DE OCAMPO

FACTS:

Anita Gatchalian was interested in buying a car. Manuel Gonzales offered to her a car owned by plaintiff.
Gonzales claimed that he was authorized by the plaintiff to sell the car. Gonzales order defendant to issue a
cross-check to comply on showing interest in buying the car. Gonzales promised to return the check the next
day.

When Gonzales never appeared after, defendant issue a stop payment order on the check. She found out that
Gonzales used the check as payment to plaintiff's clinic for his wife's fees. Plaintiff now demands defendant for
payment of the check, in which defendant refused citing that plaintiff is a not a holder in due course.

The lower court held that defendant should pay plaintiff.

ISSUE: Whether or not De Ocampo is a holder in due course.

RULING:

The SC held that plaintiff is a not a holder in due course. There were obvious instances to show that the check
was negligently acquired like plaintiff having no liability with defendant and that the check was crossed.
Plaintiff failed to exercise prudence and caution. Plaintiff should have asked questions to further inquire upon
suspicion.

The presumption of good faith did not apply to plaintiff because the defect was apparent on the instruments
face – it was not payable to defendant or bearer.

YANG V. COURT OF APPEALS

FACTS:
Yang and Chandimari entered into an agreement that the latter would issue to the former a manager’s check in
exchange for two checks that Yang has payable to the order of David. The difference in amount would be the
profit of the two of them. It was further agreed upon that Yang would
secure a dollar draft, which Chandimari would exchange with another dollar draft to be secured from a Hong Kong
bank. At the agreed time of rendezvous, it was reported by Yang’s messenger that Chandimari didn't show up
and the drafts and checks were allegedly stolen. This wasn't true however. Chandimari was able to get hold of the
drafts and checks. He was even able to deliver to David the two checks and was able to get money in return.
Consequently, Yang asked for the stoppage of payment of the checks she believe to be lost, relying on the report
of her messenger. The stoppage order was eventually lifted by the banks and the drafts and checks were able to be
encashed. Yang then filed an action for injunction and damages against the banks, Chandimari and David. The
trial court and CA held in favor of David as a holder in due course.

HELD:
Every holder of a negotiable instrument is presumed to be a holder in due course. This is especially true if one is a
holder because he is the payee or indorsee of the instrument. In the case at bar, it is evident that David was the payee
of the checks. The prima facie presumption of him being a holder in due course is in his favor. Nonetheless,
this presumption is disputable. On whether he took the check under the conditions set forth in Section 52 must be
proven. Petitioner relies on two arguments on why
David isn’t a holder in due course—first, because he took the checks without valuable consideration; and
second, he failed to inquire on Chandimari’s title to the checks given to him.
The law gives rise to the presumption of valuable consideration. Petitioner has the burden of debunking such
presumption, which it failed to do so. Her allegation that David received the checks without consideration is
unsupported and devoid of any evidence.

Furthermore, petitioner wasn't able to show any circumstance which should have placed David in inquiry as to why and
wherefore of the possession of the checks by Chandimari. David wasn't a privy to the transactions between Yang
and Chandimari. Instead, Chandimari and David had the agreement between themselves of the delivery of the
checks. David even inquired with the banks on the genuineness of the checks in issue. At that time, he wasn't aware of
any request for the stoppage of payment. Under
these circumstances, David had no obligation to ascertain from Chandimari what the nature of the latter’s title to the
checks was, if any, or the nature of his possession.

MESINA V. IAC

FACTS:
Jose Go purchased from Associate Bank a Cashier’s Check, which he left on top of the manager’s desk when left the
bank. The bank manager then had it kept for safekeeping by one of its employees. The employee was then in
conference with one Alexander Lim. He left the check in his desk
and upon his return, Lim and the check were gone. When Go inquired about his check, the same couldn't be
found and Go was advised to request for the stoppage of payment which he did. He executed also an affidavit of loss as
well as reported it to the police.

The bank then received the check twice for clearing. For these two times, they dishonored the payment by saying
that payment has been stopped. After the second time, a lawyer contacted it demanding payment. He refused
to disclose the name of his client and threatened to sue. 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.

