NEGOTIABLE INSTRUMENTS against Sima Wei. The issue in this case is whether not Dev.
Bank has
1. Ting Ting Pua v Sps Benito Lo Bun Tiong and Caroline Siok
Ching Teng (2013)
Topic: Negotiable Instrument v Non-negotiable document
Facts:
 The controversy arose from a complaint for a sum of money
filed by petitioner PUA against respondent spouses. During
trial, petitioner PUA clarified that the 8.5M check was given by
respondents to pay the loans they obtained from her under a
compounded interest agreement on various dates in 1988. In
all, respondents issued 17 checks for a total amount of
1,975,000. These checks were dishonored upon presentment
to the drawee bank.
 Petitioner demanded payment. Respondent, however,
pleaded for more time because of their financial difficulties.
Petitioner obliged and simply reminded the spouses of their
obligation from time to time.
 Sometime in 1996, when their financial situation turned better,
respondents called and asked petitioner Pua for the
computation of their loan obligations. The amount of the loan
payable to petitioner rose to 13M.
 On receiving the computation, the respondents asked
petitioner to reduce their indebtedness to 8.5M to which Pua
agreed.
 Respondents delivered to petitioner Asia Trust Check
reflecting the reduced amount of 8.5M. In turn, respondents
demanded the return of the previously dishonored checks.
Petitioner refused and advised respondents that she will do
so only after the encashment.
 The 8.5M check was likewise dishonored. Hence, petitioner
decided to file a complaint to collect the money owed her by
respondents.
 Respondents denied obtaining a loan from petitioner.
 RTC rendered a decision in favor of petitioner. RTC held that
the possession by petitioner of the checks signed by Caroline,
under the NIL, raises the presumption that they were issued
and delivered for a valuable consideration.
Issues: Are respondents liable? Are the said checks covered by the
NIL?
Held:
Yes. This Court has expressly recognized that a check constitutes an
evidence of indebtedness and is a veritable proof of an obligation.
Hence, it can be used in lieu of and for the same purpose as a
promissory note. A check functions more than a PN since it not only
contains an undertaking to pay an amount of money but is an order
addressed to bank and partakes of a representation that the drawer has
funds on deposit against which the check is drawn, sufficient to ensure
payment upon its presentation to the bank.
The 17 original checks, completed and delivered to petitioner, are
sufficient by themselves to prove the existence of the loan obligation of
the respondents to petitioner. Section 16 of the NIL provides that when
an instrument is no longer in the possession of the person who signed it
and it is complete in its terms, a valid and intentional delivery by him is
presumed until the contrary is proved.
MISSING CASE #2
3. - Development Bank of Rizal v. Sima Wei (March 9, 1993)
Topic: When Blanks May Be Filled Referring to Incomplete Instrument
but Delivered
Doctrine: The payee of a negotiable instrument acquires no interest
with respect thereto until its delivery to him
Emergency Recit: In consideration of a loan extended by Dev. Bank of
Rizal, Sima Wei executed and delivered a promissory note engaging to
pay the Bank. Sima Wei made partial payments on the note. Sima Wei
issued 2 cross checks payable to Dev. Bank of Rizal drawn against
China Bank. These two checks were not delivered to Dev. Bank of Rizal
nor its authorized representatives. The checks came to the possession
of Lee Kian Juat who deposied the checks without the knowledge of
Dev. Bank of Rizal. Dev. Bank filed a complaint for sum of money
an interest in the checks by Sima Wei which was not delivered to it. The
Supreme Court held that no they do not have an interest on the check.
The payee of a negotiable instrument acquires no interest with respect
thereto until its delivery to him. In this case, the checks were never
delivered to Dev. Bank of Rizal nor to any of its authorized
representatives.
Facts:
 In consideration for a loan extended by Dev. Bank of Rizal to
Sima Wei, Sima Wei executed and delivered to the Dev. Bank
of Rizal a promissory note, engaging to pay Dev. Bank of Rizal
the amount of P 1.82M on or before June 24, 1983.
 Sima Wei made partial payments on the note, leaving a
balance of P 1, 032,450.02.
 Sima Qei issued two crossed checks payable to Dev. Bank of
Rizal drawn against China Banking Corp. The said checks
were allegedly issued in full settlement of the drawer’s
account evidenced by the promissory note.
 These two checks were not delivered to Dev. Bank of Rizal or
to any of its authorized representatives.
 For reasons not shown, the checks came into the possession
of Lee Kian Juat, who deposited the checks without the Dev.
Bank of Rizal’s indorsement to the account of Plastic
Corporation, at the Balintawak Branch of the Producer’s Bank
 Cheng Uy, Branch Manager of the Producer’s Bank relying on
the assurance of Samson Tung, Pres. of Plastic Corporation,
that the transaction was legal and regular, instructed the
cashier of Producer’s Bank to accept the checks for deposit
and to credit them to the account of said Plastic Corporation,
in spite of the fact that the checks were crossed payable to
Dev. Bank of Rizal and bore no indorsement of the latter.
 Hence, Dev. Bank filed a complaint for sum of money against
Sima Wei
 The defendants filed their separate Motion to Dismiss alleging
that the complaint states no cause of action.
 The trial court granted the Motion to Dismiss.
 The CA affirmed the decision. Hence, appeal before the SC.
Issue:
Held:
NO. The normal parties to a check are the drawer, the payee and the
drawee bank. Courts have long recognized the business custom of using
printed checks where blanks are provided for the date of issuance, the
name of the payee, the amount payable and the drawer’s signature. All
the drawer has to do when he wishes to issue a check is to properly fill
up the blanks and sign it. However, the mere fact that he has done these
does not give rise to any liability on his part, until and unless the check
is delivered to the payee or his representative.
Thus, the payee of a negotiable instrument acquires no interest with
respect thereto until its delivery to him. Delivery of an instrument means
transfer of possession, actual or constructive, from one person to
another. Without the initial delivery of the instrument from the drawer to
the payee, there can be no liability on the instrument. Moreover, such
delivery must be intended to give effect to the instrument.
In this case, the 2 China Bank checks were not delivered to the Dev.
Bank of Rizal. Without the delivery of said checks to Dev. Bank of Rizal,
the Bank did not acquire any right or interest therein and cannot
therefore assert any cause of action, founded on said checks, whether
against Sima Wei or Producers Bank.
04 – San Carlos Milling vs. BPI and Chinabank (1933)
TOPIC: Forged signature no effect, Exceptions
DOCTRINE: If a bank pays a forged check, it must be considered as
making the payment out of its own funds, and cannot ordinarily charge
the amount so paid to the account of the depositor whose name was
forged.
EMERGENCY RECIT: Checks with forged signatures of Baldwin, an
officer of San Carlos Milling, were presented to BPI for encashment by
Dolores, another employee of San Carlos. Relying upon the
genuineness of the forged signatures, BPI paid the amount of P200,000
to Dolores. San Carlos filed a suit against BPI. The issue is whether BPI
should be held liable for the payment on the forged checks. SC said yes.
If a bank pays a forged check, it is considered as making the payment
out of its own funds, and cannot charge the amount paid to the account
of the depositor whose name was forged. Here, since the signatures are
forged, they are not a charge against San Carlos; and BPI shall be held
liable for the loss caused by honoring and cashing the forged checks.
FACTS
1. San Carlos Milling, organized under the laws of Hawaii and
authorized to engage in business in the Philippines, maintains
deposits in BPI and Chinabank.
2. Cooper, its agent, generally managed its business in Manila.
Wilson was an employee given a general power of attorney.
3. Before leaving for vacation, Cooper gave general power of
attorney to Baldwin and revoked the power of Wilson to deal
with BPI.
4. Wilson and Dolores, a messenger-clerk of San Carlos in
Manila, conspired and requested San Carlos’ office in Hawaii
for a telegraphic transfer of $100,000 to Chinabank.
5. Upon Chinabank’s receipt of the money transfer, it sent an
exchange contract to San Carlos’ office in Manila offering
P201,000, the rate of exchange. The contract was returned to
Chinabank, and contained a request for a certified check with
the forged name of Baldwin. Thus, a manager’s check on
Chinabank for P201,000 payable to San Carlos was received
by Dolores.
6. On the same date, the check, with the spurious endorsement
of Baldwin, was deposited with BPI. The amount of the check
was paid by Chinabank.
7. The next day, Dolores went to BPI with different checks
purporting to be signed by Baldwin and was able to get
P200,000. Dolores gave it to Wilson and received his share of
P10,000.
8. Upon discovering the crime, San Carlos filed a suit against
BPI.
9. BPI contends that it was not negligent, and that the loss was
due to the dishonesty and negligence of San Carlos’
employees.
10. Trial Court held that BPI acted in good faith and was not
negligent; and that the cause of the loss was the criminal
actions of Wilson and Dolores, employees of San Carlos.
Thus, San Carlos cannot recover.
11. CA decision not discussed; but it was implied that CA
absolved BPI from liability.
ISSUE: Whether BPI should be held liable for the loss caused by the
encashment of the forged check.
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 cannot ordinarily charge the amount so paid to the
account of the depositor whose name was forged.
Here, BPI paid out its money because it relied upon the genuineness of
the purported signatures of Baldwin.
The signatures to the checks being forged, under section 23 of the
Negotiable Instruments Law they are not a charge against San Carlos
Milling nor are the checks of any value to the BPI. It must therefore be
held that the proximate cause of loss was due to the negligence of the
BPI in honoring and cashing the forged checks.
5 – Jai-Alai Corp v. BPI (1975)
Topic: Forgery
Doctrine: It is the obligation of the collecting bank to reimburse the
drawee-bank the value of the checks subsequently found to contain the
forged indorsement of the payee. The reason is that the bank with which
the check was deposited has no right to pay the sum stated therein to
the forger "or anyone else upon a forged signature." "It was its duty to
know that [the payee's] endorsement was genuine before cashing the
check." The petitioner must in turn shoulder the loss of the amounts
which the respondent; as its collecting agent, had to reimburse to the
drawee-banks.
Emergency Recit: Ten checks were deposited to BPI by Jai-Alai which
they acquired from Ramirez, a sales agent of Inter-Island Gas Corp.
Later, Inter-Island informed the parties that the indorsements in those
checks were forged by Ramirez. The drawee bank then returned the
checks to BPI. BPI paid their value and the drawee-bank paid to Inter-
Island. BPI then debited the value of the forged checks to the current
account of Jai-Alai. Hence, Jai-Alai filed a complaint. The SC ruled that
BPI acted within the legal bounds when it debited the petitioner’s
account. [See doctrine]
Facts:
 From April 2, 1959 to May 18, 1959, ten checks with a total
face value of P8,030.58 were deposited by Jai- Alai in its
current account with BPI, which the former acquired from one
Antonio Ramirez who was a sales agent of Inter-Island Gas
Corporation and a regular bettor at jai-alai games.
 After Ramirez had resigned from the Inter-Island Gas and
after the checks had been submitted to inter-bank clearing,
the Inter-Island Gas discovered that all the indorsements
made on the checks purportedly by its cashiers as well as the
rubber stamp impression thereon reading "Inter-Island Gas
Service, Inc.," were forgeries.
 Inter-Island Gas notified the petitioner, the respondent, the
drawers and the drawee-banks of the said checks about the
forgeries, and filed a criminal complaint against Ramirez with
the Office of the City Fiscal of Manila.
 The drawers demanded reimbursement from the drawee-
banks, which in turn demanded from the respondent, as
collecting bank, the return of the amounts they had paid on
account thereof. When the drawee-banks returned the checks
to the respondent BPI, the latter paid their value which the
former in turn paid to the Inter-Island Gas.
 BPI debited petitioner’s current account and forwarded to the
latter the checks containing the forged indorsements, which
the petitioner refused to accept. So when petitioner drew
against its current account with respondent a check for
P135,000 payable to the order of Mariano Olondriz, the same
was dishonored for the insufficiency of funds.
 Hence, Jai-Alai filed a complaint against BPI before the CFI
Manila – dismissed.
 CA – affirmed the dismissal
Issue: W/N BPI had the right to debit from petitioner’s current account
the value of the checks with the forged endorsements? -YES.
Held:
 The respondent acted within legal bounds when it debited the
petitioner's account. When the petitioner deposited the checks
with the respondent, the nature of the relationship created at
that stage was one of agency, that is, the bank was to collect
from the drawees of the checks the corresponding proceeds.
It is true that the respondent had already collected the
proceeds of the checks when it debited the petitioner's
account, so that following the rule in Gullas vs. Philippine
National Bank 2 it might be argued that the relationship
between the parties had become that of creditor and debtor
as to preclude the respondent from using the petitioner's
funds to make payments not authorized by the latter. It is our
view nonetheless that no creditor-debtor relationship was
created between the parties.
 Under Sec 23 of the NIL, a forged signature in a negotiable
instrument is wholly inoperative and no right to discharge it or
enforce its payment can be acquired through or under the
forged signature except against a party who cannot invoke the
forgery, it stands to reason, upon the facts of record, that the
respondent, as a collecting bank which indorsed the checks
to the drawee-banks for clearing, should be liable to the latter
for reimbursement, for, as found by the court a quo and by the
appellate court, the indorsements on the checks had been
forged prior to their delivery to the petitioner. In legal
contemplation, therefore, the payments made by the drawee-
banks to the respondent on account of the said checks were
ineffective; and, such being the case, the relationship of
creditor and debtor between the petitioner and the respondent
had not been validly effected, the checks not having been
properly and legitimately converted into cash.
 [See doctrine]
6. Republic Bank v Ebrada 65 SCRA 680;
Topic: FORGERY
Doctrine: Where the signature on a negotiable instrument is forged, the
negotiation of the check is without force of effect. But the existence of
the forged signature therein will not render void all the other negotiations
of the check with respect to the other parties whose signatures are
genuine. It is only the negotiation predicated on the forged indorsement
that should be declared inoperative.
The existence of one forged signature in the check will not render void
all the other negotiations of the check with respect to the other parties
whose signature are genuine. As last indorser of the check, petitioner
warranted that she has good title to it even if in fact she did not because
the payee of the check was already dead 11 years before the check was
issued.
Facts: Respondent Ebrada encashed a back pay check dated January
15, 1963 at Republic Bank. The Bureau of Treasury, which issued the
check advised the bank that the alleged indorsement of the check by
one “Martin Lorenzo” was a forgery as the latter has been dead since 14
July 1952; and requested that it be refunded he sum deducted from its
account. The bank refunded the amount to the Bureau and demanded
upon Ebrada the sum in question, who refused.
ISSUES:
(1) Whether or not the bank can recover from Ebrada who was
the last indorser of the check with the forged indorsement.
(2) Whether the existence of one forged signature in the check
will render void all the other negotiations of the check with
respect to the other parties whose signature are genuine.
HELD:
(1) Republic Bank should suffer the loss when it paid the amount
of the check in question to Ebrada but it has the remedy to
recover from the latter the amount it paid to her because as
last indorser of the check, she has warranted that she has
good title to it even if in fact she did not because the payee of
the check was already dead 11 years before the check was
issued.
(2) Although Mauricia Ebrada was not the author of the forgery,
as the last indorser of the check, she warranted good title to
it. The negotiation from Martin Lorenzo, the original payee, to
Ramon Lorenzo is of no effect but the negotiation from Ramon
Lorenzo (2nd indorser) to Adelaida Dominguez (3rd indorser)
and from her to Mauricia Ebrada who did not know of the
forgery is valid and enforceable. The bank can recover from
her the money paid on the forged check.
The ruling in Beam vs. Farrel (US case), where a check has
several indorsements on it, only the negotiation based on the
forged or unauthorized signature which is inoperative. The
last indorser, Ebrada, was duty-bound to ascertain whether
the check was genuine before presenting it to the bank for
payment. Her failure to do so makes her liable for the loss and
the Bank may recover from her the money she received for
the check. Had she performed her duty, the forgery would
have been detected and fraud defeated. Even if she turned
over the amount to Dominguez immediately after receiving the
cash proceeds of the check, she is liable as an
accommodation party under Section 29 of the Negotiable
Instruments Law
7 – PNB v. Quimpo (1988)
Topic: Forgery
Doctrine: The prime duty of a bank is to ascertain the genuineness of
the signature of the drawer or the depositor on the check being
encashed. It is expected to use reasonable business prudence in
accepting and cashing a check presented to it.
Facts:
 Gozon went to the bank and left his PNB check book in his
car with his friend, Santos. When Santos saw that Gozon left
his check book, he took a check therefrom, filled it up for the
amount of P5,000, forged the signature of Gozon, and
thereafter he encashed the check in the bank on the same
day.
 Upon receipt of the statement of account from the bank,
Gozon asked that the P5,000 be returned to his account as
his signature on the check was forged, but the bank refused.
Hence, Gozon filed a complaint for recovery of the P5,000
against the bank.
 Another complaint was filed by Gozon against Santos,
resulting to Santos being apprehended by the police
authorities. During the investigation, Santos admitted the acts
done.
 CFI: Ordered the bank to pay Gozon.
Issue: Whether or not the act of Gozon, in putting his checkbook
containing the check in question into the hands of Santo was indeed the
proximate cause of the loss, thereby precluding him from setting up the
defense of forgery or want of authority under Sec. 23 of the Negotiable
Instruments Law?
Held: NO.
 The SC agreed with the CFI’s ruling that the 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 cannot ordinarily change the amount so paid
to the account of the depositor whose name was forged. This
rule is absolutely necessary to the circulation of drafts and
checks, and is based upon the presumed negligence of the
drawee in failing to meet its obligation to know the signature
of its correspondent. Thus, if the paper comes to the drawee
in the regular course of business, and he, having the
opportunity ascertaining its character, pronounces it to be
valid and pays it, it is not only a question of payment under
mistake, but payment in neglect of duty which the commercial
law places upon him, and the result of his negligence must
rest upon him.
 The SC further explained that the prime duty of a bank is to
ascertain the genuineness of the signature of the drawer or
the depositor on the check being encashed. It is expected to
use reasonable business prudence in accepting and cashing
a check presented to it.
 In this case, the trial court found that a comparison of the
signature on the forged check and the sample signatures of
Gozon show marked differences as the graceful lines in the
sample signature which is completely different from those of
the signature on the forged check. It based its ruling on the
findings of the NBI handwriting expert Agnes whom the trial
court considered to be an “unbiased scientific expert”.
 The trial court, in merely examining the pictorial
report presented by said witness, found a marked
difference in the second “c” in Francisco as written
on the questioned signature as compared to the
sample signatures, and the separation between the
“s” and the “c” in the questioned signature while
they are connected in the sample signatures.
 The trial court further points its attention to the
graceful lines of Gozon’s exemplar signatures
found in his sample signatures. The formation of the
first letter “F” in the exemplar, which could be
regarded as artistic, is completely different from the
way the same letter is formed in the check.
 PNB was found to be negligent in cashing said forged check
without carefully examining the signature which shows
marked variation from the genuine signature of Gozon.
 Furthermore, the act of plaintiff in leaving his checkbook in the
car while he went out for a short while cannot be considered
negligence sufficient to excuse PNB from its own negligence.
It should be borne in mind that when Gozon left his car,
Santos, a long time classmate and friend remained in the
same. Gozon could not have been expected to know that the
said Santos would remove a check from his checkbook.
Gozon had trust in his classmate and friend and thus, had no
reason to suspect that the latter would breach that trust.
8 – China Banking Corporation (CBC) v. Padilla (2015)
Topic: Consideration
Doctrine: Banks should exercise the highest degree of diligence in
ascertaining the true amount of the check when there is doubt as to the
same.
