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LIABILITY OF PARTIES
LIABILITY OF PRIMARY PARTIES
A. In General
B. Liability of Maker
First National Bank F: The HDC sues the maker.
of Central City v.
Utterback Defense: The payee-corporation failed to comply with Kentucky Statute and is unable to do business in the
state

R: The defendant maker is liable to the plaintiff HDC, because the maker cannot deny the capacity of the
payee to endorse (NIL 60).
C. Status of Drawee Prior to Acceptance or Payment; Effect of Stop Order
Araneta v. Bank of D: Araneta (plaintiff)
America DB: BA (defendant)

F: The 2 checks were erroneously dishonored for the reason “Account Closed.” It happened again. Araneta
sued BA for damages.

R: Araneta is entitled to
 P5K temperate damages
 P4k attorney’s fees
 P8k moral damages, affirmed
 P1k exemplary damages, affirmed
Woody v. National D: Woody
Bank of Rocky DB: NBRM
Mount P: Hollingworth  Kingston Garage
CB: Kingston Bank

F: The checks were erroneously marked “No Account.” The plaintiff was arrested and tried, then acquitted.
He then sued DB. The complaint was dismissed in the trial court for lack of cause of action
CoA: Breach of contract and tort

R: Plaintiff has cause of action. Remanded.

Singson v. BPI F: Singson was sued by Philippine Milling Co., the plaintiff won, and a writ of garnishment was served on his
account in the BPI. Later, 2 checks issued by Singson were deposited by the payees and they were
dishonored due to the garnishment. Singson sued BPI for the illegal freezing.

R: Existence of contract does not bar recovery on tort. Singson is awarded nominal damages of P1000 and
attorney’s fees of P500.
Chinabank v. Padilla D: Padilla and Loida (plaintiffs)
DB: Chinabank
P: Marivic – sold canned goods and fruits

F: Respondents Padilla and Loida issued a check to Marivic which was P700 in words but P700k in numerical
figures. It was dishonored for insufficiency of funds. Marivic sued respondents for BP 22, which was
dismissed. Respondents sued Chinabank for damages.

R: For respondents Padilla.

Speroff v. First D: Speroff (plaintiff)
Central Trust Co. DB: First Central Trust Co. (defendant)

F: Speroff sued FCTC for paying a check w/c he notified FCTC not to pay.
Defense: The SPO request states that the bank will in no way be held responsible if they pay the check
“through inadvertency or oversight.”

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R: For plaintiff. An SPO may be oral or in writing. Speroff didn’t have to sign anything, as there was no
consideration for the stipulation. Remanded to determine if defendant exercised due care.
Chase National Bank D: Arbadee (defendant)
of NY v. Battat DB: CNB (plaintiff)
P: Caracanda (defendant) – sold sugar to Arbadee

F: The DB paid the payee despite a SPO. The DB sued the drawer and the payee alternatively on quasi-
contract. Arbadee filed a MTD for failure to state CoA.

R: For Arbadee. Plaintiff failed to allege ratification by Arbadee. Unless the drawer-company recognized and
credited in its books the payment made to the payee, there was no ratification that would show unjust
enrichment.
D. Liability of Acceptor
FORMAL REQUISITES OF ACCEPTANCE
Lawless v. Temple D: Norris Temple
P: Lawless (plaintiff)
Drawee: Maurice Temple (defendant)

F: Payee sued drawee. Maurice merely wrote her name on the bill.

R: This was a valid blank acceptance.

Kilgore National D: Waddell
Bank v. Moore Bros. DB: KNB (defendant)
Lumber Co. P: Moore Bros Lumber (plaintiff)
CB: GSB

F: The cashier promised Waddell and Moore that the checks would be paid when presented again, and made
such a notation on the ledger.

R: No verbal acceptance.
A. Constructive Acceptance
Wisner v. First D: Bullock
National Bank of DB: FNB
Gallitzin P: Gallaer, Jr.

F: Holders sue drawee on the theory that the drawee’s failure to return the checks within 24 hours after
receipt = acceptance under NIL 137.

R: There was constructive acceptance. For plaintiffs.

Two ways of accepting a bill:
1. NIL 132 - signing
2. NIL 137 - retaining
Urwiller v. Platte D: McCord – purchased hogs
Valley State Bank DB: Platte Valley State Bank (defendant)
P: Urwiller (plaintiff)

F: Upon receipt of the 6 checks, DB forwarded them to a notary public and did not return 5 of the checks for
> 2 days. Holder sued DB, claiming retention of a check (presented for acceptance) by a drawee bank for > 24
hrs constitutes acceptance.

R: No constructive acceptance. For DB. Presentment for payment =/= presentment for acceptance.
Sumcad v. Province D: Province of Samar
of Samar P: Santos (postmaster of Borongan)  McGuire  Sumcad
DB: PNB

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F: McGuire tried to present for payment, then endorsed it. Holder Sumcad sues PNB.

R: There was implied acceptance when the bank asked for photostatic copies and certification.

Dissent (Padilla, J.): No acceptance.

ACCEPTANCE ON A SEPARATE INSTRUMENT
Coolidge v. Payson Drawer: Cornthwaite & Cary
Drawee: Coolidge & Co. (defendant)
Payee: To the order of John Randall  Payson & Co. (plaintiff)
Facts:
 Cornthwaite transmitted a bond of indemnity to Coolidge and drew on them for $2700 payable to
Randall, later endorsed to Payson.
 After endorsement to Payson, Coolidge wrote Cornthwaite acknowledging the bond but saying it
was not in conformity with their laws, and that they will consult William.
 William wrote Coolidge saying he was satisfied. Payson also called Williams to ask if he was satisfied.
 Two days later, a bill in the declaration mentioned was drawn by Cornthwaite payable to Payson,
against Payson who refused to accept it. Hence, this action.