A case of interpleader was filed by the bank and Go moved to participate as intervenor in the complaint for
damages. Mesina moved for the dismissal of the case but was denied. The trial court ruled in the interpleader
case ordering the bank to replace the cashier’s check in favor of Go.

HELD:
Petitioner cannot raise as arguments that a cashier’s check cannot be countermanded from the hands of a
holder in due course and that a cashier’s check is a check drawn by the bank against itself. Petitioner failed
to substantiate that he was a holder in due course. Upon
questioning, he admitted that he got the check from Lim who stole the check. He refused to disclose how and
why it has passed to him. It simply means that he has 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 payment 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 bank would of course have the right to refuse
payment of the check when presented by payee, since the bank was aware of the facts surrounding the loss of the check
in question.

ASTRO ELECTRONICS CORP. V. PHIL.

EXPORT
FACTS:
Astro obtained loans from Philtrust Bank, secured by promissory notes that were signed by Roxas, both as President
of Astro Electronics and in his personal capacity. Thereafter, PhilGuarantee bound itself as a guarantor. At default
of Astro, PhilGuarantee paid the obligation. It then filed an action for collection of money from Astro and Roxas.

HELD:
Under the Negotiable Instruments Law, persons who write their names on the face of promissory
notes are makers, promising that they will pay to the order of the payee or any holder according to its tenor.

At the study of the instrument, the allegations of Roxas are bereft of any merit—that is, the words “in his personal
capacity” were added after he signed the instrument.

FACTS:

 Astro was granted several loans by the Philippine Trust Company (Philtrust)
amounting P3M w/ interest and secured by 3 promissory notes:

o December 14, 1981: P600,000.00

o December 14, 1981: P400,000.00

o August 27, 1981: P2,000,000.00

 Roxas signed twice the promissory notes

o as President of Astro

o in his personal capacity

  Roxas also signed a Continuing Surety ship Agreement in favor of Philtrust Bank,
as President of Astro and as surety

 Philguarantee, with the consent of Astro, guaranteed in favor of Philtrust the

payment of 70% of Astros loan, subject to the condition that upon payment by
Philguanrantee, it shall be proportionally subrogated to the rights of Philtrust
against Astro

 Upon Astros failure to pay, Philguarantee paid 70% of the guaranteed loan to
Philtrust.

 Subsequently, Philguarantee filed against Astro and Roxas a complaint for sum of
money with the RTC

o Roxas: alleged that he merely signed the same in blank and the phrases in
his personal capacity and in his official capacity were fraudulently inserted
without his knowledge

 RTC: favored Philguarantee holding Astro and Roxas jointly and severally liable

o if Roxas really intended to sign the instruments merely in his capacity as

President of Astro, then he should have signed only once

 CA affirmed RTC

ISSUE: W/N Roxas should be jointly and severally liable with Astro

HELD: YES. CA affirmed

 Under the Negotiable Instruments Law, persons who write their names on the face
of promissory notes are makers,promising that they will pay to the order of the
payee or any holder according to its tenor.
 o even without the phrase personal capacity, Roxas will still be primarily liable
as a joint and several debtor under the notes considering that his intention
to be liable as such is manifested by the fact that he affixed his signature on
each of the promissory notes twice which necessarily would imply that he is
undertaking the obligation in 2 different capacities, official and personal.

 3 promissory notes uniformly provide: FOR VALUE RECEIVED, I/We jointly,

severally and solidarily, promise to pay to PHILTRUST BANK or order...

o begins with I, We, or Either of us promise to pay, when signed by two or

more persons = solidarily liable

 Subrogation is the transfer of all the rights of the creditor to a third person, who
substitutes him in all his rights

o Philguarantee has all the right to proceed against petitioner, it is subrogated

to the rights of Philtrust to demand for and collect payment from both Roxas
and Astro since it already paid the value of 70% of roxas and Astro
Electronics Corp.s loan obligation

 Roxas acquiescence is not necessary for subrogation to take place

because the instant case is one of the legal subrogation that occurs by
operation of law, and without need of the debtors knowledge

 Philguarantee, as guarantor, became the transferee of all the

rights of Philtrust as against Roxas and Astro because the
guarantor who pays is subrogated by virtue thereof to all the
rights which the creditor had against the debtor

