in turn deposited
them in Metrobank for clearing. Golden Savings repeatedly inquired from Metrobank if the warrants
had been cleared. Exasperated, Metrobank allowed Golden Savings to withdraw the value of the
Treasury Warrants before clearance. Afterwards, Eduardo withdrew the proceeds.
However, it turns out the warrants had been dishonored and Metrobank demanded a refund from
Golden Savings. Golden Savings refused and hence this case.
Issue
Are the Treasury Warrants negotiable instruments?
Held
No.
The warrant have stamped on their face the word ‘non-negotiable’ and is payable from a particular
fund, namely Fund 501. The promise to pay is conditional on the availability of funds in Fund 501.
PNB vs Manila Oil

Facts
Manila Oil issued a promissory note in PNB’s favor with a stipulation allowing confession of
judgment in case of non-payment at maturity.
Issue
Is the stipulation authorizing confession of judgment valid?
Held
No.
Warrants of attorney to confess judgment are neither authorized nor contemplated by law for being
against public policy.
The Negotiable Instruments Law states that stipulations allowing confessions of judgment shall not
affect an instrument’s negotiability. However, such statement is further modified by the words
‘Nothing in this section shall validate any provision or stipulation otherwise illegal.’
Cognovit actionem - acknowledging indebtedness after the action is filed

Relicta verificatione - confessing judgement by withdrawing his defense
Salas vs CA
Facts
Salas bought a car from a Company evidenced by a promissory note that was subsequently indorsed
to Finance and Leasing Corp. (respondent). Salas intentionally defaulted in her payments due to
alleged defects in the car that the Company refused to repair. The promissory note matured and
Finance and leasing Corp filed suit against Salas to recover the value of the promissory note.
Issue
Held
Yes.
In assigning a non-negotiable instrument, the holder merely steps into the shoes of the person
designated in the instrument and will be open to all the defenses available against the latter.
Here, the promissory note is negotiable and Finance and Leasing Corp. is a holder in due course.
Finance and Leasing Corp. holds the promissory note free from any defect of title and free from
defenses available to prior parties.
Consequently, Salas can’t set up the defense of the Company’s breach of warranty on the car against
Finance and Leasing Corp.
Consolidated Plywood vs. IFC Leasing

Facts
Consolidated Plywood bought tractors from Atlantic Gulf evidenced by a promissory note. Atlantic
Gulf then assigned its rights and interest to the note in IFC Leasing’s favor by means of a deed of
assignment. However, the tractors broke down and Consolidated Plywood rescinded the contract of
purchase and demanded a refund. Atlantic Gulf made no move to refund Consolidated Plywood. IFC
Leasing then filed suit to recover the amount of the promissory note.
Issue
Held
No.
The promissory note isn’t payable to order or bearer. A negotiable instrument must contain the words
of negotiability such as ‘order’ or ‘bearer.’ Without the words ‘or order’ or ‘to the order of’ then the
instrument is payable only to that person and no one else, therefore non-negotiable.
Any subsequent holder of the note will only step into the shoes of the person designated in the
instrument and will be open to all the defenses available against the latter. He doesn’t enjoy the
benefits of being a holder in due course of a negotiable instrument.
FOR VALUE RECEIVED, I/we jointly and severally promise to pay to the INDUSTRIAL PRODUCTS
MARKETING, the sum of ONE MILLION NINETY THREE THOUSAND SEVEN HUNDRED
EIGHTY NINE PESOS & 71/100 only (P 1,093,789.71), Philippine Currency, the said principal sum,
to be payable in 24 monthly installments starting July 15, 1978 and every 15th of the month thereafter
until fully paid. ...
GSIS vs. CA
Facts
Spouses Racho and a 3rd party took out a loan from GSIS secured by Racho’s property and a
promissory note. The borrowers failed to pay the loan when it matured and GSIS foreclosed the
property which was eventually sold in a public auction. Afterwards, the Spouses Racho filed suit to
recover their property
Issue
Held
No.
The promissory note isn’t a negotiable instrument because it's neither payable to order nor to bearer.
The note is payable to a specified party, namely GSIS.
... for value received, we the undersigned ... JOINTLY, SEVERALLY and SOLIDARILY, promise to
pay the GOVERNMENT SERVICE INSURANCE SYSTEM the sum of . . . (P 11,500.00) Philippine
Currency, with interest at the rate of six (6%) per centum compounded monthly payable in . . .
(120)equal monthly installments of . . . (P 127.65) each.
Philippine Education Co vs. Soriano

Facts
Enrique Montinola sought to purchase from the Manila Post Office 10 money orders and pay them
with checks. The Post Office refused to accept the checks as payment. However, Enrique was able to
leave the Office with both his checks and the money orders without the Post Office’s knowledge.
Afterwards, Philippine Education received the money orders as part of its sales receipts and deposited
it in the Bank. The Post Office discovered the money order’s deposit and deducted the money order’s
amount from the Bank’s clearing account. The Bank in turn debited the amount from Philippine
Education’s account.
Issue
Are the postal money orders negotiable instruments?
Held
No.
Postal money orders aren’t negotiable instruments. The reason being under a postal money order
system, the government isn’t engaged in a commercial transaction but merely exercising a
governmental power for the public’s benefit.
Further, postal laws and regulations usually provide for not more than one endorsement and payment
of money orders may be withheld under various circumstances.
Equitable Banking vs. IAC

Facts
Casville Enterprises approached Nell Company (respondent) to buy garret skidders. Casville told Nell
the former had a credit line with Equitable and payment will be made via a domestic letter of credit.
Casville informed Nell that it needed money as collateral to clear title to the property used as security
for trust receipts Equitable Bank issued. Nell agreed and issued checks to provide the money. Later,
Nell discovered no credit line was opened and Casville withdrew the checks for itself.
Issue
Is the check a negotiable instrument?
Held
No.
The check is patently ambiguous and the payee ceased to be indicated with reasonable certainty. As
worded, the check could be accepted as a deposit to the account of the party named after the symbols
‘A/C’ or payable to the Bank as trustee, or as an agent for Casville Enteriprises Inc. Such ambiguity
should be construed against Nell because it caused the ambiguity.
Pay to the EQUITABLE BANKING CORPORATION Order of A/C OF CASVILLE ENTERPRISES,

INC.
PNB vs. Rodriguez and Rodriguez

Facts
Spouses Rodriguez maintains accounts in PNB and is engaged in the informal lending business.
Rodriguez clients include PEMSLA, an association of PNB employees. PEMSLA likewise maintains
accounts in PNB. PEMSLA regularly grants loans to its members. Rodriguez would rediscount the
post-dated checks issued to members whenever PEMSLA was short of funds. Rodriguez would
replace the post-dated checks with their own checks issued in the member's name.
PEMSLA doesn't grant loans to members with outstanding loans. To subvert this policy, PEMSLA
officers would take out loans in the name of unknowing members, without the latter's consent. The
checks were then given to Rodriguez for rediscounting. The indorsement of the named payees on the
checks is forged. Rodriguez would then issue his personal check in the member's name and deliver it
to the PEMSLA officer. Rodriguez would then deposit the PEMSLA check into his account.
Meanwhile, PEMSLA would deposit the personal checks to its savings account without any
indorsement from the payee.
PNB found out about the scheme and closed PEMSLA's account. Rodriguez incurred losses because
the PEMSLA checks were dishonored due to 'Account closed.' Rodriguez then filed suit.
Issue
Were the checks order or bearer instruments?
Held
Order instruments.
An instrument whose payee is a fictitious or non-existing person and such fact is known to the
maker/drawer is a bearer instrument. Fictitious means the named payee is not intended to be the
proceed’s true recipient. As a general rule, the drawee bank isn't liable for such checks and the drawer
bears the loss. The exception is when there's commercial bad faith on the drawee bank's part.
In this case, the checks are payable to specific payees. They are actual and living persons who were
PEMSLA members with a rediscounting agreement with Rodriguez. The payees didn't know about
the checks but that doesn't mean Rodriguez had no intention for such payees to receive the proceeds.
The checks are order instruments because Rodriguez intended the named payees as the proceeds’
recipients.
Further, PNB was remiss in its duty by allowing the checks to be deposited in PEMSLA's account
without indorsement from the payees.
Ang Tek Lian vs. CA

Facts
Ang Tek Lian borrowed money from Lee Hua Hong and paid the latter using a check. Afterwards,
Lee encashed the check but it was dishonored. Lee made repeated demands but Ang Tek Lian was
nowhere to be found. Lee then filed suit for estafa against Ang Tek Lian.
Ang Tek Lian argues he isn’t liable for estafa because the check was payable to ‘cash’. Consequently,
Ang Tek Lian argues such a check is dishonored by uniform practice of all Philippine banks. Lee
accepted the check knowing full well it would be dishonored, therefore no fraud.
Issue
Was the check sufficient proof to convict for estafa?
Held
Yes.
The check was payable to ‘cash’ and therefore payable to bearer. Under the Negotiable Instruments
Law, a check payable to a payee whose name doesn’t purport to be the name of any person is a bearer
instrument.
In this case, the bank may pay the person presenting it for payment without the drawer’s indorsement.
However, if the bank is unsure of the bearer’s identity or financial solvency, it has a right to demand
identification or assurance against possible complications (i.e. forgery, loss of check by the rightful
owner). The bank can require the drawer’s indorsement, or some other person known to it, to be
obtained. Once the bank is satisfied of the bearer’s identity and standing, it can pay the instrument
without incurring any liability to the drawer.
Further, such check isn’t automatically dishonored.
Jimenez vs Bucoy
Facts
Jimenez presented 4 promissory notes to Bucoy. The promissory notes were issued during the
Japanese Occupation and payable after the war. After the war, Bucoy declared he was willing to pay
provided the sums be made in line with the Ballantyne schedule. Jimenez refused and insisted full
payment be made in accordance with the notes. Jimenez the filed suit. In court, Bucoy argued the
promissory notes contained no express promise to pay a specified amount.
Issue
Did the promissory note contain an express promise to pay a specified amount?
Held
Yes.
An acknowledgement may become a promise by adding words by which a promise of payment is

naturally implied, such as ‘payable’ or ‘paid when called for.’ No precise words are necessary
provided the words used amount in legal effect to a promise to pay. The instrument is a promissory
note if over and above the mere acknowledge of the debt there may be inferred from the words used a
promise to pay it.
In this case, the promissory note is a promise to pay P10,000 six months after the war without interest.
Received from Miss Pacifica Jimenez the total amount of P10,000) ten thousand pesos payable six
months after the war, without interest.
Pacheco vs CA
Facts
Pacheco took out a loan from Vivencio. Vivencio didn’t require a note of indebtedness but insisted on
an undated check as evidence of the loan. Pacheco told Vivencio he didn’t have any funds in the bank.
But Vivencio promised the check won’t be presented to the bank and is a mere formality. Pacheco
issued the undated check and signed it. This same arrangement continued every time Pacheco needed
a loan from Vivencio. Afterwards, Vivencio forced Pacheco to place a date on some of the checks to
which Pacheco agreed. Then, Pacheco was surprised to receive a demand letter from Vivencio
informing him when the dated checks were presented for payment they were dishonored. Vivencio
filed suit for estafa against Pacheco.
Issue
Is Pacheco guilty of estafa?
Held
No.
Under the Negotiable Instruments Law, a holder who receives an undated check can insert the true
date. Moreover, he has prima facie authority to complete the check by filling up the blanks therein. A
negotiable instrument isn’t rendered invalid by being postdated or antedated. Here, Vivencio didn’t
need Pacheco to write the date on the check because Vivencio could have done it himself.
A check must also be presented within a reasonable time from issue. A check becomes stale after
more than 6 months under current banking practice. In this case, the checks were presented 3 years
after issue.
Manuel Lim vs CA
Facts
Lim placed several orders with LINTON Corp. for steel plates. All these orders were paid with
SolidBank checks. LINTON presented the checks for payment but SolidBank dishonored them for
insufficiency of funds and annotated on the checks ‘payment stopped,’ LINTON filed suit for estafa
and B.P. 22 against Lim.
Issue
Where were the checks issued?
Held
At LINTON’s place of business.
Under the Negotiable Instruments Law, ‘issue’ means the instrument’s 1st delivery complete in form
to a person who takes it as holder. ‘Holder’ meanwhile refers to the payee or indorsee of a bill or note
who is in possession of it or the bearer thereof. The instrument’s delivery is the final act essential to
the obligation’s consummation. Delivery signifies transfer of possession, whether actual or
constructive, from one person to another with intent to transfer title.
In this case, LINTON sent a collector to receive the checks from Lim at Lim’s place of business but
the checks were actually issued and delivered at LINTON’s place of business. The collector’s receipt
of the checks is not the issuance and delivery to the payee in the law’s contemplation. The collector
wasn’t the person who could take the checks as holder with intent to transfer title. Further, the
collector wasn’t LINTON’s agent.
People vs Gorospe
Facts
Gorospe is San Miguel Corporation’s authorized wholesale dealer. Gorospe issued Planters
Development Bank checks in SMC’s favor. The checks were delivered to the SMC supervisor in
Bulacan, forwarded to the SMC Finance Officer in SMC Pampanga, then deposited in BPI. Upon
deposit, the checks were dishonored and SMC made repeated demands to Gorospe but the latter failed
to pay. SMC filed suit for estafa and B.P. 22 against Gorospe.
Issue
Where was the place of issue?
Held
SMC Pampanga.
The instrument’s issuance and delivery must be to a person who takes it as holder, which means the
payee or indorsee of a bill or note who possesses it or the bearer. Delivery signifies transfer of
possession, whether actual or constructive, from one person to another with intent to transfer title.
In this case, the check’s delivery to the SMC Supervisor in Bulacan isn’t the delivery in the law’s
contemplation to payee SMC. The Supervisor wasn’t the person who could take the check as holder.
The delivery occurred in SMC Pampanga.
Dela Victoria vs Burgos

Facts
Respondent Sesbreno filed suit against Assistant City Fiscal Mabanto. Sesbreno won and the court
ordered Mabanto to pay Sesbreno a sum of money. Pursuant to the court’s judgment, a notice of
garnishment was sent to Dela Victoria, City Fiscal of the place where Mabanto was detailed. The
notice directed Victoria not to release Mabanto’s salary checks or other checks belonging to Mabanto
except to the deputy sheriff. Dela Victoria moved to quash the notice of garnishment claiming the
checks weren’t Mabanto’s properties because they weren’t delivered to Mabanto yet. Such checks
were still public funds not subject to garnishment.
Issue
Are the checks subject to garnishment?
Held
No.
Under the Negotiable Instruments Law, every contract on a negotiable instrument is incomplete and
revocable until the instrument’s delivery for the purpose of giving effect thereto. Delivery means the
maker/drawer’s transfer of the instrument’s possession with intent to transfer title to the payee and
recognize him as holder thereof. If an instrument is no longer in possession of a party whose signature
appears thereon, a valid and intentional delivery by him is presumed unless there’s proof to the
contrary.
In this case, the checks haven’t been delivered to Mabanto and were still in Victoria’s custody.
Consequently, the checks are still considered public funds and Mabanto has no power over the
checks.
Development Bank of Rizal vs Sima Wei

Facts
Sima Wei took out a loan from Rizal Bank evidenced by a promissory note. Afterwards, Sima Wei
issued a crossed check payable to Rizal Bank drawn against China Bank to pay the loan. The checks
weren’t delivered to Rizal Bank. For unknown reasons, respondent Huan possessed the check and
deposited them, without Rizal Bank’s indorsement, to respondent Plastic Corp’s account at Producer’s
Bank. Producer’s Bank, relying on Plastic Corp’s assurance the transaction was legal and regular,
accepted the checks for deposit and credited them to Plastic Corp’s account despite the fact the checks
were crossed, payable to Rizal Bank, and bore no indorsement from Rizal Bank.
Issue
Does Rizal Bank have a cause of action against respondents?
Held
Only with Sima Wei.
The normal parties to a check are the drawer, payee, and drawee-bank. Every contract on a negotiable
instrument is incomplete and revocable until the instrument’s delivery for the purpose of giving effect
thereto. It’s insufficient for the drawer to simply make the instrument, the drawer must deliver said
instrument to the payee to create a binding contract. When there’s no delivery to the payee, the payee
doesn’t acquire any interest on the negotiable instrument. The drawer doesn’t incur liability to the
payee founded on the instrument.
In this case, Sima Wei never delivered the checks to Rizal Bank. Consequently, Rizal Bank doesn’t
have any cause of action founded on said check. Further, Rizal Bank has no cause of action against
Huan, Plastic Corp, and Producer’s Bank for lack of interest and rights to the check. However, Rizal
Bank has a cause of action against Sima Wei founded on the promissory notes.
People vs Romero
SAIDECOR Corporation solicits funds and investments from the public and promises an investor an
800% return on his money. Romero is SAIDECOR Corporation’s president. Complainant Ernesto
invested in SAIDECOR. Romero issued Ernesto a post-dated check reflecting the 800% investment
return. The check indicated 1 million as the amount in words but 1.2 million in figures. Ernesto didn’t
notice the discrepancy in the check. Ernesto later presented the check for payment but it was
dishonored for lack of funds. A criminal case was filed against Romero. In court, Romero argues the
check shouldn’t have been dishonored because he had 1.1 million in the bank at the time the check
was presented for payment.
Issue
What is the check’s true value?
Held
1.2 million.
Under the Negotiable Instruments Law, when there’s an ambiguity in the amount in words and the
amount in figures, the words prevail.
In this case however, the figures prevail because the agreement between Ernesto and Romero was
perfectly clear that Ernesto’s investment will yield an 800% return. The 1.2 million reflects the 800%
investment return.
Philippine National Bank vs Concepcion Mining Company

Facts
Philippine National Bank filed a civil case to collect on a promissory note from defendants
Concepcion Mining and Sarte. The promissory note’s makers bound themselves solidarily to pay the
obligation. In court, defendants motioned to have the promissory note’s other co-maker, Legarda,
included in the complaint. The court denied the motion.
Issue
Should Legarda be included in the complaint?
Held
No.
The promissory note creates a solidary obligation because it uses the words ‘I promise to pay’ and is
signed by 3 makers. The Civil Code provides the creditor has the right to choose which solidary
debtor to collect from. In this case, Philippine National Bank decided to leave out Legarda in the
complaint and the Bank was within its right to do so.
90 days after date, for value received, I promise to pay to the order of the Philippine National Bank...
Republic Planters Bank vs CA

Facts
Worldwide Garment Manufacturing took out a loan from Republic Planters Bank. Yamaguchi and
Canlas, who were President and Treasurer respectively of Worldwide Manufacturing, signed the
promissory notes evidencing the debt. Afterwards, Worldwide Manufacturing changed its name to
Pinch Manufacturing. The promissory notes matured but Pinch Manufacturing failed to pay. Republic
Planters Bank filed a case to collect on the promissory note.
Issue
Is Canlas solidary liable with Pinch Manufacturing and Yamaguchi?
Held
Yes.
The promissory note is a negotiable instrument governed by the Negotiable Instruments Law.
In this case, Canlas is undoubtedly a co-maker of the promissory note evidenced by his signature.
Further, the promissory note creates a solidary obligation evidenced by the words ‘jointly and
severally’ in describing the unconditional promise to pay. Also, Canlas’ allegation he signed the
promissory note in blank is self-serving and unbelievable.
after date, for value received, I/we, jointly and severally promise to pay to the order of the Republic
Planters Bank...
Remo vs CA
Facts
Remo is a board member at Akron Customs Brokerage Corporation. Akron Corp. bought trucks from
respondent Marcha Transport Company. Akron’s obligation to pay was secured by a promissory note.
The promissory note states payment shall be made from the proceeds of a loan obtained from DBP
within 60 days. The promissory note matured but Akron failed to pay and Marcha Company later
found out Akron never applied for a loan with DBP. Marcha Company filed suit against Akron to
recover the amount or the trucks and damages.
Issue
Is Remo personally liable to Marcha Company?
Held
No.
The law treats a corporation as though it were a person distinct and separate from its stockholders.
However, the corporate fiction may be disregarded when it’s used to protect fraud and to justify
wrong. In such case, the law will regard the corporation as an association of persons.
In this case, there’s no basis to pierce Akron’s corporate veil and hold Remo personally liable to
Marcha Company. There’s no showing Akron intended to defraud anyone in buying the trucks.
Further, it was Coprada alone who negotiated with Marcha Company and signed the promissory note.
The word ‘We’ in the promissory note refers to the corporation that Coprada represents and not the
stockholders. Remo didn’t sign the promissory note so he can’t be held liable.
Insular Drug vs PNB

Facts
Foerster worked as both salesman and collector for Insular Drug. Foerster. Foerster’s instructions as
collector were to take the checks in Insular Drug’s name and deposit them to Insular Drug’s credit.
Instead, Foerster, his wife, and his clerk indorsed and deposited the checks to his personal account at
PNB. Insular Drug found out about Foerster’s fraud and demanded payment from PNB.
Issue
Is PNB liable to Insular Drug?
Held
Yes.
An agent’s right to indorse commercial paper is a very responsible power and will not be lightly
inferred. A salesman with authority to collect money belonging to his principal doesn’t have the
implied authority to indorse checks received in payment. A person dealing with a corporation, who
can act only through its agents, without inquiring as to the agent’s authority does so at his own peril
and must abide by the consequences.
In this case, PNB permitted Foerster as well as his wife and clerk to indorse the checks and place
them in Foerster’s personal account. All this PNB allowed without any authority from Insular Drug to
do so.
Philippine Bank of Commerce vs Aruego

Facts
Aruego publishes a periodical and the Philippine Bank of Commerce pays Aruego’s printer, Encal
Press. Encal Press collects the printing cost by drawing a draft (bill of exchange) against Philippine
Bank, the draft being sent later to Aruego for acceptance. As added security, Philippine Bank required
Aruego to execute a trust receipt in Philippine Bank’s favor. The bill of exchange matured but Aruego
failed to pay. Philippine Bank filed suit to recover the printing cost from Aruego.
In court, Aruego argues he signed the bills of exchange as Philippine Education Foundation
Company’s agent, where Aruego is president.
Issue
Is Aruego liable for the bills of exchange?
Held
Yes.
The Negotiable Instruments Law provides if a person signs an instruments adding to his signature
words indicating he signs on his principal’s behalf as an agent, he isn’t liable for the instrument if he
was duly authorized. But merely adding words describing him as an agent without disclosing his
principal doesn’t exempt him from personal liability.
In this case, Aruego never disclosed in the bills of exchange he was signing as Philippine Education
Foundation Company’s representative.
Francisco vs CA
Facts
Francisco is Francisco Realty & Development Corporation’s president. Francisco Realty entered into
a contract, financed by GSIS, with respondent Herby Commercial & Construction Corporation
represented by its president, respondent Ong. Later, Herby Corporation filed suit against Francisco,
Francisco Realty, and GSIS because they failed to pay what was due to Herby Corporation. The
parties reached an amicable settlement and the court dismissed the case. Afterwards, Ong discovered
GSIS executed checks payable to Herby Corporation as payment under the contract. The GSIS gave
Francisco custody of the checks but they were never delivered to Herby Corporation. Instead,
Francisco forged Ong’s signature to make it appear Herby Corporation indorsed the same; Francisco
indorsed the checks to herself and withdrew the amount. Ong then filed suit to recover the amount of
the checks.
Issue
Did Ong authorize Francisco to sign the former’s name on the checks?
Held
Doesn’t matter.
Under the Negotiable Instruments Law, an agent, when so signing, should indicate that he’s merely
signing on the principal’s behalf and must disclose his principal, otherwise he shall he held personally
liable.
In this case, even assuming Francisco was authorized to sign Ong’s name, Francisco didn’t indorse
the instrument in accordance with law. Francisco signed Ong’s name, however Francisco should’ve
signed her own name and expressly indicated she was signing as Ong’s agent.
Astro Electronics Corp. vs Phi. Export