Issue: Does a promise to accept a bill amount to an acceptance (to a person who has taken it on the credit of
that promise), although the promise was made BEFORE the existence of the bill, and although it was drawn in
favor of a person who takes it for a pre‐existing debt?

Held: Yes. A letter written within a reasonable time before or after the date of a bill of exchange, describing it
in terms not to be mistaken, and promising to accept it, is, if shown to the person who accepts and
afterwards takes the bill on the credit of the letter, a virtual acceptance binding on the person who makes
the promise.

Notes: This was decided before the NIL, when CONDITIONAL acceptance of a future bill was legally possible.
Under the current law, this would not be allowed, it must be UNCONDITIONAL.
KINDS OF ACCEPTANCE
A. General Acceptance
B. Qualified Acceptance
C. Trade Acceptance
D. Banker’s Acceptance
CHECKS
Republic v. PNB F: The Republic filed a complaint for escheat of certain unclaimed bank deposit balances under Act No. 3936
against First National City Bank of NY.
R:
 Demand drafts – cannot be considered credits subject to escheat, as they have never been
presented to appellee bank (NIL 127)
 Cashier or manager’s check – comes within the purview of Act No. 3936
 Telegraphic payment order – should be escheated in favor of the Republic; appellee bank is the
remitting bank, in their books the amounts are in the names of the payees (service providers of the
establishment of a telegraphic or cable transfer) already
PAL v. CA F: Amelia Tan filed a case against PAL in 1967 and won in 1977. PAL issued a check to Deputy Sheriff Reyes in
the latter’s name, and he absconded.

R: The payment made to the absconding sheriff was not in legal tender (Art. 1249) Being negligent in creating
the situation that permitted the sheriff to do so, PAL alone must bear the fault.
Cebu International D: CIFC
Finance Corp v. CA P: Alegre – invested with CIFC P500k in money market operations
DB: BPI
CB: RCBC

F: CIFC issued BPI check (P514,390.94) to Alegre as proceeds of his matured investment + interest. This was
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dishonored and confiscated by BPI pending an investigation of several counterfeit checks drawn against
CIFC’s checking account.
 Alegre filed a complaint against CIFC.
 CIFC filed a complaint against BPI. Here, BPI and CIFC entered into a compromise agreement
whereby BPI debited the amount representing the check payable to Alegre from CIFC’s account.
 BPI filed a collection suit against Alegre, alleging that the latter connived with others in forging
several checks of CIFC. The amount debited was deducted from the claim. The outcome of this case
is unknown.
 In the first complaint, RTC and CA ruled in favor of Alegre.

R: Against CIFC. A check is not legal tender. BPI’s act of debiting the amount from CIFC’s account pursuant to
the Compromise Agreement did not discharge CIFC from its liability to Alegre.

Notes: It wasn’t the creditor’s fault that the check was impaired.
BPI v. Spouses M: Sps Royeca (defendant)
Royeca P: Toyota Shaw  assigned to FEBTC (plaintiff)

F: Sps Royeca executed a PN with a chattel mortgage in favor of Toyota. Toyota assigned its rights to FEBTC.
In payment, Royeca issued 8 postdated checks to FEBTC. 3 years later, FEBTC demanded payment from
Royeca. Royeca refused saying they never received any notice of dishonor, hence they were in GF. FEBTC
filed a Complaint for Replevin and Damages against Royeca.

R: In favor of FEBTC/BPI. A check is not legal tender.

 Was the Acknowledgement Receipt presented by Royeca sufficient proof of payment? NO. Payment
must be made in legal tender. Mere delivery of the checks does not discharge the obligation under a
judgment.
 To prove payment, the respondents had to prove that not only were the checks delivered but also
encashed.
 Petitioner’s COA was based on the original obligation evidenced by the PN and Chattel Mortgage,
and not on the checks issued in payment thereof. If the petitioner were asking to enforce liability
upon the check, the burden to prove that a notice of dishonor was given would have devolved upon
it.
o As payee, petitioner did not have a legal obligation to inform the respondents of the
dishonor. This is required only to preserve their right to recover on the check and preserve
the liability of the drawer and indorsers. Respondents’ rights were not transgressed.

Notes: Sps Royeca are liable only for the 2 checks that were dishonored but not the remaining checks that
were not encashed.
Evangelista v. F: Petitioner-accused Evangelista issued 2 UCPB checks to Screenex as security for the payment of a loan of
Screenex P1.5M. The lower courts acquitted Evangelista but ordered him to pay Screenex. Evangelista argues that the
action is barred by prescription.

R: In favor of Evangelista (drawer). The delivery of the checks, despite the failure to encash them within a
period of 10 years or more, had the effect of payment.

BPI v. Royeca: Despite the lapse of 3 years from the time the checks were issued, the obligation still subsisted
and was merely suspended until payment by commercial document could actually be realized.

Notes: NIL – A check payable on demand falls due within reasonable time from issuance  case to case
basis, may be 30 days if they live in the same place, 6 months customarily
Fortunado v. CA F:
 21 April 1981: Two lots of Bautista were levied pursuant to a judgment in Fortunado v. Bautista.
 17 Aug 1983: The latter lot was purchased by respondent National Steel Corp. but it had not yet
been registered in its name.
 23 April 1984: The lots were sold at a public auction to the petitioners as the sole bidder.
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 11 Feb 1985: NSC filed in the RTC an urgent motion to redeem both lots.
 20 March: As the redemption period was to expire on April 18, 1985, NSC issued to the sheriff a PNB
check in the amount of the redemption price.
 22 March: The sheriff issued a certificate of redemption to NSC and Bautista.
 27 March: Bautista filed an Urgent Motion to deposit the money with the clerk of court.
 Petitioners counsel told the sheriff they were rejecting the check because it was not legal tender,
and that there was no delivery to the creditor of the redemption price.