Emergency Recit: A check was issued with conflicting terms as to the
amount. When it was sought to be encashed, it bounced. Criminal cases
were then filed against the issuers thereof. Said issuers then filed a
negligence case against the bank for failing to exercise the degree of
diligence required of it in ascertaining the true amount of the check. The
Supreme Court ruled in their favor, stating that the bank should have
required the issuers to countersign the erroneous amount instead of
merely calling them through the phone.
Facts:
 Dolores Padilla and Loida Birung (hereinafter, the issuers)
issued a CBC check to Marivic Samonte in the amount of
“Seven Hundred Pesos”. The numerical figures written,
however, were “P700,000.00”.
 Samonte deposited the check in her CBC account. The check,
however, was dishonored for insufficient funds because the
account against which the check was drawn contained only
P5,147.10.
 Samonte thus filed a criminal case for estafa and for violation
of B.P. 22 against the issuers.
 The issuers then filed a complaint for damages against CBC.
They allege that the latter failed to exercise the diligence
required of banking institutions, thus resulting in the filing of
criminal charges against the former.
 CBC argues that it had exercised the diligence required since
its cashier, Michael Yu, called Padilla to verify the amount of
the check, and that Padilla herself confirmed that the amount
was for P700,000.00. It also argues that requiring Padilla to
countersign the amount indicated in the check would destroy
the purpose of checks, which is to be convenient substitutes
for money.
Issue: W/N CBC exercised the diligence required of it as a banking
institution?
Held: NO. A bank has the duty to exercise the highest degree of
diligence, considering that the banking business is so impressed with
public interest. Considering the amount involved in the check in this
case, it would have been more prudent for CBC to require Padilla to
countersign the check. Convenience cannot defeat the bank’s
paramount fiduciary responsibility to its clients. Furthermore, Yu was
shown to have been terminated due to unsound banking practices (e.g.,
private lending, approving encashment of unfunded checks) and failure
to return unfunded in-clearing checks.
9 – Manuel Ubas v. Wilson Chan (Feb 6, 2017)
Topic: Forgery; Consideration
Doctrine: In a suit for a recovery of sum of money, the plaintiff-creditor
has the burden of proof to show that defendant had not paid [him] the
amount of the contracted loan. However, it has also been long
established that where the plaintiff-creditor possesses and submits in
evidence an instrument showing the indebtedness, a presumption that
the credit has not been satisfied arises in [his] favor. Thus, the defendant
is, in appropriate instances, required to overcome the said presumption
and present evidence to prove the fact of payment so that no judgment
will be entered against him. This presumption stems from Section 24 of
the NIL, which provides that:
Section 24. Presumption of Consideration. - Every negotiable
instrument is deemed prima facie to have been issued for a
valuable consideration; and every person whose signature appears
thereon to have become a party thereto for value.
Section 16 of the NIL provides that when an instrument is no longer in
the possession of the person who signed it and it is complete in its terms,
"a valid and intentional delivery by him is presumed until the contrary is
proved," as in this case.
Emergency Recit: In this case, respondent purchased construction
materials from petitioner amounting to P1.5M which was paid through 3
bank checks, payable to cash in the amountof P500k. When the subject
checks issued to him by respondent were presented to the bank, these
checks were dishonored on the ground of stop payment. As proof,
petitioner offered in evidence, among others, the demand letter he sent
to respondent detailing the serial numbers of the checks that were
issued by the latter, including the dates and amounts thereof.
Respondent neither disputes the fact that he had indeed signed the
subject checks nor denies the demand letter sent to him by petitioner.
Nevertheless, he claims that the checks were not issued to petitioner but
to the project engineer of Unimasters who, however, lost the same. SC
ruled in favor of the petitioner. Respondent was not able to overcome
the presumption of consideration under Section 24 of the NIL and
establish any of his affirmative defenses. On the other hand, as the
holder of the subject checks which are presumed to have been issued
for a valuable consideration, and having established his privity of
contract with respondent, petitioner has substantiated his cause of
action by a preponderance of evidence.
Facts:
Petitioner filed a complaint for sum of money against respondent Wilson
Chan before RTC of Catarman, Northern Samar. In his Complaint,
petitioner alleged that respondent, "doing business under the name and
style of UNIMASTER," was indebted to him in the amount of P1.5M,
representing the price of construction materials allegedly purchased by
respondent from him for the construction of the Macagtas Dam project.
He claimed that the said obligation has long become due and
demandable and yet, respondent unjustly refused to pay the same
despite repeated demands. Further, he averred that respondent had
issued three (3) bank checks, payable to "CASH" in the amount of P500k
each but when petitioner presented the subject checks for encashment,
the same were dishonored due to a stop payment order. As such,
respondent was guilty of fraud in incurring the obligation.
Respondent admitted to having issued the subject checks. However, he
claimed that they were not issued to petitioner, but to Engr. Merelos for
purposes of replenishing the project's revolving fund. Respondent also
described the procedure in the delivery of aggregates to their project
sites, asserting that petitioner was not among their suppliers of
aggregates for the Macagtas Dam project as, in fact, the latter never
submitted any bill attaching purchase orders and delivery receipts for
payments as other suppliers did.
RTC ruled that petitioner had a cause of action against respondent.
However, CA reversed and set aside the RTC's ruling, dismissing
petitioner's complaint on the ground of lack of cause of action. Hence,
the instant petition.
Issue: Whether or not the subject checks were issued for a valid
consideration - Yes.
Held:
CA erred in dismissing the case. As mentioned, petitioner had presented
in evidence the three (3) dishonored checks which were undeniably
signed by respondent. Hence, as the RTC correctly ruled, it is presumed
that the subject checks were issued for a valid consideration, which
therefore, dispensed with the necessity of any documentary evidence to
support petitioner's monetary claim. Unless otherwise rebutted, the legal
presumption of consideration under Section 24 of the NIL stands. Verily,
"the vital function of legal presumption is to dispense with the need for
proof."
Respondent's defense that the subject checks were lost and, thus, were
not actually issued to petitioner is a factual matter already passed upon
by the RTC. As aptly pointed out by the trial court, it would have been
contrary to human nature and experience for petitioner to send
respondent a demand letter detailing the particulars of the said checks
if he indeed unlawfully obtained the same. In fact, it is glaring that
respondent did not present Engr. Merelos, the project engineer who had
purportedly lost the checks, to personally testify on the circumstances
surrounding the checks' loss. Further, Unimasters' comptroller, Murillo,
testified during trial that "she came to know that the lost checks were
deposited in the account of [petitioner as] she was informed by the
[o]ffice[r]-in-charge of the drawee bank, the Far East Bank of Tacloban,
City Branch." However, there was no showing that Unimasters and/or
respondent commenced any action against petitioner to assert its
interest over a significant sum of P1,500,000.00 relative to the checks
that were supposedly lost/stolen. Clearly, this paucity of action under
said circumstances is again, inconsistent with ordinary human nature
and experience. Thus, absent any cogent reason to the contrary, the
Court defers to the RTC's findings of fact on this matter. In Madrigal v.
CA, it was explained that: Besides, Section 16 of the NIL provides that
when an instrument is no longer in the possession of the person who
signed it and it is complete in its terms, "a valid and intentional delivery
by him is presumed until the contrary is proved," as in this case. In
Pacheco v. CA, the Court has expressly recognized that a check
"constitutes an evidence of indebtedness" and is a veritable "proof of an
obligation." Hence, petitioner may rely on the same as proof of
respondent's personal obligation to him.
10. Ting Ting Pua v. Spouses Benito Lo Bun Tiong and Caroline
Siok Ching Teng (2013)
Topic: Disputable Presumption
Doctrine 1: Under Sec. 24 of the Negotiable Instruments Law, every
negotiable instrument is deemed prima facie to have been issued for a
valuable consideration; and every person whose signature appears
thereon to have become a party for value.
Doctrine 2: Sec. 16 of the NIL which provides that when an instrument
is no longer in the possession of the person who signed it and it is
complete in its terms "a valid and intentional delivery by him is presumed
until the contrary is proved."
Facts: Sometime in 1988, respondent spouses obtained loans from
Ting Ting Pua and issued seventeen checks in payment of those loans,
in an aggregate amount of P 1.975 Million. Upon presentment, however,
they were dishonored.
In 1996, when the loan ballooned due to interest, the total debt amount
became P 13 Million but, after some compromises, the parties agreed
to the sum of P 8.5 Million.
Respondent spouses issued a check for P 8.5 Million but demanded the
return of the previously dishonored checks. Pua refused, saying she will
only return after encashing the P 8.5 Million check. Notably, though,
even the P 8.5 Million check was dishonored. This prompted Pua to file
a case for collection of money with the RTC.
In the proceedings, respondent spouses deny their loan obligation.
RTC ordered the respondent spouses to pay Pua not the P 8.5 Million
(compounded debt, inclusive of the interest over the years) but only the
P 1.975 Million (original amount). This is because the agreement to pay
interest was not in writing.
CA reversed RTC. CA said that the P 8.5 Million check was an
incomplete delivered instrument and that petitioner has failed to prove
the existence of respondents' indebtedness to her.
ISSUE 1: Is there a disputable presumption that the checks were
issued for a valuable consideration?
HELD: YES.
Under Sec. 24 of the Negotiable Instruments Law, every negotiable
instrument is deemed prima facie to have been issued for a valuable
consideration; and every person whose signature appears thereon to
have become a party for value.
Consequently, the 17 original checks, completed and delivered to
petitioner, are sufficient by themselves to prove the existence of the loan
obligation of the respondents to petitioner. Note that respondent
Caroline had not denied the genuineness of these checks.
Q: What about the newer P 8.5 Million check?
A: This presumption does not apply / is overridden. As aptly held by the
court a quo, respondents cannot be obliged to pay the interest of the
loan on the ground that the supposed agreement to pay such interest
was not reduced to writing. Article 1956 of the Civil Code, which refers
to monetary interest, specifically mandates that no interest shall be due
unless it has been expressly stipulated in writing.
ISSUE 2: Is there a disputable presumption that a valid and
intentional delivery is made by a person who signed a check when
the check is complete in its terms?
HELD: YES.
Sec. 16 of the NIL which provides that when an instrument is no longer
in the possession of the person who signed it and it is complete in its
terms "a valid and intentional delivery by him is presumed until the
contrary is proved."
Respondents’ argument that the checks were given to various other
persons and petitioner had simply collected all these 17 checks from
them in order to damage respondents' reputation is not only incredible;
it runs counter to human experience (as enshrined in said Sec. 16).
WHEREFORE, the Motion for Reconsideration is GRANTED. The
Resolution of this Court dated April 18, 2012 is set aside and a new one
entered REVERSING and SETTING ASIDE the Decision dated March
31, 2011 and the Resolution dated September 26, 2011 of the Court of
Appeals in CA-G.R. CV No. 93755. The Decision in Civil Case No. 97-
83027 of the Regional Trial Court (RTC) of the City of Manila, Branch 29
is REINSTATED with MODIFICATION. Accordingly, respondents Benito
Lo Bun Tiong and Caroline Siok Ching Teng are ordered jointly and
solidarily to pay petitioner PhP 1,975,000 plus 6% interest per annum
from April 18, 1997, until fully paid, and P200,000.00 as attorney's fees.
11. Virata v. Wee (2017)
Topic: Accomodation party is liable even if holder knew him to be such
Doctrine: An accommodation party lends his name to enable the
accommodated party to obtain credit or to raise money; he receives no
part of the consideration for the instrument but assumes liability to the
other party or parties thereto.
Prescinding from the foregoing, an accommodation party is one who
meets all the following three requisites, viz.: (1) he must be a party to
the instrument, signing as maker, drawer, acceptor, or indorser; (2) he
must not receive value therefor; and (3) he must sign for the purpose of
lending his name or credit to some other person.
Under the NIL, a person is liable on the instrument to a holder for value,
notwithstanding such holder, at the time of taking the instrument, knew
him to be only an accommodation party. The basis for the liability under
Section 29 is the underlying relation between the accommodated party
and the accommodation party, which is one of principal and surety.
ER: Ng Wee was enticed by the bank manager to make money
placements in Wincorp, an investment house. He was lured to avail a
“sans recourse” transaction, where he was an investor who provides
funds under a Credit Line with a borrower under a “sans recourse”
transaction. Wincorp initially matched Ng Wee with Hottick, and then
with Power Merge. A promissory note was issued by Power Merge and
Virata. Uknown to Ng Wee, Wincorp and Power Merge executed Side
Agreements absolving Power Merge of its liability under the promissory
notes. Despite demands of Ng Wee, Power Merge defaulted. A
complaint for sum of money was filed. As a defense, Power Merge is not
liable because it was absolved by Wincorp from the liabilities under the
promissory notes. SC held that Power Merge and Virata are liable under
the promissory notes as an accommodation party. Being an
accommodation party, it is solidarily liable with the principal debtor.
Facts
 Ng Wee was a valued client of Westmont Bank. In 1998, he
was enticed by the bank manager to make money placements
in Wincorp, an investment house and one of the bank’s
affiliates.
 He was lured to avail a “sans recourse” transaction.
o The nature of this transaction is that Wincorp
initially screens a corporate borrower who needs
financial assistance in his business. Then, Wincorp
enters into a Credit Line Agreement with the
corporate borrower over a specific period. The
agreement stipulated that Wincorp will extend credit
on a “best effort” basis, was evidenced by a
promissory note for every drawdown. Wincorp then
scouts for investors who are willing to provide funds
for the accredited borrower.
o An investor who provides a fund is issued a
Confirmation Advice which indicates the amount of
investment, due date, term, yield, maturity date,
and name of borrower
 Lured by the “sans recourse” transaction, Ng Wee placed
investments under accounts in his own name, or in those of
his trustees: Angel Archangel, Elizabeth Ng Wee, Roberto
Tabada Tan, and Alex Lim Tan. In exchange, Wincorp issued
Ng Wee and his trustees Confirmation Advices informing
them of the identity of the borrower with whom they were
matched, and the terms under which the said borrower would
repay them.
 Ng Weê’s initial investments were matched with Hottick
Holdings Corporation (Hottick), one of Wincorp̂’s accredited
borrowers, the majority shares of which was owned by a
Malaysian national by the name of Halim Saad. Halim Saad
was then the controlling shareowner of UEM-MARA, which
has substantial interests in the Manila Cavite Express Tollway
Project (Cavitex).
  Hottick was extended a credit facility with a maximum
drawdown of P1,500,908,026.87 in consideration of the
following securities it issued in favor of Wincorp: (1) a
Suretyship Agreement executed by herein petitioner Luis
Juan Virata 2) a Suretyship Agreement executed by YBHG
Tan Sri Halim Saad; and (3) a Third Party Real Estate
Mortgage executed by National Steel Corporation (NSC).
 Hottic availed the credit facility. However, it defaulted in
paying its outstanding obligations due to the financial crisis.
 Wincorp filed a collection suit against Hottick, Halim Saad,
and NSC for the repayment of the loan and related costs. To
induce the parties to settle, petitioner Virata offered to
guarantee the full payment of the loan. The guarantee was
embodied in Memorandum of Agreement between him and
Wincorp.
 Virata was then able to broker a compromise between
Wincorp and Halim Saad that paved the way for the execution
of a Settlement Agreement.
o Halim Saad agreed to pay USD1,000,000.00 to
Wincorp in satisfaction of any and all claims the
latter may have against the former under the Surety
Agreement that secured Hottick̂’s loan. As a result,
Wincorp dropped Halim Saad from the case
 Thereafter, Wincorp executed a Waiver and Quitclaim in favor
of Virata, releasing the latter from any obligation arising from
the Memorandum of Agreement, except for his obligation to
transfer 40% equity of UEM Development Philippines, Inc.
(UDPI) and forty percent (40%) of UDPI’s interest in the
tollway project to Wincorp. Apparently, the Memorandum of
Agreement is a mere accommodation that is not meant to give
rise to any legal obligation in Wincorp̂s favor as against Virata,
other than the stipulated equity transfer.
 Alarmed by the default of Hottick, Ng Wee confronted Wincorp
about his investments. Wincorp assured him that it will absorb
the losses, and his investments will be transferred to a new
borrower, Power Merge.
 Petitioner Virata is the majority shareholder of Power Merge.
It is engaged in the business of investing or acquiring real or
personal property of every kind
 Wincorp, by virtue of the Board Resolution, approved Power
Merge’s application to avail a credit line. Power Merge made
a total of 6 drawdowns with the amount of P2,183,755,253.11.
Power Merge issued promissory noted in favor of Wincorp
 Unknown to Ng Wee, however, was that on the very same
dates the Credit Line Agreement and its subsequent
Amendment were entered into by Wincorp and Power Merge,
additional contracts (Side Agreements) were likewise
executed by the two corporations absolving Power Merge of
liability as regards the Promissory Notes it issued.
 Despite repeated demands, Ng Wee was not able to collect
Power Merge’s outstanding obligation under the Confirmation
Advices in the amount of P213,290,410.36. This prompted Ng
Wee, on October 19, 2000, to institute a Complaint for Sum of
Money with Damages
 As a defense, Power Merge claims that it is not liable since
Wincorp already absorbed it from liability from the promissory
notes.
o Virata postulates that he merely executed the
Promissory Notes on behalf of Power Merge as an
accommodation for Wincorp, and that neither he
nor Power Merge received any pecuniary benefit
from the credit facility. He thus claims that he and
Power Merge cannot be held liable for the
Promissory Notes that were executed
Issue: W/N Power Merge is liable to Ng Wee under the PNs?
Held: Yes. A promissory note is a specie of negotiable instruments.
Under Section 60 of the Negotiable Instruments Law, the maker of a
promissory note engages that he will pay it according to its tenor. By the
wordings of the note, Power Merge promises to buy “either for itself or
as agent for and on behalf of certain INVESTORS who have
placed/invested funds with WINCORP”. It is crystal clear that Power
Merge, through Virata, obligated itself to pay Wincorp and those who
invested through it the values stated in the Promissory Notes.
In the case of Gonzales vs. Philippine Commercial and International
Bank, the Court ruled that an accommodation party lends his name to
enable the accommodated party to obtain credit or to raise money; he
receives no part of the consideration for the instrument but assumes
liability to the other party or parties thereto. Prescinding from the
foregoing, an accommodation party is one who meets all the following
three requisites, viz.: (1) he must be a party to the instrument, signing
as maker, drawer, acceptor, or indorser; (2) he must not receive value
therefor; and (3) he must sign for the purpose of lending his name or
credit to some other person.
As applied, the first element, that Power Merge, through Virata,
executed the Promissory Notes as maker cannot be disputed.
Meanwhile, petitioners would have the Court hypothetically admit that
they did not receive the proceeds from the drawdowns, in satisfaction of
the second requisite. And lastly, this was allegedly done for the purpose
of lending its name to conceal Wincorp’s direct borrowing from its clients.
In gratia argumenti that the above elements are established facts herein,
liability will still attach to the accommodation parties pursuant to Sec. 29
of the Negotiable Instruments Law.
Being an accommodation party, its liability is akin to a principal and a
surety, as provided in Sec. 29 of the NIL. In a contract of surety, a person
binds himself solidarily liable with the principal debtor of an obligation.
In a similar fashion, the accommodation party cumsurety in a negotiable
instrument is deemed an original promisor and debtor from the
beginning; he is considered in law as the same party as the debtor in
relation to whatever is adjudged touching the obligation of the latter
since their liabilities are so interwoven as to be inseparable. It is beyond
cavil then that Power Merge and Virata can be held liable for the
amounts stated in the Promissory Notes.