Facts
Astro took out a loan from Philtrust evidenced by promissory notes. In all these promissory notes
Roxas signed twice, as Astro’s president and in his personal capacity. Afterwards, Phil. Export was
made guarantor to Astro’s loan. Astro defaulted and Phil. Export paid Philtrust. Astro failed to pay
Phil. Export and the latter filed suit to recover the amount.
In court, Roxas argues he has no liability because he merely signed the promissory notes in blank and
the phrases ‘in his personal capacity’ and ‘in his official capacity’ were afterwards fraudulently
inserted.
Issue
Is Roxas liable for the promissory notes?
Held
Yes.
Under the Negotiable Instruments Law, a person who writes his name on the promissory note’s face is
a maker, promising to pay to the payee’s order or any holder.
In this case, Roxas became a co-maker when he signed in his personal capacity. Further, even without
the phrase ‘personal capacity’ Roxas will still be solidarily liable because his intention to be liable is
manifested by the fact he signed twice, implying he’s undertaking the obligation in both an official
and personal capacity. Also, the promissory notes create a solidary obligation evidenced by the words
‘I/We’ and ‘jointly, severally, and solidarily.’
For value received, I/We jointly, severally and solidarily, promise to pay to Philtrust Bank or order...
San Carlos Milling vs BPI

Facts
Cooper, under a general power of attorney, handles San Carlos Milling’s business in the Philippines.
The principal employee in the Manila office was Wilson who also had a general power of attorney.
Later, Cooper went on vacation and gave a general power of attorney to Baldwin and revoked
Wilson’s power to deal with BPI. San Carlos Milling maintained a deposit in BPI.
Afterwards, Wilson connived with Dolores, a messenger-clerk, to defraud San Carlos Milling. Wilson
had $100,000 sent from the San Carlos Milling Honolulu branch to China Bank. China Bank received
the money and offered an exchange contract worth P200,000. Wilson forged Baldwin’s signature in
the exchange contract and requested a check be made. Dolores picked up the manager’s check for
P200,000 payable to San Carlos Milling. Wilson forged Baldwin’s signature in the check to have it
endorsed for deposit only in BPI to San Carlos Milling’s account. The check was deposited at BPI.
Later, BPI received a latter allegedly from Baldwin directing the P200,000 be readied for delivery.
Dolores gave BPI a check for P200,000 and another check for P1 to cover packing cost. Baldwin’s
signature in both checks was forged. BPI turned the money over to Dolores where it was appropriated
between Dolores and Wilson. San Carlos Milling discovered the crime and demanded restitution from
BPI which the latter refused.
Issue
Is BPI liable?
Held
Yes.
A bank is bound to know the signatures of its customers; and if it pays a forged check, it must be
considered as making the payment out of its own funds, and can’t ordinarily charge the amount so
paid to the depositor’s account whose name was forged.
In this case, Baldwin’s signatures were undoubtedly forged but BPI released the money thinking the
signatures were genuine. BPI’s negligence was the proximate cause of loss. The signatures being
forged, the checks are neither charged against San Carlos Milling nor of any value to BPI.
PNB vs Quimpo
Facts
Gozon was a depositor at PNB. Santos stole a check from respondent Gozon, filled it up for the
amount of P5,000, forged Gozon’s signature, and encashed the check at PNB. Gozon demanded PNB
to return the P5,000 but the latter refused, Hence, this case.
Issue
is PNB liable?
Held
Yes.
A bank’s prime duty is to ascertain the genuineness of the signature of the drawer or depositor on the
check being enchased. The bank is expected to use reasonable business prudence in accepting and
cashing a check presented to it.
In this case, there was a marked difference between the forged signature and the sample signature
Gozon provided PNB. PNB was negligent in enchasing the forged check without carefully examining
the forged signature that was markedly different from the genuine signature.
PNB vs CA
Facts
A GSIS check was drawn against PNB by GSIS officers made payable to Pulido. Pulido in turn
indorsed it to Go, who then indorsed it to Lim. While all this was happening, GSIS notified PNB said
GSIS check was lost and payment should be stopped. Lim deposited the check in his account with
PCIB. PCIB sent the check for clearing to PNB. PNB didn’t return the check but retained it and paid
the check’s amount to PCIB and debited GSIS’ account in PNB. Later, GSIS demanded the amount
be re-credited because the officers’ signatures on the GSIS check were forged. PNB did so and
demanded a refund from PCIB that the latter refused.
Issue
Can PN demand a refund from PCIB?
Held
No.
A well-settled maxim of law and equity is that if one of 2 innocent persons must suffer by the
wrongful act of a 3rd person, the loss must be borne by the one whose negligence was the proximate
cause of the loss or who put it into the power of the 3rd person to perpetrate the wrong.
In this case, even assuming PCIB was negligent it’s undeniable PNB was more negligent. PNB
received formal notice from GSIS that said check had been lost and payment should be stopped.
Further, PNB’s negligence was the proximate cause for the loss. PCIB didn’t cash the check upon
presentment but sent it to PNB for clearing. PNB’s failure to return the check implied, under current
banking practice, that PNB considered the check good and would honor it. In fact, PCIB paid Lim
only when PNB paid the check’s amount to PCIB. Consequently, PNB’s actions induced PCIB to
believe the check was genuine and to pay Lim.
MWSS vs CA
Facts
MWSS maintains a deposit at Philippine National Bank. The authorized signatures for MWSS'
deposit are those of its Treasurer, Auditor, and General Manager. MWSS has a special arrangement
with PNB where MWSS issues personalized checks in drawing from its account. Mesina Enterprises
printed the checks. During a certain period, MWSS checks were presented to 2 different banks. These
banks submitted the checks for clearance to PNB and PNB paid the value of said checks, debiting the
amount against MWSS' account. The NBI conducted an investigation and it turned out the payees are
fictitious persons. MWSS demanded reimbursement from PNB but the latter refused.
Issue
Is PNB liable?
Held
No.
In this case, MWSS failed to prove the signatures on the checks were forged.
Further, even assuming the checks were forged MWSS is barred from setting up the defense of
forgery because of gross negligence on its part. MWSS failed to provide sufficient security measures
in the printing of its special checks and access to confidential records.
It also failed to reconcile the bank statements with its own records. The bank statement was delivered
to a 3rd person instead of MWSS directly, by MWSS' own request. The 3rd person however delayed
in sending the bank statements to MWSS resulting in greater loss.
On the other hand, PNB exercised due diligence to detect the forged checks and fraudulent
encashments.
Republic vs Equitable Bank

Facts
Corporacion de los Padres Dominicos acquired 24 treasury warrants from its employee, Carranza.
Carranza asked the Corporacion to encash the warrants which the latter accepted, provided the
warrants are first deposited at the Philippine Islands Bank, and actual payment made only after the
warrants were cleared by the Treasurer and proceeds duly credited to Corporacion's account in the
Bank. The warrants were cleared and the Treasurer paid their value. Afterwards, the Treasurer
demanded reimbursement from the Bank alleging the warrants were forged.
Meanwhile, another set of warrants were deposited by private persons to Equitable Bank. Equitable
Bank cleared said warrants and collected the amounts from the Treasurer. The Treasurer also
demanded reimbursement on the ground the warrants were forged.
Both banks rejected the Treasurer's request.
Issue
Can the Treasurer demand reimbursement?
Held
No.
In this case, the Treasurer was grossly negligent in clearing its own warrants. The warrants
themselves were irregular on its face because the officer whose signature was forged on said warrants
had no authority to approve them. The Treasurer neither gave notice of the loss of such warrants nor
informed both banks of any irregularity in connection with the warrants. The Treasurer's negligence
was the proximate cause of the loss.
PNB vs National City Bank of NY

Facts
Person A possessed a check issued by Pangasinan Transportation Co. against PNB and in
International Auto Shop's favor. Person A indorsed the check to defendant Motor Service Co. Motor
Service accepted the check as payment believing the signatures on the check were genuine. Motor
Service then deposited the check at Bank of NY who credited Motor Service with the amount. PNB
then credited Bank of NY for the amount of the check. Later, PNB found out the drawer's signature
on the check was forged and demanded reimbursement from Bank of NY and Motor Service which
both refused.
Issue
Can PNB demand reimbursement from Bank of NY and Motor Service?
Held
Yes.
Payment of a check neither includes nor implies acceptance. Payment and acceptance are two
different things and one doesn't necessary include the other. Here, PNB never accepted the check but
simply marked it 'paid' and didn't write anything else except the date.
In this case, the Bank of NY didn't use reasonable business prudence. It took the check from a
stranger without making any inquiry as to the identity and authority of the persons negotiating and
indorsing them. The cashier witnessed the mark of such stranger thus vouching for the identity and
signature of the maker and it indorsed the check as paid, thus further throwing plaintiff off guard.
PNB could act only on the facts as Bank of NY presented them. Motor Service was likewise negligent
because it accepted the check from a stranger without making inquiries as to his authority to indorse
the check. Further, a subagent of the payee’s agent initially indorsed the check.
PNB never performed any act that would induce Bank of NY to believe in the genuineness of said
instrument before Bank of NY purchased them for value. Consequently, Bank of NY is liable to PNB
for the value of the check.
Ilusorio vs CA
Facts
Ilusorio is a prominent businessman who maintains a checking account at Manila Bank. Ilusorio's
secretary, Eugenio, held his credit cards and checkbook with blank checks. Eugenio was also
responsible for verifying and reconciling the statements of his checking account. During a certain
period, Eugenio encashed and deposited to her personal account checks drawn against Ilusorio's
account at Manila Bank. Ilusorio never bothered to check his account and discovered only when a
business partner told him of Eugenio's mischief. Ilusorio demanded Manila Bank re-credit the amount
Eugenio stole but the latter refused.
Issue
Can Ilusorio demand reimbursement?
Held
No.
As a general rule, a forged check is wholly inoperative but the exception is when the party against
whom the check is to be enforced is precluded from setting up forgery for want of authority.
In this case, Ilusorio failed to prove forgery in failing to provide additional specimen signatures to the
NBI for investigation. He also refused to provide Manila Bank the disputed checks for analysis and
examination upon request.
Even assuming there was forgery, Manila Bank exercised due diligence before encashing the checks.
Manila Bank verified the signatures extensively and even if the forgery wasn't detected, such mistake
isn't equivalent to negligence because it was an honest mistake. Also, Eugenio was Manila Bank’s
regular customer being designated by Ilusorio himself to transact in his behalf.
In fact, it was Ilusorio who was negligent because he placed an unusual degree of trust and access to
sensitive materials (i.e. checkbooks) to his secretary. Manila Bank sent him monthly statements of his
account but he didn't bother checking them to see any irregularity. Ilusorio's negligence was the
proximate cause of the loss and consequently he’s precluded from setting up the defense of forgery.
BPI vs Casa Montessori International

Facts
Casa Montessori maintains a deposit at BPI with Casa's President as one of its authorized signatories.
Later, Casa found out 9 of its checks had been encashed against it by a certain Santos. It turns out
Santos was a fictitious name used by Yabut, Casa's external auditor. Yabut voluntarily admitted he
forged Casa President's signature on the checks. Casa demanded reimbursement from BPI but the
latter refused.
Issue
Is BPI liable for reimbursement?
Held
Yes.
A bank is impressed with public interest and is required to take meticulous care of its clients’
deposits. Clients have the right to expect high standards of integrity and performance from it. Among
the bank’s obligations is knowing its clients' signatures. If a bank pays a forged check, it's considered
to be paying out of its own funds and can't charge the same to the depositor whose name was forged.
In this case, it's undisputed the signatures on the checks were forged because Yabut himself confessed
to the forgery and the PNP report confirmed such fact.
Further, Casa isn't estopped from questioning mistakes on it account even after the lapse of the period
provided for by BPI. In monthly statements issued by BPI, the depositor has 10 days to report any
error otherwise the account will be correct. BPI has no right to impose such condition unilaterally and
consider failure to meet such a condition a waiver.
In fact, BPI was the proximate cause of the loss and is therefore not entitled to indemnification from
the drawer. The negligence can be seen in:
1. Yabut was able to open a BPI account without corresponding identification papers
2. BPI's failure to discover the irregularity early on and also the marked differences in the
signatures between those on the checks and signature card
3. BPI's Central Verification Unit even passed off those evidently different signatures as
genuine.
Casa meanwhile wasn't negligent because the very officer, the external auditor, who could report the
irregularities on the checks was the culprit. Casa had no way of knowing the irregularities Yabut was
committing.
Citibank N.A. vs Cabamongan

Facts
The Sps. Cabamongan opened a time-deposit account at Citibank N.A. Prior to maturity, Person A
went to Citibank N.A. claiming to be Cabamongan and pre-terminated the time-deposit account.
Person A presented a passport and various ATM and credit cards to support his claim. Person A
however failed to present the original certificate of time deposit and consequently she had to execute a
notarized release and waiver document in Citibank’s favor. The transaction was processed and
Citibank N.A. released the money to Person A without the document being notarized anyway. Person
A left but she left behind one of her ID cards. The Citibank account officer who processed the
transaction called up Cabamongan to have the card picked up. Cabamongan was stunned by the news
and reasoned Person A must’ve got hold of the personal items during a break-in at their residence in
California at an earlier time. Cabamongan demanded reimbursement from Citibank N.A. but the latter
refused.
Issue
is Citibank N.A. liable?
Held
Yes.
The banking business is impressed with public interest, and paramount importance is the trust and
confidence of the public in general. Consequently, the highest degree of diligence is expected, and
high standards of integrity and performance are required of it. If a bank pays a forged check, it’s
considered to be making payment out of its own funds and can’t debit the amount to the drawer’s
account.
In this case, the signatures in the forms for pre-termination of deposits are undoubtedly forgeries that
Citibank’s signature verification procedure failed to detect. Citibank's negligence is shown by (1) its
account officer who allowed the transaction despite noticing discrepancies in the signature and
photograph of the person claiming to be Cabamongan (2) failure to surrender the original certificate
of time deposit. Even the waiver document that was meant to protect the bank wasn't notarized before
the money was released.
Also, Citibank can’t allege contributory negligence on the Sps. Cabamongan’s part because it was
brought up for the 1st time only on appeal to the SC. To consider such argument is to violate the basic
principles of due process.
Great Eastern Life vs HSBC

Facts
Great Eastern Life drew a check worth P2 thousand drawn on Shanghai Bank payable to Melicor or
his order. Maasim forged Melicor’s signature, indorsed the check to himself and collected the
proceeds for himself.
Issue
Who is liable to the drawer for the amount of the check drawn and payable to order, when its value
was collected by a 3rd person who forged the payee’s signature? The drawee or last indorser?
Held
Drawee.
In this case, Great Eastern Life isn’t estopped or bound by the bank statements Shanghai Bank gave to
it. This is because the drawer’s signature wasn’t the one forged. If it was the drawer’s signature, Great
Easter Life would’ve known of the forgery and had the duty to promptly notify Shanghai Bank of the
forged signature, failing to do so would’ve released Shanghai Bank from liability. Because the
payee’s signature was the one forged, when Great Easter Life received its bank statement it had a
right to assume that Melicor had personally indorsed the check because otherwise Shanghai Bank
wouldn’t have paid it.
Philippine National Bank meanwhile, the collecting bank, has its remedy against Maasim to whom it
paid the money. PNB had no authority to pay the money to Maasim based on the forged signature and
it had the legal duty to ascertain if Melicor’s endorsement on the check was genuine before cashing
the check.
Gempesaw vs CA
Facts
Gempesaw runs a grocery store chain and maintains a checking account with respondent Philippine
Bank of Communications (PBC). Gempesaw would pay her suppliers by drawing checks against her
checking account with PBC as drawee. The checks would be prepared by her trusted bookkeeper,
Galang, who would submit the checks to Gempesaw for her signature. Gempesaw would sign the
checks without checking if the amounts contained therein are correct because she trusted Galang.
Afterwards, Galang would issue and deliver the checks to the payees named therein. Likewise,
Gempesaw wouldn’t check if the payees received the checks. PBC would notify Gempesaw of the
checks presented to and paid by it. This practice continued for 2 years involving 82 checks with PBC
debiting the amounts accordingly against Gempesaw’s checking account.
It turned out the bookkeeper was cheating Gempesaw. The payees’ signatures on the checks would be
forged, indorsed again with genuine signatures from the new holders, and brought to Bool, Chief
Accountant of PBC, who would accept the checks and credit them to the accounts of 3rd persons. The
suppliers, the intended payees, never received the checks or their proceeds and testified the
indorsement appearing on said checks weren’t theirs. Gempesaw demanded PBC credit her account
for the amount of the checks but PBC refused.
Issue
Is PBC liable for paying out of Gempesaw’s checking account to cover checks where the payee’s
signature was forged?
Held
No.
Problems arising from forged indorsement of checks can be broken into 2 types of cases:
1. If forgery was accomplished by a person not associated with the drawer.
2. If forgery was committed by the drawer’s agent.
The difference would determine the effect of the drawer’s negligence with respect to forged
indorsements. Under the 1st case, the drawer has no duty to the drawee bank to examine for forged
signatures on indorsements of his checks. The situation however is different with the 2nd case
because the drawer is under a duty to set up business safeguards to reasonably prevent forgery of
indorsement by his employees or agents. This case falls under the 2nd type because the forgery was
committed by Gempesaw’s bookkeeper.
As a general rule, a drawee bank who paid a check on which an indorsement has been forged can’t
charge the drawer’s account for the amount of said check. The exception is if the drawer is guilty of
such negligence that causes the bank to honor such a check. Such negligence will prevent the drawer
from recovering any unauthorized payment. Here, Gempesaw was grossly negligent as shown by the
following circumstances: First, she didn’t even bother to check if the checks presented for her
signature reflected the correct amounts; Second, in those 2 years at least 1 complaint from a supplier
should have reached Gempesaw but she failed to make any adequate investigations on the matter. If
Gempesaw had been diligent in going over her business records and investigating missing funds she
would have discovered Galang’s fraud, notified PBC, and prevented further damage. Her negligence
was the proximate cause of her loss.
However, PBC is also liable to Gempesaw under quasi-delict for also being partly negligent.
Banco de Oro Savings vs Equitable

Facts
Banco de Oro through its Visa Card Department drew crossed Manager’s checks payable to certain
Viva Card member establishments. Afterwards, the checks were deposited with Equitable to the credit
of its depositor, Trencio. Following normal procedures, Equitable stamped at the back of said checks
that ‘all prior indorsement guaranteed’ and sent the checks for clearing to the Philippine Clearing
House Corp. (PCHC) Accordingly, Banco de Oro paid the checks and had its clearing account debited
the amount. Equitable’s clearing account was credited with the same amount meanwhile. Afterwards,
Banco de Oro discovered the endorsement appearing at the back of the checks purporting to be of the
payees were forged. Banco de Oro then presented the checks to Equitable for reimbursement but the
latter refused.
Issue
Is Equitable bank liable to reimburse Banco de Oro?
Held
Yes.
In this case, the checks were non-negotiable instruments because the word ‘or bearer’ on the checks
was cancelled. However, Equitable is estopped from raising the defense of non-negotiability of the
disputed checks because it stamped its guarantee on the back of the checks and subsequently
presented the checks for clearing. It was on the basis of this indorsement that Banco de Oro credited
Equitable with the checks’ amount. Equitable treated the check as a negotiable instrument and
assumed the liabilities of an endorser.
As a general rule for forgery in indorsements, the collecting bank or last indorser generally suffers the
loss because it has the duty of ascertaining the genuineness of all prior indorsements. In presenting the
check for payment to the drawee, the collecting bank asserts it had done its duty to ascertain the
endorsements’ genuineness. Further, while the drawer generally owes no duty of diligence to the
collecting bank, the law imposes a duty of diligence on the collecting bank to scrutinize checks
deposited with it for determining their genuineness.
BPI vs CA
Facts
Eligia Fernando had a money market placement evidenced by a promissory note in BPI. Later, a
woman alleging to be Fernando called BPI by phone to pre-terminate the placement. BPI allowed the
placement to be terminated and the woman asked that 2 checks be issued for the proceeds. The
woman instructed the checks to be delivered to her office.
Afterwards, the woman changed her mind and said her niece, Rosemarie Fernando, would pick up the
checks instead. This woman, impersonating Rosemarie, received the 2 checks from the BPI dispatcher
with a fake authorization letter from Eligia. The dispatcher failed to request the promissory note
evidencing the payment. Meanwhile, this same woman opened a current account at China Bank and
deposited the 2 checks therein. China Bank sent the checks for clearing which BPI approved.
A few days after, the woman withdrew the money. Some time after, when the money marker
placement’s maturity date arrived, the real Eligia went to BPI to rollover the placement. Eligia was
surprised to know her placement was pre-terminated. Eligia stated she never received the checks BPI
issued to the impostor and the indorsement on the checks wasn’t hers but forged. BPI then returned
the 2 checks to China Bank with the reason ‘Payee’s endorsement forged’ but China Bank likewise
returned the checks stating ‘Beyond Clearing Time.’
Issue
Can BPI reimburse itself from China Bank?
Held
Yes but on a 60-40 ratio
In this case, the payee’s names in the 2 disputed checks are forged and both BPI and China Bank were
negligent resulting in the encashment of the forged checks.
BPI was negligent as seen from the fact the impostor could’ve been easily unmasked with a simple
call to Eligia Fernando. BPI had Eligia’s signature on file but didn’t bother to verify Eligia’s signature
on the letter requesting the money placement’s pre-termination and letter authorizing her alleged
niece to pick up the checks. Also, BPI failed to request the alleged niece to surrender the promissory
note evidencing the money placement before the 2 checks were delivered.
China Bank was likewise negligent when it ignored the suspicious circumstances of huge over-the-
counter withdrawals immediately after the account was opened. The account’s opening itself was
accompanied by acts showing clear negligence on China Bank’s part. China Bank allowed the
impostor to open an account despite the lack of documents to identify herself.
BPI’s negligence was the proximate cause of the loss but China Bank’s negligence contributed to the
loss. Both banks are negligent and the loss must be apportioned between them.
Jai Alai vs BPI

Facts
Jai Alai acquired 10 checks from Ramirez, an Inter-Island Gas sales agent. The checks were originally
payable to Inter-Island Gas or order but were subsequently indorsed to Jai Alai. Jai- Alai deposited
the 10 checks to its current account with BPI. BPI temporarily credited to Jai Alai’s current account
the amounts in accordance with the clause printed on the deposit slips issued by BPI. Afterwards,
Inter-Island Gas discovered that all the indorsements on the checks purportedly made by its cashiers
as well as the rubber stamp reading ‘Inter-Island Gas Service, Inc.’ were forgeries. Inter-Island Gas
advised Jai Alai, BPI, drawers, and drawee-banks of the forgeries.
Afterwards, the drawers demanded reimbursement from their respective drawee-banks, who in turn
demanded from BPI as collecting bank. BPI then debited Jai Alai’s current account for the amount of
the forged checks. Later, Jai Alai demanded BPI credit again to its current account the amount debited
but the latter refused.
Issue
Is BPI liable to credit back the amount of the checks to Jai Alai?
Held
No.
In this case, Jai Alai was grossly negligent in accepting the checks from Ramirez despite the
suspicious circumstances surrounding the checks. First, Jai Alai didn’t make any inquiry as to
Ramirez’ authority to exchange the checks belonging to the payee-corporation. Second, the checks in
question are crossed checks and bearer checks at the same time that should've made Jai Alai doubt
Ramirez’ authority to negotiate the checks.
Further, in indorsing the checks when it deposited them with BPI, Jai Alai as indorser guaranteed the
genuineness of all prior indorsements thereon. BPI who relied upon Jai Alai’s warranty shouldn’t be
held liable for the resulting loss. Also, BPI merely received the checks for collection and deposit, and
it can’t be expected to know or ascertain the genuineness of all prior indorsements on the said checks.
Through its indorsement, Jai Alai is deemed to have given the warranty prescribed in the Negotiable
Instruments Law that every single one of those checks is genuine.
Republic Bank vs Ebrada