R: Redemption was validly effected. The right of redemption is not an obligation nor is it intended to
discharge a pre-existing debt, the right of redemption being in fact a privilege. Hence, Art. 1249 (payment of
debt in legal tender), Art. 1233 (delivery to effect payment of debt) do not apply.
The tender of a check is sufficient to compel redemption but is not itself a payment that relieves the
redemptioner from his liability to pay the redemption price.

Notes: What makes this different from PAL? What if in PAL, they issued a manager’s check?
Mesina v. IAC D/O: Go
D/DB: Associated Bank
CB: Prudential Bank

F: Go purchased a manager’s check (for purposes of transferring his own funds to another bank account, and
not in payment of an obligation) which he left on the desk of the bank manager. The check was entrusted to
bank official Albert Uy, who had a visitor Alexander Lim, who then stole the check. A SPO was effected and
the police notified. Later, it was twice presented by PB and twice dishonored. Atty. Navarro wrote AB
demanding payment for his unnamed client. AB filed an action for interpleader between Jose Go and a John
Doe. Then petitioner Mesina sued AB for damages, causing AB to amend its complaint. Mesina told the police
that he obtained the check from Alexander Lim but refused to specify what kind of transaction.
The RTC in the interpleader case ruled in favor of Jose Go, hence the damages case was dismissed for
mootness.
Mesina argues that a cashier’s check cannot be countermanded in the hands of an HDC.

R: Mesina is not a HDC. He had notice of the defect of his title from the very start. Jose Go was both the
drawer and the drawee and he had not indorsed it in due course.
MBTC v. Chiok O: Chiok
DB: Metrobank & Asian Bank
CB: BPI

F:
 Chiok regularly buys dollars from Nuguid and pays Nuguid either in cash or manager’s check. Chiok
maintains accounts with petitioners Metrobank and Global Bank (then Asian Bank).
 In view of a dollar-trading transaction, two manager’s checks drawn against Asian Bank and a
cashier’s check drawn against Metrobank were deposited by Chiok to Nuguid’s account in FEBTC
(now BPI).
 Since Nuguid did not deliver to Chiok the promised $1M, Chiok filed a complaint for damages
against the drawees and the spouses Nuguid, with application for TRO. The TRO was issued the next
day, but Nuguid had already withdrawn the proceeds of the Asian Bank MCs. Thus BPI filed a
complaint-in-intervention to recover the amount.

R: BPI was not a HDC with respect to the manager’s checks. These checks were never indorsed by Nuguid to
FEBTC because they were deposited by Chiok directly to Nuguid’s FEBTC account. Applying Sec. 49, BPI is an
equitable assignee for value, subjecting its holding of the checks to the defenses and equities of prior parties.
However, Asian Bank, as both the drawer and drawee of the manager’s check, is liable to pay. It cannot hide
behind Chiok’s defenses, who is not a prior party to the manager’s checks. Chiok’s cause of action to recover
the value of the checks is against Nuguid.
A. Certification and its Effects
BPI v. Roxas D: Spouses Cawili

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P: Roxas – trader of vegetable oil (plaintiff)

DB: BPI (defendant)

F: In the presence of the BPI branch manager, Cawili handed a BPI cashier’s check to Roxas. The next day it
was dishonored (Account Closed). Roxas sued BPI, and BPI filed a third-party complaint against Cawili.

R: BPI shall pay Roxas and Cawili shall pay BPI. Mere issuance of a cashier’s check is considered acceptance
thereof.
RCBC Savings v. D/O: Lim – bought a secondhand Mitsubishi Montero
Odrada P: Odrada
D/DB: RCBC

Defense: Partial failure of consideration, Montero was defective. Hence, Lim stopped payment.

R: Lim is not a holder in due course. RCBC may refuse to pay manager’s checks.
While a manager’s check is automatically accepted, a holder NOT a HDC is still subject to defenses.
Can the DB interpose a personal defense of the purchaser? YES. RCBC may legally act on a SPO by Lim, the
purchaser of the manager’s checks.

Notes: Only defenses inconsistent with their warranty are waived by an acceptor.
New Pacific Timber F:
v. Seneris  New Pacific is the defendant in a complaint for collection filed by the private respondent Ricardo
Tong. A compromise judgment was rendered by Seneris, the respondent Judge in accordance with
an amicable settlement entered into by the parties.
 New Pacific failed to comply with the judgment obligation, thus Seneris, upon motion by the private
respondent, issued an order for the issuance of a writ of execution.
 The Sheriff levied upon the personal properties of New Pacific. Prior to the date of the auction sale,
however, New Pacific deposited with the Clerk of Court a sum of money for the payment of the
judgment obligation, P13,130 in cash and P50k in cashier’s check.
 Private respondent, through counsel, refused to accept the check as well as the cash deposit.

I: Whether or not the private respondent can validly refuse acceptance of the payment of judgment
obligation made by petitioner consisting of the cash and cashier’s check.

R: No, private respondent cannot validly refuse acceptance. A cashier’s check is deemed as cash. Moreover,
the check had been certified. By certification, the funds represented by the checks are transferred from the
credit of the maker to that of the payee or holder; and the latter becomes the depositor of the drawee bank,
with rights and duties of one in such situation. Certification is equivalent to acceptance. Certification implies
that the check is drawn upon sufficient funds, that they have been set apart for its satisfaction, and that they
shall be so applied whenever the check is presented for payment. The object of certifying a check, as regards
both parties, is to enable the holder to use it as money.