Travel-On v. CA (1992)
FACTS:

 Arturo S. Miranda
 o had a revolving credit line with Travel-On. Inc. (Travel-On), a travel agency selling airline
tickets on commission basis for and in behalf of different airline companies
o procured tickets from Travel-On on behalf of airline passengers and derived commissions
therefrom.
 June 14 1972: Travel-On filed bef. the CFI to collect 6 checks issued by Miranda totaling P115,000.00
 August 5 1969 - January 16 1970: Travel-On sold and delivered airline tickets to Miranda w/ total price
of P278,201.57
o paid in cash and 6 checks = P115,000 - all dishonored by the drawee banks
o March 1972: paid P10,000.00 reducing his debts to P105,000
 Miranda: checks were issued for to "accommodate" Travel-On's General Manager to show the BOD of
Travel-On that their receivables were still good
o Travel-On's witness, Elita Montilla: related to situations where its passengers needed money in
Hongkong, and upon request of Travel-On, Miranda would contact his friends in Hongkong to
advance Hongkong money to the passenger
 CA affirmed CFI: ordered Travel-On to pay Miranda P8,894.91 representing net overpayments by
private respondent, moral damages of P10,000.00 (later increased to P50,000 by CFI and reduced by CA
to P20,000) for the wrongful issuance of the writ of attachment and for the filing of this case, P5,000.00
for attorney's fees and the costs of the suit - decision was because Travel-On did not show that Miranda
had an outstanding balance of P115,000.00

ISSUE: W/N Miranda is liable for the 6 dishonored checks because there was no accomodation

HELD: YES. GRANT due course to the Petition for Review on Certiorari and to REVERSE and SET ASIDE
the Decision of the CA and trial court

 failed to give due importance the checks themselves as evidence of the debt
o check which is regular on its face is deemed prima facie to have been issued for a valuable
consideration and every person whose signature appears thereon is deemed to have become a
party thereto for value.
o negotiable instrument is presumed to have been given or indorsed for a sufficient consideration
unless otherwise contradicted and overcome by other competent evidence
o Those checks in themselves constituted evidence of indebtedness of Miranda, evidence not
successfully overturned or rebutted by private respondent.
 While the Negotiable Instruments Law does refer to accommodation transactions, no such transaction
was here shown
o Sec. 29. Liability of accommodation party. — 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.
o Having issued or indorsed the check, the accommodating party has warranted to the holder in
due course that he will pay the same according to its tenor.
o Travel-On obviously was not an accommodated party; it realized no value on the checks which
bounced.

Gonzales v. RCBC (2006)

FACTS:

 Gonzales, New Accounts Clerk in the Retail Banking Department at RCBC Head Office
  Dr. Don Zapanta of the Ade Medical Group drew a foreign check of $7,500 against the drawee bank
Wilshire Center Bank, LA, California payable to Eva Alviar (Alviar), Gonzales mother.
o Alviar then endorsed this check.
 Since RCBC gives special accommodations to its employees to receive the check’s value w/o awaiting
the clearing period, Gonzales presented the foreign check to Olivia Gomez, the RCBC’s Head of Retail
Banking
o Olivia Gomez requested Gonzales to endorse it which she did. Olivia Gomez then acquiesced to
the early encashment of the check and signed the check but indicated thereon her authority of
"up to P17,500.00 only".
o Carlos Ramos signed it with an "ok" annotation.
o Presented the check to Rolando Zornosa, Supervisor of the Remittance section of the Foreign
Department of the RCBC Head Office, who after scrutinizing the entries and signatures
authorized its encashment.
o Gonzales received its peso equivalent P155,270.85
 RCBC tried to collect through its correspondent bank, the First Interstate Bank of California but it was
dishonored the check because:
o "END. IRREG" or irregular indorsemen
o "account closed"
 Unable to collect, RCBC demanded from Gonzales
o November 27, 1987: Through letter Gonzales agreed that the payment be made thru salary
deduction.
 October 1987: deductions started
 March 7, 1988: RCBC sent a demand letter to Alviar for the payment but she did not respond
 June 16, 1988: a letter was sent to Gonzales reminding her of her liability as an indorser
 July 1988: Gonzales resigned from RCBC paying only P12,822.20 covering 10 months
 RCBC filed a complaint for a sum of money against Eva Alviar, Melva Theresa Alviar-Gonzales and the
latter’s husband Gino Gonzales
 CA Affirmed RTC: liable Eva Alviar as principal debtor and Melva Theresa Alviar-Gonzales as
guarantor