Facts
Ebrada encashed a check issued by the Bureau of Treasury at Republic Bank. The check was
originally payable to Martin Lorenzo, later indorsed to Ramon Lorenzo, then Dominguez, then finally
Ebrada. Upon encashment, Ebrada turned the proceeds over to Dominguez who in turn handed it to a
3rd person. Later, the Bureau advised Republic Bank the original payee’s indorsement on said check
was forged because the payee died before the date on the check. Republic Bank then refunded the
Bureau of Treasury and Republic Bank in turn demanded a refund from Ebrada. Ebrada refused and
hence this case.
Issue
Can the drawee-bank recover the amount of the check from the one who encashed it if the payee’s
signature was forged?
Held
Yes.
In this case, the indorsement from Martin Lorenzo to Ramon Lorenzo is non-effective because the
signature was forged. However the subsequent indorsements from Ramon Lorenzo onwards is valid
and enforceable.
Ebrada upon receiving the check from Dominguez was duty-bound to ascertain if the check in
question was genuine before presenting it to Republic Bank for payment. Ebrada’s failure to do so
made her liable for the loss and Republic Bank can recover the check’s value. Republic Bank is liable
to the drawer but the last indorser is in turn liable to Republic Bank as the drawee-bank.
Further, despite the fact Ebrada turned the proceeds over to Dominguez and didn’t benefit from the
check, she’s still liable as an accommodation party under the Negotiable Instruments Law. An
accommodation party is liable on the instrument to a holder for value.
Manila Lighter Trans vs CA

Facts
Over a period of 18 months, Perez collected from Manila Lighter’s clients’ 49 checks payable to
Manila Lighter. Lagamon, Manila Lighter’s accountant, negotiated the checks to Cao Pek and Co,
whose treasurer is Ko Lit. Ko Lit deposited most of the checks in his account in China Bank; some
were deposited in Cao Pek and Co. account, while the rest were deposited in Po’s account, manager of
Cao Pek & Co. The indorsements of Gaskell, Manila Lighter’s general manager, on these checks were
forged.
During this time, Manila Lighter wasn’t aware of what was happening and demanded payment from
its clients. The clients informed China Bank of the anomalies and the latter refunded the drawee bank.
Meanwhile, Manila Lighter demanded China Bank refund the amount of the checks but the latter
refused.
Issue
Is China Bank liable to refund Manila Lighter the amount of the checks?
Held
No.
In this case, Manila Lighter was negligent because it allowed a state of affairs where its employees
could appropriate the checks and falsify its general manager’s indorsement with impunity. Further,
Manila Lighter didn’t maintain an account in China Bank and therefore the latter had no way of
ascertaining the authenticity of the indorsements on the checks. China Bank wasn’t negligent because
it caused the checks to pass through a clearing house before allowing the proceeds to be withdrawn by
the depositors.
Associated Bank vs CA
Facts
Respondent Reyes is engaged in the business of ready-to-wear garments under the firm name
Melissa’s RTW. Reyes went to her customers to collect payment but the latter informed her they
issued crossed checks in her favor. The customers in fact issued payment in the form of crossed
checks payable to Melissa’s RTW. It turns out however the checks had been deposited with
Associated Bank and the Bank paid a certain Sayson, one of its trusted depositors. Reyes never
authorized Sayson to deposit and encash the said checks. Reyes sued Associated Bank for the value of
the checks plus damages.
Issue
Does Reyes have a cause of action against Associated Bank for encashing and paying to another
person crossed checks issued in her favor?
Held
Yes.
A crossed check has the following effects:

1. The check may not be encashed but only deposited in the bank
2. The check may be negotiated only once to one who has an account with the bank
3. The act of crossing the check serves as warning to the holder the check has been issued for a
definite purpose and he must inquire if he received the check pursuant to that purpose.
The checks in this case had been crossed and issued ‘for payee’s account only,’ This means the
drawers had intended the same for deposit only by Melissa’s RTW. But still, Associated Bank
accepted these checks for deposit to Sayson’s account, although he wasn’t the payee and the checks
were crossed. Further, Associated Bank stamped its guarantee that ‘all prior endorsements
guaranteed.’ Through such guaranty, Associated Bank treated the checks as negotiable instruments
and accordingly assumed the warranty of an indorser.
Associated Bank was negligent when it permitted Sayson to encash the checks. It should’ve first
verified his authority to indorse the crossed checks and deposit the proceeds to his own account. In
paying the checks, notwithstanding no title had passed to the indorser, it did so at its peril and became
liable to the payee for the value of the checks.
Consequently, the payee has a right of action against the drawer, who in turn can go after the drawee-
banks, who in turn could sue the collecting bank. In a similar situation, there’s nothing wrong with the
payee going directly after the collecting bank to recover the amount lost.
Associated Bank vs CA
Facts
The province of Tarlac maintains a current account with PNB where provincial funds are deposited. A
portion of the funds is allocated to the Concepcion Emergency Hospital. The allotment checks for said
hospital are drawn to the order of ‘Concepcion Hospital’ or ‘The Chief, Concepcion Hospital.’ The
Provincial Treasurer releases the checks to the hospital’s administrative officer and cashier. Later, an
Audit was conducted on the Provincial Treasurer’s books and it was discovered the hospital didn’t
receive several allotment checks.
After investigation, it was discovered 30 allotment checks were encashed by Pangilinan with
Associated Bank as collecting bank. Pangilinan was the hospital’s administrative officer and cashier.
Pangilinan would collect the checks from the Provincial Treasurer, forge the payee’s indorsement,
and deposit the check in his personal account. Pangilinan would withdraw the money when the check
was cleared and paid by PNB, the drawee-bank. All the checks bore Associated Bank’s stamp reading
‘All prior indorsements guaranteed.’ When the anomaly was discovered, the Provincial Treasurer
demanded a refund from PNB, who in turn demanded from Associated Bank. Both banks resisted
payment. Hence, this case.
Issue
Who is liable to who?
Held
50-50 between Province of Tarlac and PNB. Associated bank must reimburse PNB for 50% of its
losses.
An indorser of an order instrument warrants ‘the instrument is genuine and in all respect what it
purports to be’ and such instrument is valid and subsisting. The indorser can’t interpose the defense of
forgery as to signatures prior to him. A collecting bank where a check is deposited and which indorses
the check upon presentment with the drawee-bank is such an indorser. Meanwhile, a drawee bank that
pays under a forged instrument not to the drawer’s order has no right to reimbursement by debiting
the drawer’s account. An exception is if the drawer’s negligence contributed to the forged signature
because then the drawer is precluded from asserting forgery. But if the drawee-bank’s negligence also
contributed to the loss, then the loss from the forgery can be apportioned between the drawer and
drawee-bank.
Simply put, the drawer can demand reimbursement from the drawee-bank, who in turn can demand
from the collecting bank, which in turn can demand from the forger.
In this case, Associated Bank indorsed the check to PNB and the former is therefore necessarily liable
to the latter. Associated Bank guaranteed the indorsements on the check as genuine. PNB meanwhile
can’t reimburse itself from the Province of Tarlac because it paid the checks that bore forged
indorsements. However, the Province of Tarlac was also negligent to the point of contributing to the
loss. The Province of Tarlac allowed Pangilinan to collect the checks knowing he was already retired
from Concepcion Hospital. Further, the fact that there were 2 people collecting the checks for the
hospital should have aroused the Province of Tarlac’s suspicion.
Consequently, such loss should be apportioned between Province of Tarlac and PNB 50-50.
Associated Bank meanwhile is liable to reimburse PNB 50% of its total loss.
Westmont Bank vs. Ong

Facts
Ong maintained a current account with Westmont Bank (formerly Associated Bank). Ong sold shares
of stock to Island Securities Corporation. Island Securities Corporation paid Ong through 2 Pacific
Bank manager’s checks with Ong as payee. Before Ong could get the checks, Tanlimco took the
checks, forged Ong’s signature, and deposited them with Westmont Bank. Westmont Bank accepted
and credited both checks to Tanlimco’s account. Westmont Bank had Ong’s signature on file but
didn’t bother verifying the signature indorsements. Tanlimco withdrew the money then absconded.
Instead of going straight to Westmont Bank to report the incident, Ong first sought help from
Tanlimco’s family then the Central Bank. Both efforts proved futile. 5 months after the fraud was
discovered, Ong demanded Westmont Bank reimburse him the value of the checks.
Issue
Is Westmont Bank liable to Ong?
Held
Yes.
The collecting bank is liable to the payee and must bear the loss because it has the legal duty to
ascertain the payee’s indorsement was genuine before cashing the check. A bank who obtains a check
with a forged indorsement of the payee’s signature and collects the check’s amount is liable for the
proceeds to the payee, even if payment was made to the person from whom it obtained the check.
It doesn’t matter Ong never received the check because delivery is immaterial. This is because Ong
merely took a short cut by directly going after the person ultimately liable for the loss. In this case,
Westmont Bank was negligent in its duties because it didn’t even bother to verify the signature on the
check by comparing it with the specimen signatures on hand.
Further, Ong isn’t guilty of laches because he immediately acted after discovering the forgery. The
fact he chose to seek remedy first from the Central Bank and Tanlimco’s family shouldn’t be taken
against him. When these proved futile Ong immediately went after Westmont Bank.
PCIB vs. CA
Facts
Plaintiff Ford maintains a checking account with Citibank.To pay its taxes, Ford drew and issued
Citibank checks in the CIR’s favor. The checks were crossed with the phrase ‘Payee’s Account Only.’
The checks were deposited with PCIB with the latter marking them with ‘all prior indorsements
guaranteed’ before having them cleared at the Central Bank. Upon presentment to Citibank, the
checks were paid to PCIB as collecting bank. However, the CIR never received the proceeds from the
checks. Consequently, Ford was forced to make a 2nd payment to the CIR and demand
reimbursement from PCIB and Citibank. Both banks refused to reimburse Ford. An NBI investigation
revealed that it was Rivera, Ford’s general ledger accountant, in connivance with PCIB employees
Castro and Dulay who stole the proceeds from the check.
Issue
Does Ford have the right to recover from PCIB and Citibank the value of the checks intended as
payment for the CIR?
Held
Yes against both banks.
In this case, PCIB, the collecting bank, was negligent in its duties and is liable to the amount
corresponding to the checks’ proceeds. PCIB failed to verify Rivera’s authority to negotiate the
checks and request the Citibank checks’ replacement with 2 PCIB checks instead. Further, PCIB was
CIR’s agent being authorized to collect payments on CIR’s behalf. PCIB should’ve consulted CIR as
to Rivera’s request to replace the checks. Also, PCIB marked the checks with ‘all prior indorsements
guaranteed’ thereby guaranteeing the validity of said checks. Without such guaranty, Citibank never
would’ve paid the checks.
However, Citibank was also negligent in its duties. Citibank failed to notice and verify the absence of
clearing stamps on the checks PCIB sent to it. Had the checks been duly examined, it would have
discovered that the checks were switched when sent for clearing, such switch which was necessary to
perpetrate the fraud.
Ford itself wasn’t negligent despite the fact its own employees had a hand in the fraud committed.
Ford denied Rivera’s request to have the Citibank check recalled. Further, it crossed the checks and
made them payable to ‘payee’s account only.’
Consequently, PCIB and Citibank are equally liable to Ford for the loss of the proceeds of the checks.
HSBC vs. People’s Bank

Facts
PLDT issued a check worth P14 thousand drawn on HSBC with HSBC as payee. The check was sent
to payee by mail. Somehow, the check fell in the hands of a certain Changco. Changco erased the
payee’s name and typed his own name on the check. Changco deposited the altered check in his name
at People’s Bank. People’s Bank presented the check for clearing, stamping thereon ‘All prior
endorsements guaranteed.’ HSBC cleared the check and People’s Bank credited Changco with the
check’s amount. Changco withdrew the amount from his account. Later, the cancelled check was
returned to PLDT who discovered the alteration and informed People’s Bank and HSBC. People’s
Bank was notified 27 days after the check was cleared. HSCB requested People’s Bank to refund the
sum previously credited to the latter but People’s Bank refused.
Issue
Is People’s Bank required to reimburse HSBC?
Held
No.
The Central Bank requires that all cleared items be returned within 24 hours after clearing, the so-
called 24-hour regulation. The 24-hour regulation is valid and binds all commercial banks.
In this case, HSBC informed People’s Bank of the alteration only 27 days after the check was cleared.
Consequently, HSBC’s failure to inform People’s Bank of the alteration within 24 hours negates
whatever right the former has against the latter.
HSBC’s remedy is to go after Changco, the person who caused the alteration.
Republic Bank vs. CA

Facts
San Miguel Corp. drew a dividend check worth P240 on its account in respondent First National City
Bank in Delgado’s favor. When Delgado received the check, he fraudulently altered the amount on
the check from P240 to P9,240. Delgado deposited the check to his account with Republic Bank.
Republic Bank accepted the check for deposit without ascertaining its genuineness and regularity.
Later, Republic Bank indorsed the check to First National stamping on the check ‘all prior
indorsements guaranteed.’ First National then paid P9,240 to Republic Bank.
Later, San Miguel notified First National of the fraudulent alteration in the check. First National
refunded San Miguel for P9,240 and informed Republic Bank of the forgery. The notification came 2
months after the check was cleared and by then Delgado already withdrew the money. First National
then demanded Republic Bank refund the former the amount of P9,240 but the latter refused.
Issue
Is Republic Bank, as collecting bank, protected by the 24-hour clearing rule as required by the Central
Bank from liability to refund First National, as drawee?
Held
Yes.
Generally, when an indorsement is forged, the collecting bank bears the loss. However, the collecting
bank’s unqualified indorsement should be read together with the 24-hour regulation on clearing.
Consequently, when the drawee bank fails to return a forged or altered check to the collecting bank
within the 24-hour clearing period, the latter is absolved from liability.
A drawee bank that negligently clears a forged and altered check for payment has its remedy against
the party responsible for the forgery or alteration. A bank must be able to detect alterations, erasures,
and intercalations on checks presented to it.
First National was negligent in failing to detect and warn Republic Bank of the fraudulent alteration
within the 24-hour clearing rule. Consequently, First National must bear the loss.
The International Corporate Bank vs. CA and PNB

Facts
The Ministry of Education and Culture issued 15 checks drawn against PNB that The International
Bank accepted for deposit on various dates. After 24 hours from submission of the checks to PNB for
clearing, The International Bank paid the value of the checks and allowed the deposits to be
withdrawn. Later, PNB returned all the checks to The International Bank without clearing them on the
ground they were materially altered. The International Bank then instituted an action against PNB to
recover the value of the checks.
Issue
Is PNB required to refund The International Bank the value of the checks?
Held
Yes.
An alteration is material if it alters the instrument’s effect. It’s an unauthorized change in an

instrument that modifies in any respect a party’s obligation or an unauthorized addition of words,
numbers, or other change to an incomplete instrument relation to a party’s obligation. Simply put, a
material alteration is one that changes the items required under the Negotiable Instruments Law Sec. 1
A check’s serial number isn’t an essential requisite for negotiability under the Negotiable Instruments
Law Sec. 1. A check’s serial number isn’t the sole indicator of its origin because reference may be
had to other parts of the check.
In this case, the serial numbers on the checks were altered and such alteration isn’t a material
alteration. Consequently, PNB had no right to dishonor and return the checks to The International
Bank.
PNB vs. CA
Facts
DECS issued a check worth P97 thousand payable to F. Abante Marketing drawn against PNB. Later,
Abante Marketing deposited the check in its savings account with Capitol City Development Bank. In
turn, Capitol Bank deposited the check in its account with Philippine Bank of Communications, who
in turn sent the check to PNB for clearing. PNB cleared the check and PBCom credited Capitol
Bank’s account for the check’s amount.
Afterwards, PNB returned the check to PBCom and debited PBCom’s account for the check’s amount
on the ground the check number was materially altered. PBCom, as Capitol Bank’s collecting agent,
then debited Capitol Bank’s account for the same amount, and later sent the check back to PNB.
However, PNB returned the check to PBCom. Meanwhile, Capitol Bank couldn’t debit Abante
Marketing’s account because the latter already withdrew the check’s amount. Capitol Bank demanded
a refund from PBCom, who in turn demanded from PNB. Capitol’s demand went unheeded, hence
this case.
Issue
Is altering the check’s serial number a material alteration under the Negotiable Instruments Law?
Held
No.

A check’s serial number isn’t an essential requisite for negotiability under the Negotiable Instruments
Law Sec. 1. The check’s serial number isn’t the sole indicator of its origin because here the name of
the government agency that issued the check was prominently printed therein. The check’s issuer was
sufficiently identified making referral to the serial number redundant.
Consequently, PNB can't refuse to accept the check on the ground the serial number was altered, such
alteration being immaterial.
Montinola vs. PNB

Facts
Montinola filed a complaint in the FCI against PNB and the Misamis Oriental Provincial Treasurer to
collect the sum of P100 thousand, the amount of the check the Provincial Treasurer issued to Ramos
and supposedly indorsed to Montinola.
Laya was Misamis Oriental’s Provincial Treasurer and as such was agent of the PNB branch in the
province. Ramos worked under him as assistant agent in the PNB branch mentioned. Later, the
Provincial Treasurer of Lanao gave Ramos a check for P500 thousand for use by the USAFFE.
Ramos went to Laya to encash the check but the latter didn’t have enough cash so he gave Ramos
emergency notes and a check worth P100 thousand. Laya drew the check in his capacity as Provincial
Treasurer and drawn against PNB.
Later, Ramos sold part of the check’s value worth P30 thousand to Montinola for P90 thousand
Japanese military notes, of which Montinola paid only P45 thousand. Ramos indicated at the back of
the check the instruction to the bank to pay only P30 thousand to Montinola and to deposit the balance
to Ramos’ credit. The instructions however were replaced with an indorsement to Montinola. Further,
Ramos added the words ‘Agent of PNB’ besides Laya’s signature.
Issue
Is Montinola entitled to collect the P100 thousand representing the check’s value?
Held
No.
Inserting the words ‘Agent, PNB’ converts the bank from mere drawee to a drawer therefore changing
its liability, constitutes a material alteration of the instrument without consent from the parties liable
thereon, and so discharges the instrument. The words ‘Agent, PNB’ couldn’t have been originally
included in the check because the checks was issued to pay USAFFE. PNB had no liability to pay
USAFFE anything. It’s the government’s duty to pay the USAFFE and therefore Laya would’ve
signed the check in his official capacity as Provincial Treasurer, representing the government, and not
as a PNB agent. Further, both Laya and Ramos testified the words ‘Agent, PNB’ wasn’t originally
part of the check.
The check wasn’t legally negotiated within the meaning of the Negotiable Instruments Law. An
indorsement that transfers only a portion of the amount payable isn’t a negotiation of the instrument.
Montinola therefore may not be regarded as an indorsee, at most he’s a mere assignee of the P30
thousand Ramos sold to him. Montinola isn’t even a holder in due course because he received the
check when it was already long overdue. He isn’t even a holder because he’s neither indorsee nor
payee. Montinola can’t even be considered in good faith because he only paid P45 thousand out of the
total P90 thousand purchase price for the check. Also, he should’ve known a check for such a large
amount couldn’t have been issued to Ramos in his private capacity, but rather in his official capacity
on USAFFE’s behalf. Further, Ramos sold the check at a time he was no longer connected with
USAFFE.
Consequently, as mere assignee, Montinola is subject to all the available defenses against Ramos.
Ramos had no authority to indorse the check personally to Montinola and therefore such negotiation
was a breach of trust, hence he transferred nothing to Montinola.
Metropolitan Bank & Trust Co. vs. Cabilzo

Facts
Cabilzo issued a Metrobank check payable to cash postdated on 24 November 1994 worth P1
thousand. The check was drawn against Metrobank and payable to Marquez. Later, the check was
presented to Westmont Bank who in turn indorsed it to Metrobank for clearing. Metrobank cleared the
check. Afterwards, Metrobank asked Cabilzo if the latter had issued a check worth P91 thousand to
which Cabilzo replied ‘no’ and asked to have the questioned check returned to him. Upon receiving
the check, Cabilzo discovered it was altered from P1 thousand to P91 thousand and the date 24
November 1994 altered to 14 November 1994. Cabilzo demanded Metrobank refund the P90
thousand but the latter refused.
Issue
Is Metrobank required to refund Cabilzo?
Held
Yes.

In this case, there was material alteration in the ‘sum of money payable’ and ‘date of the check’ that
fall under the Negotiable Instruments Law Sec. 1 & 25. Further, Cabilzo was an innocent party in this
controversy because he exercised due diligence. He never authorized the alteration and he even placed
asterisks before and after the amount in words and figures to prevent fraudulent insertions.
Banks are imbued with public interest and are under obligation to treat its depositors’ account with
meticulous care and to exhibit a high degree of diligence. Here, Metrobank failed its obligation. In the
date: the number ‘1’ was clearly imposed on a white figure in the shape of number ‘2.’ In the amount:
the 4 asterisks before the words ‘One Thousand Pesos Only’ have been noticeable erased with
correction paper, leaving white marks over which ‘Ninety’ was imposed. The same can be said of the
number ‘9’ in the ‘91,000’ figure. All in all, there were many alterations that couldn’t escape an
ordinary person’s attention, but surprisingly enough Metrobank failed to do so. Further, the
Metrobank employee who examined the check wasn’t qualified to do because it wasn’t part of his
functions.
The drawee bank is liable to pay the payee in strict accordance with the drawer’s instructions.
Payment made under a materially altered instrument isn’t payment done in accordance with the
drawer’s instructions. In this case, Metrobank has no right to reimburse itself from Cabilzo because it
didn’t pay according to the instrument’s original tenor.
Metrobank’s remedy is to go after the person who caused the alteration or the collecting bank.
Bank of America vs. Phil. Racing Club.