Notes: Court here said that cashier’s check = cash. Is this a departure from Article 1249 of the Civil Code?
 YES. The effect of the issuance of a manager’s check by a bank is that the drawer and indorsers are
discharged from liability; the holder can therefore treat the [certified] bill as a promissory note such
that only primary liability remains.
 Said issuance is not equivalent to an acceptance to the extent that all defenses are waived. The
certifying bank is deemed to have made only such warranties as found in Section 62.
 Article 1249 supports the view that a manager’s check is not equivalent to cash. There are
conditions that need to be met for the delivery of negotiable instruments to be effective as
payment. Why should a manager’s check be equivalent to cash? A promissory note is not even
equivalent to cash. What acceptance does is the creation of debtor-creditor relationship and not a
trust. “Set aside funds” means that the bank is holding the money and is set aside in trust for holder;
therefore, such does not form part of the assets of the insolvent bank.
Wachtel v. Rosen D: Wachtel (defendant)

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DB: National Park Bank

P: Rosen (plaintiff)

R: Refusal to certify does not amount to dishonor for non-acceptance. Certification differs in effect from
mere acceptance of bills other than checks, in that it is not an added obligation but a substitute obligation.
There is no party secondarily liable after certification, the bank replaces all the parties.
Certification = substitute oblig
Acceptance = added oblig (not liable before, now liable)
Roman Catholic F: Petitioner RMC Archbishop sold a land to respondent Robes-Francisco Realty & Development Corp. on
Archbishop of installment basis. Respondent failed to pay to petitioner cancelled the contract, considered previous
Malolos, Inc. v. IAC payments forfeited and the land as reconveyed. Robes-Francisco claimed that it made a valid tender of
payment through a certified personal check within the grace period.

R: Valid tender was not proven. A certified personal check is not legal tender.

If a check is certified isn’t it exempt from Art. 1249?

Villanueva v. Nite D: Nite
DB: Asian Bank Corp (defendant)
P: Villanueva (plaintiff)

F: The ABC check (as payment of loan from Villanueva) when presented by Villanueva was dishonored, so the
latter sued ABC without impleading Nite.

R: If a bank refuses to pay a check (notwithstanding sufficiency of funds) the payee must sue the drawer who
might then sue the DB. There is no contract between the DB and payee. The DB did not sign the check.
Miranda v. PDIC F: Miranda is a depositor of Prime Savings Bank. She opted to withdraw $5.502M thru 2 crossed cashier’s
checks. She tried to deposit them in another bank the next day but BSP had suspended the clearing privileges
of PSB and placed it under receivership. Miranda sued PSB, PDIC (receiver) and the BSP.

R: The 2 cashier’s checks did not constitute an assignment of funds as there were no funds to speak of. PSB is
solely liable to Miranda since the bank acted fraudulently in issuing the checks despite knowing of its
insolvency. Miranda is entitled to preference in the liquidation proceedings, subject to the jurisdiction of the
liquidation court.
EPCIB v. Ong TCBCT Check P225K  PCIB Check P132K  PCIB Manager’s Check P132K

F: On Nov 29 Sarande deposited in her PCIB Account a TCBCT Check of P225K. On Dec 5 upon inquiry she was
told it was as good as cleared. She used the proceeds of the check to issue two checks one of which she
issued to Ong. Ong had it converted into a manager’s check. However, when she tried to deposit it in her
EPCIB account it was dishonored by PCIB due to irregular issuance of the TCBCT check (Account Closed).
Ong sued PCIB.

R: Having cleared the check earlier, PCIB became liable to Ong and it cannot allege want of consideration
between it and Sarande. Ong is a stranger as regards the transaction between PCIB and Sarande. Also, a
manager’s check = certified check. Issuing the manager’s check = assuming the liability of an acceptor.

Note: Ong is presumed to be a HDC.

Why would Sec. 62 be relevant? The court is wrong in implying Sec. 62 means absolute liability. You only
waive defenses inconsistent with your warranties but others are available.
RCBC v. Hi-Tri Dev’t F: Sps Bakunawa are registered owners of 6 parcels of land which were sequestered by the PCGG. A certain
Corp Millan offered to buy the lots for P6M with the promise that she will clear all preliminary obstacles to the
sale. She failed to do so, thus the Sps Bakunawa rescinded the sale and offered to return the downpayment
thru an RCBC Manager’s Check, which Millan rejected. Retaining the MC (available for Millan’s withdrawal),
the Sps Bakunawa sued Millan.

During the pendency of the case, RCBC reported the MC as one of its unclaimed balances which was claimed
by the RP thru a Complaint for Escheat.
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R:
The mere issuance of a manager’s check does not ipso facto work as an automatic transfer of funds to the
account of the payee. In case the procurer of the manager’s or cashier’s check retains custody of the
instrument, does not tender it to the intended payee, or fails to make an effective delivery, Sec 16 of the NIL
is applicable.
The doctrine that the deposit represented by a manager’s check automatically passes to the payee is
inapplicable, because the instrument —although accepted in advance—remains undelivered.
Bulliet v. Allegheny D: C.C. Mitchell (check for $5k)
Trust Co. DB: Allegheny Trust Co. (defendant)
P: to the order of Grove McNair (agent of C.C. Mitchell for purchase of oil property)
H: Bulliet (plaintiff)

F: ATC responded to Bulliet’s telegram that it would honor the check for $5k, but It was later dishonored due
to SPO. The drawee interposed three defenses: (1) delay in presentment, (2) unauthorized additional
indorsements, and (3) want of consideration.

R: The acceptor cannot defend on the ground of want of consideration between the drawer and the payee.

Notes: IF he was not HDC, would there be the same result?

Sutter v. Security D: Sutter (plaintiff)
Trust Co. DB: Security Trust Co. (defendant)
P: Sutter’s wife
H: Wife’s brother

F: Sutter had an $1k check certified before delivery to his wife in consideration of an agreement between
them. His wife, after receiving the check violated the agreement by removing the furniture in their house.
Sutter made a written Stop Payment request. When the wife tried to encash it, payment was refused. Thus
she indorsed it to her brother in Philadelphia and he was able to deposit it in his bank there. Sutter was told
that the check was in the hands of an innocent third person.
The check was again presented and was paid. Then STC demanded that Sutter pay the alleged balance of
$1034.41 for the payment of the certified check.

R:
When a bank certifies a check at the request of the payee or holder:
 The maker cannot therefore legally require the certifying bank not to pay.
 In a suit by the holder against a bank for the amount of the check, the bank cannot have the benefit
of any defenses which the maker might have against such payee or holder, because the instrument,
by such method of certification, has been discharged to the same extent as if it had been paid by the
certifying bank.