12 - GONZALES V PCIB (2011)
Topic: Accommodation Party; Liable even if holder knew him to be such
Doctrine: An accommodation party lends his name to enable the
accommodated party to obtain credit or to raise money; he receives no
part of the consideration for the instrument but assumes liability to the
other party/ies thereto.
Emergency Recit: Petitioner was a client of PCIB for a good 15 years
and was granted a credit line with the aggregate amount of his accounts
as collateral for the availment of the said line. Petitioner served as an
accommodation party to spouses Panlilio who obtained loans covered
by promissory notes, notably stating that petitioner is solidary liable with
the spouses for the payment of the loans. The loan was granted and the
spouses received the proceeds but subsequently defaulted in the
payment of said dues. As a result, the credit line was terminated and the
FCD account of petitioner was frozen.
Facts:
Petitioner Eusebio Gonzales was a client of Philippine Commercial and
International Bank (PCIB) for 15 years. PCIB, through a Credit-On-Hand
Loan Agreement (COHLA), granted the credit line of Gonzales.
Gonzales drew from said credit line through the issuance of check. At
the institution of the instant case, Gonzales had a Foreign Currency
Deposit (FCD) of USD8,715.72 with PCIB. Gonzales and his wife
obtained a loan for PhP 500,000.00. Consequently, Spouses Panlilio
and Spouses Gonzales obtained a loan with PCIB in the amount of PhP
1,000,000.00 and PhP 300,000.00, respectively. The three loans were
covered by three promissory notes, and as a security, the spouses
Panlilio and spouses Gonzales executed a Real Estate Mortgage in
favor of PCIB. The promissory notes specified the solidary liability of
both parties. However, it was spouses Panlilio who received the loan of
PhP 1,800,000.00. The monthly interests were paid by the spouses
Panlilio, but after some time, the spouses Panililio already failed to pay
their loan.
In the meantime, Gonzales issued a check in favor of Rene Unson for
PhP 250,000.00 drawn against the COHLA, but the check was
dishonored due to the termination of the COHLA, and the PCIB also
froze the account of Gonzales. Gonzales, through counsel, wrote PCIB
insisting that the check he issued had been fully funded, and demanded
the return of the proceeds of his FCD as well as damages for the unjust
dishonor of the check. PCIB stood its ground in freezing the account of
Gonzales. Gonzales reminded PCIB that it was the spouses Panlilio who
benefited from the loans, but PCIB ignored Gonzales’ contention. The
refusal of PCIB prompted Gonzales to file a case against PCIB with the
Regional Trial Court (RTC). The RTC ruled in favor of PCIB and held
that the spouses Panlilio and spouses Gonzales were solidarily liable on
the three promissory notes. Hence, the termination of the COHLA was
just because of the outstanding loan. Also, the dishonor of check is also
proper given that the COHLA was already terminated. The Court of
Appeals affirmed in toto. CA held that the spouses Panlilio and spouses
Gonzales were indeed solidary debtors, and PCIB correctly dishonored
the checks because it was only exercising its rights under the contractual
stipulations in the COHLA.
Issue: Whether or not Gonzales is liable for the three promissory he
executed with spouses Panlilio
Held: YES. Gonzales is liable for the loans covered by the above
promissory notes. Gonzales admitted that he is an accommodation party
which PCIB did not dispute. In his testimony, Gonzales admitted that he
merely accommodated the spouses Panlilio at the suggestion of
Ocampo, who was then handling his accounts, order to facilitate the fast
release of the loan. The fact that the loans were undertaken by Gonzales
when he signed as borrower or co-borrower for the benefit of the
spouses Panlilio — as shown by the fact that the proceeds went to the
spouses Panlilio who were servicing or paying the monthly dues — is
beside the point. For signing as borrower and co-borrower on the
promissory notes with the proceeds of the loans going to the spouses
Panlilio, Gonzales has extended an accommodation to said spouses.
Also, the promissory notes specified that spouses Panlilio and spouses
Gonzales were solidarily liable.
An accommodation party is a person who has signed the instrument as
maker, drawer, acceptor or indorser without receiving value therefor and
for the purpose of lending his name to some other person. As an
accommodation party, Gonzales is solidarily liable with the spouses
Panlilio for the loans. In Ang v. Associated Bank, 532 SCRA 244 (2007),
quoting the definition of an accommodation party under Section 29 of
the Negotiable Instruments Law, the Court cited that an accommodation
party is a person “who has signed the instrument as maker, drawer,
acceptor, or indorser, without receiving value therefor, and for the
purpose of lending his name to some other person.” Furthermore,
an accommodation party is one who meets all the three requisites, viz.:
(1) he must be a party to the instrument, signing as maker, drawer,
acceptor, or indorser; (2) he must not receive value therefor; and (3) he
must sign for the purpose of lending his name or credit to some other
person. An accommodation party lends his name to enable the
accommodated party to obtain credit or to raise money; he receives no
part of the consideration for the instrument but assumes liability to the
other party/ies thereto.
13 - Ang Tiong v Lorenzo Ting (1968)
Topic: Accomodation party is liable even if holder knew him to be such
Doctrine: Section 29 of the Negotiable Instruments Law by clear
mandate makes the accommodation party "liable on the instrument to a
holder for value, notwithstanding that such holder at the time of taking
the instrument knew him to be only an accommodation party". It is not a
valid defense that the accommodation party did not receive any valuable
consideration when he executed the instrument. It is not correct to say
that the holder for value is not a holder in due course merely because at
the time he acquired the instrument, he knew that the indorser was only
an accommodation party
ER:
Lorenzo Ting issued a Philippine Bank of Communications check for the
sum of P4,000, payable to "cash or bearer". With Felipe Ang's signature
(indorsement in blank) at the back thereof, the instrument was received
by the plaintiff Ang Tiong who thereafter presented it to the drawee bank
for payment.
The bank dishonored it. The plaintiff then made written demands on both
Lorenzo Ting and Felipe Ang that they make good the amount
represented by the check. These demands went unheeded so Ang filed
in the municipal court of Manila an action for collection of the sum of
P4,000, plus P500 attorney's fees.
SC: Ang, being the accommodation party is liable to a holder for value
as if the contract was not for accommodation. (see doctrine)
Facts:
Lorenzo Ting issued a Philippine Bank of Communications check for the
sum of P4,000, payable to "cash or bearer". With Felipe Ang's signature
(indorsement in blank) at the back thereof, the instrument was received
by the plaintiff Ang Tiong who thereafter presented it to the drawee bank
for payment.
The bank dishonored it. The plaintiff then made written demands on both
Lorenzo Ting and Felipe Ang that they make good the amount
represented by the check. These demands went unheeded so he filed
in the municipal court of Manila an action for collection of the sum of
P4,000, plus P500 attorney's fees.
MTC: in favor of Ting
Felipe Ang appealed to the CFI Manila; affirmed MTC’s decision
Felipe Ang appealed to the CA but CA elevated the case to the SC
because the issues raised were purely of law
Ang’s contentions include:
(1) that Art 2071 of the new Civil Code should be applied in this case
(2) that the court erred when it adjudged him a general indorser
under the Negotiable Instruments Law and
(3) that the court erred when it held that he "cannot obtain his release
from the contract of suretyship or obtain security to protect himself
against any proceedings on the part of the creditor and against the
danger of insolvency of the principal debtor," because he is "jointly and
severally liable on the instrument."
SC: (affirmed the decision)
1. The genuineness and due execution of the instrument are not
controverted. That the appellee is a holder thereof for value is admitted.
Having arisen from a bank check which is indisputably a negotiable
instrument, the present case is, therefore, in so far as the indorsee is
concerned vis-a-vis the indorser, governed solely by the Negotiable
Instruments Law (see secs. 1 and 185). Article 2071 of the new Civil
Code, invoked by the appellant is completely irrelevant
Section 63 of the Negotiable Instruments Law makes "a person placing
his signature upon an instrument otherwise than as maker, drawer or
acceptor" a general indorser "unless he clearly indicates by appropriate
words his intention to be bound in some other capacity." Section 66 of
the same law ordains that "every indorser who indorses without
qualification, warrants to all subsequent holders in due course"
(a) that the instrument is genuine and in all respects what it purports to
be;
(b) that he has a good title to it;
(c) that all prior parties have capacity to contract; and
(d) that the instrument is at the time of his indorsement valid and
subsisting. In addition "he engages that on due presentment, it shall be
accepted or paid or both, as the case may be, and if it be dishonored,
he will pay the amount thereof to the holder.
2. The accommodation party is liable to a holder for value as if the
contract was not for accommodation. It is not a valid defense that the
accommodation party did not receive any valuable consideration when
he executed the instrument. Nor is it correct to say that the holder for
value is not a holder in due course merely because at the time he
acquired the instrument he knew that the indorser was only an
accommodation party.
3. The appellant, assuming him to be an accommodation indorser, may
obtain security from the maker to protect himself against the danger of
insolvency of the latter, cannot in any manner affect his liability to the
appellee, as the said remedy is a matter of concern exclusively between
accommodation indorser and accommodated party.
the fact that the appellant stands only as a surety in relation to the maker,
granting this to be true for the sake of argument, is immaterial to the
claim of the appellee, and does not a whit diminish nor defeat the rights
of the latter who is a holder for value. The liability of the appellant
remains primary and unconditional.
14. - Republic v. Ebrada (1975)
Topic: Accommodation Party; Liable even if holder knew him to be such
Doctrine: An accommodation party is one who has signed the
instrument as maker, drawer, acceptor, or indorser, without receiving
value therefor, and for the purpose of lending his name to some other
person. Such a person is liable on the instrument to a holder for value,
notwithstanding such holder at the time of taking the instrument knew
him to be only an accommodation party
Emergency Recit: Respondent Ebrada encashed a back pay check
dated January 15, 1963 at Republic Bank. The Bureau of Treasury,
which issued the check advised the bank that the alleged indorsement
of the check by one “Martin Lorenzo” was a forgery as the latter has
been dead since 14 July 1952; and requested that it be refunded he sum
deducted from its account. Defendant Ebrada filed her answer denying
the material allegations of the complaint and as affirmative defenses
alleged that she was a holder in due course of the check in question, or
at the very least, has acquired her rights from a holder in due course
and therefore entitled to the proceeds thereof. She also alleged that the
plaintiff Bank has no cause of action against her; that it is in estoppel, or
so negligent as not to be entitled to recover anything from her The bank
refunded the amount to the Bureau and demanded upon Ebrada the
sum in question, who refused. SC ruled on the recovery of Republic
Bank from Ebrada. An accommodation party is one who has signed the
instrument as maker, drawer, acceptor, or indorser, without receiving
value therefor, and for the purpose of lending his name to some other
person. Such a person is liable on the instrument to a holder for value,
notwithstanding such holder at the time of taking the instrument knew
him to be only an accommodation party
Facts: On January 15, 1963, the Bureau of Treasury issued a back
paycheck to Martin Lorenzo in the amount of P1,246.08. The drawee
named therein was Republic Bank. The check was subsequently
indorsed to Ramon Lorenzo, then to Delia Dominguez and then to
Mauricia Ebrada. Ebrada encashed the check with the RepublicBank.
Republic Bank paid the amount of the check to Ebrada. Ebrada, upon
receiving the cash, gave it to Dominguez; Dominguez in turn gave the
cash to Ramon Lorenzo. Later, the Bureau of Treasury notified that the
check was a forgery because the payee named therein (Martin Lorenzo)
was actually dead 11 years ago before the check was issued. Republic
Bank refunded the amount to the Bureau of Treasury. The bank then
demanded Ebrada to refund them.
Issue: WON Republic Bank may recover from Ebrada
Held: YES. Ebrada, being the last indorser, warranted the genuineness
of the signatures of the payee and the previous indorsers. The drawee
bank is not duty bound to ascertain whether or not the signatures of the
payee and the indorsers are genuine. One who purchases a check or
draft is bound to satisfy himself that the paper is genuine and that by
indorsing it or presenting it for payment or putting it into circulation before
presentation he impliedly asserts that he has performed his duty and the
drawee (in this case Republic Bank) who has paid the forged check,
without actual negligence on his part, may recover the money paid from
such negligent purchasers. But Ebrada did not profit from this because
she, upon receiving the encashment, gave the same to Dominguez. She
is still liable because she is considered as an accommodation party –
pursuant to Section 29 of the Negotiable Instruments Law. An
accommodation party is one who has signed the instrument as maker,
drawer, acceptor, or indorser, without receiving value therefor, and for
the purpose of lending his name to some other person. Such a person
is liable on the instrument to a holder for value, notwithstanding such
holder at the time of taking the instrument knew him to be only an
accommodation party
15 – Clark v Sellner
Topic: Without receiving value therefor
Doctrine: The fact that a joint and several note has been signed by one
or various of the makers thereof for the accommodation by one or more
of his or their comakers, does not render him or them an accommodation
maker or makers with respect to the creditor who, upon the receipt of
the note, pays the full value thereof. In such a case the payment by the
creditor of the value of the note upon the latter passing into his hands,
renders all the signers of the note liable thereon; and it is of no
importance that one or more of the signers has or have not received
absolutely any part of the consideration. The expression "without
receiving value there or" used in section 29 of the Negotiable
Instruments Law, means that no value has been received for the
negotiable instrument.
Facts:
 Sellner in conjunction with other persons executed a note in
favor of Clark. It provided that: “Six months after date, for
value received, we jointly and severally promise to pay to the
order of R. N. Clark at his office in the city of Manila, the sum
of twelve thousand pesos, Philippine currency, with interest
thereon in like currency from date until paid at the rate of ten
per cent per annum, payable quarterly. If suit is necessary to
collect this note, we hereby agree to pay as attorney’s fees
ten per centum of the amount found due.”
 The note remained unpaid and Sellner is refusing to pay the
note claiming that it received any part of the value loaned. He
is claiming that he is only an accommodation party and is not
liable until the note is negotiated which was not done in this
case.
Issue: WON Sellner is liable for the note?
Held: Yes. The liability of the Sellner, as one of the signers of the note,
is not dependent on whether he has, or has not, received any part of the
amount of the debt. The defendant is really and expressly one of the
joint and several debtors on the note, and as such he is liable under the
provisions of section 60 of Act No. 2031, entitled The Negotiable
Instruments Law which provisions should be applied in this case in view
of the character of the instrument. As to presentment for payment, such
action is not necessary in order to charge the person primarily liable, as
is the defendant. (Sec. 70, Act No. 2031.) It should be taken into account
that Sellner by putting his signature to the note, he 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 said signers. It should be noted that the phrase "without receiving
value therefor," as used in section 29 of the aforesaid Act, means
"without receiving value by virtue of the instrument" and not, as it
apparently is supposed to mean, "without receiving payment for lending
his name." If, as in the instant case, a sum of money was received by
virtue of the note, it is immaterial, so far as the creditor is concerned,
whether one of the signers has, or has not, received anything in payment
of the use of his name. In reality the legal situation of Sellner in this case
may properly be regarded as that of a joint surety rather than that of an
accommodation party. Sellner, as a joint surety, may, upon the maturity
of the note, pay the debt, demand the collateral security and dispose of
it to his benefit; but there is no proof whatever that this was done.
And as such holder, he has the right to demand payment of the
16 – Montinola v PNB 88 Phil 178 (1951)
Doctrine: An indorsement which purports to transfer to the indorsee a
part only of the amount payable, does not operate as a negotiation of
the instrument. Consequently, he may be only regarded as an assignee.
Facts:
In May 1942, Ubaldo Laya, as provincial treasurer of Misamis Oriental
issued a P100,000.00 Philippine National Bank (PNB) check to Mariano
Ramos. The said check was to be used by Ramos, as disbursing officer
of the US forces at that time, for military purposes.
On the back of the check, Ramos wrote:
Pay to the order of Enrique P. Montinola P30,000 only. The balance to
be deposited in the Philippine National Bank to the credit of M. V.
Ramos.
Before Ramos can encash the check, he was made a prisoner of war by
the invading Japanese forces. When he got free in December 1944, he
needed some cash for himself and so he went to a certain Enrique
Montinola and made arrangements.
In consideration thereof, Montinola promised to pay 85,000 in Japanese
notes (that time peso notes are valued higher). However, he was only
able to pay 45k in Japanese notes to Ramos.
Later, Montinola sought to have the check encashed but PNB
dishonored. One of the grounds for the dishonor is that it was not lawfully
negotiated due to a defect in the indoresement.
ISSUE: WON a check was properly negotiated when only part of the
amount payable is indorsed, such as in this case, only 30,000 out of
100,000 is expressly stated in the instrument.
HELD: Yes. The check was not legally negotiated within the meaning of
the Negotiable Instruments Law. Section 32 of the same law provides
that “the indorsement must be an indorsement of the entire instrument.
An indorsement which purports to transfer to the indorsee a part only of
the amount payable, . . . (as in this case) does not operate as a
negotiation of the instrument.” Montinola may therefore not be regarded
as an indorsee. At most he may be regarded as a mere assignee of the
P30,000 sold to him by Ramos, in which case, as such assignee, he is
subject to all defenses available to the drawer Provincial Treasurer of
Misamis Oriental and against Ramos.
Neither can Montinola be considered as a holder in due course because
section 52 of said law defines a holder in due course as a holder who
has taken the instrument under certain conditions, one of which is that
he became the holder before it was overdue. When Montinola received
the check, it was long overdue.
And, Montinola is not even a holder because section 191 of the same
law defines holder as the payee or indorsee of a bill or note and
Montinola is not a payee.
Neither is he an indorsee for as already stated, at most he can be
considered only as assignee. Neither could it be said that he took it in
good faith. As already stated, he has not paid the full amount of P90,000
for which Ramos sold him P30,000 of the value of the check. In the
second place, as was stated by the trial court in its decision, Montinola
speculated on the check and took a chance on its being paid after the
war.
At any rate, even assuming that there is proper negotiation, Montinola
can no longer encash said check because when he sought to have it
encashed in January 1945, it is already stale there being two and half
years passing since its time of issuance.
17 – Atrium Management Corp v CA
Topic: Who is a holder in due course
Doctrine: Sec. 52: A holder in due course is a holder who has taken the
instrument under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without
notice that it had been previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of any
infirmity in the instrument or defect in the title of the person negotiating
it.
Emergency Recit: Hi-Cement Corp borrowed money from E.T. Henry
and Co, which was secured by 4 checks amounting to P2M in total. E.T.
and Henry then endorsed these checks to petitioner Atrium for valuable
consideration. Upon presentment for payment, the drawee bank
dishonored all 4 checks. Atrium filed a complaint after its demand for
payment was denied. The Court ruled that Atrium could not be
considered a holder in due course. Atrium was aware of the fact that the
checks were all for deposit only to payee’s account (E.T. Henry).
However, it does not follow as a legal proposition that simply because
petitioner Atrium was not a holder in due course for having taken the
instruments in question with notice that the same was for deposit only to
the account of payee E.T. Henry that it was altogether precluded from
recovering on the instrument.
Facts:
Hi-Cement Corporation borrowed money from E.T. Henry and Co. The
said loan was secured by 4 checks amounting to P2 million in total. The
checks were signed by Lourdes M. de Leon (treasurer) and the late
Antonio de las Alas (Chairman). E.T. Henry and Co., Inc., then,
endorsed these four checks to petitioner Atrium Management
Corporation for valuable consideration, after Enrique Tan, or E.T. Henry
approached Atrium for financial assistance, offering to discount four
RCBC checks. Atrium agreed to Tan's offer based on two letters issued
by Hi-Cement through Lourdes M. de Leon, as treasurer, confirming the
issuance of the four checks in favor of E.T. Henry in payment for
petroleum products. Upon presentment for payment, the drawee bank
dishonored all four checks for the common reason “payment stopped”.