Facts
Phil. Racing Club’s President and Vice President were due to go out of the country and to insure the
company’s continued operation prepared pre-signed checks drawn against Bank of America. The
purpose is to make cash available to settle obligations that might be due. The checks were entrusted to
the accountant who would complete the entries in the pre-signed checks when the need arose. Later, a
John Doe presented 2 pre-signed checks worth P110 thousand each to BOA for encashment.
The 2 checks had similar infirmities. On the space where the payee’s name should be indicated,
typewritten instead was 2 line entries with the upper line saying ‘Cash’ and the lower line ‘One
Hundred Ten Thousand Pesos Only.’ Despite the irregularities and substantial amounts, BOA
encashed the check. Phil. Racing Club conducted an investigation and discovered one of their
employees completed without authority the pre-signed checks. Phil. Racing Club demanded
reimbursement from BOA but the latter refused.
Issue
Is BOA required to refund Phil. Racing?
Held
Partially 60-40.
In this case, the signatures on the check were genuine and there were no material alterations.
However, the irregularities on the check should’ve alerted BOA to be cautious before encashing the
check, which it didn’t do. Although not strictly material alterations, the misplacement of the
typewritten entries for the payee and the amount on the same blank and repetition of the amount using
a check writer were glaringly obvious irregularities on the check’s face.
Clearly, someone made a mistake in filling up the checks and the repetition of entries was possibly an
attempt to rectify the mistake. It should have occurred to BOA’s employees that if the person who
customarily accomplishes the check filled up the check, such mistakes wouldn’t have been made.
BOA should’ve entertained the possibility the person attempting to encash the check neither had
proper title to the checks nor authority to fill up and encash the same. Further, it’s highly irregular to
make checks payable to ‘Cash’ for such a substantial amount. This circumstance coupled with the
irregularities on the check’s face should’ve put BOA on guard. If BOA just called Phil. Racing to
clear any doubt on the checks, it would’ve discovered the fraud and avoided encashing the checks to
Phil. Racing’s prejudice.
However, Phil. Racing is also negligent considering the practice of leaving pre-signed checks is
highly dangerous, more so when there are no safeguards in place. Further, the check was encashed by
one of its employees which Phil. Racing is expected to exercise control and supervision over.
Consequently, BOA must bear 60% of the loss while Phil Racing 40%.
Travel-on vs. CA
Facts
Travel-On is a travel agency selling airline tickets on commission basis on behalf of different airline
companies. Respondent Miranda had a revolving credit line with Travel-On. Miranda procures tickets
from Travel-On on behalf of airline passengers and derived commissions therefrom.
Later, Travel-On delivered airline tickets to Miranda totaling P278 thousand. Miranda paid in cash
and 6 postdated checks worth P115 thousand. The checks were dishonored upon encashment causing
Travel-On to file suit before the CFI to recover the P115 thousand.
Issue
Are the checks per se evidence of Miranda’s liability to Travel-On?
Held
Yes.
The checks are the all important evidence of Travel-On’s case because it clearly established
Miranda’s indebtedness to Travel-On.
A check that is regular on its face is deemed prima facie to have been issued for valuable
consideration and every person whose signature appears thereon is deemed to have become party
thereto for value. The mere introduction of the instrument as evidence prima facie entitles the Travel-
On to recovery.
In this case, Miranda has the burden of rebutting the presumption she issued the checks for valuable
consideration. Miranda’s only evidence to overcome the presumption is her own self-serving
uncorroborated testimony, which is insufficient. Further, the checks were immediately issued after
Travel-On demanded payment. Clearly, the checks were intended as payment and to be encashed.
Further, Travel-On wasn’t an accommodated party because it realized no value on the checks that
bounced.
Pineda vs. Dela Rama

Facts
Pineda employed the services of Dela Rama to represent the former with NARIC and stop or delay
the institution of criminal charges against him. Pineda employed Dela Rema because the latter was
friendly with the NARIC general manager. Dela Rama alleges Pineda used up all his money to buy
property in Mindoro and borrowed P9.3 thousand that is the subject of this complaint for collection.
The loan is evidenced by a matured promissory note. Pineda alleges he signed the note on Dela
Rema’s representation that the latter advanced the money to grease the NARIC general manager’s
palms in order to save Pineda from criminal prosecution.
Issue
Can Dela Rama collect on the note?
Held
No.
The presumption that a negotiable instrument is issued for a valuable consideration is only prima facie
and can be rebutted by proof to the contrary.
In this case, Dela Rama alleges he loaned Pineda P9.3 thousand in 2 installments on 2 occasions 5
days apart. The 1st loan was for P5 thousand while the 2nd was for P4.3 thousand, both in cash.
However, these allegations are belied by the promissory note itself. The note itself states ‘This
represents the cash advances made by him in connection with my case for which he is my attorney-in-
law.’ The note sustains Pineda’s version that he signed the note believing Dela Rama’s story that the
latter advances these amounts as gifts to NARIC officials. In truth, Dela Rama never advanced the
amounts to NARIC.
It’s unusual for a lawyer to lend money to his client whom he knew for only 3 months, with neither
security nor interest. At the time the note was executed, Pineda had P60 thousand deposits in 3 banks
that makes it illogical to believe Pineda would borrow the money from Dela Rama.
Consequently, the promissory note’s consideration, which is to influence public officers in the
performance of their duties, is contrary to law and public policy. Thus void ab initio and no cause of
action for collection cases can arise from it.
Clark vs Seliner
Facts
W.H. Clarke, Maye, and Seliner jointly and severally signed a promissory note payable to R. N. Clark
or his order worth P12 thousand. The note matured but its amount wasn’t paid. Seliners alleges he
didn’t receive any part of the proceeds of the debt, the instrument wasn’t presented to them for
payment, and said instrument wasn’t negotiated thereby not making them liable.
Issue
Is Seliner liable for the note?
Held
Yes.
First, Seliner’s liability as signer isn’t dependent on his receiving the proceeds of the note. Seliner is
expressly one of the joint and several debtors on the note and thereby liable.
Second, presentment for payments isn’t necessary to charge the person primarily liable.
Third, Seliner lent his name not to the creditor, but to those who signed with him placing himself with
respect to the creditor in the same position and with the same liability as the other signers. The phrase
‘without receiving value therefor’ under the Negotiable Instruments Law actually means ‘without
receiving value therefor by virtue of the instrument.’ It doesn’t mean ‘without receiving payment for
lending his name.’
In this case, Seliner can be regarded as a joint surety rather than an accommodation party. Seliner
actually received money by virtue of the note. Further, even if Seliner was only an accommodation
party, the holder can still demand payment from him.
Caneda vs CA
Facts
Gueson executed a promissory note worth P18 thousand in Caneda’s favor. The note is payable in
monthly installments, secured by a Toyota jeep as collateral, and default in payment of any
installment will make the entire amount immediately demandable. Caneda assigned the note to
Investors Finance Corp with Gueson’s consent. When Investors Finance tried to collect, Caneda
executed an ‘undertaking’ assuming indebtedness to Investors Finance. Later, Gueson defaulted and
had an outstanding balance of P11 thousand. Investors Finance made repeated demands to no avail
causing it to file a case against Gueson and John Doe to recover the amount and seize the collateral
jeep. The John Doe turned out to be Caneda.
Issue
Is Gueson an accommodation party?
Held
Yes.
In this case, Gueson signed the promissory note as accommodation party and Caneda as the
accommodated in the latter’s obligation with Investors Finance. When Caneda signed the
‘undertaking’ assuming liability to Investors Finance, he confirmed that he’s the principal debtor
while Gueson merely accommodated him. In effect, Gueson is a surety. Further, it’s no defense for an
accommodation party to state that he didn’t receive any value for the promissory not executed. It is
enough value was give for the note at the time it was executed.
Consequently, Investors Finance can go after Caneda as principal debtor and Gueson as surety.
Town Savings and Loan Bank vs CA

Facts
The Hipolitos took out a loan worth P700 thousand from Town Savings Bank. The loan was
evidenced by a promissory note with an acceleration clause upon default in paying any amortization.
The Hipolitos defaulted and Town Savings Bank filed suit to recover the loan. The Hipolitos denied
personal liability arguing they didn’t receive any part of the loan and were mere guarantors because
the loan was for Reyes, the Hipolitos’ sister.
Issue
Are the Hipolitos liable on the promissory note?
Held
Yes.
In this case, undoubtedly the Hipolitos are accommodation parties because they signed the note to
enable Reyes to borrow from Town Savings Bank.
Further, the Hipolitos allegation they accommodated Town Savings Bank, and not Reyes, because it
was Town Savings Bank’s President who induced them to sign the promissory note is incredible. At
the time, there was a CB regulation limiting the amount Town Savings Bank could lend out. Such
allegation wasn’t backed up by evidence. More likely, the Hipolitos signed the note to allow Reyes to
take out the loan and not to enable the Bank to grant the loan to Reyes. It’s unusual for a Bank to want
to lend money to a borrower so much that it goes out of its way to convince another person to
accommodate the borrower.
Consequently, the Hipolitos accommodated Reyes and not the Bank.
Maulini vs Serrano
Facts
Serrano is a broker and his business consists in looking for lenders and borrowers and acting as
mediator to negotiate a loan between the two. The usual practice is for Serrano to personally deliver
the money to the borrower, take the note in his own name, and then immediately indorse it to the
actual lender.
Here, a promissory note was executed payable to the order of Serrano. Later, Serrano indorsed the
note to Maulini. Now, Maulini claims the amount of the note from Serrano.
Issue
Can an indorser of a promissory note, in an action brought by his indorsee, show by parol evidence,
that the indorsement was wholly without consideration, and in making it the indorser acted as the
indorsee’s agent to transfer title from maker to indorsee?
Held
Yes.
Serrano was never the real owner of the note but acted merely as agent to transfer title from borrower
to lender. He received payment only for his services as broker and absolutely nothing for becoming an
indorser.
Serrano also isn’t an accommodation party. The accommodation referred to in the Negotiable
Instruments law is to the note’s maker or indorser, and not to the payee or indorsee. In this case,
Serrano ‘accommodated’ the indorsee, namely Maulini, not to better secure payment but to simply
hide the fact Maulini is the lender in the borrower’s books.
Consequently, Serrano isn’t liable being a mere agent and not an accommodation party as
contemplated in the Negotiable Instruments Law.
PNB vs Maza & Mecenas

Facts
Maza & Mecenas executed 5 promissory notes in PNB’s favor. M&M failed to pay the notes upon
maturity. PNB then filed suit before the CFI to collect the notes’ value.
M&M alleges a certain Echaus is the real party-in-interest. Echaus sent the M&M’s the promissory
notes in blank which the latter signed so the former can negotiate them with PNB. M&M neither
negotiated the notes with PNB nor received value thereof.
Issue
Are the M&M’s liable?
Held
Yes.
In this case, M&M admit the instruments’ genuineness and due execution. M&M’s defense they are
simply accommodation parties don’t avail because even considering they are such, are still liable on
the instruments. An accommodation party claims no benefit from the note itself but is liable all the
same for it.
Consequently, the M&M’s are liable to PNB but the former can go after the accommodated party,
because the relation between the accommodator and accommodated is essentially of principal and
surety respectively.
Prudencio vs CA
Facts
Eulalio Prudencio is the registered owner of Land X that was mortgaged to PNB to guarantee a loan
extended to Domingo Prudencio. Later, Concepcion Corp. entered into a contract with the Bureau of
Public Works to construct a building. Concepcion approached Eulalio asking the latter to have Land
X mortgaged to secure a loan from PNB, to which Eulalio agreed. Concepcion and Eulalio signed a
new promissory note covering the loan.
Concepcion also executed a deed of assignment assigning in PNB’s favor all payments from BPW
based on the contract. It further stipulated PNB should apply the payments to Concepcion’s loan.
However, the deed of assignment notwithstanding, PNB allowed BWP to make 3 payments to
Concepcion directly. The 3rd payment was made when the loan already matured.
Later, Concepcion Corp. abandoned the contract. Eulalio then informed PNB the mortgage on Land X
should be cancelled because the latter authorized BWP to pay Concepcion directly instead of applying
the same to the loan. He alleges there was a change in the contract’s conditions without his
knowledge, and that entitles him to cancel the mortgage. PNB refused and hence this case.
Issue
Can the mortgage on Land X be released?
Held
Yes.
An accommodation maker is primarily and unconditionally liable on the promissory note to a holder
for value, regardless if he stands either as surety or solidary co-debtor. Such distinction is immaterial
as a far as a holder for value is concerned. In this case, Eulalio can’t claim to have been released from
his obligation simply because PNB deferred the time of payment without his knowledge.
However, Eulalio can still seek relief on another ground, namely PNB as not being a holder in due
course. A holder for value under Sec. 29 of NIL is one who meets all the requirements of a holder in
due course under Sec. 52 of NIL, except notice of want of consideration. If he doesn’t qualify as a
holder in course, then he’s subject to the same defenses as if the instrument were non-negotiable.
Here, PNB is an immediate party because it dealt directly with Eulalio and knew fully well the latter
signed only as an accommodation maker. Further, it knew that what principally moved Eulalio to sign
was the deed of assignment. Notwithstanding the same, PNB altered the deed of assignment’s terms
without Eulalio’s knowledge. PNB allowed BWP to pay Concepcion directly instead of applying the
same to Concepcion’s loan, contravening the deed of assignment. In effect, PNB failed to apply
BWP’s first 3 payments to the loan. This clearly prejudices Eulalio because he stands to lose his
property in case of the loan’s non-payment.
Consequently, PNB isn’t a holder in due course and Eulalio can validly set up his personal defense of
release from the real estate mortgage against PNB. PNB, in authorizing BWP to pay Concepcion a 3rd
time after the note matured, in effect extended the note’s payment term without Eulalio’s consent.
Sadaya vs Sevilla
Facts
Victor, Oscar, and Simeon executed jointly and severally a promissory note in BPI’s favor. Oscar
alone received the proceeds. Victor and Simeon signed the note as co-makers only as a favor to Oscar.
Oscar paid the note but left a P5 thousand outstanding balance.
Later, BPI collected the remaining P5 thousand from Simeon. Oscar failed to reimburse Simeon
despite the latter’s repeated demands. Victor then died and intestate estate proceedings were started.
Simeon filed a creditor’s claim worth P5 thousand in said proceeding but the Administrator refused to
pay arguing Victor didn’t receive any consideration for the note but signed it only as surety for Oscar.
Issue
Is Victor liable to reimburse Simeon the P5 thousand?
Held
No.
In this case, it’s undisputed Victor and Simeon are solidary accommodation parties while Oscar is the
accommodated party. As to their relation to BPI, all the makers are liable solidarily.
Further, Simeon can demand reimbursement from Oscar. As to reimbursement from Victor, Simeon
has the right to receive contribution from his co-accommodation maker. There’s an implied promise
between the accommodation makers to equally share the burden from the note. Victor and Simeon are
Oscar’s co-guarantors and therefore the Civil Code Art. 2073 apply.
Rules before co-accommodator can reimburse himself from co-accommodator:

1. A solidary accommodation party may demand from the accommodated party reimbursement for
the amount he paid the payee
2. A solidary accommodation party who pays on the note may directly demand reimbursement from
his co-accommodation maker without first directing his action against the accommodated party
provided (a) he makes payment by virtue of a judicial demand (b) the accommodated party is
insolvent.
Here, Simeon paid voluntarily and without judicial demand and there’s no evidence Oscar is
insolvent. Consequently, Simeon has no right to demand reimbursement from Victor.
Agro Conglomerate & Soriano vs CA

Facts
Agro as vendor sold Property X to Wonderland Inc. with a Memorandum of Agreement stipulating
the payment scheme. The payment scheme provides for an initial downpayment, prepaid interests, and
the remaining balance payable in installments. Later, Agro, Wonderland, and respondent Regent
Savings Bank (RSB) executed an Addendum to the MOA. The Addendum modified the initial
payment and prepaid interest. In the Addendum, Agro would take out a loan from RSB with
Wonderland paying the loan. Pursuant to the addendum, Soriano signed as maker several promissory
notes payable to RSB. RSB then released the loan to Agro. However, Wonderland failed to pay when
the notes matured. RSB then filed suit before the RTC to collect a sum of money.
Issue
Are petitioners liable on the promissory notes?
Held
Yes.
An accommodation party has the right, after paying the holder, to obtain reimbursement from the
accommodated party, because the relation between them is in effect one of principal and surety, with
the accommodation party being a surety. The surety is directly and equally bound with the principal to
the creditor.
In this case, a contract of suretyship took effect through the Addendum because petitioners signed the
promissory notes as maker and accommodation party for Wonderland’s benefit. Petitioners became
liable as accommodation party.
Crisologo Jose vs CA
Facts
Atty. Benares and respondent Santos are President and Vice-president of Mover Enterprises
respectively. Atty. Benares, in accommodation of his clients, the Sps. Ong, issued a check drawn
against Traders Royal Bank worth P45 thousand payable to Crisologo Jose. Respondent Santos also
signed the check. The check was under the account of Mover Enterprises.
Crisologo received the check in consideration of his quitclaim over a certain property that GSIS
agreed to sell to the Sps. Ong. The understanding was upon GSIS approval of the compromise
agreement with the Sps. Ong, the check would be encashed accordingly. However, the compromise
agreement wasn’t approved within the expected period of time. Benares and Santos then replaced the
original check with a similar check. When Crisologo deposited the new check, it was dishonored.
Crisologo then filed a criminal case for BP 22 against Benares and Santos.
Meanwhile, during the preliminary investigation Santos offered to pay the value of the check with a
cashier’s check but Crisologo refused. Santos then encashed the cashier’s check and consigned the
amount in court.
Issue
Who is liable for the check? Movers Enterprise or Santos and Benares?
Held
Santos and Benares.
General rule: The NIL provision on accommodation parties don’t apply to a corporation acting as
accommodation party. The corporation’s execution or indorsement of a negotiable instrument without
consideration and to accommodate another is ultra vires. Consequently, a person who takes an
instrument knowing of the accommodation nature can’t recover against a corporation who acts only as
accommodation party. In such case, only the signatories are personally liable.
Exception: If the corporation specifically authorizes its officer or agent to execute or indorse a
negotiable paper in the corporation’s name to accommodate a 3rd person.
In this case, Crisologo knew Benares issued the check as a personal undertaking for the Sps. Ong
because the former was personally involved in the financial arrangement. Further, Crisologo knew she
didn’t have any transaction with Movers Enterprise.
Consequently, Movers Enterprise isn’t an accommodation party and renders personally liable the
signatories of said instrument, namely Benares and Santos. Further, Santos is only an accommodation
party and is in effect a co-surety for the accommodated party and assumes solidarily liability. When
the check was dishonored, a creditor-debtor relationship between Benares and Santos on one hand,
and Crisologo on the other emerged.
Ang vs Associated Bank

Facts
Ang and Liong took out a loan from Associated Bank evidenced by 2 promissory notes. The notes
matured but despite repeated demands Ang and Liong failed to pay. Associated Bank then filed a
collection suit against Liong and Ang.
Issue
Is Ang liable for the 2 promissory notes?
Held
Yes.
In this case, Ang agreed to be solidarily liable under the 2 promissory notes he co-signed with Liong
as principal debtor. It’s completely immaterial if Associated Bank would opt to proceed only against
Ang or Liong or both of them because the law confers upon Associated Bank such prerogative.
However, Ang, as accommodation party, can seek reimbursement from Liong as the accommodated
party.
Consequently, Ang as accommodating party warranted to the holder in due course he would pay the
same according to its tenor. He can’t even raise the defense he didn’t receive any value therefor.
Under the NIL, the phrase ‘receive any value’ means receiving the proceeds of the note, it doesn’t
mean receiving value for lending his name. It’s immaterial, as far as Associated Bank is concerned, if
Ang received anything for lending his name.
Further, an accommodation party’s liability remains not only primary but also unconditional to a
holder for value even if the creditor grants the accommodated party an extension of the period for
payment without the accommodation party’s consent.
Bautista vs Auto Plus Traders Inc. and CA

Facts
Bautista, as Cruiser Bus Lines and Transport Corp’s President, purchased goods from Auto Plus Inc.
Bautista issued 2 postdated checks to cover the purchase but they were dishonored. Auto Plus then
filed suit for violating BP 22 against Bautista. Check A was drawn against Bautista’s current account
while Check B was drawn against Cruise Lines’ current account.
Issue
Is Bautista personally liable for the checks?
Held
No.
An accommodation party is one who:

1. Is a party to the instrument signing as maker, drawer, acceptor, or indorser
2. Doesn’t receive value therefor
3. Signs for the purpose of lending his name or credit to some other person.
In this case, the first 2 requisites are present but the 3rd is missing. All the evidence shows is Bautista
signed Check A, drawn against his personal account. Check A corresponds to the value of the goods
Cruiser Lines bought from Auto Inc. There’s no evidence to show in what capacity Bautista issued the
check, therefore it can’t be assumed Bautista intended to lend his name to Cruiser Lines.
Consequently, Bautista isn’t an accommodation party and can’t be held liable for the checks. More
likely, Bautista issued the checks in her capacity as President, and not in her personal capacity.
Metropol vs Sambok Motors Co.

Facts
Villaruel executed a promissory note in Sambok Sons favor. The promissory note was payable in 12
monthly installments and provided for an acceleration clause in case of non-payment of any
installment. Later, Sambok Motors, Sambok Sons’ sister company and under the same management,
negotiated and indorsed the note in Metropol’s favor.
The indorsement read:
‘Pay to the order of Metropol...with recourse...’
Villaruel defaulted in paying an installment and consequently, Metropol demanded the entire amount
that Villaruel failed to pay. Metropol then sought payment from Sambok Sons but the latter also failed
to pay. Metropol then filed suit before the CFI to collect the note’s value.
Issue
Is Sambok Motors a qualified indorser?
Held
No.
A qualified indorsement makes the indorser a mere assignor of title to the instrument. Such an
indorsement relieves the indorser of the general obligation to pay if the instrument is dishonored but
not from the liability arising from warranties on instruments under the Negotiable Instruments Law
Sec. 65. Such indorsement may be made by adding the words ‘without recourse’ to the indorser’s
signature. Recourse means resort to the person who is secondarily liable after the person who is
primarily liable defaults.
In this case, Sambok Motors added the words ‘with recourse.’ The complete opposite of ‘without
recourse.’ The words added don’t make Sambok Motors a qualified indorser, but a general indorser
who is secondarily liable. It’s as if the instrument was indorsed without qualification.
A person who indorses without qualification engages that on due presentment, the note shall be
accepted or paid as the case may be, and if dishonored he will pay the amount to the holder.
Further, after an instrument is dishonored by non-payment, the person secondarily liable ceases to be
such and becomes a principal debtor. Consequently, Metropol doesn’t have to sue Villaruel first
before Sambok Motors.
Metrobank vs BA Finance Corp.