ISSUE: W/N Eva Alviar and Melva Theresa Alvia-Gonzales is liable as general endorsers

HELD: NO. CA REVERSED. RCBC reimburse Gonzales

 Sec. 66. Liability of general indorser. - Every indorser who indorses without qualification, warrants to
all subsequent holders in due course

1. The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding section;

(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 had capacity to contract

2. 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, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be
duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be
compelled to pay it
 Under Section 66, the warranties for which Alviar and Gonzales are liable as general endorsers in favor
of subsequent endorsers extend only to the state of the instrument at the time of their endorsements,
 This provision cannot be used by the party which introduced a defect on the instrument (RCBC) w/c
qualifiedly endorsed it
o Had it not been for the qualified endorsement "up to P17,500.00 only" of Olivia Gomez, who is
the employee of RCBC, there would have been no reason for the dishonor of the check
 The holder or subsequent endorser who tries to claim under the instrument which had been dishonored
for "irregular endorsement" must not be the irregular endorser himself who gave cause for the dishonor.
o Otherwise, a clear injustice results when any subsequent party to the instrument may simply
make the instrument defective and later claim from prior endorsers who have no knowledge or
participation in causing or introducing said defect to the instrument, which thereby caused its
dishonor.
 Facts:
 Gonzales was an employee of Rizal Commercial Banking Corporation (or RCBC) as New Accounts
Clerk in the Retail Banking Department at its Head Office.
 ffice.
 A foreign check in the amount of $7,500 was drawn by Dr. Don Zapanta of the Ade Medical Group...
payable to Gonzales' mother,... defendant Eva Alviar (or Alviar).
 Alviar then endorsed this check.
 Gonzales presented the foreign check to Olivia Gomez, the RCBC's Head of
 Retail Banking
 Olivia Gomez req... queste... d Gonzales to endorse it... which she did. O... livia Gomez then acquiesced
to the early encashment of the check and signed the check but indicated thereon her authority of "up to
P17,500.00 only"
 0.00 only"
 Olivia Gomez... directed Gonzales to present the check to RCBC employee Carlos Ramos
 Carlos Ramos also signed it with an "ok" annotation
 Gonzales presented the check to Rolando Zornosa, Supervisor of the
 Remittance section of the Foreign Department of the RCBC Head Office, who after scrutinizing the
entries and signatures therein
 Gonzales presented the check to Rolando Zornosa, Supervisor of the
 Remittance section of the Foreign Department of the RCBC Head Office,... who after scrutinizing the
entries and signatures therein... authorized its encashment.
 Gonzales then received its peso equivalent of P155,270.85.
 RCBC then tried to collect the amount of the check with the drawee bank... through its correspondent
bank, the First Interstate Bank of California, on two occasions dishonored the check because of "END.
IRREG" or irregular indorsement.
 check was returned due to "account closed"
 RCBC again sent the... check to the drawee bank, but this time the c
 RCBC demanded from Gonzales the payment of the peso equivalent of the check that she received.
Gonzales settled the matter by agreeing that payment be made thru salary... deduction. This temporary
arrangement for salary deductions was communicated by Gonzales to RCBC through a letter dated
November 27, 1987... deductions was implemented starting October 1987. On March 7, 1988 RCBC
sent a demand letter to Alviar for the payment of her obligation but this fell on deaf ears as RCBC did
not receive any response from Alviar.
 a letter was sent to Gonzales reminding her of her liability as an indorser of the subject check and that
for her to avoid litigation she has to fulfill her commitment to settle her obligation