Atrium, thus, instituted an action for collection of the proceeds of four
postdated checks, after its demand for payment of the value of the
checks was denied. The TC ordered all the defendants (Hi-Cement, E.T.
Henry, and Lourdes M. de Leon) except defendant Antonio de las Alas
to pay Atrium jointly and severally the amount of P2M + interest and
Attorney’s fees. Lourdes de Leon submitted that the TC erred in ruling
that Atrium was an ordinary holder, not a holder in due course of the
rediscounted checks. Hi-Cement contended that the TC erred in ruling
that even if Hi-Cement did not authorize the issuance of the checks, it
could still be held liable for the checks. And assuming that the checks
were issued with its authorization, the same was without any
consideration, which is a defense against a holder in due course and
that the liability shall be borne alone by E.T. Henry. The CA absolved
Hi-Cement Corp from liability and dismissing the complaint against it.
The CA also ruled that Lourdes De Leon was not authorized to issue the
subject checks in favor of E.T. Henry Inc. and that the subject checks
were not issued for valuable consideration.
Issue: WON Atrium was a holder in due course and for value
Held: No. Atrium could not be considered a holder in due course. (see
doctrine). In the instant case, the checks were crossed checks and
specifically indorsed for deposit to payees account only. From the
beginning, Atrium was aware of the fact that the checks were all for
deposit only to payees account, meaning E.T. Henry. Clearly, then,
Atrium could not be considered a holder in due course. However, it does
not follow as a legal proposition that simply because petitioner Atrium
was not a holder in due course for having taken the instruments in
question with notice that the same was for deposit only to the account
of payee E.T. Henry that it was altogether precluded from recovering on
the instrument. The Negotiable Instruments Law does not provide that a
holder not in due course cannot recover on the instrument. The
disadvantage of Atrium in not being a holder in due course is that the
negotiable instrument is subject to defenses as if it were non-negotiable.
One such defense is absence or failure of consideration.
18 - RCBC v. Hi-Tri Development (2012)
Topic: Who is a Holder in Due Course?
Facts: Sps. Bakunawa are owners of six registered lands which were
sequestered by PCGG. In 1990, Millan approached them offering to buy
the property for P6 Million Pesos, more or less, and that she shall take
care whatever preliminary obstacles in the completion of the sale.
However, as time passed, Millan was not able to clear said obstacles.
This made Sps. Bakunawa rescind the contract and return Millan’s
down-payment of P1 Million, more or less, to which she did not accept.
Sps. Bakunawa, through their company Hi-Tri Development, issued a
Manager’s Check from RCBC-Ermita payable to Milan’s company
Rosmil Realty Development Corporation. They filed a case against
Millan ordering them to return the six registered land and that they
should accept the return of their down-payment. Millan was informed
that the Manager’s Check was available for her withdrawal, as the payee
thereof. However, RCBC informed them on 2013 that the existing credit
in favor of Rosmil was already credited to Bureau of Treasury as
“unclaimed balances.” Sps. Bakunawa and Millan agreed to settle their
differences and offered to pay P3 Million including the P1 Million in the
check. However, during their settlement, they learned from RCBC that
the P1 Million pesos became subject of escheat proceedings. RTC ruled
that the escheat proceedings were valid and that the allegation of Sps.
Bakunawa is untenable. This was reversed by CA. RCBC claims that as
the PAYEE BANK they have the duty to subject dormant bank accounts
to escheat proceedings since the PAYEE, in this case, did not withdraw
the check.
Issue: W/N the ESCHEAT proceeding in this case was valid
Held: No.
Escheat proceedings refer to the judicial process in which the state, by
virtue of its sovereignty, steps in and claims abandoned, left vacant, or
unclaimed property, without there being an interested person having a
legal claim thereto. In the case of dormant accounts, the state inquires
into the status, custody, and ownership of the unclaimed balance to
determine whether the inactivity was brought about by the fact of death
or absence of or abandonment by the depositor. If after the proceedings
the property remains without a lawful owner interested to claim it, the
property shall be reverted to the state to forestall an open invitation to
self-service by the first comers. However, if interested parties have come
forward and lain claim to the property, the courts shall determine
whether the credit or deposit should pass to the claimants or be forfeited
in favor of the state. The Supreme Court emphasizes that escheat is not
a proceeding to penalize depositors for failing to deposit to or withdraw
from their accounts. It is a proceeding whereby the state compels the
surrender to it of unclaimed deposit balances when there is substantial
ground for a belief that they have been abandoned, forgotten, or without
an owner.
Act No. 3936 sets a detailed system for notifying depositors of unclaimed
balances. This notification is meant to inform them that their deposit
could be escheated if left unclaimed. Before filing a sworn statement,
banks and other similar institutions are under obligation to communicate
with owners of dormant accounts. The purpose of this initial notice is for
a bank to determine whether an inactive account has indeed been
unclaimed, abandoned, forgotten, or left without an owner. If the
depositor simply does not wish to touch the funds in the meantime, but
still asserts ownership and dominion over the dormant account, then the
bank is no longer obligated to include the account in its sworn statement.
It is not the intent of the law to force depositors into unnecessary
litigation and defense of their rights, as the state is only interested in
escheating balances that have been abandoned and left without an
owner.
An ordinary check refers to a bill of exchange drawn by a depositor
(drawer) on a bank (drawee), requesting the latter to pay a person
named therein (payee) or to the order of the payee or to the bearer, a
named sum of money. The issuance of the check does not of itself
operate as an assignment of any part of the funds in the bank to the
credit of the drawer. Here, the bank becomes liable only after it accepts
or certifies the check. After the check is accepted for payment, the bank
would then debit the amount to be paid to the holder of the check from
the account of the depositor-drawer.
There are checks of a special type called managers or cashier’s checks.
These are bills of exchange drawn by the bank’s manager or cashier, in
the name of the bank, against the bank itself. Typically, a manager or a
cashier’s check is procured from the bank by allocating a particular
amount of funds to be debited from the depositors account or by directly
paying or depositing to the bank the value of the check to be drawn.
Since the bank issues the check in its name, with itself as the drawee,
the check is deemed accepted in advance. Ordinarily, the check
becomes the primary obligation of the issuing bank and constitutes its
written promise to pay upon demand.
Nevertheless, the mere issuance of a managers check does not ipso
facto work as an automatic transfer of funds to the account of the payee.
In case the procurer of the managers or cashier’s check retains custody
of the instrument, does not tender it to the intended payee, or fails to
make an effective delivery.
Thus, escheat is not proper.
19. Marcelo A. Mesina v. IAC (13 November 1986)
Facts: Go purchased from Associated Bank a Cashier’s Check.
Unfortunately, Go left said check on top of the desk of the bank manager
when he left the bank. The bank manager entrusted the check for
safekeeping to Uy, who had then a visitor Lim. Uy had to answer a
telephone call after which he proceeded to the restroom. When he
returned to his desk, Lim was already gone. When Go asked for the
cashier’s check from Uy, the check was not in his folder and nowhere to
be found. The records of the police show that Associated Bank received
the lost check for clearing coming from Prudential Bank. The check was
immediately dishonored by Associated Bank by sending it back to
Prudential Bank, with the words "Payment Stopped" stamped on it.
However, the same was again returned to Associated Bank and for the
second time it was dishonored. Several days later, respondent
Associated Bank received a letter, dated January 9, 1984, from a certain
Atty. Lorenzo Navarro demanding payment on the cashier's check in
question, which was being held by his client. He however refused to
reveal the name of his client and threatened to sue, if payment is not
made. Later, the name of Mesina was revealed. When asked by the
police on how he possessed the check, he said it was paid to him Lim.
An information for theft was then filed against Lim.
Issue: Is Mesina a holder in due course?
Held: No. Mesina failed to substantiate his claim that he is a holder in
due course and for consideration or value as shown by the established
facts of the case. Admittedly, he became the holder of the cashier's
check as endorsed by Lim who stole the check. He refused to say how
and why it was passed to him. He had therefore notice of the defect of
his title over the check from the start. The holder of a cashier's check
who is not a holder in due course cannot enforce such check against the
issuing bank which dishonors the same. If a payee of a cashier's check
obtained it from the issuing bank by fraud, or if there is some other
reason why the payee is not entitled to collect the check, the respondent
bank would, of course, have the right to refuse payment of the check
when presented by the payee, since respondent bank was aware of the
facts surrounding the loss of the check in question.
20. UCPB v. IAC
Facts:
 Altiura bought from Makati Bel-Air Condominium an office
condominium unit and in consideration of which issued a
manager’s check in the amount of P494,000 issued by UCPB.
 Altiura instructed UCPB, however, to hold payment because
of a discrepancy in the are of the office unit. UCPB told Bel-
Air about the matter and asked for a reply on the controversy.
 Since the 2 parties cannot agree on the reduction of the price,
UPCB filed a complaint in interpleader against Altiura and
Makati Bel-Air. Makati Bel-Air, in turn, filed a counterclaim
against UPCB in the amount of P5 million on the theory that
UPCB violated its guarantee embodied in its manager check
when it effect stopped payment of the check thereby causing
damage to Bel-Air.
 Bel-Air and Altiura eventually agreed to rescind the contract
which resulted to the dismissal of the interpleader.
Issue: Whether or not Bel-Air should be awarded P5 million?
Held: No because Bel-Air is not a holder in due course.
Makati Bel-Air was a party to the contract of sale of an office
condominium unit to Altiura, for the payment of which the manager's
check was issued. Accordingly, Makati Bel-Air was fully aware, at the
time it had received the manager's check, that there was, or had arisen,
at least partial failure of consideration since it was unable to comply with
its obligation to deliver office space amounting to 165 square meters to
Altiura. Makati Bel-Air was also aware that petitioner Bank had been
informed by Altiura of the claimed defect in Makati Bel-Air's title to the
manager's check or its right to the proceeds thereof. Vis-a-vis both
Altiura and petitioner Bank, Makati Bel-Air was not a holder in due
course of the manager’s check
21. RCBC vs ODRADA
Topic: Holder in due course
Doctrine:
 A manager’s check is accepted by the bank upon its issuance.
As compared to an ordinary bill of exchange where
acceptance occurs after the bill is presented to the drawee,
the distinct feature of a manager’s check is that it is accepted
in advance. Notably, the mere issuance of a manager’s check
creates a privity of contract between the holder and the
drawee bank, the latter primarily binding itself to pay
according to the tenor of its acceptance.
 The drawee bank of a manager's check may interpose
personal defenses of the purchaser of the manager's check if
the holder is not a holder in due course. Accordingly, the
drawee bank may refuse to pay the manager's check by
interposing a personal defense of the purchaser.
 However, the drawee bank of a manager’s check may
interpose personal defenses of the purchaser of the
manager’s check if the holder is not a holder in due course.
Accordingly, the drawee bank may refuse to pay the
manager’s check by interposing a personal defense of the
purchaser.
Facts:
Odrada and Lim entered into a contract of sale of the Montero.
Following the initial down payment and execution of the deed of sale,
the Montero was delivered by Odrada to Lim and the latter took
possession of the Montero. Part of the payment was payed trough a car
loan from petitioner RCBC. Pursuant to the loan, RCBC executed two
manager’s check in favor of Odrada. However, before the checks were
encashed Lim wrote a letter to Odrada demanding its inspection
because it turns out that the car experienced collision, the millage was
tampered, and it is not the year model represented by Odrada. Odrada
did not inspect as requested but tried to encash the checks but was
dishonored. This promted Odrada to file a collection suit against Lim and
RCBC.
In his defense, Lim claims that he cancelled the loan upon
discovery of the misrepresentation of Odrada, and that he sent a letter
before Odrada encashed the manager’s check. It was later disclosed
that RCBC sent a notice of cancellation both to Odrada and Lim. The
lower courts ruled in favor of Odrada stating that 1. He is a holder in due
course 2. The right to rescind is with Odrada because he already
complied with his obligation, which is to deliver the car.
Issue: WON Odrada is a holder in due course? No.
Ruling:
The drawee bank of a manager’s check may interpose personal
defenses of the purchaser of the manager’s check if the holder is not a
holder in due course. Accordingly, the drawee bank may refuse to pay
the manager’s check by interposing a personal defense of the
purchaser.
Odrada is not a holder in due course. Section 52 of the Negotiable
Instruments Law defines a holder in due course as one who has taken
the instrument under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without
notice that it has been previously dishonored, if such was the
fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he had no notice of any
infirmity in the instrument or defect in the title of the person
negotiating it.
In the present case, Odrada attempted to deposit the manager’s checks
on 16 April, a day after Lim had informed him that there was a serious
problem with the Montero. Instead of addressing the issue, Odrada
decided to deposit the manager’s checks. Odrada’s actions do not
amount to good faith. Clearly, Odrada failed to make an inquiry even
when the circumstances strongly indicated that there arose, at the very
least, a partial failure of consideration due to the hidden defects of the
Montero. Odrada’s action in depositing the manager’s checks despite
knowledge of the Montero’s defects amounted to bad faith. Moreover,
when Odrada redeposited the manager’s checks on 19 April, he was
already formally notified by RCBC the previous day of the cancellation
of Lim’s auto loan transaction. Therefore, RCBC may refuse payment by
interposing a personal defense of Lim — that the title of Odrada had
become defective when there arose a partial failure or lack of
consideration.
22- De Ocampo v. Gatchalian (1961)
Topic: Who is NOT a holder in due course
Doctrine: Where a holder’s title is defective or suspicious, it cannot be
stated that the payee acquired the check without the knowledge, of said
defect in holder’s title, and for this reason the presumption that it is a
holder in due course or that it acquired the instrument in good faith does
not exist.
Emergency Recit: Manuel Gonzales’ wife (Matilde) had medical fees
due to Ocampo Clinic (plaintiff’s clinic). Gatchalian was looking for a car.
Gonzales represented to Gatchalian that he was duly authorized by the
owner to sell the Ocampo Clinic’s car, with the condition that the
potential buyer should give evidence that the buyer is ready and willing
to make such purchase in good faith through a check. Gonzales assured
Gatchalian that the check would be returned when he (Gonzales) brings
the car with its certificate of registration. When Gonzales failed to return
and deliver the same on the agreed date, Gatchalian issued a Stop
Payment Order on the check. Gonzales apparently used the check to
pay De Ocampo (Ocampo Clinic) his wife’s medical fees. Is De Ocampo
a holder in due course? No. De Ocampo knew that Gatchalian had no
obligation towards De Ocampo, so why would Gatchalian issue a check
in De Ocampo’s favor? Also, the amount of the check did not correspond
exactly with Matilde’s fees, and the check had two parallel lines in the
upper left hand corner, which practice means that the check could only
be deposited but may not be converted into cash. The SC held this
knowledge should have alerted De Ocampo to inquire about the check
before accepting it from Gonzales (whose title was defective and
suspicious because the check was not payable to him=Gonzales).
Facts: Anita Gatchalian was looking to buy a car for her family and
husband’s use. Manuel Gonzales offered to her a car owned by plaintiff
through Fajardo, the latter known by Anita Gatchalian. Gonzales
claimed that he was duly authorized by the plaintiff to sell the car.
Gonzales advised Gatchalian to issue a cross-check to comply on
showing interest and good faith in buying the car. Gonzales promised to
return the check with the car and certificate of registration the next day.
When Gonzales never appeared after, Gatchalian issued a stop
payment order on the check. She found out that Gonzales used the
check as payment to Ocampo Clinic for his (Gonzales) wife's medical
fees. De Ocampo now demands from Gatchalian for payment of the
check, in which Gatchalian refused citing that De Ocampo is a not a
holder in due course.
The lower court held that Gatchalian should pay De Ocampo.
Issue: Whether or not De Ocampo is a holder in due course?
Held: NO. Gatchalian SHOULD NOT pay De Ocampo.
The stipulation of facts expressly states that De Ocampo was not aware
of the circumstances under which the check was delivered to Manuel
Gonzales, but the SC agrees with Gatchalian that the circumstances
indicated by Gatchalian such as the fact that she (Gatchalian) had no
obligation or liability to the Ocampo Clinic; that the amount of the check
did not correspond exactly with the obligation of Matilde Gonzales to Dr.
V. R. de Ocampo; and that the check had two parallel lines in the upper
left hand corner, which practice means that the check could only be
deposited but may not be converted into cash; all these circumstances
should have put the De Ocampo to inquiry as to the why and wherefore
of the possession of the check by Manuel Gonzales, and why he used it
to pay Matilde’s account. It was payee’s (De Ocampo) duty to ascertain
from the holder, Manuel Gonzales, what the nature of the latter’s title to
the check was or the nature of his possession. Having failed in this
respect, the SC declares that De Ocampo was guilty of gross neglect in
not finding out the nature of the title and possession of Manuel
Gonzales, amounting to legal absence of good faith, and it may not be
considered as a holder of the check in good faith.
In the case at bar the rule that a possessor of the instrument is prima
facie a holder in due course does not apply because there was a defect
in the title of the holder (Manuel Gonzales), because the instrument is
not payable to him or to bearer. On the other hand, the stipulation of
facts indicated by Gatchalian in her brief, like the fact that the drawer
had no account with the payee; that the holder did not show or tell the
payee why he had the check in his possession and why he was using it
for the payment of his own personal account show that holder’s title was
defective or suspicious, to say the least. As holder’s title was defective
or suspicious, it cannot be stated that the payee acquired the check
without knowledge of said defect in holder’s title, and for this reason the
presumption that it is a holder in due course or that it acquired the
instrument in good faith does not exist. And having presented no
evidence that it acquired the check in good faith, it (payee) cannot be
considered as a holder in due course. In other words, under the
circumstances of the case, instead of the presumption that payee was a
holder in good faith, the fact is that it acquired possession of the
instrument under circumstances that should have put it to inquiry as to
the title of the holder who negotiated the check to it. The burden was,
therefore, placed upon it to show that notwithstanding the suspicious
circumstances, it acquired the check in actual good faith.
23 PNB v Judge Quimpo and Francisco Gozon II
Topic: Acceptor
Doctrine: The prime duty of a bank is to ascertain the genuineness of
the signature of the drawer or the depositor on the check being
encashed. It is expected to use reasonable business prudence in
accepting and cashing a check presented to it.
EMERGENCY RECIT: Ernesto Santos stole a check from Francisco
Gozon. Santos filled up the check and encashed it for the amount of
P5,000 from PNB. PNB debibted the amount from the account of P5,000
from the account of Santos. RTC ordered the return of P5,000 to Gozon.
The bank filed petition for certiorari, it argued that it exercised diligence
in accordance with the accepted norms of banking practice when it
accepted and paid the check. It presented evidence that the check had
to pass scrutiny by a signature verifier as well as an officer of the bank.
The Court ruled that PNB is liable. The prime duty of a bank is to
ascertain the genuineness of the signature of the drawer or the depositor
on the check being encashed. It is expected to use reasonable business
prudence in accepting and cashing a check presented to it. Petitioner
was negligent in encashing said forged check without carefully
examining the signature which shows marked variation from the genuine
signature of private respondent.
FACTS: Francisco Gozon II, who was a depositor of the Caloocan
Branch of PNB went to the bank in his car accompanied by his friend
Ernesto Santos whom he left in the car while he transacted in the bank.