Facts
Bitanga obtain a loan from BA Finance secured by the formers car. The mortgage stipulated Bitanga
would insure the car and make the proceeds payable to BA Finance. Thus, Bitanga insured the car
with respondent Malayan Insurance. The insurance stipulated the proceeds will be payable to BA
Finance. Later, the car was stolen and Malayan Insurance issued a check payable to BA Finance and
Bitanga. The check was drawn against China Bank and crossed with the notation ‘For Deposit Payees
Account Only.’
Later, Bitanga, without BA Finance’s indorsement or authority, deposited the check to his account
with Metrobank and withdrew the proceeds. Bitanga’s loan became due but he failed to pay it despite
repeated demands.
Eventually, BA Finance learned the car was lost and Malayan Insurance issued a check payable to it
and Bitanga. It also learned of Bitanga’s subsequent actions. BA Finance then demanded the value of
the check from Metrobank but the latter resisted. Hence, BA Finance filed suit against Metrobank and
Bitanga.
Issue
Is Metrobank liable for the value of the check? If so, to what extent?
Held
Yes || The full extent.
Under NIL Sec. 41, where an instrument is payable to the order of 2 or more payees or indorsees, who
aren’t partners, all must indorse unless the one indorsing has authority to indorse for the others.
In this case, Bitanga alone indorsed the crossed check and yet Metrobank allowed him to deposit the
check and withdraw the proceeds. Bitanga indorsed the check without BA Finance authorizing him to
do so on its behalf. Clearly, Metrobank was negligent in allowing Bitanga to deposit the check despite
his lone indorsement. It ostensibly ignored the fact the check didn’t carry BA Finance’s indorsement.
Payment of an instrument over a missing indorsement is equivalent to paying a forged indorsement or

an unauthorized indorsement in itself in case of joint payees. Further, Metrobank is the last indorser
and as a general rule, the collecting bank or last indorser suffers the loss because it has the duty to
ascertain the genuineness of all prior indorsements. In presenting the check to the drawee bank,
Metrobank asserts it has done its duty to ascertain the genuineness of prior indorsements.
Accordingly, one who credits the check’s proceeds to the account of the indorsing payee is liable to
the non-indorsing payee for the entire amount of the check.
BPI vs CA
Facts
Respondent Templonuevo demanded from BPI payment in the amount of P267 thousand,
representing the value of 3 checks allegedly payable to him. He alleges BPI deposited the money to
respondent Salazar’s account without his knowledge and indorsement. BPI froze Salazar’s account
believing Templonuevo’s claim.
BPI then advised Salazar to settle the matter with Templonuevo but they didn’t arrive at any
settlement. BPI then debited Salazar’s account for P267 thousand and credited the same to
Templonuevo’s account. Salazar then filed suit to collect the amount debited against BPI.
Issue
Does a collecting bank, over its depositor’s objections, have authority to withdraw unilaterally from
the depositor’s account the amount it previously paid upon certain unendorsed order instruments the
depositor deposited to her account.
Held
Yes.
In this case, it is undisputed Salazar possessed the 3 checks payable to Templonuevo. Further, Salazar
was able to deposit the same in her account at BPI despite the lack of Templonuevo’s endorsement.
Also, Templonuevo only protested the unauthorized encashment 1 year after the last check was
deposited.
Now the question: Is Salazar a transferee the NIL Sec. 49 contemplates?
Sec. 49 contemplates a situation where the payee or indorsee delivers a negotiable instrument for
value without indorsing it. Under Sec. 49, the transferee acquires the instrument subject to defenses
and equities available among prior parties. However, the underlying premise of this provision is there
was a valid transfer of ownership of the negotiable instrument.
Further, the transferees don’t enjoy the presumption of ownership in favor of holders because they are
neither payees nor indorsees of such instruments. Something more than mere possession is necessary
to authorize payment to them.
Here, the lower courts reasoned Salazar validly owned the checks because Templonuevo incurred a 1-
year delay in demanding reimbursement. However, such delay doesn’t estop Templonuevo from
asserting ownership over the checks especially considering the disputed checks are crossed checks.
Consequently, the 1-year delay coupled with Salazar’s possession is insufficient to overcome the
presumption of ownership in Templonuevo’s favor.
Also, Salazar can’t use the RoC Sec. 131 that provides a presumption that a negotiable instrument was
given for sufficient consideration. The term ‘given’ in Sec. 131 must be taken in the context of the
NIL. In the NIL, ‘given’ refers to negotiating the instrument to a person who takes it as holder.
Unfortunately, Salazar can’t be considered a holder because it’s neither payee nor indorsee.
Chan Wan vs Tan Kim

Facts
Tan Kim drew checks payable to ‘cash or bearer’ upon Equitable Bank. Tan issued the checks to
Pinong and Muy for shoes they promised to make and were intended as mere receipts. Chan presented
the checks for payment but the drawee bank dishonored them due to insufficient funds. Chan Wan
filed suit to collect the value of the checks.
The lower court declined to order payment because:

1. Chan failed to prove he’s a HIDC
2. The checks are crossed and should have been deposited with the bank mentioned in the
crossing
Issue
Is Chan a HIDC?
Held
No.
The checks were crossed ‘non negotiable - China Bank’ and therefore it should’ve been China Bank
who presented the checks for payment, not Chan. Consequently, there was no proper presentment and
liability didn’t attach to Tan.
Next, the checks themselves contained on the back thereof endorsements showing the checks were
previously deposited with China Bank. China Bank cleared the checks and then presented them to
Equitable Bank for collection. However, Tan had insufficient funds and Equitable Bank returned the
checks stamped ‘account closed.’ Consequently, Chan isn’t a HIDC because he took the checks when
they were already dishonored.
However, simply because a holder isn’t a HIDC doesn’t mean he can’t recover on the checks. A non-
HIDC simply has the disadvantage of being subject to defenses as if the instrument was non-
negotiable.
The question now is this: Does Tan have any defense against payment?
Unfortunately, important details are missing because if Tan actually did receive the shoes, then he
must pay the checks. However, if Tan didn’t receive the shows, then he has a good defense against
payment, namely lack of consideration.
Stelco Marketing vs CA
Facts
Stelco sold to RYL steel bars but the latter failed to pay. Later, Steelweld Corp, as accommodation
party, issued a check drawn against Metrobank payable to RYL. RYL indorsed the check to
Armstrong Industries, Stelco’s sister corp. Armstrong deposited the check but the drawee dishonored
it for being drawn against insufficient funds.
Armstrong filed a criminal case for BP 22 against the Presidents of RYL and Steelweld but they were
acquitted. Such acquittal however was without prejudice to liability under the NIL as accommodation
party. Later, Stelco filed a civil case against RYL and Steelweld to recover the value of the steel.
Issue
Is Stelco a HIDC?
Held
No.
As regards an accommodation party, the same has no bearing on the condition of being a HIDC
namely ‘lack of notice of any infirmity in the instruments or defect in title of the persons negotiating
it.’ Because an accommodation party is liable to a holder for value even if such holder knew the other
party was only an accommodation party.
Next, Stelco can’t be considered a HIDC because there’s no evidence to show Stelco possessed the
check before it was dishonored. In fact, Stelco doesn’t appear anywhere on the check as party to it,
the record doesn’t show any intervention on Stelco’s part with regard to the transactions between
RYL, Armstrong, and Steelweld.
However, the records do show Stelco possessed the check after the same was dishonored.
Consequently, Stelco neither took the check before the same was overdue nor in good faith and for
value.
There’s no evidence showing Armstrong merely acted as Stelco’s agent. In fact, the indications show
Armstrong was really the intended payee and the party actually injured by the check’s dishonor.
Bataan Cigar vs CA
Facts
Bataan Cigar engaged its supplier, George, to deliver bales of tobacco leaf. As payment, Bataan Cigar
issued crossed checks. Later, Bataan Cigar purchased additional bales of tobacco leaf paying again
using crossed checks.
George then indorsed the 2 checks to respondent State Investment. George failed to deliver the bales
of tobacco leaf to Bataan Cigar as agreed upon. Bataan Cigar issued a stop payment order on all
checks payable to George. State Investment, having failed to collect from Bataan Cigar, filed suit.
Issue
Is State Investment a HIDC?
Held
No.
A check can be crossed either generally or specially. It’s special if the name of a particular bank or
company is written between the parallel lines drawn. General if only words ‘and company’ are written
or nothing is written at all between the parallel lines.
Crossing of checks should put the holder on inquiry and upon him devolves the duty to ascertain the
indorser’s title to the check or the nature of his possession. Failing this, the holder is declared guilty of
gross negligence amounting to absence of good faith. Consequently, such holder isn’t a holder in due
course.
Here, Bataan Cigar stopped payment on the checks because George failed to deliver the goods. Their
being a failure of consideration, State Investment isn’t a holder in due course. Bataan Cigar can set up
the defense of lack of consideration.
However, State Investment can still go after George.
State Investment House vs IAC

Facts
Sikatuna Industries requested a loan from respondent Chua. The latter agreed subject to the condition
Sikatuna should wait until a certain date when he would have the money. Chua then issued post-dated
checks payable to Sikatuna. Later, Sikatuna assigned the checks to State Investment.
State Investment then deposited the checks but the same were dishonored. Despite repeated demands,
Chua failed to pay causing State Investment to file suit.
Issue
Held
No.
The effect of crossing a check relates to the mode of its presentment for payment. Under the NIL,
presentment for payment to be sufficient must be made by the holder, or by some person authorized to
receive payment on his behalf.
Here, the checks had been crossed generally and issued payable to Sikatuna, which means the drawer
intended the checks for deposit only by Sikatuna. However, it wasn’t Sikatuna who presented the
same for payment, therefore there was no proper presentment and liability didn’t attach to Chua. State
Investment wasn’t in good faith when it accepted the checks knowing the same were crossed.
Not being a HIDC, Chua can set up the defense of the loan’s non-consummation against State
Investment. However, State Investment can still go after Sikatuna provided the latter has no defense.
Hi-Cement Corporation vs IBAA

Facts
Sps. Tan are the controlling stockholders of E.T. Henry Corp. Among their customers are Hi-Cement,
Riverside, and Kanebo. For their purchases, the customers issued post-dated checks to Henry Corp.
Later, Insular Bank granted Henry Corp. a credit facility knows as ‘Purchase of Short Term
Receivables.’ Through this arrangement, Henry Corp. can encash the checks but at discounted rates.
At first, Henry Corp. was able to re-discount its customers’ checks but recently some checks were
dishonored. Insular Bank then filed suit against Henry Corp. Sps. Tan, Hi-Cement, Riverside, and
Kanebo.
Issue
Is Insular Bank a HIDC?
Held
No.
Here, Insular Bank wasn’t in good faith in accepting and discounting Hi-Cement’s postdated crossed
checks from Henry Corp. Insular Bank knew the checks were crossed and restricted for deposit to
payee’s account only, hence they couldn’t be further negotiated.
Further, Insular Bank completely disregarded the irregularity in the re-discounting when the general
manager didn’t acquiesce to it as only the treasurer’s signature appeared on the deed of assignment. A
bank is required to exercise extraordinary diligence in every transaction.
Consequently, Hi-Cement can’t be held liable for the checks but Insular Bank can still go after Henry
Corp.
State Investment House vs CA

Facts
Respondent Moulic issued to Corazon 2 post-dated Equitable Bank checks as security for jewelry
Moulic was to sell on commission. Moulic failed to sell the jewelry so she returned the same to
Corazon before the checks matured. However, Corazon can’t return the checks because they were
already negotiated to State Investment. Consequently, Moulic withdrew her funds from the drawee
bank. The checks were dishonored when State Investment presented the checks for payment. State
Investment then filed suit to recover the value of the checks.
Issue
Held
Yes.
Clearly, the checks are negotiable and the issue is limited to State Investment’s status as HIDC. A
holder of a negotiable instrument is presumed to be a HIDC and Moulic failed to rebut this
presumption.
State investment satisfies all the conditions to be a HIDC:

1. On their face, the post-dated checks were complete and regular
2. The checks were bought before their due dates
3. Taken in good faith faith and for value, albeit at a discounted price
4. Neither informed nor made aware the checks were merely issued to Corazon as security and
not for value
State Investment is a HIDC and is free from any defect of title of prior parties, and from defenses
available to prior parties among themselves. Consequently, State Investment can enforce full payment
of the checks. Moulic can’t resist payment by invoking absence of consideration.
The mere fact Moulic withdrew her funds from the drawee bank didn’t discharge the instrument as
against a HIDC.
Banco Atlantico vs Auditor General

Facts
Virginia, the Philippine Embassy’s Finance Officer in Madrid, negotiated with Banco Atlantico 3
Philippine Embassy checks worth $10k, $35k, and $90k respectively payable to Virginia and drawn
against PNB New York branch. Banco Atlantico paid the value of the all the checks to Virginia
without clearing the same.
Upon presentment for acceptance and payment by Banco Atlantico to the drawee, PNB, the drawee
dishonored the checks by non-acceptance on the ground the drawer had ordered payments to be
stopped. Banco Atlantico then sought reimbursement from the Philippine Embassy but the latter
refused. Banco Atlantico then filed suit.
It turns out, the checks were fraudulently altered to increased amounts.
Issue
Is the Philippine Embassy liable to reimburse Banco Atlantico despite the fraudulently altered
checks?
Held
No.
Banco Alantico isn’t a HIDC because it had knowledge of the infirmity or defect in the check arising
from suspicious circumstances surrounding it. Virginia herself instructed Banco Atlantico not to
present the check for collection until a later date and the amounts involved were quite big. This
should’ve put Banco Atlantico on guard that there was something wrong with the checks.
Further, Banco Atlantico paid the 3 disputed checks to Virginia without previously clearing the same
with the drawee bank. This is contrary to ordinary banking practice especially where the drawee bank
is a foreign bank and the amounts involved were large. Evidence shows Banco Atlantico didn’t bother
clearing the checks because Virginia was a special customer, she enjoying a special relationship with
Banco Atlantico’s employees.
Consequently, the drawer can’t be held liable because Virginia fraudulently altered the 3 checks as to
the amounts, therefore wholly inoperative.
Salas vs CA
Facts
Salas bought a car from a Company evidenced by a promissory note that was subsequently indorsed
to Finance and Leasing Corp. (respondent). Salas intentionally defaulted in her payments due to
alleged defects in the car that the Company refused to repair. The promissory note matured and
Finance and leasing Corp filed suit against Salas to recover the value of the promissory note.
Issue
Held
Yes.
In assigning a non-negotiable instrument, the holder merely steps into the shoes of the person
designated in the instrument and will be open to all the defenses available against the latter.
Here, the promissory note is negotiable and Finance and Leasing Corp. is a holder in due course.
Finance and Leasing Corp. holds the promissory note free from any defect of title and free from
defenses available to prior parties.
Consequently, Salas can’t set up the defense of the Company’s breach of warranty on the car against
Finance and Leasing Corp.
Consolidated Plywood
Facts
Consolidated Plywood bought tractors from Atlantic Gulf evidenced by a promissory note. Atlantic
Gulf then assigned its rights and interest to the note in IFC Leasing’s favor by means of a deed of
assignment. However, the tractors broke down and Consolidated Plywood rescinded the contract of
purchase and demanded a refund. Atlantic Gulf made no move to refund Consolidated Plywood. IFC
Leasing then filed suit to recover the amount of the promissory note.
Issue
Held
No.
The promissory note isn’t payable to order or bearer. A negotiable instrument must contain the words
of negotiability such as ‘order’ or ‘bearer.’ Without the words ‘or order’ or ‘to the order of’ then the
instrument is payable only to that person and no one else, therefore non-negotiable.
Any subsequent holder of the note will only step into the shoes of the person designated in the
instrument and will be open to all the defenses available against the latter. He doesn’t enjoy the
benefits of being a holder in due course of a negotiable instrument.
FOR VALUE RECEIVED, I/we jointly and severally promise to pay to the INDUSTRIAL PRODUCTS
MARKETING, the sum of ONE MILLION NINETY THREE THOUSAND SEVEN HUNDRED
EIGHTY NINE PESOS & 71/100 only (P 1,093,789.71), Philippine Currency, the said principal sum,
to be payable in 24 monthly installments starting July 15, 1978 and every 15th of the month thereafter
until fully paid. ...
Sps. Violago vs BA Finance Corp.

Facts
Avelino, Violago Motor Sales Corp's President (VMSC), offered to sell a car to the Sps. Violago. The
Sps. would make a downpayment while BA Finance would pay the balance. The Sps. would then pay
monthly installments to BA Finance. The Sps. agreed to these terms and purchased the car.
The Sps. and Avelino signed a promissory note binding them severally to pay VMSC or order the
balance in 36 monthly installments. The Sps. executed a chattel mortgage over the car as security for
the note. The note was then indorsed to BA Finance without recourse. BA Finance paid VMSC and
the latter transferred its right and interest to the note, plus the chattel mortgage, to BA Finance.
However, it turns out the car was already sold to Esmeraldo and registered in his name. Esmeraldo
then sold the car to a 3rd person who mortgaged it in BA Finance’s favor. Despite the Sps. repeated
demands, the car was never delivered. The Sps. then stopped paying the installment to BA Finance.
BA Finance then filed a replevin suit against the Sps.
Issue
Is BA Finance a HIDC?
Held
Yes.
The promissory note is a negotiable instrument. Further, BA Finance is a holder in due course.
1. The note is complete and regular
2. VMSC endorsed it to BA Finance
3. Accepted in good faith and for value
4. BA Finance didn't know the car was never delivered to the Sps. and the same was previously
sold to Esmeraldo
Further, the subsequent assignment of the Chattel Mortgage over the car to BA Finance by
Esmeraldo's buyer happened way after VMSC endorsed the note to BA Finance. Simply put, BA
Finance knew about Esmeraldo only after the Sps. note was already assigned to it.
Consequently, the Sps. can't resist payment by setting up the defense of fraud and nullity of the sale
with VMSC over the car.
BPI vs Roxas
Facts
Roxas sold goods to the Sps. Cawili and the latter paid using a personal check. Roxas tried to encash
the check but it was dishonored. Cawili then told Roxas the former would replace the check with a
cashier's check from BPI.
Later, Cawili and Roxas went to BPI Shaw branch where Elma, the branch manager, personally
attended to them. BPI prepared the check drawn against the Cawili's account payable to Roxas and
handed the same to Roxas. The next day, Roxas tried to encash the check but it was dishonored.
Roxas filed suit.
Issue
Is Roxas a HIDC?
Held
Yes.
BPI contends Roxas isn't a HIDC because the element of 'good faith and for value' is missing.
However, it is undisputed Roxas received Cawili's cashier check as payment for the goods. The fact it
was Cawili who purchased the cashier's check from BPI wouldn’t affect Roxas' status as HIDC
because the check was delivered to him as payment for the goods sold.
Also, the disputed check is a cashier's check. A cashier's check is really the bank's own check and
may be treated as a promissory note with the bank as maker.
De Ocampo vs Gatchalian
Facts
Manuel Gonzales offered to Gatchalian a car that De Ocampo owned. Manuel represented to
Gatchalian that De Ocampo duly authorized him to sell the car. Gatchalian wanted to buy the car and
asked Manuel to bring the car together with the certificate of registration at a certain date. In turn,
Manual required Gatchalian to issue a check as evidence of good faith. The check was to be for
safekeeping only and returned on the appointed date. Gatchalian agreed and issued the check.
However, it turns out De Ocampo never authorized Manuel to sell his car and wasn’t aware of the
latter’s dealing with Gatchalian. Manuel used the check to pay his wife’s hospital fees, then confined
at the Ocampo Clinic. De Ocampo accepted the check as payment for the hospital fees.
On the appointed date, Manuel failed to deliver the car and certificate causing Gatchalian to issue a
‘stop order payment’ on the check. De Ocampo then filed suit to collect the value of the check.
Issue
Is De Ocampo a HIDC?
Held
No.
True, De Ocampo wasn’t aware of the circumstances surrounding the check’s delivery to Manuel.
However, there were a lot of other circumstances that should’ve put De Ocampo on guard as to how
Manuel acquired the check. These are:
1. Gatchalian had no obligation or liability to the Ocampo Clinic
2. The amount of the check didn’t correspond exactly with the hospital fees of Manuel’s wife
3. The check had 2 parallel lines in the upper left-hand corder, meaning the check can only be
deposited and not converted into cash.
Consequently, De Ocampo had the duty to ascertain from Manuel the latter’s title to the checks.
Failing to do so, De Ocampo is guilty of gross neglect amounting to absence of good faith.
The presumption that every holder is a HIDC doesn’t apply in this case because De Ocampo received
the check under circumstances that should’ve aroused his suspicion. In fact, De Ocampo has the
burden of proving he’s a HIDC, which he failed to do.
Yang vs CA
Facts
Yang and respondent Chandiramani (Cha) entered into an agreement where the latter was to give the
former a PCIB manager’s check worth P4.2 million in exchange for Yang’s 2 manager’s checks each
worth P2 million both payable to respondent David’s order. Yang and Cha agreed the P200 thousand
difference would be the profit to be equally divided between them.
Yang and Cha further agreed the former would secure from FEBTC a dollar draft worth $200
thousand payable to PCIB FCDU Account that Cha would exchange for another dollar draft in the
same amount to be issued by Hang Seng Bank.
On the day the exchange was to be made, Yang gave 2 manager’s checks, from Equitable and
FEBTC, and the dollar draft to Liong, and Liong’s messenger, Ranigo, would deliver the same to
Cha. Ranigo was to meet Cha at a certain place and time but Cha didn’t appear and Ranigo allegedly
lost the checks and dollar draft. Yang was informed of the lost and requested FEBTC and Equitable to
stop payment on the instruments.
However, the checks and draft weren’t lost because Cha in fact got them without delivering the
equivalent consideration. Cha delivered the 2 checks to David for $360 thousand and Cha further
deposited the dollar draft and withdrew the proceeds for himself.
Yang then filed suit.
Issue
Is David a HIDC?
Held
Yes.
A payee can also be a HIDC. David is the payee of the disputed checks and consequently is presumed
to be a HIDC.
Next, Yang alleges David didn’t give valuable consideration for the checks. However, David is
presumed to have given valuable consideration and Yang failed to rebut this presumption. In fact,
David even gave $360 thousand to Cha as consideration.
Also, there’s no circumstance that would’ve put David on inquiry as to the nature of Cha’s possession
of the checks. David wasn’t privy to the transaction between Yang and Cha. Further, David only
accepted the checks after asking FEBTC and Equitable to verify the checks, which both banks
certified as genuine. Consequently, there was nothing to arouse David’s suspicion on Cha’s
possession of the checks.
Lastly, even if the disputed checks were crossed, the same won’t affect David’s status as a HIDC.
Because in crossing a check, the drawer intended the check to be for deposit only by the payee named
therein. This is exactly what happened in this case because after receiving the crossed checks, David
promptly deposited the same. The purpose behind the crossed checks was satisfied.
Mesina vs IAC
Facts
Respondent Jose Go purchased from Associated Bank a cashier’s check for P800. However, Jose
forgot the check at the bank and the bank manager entrusted the check to Albert Uy, a bank officer,
for safekeeping. At the time, Albert had a visitor named Alexander Lim. Albert had to leave his desk
and when he came back both Lim and the check were gone. Associated Bank notified Jose of the lost
and the latter filed a ‘stop payment’ order. Alexander informed the police of the loss.
Later, Associated Bank received the lost check for clearing from Prudential Bank that the former
dishonored. Prudential Bank made repeated attempts to clear the check that Associated Bank
consistently dishonored. A certain Atty. Navarro, representing the check’s holder, threatened to sue
but refused to reveal his client’s name.
Unsure of what to do, Associated Bank then filed an action for Interpleader. Later, Associated Bank
received a complaint for damages from Mesina, who was the actual check holder.
Issue
Is Mesina a HIDC?
Held
No.
Mesina failed to substantiate his claim that he’s a HIDC and for value as shown by the facts.
Here, Mesina became the check’s holder when Lim indorsed the same to him. Suspiciously, Mesina
refused to say how and why it was passed to him. Consequently, he had notice of the defect of his title
over the check from the start.1
The holder of a cashier’s check who isn’t a HIDC can’t enforce such check against the issuing bank
who dishonors the same. If a payee of a cashier’s check obtained it from the issuing bank by fraud or
some other reason to deny the payee collection, the respondent bank would have the right to refuse
payment upon presentment. Here, Associated Bank knew from the beginning the check was stolen
and never delivered to Jose Go.
Consequently, the disputed check suffers from infirmity for not having been properly negotiated and
for value by Jose Go.
1
Mesina isn’t presumed a HIDC because it’s clear the person who negotiated the instrument to him had a
defective title to it.
Asia Banking Corp. vs Ten Sen Guan

Facts
Ten Sen ordered from Snows Ltd. 10 cases of mercerized batiste. Snows Ltd. then drew a draft and,
together with the invoice, bill of lading, and other shipping documents, delivered them to Asia
Banking Corp. In turn, Asia Banking presented it to Ten Sen Guan for acceptance.
Initially, Ten Sen refused to accept the draft because the goods hadn’t arrived yet and had no
opportunity to inspect the same. Asia Banking however represented to Ten Sen the goods would
arrive as ordered. Relying on the Bank’s representation, Ten Sen accepted the draft. However, when
the goods arrived, they turned out to be only ‘burlap’ that had no commercial value.
Issue
Can Asia Banking claim the value of the draft from Ten Sen?
Held
No.
Here, Asia Banking failed to present competent evidence that it was a good faith purchaser of the
draft from Snows Ltd. Simply put, there was no authentic account of the whole transaction with
Snows Ltd.
In fact, the evidence shows Asia Banking isn’t a bona fide holder of the draft, but simply held it for
collection. It follows Ten Sen can set up a defense against Asia Banking which it can set up against
Snows Ltd.
Further, the evidence shows Ten Sen’s acceptance of the draft was conditional and Asia Banking
agreed to release Ten Sen from all liability. Asia Banking filed suit only 1 year after the draft became
due.
Fossum vs Fernandez
Facts
Fossum is the American Iron Products Company’s resident agent in Manila. Later, Fossum procured
an order from Fernandez for a tail shaft. The tail shaft would be shipped from New York. The tail
shaft arrived and American Iron drew a time draft, at 60 days and in the amount of $2.2 thousand
payable to PNB, upon Fernandez as payment. Fernandez accepted the time draft.
Later, the tail shift arrived in Manila but Fernandez discovered the same wasn’t according to the
specifications provided. Consequently, Fernandez refused to pay the draft leaving the same
dishonored. PNB then indorsed the draft in blank, without consideration, and delivered it to Fossum.
Fossum then filed suit against Fernandez.
Issue
Is Fossum a HIDC?
Held
No.
Here, Fossum himself isn’t a HIDC. He was a party to the contract that resulted in the draft. He had
the instrument indorsed to him without consideration after it was overdue and knowing the
consideration for the same failed.
Next, He can’t derive his title through PNB because PNB itself isn’t a HIDC. There’s no evidence to
show PNB was ever a HIDC. Fossum can’t rely on the presumption that every holder is deemed a
HIDC to make PNB a HIDC. Such presumption arises only in favor of a holder. However, in this case
PNB is no longer a holder from the moment the draft passed out of its possession and into Fossum’s.
PNB is no longer the payee or indorsee who possesses the instrument, or bearer thereof as to be
deemed a holder.
PNB vs Maza & Mecinas