 On July
 1988 Gonzales resigned from RCBC. What had been deducted from her salary was only P12,822.20
covering ten months.
  RCBC filed a complaint for a sum of money against Eva Alviar, Melva Theresa Alviar-Gonzales and the
latter's husband Gino Gonzales.
 the RTC... held two of the three defendants liable... judgment... rendered for plaintiff and as against
defendant EVA. P. ALVIAR as principal debtor and defendants MELVA THERESA ALVIAR
GONZLAES... as guarantor... the CA... affirmed the RTC judgment.
 Issues:
 CA erred
 IN FINDING [PETITIONER], AN ACCOMMODATION PARTY TO A CHECK SUBSEQUENTLY
ENDORSED PARTIALLY, LIABLE TO RCBC AS GUARANTOR
 Ruling:
 The foreign drawee bank, Wilshire Center Bank N.A., refused to pay the bearer of this dollar-check
drawn by Don Zapanta because of the defect introduced by RCBC, through its employee, Olivia Gomez.
It is, therefore, a useless piece of paper if returned in that state to its... original payee, Eva Alviar.
 There is no doubt in the mind of the Court that a subsequent party which caused the defect in the
instrument cannot have any recourse against any of the prior endorsers in good faith. Eva Alviar's and
the petitioner's liability to subsequent holders of the foreign check is... governed by the Negotiable
Instruments Law
 Sec. 66. Liability of general indorser.
 Under Section 66, the warranties for which Alviar and Gonzales are liable as general endorsers in favor
of subsequent endorsers extend only to the state of the instrument at the time of their endorsements,
specifically, that the instrument is genuine and in all respects what it... purports to be; that they have
good title thereto; that all prior parties had capacity to contract; and that the instrument, at the time of
their endorsements, is valid and subsisting. This provision, however, cannot be used by the party
which... introduced a defect on the instrument, such as respondent RCBC in this case, which qualifiedly
endorsed the same, to hold prior endorsers liable on the instrument because it results in the absurd
situation whereby a subsequent party may render an instrument useless and inutile... and let innocent
parties bear the loss while he himself gets away scot-free.
 It cannot be over-stressed that had it not been for the qualified endorsement ("up to P17,500.00 only") of
Olivia Gomez, who is the employee of RCBC, there would have been no reason for the dishonor of... the
check, and full payment by drawee bank therefor would have taken place as a matter of course.
 RCBC, which caused the dishonor of the check upon presentment to the drawee bank, through the
qualified endorsement of its employee, Olivia Gomez, cannot hold prior endorsers, Alviar and Gonzales
in this case, liable on the instrument.
 Principles:
 The holder or subsequent endorser who tries to claim under the instrument which had been dishonored
for "irregular endorsement" must not be the irregular endorser himself who gave cause for the dishonor.
Otherwise, a clear injustice results when any subsequent... party to the instrument may simply make the
instrument defective and later claim from prior endorsers who have no knowledge or participation in
causing or introducing said defect to the instrument, which thereby caused its dishonor.
 Moreover, it is a well-established principle in law that as between two parties, he who, by his acts,
caused the loss shall bear the same.[5] RCBC, in this instance, should therefore bear the loss.
 Section 66 of the Negotiable Instruments Law which further states that the general endorser additionally
engages that, on due presentment, the instrument shall be accepted or paid, or both, as the case may be,
according to its tenor, and that if it be dishonored and the... necessary proceedings on dishonor be duly
taken, he will pay the amount thereof to the holder, or to any subsequent endorser who may be
compelled to pay it, must be read in the light of the rule in equity requiring that those who come to court
should come with clean... hands.