When Santos saw that Gozon left his check book he took a check
therefrom, filled it up for the amount of P5,000, forged the signature of
Gozon, and thereafter, he encashed th check in the bank. The account
of Gozon was debited the said amount. Upon receipt of the statement of
account from the bank, Gozon asked the bank to return the amount to
his account as his signature on the check was forged, the bank however
refused. Upon a complaint filed by Gozon, Santos was apprehended,
and upon investigation he admitted that he stole the check of Gozon,
forged his signature an encashed the same with the bank. Gozon filed
a complaint for recovery of the amount of P5,000 against the bank. RTC
ordered the return of P5,000 to Gozon. The bank filed petition for
certiorari, it argued that it exercised diligence in accordance with the
accepted norms of banking practice when it accepted and paid the
check. It presented evidence that the check had to pass scrutiny by a
signature verifier as well as an officer of the bank.
ISSUE: Whether or not the bank is liable for debiting the amount from
the account of Gozon?
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 cannot ordinarily change the amount
so paid to the account of the depositor whose name was forged.
This rule is absolutely necessary to the circulation of drafts and checks,
and is based upon the presumed negligence of the drawee in failing to
meet its obligation to know the signature of its correspondent. There is
nothing inequitable in such a rule. If the paper comes to the drawee in
the regular course of business, and he, having the opportunity
ascertaining its character, pronounces it to be valid and pays it, it is not
only a question of payment under mistake, but payment in neglect of
duty which thecommercial law places upon him, and the result of his
negligence must rest upon him.
A comparison of the signature on the forged check (Exhibit 'A') with
plaintiffs exemplar signatures (Exhibits '5-A' and '5-B) found in the PNB
Form 35-A would immediately show the negligence of the employees of
the defendant bank. Even a not too careful comparison would
immediately arrest one's attention and direct it to the graceful lines of
plaintiff s exemplar signatures found in Exhibits '5-A' and '5-B'. The
formation of the first letter 'F' in the exemplars, which could be regarded
as artistic, is completely different from the way the same letter is formed
in Exhibit 'A-1'. That alone should have alerted a more careful and
prudent signature verifier.
The prime duty of a bank is to ascertain the genuineness of the signature
of the drawer or the depositor on the check being encashed. It is
expected to use reasonable business prudence in accepting and
cashing a check presented to it.
The trial court found that a comparison of the signature on the forged
check and the sample signatures of private respondent show marked
differences as the graceful lines in the sample signature which is
completely different from those of the signature on the forged check.
The trial court by merely examining the pictorial report presented by said
witness, found a marked difference in the second "c" in Francisco as
written on the questioned signature as compared to the sample
signatures, and the separation between the "s" and the "c" in the
questioned signature while they are connected in the sample signatures.
Obviously, petitioner was negligent in encashing said forged check
without carefully examining the signature which shows marked variation
from the genuine signature of private respondent.
The act of plaintiff in leaving his checkbook in the car while he went out
for a short while cannot be considered negligence sufficient to excuse
the defendant bank from its own negligence. It should be borne in mind
that when defendant left his car, Ernesto Santos, a long time classmate
and friend remained in the same. Defendant could not have been
expected to know that the said Ernesto Santos would remove a check
from his checkbook. Defendant had trust in his classmate and friend. He
had no reason to suspect that the latter would breach that trust.
24 – ALLIED BANKING CORPORATION, vs. LIM SIO WAN,
METROPOLITAN BANK AND TRUST CO., and PRODUCERS BANK.
Topic: Liability of parties; Acceptor
Doctrine: An exception to the rule that the collecting bank which
indorses a check bearing a forged indorsement and presents it to the
drawee bank guarantees all prior indorsements, including the forged
indorsement itself, and ultimately should be held liable therefor is when
the issuance of the check itself was attended with negligence.
Facts:
 Nov. 14, 1983: Respondent Lim Sio Wan deposited with
petitioner Allied Banking Corporation (Allied) a money market
placement of PhP 1,152,597.35 for a term of 31 days to
mature on December 15, 1983
 December 5, 1983: a person claiming to be Lim Sio Wan
called up Cristina So, an officer of Allied, and instructed the
latter to pre­terminate Lim Sio Wan’s money market
placement, to issue a manager’s check representing the
proceeds of the placement, and to give the check to one
Deborah Dee Santos who would pick up the check. Lim Sio
Wan described the appearance of Santos so that So could
easily identify her.
 Later, Santos arrived at the bank and signed the application
form for a manager’s check to be issued.The bank issued
Manager’s Check No. 035669 for PhP 1,158,648.49,
representing the proceeds of Lim Sio Wan’s money market
placement in the name of Lim Sio Wan, as payee.The check
was cross­checked “For Payee’s Account Only” and given to
Santos.
 The manager’s check was deposited in the account of
Filipinas Cement Corporation (FCC) at respondent
Metropolitan Bank and Trust Co. (Metrobank),with the forged
signature of Lim Sio Wan as indorser.
o Background: September 21, 1983, FCC had deposited a money
market placement for PhP 2 million with respondent Producers
Bank. Santos was the money market trader assigned to handle
FCC’s account.
o The placement matured on October 25, 1983 and was rolled-over
until December 5, 1983 [the same day that Lim Sio Wan’s money
market placement was terminated]
o FCC demanded the proceeds.
 In short: Allied check was deposited with Metrobank in the
account of FCC as Producers Bank’s payment of its obligation
to FCC.
 Upon the presentment of the check, Allied funded the check
even without checking the authenticity of Lim Sio Wan’s
purported indorsement. Thus, the amount on the face of the
check was credited to the account of FCC.
 December 9, 1983: Lim Sio Wan deposited with Allied a
second money market placement to mature on January 9,
1984
 December 14, 1983, upon the maturity date of the first money
market placement, Lim Sio Wan went to Allied to withdraw it
o She was informed that it been pre-terminated upon her instructions.
She denied giving any instructions and receiving the proceeds
thereof. She desisted from further complaints when she was
assured by the bank’s manager that her money would be
recovered.
 Realizing the promise that her money would be recovered
would not materialize, Lim Sio Wan sent a demand letter to
Allied asking for the payment of the first placement.
o Allied refused to pay Lim Sio Wan, claiming that the latter had
authorized the pre- termination of the placement and its
subsequent release to Santos.
 Lim Sio Wan filed with the RTC a Complaint against Allied
to recover the proceeds of her first money market
placement.
o Sometime in February 1984, she withdrew her second placement
from Allied.
 Allied filed a third party complaint against Metrobank and
Santos. In turn, Metrobank filed a fourth party
complaintagainst FCC. FCC for its part filed a fifth party
complaint against Producers Bank.
 After 6 months after funding the check, Allied informed
Metrobank that the signature was forged. Initially, Metrobank
withheld the amount. Later on, it release the amount to FCC
after the latter executed an Undertaking, promising to
indemnify Metrobank in case it was made to reimburse the
amount.
 Lim Sio Wan thereafter filed an amended complaint to
include Metrobank as a party- defendant, along with
Allied.
  RTC: Ordering defendant Allied Banking Corporation to pay
plaintiff the amount of P1,158,648.49 plus 12% interest per
annum from March 16, 1984 until fully paid;
CA modified: ordering and sentencing defendant--appellant Allied
Banking Corporation to pay sixty (60%) percent and defendant--
appellee Metropolitan Bank and Trust Company forty (40%) of the
amount of P1,158,648.49
Issue: Who is liable to pay Lim Sio Wan?
Held: 60:40 Ratio
Allied Banking Corporation to pay sixty (60%) percent and
Metropolitan Bank and Trust Company forty (40%) of the amount
of P1,158,648.49 .
RATIO:
Liability of Allied:
From the factual findings of the trial and appellate courts that Lim Sio
Wan did not authorize the release of her money market placement to
Santos and the bank had been negligent in so doing, there is no question
that the obligation of Allied to pay Lim Sio Wan had not been
extinguished.
In the instant case, the trial court correctly found Allied negligent in
issuing the manager’s check and in transmitting it to Santos
without even a written authorization. In fact, Allied did not even ask
for the certificate evidencing the money market placement or call
up Lim Sio Wan at her residence or office to confirm her
instructions. Both actions could have prevented the whole
fraudulent transaction from unfolding. Allied’s negligence must be
considered as the proximate cause of the resulting loss. To
reiterate, had Allied exercised the diligence due from a financial
institution, the check would not have been issued and no loss of funds
would have resulted. In fact, there would have been no issuance of
indorsement had there been no check in the first place.
The liability of Allied, however, is concurrent with that of Metrobank
as the last indorser of the check. When Metrobank indorsed the check
in compliance with the PCHC Rules and Regulations without verifying
the authenticity of Lim Sio Wan’s indorsement and when it accepted the
check despite the fact that it was cross­checked payable to payee’s
account only, its negligent and cavalier indorsement contributed to the
easier release of Lim Sio Wan’s money and perpetuation of the fraud.
Given the relative participation of Allied and Metrobank to the instant
case, both banks cannot be adjudged as equally liable. Hence, the
60:40 ratio of the liabilities of Allied and Metrobank, as ruled by the
CA, must be upheld.
25 - Metropolitan Bank v. Junnel’s Marketing Corporation (2018)
Topic: Indorser
Doctrine: Under Section 66, an endorser warrant “that the instrument
is genuine and in all respects what it purports to be; that he has good
title to it; that all prior parties had capacity to contract; and that the
instrument is at the time of his endorsement, valid and subsisting.” In
check transactions, the collecting bank generally suffers the loss
because it has the duty to ascertain the genuineness of all prior
endorsements. If any of the warranties made by the collecting bank turns
out to be false, then the drawee bank may recover from it up to the
amount of the check.
Facts: Respondent Junnel's Marketing Corporation (JMC) has a
current account with Metrobank from which it draws checks to pay its
different suppliers. Among JMC's suppliers are Jardine Wines and
Spirits (Jardine) and Premiere Wines (Premiere). During an audit of its
financial records, JMC discovered an anomaly involving eleven (11)
checks (subject checks) it had issued to the orders of Jardine and
Premiere. As it was, the subject checks had already been charged
against JMC's current account but were, for some reason, not covered
by any official receipt from Jardine or Premiere. The subject checks all
had been deposited with Bankcom. However, neither Jardine, nor
Premiere owns said Bankcom account. Respondent Delizo, a former
accountant of JMC, in a letter, confessed that she stole several company
checks drawn against JMC’s current account during her time as an
accountant for JMC. JMC filed a complaint for sum of money against
Delizo, Bankcom and Metrobank.
Issue: WON, Metrobank, the drawee bank, may seek reimbursement
from Bankcom, the collecting bank.
Held: YES. The present case involves crossed checks payable to the
order of a specified payee that were deposited in a collecting bank under
an account not belonging to the payee or his indorsee but which, upon
presentment, were subsequently honored by the drawee bank. In cases
involving the unauthorized payment of valid checks, the drawee bank
becomes liable to the drawer for the amount of the checks but the
drawee bank, in turn, can seek reimbursement from the collecting bank.
The rationale of the rule on sequence of recovery lies in the very basis
and nature of the liability of a drawee bank and a collecting bank.
Consequently, the liability of the collecting bank is anchored on its
guarantees as the last endorser of the check. Under Section 66, an
endorser warrant “that the instrument is genuine and in all respects what
it purports to be; that he has good title to it; that all prior parties had
capacity to contract; and that the instrument is at the time of his
endorsement, valid and subsisting.” In check transactions, the collecting
bank generally suffers the loss because it has the duty to ascertain the
genuineness of all prior endorsements. If any of the warranties made by
the collecting bank turns out to be false, then the drawee bank may
recover from it up to the amount of the check. Thus, Metrobank, as
drawee bank, is liable to return to JMC the amount of the subject checks.
Corollary, Metrobank may seek reimbursement from Bankcom, the
collecting bank.
MISSING CASE #26
27. - Robinson v. Lancaster
An oral notice by telephone to a clerk of an indorsing corporation
especially when it does not appear that the clerk had communicated it
to the management is ineffective.
NOTE: Case is not from this side of the planet. Full text not available.
Found a doctrine in DE LEON’s NEGO Book.
MISSING CASE #28
29. - Philippine National Bank v. CA (April 25, 1996)
Topic: Alteration
Doctrine: An alteration is said to be material if it alters the effect of the
instrument
Emergency Recit: A check with serial number 7-3666-223-3 was
issued by the Ministry of Education (now DECS) payable to F. Abante
Marketing. F. Abante Marketing is a client of Capitol and deposited the
check to Capitol. Capitol then deposited the same in its account with
PBCOM, which in turn sent the check to PNB for clearing. PNB cleared
the check at first, however, PNB returned it to PBCom for reason that
there was a material alteration of the check number. The issue in this
case is whether or not an alteration is the check number is a material
alteration. The Supreme Court held that it is not. An alteration is said to
be material if it alters the effect of the instrument. The serial number is
an item which is not an essential requisite for negotiability under Sec. 1
of the NIL. Hence, there was no alteration.
Facts:
 A check with serial number 7-3666-223-3 in the amount of
P97, 650. was issued by the Ministry of Education and Culture
(now DECS) payable to F. Abante Marketing. This check was
drawn against PNB.
 F. Abante Marketing, a client of Capitol City Development
Bank, deposited the questioned check in its savings acount
with said bank. In turn, Capitol deposited the same in its
account with said bank. In turn, Capitol deposited the same in
its account with the Philippine Bank of Communication
(PBCom) which, in turn, sent the check to PNB for clearing.
 PNB cleared the check as good and, thereafter, PBCom
credited Capitol’s account for the amount stated in the check.
 However, PNB returned the check to PBCom an debited
PBCom’s account for the amount covered by the check, the
reason being that there was a material alteration of the check
number.
 PBCom, as collecting agent of Capitol, then proceeded to
debit Capitol’s account for the same amount, and
subsequently, sent the check back to PNB. PNB, however,
returned the check to PBCom.
 Capitol could not, in turn, debit F. Abante Marketing’s account
since the later had already withdrawn the amount of the
 check. Capitol sought clarification from PBCom and
demanded the recrediting of the amount. PBCom followed suit
by requesting an explanation and re-crediting from PNB.
 Capitol filed a civil suit against PBCom which, in turn, filed a
third-party complaint against PNB. PNB filed a fourth-party
complaint against F. Abante Marketing.
 The RTC rendered a decision ordering PNB to re-credit or
reimburse Capitol
 The CA modified its decision by exempting PBCom from
liability
 Hence, appeal before SC.
Issue: W/N there was an alteration of the serial number of a check is a
material alteration.
Held: NO. An alteration is said to be material if it alters the effect of the
instrument. It means an unauthorized change in an instrument that
purports to modify in any respect the obligation of a party or an
unauthorized addition of words or numbers or other change to an
incomplete instrument relating to the obligation of a party. In other
words, a material alteration is one which changes the items which are
required to be stated under Sec. 1 of the NIL. The case at bench is
unique in the sense that what was altered is the serial number of the
check in question, an item which, it can be readily observed, is not an
essential requisite for negotiability under Sec. 1 of the NIL.
30 - Republic vs. PNB (1961)
TOPIC: Crossed Check (No mention in the case)
DOCTRINE/S: A cashier’s check is a primary obligation of the bank
which issues it and constitutes its written promise to pay upon demand;
whereas, an ordinary draft is a bill of exchange payable on demand and
is an order upon a third party purporting to be drawn upon a deposit of
funds.
EMERGENCY RECIT: The Republic filed for escheat of dormant credits
and deposits against several banks, including the First National City
Bank of New York. The Bank claimed that it mistakenly included items
such as demand drafts and telegraphic orders, which are not credits or
deposits, and which should, thus, be excluded from the Republic’s
claims. The issue is whether these items are credits or deposits, which
should be included in the Republic’s claim for escheat. The SC held that
herein demand drafts are not credits and should not be
included/escheated; whereas, the telegraphic payment orders are
credits and should be escheated.
FACTS
1. The Republic, pursuant to Act No. 3936, filed a complaint for
escheat of unclaimed bank deposit balances against several
banks, including the First National City Bank of New York. It
prayed that the banks be ordered to submit to the Treasurer
of the Philippines a statement of all the credits and deposits
held by them in favor of persons known to be dead or who
have not made deposits or withdrawals for a period of 10
years or more; and that the banks be ordered to deposit them
with the Treasurer.
2. The Bank claimed that it has inadvertently included in the
report it submitted items (such as cashier’s or manager’s
checks, demand drafts, and telegraphic transfer payment
orders) amounting to P18,590, which are not credits or
deposits under Act No. 2926, and should not be included in
the Republic’s claim.
3. CFI held that the demand drafts and telegraphic transfer
payment orders be excluded from the Republic’s claim.
ISSUE/S and HELD:
1. Whether the demand drafts are credits, which should be
included in the escheat. – NO.
A demand draft is a bill of exchange, which under Sec. 127 of the NIL,
“does not operate as an assignment of the funds in the hands of the
drawee available for the payment thereon and the drawee is not liable
on the bill unless and until he accepts the same.” In other words, in order
that a drawee may be liable on the draft and then become obligated to
the payee, it is necessary that he first accepts the same.
In this case, since the demand drafts involved have not been presented
for acceptance or for payment, the Bank never had any chance of
accepting or rejecting them. Thus, the Bank never became a debtor of
the payee concerned and as such the aforesaid drafts cannot be
considered as credits subject to escheat within the meaning of the law.
2. Whether a demand draft is of the same category as a
cashier’s check. – NO.
A cashier’s check is a primary obligation of the bank which issues it and
constitutes its written promise to pay upon demand; whereas an ordinary
draft is a bill of exchange payable on demand and is an order upon a
third party purporting to be drawn upon a deposit of funds.
3. Whether telegraphic payment orders are credits, which should
be included in the Republic’s claim for escheat. – YES.
In transaction for telegraphic payment orders, the agreement to remit
creates a contractual obligation and has been termed a purchase and
sale transaction. The purchaser of a telegraphic transfer upon making
payment completes the transaction insofar as he is concerned, though
insofar as the remitting bank is concerned the contract is executory until
the credit is established. Thus, the same is considered credit, which
should be included in the Republic’s claim.
31 – New Pacific Timber v. Seneris (1980)
Topic: Cashier’s check
Doctrine: It is a well-known and accepted practice in the business
sector that a Cashier's Check is deemed as cash. Where a check is
certified by the bank on which it is drawn, the certification is equivalent
to acceptance.
Emergency Recit: A judge refused to accept the payment of a
judgement obligation in a cashier’s check. The SC ruled that it is
allowed. [See doctrine]
Facts:
 New Pacific Timber & Supply Co. Inc. was the defendant in a
complaint for collection of money filed by Ricardo A. Tong.
 Upon failure of the petitioner to pay the judgment obligation, a
writ of execution worth P63,130.00 was issued levied on the
personal properties of the petitioner.
 Before the date of the auction sale, petitioner deposited with
the Clerk of Court P50,000.00 in Cashier’s Check of the
Equitable Banking Corporation and P13,130.00 in cash for a
total of P63,130.00.
 Tong refused to accept the check and the cash and requested
for the auction sale to proceed. The properties were sold for
P50,000.00 to the highest bidder with a deficiency of
P13,130.00.
 Petitioner subsequently filed an ex-parte motion for issuance
of certificate of satisfaction of judgment which was denied by
the Judge Seneris citing Article 1249 of the New Civil Code
which provides that payments of debts shall be made in the
currency which is the legal tender of the Philippines and
Section 63 of the Central Bank Act which provides that checks
representing deposit money do not have legal tender power.
In sustaining the contention of the private respondent to
refuse the acceptance of the cash, the Judge cited Article
1248 of the New Civil Code which provides that creditor
cannot be compelled to accept partial payment unless there
is an express stipulation to the contrary.
 Hence, this petition for certiorari.
Issue: W/N a cashier’s check be considered as a valid payment of a
judgment obligation? - YES.