Facts
Maza & Mecenas executed 5 promissory notes in PNB’s favor. M&M failed to pay the notes upon
maturity. PNB then filed suit before the CFI to collect the notes’ value.
M&M alleges a certain Echaus is the real party-in-interest. Echaus sent the M&M’s the promissory
notes in blank which the latter signed so the former can negotiate them with PNB. M&M neither
negotiated the notes with PNB nor received value thereof.
Issue
Are the M&M’s liable?
Held
Yes.
In this case, M&M admit the instruments’ genuineness and due execution. M&M’s defense they are
simply accommodation parties don’t avail because even considering they are such, are still liable on
the instruments. An accommodation party claims no benefit from the note itself but is liable all the
same for it.
Consequently, the M&M’s are liable to PNB but the former can go after the accommodated party,
because the relation between the accommodator and accommodated is essentially of principal and
surety respectively.
Araneta vs Perez
Facts
Perez executed a promissory note in Araneta’s favor. The note matured but Perez failed to pay and
despite repeated demands still failed to pay. Araneta then filed suit to collect the value of the note.
In Perez’s defense, he alleges the note’s proceeds were used to pay for his daughter’s medical
treatment. Further, his daughter is the beneficiary of a trust Araneta is administering as trustee and
that Araneta is bound to pay him the note’s value because the same redounded to the beneficiary’s
benefit.
Perez also filed suit against Araneta in his capacity as trustee referencing the civil case to collect on
the promissory note. Perez prays Araneta be ordered to pay him the value of the note in order to meet
the obligation of the trust estate.
Simply put, Perez alleges Araneta should in fact pay him the value of the note and not the other way
around.
Issue
Can Araneta collect from the note?
Held
Yes.
Here, the promissory note clearly states that Perez agreed to pay Araneta or order a sum certain in
money on a certain date, and if the same isn’t paid on said date to pay 9% interest per annum until
fully paid, plus attorney’s fees.
Clearly, Perez bound himself to pay personally the said promissory note. He can’t escape liability as
maker by alleging he used the proceeds for his daughter’s medical treatment because it isn’t the
payee’s concern how the proceeds are spent. That is the maker’s sole concern. The payee’s interest is
merely to see the note be paid according to its terms.
Tan Tua Sia vs Yu Biao

Facts
Tan Tua Sia and co-plaintiffs are Sebastian Sontia’s widow and children. Sebastian was formerly a
partner of Yu Biao. When Sebastian died, differences arose between his heirs and the partnership as to
the amount the heirs should receive for Sebastian’s share in the company. Finally, the parties agreed
to liquidate Sebastian’s accounts and arrived at P30 thousand as Sebastian’s share.
The sum was left in Yu Biao’s hands as a loan payable within 5 years, bearing 14% interest per
annum. A promissory note was executed to secure payment.
The lower courts ordered Respondents to pay but 1 Respondent, Gotua, appealed.
Issue
Is Gotua liable to pay the value of the promissory note?
Held
Yes.
Here, Gotua himself certified that the signature appearing on the promissory note was his own. That
he signed knowing the same was in favor of Tan Tua regarding her interest in the partnership, and
was payable in 5 years.
Gotua’s testimony that Yu Biao deceived him and didn’t know what the promissory note stipulated is
incompetent to absolve him from liability for the promissory note. He had the note in his possession
and should’ve known what was written on the same. Further, Yu Biao even explained to him what the
note was for.
Gotua is a businessman and is presumed to have acted with due care and signed the note with full
knowledge of its contents.
PNB vs Picornell
Facts
Picornell, following instructions from Hyndman, Tavera, & Ventura (HVT) bought tobacco and had
the same shipped to HVT. He then obtained from PNB a sum certain in money representing the
tobacco’s value and his commission. In turn, Picornell drew a bill of exchange in PNB’s favor against
HVT.
The bill was delivered to PNB who then presented it to HVT that the latter accepted. However, when
the tobacco arrived, some of it was damaged and unusable. HVT then refused to pay the bill upon
PNB’s demand because of Picornell’s failure to comply with the contract, arising from the damaged
tobacco. PNB then filed suit to recover the value of the bill.
Issue
Can PNB recover from HVT and Picornell the value of the bill?
Held
Yes.
Here, PNB is a HIDC and so HTC Company can’t escape liability by express provision of the NIL
Sec. 28. Further, HVT accepted the bill unconditionally and failed to pay at maturity, therefore its
responsibility to pay is clear under the NIL Sec. 62.
As to Picornell, he warranted as the bill’s drawer that the same would be accepted upon proper
presentment, and paid in due course. Because it wasn’t paid, he became liable for the payment of its
value to the holder thereof, namely PNB.
Further, Picornell can’t escape liability by reasoning he was simply HVT’s agent because nothing to
this effect appears in his signature on the bill.
Once the bill was dishonored by non-payment, PNB had the right of recourse against both HVT and
Picornell. Also, PNB sent Picornell a notice of dishonor in accordance with the NIL.
Banco Atlantico vs Auditor General

Facts
Virginia, the Philippine Embassy’s Finance Officer in Madrid, negotiated with Banco Atlantico 3
Philippine Embassy checks worth $10k, $35k, and $90k respectively payable to Virginia and drawn
against PNB New York branch. Banco Atlantico paid the value of the all the checks to Virginia
without clearing the same.
Upon presentment for acceptance and payment by Banco Atlantico to the drawee, PNB, the drawee
dishonored the checks by non-acceptance on the ground the drawer had ordered payments to be
stopped. Banco Atlantico then sought reimbursement from the Philippine Embassy but the latter
refused. Banco Atlantico then filed suit.
It turns out, the checks were fraudulently altered to increased amounts.
Issue
Is the Philippine Embassy liable to reimburse Banco Atlantico despite the fraudulently altered
checks?
Held
No.
Banco Alantico isn’t a HIDC because it had knowledge of the infirmity or defect in the check arising
from suspicious circumstances surrounding it. Virginia herself instructed Banco Atlantico not to
present the check for collection until a later date and the amounts involved were quite big. This
should’ve put Banco Atlantico on guard that there was something wrong with the checks.
Further, Banco Atlantico paid the 3 disputed checks to Virginia without previously clearing the same
with the drawee bank. This is contrary to ordinary banking practice especially where the drawee bank
is a foreign bank and the amounts involved were large. Evidence shows Banco Atlantico didn’t bother
clearing the checks because Virginia was a special customer, she enjoying a special relationship with
Banco Atlantico’s employees.
Consequently, the drawer can’t be held liable because Virginia fraudulently altered the 3 checks as to
the amounts, therefore wholly inoperative.
Fossum vs Fernandez
Facts
Fossum is the American Iron Products Company’s resident agent in Manila. Later, Fossum procured
an order from Fernandez for a tail shaft. The tail shaft would be shipped from New York. The tail
shaft arrived and American Iron drew a time draft, at 60 days and in the amount of $2.2 thousand
payable to PNB, upon Fernandez as payment. Fernandez accepted the time draft.
Later, the tail shift arrived in Manila but Fernandez discovered the same wasn’t according to the
specifications provided. Consequently, Fernandez refused to pay the draft leaving the same
dishonored. PNB then indorsed the draft in blank, without consideration, and delivered it to Fossum.
Fossum then filed suit against Fernandez.
Issue
Is Fossum a HIDC?
Held
No.
Here, Fossum himself isn’t a HIDC. He was a party to the contract that resulted in the draft. He had
the instrument indorsed to him without consideration after it was overdue and knowing the
consideration for the same failed.
Next, He can’t derive his title through PNB because PNB itself isn’t a HIDC. There’s no evidence to
show PNB was ever a HIDC. Fossum can’t rely on the presumption that every holder is deemed a
HIDC to make PNB a HIDC. Such presumption arises only in favor of a holder. However, in this case
PNB is no longer a holder from the moment the draft passed out of its possession and into Fossum’s.
PNB is no longer the payee or indorsee who possesses the instrument, or bearer thereof as to be
deemed a holder.
PNB vs CA
Facts
A GSIS check was drawn against PNB by GSIS officers made payable to Pulido. Pulido in turn
indorsed it to Go, who then indorsed it to Lim. While all this was happening, GSIS notified PNB said
GSIS check was lost and payment should be stopped. Lim deposited the check in his account with
PCIB. PCIB sent the check for clearing to PNB. PNB didn’t return the check but retained it and paid
the check’s amount to PCIB and debited GSIS’ account in PNB. Later, GSIS demanded the amount
be re-credited because the officers’ signatures on the GSIS check were forged. PNB did so and
demanded a refund from PCIB that the latter refused.
Issue
Can PN demand a refund from PCIB?
Held
No.
A well-settled maxim of law and equity is that if one of 2 innocent persons must suffer by the
wrongful act of a 3rd person, the loss must be borne by the one whose negligence was the proximate
cause of the loss or who put it into the power of the 3rd person to perpetrate the wrong.
In this case, even assuming PCIB was negligent it’s undeniable PNB was more negligent. PNB
received formal notice from GSIS that said check had been lost and payment should be stopped.
Further, PNB’s negligence was the proximate cause for the loss. PCIB didn’t cash the check upon
presentment but sent it to PNB for clearing. PNB’s failure to return the check implied, under current
banking practice, that PNB considered the check good and would honor it. In fact, PCIB paid Lim
only when PNB paid the check’s amount to PCIB. Consequently, PNB’s actions induced PCIB to
believe the check was genuine and to pay Lim.
PNB vs National City Bank of NY

Facts
An unknown person possessed a check issued by Pangasinan Transportation Co. against PNB and in
International Auto Shop's favor. This unknown person indorsed the check to defendant Motor Service
Co. Motor Service accepted the check as payment believing the signatures on the check were genuine.
Motor Service then deposited the check at Bank of NY who credited Motor Service with the amount.
PNB then credited Bank of NY for the amount of the check. Later, PNB found out the drawer's
signature on the check was forged and demanded reimbursement from Bank of NY and Motor Service
which both refused.
Issue
Can PNB demand reimbursement from Bank of NY and Motor Service?
Held
Yes.
Payment of a check neither includes nor implies acceptance. Payment and acceptance are two
different things and one doesn't necessary include the other. Here, PNB never accepted the check but
simply marked it 'paid' and didn't write anything else except the date.
In this case, the Bank of NY didn't use reasonable business prudence. It took the check from a
stranger without making any inquiry as to the identity and authority of the persons negotiating and
indorsing them. The cashier witnessed the mark of such stranger thus vouching for the identity and
signature of the maker and it indorsed the check as paid, thus further throwing plaintiff off guard.
PNB could act only on the facts as Bank of NY presented them. Motor Service was likewise negligent
because it accepted the check from a stranger without making inquiries as to his authority to indorse
the check. Further, a subagent of the payee’s agent initially indorsed the check.
PNB never performed any act that would induce Bank of NY to believe in the genuineness of said
instrument before Bank of NY purchased them for value. Consequently, Bank of NY is liable to PNB
for the value of the check.
FEBTC vs Gold Palace Jewelry Co.

Facts
A certain Tagoe purchased from Gold Palace Jewelry (Palace) several pieces of jewelry valued at
P258 thousand. As payment, Tagoe offered a Foreign Draft issued by the United Overseas Bank
addressed to the Land Bank of the Philippines (LBP) payable to Palace for P380 thousand. Before
receiving the draft, Palace inquired from Far East Bank the nature of the draft that advised the Palace
to have the draft cleared first before receiving the jewelry.
Palace then deposited the draft at Far East Bank who presented the same to LBP. LBP cleared the
same, debited United Bank’s account, and credited Palace’s account. The Palace then released the
jewelry to Tagoe and issued a Far East check as his change. The check was presented and Far East
Bank paid the same.
Later, LBP informed Far East that the foreign draft was materially altered from P300 thousand to
P380 thousand. Far East refunded LBP the P380 thousand intending to debit Palace’s account.
However, Palace’s account with Far East was less than P380 and was able to debit only P170
thousand without prior notice to Palace. Palace demanded Far East re-credit the debited amount but
the latter refused.
Issue
Can Far East debit the amount from Palace’s account?
Held
No.
A drawee that accepts the instrument engages that he will pay it according to the tenor of his
acceptance. This rule applies with equal force in case the drawee pays a bill without having
previously accepted it. Actually paying the check implies not only assent to the drawer’s order but
also recognition and compliance with the corresponding obligation. Simply put, paying a check
includes its acceptance.
Here, LBP cleared and paid the foreign draft. Such payment made LBP liable according to the tenor
of the check at the time of payment, which was the raised amount. Such acceptance means LBP can
no longer repudiate the payment it erroneously made to a HIDC. Here, Palace was a HIDC.
Further, LBP was negligent because it cleared the foreign drafts without first verifying the same with
United Overseas Bank. Palace had no means to ascertain with Uniter Overseas the draft’s veracity and
had to rely on LBP’s representations.
Consequently, the NIL Sec. 62 protects Palace and Far East shouldn’t have debited the amount it paid
to Palace. Far East can’t invoke the warranties of an indorser because the indorsement in this case was
restrictive. Such indorsement being only for purposes of collection and didn’t transfer title. Far East’s
remedy is to go after the drawee bank or the person responsible for the material alteration.
Ang Tiong vs Ting

Facts
Ting issued Philippine Bank of Communications check payable to cash or bearer. With Felipe Ang’s
signature (indorsement in blank) at the back thereof, Ang Tiong received the instrument. Tiong
presented the check to the drawee bank for payment but the bank dishonored it. Tiong then demanded
from both Ting and Felipe to make good on the check. The demands went unheeded and so Tiong
filed suit to collect the value of the check.
Issue
Is Felipe a general indorser?
Held
Yes.
Here, the instrument’s genuineness and due execution are uncontroverted. Nothing in the disputed
check indicates that Felipe isn’t a general indorser under the NIL Sec. 63. Consequently, Felipe gave
all the warranties provided under the NIL Sec. 66.
Next, even if Felipe is a mere accommodation party as he alleges, he would still be liable for the
check by express provision of the NIL Sec. 29.
Tuazon et al vs Heir of Bartolome Ramos

Facts
Tuazon purchased rice from Bartolome Ramos and payment was made through several Traders Royal
Bank checks. Evangeline Santos drew the checks payable to Tuazon, and Tuazon indorsed the same
to Bartolome. When the checks were encashed, the same bounced due to insufficiency of funds. The
Heirs then filed the corresponding civil and criminal suits. The lower courts adjudged Tuazon to be
only civilly liable.
Tuazon argues the Heirs should’ve included Evangeline as an indispensable party, and her non-
inclusion was a fatal error.
Issue
Is Evangeline an indispensable party?
Held
No.
Here, Tuazon indorsed the disputed checks in Bartolome’s favor according to Sec. 31 and Sec. 66 of
the NIL.
The mere fact Santos is the checks' drawer is immaterial to the instant case. As indorser, Tuazon
warranted that upon due presentment, the checks would be accepted and paid, and in case of dishonor
Tuazon would pay the corresponding amount. Once an instrument is dishonored by nonpayment, the
indorser ceases to be secondarily liable; he becomes a principal debtor whose liability becomes
identical to the drawer/maker.
Consequently, a holder doesn’t need to proceed against the maker/drawer before suing the indorser.
Clearly, Evangeline isn’t an indispensable party.
People vs Maniego
Facts
Three persons, Ubay, Milagros, and Maniego, were charged with the crime of Malversation. Ubay is
an AFP Officer designated as Disbursing Officer and had under his control public funds.
To facilitate the crime, Ubay accepted from Milagros and Maniego several personal checks drawn
against PNB with Milagros as drawer and Maniego as indorser. In exchange, Milagros and Maniego
received public funds under Ubay’s custody. Ubay accepted the checks knowing full well the same
were worthless and weren’t sufficiently funded. Consequently, the checks were dishonored to the
Government’s prejudice.
Ubay was convicted but Maniego and Milagros found only civilly liable.
Issue
Are Maniego and Milagros civilly liable for the checks?
Held
Yes.
Here, the evidence establishes Maniego was an indorser of several checks Milagros drew, that were
dishonored after being exchanged with cash belonging to the Government.
Under the law, the holder of a negotiable instrument has the right to enforce payment of the
instrument for the full amount against all parties liable thereon. Among the persons liable is the
instrument’s indorser. Maniego is liable due to the warranties she gave as indorser under the NIL.
Even if Maniego is considered an accommodation party, she would still be liable by express provision
of the NIL.
Metropolitan Bank vs CA
Facts
Eduardo Gomez deposited Treasury Warrants in Golden Savings (respondent) who in turn deposited
them in Metrobank for clearing. Golden Savings repeatedly inquired from Metrobank if the warrants
had been cleared. Exasperated, Metrobank allowed Golden Savings to withdraw the value of the
Treasury Warrants before clearance. Afterwards, Eduardo withdrew the proceeds.
However, it turns out the warrants had been dishonored and Metrobank demanded a refund from
Golden Savings. Golden Savings refused and hence this case.
Issue
Are the Treasury Warrants negotiable instruments?
Held
No.
The warrant have stamped on their face the word ‘non-negotiable’ and is payable from a particular
fund, namely Fund 501. The promise to pay is conditional on the availability of funds in Fund 501.
Gullas vs PNB
Facts
Gullas has a current account with PNB. The US Treasurer for the US Veterans Bureau issued a
warrant payable to the order of Francisco. Gullas and Lopez signed as the warrant’s indorsees. Later,
PNB encashed it but the Insular Treasurer dishonored the warrant.
At the time, Gullas had an outstanding balance with PNB for which he issued certain checks. PNB,
upon learning the warrant was dishonored, debited Gullas’ account to pay for the warrant. Afterwards,
PNB sent Gullas a letter of dishonor for the warrant but Gullas didn’t receive the same because he
was away from his residence.
As a consequence of Gullas’ account being debited, a check he issued for his insurance wasn’t paid
due to insufficient funds and a local periodical made big news out of it embarrassing Gullas.
Issue
Can PNB set-off a deposit to a depositor’s debt to the bank?
Held
Yes. But if the NIL is involved, must follow proper procedure.
Notice of dishonor is required to charge an indorser and the right of action against him doesn’t accrue
until notice is given. As a general rule, a bank has the right to set off deposits in its hands to pay any
indebtedness to it on the depositor’s part.
Clearly, PNB has the right to set-off as against Gullas’ deposit, but the question now is if the remedy
was enforced properly.
Here, the facts show PNB used the money in Gullas’ account to make good on the warrant without
first mailing a notice of dishonor. Important to remember is Gullas' status an indorser. Consequently,
PNB improperly enforced the remedy because a notice of dishonor to the indorser is required for the
latter to be liable on the instrument.
Associated Bank vs Tan

Facts
Tan is a businessman and regular depositor-creditor of Associated Bank. Later, he deposited a UCPB
check a certain Cheng issued to him with Associated Bank. Associated Bank credited the amount to
Tan’s account and informed him the check was cleared and backed up by sufficient funds. Relying on
Associated Bank’s assurance, Tan later withdrew and deposited in his account leaving a balance of
P100 thousand. Afterwards, Tan issued several checks to his suppliers and business partners.
However, his suppliers and business partners went back to him because the checks bounced for
insufficient funds. Tan then informed Associated Bank to take the necessary steps because he
believed his account had sufficient funds. But Associated Bank neither did anything nor offer any
apology causing Tan to file suit.
It turns out, Associated Bank allowed Tan to withdraw the value of the check before the same was
cleared. Further, the check was dishonored and Associated Bank debited Tan’s account for the value
of the check.
Issue
Does Associated Bank, as collecting bank, have the right to debit Tan’s account for a check deposit
that the drawee bank dishonored?
Held
No.
A collecting bank has the right to debit a depositor’s account for the value of a dishonored check that
was previously credited. However, such right should be properly exercised.
Generally, the value of the check can be properly transferred to a depositor’s account only after the
drawee bank clears the check. Here, Associated Bank was negligent in allowing Tan to withdraw the
value of the check before the same was cleared. In doing so, Associated Bank disregarded the
clearance requirement.
Next, Associated Bank itself affirms it debited Tan’s account without officially informing the latter.
Under the NIL, Associated Bank was required to give an official notice of dishonor before Tan can be
held liable as indorser for the value of the dishonored check.
Gonzales vs RCBC
Facts
Zapante drew a foreign check against drawee bank Wilshire Center Bank payable to Alviar,
Gonzales’ mother. Alviar indorsed the check to Gonzales. At the time, Gonzales was an RCBC
employee and RCBC gave special accommodation to its employees allowing them to receive the
check’s value without waiting for the clearing period. Gonzales presented the check to RCBC and the
latter required him to indorse the same. Gonzales then indorsed the check and an RCBC employee,
Gomez, indorsed the same but ‘up to P17.5 thousand only.’ Afterwards, RCBC gave Gonzales the
check’s value.
When RCBC tried to collect on the check, the drawee bank dishonored it on the ground of irregular
indorsement. The next time RCBC tried to collect, it was dishonored due to ‘account closed.’ RCBC
then demanded Gonzales return the check’s value that Gonzales agreed to do so but through salary
deduction.
Later, Gonzales resigned from RCBC while the latter wasn’t able to collect yet the full value of the
checks. RCBC then filed suit to recover the remainder.
Issue
Can RCBC hold Gonzales and the prior endorsers liable?
Held
No.
The drawee bank dishonored the instrument because of an irregular indorsement on the same. The
irregular indorsement referred to is Gomez’s qualified indorsement of ‘up to P17.5 thousand only.’
The NIL Sec. 66 provides for the warranties of a general indorser, which Alviar and Gonzales are.
The party that introduced a defect in the instrument can’t use this provision to hold prior indorsers
liable on the instrument through their warranties because it will lead to an unjust and inequitable
situation. The holder who renders the instrument useless is allowed to enforce the same against prior
indorsers while he himself goes scot-free.
Consequently, if an instrument is dishonored for irregular indorsement, the party enforcing the
instrument must not be the irregular indorser himself. A subsequent party that caused a defect in the
instrument can’t have any recourse against the prior indorsers in goods faith.
Here, it’s RCBC who caused the defect in the instrument and therefore can’t hold Gonzales and
Alviar liable on the check.
Bank of America vs Associated