Ang vs Associated Bank, etal

Facts: On August 28, 1990, respondent Associated Bank (formerly Associated Banking Corporation and now
known as United Overseas Bank Philippines) filed a collection suit against Antonio Ang Eng Liong and
petitioner Tomas Ang for the two (2) promissory notes that they executed as principal debtor and co-maker,
respectively. In the Complaint, respondent Bank alleged that on October 3 and 9, 1978, the defendants obtained
a loan of P evidenced by a promissory note bearing PN-No. DVO-78-382, and P 50,000, 30,000, evidenced by a
promissory note bearing PNNo. DVO-78-390. As agreed, the loan would be payable, jointly and severally, on
January 31, 1979 and December 8, 1978, respectively. In addition, subsequent amendments to the promissory
notes as well as the disclosure statements6 stipulated that the loan would earn 14% interest rate per annum, 2%
service charge per annum, 1% penalty charge per month from due date until fully paid, and attorney’s fees
equivalent to 20% of the outstanding obligation. Despite repeated demands for payment, the latest of which
were on September 13, 1988 and September 9, 1986, on Antonio Ang Eng Liong and Tomas Ang, respectively,
respondent Bank claimed that the defendants failed and refused to settle their obligation, resulting in a total
indebtedness of P 539,638.96 as of July 31, 1990. In his Answer, Antonio Ang Eng Liong only admitted to have
secured a loan amounting to P 80,000. He pleaded though that the bank “be ordered to submit a more
reasonable computation” considering that there had been “no correct and reasonable statement of account” sent
to him by the bank, which was allegedly collecting excessive interest, penalty charges, and attorney’s fees
despite knowledge that his business was destroyed by fire, hence, he had no source of income for several years.
For his part, petitioner Tomas Ang filed an Answer with Counterclaim and Cross-claim. He interposed the
affirmative defenses that: the bank is not the real party in interest as it is not the holder of the promissory notes,
much less a holder for value or a holder in due course; the bank knew that he did not receive any valuable
consideration for affixing his signatures on the notes but merely lent his name as an accommodation party; he
accepted the promissory notes in blank, with only the printed provisions and the signature of Antonio Ang Eng
Liong appearing therein.

Issue: Whether or not Petitioner is liable to the obligation despite being a mere co-maker and accommodation
party.

Held: Yes. Notably, Section 29 of the NIL defines an accommodation party as 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 gleaned from the text, 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. The accommodation party is liable on the instrument to a holder for value even
though the holder, at the time of taking the instrument, knew him or her to be merely an accommodation party,
as if the contract was not for accommodation.

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

In the instant case, petitioner agreed to be “jointly and severally” liable under the two promissory notes that he
co-signed with Antonio Ang Eng Liong as the principal debtor. This being so, it is completely immaterial if the
bank would opt to proceed only against petitioner or Antonio Ang Eng Liong or both of them since the law
confers upon the creditor the prerogative to choose whether to enforce the entire obligation against any one,
some or all of the debtors. Nonetheless, petitioner, as an accommodation party, may seek reimbursement from
Antonio Ang Eng Liong, being the party accommodated.

Consequently, in issuing the two promissory notes, petitioner as accommodating party warranted to the holder
in due course that he would pay the same according to its tenor. value therefore It is no defense to state on his
part that he did not receive any because the phrase “without receiving value therefor” used in Sec. 29 of the NIL
means “without receiving value by virtue of the instrument” and not as it is apparently supposed to mean,
“without receiving payment for lending his name.” Stated differently, when a third person advances the face
value of the note to the accommodated party at the time of its creation, the consideration for the note as regards
its maker is the money advanced to the accommodated party. It is enough that value was given for the note at
the time of its creation. As in the instant case, a sum of money was received by virtue of the notes, hence, it is
immaterial so far as the bank is concerned whether one of the signers, particularly petitioner, has or has not
received anything in payment of the use of his name.

Furthermore, since the liability of an accommodation party remains not only primary but also unconditional to a
holder for value, even if the accommodated party receives an extension of the period for payment without the
consent of the accommodation party, the latter is still liable for the whole obligation and such extension does
not release him because as far as a holder for value is concerned, he is a solidary co-debtor.

Far East Bank & Trust vs Gold Palace Jewellery Co,

G.R. No. 168274, August 20, 2008
Full Text

Facts: In June 1998, a foreigner, identified as Samuel Tagoe, purchased from the respondent Gold Palace
Jewellery Co. several pieces of jewelry valued at P258,000.00. In payment of the same, he offered Foreign
Draft No. M-069670 issued by the United Overseas Bank (Malaysia) addressed to the Land Bank of the
Philippines, Manila (LBP), and payable to the respondent company for P380,000.00.

Yang issued Cash Invoice, to the foreigner, informing him that the pieces of jewelry would be released when
the draft had already been cleared. Respondent Julie Yang-Go, the manager of Gold Palace deposited the draft
in the company’s Far East account. LBP cleared the draft, and GoldPalace’s account with Far East was credited.
The foreigner was then able to get the goods, and because the amount in the draft was more than the value of
the goods purchased, she issued, as his change, Far East Check No. 173088 for P122,000.00. This check was
later presented for encashment and was, in fact, paid by the said bank.