Held:
 It is to be emphasized in this connection that the check
deposited by the petitioner in the amount of P50,000.00 is not
an ordinary check but a Cashier's Check of the Equitable
Banking Corporation, a bank of good standing and reputation.
As testified to by the Ex-Officio Sheriff with whom it has been
deposited, it is a certified crossed check.
 It is a well-known and accepted practice in the business sector
that a Cashier's Check is deemed as cash.
 Moreover, since the said check had been certified by the
drawee bank, by the certification, the funds represented by
the check are transferred from the credit of the maker to that
of the payee or holder, and for all intents and purposes, the
 latter becomes the depositor of the drawee bank, with rights
and duties of one in such situation.
 Where a check is certified by the bank on which it is drawn,
the certification is equivalent to acceptance.
 Said certification "implies that the check is drawn upon
sufficient funds in the hands of the drawee, that they have
been set apart for its satisfaction, and that they shall be so
applied whenever the check is presented for payment. It is an
understanding that the check is good then, and shall continue
good, and this agreement is as binding on the bank as its
notes in circulation, a certificate of deposit payable to the
order of the depositor, or any other obligation it can assume.
 The object of certifying a check, as regards both parties, is to
enable the holder to use it as money." When the holder
procures the check to be certified, "the check operates as an
assignment of a part of the funds to the creditors." Hence, the
exception to the rule enunciated under Section 63 of the
Central Bank Act to the effect "that a check which has been
cleared and credited to the account of the creditor shall be
equivalent to a delivery to the creditor in cash in an amount
equal to the amount credited to his account" shall apply in this
case.
 Considering that the whole amount deposited by the petitioner
consisting of Cashier's Check of P50,000.00 and P13,130.00
in cash covers the judgment obligation of P63,000.00 as
mentioned in the writ of execution, then, We see no valid
reason for the private respondent to have refused acceptance
of the payment of the obligation in his favor. The auction sale,
therefore, was uncalled for.
32 Tan vs CA (1994)
Topic: Manager's check
Doctrine: By its very nature, a cashier's check is the bank's order to pay
drawn upon itself, committing in effect its total resources, integrity and
honor behind the check. A cashier's check by its peculiar character and
general use in the commercial world is regarded substantially to be as
good as the money which it represents. In this case, therefore, PCIB by
issuing the check created an unconditional credit in favor of any
collecting bank.
All these considered, petitioner's reliance on the layman's perception
that a cashier's check is as good as cash is not entirely misplaced, as it
is rooted in practice, tradition, and principle. We see no reason thus why
this so-called discretion was not exercised in favor of petitioner, specially
since PCIB and RCBC are members of the same clearing house group
relying on each other's solvency. RCBC could surely rely on the
solvency of PCIB when the latter issued its cashier's check.
|||
Facts: Ramon Tan, a businessman from Puerto Princesa, secured a
Cashier’s Check from Philippine Commercial Industrial Bank (PCIBank)
to P30,000 payable to his order to avoid carrying cash while enroute to
Manila. He deposited the check in his account in Rizal Commercial
Banking Corporation (RCBC) in its Binondo Branch. RCBC sent the
check for clearing to the Central Bank which was returned for having
been“missent” or “misrouted.” RCBC debited Tan’s account without
informing him. Relying on common knowledge that a cashier’s check
was as good as cash, and a month after depositing the check, he issued
two personal checks in the name of Go Lak and MS Development
Trading Corporation. Both checks bounced due to “insufficiency of
funds.” Tan filed a suit for damages against RCBC.
Issue: Whether a cashier’s check is as good as cash, so as to have
funded the two checks subsequently drawn.
Held: An ordinary check is not a mere undertaking to pay an amount of
money. There is an element of certainty or assurance that it will be paid
upon presentation; that is why it is perceived as a convenient substitute
for currency in commercial and financial transactions. Herein, what is
involved is more than an ordinary check, but a cashier’s check. A
cashier’s check is a primary obligation of the issuing bank and accepted
in advance by its mere issuance. By its very nature, a cashier’s check is
a bank’s order to pay what is drawn upon itself, committing in effect its
total resources, integrity and honor beyond the check. Herein, PCIB by
issuing the check created an unconditional credit in favor any collecting
bank. Reliance on the layman’s perception that a cashier’s check is as
good as cash is not entirely misplaced, as it is rooted in practice, tradition
and principle
33 – Chan Wan v. Tan Kim (1960)
Topic: Crossed check
Doctrine: Where a check is crossed specially in favor of a certain bank,
the check is generally deposited with the bank mentioned in the
crossing, so that the latter may take charge of the collection. If it is not
presented by said bank for payment, the drawee is liable to the true
owner, in case of payment to persons not entitled thereto.
Facts:
 Checks payable to “cash or bearer” and drawn by Tan Kim
upon the Equitable Banking Corporation were all presented
for payment by Chan Wan to the drawee bank, but they “were
all dishonored and returned to him unpaid due to insufficient
funds and/or causes attributable to the drawer.” Thus, Chan
Wan filed a suit to collect the amount of the 11 checks totaling
P4,290.
 Tan Kim, on the other hand, admitted that he issued checks
but that the same was issued to 2 persons named Pinong and
Muy for some shoes the former had promised to make and
“were intended as mere receipts”.
 CFI: Denied the claim on the ground that Chan Wan failed to
prove that he was a holder in due course, and that the checks
being crossed checks should not have been presented to the
drawee for “payment,” but should have been deposited
instead with the bank mentioned in the crossing.
Issue: Whether or not Chan Wan has a right to collect on the 11 checks?
Held:
 8 of the checks in question bear across their face 2 parallel
transverse lines between which these words are written: non-
negotiable – China Banking Corporation. These checks have,
therefore, been crossed specially to the China Banking
Corporation, and should have been presented for payment by
China Banking, and not by Chan Wan. Inasmuch as Chan
Wan did present them for payment himself, there was no
proper presentment and the liability did not attach to the
drawer.
 It must be remembered that the drawer in drawing the check
engaged “on due presentment, the check would be paid, and
that if it be dishonored, he will pay the amount thereof to the
holder”. Wherefore in the absence of due presentment, the
drawer did not become liable. Nevertheless, it was found that
on the backs of the checks, endorsements which apparently
show that they had been deposited with the China Banking
Corporation and were, by the latter, presented to the drawee
bank for collection. (all the crossed checks have the
“clearance” endorsement of China Banking Corporation.)
 The said endorsements would seem to show deposit of the
checks with China Banking Corporation and subsequent
presentation by the latter through the clearing office; but as
the drawee had no funds, they were unpaid and returned,
some of them stamped “account closed”. Although it was not
indicated by Chan Wan, the court surmised that the checks
reached his hands after they had been thus returned, because
he presented them in court with such “account closed”
stamps. As such, he is not a holder in due course under the
circumstances, since he knew, upon taking them up, that the
checks had already been dishonored.
 It does not follow, however, that simply because he was not a
holder in due course, Chan Wan could not recover on the
checks. The only disadvantage of a holder who is not a holder
in due course is that the negotiable instrument is subject to
defenses as if it were non-negotiable.
 If it were true that the checks had been issued in payment for
shoes that were never made and delivered, Tan Kim would
have a good defense as against a holder who is not a holder
in due course. However, considering the deficiency of
important details on which a fair adjudication of the parties’
rights depends, the Court remands the case to the court below
for further proceedings.
34 – State Investment House v. IAC (1989)
Topic: Effects of crossing check
Doctrine: The effects of crossing a check are:
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 a bank; and
3. The act of crossing the check serves as a warning to the
holder that the check has been issued for a definite purpose
so that he must inquire if he has received the check pursuant
to that purpose, otherwise he is not a holder in due course.
Emergency Recit: Crossed checks were rediscounted to State
Investment House. These checks, however, bounced. The Supreme
Court held that State Investment cannot recover on these checks. State
Investment is not a holder in due course because it had failed to inquire
the purpose for which the crossed checks were issued. Being a holder
not in due course, State Investment is therefore subject to the personal
defense of noncompliance with the condition to grant the loan for which
the checks were issued.
Facts:
 New Sikatuna Wood Industries, Inc. requested for a loan from
Harris Chua, to which the latter agreed.
 In view of this agreement, Harris’s wife Anita issued 3 crossed
checks payable to New Sikatuna.
 Subsequently, New Sikatuna entered into an agreement with
State Investment whereby the former assigned and
discounted with the latter the aforementioned 3 checks.
 When the 3 checks were allegedly deposited, these checks
were dishonored by reason of "insufficient funds", "stop
payment" and "account closed", respectively.
 State Investment filed an action for collection against Sps.
Chua. The latter argue that New Sikatuna failed to make the
back up deposit for the checks, which was a precondition to
the loan.
Issues:
1. W/N State Investment is a holder in due course?
[relevant]
2. W/N State Investment can recover on the check?
Held:
1. NO.
Sec. 52(d), Negotiable Instruments Law: In order that one may be a
holder in due course, it is necessary that "at the time the instrument was
negotiated to him he had no notice of any x x x defect in the title of the
person negotiating it.".
Ocampo v. Gatchalian: The effects of crossing a check are:
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 a bank; and
3. The act of crossing the check serves as a warning to the
holder that the check has been issued for a definite purpose
so that he must inquire if he has received the check pursuant
to that purpose, otherwise he is not a holder in due course.
In this case, the 3 checks were crossed; meaning, they were intended
for deposit only to the payee named therein. When State Investment
rediscounted the check knowing that it was a crossed check, he was
knowingly violating the avowed intention of crossing the check.
Furthermore, his failure to inquire from the holder (New Sikatuna) the
purpose for which the checks were crossed, despite the warning of the
crossing, prevents him from being considered in good faith. Thus he is
not a holder in due course.
2. NO. A holder who is not in due course is subject to all
defenses available, including personal defenses. In this case,
Sps. Chua can invoke against State Investment the personal
defense of New Sikatuna’s failure to make the back up deposit
for the checks. Therefore, State Investment cannot recover on
the check.
35 - Papa v. Valencia, 348 Phil 700 (1998)
Topic: When Check Must Be Presented
Doctrine: While it is true that the delivery of a check produces the effect
of payment only when it is cashed, pursuant to Art. 1249 of the Civil
Code, the rule is otherwise if the debtor is prejudiced by the creditors
unreasonable delay in presentment. The acceptance of a check implies
an undertaking of due diligence in presenting it for payment, and if he
from whom it is received sustains loss by want of such diligence, it will
be held to operate as actual payment of the debt or obligation for which
it was given. It has, likewise, been held that if no presentment is made
at all, the drawer cannot be held liable irrespective of loss or injury
unless presentment is otherwise excused. This is in harmony with Article
1249 of the Civil Code under which payment by way of check or other
negotiable instrument is conditioned on its being cashed, except when
through the fault of the creditor, the instrument is impaired. The payee
of a check would be a creditor under this provision and if its non-payment
is caused by his negligence, payment will be deemed effected and the
obligation for which the check was given as conditional payment will be
discharged.
Facts:
Private respondents A.U. Valencia and Co., Inc. and Felix Pearroyo,
filed with the RTC of Pasig, a complaint for specific performance against
herein petitioner Myron C. Papa, in his capacity as administrator of the
Testate Estate of one Angela M. Butte. The case arose from a sale of a
parcel of land allegedly made to private respondent Penarroyo by
petitioner acting as attorney-in-fact of Anne Butte. The purchaser,
through Valencia, made a check payment in the amount of P40,000 and
in cash, P5,000. Both were accepted by petitioner as evidenced by
various receipts. It appeared that the said property has already been
mortgaged to the bank previously together with other properties of Butte.
When Butte passed away, the private respondent Penarroyo now
demanded that the title to the property be conveyed to him, however the
bank refused. Hence, the filing of a suit for specific performance by
private respondents against the petitioner. The lower court ruled in favor
of the private respondents and ordered herein petitioner the conveyance
or the property or if not, its payment. The petitioner appealed the lower
court's decision alleging that the sale was not consummated as he never
encashed the check given as part of the purchase price. Court of
Appeals affirmed with modifications the lower court's decision. It held
that there was a consummated sale of the subject property despite.
Issue: Whether or not the check is a valid tender of payment/Whether
or not there was a valid sale of the subject property. - Yes.
Held:
Yes. It is an undisputed fact that respondents Valencia and Pearroyo
had given petitioner Myron C. Papa the amounts of P5k in cash, and
P40k in check, in payment of the purchase price of the subject lot.
Petitioner himself admits having received said amounts, and having
issued receipts therefor. Petitioners assertion that he never encashed
the aforesaid check is not substantiated and is at odds with his
statement in his answer that he can no longer recall the transaction
which is supposed to have happened 10 years ago. After more than ten
(10) years from the payment in part by cash and in part by check, the
presumption is that the check had been encashed. As already stated,
he even waived the presentation of oral evidence. Granting that
petitioner had never encashed the check, his failure to do so for more
than ten (10) years undoubtedly resulted in the impairment of the check
through his unreasonable and unexplained delay.
Considering that respondents Valencia and Pearroyo had fulfilled their
part of the contract of sale by delivering the payment of the purchase
price, said respondents, therefore, had the right to compel petitioner to
deliver to them the owners duplicate of TCT No. 28993 of Angela M.
Butte and the peaceful possession and enjoyment of the lot in question.
36. - Evangelista v. Screenex (2017)
Topic: When Check Must Be Presented
Doctrine: The failure to encash the checks within a reasonable time
after issue, or more than 10 years in this instance, not only results in the
checks becoming stale but also in the obligation to pay being deemed
fulfilled by operation of law. x x x
Art. 1249 of the Civil Code specifically provides that checks should be
presented for payment within a reasonable period after their issuance.
Facts: In 1991, Evangelista obtained a loan from Screenex to the
amount of Php 1.5 Million. As security for the payment of such loan,
Evangelista issued two open-dated checks and delivered the same to
Screenex. From their issuance in 1991 to 2004, the checks remained in
Screenex’s safekeeping. Sometime between November 2004 and
August 2005 (the date was not specified in the case), Screenex
presented the checks but the same were dishonored for the reason:
“ACCOUNT CLOSED.” Before the checks were deposited, Screenex
sent Evangelista a demand letter to pay the loan.
Evangelista was charged with a violation of BP 22. MetC acquitted
Evangelista but ordered to pay Php 1.5 Million + interest. RTC and CA
affirmed MetC decision in toto.
Issue: Is Evangelista still liable to pay the value of the checks which had
only been presented for payment more than ten years from its issuance?
Held: NO.
Section 119 of the Negotiable Instruments Law states that a negotiable
instrument like a check may be discharged by any other act which will
discharge a simple contract for the payment of money. A check therefore
is subject to prescription of actions upon a written contract (10 years
under Art. 1144, Civil Code).
If the check is undated, however, as in the present petition, the cause of
action is reckoned from the date of the issuance of the check (Sec. 17,
Negotiable Instruments Law).
Also, payment is deemed effected and the obligation for which the check
was given as conditional payment is treated discharged, if a period of 10
years or more has elapsed from the date indicated on the check until the
date of encashment or presentment for payment. The failure to encash
the checks within a reasonable time after issue, or more than 10 years
in this instance, not only results in the checks becoming stale but also in
the obligation to pay being deemed fulfilled by operation of law.
WHEREFORE, the instant Petition is GRANTED. The Decision dated 1
October 2013 and Resolution dated 27 Feb 2014 in CA-G.R. No. 110680
are SET ASIDE. The Complaint against petitioner is DISMISSED.
37 - ASIA BREWERY AND GO V EQUITABLE PCI BANK (2017)
Topic: EFFECT OF FORGED CHECK
Doctrine: Weight of authority is to the effect that ‘the possession of a
check on a forged or unauthorized indorsement is wrongful, and when
the money is collected on the check, the bank can be held for moneys
had and received.’ The proceeds are held for the rightful owner of the
payment and may be recovered by him. The position of the bank taking
the check on the forged or unauthorized indorsement is the same as if it
had taken the check and collected without indorsement at all. The act of
the bank amounts to conversion of the check
Emergency Recit: Raymond Keh was allegedly charged with and
convicted of theft and ordered to pay the value of the checks. In
demanding payment from respondent, petitioners relied on Associated
Bank v. CA, in which this Court held “the possession of check on a
forged or unauthorized indorsement is wrongful, and when the money is
collected on the check, the bank can be held for moneys had and
received. Respondents argued that Go never became the holder or
owner of the instruments due to nondelivery and, hence, did not acquire
any right or interest. Thus, the payee of a negotiable instrument acquires
no interest with respect thereto until its delivery to him.
Facts:
Within the period of September 1996 to July 1998, 10 checks and 16
demand drafts (collectively, “instruments”) were issued in the name of
Charlie Go. The instruments, with a total value of P3,785,257.38, bore
the annotation “endorsed by PCI Bank, Ayala Branch, All Prior
Endorsement And/Or Lack of Endorsement Guaranteed.” All the
demand drafts, except those issued by the Lucena City and Ozamis
branches of Allied Bank, were crossed.
In their Complaint, petitioners narrate:
10. None of the above checks and demand drafts set out under the First,
Second, Third, Fourth, Fifth, and Sixth Causes of Action reached payee,
co-plaintiff Charlie S. Go.
11. All of the above checks and demand drafts fell into the hands of a
certain Raymond U. Keh, then a Sales Accounting Manager of plaintiff
Asia Brewery, Inc., who falsely, willfully, and maliciously pretending to
be the payee, co-plaintiff Charlie S. Go, succeeded in opening accounts
with defendant Equitable PCI Bank in the name of Charlie Go and
thereafter deposited the said checks and demand drafts in said accounts
and withdrew the proceeds thereof to the damage and prejudice of
plaintiff Asia Brewery, Inc.
Raymond Keh was allegedly charged with and convicted of theft and
ordered to pay the value of the checks. In demanding payment from
respondent, petitioners relied on Associated Bank v. CA, in which this
Court held “the possession of check on a forged or unauthorized
indorsement is wrongful, and when the money is collected on the check,
the bank can be held for moneys had and received.
Respondent interpreted paragraphs 10 and 11 of the Complaint as
an admission that the instruments had not been delivered to the payee,
petitioner Go. It argued that the Complaint failed to state a cause of
action and that petitioners had no cause of action against it, because 1)
the Complaint failed to indicate that ABI was a party to any of the
instruments; and 2) Go never became the holder or owner of the
instruments due to nondelivery and, hence, did not acquire any right or
interest. Respondent also opined that the claims were only enforceable
against the drawers of the checks and the purchasers of the demand
drafts, and not against it as a mere “presentor bank,” because the
nondelivery to Go was analogous to payment to a wrong party.
Thus, the payee of a negotiable instrument acquires no interest with
respect thereto until its delivery to him. Delivery of an instrument means
transfer of possession, actual or constructive, from one person to
another. Without the initial delivery of the instrument from the drawer to
the payee, there can be no liability on the instrument. Moreover, such
delivery must be intended to give effect to the instrument.
RTC ruled that petitioners could not have any cause of action
against respondent, because the instruments had never been delivered;
and that the cause of action pertained to the drawers of the checks and
the purchasers of the demand drafts. Petitioners argue the fact that the
instruments never reached the payee did not mean that there was no
delivery, because delivery can be either actual or constructive
Issue: WON there was delivery? YES
Held:
It was erroneous for the RTC to have concluded that there was no
delivery, just because the checks did not reach the payee. It failed to
consider Section 16 of the Negotiable Instruments Law, which envisions
instances when instruments may have been delivered to a person other
than the payee. The provision states:
Sec. 16. Delivery; when effectual; when presumed.—Every contract
on a negotiable instrument is incomplete and revocable until delivery of
the instrument for the purpose of giving effect thereto. As between
immediate parties and as regards a remote party other than a
holder in due course, the delivery, in order to be effectual, must be
made either by or under the authority of the party making, drawing,
accepting, or indorsing, as the case may be; and, in such case, the
delivery may be shown to have been conditional, or for a special purpose
only, and not for the purpose of transferring the property in the
instrument. But where the instrument is in the hands of a holder in due
course, a valid delivery thereof by all parties prior to him so as to make
them liable to him is conclusively presumed. And where the instrument
is no longer in the possession of a party whose signature appears
thereon, a valid and intentional delivery by him is presumed until
the contrary is proved.
They have a legal right to be paid for the value of the instruments.
In the said case of Associated Bank v. Court of Appeals, it was held that
the “weight of authority is to the effect that ‘the possession of a check on
a forged or unauthorized indorsement is wrongful, and when the money
is collected on the check, the bank can be held for moneys had and
received.’ The proceeds are held for the rightful owner of the payment
and may be recovered by him. The position of the bank taking the check
on the forged or unauthorized indorsement is the same as if it had taken
the check and collected without indorsement at all. The act of the bank
amounts to conversion of the check
38. Associated Bank vs. CA (1996)
Topic: Liability of drawer bank and collecting bank
Doctrine: The collecting bank or last endorser generally suffers the loss
because it has the duty to ascertain the genuineness of all prior
endorsements considering that the act of presenting the check for
payment to the drawee is an assertion that the party making the
presentment had done its duty to ascertain the genuineness of the
endorsements. The drawee bank is not similarly situated as the
collecting bank because the former makes no warranty as to the
genuineness of any indorsement. The drawee bank’s duty is but to verify
the genuineness of the drawer̂ ’s signature and not of the indorsement
because the drawer is its client. Moreover, the collecting bank is made
liable because it is privy to the depositor who negotiated the check. The
bank knows him, his address and history because he is a client. It has
taken a risk on his deposit. The bank is also in a better position to detect
forgery, fraud or irregularity in the indorsement.
ER: Province of Tarlac maintains a current account with PNB (drawee
bank). Checks were issued and signed by the Province in favor of
Concepcion Emergency Hospital. Several checks were issued by the
Province totalling P203,300. Upon audit, it was discovered that the
hospital did not receive the allotment of the checks. It was encashed by
Faustino Pangilinan with Associated Bank (collecting bank) bearing the
forged signature of Dr. Canlas, who was the chief payee of the hospital.
The Province sought to collect the amount, but both banks refused.
The SC held that due to the negligence of the Province of Tarlac in
releasing the checks to an unauthorized person (Fausto) respondent
Province contributed to the loss amounting to P203,300.00 and shall be
liable to the PNB for fifty (50%) percent thereof. In effect, the Province
of Tarlac can only recover fifty percent (50%) of P203,300.00 from PNB.
The collecting bank, Associated Bank, shall be liable to PNB for fifty
(50%) percent of P203,300.00. It is liable on its warranties as indorser
of the checks which were deposited by Fausto Pangilinan, having
guaranteed the genuineness of all prior indorsements, including that of
the chief of the payee hospital, Dr. Adena Canlas. Associated Bank was
also remiss in its duty to ascertain the genuineness of the payee’s
indorsement.
Facts:
 Province of Tarlac maintains a current account with the
Philippine National Bank (PNB) Tarlac Branch where the
provincial funds are deposited. Checks issued by the Province
are signed by the Provincial Treasurer and countersigned by
the Provincial Auditor or the Secretary of the Sangguniang
Bayan.
 A portion of the funds of the province is allocated to the
Concepcion Emergency Hospital. The allotment checks for
said government hospital are drawn to the order of
„Concepcion Emergency Hospital, Concepcion, Tarlac or The
Chief Concepcion Emergency Hospital, Concepcion, Tarlac.
The checks are released by the Office of the Provincial
Treasurer and received for the hospital by its administrative
officer and cashier.
 Upon audit, it was discovered that the hospital did not receive
the allotment checks drawn by the Province.
 After the checks were examined, the Provincial Treasurer
learned that 30 checks amounting to P203,300.00 were
encashed by one Fausto Pangilinan, with the Associated
Bank acting as collecting bank.
o Later, it was found that Faustino was the
administrative officer and cashier of payee hospital
until his retirement on February 28, 1978, collected
the questioned checks from the office of the
Provincial Treasurer. He claimed to be assisting or
helping the hospital follow up the release of the
checks and had official receipts
 Pangilinan sought to encash the first check with Associated
Bank. However, the manager of Associated Bank refused and
suggested that Pangilinan deposit the check in his personal
savings account with the same bank. Pangilinan was able to
withdraw the money when the check was cleared and paid by
the drawee bank, PNB.
 After forging the signature of Dr. Adena Canlas who was chief
of the payee hospital, Pangilinan followed the same
procedure for the second check, in the amount of P5,000.0,
as well as for twenty-eight other checks of various amounts
and on various dates. The last check negotiated by Pangilinan
was for P8,000.00. All the checks bore the stamp of
Associated Bank which reads “All prior endorsements
guaranteed ASSOCIATED BANK.”
 The Provincial Treasurer wrote the manager of the PNB
seeking the restoration of the various amounts debited from
the current account of the Province. In turn, the PNB manager
demanded reimbursement from the Associated Bank.
 As both banks resisted payment, the Province of Tarlac
brought suit against PNB which, in turn, impleaded
Associated Bank as third-party defendant. The latter then filed
a fourth-party complaint against Adena Canlas and Fausto
Pangilinan.
 As a defense,
o PNB (drawee bank) contends that Province of
Tarlac should bear the loss and alleges that as
between two innocent persons, the one whose act
was the cause of the loss, in this case the Province
of Tarlac, bears the loss.
o Associated Bank (collecting bank) contends that it
should be PNB who bears the loss since it cleared
and paid the forged checks
Issue: Who should bear the loss?
Held: Since Province of Tarlac his negligent, it should bear the loss with
drawee bank, PNB. PNB is liable for 50% of the loss. PNB, drawee bank
can proceed against Associated Bank, collecting bank, where it is liable
for 50% of the loss.
Nature of Liability of Drawee Bank
The bank on which a check is drawn, known as the drawee bank, is
under strict liability to pay the check to the order of the payee. The
drawer’s instructions are reflected on the face and by the terms of the
check. Payment under a forged indorsement is not to the drawer̂ ’s order.
When the drawee bank pays a person other than the payee, it does not
comply with the terms of the check and violates its duty to charge its
customer’s (the drawer) account only for properly payable items. Since
the drawee bank did not pay a holder or other person entitled to receive
payment, it has no right to reimbursement from the drawer. The general
rule then is that the drawee bank may not debit the drawer’s account
and is not entitled to indemnification from the drawer. The risk of loss
must perforce fall on the drawee bank.
However, if the drawee bank can prove a failure by the customer/drawer
to exercise ordinary care that substantially contributed to the making of
the forged signature, the drawer is precluded from asserting the forgery.
If at the same time the drawee bank was also negligent to the point of
substantially contributing to the loss, the such loss from the forgery can
be apportioned between the negligent drawer and the negligent bank.
In cases involving checks with forged indorsements, such as the present
petition, the chain of liability does not end with the drawee bank. The
drawee bank may not debit the account of the drawer but may generally
pass liability back through the collection chain to the party who took from
the forger and, of course, to the forger himself, if available. In other
words, the drawee bank can seek reimbursement or a return of the
amount it paid from the presentor bank or person. Theoretically, the
latter can demand reimbursement from the person who indorsed the
check to it and so on. The loss falls on the party who took the check from
the forger, or on the forger himself.
Nature of Liability of Collecting Bank
An indorser of an order instrument warrants „that the instrument is
genuine and in all respects what it purports to be; that he has a good
title to it; that all prior parties had capacity to contract; and that the
instrument is at the time of his indorsement valid and subsisting. He
cannot interpose the defense that signatures prior to him are forged.
A collecting bank where a check is deposited and which indorses the
check upon presentment with the drawee bank, is such an indorser. So
even if the indorsement on the check deposited by the bank’s client is
forged, the collecting bank is bound by his warranties as an indorser and
cannot set up the defense of forgery as against the drawee bank.
By reason of the statutory warranty of a general indorser in Section 66
of the Negotiable Instruments Law, a collecting bank which indorses a
check bearing a forged indorsement and presents it to the drawee bank
guarantees all prior indorsements, including the forged indorsement. It
warrants that the instrument is genuine, and that it is valid and subsisting
at the time of his indorsement. Because the indorsement is a forgery,
the collecting bank commits a breach of this warranty and will be
accountable to the drawee bank. This liability scheme operates without
regard to fault on the part of the collecting/presenting bank. Even if the
latter bank was not negligent, it would still be liable to the drawee bank
because of its indorsement.
As held by the SC, the collecting bank or last endorser generally suffers
the loss because it has the duty to ascertain the genuineness of all prior
endorsements considering that the act of presenting the check for
payment to the drawee is an assertion that the party making the
presentment had done its duty to ascertain the genuineness of the
endorsements. The drawee bank is not similarly situated as the
collecting bank because the former makes no warranty as to the
genuineness of any indorsement. The drawee bank’s duty is but to verify
the genuineness of the drawer̂ ’s signature and not of the indorsement
because the drawer is its client. Moreover, the collecting bank is made
liable because it is privy to the depositor who negotiated the check. The
bank knows him, his address and history because he is a client. It has
taken a risk on his deposit. The bank is also in a better position to detect
forgery, fraud or irregularity in the indorsement.
In this case, the checks were indorsed by the collecting bank
(Associated Bank) to the drawee bank (PNB). The former will
necessarily be liable to the latter for the checks bearing forged
indorsements. If the forgery is that of the payee’s or holder’s
indorsement, the collecting bank is held liable, without prejudice to the
latter proceeding against the forger. Since a forged indorsement is
inoperative, the collecting bank had no right to be paid by the drawee
bank. The former must necessarily return the money paid by the latter
because it was paid wrongfully.
As applied in this case
PNB, the drawee bank, cannot debit the current account of the Province
of Tarlac because it paid checks which bore forged indorsements.
However, if the Province of Tarlac as drawer was negligent to the point
of substantially contributing to the loss, then the drawee bank PNB can
charge its account. If both drawee bank-PNB and drawer-Province of
Tarlac were negligent, the loss should be properly apportioned between
them. The loss incurred by drawee bank-PNB can be passed on to the
collecting bank-Associated Bank which presented and indorsed the
checks to it. Associated Bank can, in turn, hold the forger, Fausto
Pangilinan, liable.
Due to the negligence of the Province of Tarlac in releasing the checks
to an unauthorized person (Fausto Pangilinan), in allowing the retired
hospital cashier to receive the checks for the payee hospital for a period
close to three years and in not properly ascertaining why the retired
hospital cashier was collecting checks for the payee hospital in addition
to the hospital’s real cashier, respondent Province contributed to the loss
amounting to P203,300.00 and shall be liable to the PNB for fifty (50%)
percent thereof. In effect, the Province of Tarlac can only recover fifty
percent (50%) of P203,300.00 from PNB.
The collecting bank, Associated Bank, shall be liable to PNB for fifty
(50%) percent of P203,300.00. It is liable on its warranties as indorser
of the checks which were deposited by Fausto Pangilinan, having
guaranteed the genuineness of all prior indorsements, including that of
the chief of the payee hospital, Dr. Adena Canlas. Associated Bank was
also remiss in its duty to ascertain the genuineness of the payee’s
indorsement.
39 - Associated Bank v. CA (1992)
Topic: Liability of drawer bank and collecting bank
Doctrine: The subject checks were accepted for deposit by the Bank for
the account of Rafael Sayson although they were crossed checks and
the payee was not Sayson but Melissa's RTW. The Bank stamped
thereon its guarantee that "all prior endorsements and/or lack of
endorsements (were) guaranteed." By such deliberate and positive act,
the Bank had for all legal intents and purposes treated the said checks
as negotiable instruments and, accordingly, assumed the warranty of
the endorser. The weight of authority is to the effect that "the possession
of a check on a forged or unauthorized indorsement is wrongful, and
when the money is collected on the check, the bank can be held 'for
moneys had and received.'" The proceeds are held for the rightful owner
of the payment and may be recovered by him. The position of the bank
taking the check on the forged or unauthorized indorsement is the same
as if it had taken the check and collected without indorsement at all. The
act of the bank amounts to conversion of the check.
ER: Merle Reyes is engaged in the business of ready- to -wear garments
under the firm name “Melissa’s RTW.” She deals with Robinson’s Dept.
Store, Payless Dept. Store, Rempson Dept. Store, and the Corona
Bazaar. To pay their respective accounts, these 4 companies issued
crossed checks payable to Melissa’s RTW: When Reyes went to the 4
companies to collect what she thought were still unpaid accounts, she
was informed of the issuance of the 6 crossed checks. Reyes then
learned that the 6 checks had been deposited with Associated Bank and
subsequently paid by it to a Rafael Sayson, one of its “trusted
depositors,” as stated by Associated Bank’s branch manager and its
co-petitioner, Conrado Cruz.
Sayson had not been authorized by Reyes to deposit and encash the 6
checks.
SC: The petitioners argue that the cause of action for violation of the
common instruction found on the face of the checks exclusively belongs
to the issuers thereof and not to the payee. Moreover, having acted in
good faith as they merely facilitated the encashment of the checks, they
cannot be made liable to the private respondent. (see doctrine)
Facts:
 Merle Reyes is engaged in the business of ready- to -wear
garments under the firm name “Melissa’s RTW.”
 She deals with Robinson’s Dept. Store, Payless Dept. Store,
Rempson Dept. Store, and the Corona Bazaar.
 To pay their respective accounts, these 4 companies issued
crossed checks payable to Melissa’s RTW
 When Reyes went to the 4 companies to collect what she
thought were still unpaid accounts, she was informed of the
issuance of the 6 crossed checks.
 Reyes then learned that the 6 checks had been deposited with
Associated Bank and subsequently paid by it to a Rafael
Sayson, one of its “trusted depositors,” as stated by
Associated Bank’s branch manager and its co-petitioner,
Conrado Cruz.
 Sayson had not been authorized by Reyes to
deposit and encash the 6 checks.
 Reyes sued the petitioners in the QC RTC for recovery of the
total value of the checks plus damages.
 The RTC ruled for Reyes, requiring the petitioners to pay
Reyes the total value of the checks totaling P15,805 plus 12%
interest, P50,000 actual damages, P25,000 exemplary
damages, P5,000 attorney’s fees, and the costs of the suit.
 Petitioners appealed to the CA reiterating their argument that
Reyes had no cause of action against them and should have
proceeded against the companies that issued the checks.
 The CA ruled for Reyes, ruling that the 3 elements of a cause
of action were present in this case at bar and such cause of
action had been proven by the evidence.
Does Reyes have a cause of action against the petitioners for their
encashment and payment to another person of certain crossed checks
issued in her favor? YES.
 Under accepted banking practice, crossing a check is done by
writing 2 parallel lines diagonally on the left top portion of the
checks.
 The crossing is special where the name of a bank or a
business institution is written between the 2 parallel lines,
which means that the drawee should pay only with the
intervention of that company and the crossing is general
where the words written between the 2 parallel lines are “and
Co.” or “for payee’s account only,” as at bar.
 State Investment House vs. IAC: “…effects of crossing a
check are: (1) that the check may not be encashed but only
deposited in the bank; (2) that the check may be negotiated
only once — to one who has an account with a bank; and (3)
that the act of crossing the check serves as a warning to the
holder that the check has been issued for a definite purpose
so that he must inquire if he has received the check pursuant
to that purpose.”
 The effects, therefore, of crossing a check relate to the mode
of its presentment for payment.
 Under NIL, Sec. 72, presentment for payment, to be sufficient,
must be made by the holder or by some person authorized to
receive payment on his behalf.
 Who the holder or authorized person is depends on
the instruction stated on the face of the check.
 The 6 checks at bar had been crossed and issued “for payee’s
account only.”
  This signifies that the drawers had intended the
same for deposit only by the person indicated:
Melissa’s RTW.
 The subject checks were accepted for deposit by Associated
Bank for the account of Rafael Sayson, although they were
crossed checks and the payee was Melissa’s RTW.
 The Bank stamped on the crossed checks its guarantee that
“all prior endorsements and/or lack of endorsements (were)
guaranteed.”
 By such deliberate and positive act, Associated
Bank had, for all legal intents and purposes, treated
the checks as negotiable instruments and assumed
the warranty of the endorser.
 Weight of authority: “…possession of a check on a forged or
unauthorized indorsement is wrongful, and when the money
is collected on the check, the bank can be held ‘for moneys
had and received.’”
 The position of the bank taking the check on the forged or
unauthorized indorsement is the same as if it had taken the
check and collected without indorsement at all.
 The act of the bank amounts to conversion of the
check.
 The proceeds of the subject checks belonged to Reyes and
since she had not authorized Sayson to endorse or encash
them, there was conversion of the funds by Associated Bank.
 When Associated Bank paid the checks so endorsed
notwithstanding that title had not passed to the endorser, it did
so at its peril and became liable to the payee (Reyes) for the
value of the checks.
 The petitioners were negligent when they permitted the
encashment of the checks by Sayson.
 Associated Bank should have first verified his right
to endorse the crossed checks, of which he was not
the payee, and to deposit the proceeds of the
checks to his own account.
 Associated Bank was, because of the nature of the checks,
put upon notice that they were issued for deposit only to the
Reyes’s account.
 Its failure to inquire into Sayson’s authority was a
breach of a duty it owed to Reyes.
 Even if the petitioners’ contention is true that that it was Eddie
Reyes, Merle Reyes’ husband, who endorsed the checks,
Associated Bank would still be liable to Merle Reyes because
Eddie Reyes was not authorized to make the endorsements.
 Even if the endorsements were forged, as alleged, Associated
Bank would still be liable to Reyes for not verifying the
endorser’s authority.
 There is no substantial difference between an
actual forging of a name to a check as an
endorsement by a person not authorized to make
the signature and the affixing of a name to a
check as an endorsement by a person not
authorized to endorse it.
 It was Associated Bank’s responsibility to inquire as to
Sayson’s authority to deposit crossed checks payable to
Melissa’s RTW upon a prior endorsement by Eddie Reyes.
 Associated Bank’s failure to make this inquiry was
a breach of duty that made it liable to Reyes for the
amount of the checks.
 There being no evidence that the crossed checks were
actually received by Reyes, she would have a right of action
against the drawer companies, which could go against their
respective drawee banks, which could sue Associated Bank,
as collecting bank.
 In a similar situation, it was held that, to simplify
proceedings, the payee of the illegally encashed
checks should be allowed to recover directly
from the bank responsible for such encashment,
regardless of whether or not the checks were
actually delivered to the payee.
40. - Bank of America, NT & SA v. Associated Citizens Bank (2009)
Topic: The drawee bank becomes liable to the drawer of the amount of
the checks
Doctrine: The Bank is under strict liability, based on the contract
between the bank and its customer (drawer), to pay the check only to
the payee or the payee’s order. The drawer’s instructions are reflected
on the face and by the terms of the check. When the drawee bank pays
a person other than the payee named on the check, it does not comply
with the terms of the check and violates its duty to charge the drawer’s
account only for properly payable items.
Emergency Recit: In a collection suit by BA finance against Miller and
impleaded three representatives of the latter, a question arose in the
Supreme Court regarding the liability of Bank of America to pay BA
Finance. The SC ruled in the affirmative. See doctrine.
Facts: BA-Finance Corporation (BA Finance) and Miller Offset Press,
Inc. (Miller) entered into a credit line facility agreement whereby Miller
can discount and assign its trade receivables with the BA Finance. At
the same time, Uy Kiat Chung, Ching Uy Seng, and Uy Chung Guan
Seng, acting for Miller, executed a Continuing Suretyship Agreement
with BA-Finance. Under the agreement, they jointly and severally
guaranteed the full and prompt payment of any and all indebtedness
which Miller may incur with BA-Finance.
Miller discounted and assigned several trade receivables to BA-Finance
by executing Deeds of Assignment in favor of the latter. In consideration
thereof, BA-Finance issued four checks payable to the order of Miller
with the notation “For Payee’s Account Only.” These checks were drawn
against Bank of America. The four checks were deposited by Ching Uy
Seng in Associated Citizens Bank with his joint account with Uy Chung
Seng. Associated Bank stamped the checks and guaranteed all prior
endorsements and/or lack of endorsements and sent them through
clearing. Later, Bank of America as drawee bank honored the checks
and paid the proceeds to Associated Bank as the collecting bank. When
Miller failed to deliver to BA-Finance the proceeds of the assigned trade
receivables, BA-Finance filed a collection suit against Miller and
impleaded the three representative of the latter.
Bank of America filed a third party complaint against Associated Bank.
In its answer to the third party complaint, Associated Bank admitted
having received the four checks for deposit in the joint account of Ching
Uy Seng and Uy Chung Guan Seng, but alleged that Ching Uy Seng,
being one of the corporate officers of Miller, was duly authorized to act
for and on behalf of Miller.
Issues:
1. WON Bank of America is liable to pay BA-Finance
2. WON Associated Bank should reimburse Bank of America the
amount of the four checks.
Held:
1. YES. The bank on which a check is drawn, known as the
drawee bank, is under strict liability, based on the contract
between the bank and its customer (drawer), to pay the check
only to the payee or the payee’s order. The drawer’s
instructions are reflected on the face and by the terms of the
check. When the drawee bank pays a person other than the
payee named on the check, it does not comply with the terms
of the check and violates its duty to charge the drawer’s
account only for properly payable items. On the part of
Associated Bank, the law imposes a duty of diligence on the
collecting bank to scrutinize checks deposited with it for the
purpose of determining their genuineness and regularity. The
collecting bank being primarily engaged in banking holds itself
out to the public as the expert and the law holds it to a high
standard of conduct. In presenting the checks for clearing and
for payment, the defendant [collecting bank] made an express
guarantee on the validity of “all prior endorsements.” Thus,
stamped at the back of the checks are the defendant’s clear
warranty. As the warranty has proven to be false and
inaccurate, Associated Bank is liable for any damage arising
out of the falsity of its representation.
2. YES. A bank that regularly processes checks that are neither
payable to the customer nor duly indorsed by the payee is
apparently grossly negligent in its operations. This Court has
recognized the unique public interest possessed by the
banking industry and the need for the people to have full trust
and confidence in their banks. For this reason, banks are
minded to treat their customer’s accounts with utmost care,
confidence, and honesty. In a checking transaction, the
drawee bank has the duty to verify the genuineness of the
 signature of the drawer and to pay the check strictly in
accordance with the drawer’s instructions, i.e., to the named
payee in the check. It should charge to the drawer’s accounts
only the payables authorized by the latter. Otherwise, the
drawee will be violating the instructions of the drawer and it
shall be liable for the amount charged to the drawer’s account.
Rodriguez checks are payable to order since the bank failed
to prove that the named payees therein are fictitious.
Hence, the fictitious-payee rule which will make the
instrument payable to bearer does not apply. PNB accepted
the 69 checks for deposit to the PEMSLA account even
without any indorsement from the named payees. It bears
stressing that order instruments can only be negotiated with a
valid indorsement.
41- BPI v CA
Topic: As distinguished from doctrine of comparative negligence
A/N: Full disclosure! This is also dervied from a digest we had during
our nego time.
Doctrine: If there is Comparative negligence on the part of both the
banks, substantial justice requires that both will proportionately share in
the loss.
ER: Eligia had a money market placement with BPI. An imposter
withdrew the money market placement through fraudulent machinations.
The money was deposited to Chinabank under Eligia’s name. The check
was stamped by Chinabank of “all prior endorsements and/or lack of
endorsements”. The real Eligia appeared and is claiming to recover from
BPI. BPI claims that it is already relieved from liability because of the
stamp of Chinabank. The SC ruled that they are not absolved and that
both banks were negligent in their duty so they shall be liable 60-40.
Facts:
 BPI got a call from a woman allegedly Eligia Fernando. She
sought to pre-terminate a money market placement
amounting to P2.4 Million. Initially, the alleged “Eligia” asked
for the proceeds to be delivered to the real Fernando’s office
but later said that the proceeds, in the form of cashier’s checks
(one for P 1.8 M, the other for P600K), would be picked up by
her niece. BPI did not contact to confirm with the real Eligia at
her Philamlife office to verify, information which BPI had on
their file, BPI allowed this impersonator to receive the checks.
The “niece” only presented a written authorization as well as
a letter requesting the pre-termination, both of which had
forged signatures of the true Eligia (bearing a “close
similarity”). No surrender of the promissory note evidencing
the placement was required by BPI.
 Then, two days later, the impostor opened a current account
in China Bank under Eligia’s name. The impostor showed only
her tax account number as a means of identification. Antonio
Concepcion, a person opening an account in China Bank,
vouched for her. Cash Supervisor Cuaso was not comfortable
with this; she made it appear that the Fernando impostor was
introduced by a long-standing client, Valentin Co.
 The processed application shows the signature of the alleged
Eligia Fernando. The impostor deposited the two checks in
the China Bank account and deposited the proceeds thereof
days later. It is to be noted that the computerized teller
terminal where the tellers delivering the money did not display
the account’s opening date, the amounts and dates of
deposits and withdrawals.
 China Bank found that this impostor’s endorsement
conformed with the depositor’s specimen signature, the
depositor being the impostor. China Bank thus stamped on
the two checks its guaranty of prior indorsements or lack
thereof. Checks were sent to clearing. BPI cleared, not seeing
that the endorsement of Eligia Fernando at the back of the
checks were forged. Around a month later, the true Eligia
Fernando came to BPI and demanded the proceeds of the
placement. She showed the original promissory note
evidencing the placement. BPI issued her a new promissory
note evidencing the placement’s roll over. BPI returned the
two checks due to “Payee’s endorsement forged”. China Bank
returned the checks due to “Beyond Clearing Time”.
 BPI sued China Bank for the crediting of 1.2 Million, which BPI
paid, to its clearing account in the Philippine Clearing House
Corporation (PCHC). PCHC’s Arbitration Committee ruled in
BPI’s favor but the same was overturned through a Motion for
Reconsideration by the PCHC’s Board of Directors. RTC
affirmed the order with the modification on attorney’s fees and
interests. CA affirmed RTC.
Issue: Is BPI already absolved?
Held: No. Both banks should be liable. The guarantee made by BPI
mandates the collecting bank or the last endorser to suffer the loss due
to its negligence in not detecting the defect. This guarantee can only be
enforced to a certain extent (40%) as it was BPI that was more negligent
(60%).
BPI’s basis for arguing that it should be absolved from liability is Sec. 23
of the NIL, which states that forged signatures are wholly inoperative.
Thus, the check presented by China Bank bearing an endorsement with
a wholly inoperative signature cannot be enforced against BPI. The
Court interpreted Sec 23 of the NIL to hold that estoppel by a party’s
own negligence can bar a party from setting up forgery as a defense.
BPI is either grossly negligent or fraudulent in this case. Despite how
easy it is to call the true Fernandez to verify the pre-termination, BPI did
not do so. BPI also did not even require the presentation of the
promissory note that evidenced the placement. BPI cannot rely on the
last clear chance doctrine. SC analyzed the Picart case which explained
the doctrine. According to Picart, when a party can no longer prevent an
expected harm, the duty to avoid injury passes to the person who has
complete control of the situation. Here, China Bank had no complete
control of the situation. China Bank had no prior notice of BPI’s fraud on
the pre-termination of the placement. Fernando’s signature comparison
does not result in the discovery of the fraud. China Bank could not have
any knowledge of the fraud. Being negligent, BPI cannot setup the
forgery against China Bank. However, while bereft of complete control,
China Bank is not without blame. Their employees closed their eyes to
the suspicious circumstances of: 1. Huge over-the-counter withdrawals
shortly after the account was opened; 2. The account was opened only
on the strength of the tax account number as identification as well as
that of the introduction of its client
Considering the comparative negligence of the two banks, BPI is
responsible for 60% while China Bank is responsible for 40%.
42 ALLIED BANKING CORP. (ABC) V. LIM SIO WAN (LIM)
FACTS:
1. Lim deposited with ABC a money market placement of P
1,152, 597.35 for a term of 31 days to mature on 15 December
1983.
2. A person claiming to be Lim called an officer from ABC and
instructed the latter:
a. to pre-terminate the said money market placement;
b. to issue manager’s check representing the
proceeds of the placement; and
c. to give the check to Deborah Dee Santos (Santos)
who would pick up the check.
3. Santos then arrived at the bank for the issuance of the
manager’s check, which was then issued by ABC.
4. Thereafter, the said manager’s check was deposited in the
account of Filipinas Cement Corporation (FCC) at Metrobank,
WITH THE FORGED signature of Lim as indorser.
5. The said manager’s check deposited at Metrobank was
actually made as Producer’s Bank’s payment of its obligation
to FCC.
6. The check was then cleared and sent back to ABC for funding.
7. Upon the maturity date of the first money market placement,
Lim went to ABC to withdraw it, when she was informed that
the placement had been pre-terminated upon her
“instructions”.[2] Of course, Lim denied giving said
instructions.
8. RTC: ABC liable to pay plaintiff the amount of money market
placement.
9. CA: Modified RTC. ABC to pay 60% and Metrobank to pay
40% of the amount of the money market placement.
ISSUE: Who are the parties liable to LIM for the latter’s loss?
HELD: ABC and Metrobank on a 60:40 basis...
AS TO ABC:
 ABC is liable to Lim. Fundamental and familiar is the doctrine
that the relationship between a bank and a client is one of debtor-
creditor. A bank deposit, or a money market placement in particular, is
in the nature of a simple loan or muuum. Lim, as creditor of the bank for
her money market placement, is entitled to payment upon her request,
or upon maturity of the placement, or until the bank is released from its
obligation as debtor. Until any such event, the obligation of ABC to Lim
remains unextinguished.
Lim did not authorize the release of her money market
placement to Santos and the bank had been negligent in so doing, there
is no question that the obligation of ABC to pay Lim had not been
extinguished. Since there was no effective payment of Lim’s money
market placement, ABC still has an obligation to pay her at six percent
(6%) interest from March 16, 1984 until the payment thereof.
AS TO METROBANK: (IMPORTANT; COMPARATIVE NEGLIGENCE)
We cannot, however, say outright that ABC is solely liable to Lim. The
liability of ABC is concurrent with that of Metrobank as the last indorser
of the check. When Metrobank indorsed the check in compliance with
the PCHC Rules and Regulations without verifying the authenticity of
Lim’s indorsement and when it accepted the check despite the fact that
it was cross-checked payable to payee’s account only, its negligent and
cavalier indorsement contributed to the easier release of Lim’s money
and perpetuation of the fraud. Given the relative participation of ABC
and Metrobank to the instant case, both banks cannot be adjudged as
equally liable. Hence, the 60:40 ratio of the liabilities of ABC and
Metrobank, as ruled by the CA, must be upheld.
AS TO PRODUCERS BANK:
As to Producers Bank, ABC’s argument that Producers Bank must be
held liable as employer of Santos under Article 2180 of the Civil Code is
erroneous. Art. 2180 pertains to the vicarious liability of an employer for
quasi-delicts that an employee has committed. Such provision of law
does not apply to civil liability arising from delict or crime.
One also cannot apply the principle of subsidiary liability in Article 103
of the Revised Penal Code in the instant case. Such liability on the part
of the employer for the civil aspect of the criminal act of the employee is
based on the conviction of the employee for a crime. Here, there has
been no conviction for any crime.
43 – Metropolitan Bank and Trust Co. v Junnel’s Marketing
Corporation
Topic: Unauthorized payment of valid checks
Doctrine #1: When a drawee bank pays a person other than the payee
named on the check, it essentially commits a breach of its obligation and
renders the payment it made unauthorized. In such cases and under
normal circumstances, the drawee bank may be held liable to the drawer
for the amount charged against the latter's account. it is only when the
unauthorized payment of a check had been caused or was attended by
the fault or negligence of the drawer himself can the drawee bank be
excused, whether wholly or partially, from being held liable to the drawer
for the said payment. The bank on which a check is drawn, known as
the drawee bank, is under strict liability, based on the contract between
the bank and its customer (drawer), to pay the check only to the payee
or the payee's order. x x
Doctrine #2: A collecting bank's mere act of presenting a check for
payment to the drawee bank is itself an assertion, on the part of the
former, that it had done its duty to ascertain the validity of prior
indorsements.
Doctrine #3: In the event that it is made to reimburse the drawee bank,
the collecting bank can seek similar reimbursement from the very
persons who caused the checks to be deposited and received the
unauthorized payments. Such persons are the ones ultimately liable for
the unauthorized payments and their liability rests on their absolute lack
of valid title to the checks that they were able to encash.
Emergency Recit:
JMC - Drawer
Metrobank - Drawee bank
Jardine and Premiere – Payees
Junnel Marketing Corp (JMC) has a current account with Metrobank
from which it draws checks to pay its creditors. JMC discovered an
anomaly involving 11 checks, which had already been charged against
its account but were not covered by any official receipt. These checks
were drawn against Metrobank and made payable to the orders of
Jardine and Premiere. These checks were deposited to an account in
Bankcom, an account that does not belong to either payee or indorsees.
The checks were then presented to Metrobank, which honored it,
resulting to loss on the part of JMC. Delizo, a former accountant of JMC,
confessed that she stole several checks, deposited, and encashed it.
JMC filed a complaint for sum of money against Delizo, Bankcom, and
Metrobank. The SC ruled that both Metrobank and Bankcom should
bear the loss. Metrobank is liable to return to JMC the amount of the
checks plus interest, while Bankcom is liable to reimburse Metrobank
the same amount plus interest. Bankcom can seek reimbusement from
the persons who cause the checks to be deposited and received the
authorized payments. However, none of such persons were impleaded,
thus, no pronouncement as to this matter can be made in favor of
Bankcom.
Facts:
 Respondent Junnel’s Marketing Corporation (JMC) has a
current account with Metrobank from which it draws checks to
pay its different suppliers.
 During an audit of its financial records, JMC discovered an
anomaly involving 11 checks it had issued to the orders of
Jardine and Premiere on various dates between October
1998 to May 1999.
 The subject checks, which are all crossed checks (P1.4M) had
already been charged against JMC’s current account, but
were not covered by any official receipt from Jardine or
Premiere.
 An examination of the dorsal portion of the subject checks
revealed that all had been deposited with an account in
Bankcom, Dau Branch. And upon inquiring with Jardine and
Premiere, JMC was able to confirm that neither of them owns
a Bankcom Account.
 Meanwhile, Respondent Delizo, a former accountant of JMC,
executed a handwritten letter addressed to the President of
JMC. Delizo confessed that, during her time as an accountant
for JMC, she stole several company checks drawn against
JMC’s current account. She professed that the said checks
were never given to the named payees but were forwarded by
her to one Lita Bituin (Bituin). Delizo further admitted that she,
Bituin and an unknown bank manager colluded to cause the
deposit and encashing of the stolen checks and shared in the
proceeds thereof.||
 JMC filed before the RTC a complaint for sum of money
against Delizo, Bankcom, and Metrobank. JMC alleged that
the wrongful conversion of the subject checks was caused by
a combination of the "tortious and felonious" scheme of Delizo
and the "negligent and unlawful acts" of Bankcom and
Metrobank. JMC prayed that Delizo, Bankcom and Metrobank
be held solidarily liable in its favor for the amount of the
subject checks.
 The RTC rendered a decision holding both Bankcom and
Metrobank liable to JMC – on a 2/3 to 1/3 ratio but absolving
Delizo from any liability. The decision was hinged on the
finding that the subject checks were complete and not forged.
The involvement of Bankcom and Metrobank on the wrongful
encashment of the subject checks were clearly established.
 The CA affirmed the decision.
 Metrobank posits that it should be absolved because it had
exercised absolute diligence in verifying the genuineness of
the subject checks. Metrobank also submits that, it should be
Bankcom – as the last indorser of the subject checks – that
should bear the loss and be held solely liable to JMC.
 Bankcom, on the other hand, argues that it should be
absolved because it was never a party to the wrongful
encashment of the subject checks. Bankcom proffers the view
that it is JMC that should bear the loss of the subject checks.
It was JMC’s faulty accounting procedures which led to the
subject checks being stolen and misappropriated.
Issue: Who should bear the loss?
Held: Both.
(1) Metrobank (as drawee bank) is liable to return to JMC the entire
amount of the subject checks + 6% interest; and (2) Bankcom liable to
reimburse Metrobank the same amount plus interest.

The instant case involves the unauthorized payment of valid checks, i.e.,
the payment of checks to persons other than the payee named therein
or his order. The subject checks herein are considered valid because
they are complete and bear genuine signatures.|

The present case involved crossed checks payable to the order of a

specified payee that were deposited in a collecting bank under an
account not belonging to the payee or his indorsee but which, upon
presentment, were subsequently honored by the drawee bank. In cases
involving the unauthorized payment of valid checks, the drawee bank
becomes liable to the drawer for the amount of the checks but the
drawee bank, in turn, can seek reimbursement from the collecting
bank.|||

It has been repeatedly held that in check transactions, the collecting

bank generally suffers the loss because it has the duty to ascertain the
genuineness of all prior endorsements considering that the act of
presenting the check for payment to the drawee is an assertion that the
party making the presentment has done its duty to ascertain the
genuineness of the endorsements. If any of the warranties made by the
collecting bank turns out to be false, then the drawee bank may recover
from it up to the amount of the check.

Metrobank is liable to JMC: (see doctrine # 1)

In the present case, it is apparent that Metrobank had breached JMC's
instructions when it paid the value of the subject checks to Bankcom for
the benefit of a certain Account. The payment to such Account was
unauthorized as it was established that the said account does not belong
to Jardine or Premiere, the payees of the subject checks, or to their
indorsees. In addition, causal or concurring negligence on the part of
JMC had not been proven. Under such circumstances, Metrobank is
clearly liable to return to JMC the amount of the subject checks.

Bankcom is liable to Metrobank: (see doctrine #2)

Here, it is clear that Bankcom had assumed the warranties of an indorser
when it forwarded the subject checks to PCHC for presentment to
Metrobank. By such presentment, Bankcom effectively guaranteed to
Metrobank that the subject checks had been deposited with it to an
account that has good title to the same. This guaranty, however, is a
complete falsity because the subject checks were, in truth, deposited to
an account that neither belongs to the payees of the subject checks nor
to their indorsees. Hence, as the subject checks were paid under
Bankcom's false guaranty, the latter — as collecting bank — stands
liable to return the value of such checks to Metrobank.

Recourse of Bankcom: (see doctrine #3)

Bankcom ought to have a right of recourse against the persons that
caused the anomalous deposit of the subject checks and received
payments therefor. Unfortunately — as none of such persons were
impleaded in the case before us — no pronouncement as to this matter
can be made in favor of Bankcom.