Facts
BA Finance entered into a transaction with Miller Offset Press, Inc. (Miller), through the latter’s
authorized representatives, Kiat, Ching, and Chung. BA Finance granted Miller a credit line facility
where the latter can assign or discount its trade receivables with the former. Later, Kiat, Ching, and
Chung executed a Continuing Suretyship Agreement with BA Finance binding them solidarily to pay
any indebtedness which Miller may incur with BA Finance.
Miller discounted and assigned trade receivables in BA Finance’s favor and the latter executed 4
checks payable to the ‘Order of Miller’ annotated with ‘For Payee’s Account Only.’ The checks were
drawn against Bank of America (BOA). Ching, Miller’s Corporate Secretary, deposited the checks to
his joint account with Chung in Associated Bank. Associated Bank sent the checks for clearing
stamping the same with ‘all prior indorsements guaranteed’ and BOA cleared the same and paid the
proceeds.
Later, Miller failed to deliver on the trade receivables it assigned to BA Finance. BA Finance then
filed suit. The respondents denied ever authorizing Ching to transact business with BA Finance on
Miller’s behalf causing BA Finance to implead BOA as additional respondent.
Issue
Who reimburses who?
Held
BA Finance reimburses Miler || Associated Bank reimburses BA Finance ||
Ching & Chung reimburses Associated Bank
BA Finance -- Miller
Here, the disputed checks are crossed and annotated with ‘For Payee’s Account Only.’ Clearly, the
drawer intended the check for deposit only by Miller in the latter’s bank account. Consequently, when
a person other than Miller, in this case Ching, presented the checks and deposited them in his personal
account, the drawee bank who pays the same violates the drawer’s instructions and is liable for the
amount charged to the drawer’s account.
Associated Bank -- BA Finance

A collecting bank that indorses the check to the drawee bank is an indorser and guarantees all the
warranties provided in the NIL Sec. 66. As a general rule, the collecting bank as last indorser suffers
the loss because it’s duty-bound to ascertain the genuineness of all prior indorsements. Here,
Associated Bank stamped the checks with ‘all prior indorsements guaranteed’ and assumed the
warranties of a general indorser.
Clearly, Associated Bank was negligent when it allowed a person other than the payee named therein
to receive the value of the check. The check was payable to Miller and yet it was Ching who
deposited the same.
Ching & Chung -- Associated Bank

Ching & Chung received the proceeds of the check but they had no right to the same. Consequently,
to prevent unjust enrichment they must return the value received to Associated Bank.
Jai Alai vs BPI

Facts
Jai Alai acquired 10 checks from Ramirez, an Inter-Island Gas sales agent. The checks were originally
payable to Inter-Island Gas or order but were subsequently indorsed to Jai Alai. Jai- Alai deposited
the 10 checks to its current account with BPI. BPI temporarily credited to Jai Alai’s current account
the amounts in accordance with the clause printed on the deposit slips issued by BPI. Afterwards,
Inter-Island Gas discovered that all the indorsements on the checks purportedly made by its cashiers
as well as the rubber stamp reading ‘Inter-Island Gas Service, Inc.’ were forgeries. Inter-Island Gas
advised Jai Alai, BPI, drawers, and drawee-banks of the forgeries.
Afterwards, the drawers demanded reimbursement from their respective drawee-banks, who in turn
demanded from BPI as collecting bank. BPI then debited Jai Alai’s current account for the amount of
the forged checks. Later, Jai Alai demanded BPI credit again to its current account the amount debited
but the latter refused.
Issue
Is BPI liable to credit back the amount of the checks to Jai Alai?
Held
No.
In this case, Jai Alai was grossly negligent in accepting the checks from Ramirez despite the
suspicious circumstances surrounding the checks. First, Jai Alai didn’t make any inquiry as to
Ramirez’ authority to exchange the checks belonging to the payee-corporation. Second, the checks in
question are crossed checks and bearer checks at the same time that should've made Jai Alai doubt
Ramirez’ authority to negotiate the checks.
Further, in indorsing the checks when it deposited them with BPI, Jai Alai as indorser guaranteed the
genuineness of all prior indorsements thereon. BPI who relied upon Jai Alai’s warranty shouldn’t be
held liable for the resulting loss. Also, BPI merely received the checks for collection and deposit, and
it can’t be expected to know or ascertain the genuineness of all prior indorsements on the said checks.
Through its indorsement, Jai Alai is deemed to have given the warranty prescribed in the Negotiable
Instruments Law that every single one of those checks is genuine.
Clark vs Sellner
Facts
W.H. Clarke, Maye, and Seliner jointly and severally signed a promissory note payable to R. N. Clark
or his order worth P12 thousand. The note matured but its amount wasn’t paid. Seliners alleges he
didn’t receive any part of the proceeds of the debt, the instrument wasn’t presented to them for
payment, and said instrument wasn’t negotiated thereby not making them liable.
Issue
Is Seliner liable for the note?
Held
Yes.
First, Seliner’s liability as signer isn’t dependent on his receiving the proceeds of the note. Seliner is
expressly one of the joint and several debtors on the note and thereby liable.
Second, presentment for payments isn’t necessary to charge the person primarily liable.
Third, Seliner lent his name not to the creditor, but to those who signed with him placing himself with
respect to the creditor in the same position and with the same liability as the other signers. The phrase
‘without receiving value therefor’ under the Negotiable Instruments Law actually means ‘without
receiving value therefor by virtue of the instrument.’ It doesn’t mean ‘without receiving payment for
lending his name.’
In this case, Seliner can be regarded as a joint surety rather than an accommodation party. Seliner
actually received money by virtue of the note. Further, even if Seliner was only an accommodation
party, the holder can still demand payment from him.
Republic vs PNB
Facts
The Republic filed suit for escheat of certain unclaimed bank deposits balances under Act 3936
against several banks, including First National City Bank of New York.
Under Act. 3936, the respondent Banks forwarded to the Republic a statement of all credits and
deposits they held in favor of persons known to be dead or who haven’t made further deposits or
withdrawals for a period of 10 years or more.
First National claims the statements it submitted inadvertently included certain amounts that are
neither credits nor deposits within the contemplation of Act 3936. These erroneously included items
are cashier/manager checks as well as demand drafts.
Issue
Do cashier/manager checks and demand drafts come within the meaning of either credits or deposits
as employed in Act 3936?
Held
Cashier/manager checks: Yes || Demand drafts: No.
A demand draft is a bill of exchange payable on demand.
Our NIL requires that negotiable instruments payable on demand be presented either for acceptance or
payment within a reasonable time after their issuance or after their last negotiation as applicable.
Failing to do so will discharge the drawer from liability.
Here, the disputed demand drafts haven’t been presented either for acceptance or payment. Therefore,
First National never became liable on the demand drafts, neither having accepted nor rejected them.
First National never became a debtor to the payee and such drafts can’t be considered as credits
subject to escheat within the law’s meaning.
Next, a cashier/manager checks is the issuing bank’s primary obligation and constitutes a written
promise to pay upon demand. It’s in effect a bill of exchange the issuing bank draws on itself and
accepts in advance. Clearly, a cashier/manager checks constitutes a credit in favor of the payee.
The International Corporate Bank vs Spouses Gueco

Facts
The Sps. Gueco obtained a loan from International Corporate Bank (Bank) to purchase a car. The Sps.
Gueco executed a promissory note payable in installments and a chattel mortgage executed over the
car as security.
The Sps. Gueco defaulted in paying the installments causing the Bank to file suit. The Bank and Sps.
Gueco negotiated on the amount due and both parties agreed to a lesser amount. However, the Sps.
Gueco still failed to pay the reduced amount causing the Bank to detain the car.
Later, the Sps. Gueco delivered to the Bank a manager’s check equivalent to the amount due but the
car wasn’t released because the Sps. Gueco refused to sign a Joint Motion to Dismiss. The Bank
insisted on the Sps. Gueco signing the Motion. But the Sps. Gueco didn’t want to and so they filed
suit.
The litigation took more than 6 months causing the manager’s check to become stale.
Issue
Should the Sps. Gueco issue a new manager’s check in the Bank’s favor because the old manager’s
check already became stale?
Held
Yes.
A stale check is one that hasn’t been presented for payment within a reasonable time after its issue.
It’s valueless and shouldn’t be paid.
A check must be presented within a reasonable time after its issue and the test of ‘reasonable time’ is
if the payee employed such diligence, as a reasonably prudent man would exercise.
Here, the disputed check is a manager’s check and therefore the Bank already accepted the same by
merely issuing it. Further, even assuming presentment was still needed, failing to present the check
within a reasonable time will discharge the drawer only to the extent of the loss the delay caused. In
this case, the Sps. Gueco failed to show any loss arising from delay in presentment. Also, the Bank
withheld encashing the check in good faith because of the controversy surrounding the signing of the
Joint Motion to Dismiss.
State Investment House vs IAC

Facts
Sikatuna Industries requested a loan from respondent Chua. The latter agreed subject to the condition
Sikatuna should wait until a certain date when he would have the money. Chua then issued post-dated
checks payable to Sikatuna. Later, Sikatuna assigned the checks to State Investment.
State Investment then deposited the checks but the same were dishonored. Despite repeated demands,
Chua failed to pay causing State Investment to file suit.
Issue
Held
No.
The effect of crossing a check relates to the mode of its presentment for payment. Under the NIL,
presentment for payment to be sufficient must be made by the holder, or by some person authorized to
receive payment on his behalf.
Here, the checks had been crossed generally and issued payable to Sikatuna, which means the drawer
intended the checks for deposit only by Sikatuna. However, it wasn’t Sikatuna who presented the
same for payment, therefore there was no proper presentment and liability didn’t attach to Chua. State
Investment wasn’t in good faith when it accepted the checks knowing the same were crossed.
Not being a HIDC, Chua can set up the defense of the loan’s non-consummation against State
Investment. However, State Investment can still go after Sikatuna provided the latter has no defense.
Velasco vs Tan Luian2
2
Case is poorly written
PNB vs Seeto
Facts
Seeto presented at PNB Surigao a check dated at Cebu payable to cash or bearer drawn by one Gan
Yk Kiao against PNB Cebu. Seeto made an unqualified indorsement of the check and PNB Surigao
accepted the check paying Seeto the value thereof. The check was mailed to PNB Cebu and upon
presentment the check was dishonored for insufficient funds. The check was returned to PNB Surigao
and PNB Surigao demanded a refund from Seeto. Seeto refused to refund PNB Surigao because at the
time the check was negotiated, the drawer still had sufficient funds and if it wasn’t for PNB Surigao’s
delay in forwarding the check, the same would’ve been paid.
PNB then filed suit.
Issue
Can PNB still recover from Seeto despite the delay in presenting the check?
Held
No.
Here, PNB admits there was unreasonable delay on its part in presenting the check for payment. The
check was mailed to Cebu 10 days after its issue and presented for payment to the drawee bank only
10 days after reaching Cebu. No excuse was given to explain the delay in delivery and presentment.
True, the NIL Sec. 84 provides the holder with recourse to all parties secondarily liable when the
instrument is dishonored by nonpayment. However, Sec. 84 must be read together with Sec. 186 that
requires a check to be presented for payment within a reasonable time after its issue. Therefore, a
holder has recourse against an indorser provided the check is presented within a reasonable time after
its issue.
Further, the effect of delay is different when it comes to a drawer and indorser. A drawer is
discharged only to the extent of the loss the delay caused. Meanwhile, an indorser is wholly
discharged irrespective of loss.
Consequently, Seeto is wholly discharged from liability due to PNB’s delay in presenting the check,
even if Seeto suffered no loss due to the delay.
Asia Banking Corp. vs Javier

Facts
Salvador B. Chaves drew a check on PNB in La Insular’s favor. La Insular indorsed the check and
Salvador deposited the same in his account with Asia Banking Corp. (Asia). Later, Salvador drew
another check on PNB in La Insular’s favor. Likewise, La Insular indorsed the check and Salvador
deposited the same in his account with Asia.
Later, Asia presented both checks to PNB for payment but the latter refused because Salvador had no
funds therein. Asia then filed suit against Javier as indorser of both checks.
Issue
Can Asia recover from Javier despite the fact no notice of dishonor was given to Javier?
Held
No.
The NIL Sec. 89 provides that indorsers aren’t liable unless they are notified that the negotiable
instrument was dishonored. Therefore, it was incumbent upon Asia to establish that notice was given
to Javier within the time and manner the law requires showing that the disputed checks had been
dishonored. Failing to do so discharges Javier from liability.
Here, there’s no evidence to show Asia gave any notice whatsoever to Javier that the checks have
been dishonored. Therefore, Javier’s liability as indorser never arose.
Firestone Tire vs CA
Facts
Fojas-Arca Enterprises Company (Fojas) is a client of Respondent Luzon Development Bank
(Luzon). Fojas maintains a special savings account with Luzon with the latter authorizing and
allowing withdrawals of funds therefrom through special withdrawal slips.
Later, Firestone and Fojas entered into a ‘Franchised Dealership Agreement’ giving Fojas the
privilege to purchase on credit and sell Firestone products. Pursuant to the agreement, Fojas
purchased on credit Firestone products and paid using special withdrawal slips. Firestone deposited
the slips with its current account in Citibank and the slips were honored and paid.
Relying on this successful encashment, Firestone allowed Fojas to make additional purchases on
credit for which withdrawal slips were issued as payment. However, these withdrawal slips were
dishonored and not paid because of ‘No Arrangement.’ Citibank notified Firestone of the dishonor 6
months after Fojas purchased the goods using the disputed slips. Citibank then debited Firestone’s
account causing the latter to demand damages from Luzon. Luzon refused to pay and so Firestone
filed suit.
Issue
Can Firestone recover damages from Luzon despite the latter’s late notice of non-payment of the
disputed withdrawal slips.
Held
No.
The special withdrawal slips aren’t negotiable instruments. Therefore, the rules governing the giving
of immediate notice of dishonor of a negotiable instrument don’t apply in this case. Luzon was under
no obligation to give immediate notice that it wouldn’t pay the withdrawal slips.
Further, Citibank itself should’ve known the withdrawal slips weren’t negotiable instruments. Here,
Citibank automatically credited Firestone’s account with the withdrawal slips believing the same were
good, and merely waited for Luzon to pay the same. However, the mere fact Luzon made good on the
initial batch of withdrawal slips doesn’t mean Citibank can presume future withdrawal slips would be
honored and paid immediately.
Consequently, Citibank and Firestone, as account holder, must bear the risk for erroneously accepting
the withdrawal slips.3
3
The NIL doesn’t apply because no negotiable instrument is involved. If a check was involved, then Luzon
would have the duty to immediately inform Citibank of the dishonor.
Gullas vs PNB
Facts
Gullas has a current account with PNB. The US Treasurer for the US Veterans Bureau issued a
warrant payable to the order of Francisco. Gullas and Lopez signed as the warrant’s indorsees. Later,
PNB encashed it but the Insular Treasurer dishonored the warrant.
At the time, Gullas had an outstanding balance with PNB for which he issued certain checks. PNB,
upon learning the warrant was dishonored, debited Gullas’ account to pay for the warrant. Afterwards,
PNB sent Gullas a letter of dishonor for the warrant but Gullas didn’t receive the same because he
was away from his residence.
As a consequence of Gullas’ account being debited, a check he issued for his insurance wasn’t paid
due to insufficient funds and a local periodical made big news out of it embarrassing Gullas.
Issue
Can PNB set-off a deposit to a depositor’s debt to the bank?
Held
Yes. But if the NIL is involved, must follow proper procedure.
Notice of dishonor is required to charge an indorser and the right of action against him doesn’t accrue
until notice is given. As a general rule, a bank has the right to set off deposits in its hands to pay any
indebtedness to it on the depositor’s part.
Clearly, PNB has the right to set-off as against Gullas’ deposit, but the question now is if the remedy
was enforced properly.
Here, the facts show PNB used the money in Gullas’ account to make good on the warrant without
first mailing a notice of dishonor. Important to remember is Gullas' status an indorser. Consequently,
PNB improperly enforced the remedy because a notice of dishonor to the indorser is required for the
latter to be liable on the instrument.
Far East Realty Investment vs CA

Facts
Respondents took out an accommodation loan from Far East Realty Investment (Far East) binding
them solidarily to pay the same after 1 month. Respondents then delivered to Far East a China Bank
check equivalent to the value of the loan and signed by Respondents. The Respondents assured Far
East the former would redeem the check by paying in cash after 1 month or the check itself can be
presented for payment and the same would be honored.
The loan matured and Far East presented the check for payment but the same was dishonored because
the Respondents’ account was already closed. Far East then demanded payment from Respondents but
the latter refused. Far East then filed suit.
Issue
Were the checks presented for payment and notice of dishonor given to Respondents within a
reasonable time?
Held
No.
The NIL Sec. 102 provides that notice must be given as soon as the instrument is dishonored and must
be given within the time the law fixed, unless delay is excused.
There’s no hard and fast rule on what can be considered as ‘reasonable time’ because it depends upon
the facts and circumstances of each case. Reference must be had to what a reasonably prudent man
would do, or simply put, if ordinary diligence was exercised.
Here, it is undisputed presentment and notice of dishonor weren’t made within a reasonable time. The
disputed check was issued on 13 Sep. 1960 but was presented to the drawee only on 5 March 1964
and dishonored on the latter date. After dishonor, a formal notice of dishonor was given to
Respondents only on 27 April 1968. Clearly, Far East delayed in presenting the check and giving
notice of dishonor without any justifiable excuse.4
4
The drawee bank could’ve simply dishonored the check on the ground the same was stale. Further, the
Respondents are secondarily liable being drawers and indorsers of the check and accordingly discharged from
all liability regardless if they suffered any loss.
Lina Lim Lao vs CA

Facts
Lina Lim Lao was a junior officer at Premiere Investment House in its Binondo Branch. Lin was
authorized to sign checks in Premiere’s behalf. Meanwhile, Father Palijo, the Society of the Divine
Word’s provincial treasurer, was authorized to invest the Society’s money in Premiere.
Palijo invested money in Premiere and was issued Traders Royal Bank checks as payment for interest.
All the checks were issued in Palijo’s favor and signed by Lina together with Teodulo Asprec, the
operations head. Later, Palijo presented the checks for encashment but the same were dishonored
because they were drawn against insufficient funds.
Palijo then demanded Premier to pay him but the latter was only able to pay part of the interest before
it was placed under receivership. Afterwards, Palijo filed a BP 22 case against Lina and Teodulo.
Issue
Was there sufficient notice of dishonor to Lina despite the fact that notice of honor was sent to
Premier’s main office and not to Premier’s Binondo branch where Lina works?
Held
No.
Here, there’s no prima facie evidence of knowledge of insufficiency of funds because no notice of
dishonor was sent to Lina and she didn’t actually receive one.
True, Palijo sent a notice of dishonor to the drawee bank, but no personal notice of dishonor was sent
to Lina. When the checks bounced, the drawee bank didn’t see the need to inform Premier’s Binondo
branch and Lina because Premier was already under receivership.
The evidence shows the notice of dishonor was sent to Premier’s main office with none being
forwarded to its Binondo branch where Lina held office. Lina didn’t even know the checks bounced.
Consequently, with no notice of dishonor, there’s no prima facie presumption Lina knew about the
insufficiency of funds. Further, the absence of such notice deprived Lina of her opportunity to
preclude criminal prosecution, namely to pay the value of the bounced check within 5 days from
notice of dishonor.5
5
This is a criminal case, therefore the ‘notice’ requirement was strictly construed in Lina’s favor. The court
required there be personal notice or at least some way for Lina to be personally informed the checks bounced.
Betty King vs People

Facts
Betty King discounted with complainant Ellen Fernandez several Equitable Bank checks worth P1.1
million in exchange for cash worth P1 million. Ellen presented the checks for payment but the same
were dishonored because of insufficient funds. Betty failed to pay the checks despite demand causing
Ellen to file a complaint for BP 22 case.
Issue
Was there adequate notice of dishonor to Betty?
Held
No.
Under BP 22, there’s no presumption of knowledge of lack of funds when the drawer pays the value
of the check within 5 days after receiving notice that the check was dishonored. Therefore, to create
the presumption it must be shown the drawer received a notice of dishonor and failed to pay the
amount within 5 days from receipt of dishonor.
Here, Ellen sent Betty a registered mail containing the notice of dishonor but the records show that
Betty didn’t receive it. In fact, the Postmaster certified that the mail was returned to sender. Further,
the prosecution failed to present other evidence showing Betty actually received a notice of dishonor.
In the absence of proof, it’s presumed Betty didn’t receive any notice of dishonor.
Consequently, there can be no presumption that Betty knew she had insufficient funds at the time she
issued the checks.6
6
Similar to the Lina case, this case involves a penal statute and must be strictly interpreted in Betty’s favor.
Great Asian Sales vs CA

Facts
Great Asian Sales (Asia) took out a loan and discounting line from Bancasia. Later, Tan Chong Lin
signed a Surety Agreement in Bancasia’s favor solidarily guaranteeing Asia’s debts to Bancasia. Lin
then signed another Surety Agreement called ‘Comprehensive and Continuing Surety Agreement’ in
Bancasia’s favor also solidarily guaranteeing Asia’s debts to Bancasia.
Asia then assigned to Bancasia 15 postdated checks that the former’s various customers issued. Asia
indorsed the checks by having Arsenio, its General manager, sign at the back. However, all 15 checks
were dishonored for various reasons such as payment stopped, insufficient funds, and account closed.
Bancasia then demanded payment from Tan but neither Asia nor Tan paid. Bancasia then filed suit.
Issue
Once Asia pays Bancasia, does Asia have any recourse against the drawers?
Held
Yes.
Here, Bancasia’s complaint against Asia is founded on the latter’s breach of contract under the Deed
of Assignment. The Deed of Assignment stipulates that in case the drawers fail to pay the checks on
maturity, Asia obligates itself to pay Bancasia the full face value of the checks. In effect, Asia
indorsed with recourse against itself.
As it happens, the checks were dishonored which made Asia unconditionally obligated to pay
Bancasia the value of the dishonored checks. Actually, Bancasia had 2 causes of actions against Asia.
The 1st is for breach of contract and 2nd is for Asia’s liability as indorser under the NIL. Bancasia
opted to sue Asia for breach of contract under the Deed of Assignment.
Once Asia pays, Asia is subrogated back as creditor of the receivables. Asia can then proceed against
the drawers who issued the checks. Even if Bancasia failed to give timely notice of dishonor, Asia
wouldn’t be prejudiced. Under the NIL, notice of dishonor isn’t required if the drawer has no right to
expect or require the bank to honor the check. In this case, all the checks were dishonored for various
reasons where the drawers had no right to expect or require the bank to honor the checks, or
countermanded payment.
Citytrust Banking Corp. vs CA

Facts
Respondent Samara purchased from CityTrust Bank a CityTrust Bank Draft Number for $40k, the
payee being Thai International Airways and drawee as Marine Midland. Later, Samara executed a
stop-payment order of the draft instructing CityTrust to inform Midland through telex. CityTrust
notified Midland and the latter acknowledged the notice. CityTrust then credited Samara’s account
with the amount but later debited the same after discovering that Midland already debited CityTrust’s
own account for the same account a day before Samara sent the stop-payment order.
However, the evidence shows Midland never even paid the draft.
Issue
No real Nego Issue
Held
xxx
A perusal of the decision appealed from shows that Marine Midland, though jointly and severally
liable with CityTrust, is the one ultimately held responsible for the damages incurred by Samara.
A bank draft is a "bill of exchange drawn by a bank upon its correspondent bank, . . . issued at the
solicitation of a stranger who purchases and pays therefor." It is also defined as an "order for payment
of money."
Here, CityTrust from which Samara purchased the bank draft, was the drawer of the draft through
which it ordered Marine Midland, the drawee bank, to pay the amount of US $40,000.00 in favor of
Thai International Airways, the payee. The drawee bank acting as a "payor" bank is solely liable for
acts not done in accordance with the instructions of the drawer bank or of the purchaser of the draft.
The drawee bank has the burden of proving that it did not violate. Meanwhile, the drawer, if sued by
the purchaser of the draft is liable for the act of debiting the customer's account despite an instruction
to stop payment. The drawer has the duty to prove that he complied with the order to inform the
drawee.
It is clear from the records that "the draft was not paid or cashed before the receipt of the stop
payment order by the appellant (Marine Midland)" but was certainly paid at some other date.
It must be noted that it was the Midland’s certifications and repeated reaffirmation of non-payment of
the bank draft that led CityTrust to re-credit Samara’s account. Also, Midland negligently failed to
implement the stop payment order upon receipt. It tarried in actually executing such order.
Furthermore, it was the Midland’s debiting of the account of CityTrust that also led the CityTrust to
again debit Samara’s dollar account despite prior acknowledgment of the non-payment of the draft.
No doubt, it was the Midland’s actuations that triggered the whole mess.7
7
CityTrust and Midland were held solidarily liable to Samara. But CityTrust can reimburse itself for any
amount paid to Samara from Midland.
Bank of America vs CA8