On June 1998, or after around three weeks, LBP informed Far East that the amount in said Foreign Draft had
been materially altered from P300.00 to P380,000.00 and that it was returning the same. Intending to debit the
amount from respondent’s account, Far East subsequently refunded the P380,000.00 earlier paid by LBP.
Meanwhile, Far East was able to debit only P168,053.36 from the GoldPalace’s account as the respondent has
already utilized their funds. This was debited without their permission. The bank informed the GoldPalace later
thru a phone call.
On August 1998, petitioner demanded from respondents the payment of P211,946. Because Gold Palace did not
heed the demand, Far East consequently instituted civil case for sum of money and damages before the RTC in
Makati.

RTC ruled in favor of Far East, ordering Gold Palace to pay the former P211,946.64 as actual damages
and P50,000.00 as attorney’s fees. The trial court ruled that, on the basis of its warranties as a general
indorser, Gold Palace was liable to Far East.

On appeal, the CA, reversed the ruling of the trial court and awarded respondents’ counterclaim. It ruled in the
main that Far East failed to undergo the proceedings on the protest of the foreign draft or to
notify Gold Palace of the draft’s dishonor; thus, Far East could not charge Gold Palace on its secondary liability
as an indorser.

Issue: Whether or not GoldPalace can be held liable

Held: No. Act No. 2031, or the Negotiable Instruments Law (NIL), explicitly provides that the acceptor, by
accepting the instrument, engages that he will pay it according to the tenor of his acceptance. His actual
payment of the amount in the check implies not only his assent to the order of the drawer and a recognition of
his corresponding obligation to pay the aforementioned sum, but also, his clear compliance with that obligation.
In this case, the drawee bank cleared and paid the subject foreign draft and forwarded the amount thereof to the
collecting bank. The latter, Far East, then credited to GoldPalace’s account the payment it received. Following
the plain language of the law, the drawee, by the said payment, recognized and complied with its obligation to
pay in accordance with the tenor of his acceptance. Stated simply, LBP was liable on its payment of the
check according to the tenor of the check at the time of payment, which was the raised amount.

SC also notes that Respondent Gold Palace was not a participant in the alteration of the draft, was not negligent,
and was a holder in due course—it received the draft complete and regular on its face. Gold Palace relied on the
drawee bank’s clearance and payment of the draft. Respondent is also protected by the said Section 62.
Commercial policy favors the protection of any one who, in due course, changes his position on the faith of the
drawee bank’s clearance and payment of a check or draft.

The fault is in LBP; having the most convenient means to correspond with UOB, did not first verify the amount
of the draft before it cleared and paid the same. Gold Palace, on the other hand, had no facility to ascertain with
the drawer, UOB Malaysia, the true amount in the draft. Thus, the collecting agent, Far East, should not have
debited the money paid by the drawee bank from respondent company’s account.
When Gold Palace deposited the check with Far East, the latter, under the terms of the deposit and the
provisions of the NIL, became an agent of the former for the collection of the amount in the draft. Far East then
was able to collect from LBP. As the transaction in this case had been closed and the principal-agent
relationship between the payee (GoldPalace) and the collecting bank (Far East) had already ceased, the latter in
returning the amount to the drawee bank (LBP) was already acting on its own and should now be responsible
for its own actions. The drawee bank had no right to recover what it paid.

Likewise, Far East cannot invoke the warranty of the payee/depositor who indorsed the instrument for
collection to shift the burden it brought upon itself. This is precisely because the said indorsement is only for
purposes of collection which, under Section 36 of the NIL, is a restrictive indorsement.[47] It did not in any way
transfer the title of the instrument to the collecting bank. Far East did not own the draft, it merely presented it
for payment. Considering that the warranties of a general indorser as provided in Section 66 of the NIL are
based upon a transfer of title and are available only to holders in due course. Without any legal right to do so,
the collecting bank, therefore, could not debit respondent’s account for the amount it refunded to the drawee
bank.

SC ruled that, for doing so, Far East must return what it had erroneously taken. The remedy under the law is not
against Gold Palace but against the drawee-bank or the person responsible for the alteration.