When a bank certifies a check at the request of the drawer or maker of check before it reaches the hands of
the payee therein named:
 The drawer of the check may recall the same and require the certifying bank to refuse payment to
the payee named therein IF such payee is not a bona fide holder, for value, by has obtained the
check by fraud perpetrated by him upon the maker.
 In a suit by the payee named in the check against the certifying bank upon its refusal to pay, after
notice from the drawer to stop payment, for reasons showing the payee not to be a bona fide
holder thereof for value, the bank can urge and have the benefit and have any defense that the
drawer could have against such payee in establishing that such payee obtained the instrument, or
any signature thereto, by fraud, duress, or force and fear, or any other means or for an illegal
consideration.
o Note: This rule finds no application to a certified check held by a payee who is a bona fide
holder for value, or a holder in due course, although the check is certified at the request of
the drawer before delivery.

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Upon the facts of this case, the Court concluded that Mrs. Sutter, the payee, did not procure the check by
any fraud perpetrated by her upon her husband. For this reason, the Court concluded that the bank would
have been justified in making payment of the check to Mrs. Sutter upon presentation thereof by her. As the
bank was, under the facts presented, justified in and legally called upon to make payment to Mrs. Sutter
upon presentation and demand as against the notice of the maker of the check to stop payment, its
obligation, under the facts, was likewise to make payment

Notes: A bank that certifies a check can no longer dishonor is for insufficiency of funds.
B. Distinction Between Surrender of Check Upon Payment and Negotiation
C. Clearing of Checks
LIABILITY OF SECONDARY PARTIES
A. Liability of Drawer
PNB v. Picornell D: Picornell (agent of Hyndman, Tavera & Ventura) – bought Tobacco in Cebu
Drawee: Hyndman, Tavera & Ventura (principal)
P: PNB

F: Picornell obtained P39k from PNB for the value of the tobacco purchased in Cebu. In return, he drew a bill
of exchange in favor of PNB. This was presented to HT&V which accepted it. But when the tobacco arrived, it
a portion was found to be useless and damaged, so they refused to pay for want of consideration.

R: HT&V is primarily liable to PNB and Picornell is secondarily liable.

Notes: Is
Banco Atlantico v. D: PH Embassy
Auditor General DB: PNB
P: Pace, Boncan, Boncan
CB: Banco Atlantico  not HDC

F:
 3 checks were drawn by the Philippine Embassy in Madrid. BA, the claimant bank, paid the amounts
of the checks to Boncan without clearing them first with the drawee bank, PNB-New York.
 It turned out that as to the first 2 checks, Finance Officer Boncan fraudulently increased the amount
thereof.
 As to the 3rd check, which was a demand note, Boncan informed BA not to present it for collection
until a later date.
 BA attempted to recover the amount it paid from the Auditor General, citing Sec. 61 of the NIL.

R: BA was not a HDC, hence, it could not avail of Sec. 61. It was the leniency of the bank towards Boncan
when it accepted the checks for deposit without Villamor’s indorsement.

Notes: Being an HDC is not a defense, only a pathway to interpose a personal defense.
McCornack v. D: McCornack (plaintiff)
Central State Bank DB: Central State Bank (defendant)
P: Fictitious person
B: Shaffer State Bank

F: The plaintiffs McCornack etc, having funds on deposit in the defendant Central State Bank, sued to recover
the amount paid by the bank and charged against the deposit upon a check drawn by plaintiffs to the order
of a fictitious person as payee, where the check was obtained from them by fraud of one who indorsed the
check in the name of the payee and received the money.

R: Central State Bank is liable for the amount but case must be remanded and submitted to jury to decide on:
W/N McCornack was negligent in failing to discover the fraud and W/N Central State Bank suffered prejudice
in that had it been notified earlier, it could have protected itself by recovering against Halverson.
B. Criminal Liability for Bouncing Checks

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(1) Under BP No. 22

(2) Estafa under the RPC
Lozano v. Martinez R: BP 22 is constitutional

Note: BP 22 is actually unconstitutional. The creditor knows you don’t have money, especially if the check
was issued in payment of a loan. Ultimately, the SC failed in its goal because (1) checks are still not widely
used, and (2) BP 22 cases are still prevalent.
People v. Nitafan D: K.T. Lim (accused)
P: Sasaki
DB: PH Trust Co.

F: K.T. Lim tries to assert that the memorandum check = promissory note

R: We are not persuaded. BP 22 is malum prohibitum.

C. Liability of Qualified Indorser and One Negotiating by Delivery
D. Liability of a General or Unqualified Indorser
Nota Sapiera v. CA De Guzman  Sapiera  Ramon Sua

F: Sapiera was acquitted of estafa arising from 4 checks, which she signed on the back, she used to pay Sua,
but were then dishonored due to the closure of the drawer’s account. However, despite the acquittal, she
was adjudged to pay the amount of the checks.

R: SC affirmed her civil liability, since her acquittal was based on the failure of the prosecution to prove
conspiracy, and not based on the finding that the fact from which the civil action might arise did not exist. It
was proven that the checks were issued for value, and that Sapiera signed on the back, and that the checks
were subsequently dishonored. Therefore, she is civilly liable.
Metrobank v. PBCom Crossed Checks
PBCOM D: Filipinas Orient
P: Pipe Master
DB: PBCom
CB: Metrobank & Solidbank (in Pres. Yu Kio’s personal account)

F: Pipe Master Corp authorized its president Yu Kio and/or VP Tan Juan Lim to execute, indorse, make, sign,
deliver, negotiate instruments in connection with any transaction coursed through Filipinas Orient, with
whom they entered into a check discounting agreement with. President sold to Filipinas Orient 4 Metro Bank
checks amounting to 1 million. In exchange, Filipinas Orient issued 4 PBCom crossed checks totaling
946,303.62 payable to Pipe Master with statement “for payees account only.” Metrobank and Solidbank
allowed the president to deposit the 4 PBCom checks in the president’s personal account and stamped at the
back of the checks ‘all prior indorsements guaranteed’. The checks of Pipe Master issued to Filipinas Orient
were dishonored because Pipe Master never received the proceeds of the checks.

R: Metro and Solid bank are liable because of their guarantee stamped at the back of the check and PBCom
cannot be held liable for wrongful payment because they merely relied on the guarantee of petitioner banks.

Note: This decision is wrong because Pipe Master was never a party to the instrument. How can the
collecting bank be held liable under §66 to a prior party? Warranties are only made in favor of subsequent
parties. SC treated collecting banks as endorsers. But collecting bank’s signature does not transfer title; it is a
mere receipt of payment. It might have been more acceptable if the collecting bank’s liability was based on
its role as an agent of the endorser. Pero kailangan habulin muna yung principal. The drawer actually has no
cause of action against the collecting bank (only against the drawee, PBCom).
Citibank v. F: Sabeniano had accounts with Citibank and money market placements with FNCB. She obtained loans from
Sabeniano Citibank, as evidenced by PNs. To secure the loan, she executed Deeds of Assignment of her FNCB money
market placements and a Declaration of Pledge over her placements in Citibank Geneva. When she failed to
pay, Citibank offset her loan obligations against her Citibank deposits, as well as the placements in FNCB and
Citibank Geneva. Sabeniano denies receiving some of the loan proceeds, pointing out that the cancelled

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checks did not bear her indorsement.

H: The collecting bank (in this case, BPI Cubao) was the one liable for the lack of indorsement, by virtue of its
guarantee stamps at the back of the check. As to the offset, SC held that Citibank was justified in making the
offset against Sabeniano’s Citibank deposits (mutual creditors and debtors, hence compensation applies) and
FNCB placements (by virtue of the Deeds of Assignment), but not against her Citibank-Geneva accounts
(because the Declaration of Pledge was suspicious and irregular). Citibank was ordered to return the amounts
improperly liquidated and Sabeniano was ordered to pay the balance of the loans.

Notes: The Court cited internal clearing house rules. This reinforces the notion that collecting banks are
treated by the courts as general indorsers. Recall: Hutson v. Rankin (An entry of guaranty made and signed by
the payee on the back of a negotiable note operates as a transfer of the note, and as an indorsement thereof
with enlarged liability. The guaranty itself would be wholly inoperative unless the note was transferred by the
payee to a third party.)
Adolph Ramish, Inc F: Craig endorsed the Woodruff note and extended the time of payment thereon and it was delivered to
v. Woodruff Adolph Ramish, Inc., but whether as collateral security for the indebtedness of Craig to the plaintiff (Adolph
Ramish, Inc.,) was one of the issues in the case. On the back of the note are two endorsements. Appellant
(Woodruff) is claiming that the second indorsement does not amount to a commercial endorsement, but is a
mere guaranty and does not operate as a transfer which cuts off the defenses of the maker.

H: A transfer by guarantee instead of by the usual form of indorsement operates as an ordinary commercial
indorsement. The finding of the trial court that the note had been endorsed in blank was correct.
The majority view is that the signature of the payee is a blank endorsement which, by implication of law,
passes title to the transferee and is also a promise to pay the instrument on default of the maker on
condition that the proper steps are taken to charge him.
The signed guaranty is the same contract with one- half of the obligation (the promise to pay) expressed and
made unconditional, and nothing therein restricts or negatives the implication of the blank endorsement
created by the signature. That is, that portion of the contract relating to the transfer of the instrument rests
in parol, as always; therefore title passes as by a blank endorsement free of the equities of the maker against
the original payee.

Notes: There’s nothing in the language transferring title. Why is it an indorsement?

BPI v. CA D: Chan accommodated by Napiza
DB: Continental Bank
CB: BPI (Chan’s account) – withdrawn by Gayon
P: Ramon and Agnes de Guzman

F: Respondent Napiza deposited check with Petitioner BPI. Before it was cleared (which did not happen
because the check was a counterfeit), Petitioner allowed its withdrawal by a person other than the payee and
without presentation of Respondent’s passbook.

R: Respondent should not be held liable as an indorser. Petitioner should absorb the loss due to its
negligence.
Wachovia Bank v.
Crafton
Horowitz v.
Wollowitz
E. Liability of Restrictive Indorser
F. Order of Liability Among Indorsers
LIABILITY OF ACCOMODATION PARTY

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LIABILITY OF AN AGENT
Austin Nichols v.
Gross
New Georgia v.
Lippman
Pratt v. Hopper F: Pratt (sale)  Mayer (deed of trust)  California Trust Co. (secured the payment of a note* representing a
portion of the purchase price)
Mayer (deed of the property)  Hopper and Payne; Trimble carried on the negotiations for
the purchase of the property in the parties’ names.
*The note was signed by Mayer in his individual capacity, not designating himself as an agent and not
disclosing any of the other interested parties.
Pratt sued defendants Mayer, Hopper, Payne and Trimble to recover a deficiency on the note, saying Mayer
used his name as a trade name for all the parties and that Hopper and Payne became primarily liable due to
their purchase of the property from Mayer.

R: In the case of negotiable instruments, an undisclosed principal could not be charged at any time.
Insular Drug Co. v. F: Foerster was a salesman and collector of Insular Drug. Instead of depositing the checks in the drug
PNB company’s account in the Chartered Bank of India, Australia and China, he deposited them to his personal
account with the PNB, indorsed by himself, his wife or stenographer. His actions were investigated by Insular
so he committed suicide. Insular sued PNB.

R: PNB is liable. An agent with authority to collect does not have the authority to indorse .
Philippine Bank of F: Drafts were drawn by Encal Press against Aruego to pay PBC as security for credit accommodations granted
Commerce v. by PBC to Aruego. PNB filed a case against Aruego for the recovery of the amount covering the cost of the
Aruego printing of “World Current Events”, a periodical published by the latter. The obligation arose from the draft
drawn by the printing press against the bank and which was sent to Aruego for acceptance. Aruego
contended that he merely signed the instrument as the president of the company. Aruego’s defense is that,
in signing as acceptor, he was signing as a representative capacity on behalf of the Phil Education Foundation.

H: Aruego is liable. Under Section 20 of the NIL, mere addition of words describing the person whose
signature appears on the instrument, describing him as agent or as filling as a representative character,
without disclosing his principal, does not exempt him from personal liability.
Since Aruego did not disclose his principal, he is liable to PBC in his personal capacity.
SIGNATURE BY TRADE NAME
PRESENTMENT FOR ACCEPTANCE
A. When necessary; effect of non-presentment
B. How and when made
C. When excused
D. Dishonor and its effects
Q: A holder endorses to a HDC after dishonor without giving notice. Will the secondary parties be liable to HDC?
A: YES. (Art. 117)
PRESENTMENT FOR PAYMENT
A. When presentment necessary; effect of non-presentment
B. When presentment not necessary
(1) As to drawer
(2) As to indorser
(3) As to all secondary parties
C. Date and time of presentment of instrument bearing fixed maturity
D. Date of presentment of demand notes
E. Date of presentment of demand bills of exchange
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Columbia Banking v. D: Farmers’ and Merchant’s Bank

Bowen P: Bowen (defendant)  AR Trabert  Columbian Banking (plaintiff)
DB: National Bank of North America

F:
 June 10: Farmers’ Bank sold to Bowen a $400 draft.
 June 16: Bowen indorsed and sent the draft to Trabert who was traveling to San Francisco.
 June 20: Trabert received it.
 July 14: he arrived and indorsed to Columbian. Columbian sent it to Bankers’ Nat’l Bank in Chicago.
 July 28: it was presented to drawee who refused to pay it.
 Indorser Bowen refuses to pay on the ground that it was not presented within a reasonable time.

R: The indorser cannot be released from liability. Sec. 71 provides in part that for a bill of exchange payable
on demand, “presentation for payment will be sufficient if made within reasonable time after the last
negotiation thereof.” The delay was explained by the fact that Trabert was a traveler. He immediately
indorsed it upon arrival. This is sufficient and constitutes reasonable time.

Notes: Art. 71 doesn’t apply because it’s Columbian, not Trabert (who held it too long) presenting the
instrument. What provision should apply? Not 144!
F. Date of presentment of checks
International F: Sps Gueco obtained a car loan from petitioner bank. They executed PNs and a chattel mortgage in
Corporate Bank v. consideration thereof. They defaulted and the bank filed a collection and replevin suit. They compromised
Gueco leading to the Bank taking possession of the car and Guecos’ tender of a manager’s check for the balance but
the compromise did not push through because the Guecos refused to sign a Joint Motion to Dismiss.

R: While the Bank was incorrect in requiring the signing of the JMTD, the Bank could not be ordered to return
the car without the Guecos first being required to issue a new check to replace the manager’s check that had
become stale. In this case, the Gueco spouses have not alleged, much less shown that they or the bank which
issued the manager's check has suffered damage or loss caused by the delay or non‐presentment. Definitely,
the original obligation to pay certainly has not been erased.

Notes: Possible defense for the bank is that the failure to sign the MTD made the instrument undelivered.
Fick v. Jones D: Jones (defendant)
P: Fick (plaintiff)
DB: People’s Bank & Trust Co.

F: Fick, without presenting the check to the DB, presented the check to the drawer who refused to pay it. Fick
argues that:
(1) Jones, et al. waived presentment, demand, and notice of dishonor; and
(2) failure to present a check to the drawee does not release the drawer, unless he sustains loss or injury in
consequence of such failure.

R: The drawer cannot be held liable. There may be circumstances that would be deemed as a waiver of
presentment or demand on the part of the drawer. The burden, however, is on the plaintiff to allege and
prove such facts as will establish a waiver. There are no such allegations in the complaint.
There are cases that held that the drawer is not released unless he sustains loss or injury in consequence of
the failure to present payment. These cases, however, go only to the extent of holding that the debt, which
the check was designed to pay, is discharged only to the extent that the drawer has sustained loss by the
failure or negligent delay of the payee to present the check to the drawee for payment. Such cases do not in
any way encroach upon the rule that presentment, demand, and notice of dishonor are essential
prerequisites to an action against the drawer on a check.

Notes: What does this case say about Art. 186? There MUST be presentment even if delayed.
Gordon v. Levine D: Levine (defendant)
P: Gordon (plaintiff)  Salevitz  Rootstein

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DB: Provident Securities & Banking Co.

CB: Fanueil Hall National Bank

F:
 On 12/30/1905 Levine issued a check in favor of Gordon. Levine asked Gordon not to present the
check for a couple of days, since he did not have funds yet.
 On 1/1/1906, Gordon presented the check and was told that there were no funds. In the afternoon
of the same day, Gordon passed the check to Seivitz. The next day Seivitz indorsed it to Rootstein
who deposited it on 1/4/1906 to Faneuil Hall National Bank for collection.
 On 1/5/1906, the drawee bank, Provident Bank and Securities Company had a bank failure.

I: Whether the presentment on Friday was in reasonable time.

R: No. Where a drawer, drawee and the payee are all in the same city or town, a check to be presented
within a reasonable time should be presented at some time before the close of banking hours on the day
after it is issued and that its circulation from hand to hand will not extend the time of presentment to the
detriment of the drawer.

Notes: Was there loss or damage by virtue of the late presentment? If it were presented within reasonable
time, it would have been paid by the drawee.
Morrison v. D: McCartney (defendant)
McCartney DB: EW Clark & Bros.
P: Bohn & Co.  Morrison (plaintiff)

F:
 On 10/2/1857, McCartney issued a check in favor of Bohn & Co. who indorsed it to Morrison on the
same day.
 It was not presented to drawee E.W. Clark & Brothers until 1/29/1858. Upon presentment, it was
refused payment.
 It appears that on 10/6/1857 McCartney withdrew his deposits from the bank.
 The indorsees sued the drawer.

R: The drawer, being the principal debtor, is liable to the indorsees, except if there is unreasonable delay on
the holder’s part and the drawer suffers injury due to the delay.

Notes: No loss.
PNB v. Seeto D: Gan Yek Kiao
DB: PBC
P: Bearer
H: Seeto
CB: PNB

F:
 3/14/1948: Seeto presented a PBCom check worth P5000, payable to cash or bearer dated
3/10/1948 at PNB Surigao. Seeto indorsed the same to PNB. PNB accepted it and paid him the value.
 3/20/1948: Check was mailed to PNB Cebu on
 4/9/1948: Check was presented to the drawee bank for payment but the check was dishonored due
to insufficiency of funds.
 The check was returned to PNB Surigao on 4/14/1949, after which the Bank demanded refund from
Seeto the sum it paid to him.

Issue: Whether or not Seeto has been discharged.

R: Yes. Although the drawer of a check is discharged only to the extent of the loss caused by unreasonable
delay in presentment, an indorser is wholly discharged thereby irrespective of any question of loss or injury.
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Notes: Instead of Sec. 84, the court should have invoked Sec. 66 and 71 as basis for discharging the indorser.
The bank failed to make due presentment within reasonable time, hence Seeto’s secondary liability was
discharged.
Crystal v. CA F: Crystal's property was put on an execution sale and was acquired by respondents. Crystal redeemed the
property giving a check as payment of the redemption price. Was the redemption valid or invalid?

R: VALID. The check was NOT dishonored (thus its value was never realized) but merely rendered stale, albeit
being replaced with new ones from time to time.
There are varying legal consequences between a dishonor upon presentment and a check becoming stale for
not having been presented at all.
 If the check was dishonored, then there is doubt that the redemption was null and void.
 If the check had only become stale, then it becomes imperative that the circumstances which caused
it's non-presentment be determined. If it was not due to the fault of Crystal then it would be unfair
to deprive him of the rights he had acquired as redemptioner, if after all, the value of the check has
otherwise been received or realized by the respondent.

Note: The court should have cited Art. 1249.

G. When delay in presentment excused
H. Manner of presentment
I. What constitutes sufficient presentment
(1) By whom
Chan Wan v. Tan D: Tan Kim (defendant)
Kim DB: Equitable Bank
P: cash or bearer
H: Chan Wan (plaintiff)

F: The checks totaling P4290 were personally presented by Chan Wan to EB and were dishonored for
insufficient funds. 8 of the checks bore on their face two parallel lines between which these words are
written: “non-negotiable—China Banking Corporation.” Endorsements on the back show that they had been
deposited with the CBC and were presented by the latter to the DB, followed by the clearance endorsement
of CBC. As drawee had no funds they were unpaid and returned, some of them stamped “account closed.” It
seems plaintiff got them only after they had been returned, as he presented them in court with such stamps.

R: Remanded for determination of whether any defense existed between the original parties. Plaintiff is not a
HDC, hence the negotiable instrument is subject to defenses as if it were non-negotiable.

The check should have been presented by CBC, and not Chan Wan. There was no proper presentment and
the liability did not attach to the drawer.

Notes: What is the difference of crossed checks with ordinary checks with respect to presentment? It must
be presented by a BANK!
Associated Bank v. F: Plaintiff-respondent Reyes is engaged in the business of ready-to-wear garments and deals with several
CA companies (including Payless, Robinson’s, Rempson and Corona) as her customers. When she went to these
companies to collect on unpaid accounts, she was informed of the issuance of 6 crossed checks (or for
payee’s account only) totaling P15,805 which had been deposited with the petitioner Associated Bank and
paid by it to one Rafael Sayson. She sued AB.

I: Does plaintiff-appellee have a cause of action against petitioner or should she have proceeded against the
companies that issued the checks?

R: The cause of action of the plaintiff arose from the illegal, anomalous and irregular acts of the appellants in
violation common banking practices to the damage and prejudice of the plaintiff.
The effects of crossing a check are:
1. The check may only be deposited in the bank

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2. The check may be negotiated only once—to one who has an account with a bank
3. 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 that check pursuant to that purpose.
Presentment for payment to be sufficient must be made by the holder or some person authorized (Sec. 72).
AB stamped its guarantee that “all prior indorsements and/or lack of endorsements were guaranteed.”
There being no evidence that the checks were actually received by plaintiff, she would have a right of action
against the drawer companies, who could go against their respective DBs, who could sue the petitioner CB.
Direct action against the CB in the case at bar is allowed to simplify proceedings.

Note: She should have sued the drawee banks. They didn’t bear her indorsements, so there was no proper
indorsement/transfer and she was the payee still.
(2) Time of presentment
(3) Place of presentment
(4) To whom presentment must be made
J. What constitutes dishonor by non-payment
K. Effect of dishonor by non-payment
NOTICE OF DISHONOR
Gullas v. PNB
State Bank of East
Moline v. Standaert
Arterburn v.
Wakefield
Simon v. People’s
Bank & Trust Co.
People’s National
Bank of Ypsilanti v.
Dicks
State Investment
House v. CA
PROTEST
Allied Bank v. CA
Ellenbogen v. State
Bank
Tan Leonco v. Go
Inqui

LIABILITY OF PARTY ON INDORSEMENT AFTER MATURITY

Bishop v. Dexter
INSTRUMENTS PAYABLE AT A BANK
Binghampton M: Binghampton (payable at Chicksaw)
Pharmacy v. First
National Bank

11/5: No classes next week.

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