Facts
Bank of America received an Irrevocable Letter of Credit (LOC) purportedly issued by Bank of
Ayudhya for the account of General Chemicals of Thailand to cover the sale of goods. BOA was the
advising bank and Respondent Inter-Resin Industrial Corp. as beneficiary. BOA then sent to Inter-
Resin the LOC. Inter-Resin wanted the LOC confirmed but BOA didn’t bother reasoning there was no
need for confirmation because the LOC wouldn’t have been transmitted if it weren’t genuine.
Later, Inter-Resin wanted to partially avail of the LOC and sent to BOA the invoices and pertinent
documents. BOA then issued in Inter-Resin’s favor a cashier’s check as partial payment. BOA then
sought reimbursement from the Ayudhya. Meanwhile, Inter-Resin wanted to make a 2nd partial
availment and sent the pertinent documents. However, during this time Ayudhya informed BOA the
LOC was fraudulent. Sensing fraud, BOA discovered the sold goods were actually fake.
BOA then suit Inter-Resin to recover the amounts paid under the LOC.
Issue
What was BOA’s role in the transaction? Can BOA recover from Inter-Resin the amount paid?
Held
Advising bank & Negotiating bank || Yes
In a LOC, there are at least 3 parties namely:

1. Buyer
2. Seller
3. The bank issuing the LOC.
But the services of an advising bank may be utilized to convey to the seller the existence of the credit;
or lend credence to the LOC issued by a lesser known issuing bank; or, of a paying bank, which
undertakes to encash the drafts drawn by the exporter. Further, instead of going to the place of the
issuing bank to claim payment, the buyer may approach another bank, termed the negotiating bank, to
have the draft discounted.
Now was BOA a mere advising bank or confirming bank? As a mere advising bank, it wouldn’t be
liable, but as a confirming bank, it would incur liability.
Here, BOA has only been an advising bank, and this much is clear from the LOC itself, BOA’s letter
of advice, its request for payment of advising fee, and the admission of Inter-Resin that it has paid the
same. That BOA asked Inter-Resin to submit documents required by the LOC and eventually paid the
proceeds thereof, didn’t obviously make it a confirming bank. The LOC itself requires the draft to be
drawn under the account of General Chemicals (buyer) only means the same had to be presented to
Bank of Ayudhya (issuing bank) for payment.
May BOA then recover what it has paid under the LOC? Yes.
This kind of transaction is what is commonly referred to as a discounting arrangement. This time,
BOA acted independently as a negotiating bank, thus saving Inter-Resin from the hardship of
presenting the documents directly to Bank of Ayudhya to recover payment. As a negotiating bank,
BOA has a right to recourse against the issuer bank and until reimbursement is obtained, Inter-Resin,
as the drawer of the draft, continues to assume a contingent liability thereon.
The payment to Inter-Resin has given, as aforesaid, BOA the right of reimbursement from the issuing
bank, Bank of Ayudhya which, in turn, would then seek indemnification from the buyer (the General
8
See case for more detailed explanation on how a letter of credit works
Chemicals of Thailand). Since Bank of Ayudhya disowned the letter of credit, however, Bank of
America may now turn to Inter-Resin for restitution.
Excerpt on Letters of Credit

In commercial transactions involving letters of credit, the documents tendered must strictly conform
to the terms of the letter of credit. The tender of documents by the beneficiary (seller) must include all
documents required by the letter. A correspondent bank which departs from what has been stipulated
under the letter of credit, as when it accepts a faulty tender, acts on its own risks and it may not
thereafter be able to recover from the buyer or the issuing bank, as the case may be. The absence of
any document required in the documentary credit justifies the refusal by the correspondent bank to
negotiate, accept or pay the beneficiary, as it is not its obligation to look beyond the documents. It
merely has to rely on the completeness of the documents tendered by the beneficiary.
Next, an irrevocable credit is not synonymous with a confirmed credit. These types of letters have
different meanings and the legal relations arising from them vary. A credit may be an irrevocable
credit and at the same time a confirmed credit or vice-versa.
An irrevocable credit refers to the duration of the letter of credit. What is simply means is that the
issuing bank may not without the consent of the beneficiary (seller) and the applicant (buyer) revoke
its undertaking under the letter. On the other hand, a confirmed letter of credit pertains to the kind of
obligation assumed by the correspondent bank. In this case, the correspondent bank gives an absolute
assurance to the beneficiary that it will undertake the issuing bank's obligation as its own according to
the terms and conditions of the credit.
The correspondent bank may be called a notifying bank, a negotiating bank, or a confirming bank.
In case of a notifying bank, the correspondent bank assumes no liability except to notify and/or
transmit to the beneficiary the existence of the letter of credit.
A negotiating bank, on the other hand, is a correspondent bank that buys or discounts a draft under the
letter of credit. Its liability is dependent upon the stage of the negotiation. If before negotiation, it has
no liability with respect to the seller but after negotiation, a contractual relationship will then prevail
between the negotiating bank and the seller.
In the case of a confirming bank, the correspondent bank assumes a direct obligation to the seller and
its liability is a primary one as if the correspondent bank itself had issued the letter of credit.
Feati Bank & Trust Company vs CA

Facts
Bernardo Villaluz agreed to sell to Axel Christiansen logs and the latter issued a purchase order. The
Security Pacific National Bank of Los Angeles California then issued an irrevocable LOC available at
sight in Villaluz’s favor amounting to the total purchase price.
The LOC was sent to Feati Bank & Trust Company (now CityTrust) with instructions to forward the
same to the beneficiary. The LOC stipulated the required documents to be presented for payment,
including a certification from Axel.
The logs were then loaded on a ship and sent to Korea. But Axel refused to issue the certification as
required in the LOC despite several demands from Villaluz. With no certification, CityTrust refused
to pay on the LOC. Meanwhile, the logs already arrived in Korea and received by the consignee,
Hanmi Trade Development Company (buyer).
Because of Axel’s refusal to issue the certification, Villaluz then filed suit.
Issue
Can CityTrust be held liable under the LOC despite Villaluz’s non-compliance with the terms
thereof?
Held
No.
Here, CityTrust was merely a notifying bank because its only role was to forward the letter of credit
to the beneficiary. Its responsibility was solely to notify and/or transmit the documentary of credit to
the private respondent and its obligation ends there.
The notifying bank may suggest to the seller its willingness to negotiate, but this fact alone does not
imply that the notifying bank promises to accept the draft drawn under the documentary credit.
Keng Hua Paper Products vs CA

Facts
Respondent Sea-Land Service Inc. is a foreign corporation and received at its Hong Kong terminal a
sealed container containing waste paper for shipment to Keng Hua Paper Products in Manila. Later,
the shipment was discharged at a Manila Port and notices were sent to Keng Hua. But Keng Hua
refused to possess the goods resulting in accrued demurrage charges. Sea-Land demanded payment
from Keng Hua but the latter refused causing Sea-Land to file suit.
Keng Hua set up as defense the fact that it purchased 50 tons of waste paper from Ho Kee Waste
Paper, evidenced by a LOC issued by Equitable Bank. Under the LOC, the remaining balance was
only 10 tons but Sea-Lands shipment consisted of 20 tons.
Issue
Is Keng Hua obliged to pay despite the over-shipment?
Held
Yes.
In a letter of credit, there are three distinct and independent contracts:

1. The contract of sale between the buyer and the seller,
2. The contract of the buyer with the issuing bank, and
3. The letter of credit proper in which the bank promises to pay the seller pursuant to the terms
and conditions stated therein.
A transaction involving the purchase of goods may also require, apart from a letter of credit, a
contract of transportation specially when the seller and the buyer are not in the same locale or country,
and the goods purchased have to be transported to the latter.
Hence, the contract of carriage, as stipulated in the bill of lading in the present case, must be treated
independently of the contract of sale between the seller and the buyer, and the contract for the
issuance of a letter of credit between the buyer and the issuing bank.
Any discrepancy between the amount of the goods described in the commercial invoice in the contract
of sale and the amount allowed in the letter of credit will not affect the validity and enforceability of
the contract of carriage as embodied in the bill of lading. As the bank can’t be expected to look
beyond the documents presented to it by the seller pursuant to the letter of credit, neither can the
carrier be expected to go beyond the representations of the shipper in the bill of lading and to verify
their accuracy vis-à-vis the commercial invoice and the letter of credit.
Thus, the discrepancy between the amount of goods indicated in the invoice and the amount in
the bill of lading cannot negate Keng Hua’s obligation to Sea-Land arising from the contract of
transportation. Furthermore, Sea-Land, as carrier, had no knowledge of the contents of the container.
The contract of carriage was under the arrangement known as “Shipper’s Load And Count,” and the
shipper was solely responsible for the loading of the container while the carrier was oblivious to the
contents of the shipment.
Keng Hua’s remedy in case of over-shipment lies against the seller/shipper, not against the carrier.
Insular’s Bank of Asia & America vs IAC

Facts
The Sps. Mendoza took out 2 loans from Respondent Philam Life. To secure payment, Philam Life
required that amortizations be guaranteed by an irrevocable standby LOC of a commercial bank.
Thus, the Sps. Mendoza contracted with Insular Bank for the latter to issue 2 irrevocable standby
LOC in Philam Life’s favor. The LOCs’ were in turn secured by a real estate mortgage and a
promissory note in Insular Bank’s favor.
The Sps. Mendoza defaulted on their amortizations causing Philam Life to avail of the LOC for the
unpaid amortizations. However, the Sps. Mendoza continued defaulting on their amortizations
causing Philam Life to declare the entire obligation due and demandable and demanded the amount
from Insular Bank.
Insular Bank refused to pay the entire amount of the loan contending that prior payments made by the
Sps. Mendoza to Philam Life should be deducted from the amount. Philam Life disagreed and hence
this case.
Issue
In computing Insular Bank’s liability to Philam Life under the LOC, should the Mendoza’s prior
payments to Philam Life be deducted from the amount demandable under the LOC?
Held
No.
Here, the Letters of Credit secure the payment of any obligation of the Sps. Mendoza to Philam Life
including all interests, surcharges and expenses thereon but not to exceed P600,000.00. But while they
are a security arrangement, they are not converted thereby into contracts of guaranty. The standby
L/Cs are, "in effect an absolute undertaking to pay the money advanced or the amount for which
credit is given on the faith of the instrument." They are primary obligations and not accessory
contracts. Being separate and independent agreements, the payments made by the Sps. Mendoza can’t
be added in computing Insular Bank’s liability under its own standby letters of credit. Payments made
by the Sps. Mendoza directly to Philam Life are in compliance with their own prestation under the
loan agreements. And although these payments could result in the reduction of the actual amount that
could ultimately be collected from Insular Bank, the latter's separate undertaking under its L/Cs
remains.
Further, there still remains a balance of P220k on the loan and pursuant to its absolute undertaking
under the L/Cs, therefore, Insular Bank can’t escape the obligation to pay Philam Life for this
unexpended balance.
The amount of P222,000.00, therefore, considered as "any obligation of the accountee" under the
L/Cs will still have to be paid by Insular Bank under the explicit terms thereof, which Insular Bank
had itself supplied. Letters of credit are strictly construed to the end that the rights of those directly
parties to them may be preserved and their interest safeguarded.
Transfield Phil vs Luzon Hydro Corp.

Facts
Transfield and Luzon Hydro Corp. entered into a Turnkey Contract with the former, as Turnkey
Contractor, undertaking to construct a hydro-electric power station. To secure Transfield’s timely
performance, Transfield opened in Luzon Hydro’s favor 2 standby Letters of Credit from Australia
and New Zealand Bank and Security Bank.
While construction was ongoing, Transfield sought extensions due to several factors such as force
majeure. Luzon Hydro denied the request causing Transfield to file suit before the Arbitration
Commission.
Meanwhile, Transfield also notified the Banks issuing the Letters of Credit to not pay Luzon Hydro
pending resolution of the issue in the Arbitration Commission. Both Banks however replied saying
they would still pay on the securities if Luzon Hydro calls on them. Expectedly, Luzon Hydro
declared Transfield in default and called on the Securities. Transfield then filed suit to stop payment
on the Securities.
Issue
Is the issue before the Arbitration Commission a valid reason to stop payment on the standby letter of
credit?
Held
No.
There are three significant differences between commercial and standby credits. First, commercial
credits become payable upon the presentation by the seller-beneficiary of documents that show he has
taken affirmative steps to comply with the sales agreement. In the standby type, the credit is payable
upon certification of a party's nonperformance of the agreement.
Next, the so-called "independence principle" assures the seller or the beneficiary of prompt payment
independent of any breach of the main contract and precludes the issuing bank from determining
whether the main contract is actually accomplished or not.
Can the beneficiary invoke the independence principle? Yes, the independence doctrine works to the
benefit of both the issuing bank and the beneficiary.
Next, the settlement of a dispute between the parties is not a pre-requisite for the release of funds
under a letter of credit. In other words, the argument is incompatible with the very nature of the letter
of credit. If a letter of credit is drawable only after settlement of the dispute on the contract entered
into by the applicant and the beneficiary, there would be no practical and beneficial use for letters of
credit in commercial transactions.
Next, fraud is an exception to the independence principle. Here, Transfield failed to show that it has a
clear and unmistakable right to restrain LHC's call on the Securities that would justify the issuance of
preliminary injunction. By Transfield’s own admission, the right of LHC to call on the Securities was
contractually rooted and subject to the express stipulations in the Turnkey Contract.
The pendency of the arbitration proceedings would not per se make LHC's draws on the Securities
wrongful or fraudulent for there was nothing in the Contract which would indicate that the parties
intended that all disputes regarding delay should first be settled through arbitration before LHC would
be allowed to call upon the Securities. It is therefore premature and absurd to conclude that the draws
on the Securities were outright fraudulent given the fact that the ICC and CIAC have not ruled with
finality on the existence of default.
Sps. Vintola vs IBAA

Facs
The Sps. Vintola obtained a commercial letter of credit with Insular Bank. The LOC authorized
Insular Bank to negotiate for their account, drawn in favor of one of their suppliers, Efren Alani, on
Dax Kin International, a sum certain in money representing the shipment of goods. The Sps. Vintola
promised to pay Insular Bank at maturity the amount. To secure the release of the goods, the Sps.
Vintola executed in Insular Bank’s favor a trust receipt agreement.
Later, Insular Bank demanded from the Sps. Vintola payment it made for the goods but the latter
failed to do so. The Sps. Vintola offered to return the goods to Insular Bank but the latter refused.
Insular Bank then filed suit.
Issue
Are the Sps. Vintola obliged to pay despite the fact the goods held in trust weren’t sold and were
offered to be returned to Insular Bank?
Held
Yes.
Under a letter of credit - trust receipt arrangement, a bank extends a loan covered by the Letter of
Credit, with the trust receipt as a security for the loan. In other words, the transaction involves a loan
feature represented by the letter of credit, and a security feature that is in the covering trust receipt.
A trust receipt is considered as a security transaction intended to aid in financing importers and retail
dealers who do not have sufficient funds or resources to finance the importation or purchase of
merchandise, and who may not be able to acquire credit except through utilization, as collateral, of the
merchandise imported or purchased.
Insular Bank didn’t become the real owner of the goods. It merely held the goods as security for the
advances it made to the Sps. Vintola. The Sps. Vintola remain the true owners and bear the risk. The
trust receipt arrangement did not convert the IBAA into an investor; the latter remained a lender and
creditor.
Since Insular Bank isn’t the actual owner of the goods, the Sps. Vintola can’t justifiably claim that
because they have surrendered the goods to IBAA and subsequently deposited them in the custody of
the court, they are absolutely relieved of their obligation to pay their loan because of their inability to
dispose of the goods. The fact that they were unable to sell the seashells in question does not affect
Insular Bank’s right to recover the advances it had made under the Letter of Credit.
Prudential Bank vs IAC

Facts
Respondent Philippine Rayon Mills, Inc. entered into a contract with Nissho Co. of Japan to import
textile machineries. To effect payment for said machineries, Rayon Mills secured a commercial letter
of credit with Prudential Bank in Nissho’s favor. Against this letter of credit, drafts were drawn and
issued by Nissho that Prudential Bank all paid. Rayon Mills accepted some of these drafts but refused
others.
When the machines arrived, Prudential Bank indorsed the shipping documents to Rayon Mills and to
enable Rayon Mills to receive the machines, a trust receipt was executed with Prudential Bank.
Later, Rayon Mills ceased operations and sold the machines but its obligation arising from the letter
of credit and trust receipt remained unpaid. Prudential Bank made several demands but such demands
went unheeded causing Prudential Bank to file suit.
Issue
Is Rayon Mills likewise liable for the drafts it didn’t accept that Nissho drew against Prudential Bank
for which Prudential Bank paid?
Held
Yes.
Here, Rayon Mills is liable for both the drafts that it accepted and didn’t accept. In applying for the
Commercial Letter of Credit, Prudential Bank was under obligation to pay the drafts that Nissho
periodically drew against said letter of credit, pursuant to Prudential Bank’s contract with Rayon
Mills. In turn, Rayon Mills was obligated to pay Prudential bank the amounts of the drafts drawn by
Nissho against Prudential Bank pursuant to the terms and conditions stipulated in the Letter of Credit.
Here, the drawee was necessarily Prudential Bank. It was to Rayon Mills that the drafts were
presented for payment. In fact, there was no need for acceptance as the issued drafts are sight drafts.
The Trust Receipt itself doesn’t contemplate prior acceptance by Philippine Rayon, but by Prudential
Bank. Rayon Mills immediately became liable for the drafts upon Prudential Bank’s payment thereof.
Such is the essence of the letter of credit Prudential Bank issued. A different conclusion would violate
the principle upon which commercial letters of credit are founded because in such a case, both the
beneficiary and the issuer, Nissho Company Ltd. and Prudential Bank, respectively, would be placed
at the mercy of Rayon Mills even if the latter had already received the imported machinery and
Prudential Bank had fully paid for it.
Also, Rayon Mills is liable for violating the Trust Receipt when it sold the machines, which it was
holding in a fiduciary capacity as trustee. Rayon Mills should turn over the proceeds of the sale of
such machines to Prudential Bank, being the trustor.
Gonzales vs HSBC
Facts
Gonzales is the Chairman and CEO of Mondragon Leisure and Resorts Corporations. Gonzales
accepted, on Mondragon’s behalf, receipts of various golfing equipments and Walt Disney Items and
signed the corresponding 2 Trust Receipt Agreements in favor of HSBC.
The Trust Receipts matured and HSBC demanded Mondragon to either turn over the proceeds of the
sale of the goods or return the goods themselves. Mondragon failed to do both despite repeated
demands causing HSBC to file a criminal case for estafa.
The prosecutor found probable cause and Gonzales now appeals such finding.
Issue
Can Gonzales be held liable for violating P.D. 115 despite the lack of intent to commit the crime and
the mere fact that he was a high-ranking officer in Mondragon?
Held
Yes.
Here, Gonzalez is charged violating P.D. 115. In general, a trust receipt transaction imposes upon the
entrustee the obligation to deliver to the entruster the price of the sale, or if the merchandise is not
sold, to return the same to the entruster. There are thus two obligations in a trust receipt transaction:
the first, refers to money received under the obligation involving the duty to turn it over to the owner
of the merchandise sold, while the second refers to merchandise received under the obligation to
return" it to the owner. A violation of any of these undertakings constitutes estafa defined under the
RPC Art. 315(1)(b).
The evidence supports the charge under P.D. 115 namely:

1. The Trust Receipts bore Gonzales’ signature
2. Gonzales himself admitted entering into the Trust Receipt transaction with HSBC on
Mondragon’s behalf.
Lack of intent to defraud or not personally misusing/misappropriating the goods subject of the trust
receipts is of no moment. The offense punished under P.D. 115 is malum prohibitum. Mere failure to
deliver the proceeds of the sale or the goods if not sold constitutes a criminal offense that causes
prejudice not only to another, but more to the public interest.
Next, even if Gonzalez signed the Trust Receipts merely as a corporate officer of MLRC and had no
physical possession of the goods subject of such receipts, he can’t avoid responsibility for violating
P.D. 115 for two reasons: First, P.D. 115 explicitly imposes the penalty provided therein upon
"directors, officers, employees or other officials or persons therein responsible for the offense,
without prejudice to the civil liabilities arising from the criminal offense," of a corporation,
partnership, association or other juridical entities found to have violated the obligation imposed under
the law. And second, a corporation or other juridical entity can't be arrested and imprisoned; hence,
cannot be penalized for a crime punishable by imprisonment.46

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Digests Nego Jason Arteche

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1 Negotiable Instruments Law for Atty.

Caldona by Jason Arteche

Roman Catholic Bishop of Malolos Inc. vs IAC

BPI Express Card Corporation vs. CA

Baldomero Inciong vs. CA

Traders Royal Bank vs. CA

A negotiable instrument’s negotiation must be distinguished from assignment/transfer. Only a

Abubakar vs Auditor General

PNB vs Manila Oil

Cognovit actionem - acknowledging indebtedness after the action is filed

Consolidated Plywood vs. IFC Leasing

Philippine Education Co vs. Soriano

Equitable Banking vs. IAC

Pay to the EQUITABLE BANKING CORPORATION Order of A/C OF CASVILLE ENTERPRISES,

PNB vs. Rodriguez and Rodriguez

Ang Tek Lian vs. CA

Further, such check isn’t automatically dishonored.

An acknowledgement may become a promise by adding words by which a promise of payment is

Dela Victoria vs Burgos

Development Bank of Rizal vs Sima Wei

Philippine National Bank vs Concepcion Mining Company

Republic Planters Bank vs CA

Insular Drug vs PNB

Philippine Bank of Commerce vs Aruego

Astro Electronics Corp. vs Phi. Export

San Carlos Milling vs BPI

Republic vs Equitable Bank

Both banks rejected the Treasurer's request.

PNB vs National City Bank of NY

BPI vs Casa Montessori International

Citibank N.A. vs Cabamongan

Great Eastern Life vs HSBC

Banco de Oro Savings vs Equitable

Jai Alai vs BPI

Republic Bank vs Ebrada

Manila Lighter Trans vs CA

A crossed check has the following effects:

Westmont Bank vs. Ong

HSBC vs. People’s Bank

Republic Bank vs. CA

The International Corporate Bank vs. CA and PNB

An alteration is material if it alters the instrument’s effect. It’s an unauthorized change in an

An alteration is material if it alters the instrument’s effect. It’s an unauthorized change in an

Montinola vs. PNB

Metropolitan Bank & Trust Co. vs. Cabilzo

An alteration is material if it alters the instrument’s effect. It’s an unauthorized change in an

Bank of America vs. Phil. Racing Club.

Pineda vs. Dela Rama

Town Savings and Loan Bank vs CA

Consequently, the Hipolitos accommodated Reyes and not the Bank.

PNB vs Maza & Mecenas

Rules before co-accommodator can reimburse himself from co-accommodator:

Agro Conglomerate & Soriano vs CA

Ang vs Associated Bank

Bautista vs Auto Plus Traders Inc. and CA

An accommodation party is one who:

Metropol vs Sambok Motors Co.

The indorsement read:

‘Pay to the order of Metropol...with recourse...’

Metrobank vs BA Finance Corp.

Payment of an instrument over a missing indorsement is equivalent to paying a forged indorsement or

Now the question: Is Salazar a transferee the NIL Sec. 49 contemplates?

Chan Wan vs Tan Kim

The lower court declined to order payment because: