PHILIPPINE EDUCATION CO. VS. SORIANO (GR No.

L-22405, June
30, 1971) - Enrique Montinola sought to purchase from the Manila Post
Office 10 money orders (P200 each), offering to pay for them with a
private check. Montinola was able to leave the building with his check and
the 10 money orders without the knowledge of the teller. Upon discovery,
message was sent to all postmasters and banks involving the unpaid
money orders. One of the money orders was received by the Philippine
Education Co. as part of its sales receipt. It was deposited by the company
with the Bank of America, which cleared it with the Bureau of Post. The
Postmaster, through the Chief of the Money Order Division of the Manila
Post Office informed the bank of the irregular issuance of the money
order. The bank debited the account of the company. The company
moved for reconsideration. ISSUE: WON postal money orders are
negotiable instruments? HELD: No. Philippine postal statutes are
patterned from those of the United States, and the weight of authority in
said country is that Postal money orders are not negotiable instruments
inasmuch as the establishment of a postal money order is an exercise of
governmental power for the public’s benefit. Furthermore, some of the
restrictions imposed upon money order by postal laws and regulations are
inconsistent with the character of negotiable instruments. For instance,
postal money orders may be withheld under a variety of circumstances, and which are not
restricted to not more than one indorsement.
CALTEX VS. COURT OF APPEALS (GR No. 97753, Aug. 10, 1992) -
Respondent bank issued 280 certificates of time deposit (CTDs) in favor of
Angel dela Cruz who delivered the same to herein petitioner in connection
with his purchased fuel products. Eventually, dela Cruz executed and
delivered an Affidavit of Loss for the reissuance of the CTDs. Dela Cruz
later on obtained a loan from respondent bank and negotiated the said
CTDs, executing a Deed of Assignment of Time Deposit which stated,
among others, that the bank has full control of the indicated time deposits
from and after date of the assignment and may set-off such and apply the
same to the payment of amount or amounts that may be due on the loan
upon maturity.
Petitioner then went to the Sucat branch for verification of the CTDs
declared lost, alleging that the same were delivered to herein petitioner as
“security for purchases made with Caltex Philippines, Inc.” and requested
that the CTDs be pre-terminated, which was refused by the respondent
bank due to the failure of petitioner to present requested documents to
prove such allegation. Petitioner then filed a complaint in the RTC, which
was dismissed. On appeal, the CA affirmed the decision of the RTC. Thus,
the present petition. ISSUE: WON the CTDs are considered negotiable?
HELD: Yes. A sample text of the certificates of time deposit is reproduced
below:
SECURITY BANK
AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
Metro Manila, Philippines
SUCAT OFFICE P4,000.00
CERTIFICATE OF DEPOSIT
Rate 16%
Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____
This is to Certify that B E A R E R has deposited in this Bank the sum of
PESOS: FOUR THOUSAND ONLY, SECURITY BANK SUCAT OFFICE
P4,000 & 00 CTS Pesos, Philippine Currency, repayable to said depositor 731
days. after date, upon presentation and surrender of this certificate, with interest
at the rate of 16% per cent per annum.
(Sgd. Illegible) (Sgd. Illegible)
AUTHORIZED SIGNATURES
Section 1, of Act No. 2031, otherwise known as the Negotiable
Instruments Law, enumerates the requisites for an instrument to become
negotiable. The CTDs in question undoubtedly meet the requirements of
the law for negotiability. The accepted rule is that the negotiability or nonnegotiability
of an instrument is determined from the writing, that is, from
the fact of the instrument itself. Contrary to what respondent court held
(that the CTDs are payable to the “depositor” which is Angel dela Cruz),
the documents provide that the amounts deposited shall be repayable to
the depositor. And who, according to the document is the depositor? It is
the “bearer”. The documents do not say that the depositor is Angel dela
Cruz and that the amounts deposited are repayable specifically to him.
Rather, the amounts are to be repayable to the bearer of the documents
or, for that matter, whosoever may be the bearer at the time of presentment.
METROBANK VS. CA

FACTS:
Gomez opened an account with Golden Savings bank and deposited 38
treasury warrants. All these warrants were indorsed by the cashier of
Golden Savings, and deposited it to the savings account in a Metrobank
branch. They were sent later on for clearing by the branch office to the
principal office of Metrobank, which forwarded them to the Bureau of
Treasury for special clearing. On persistent inquiries on whether the warrants have been
cleared, the branch manager allowed withdrawal of the
warrants, only to find out later on that the treasury warrants have been
dishonored.

HELD:
The treasury warrants were not negotiable instruments. Clearly, it is
indicated that it was non-negotiable and of equal significance is the
indication that they are payable from a particular fund, Fund 501. This
indication as the source of payment to be made on the treasury warrant
makes the promise to pay conditional and the warrants themselves non-negotiable.

Metrobank then cannot contend that by indorsing the warrants in general, GS assumed that they
were genuine and in all respects what they purport it to be, in accordance to Section 66 of the
NIL. The simple reason is that the law isn’t applicable to the non-
negotiable treasury warrants. The
indorsement was made for the purpose of merely depositing them with
Metrobank for clearing. It was in fact Metrobank which stamped on the back of the
warrants: “All prior indorsements and/or lack of endorsements guaranteed…”

Sesbreno vs. CA

FACTS:
Petitioner made a placement with Philfinance. The latter delivered to him documents, some of
which was a promissory note from Delta Motors and a post-dated check. The post-dated checks
were dishonored. This prompted petitioner to ask for the promissory note from DMC and it was
discovered that the note issued by DMC was marked as non-negotiable. As Sesbreno failed to
recover his money, he filed case against DMC and Philfinance.

HELD:
The non-negotiability of the instrument doesn’t mean that it is non-assignable or
transferable. It may still be assigned or transferred in whole or in part, even without the consent
of the promissory note, since consent is not necessary for the validity of the assignment.

In assignment, the assignee is merely placed in the position of the

assignors and acquires the instrument subject to all the defenses that
might have been set up against the original payee.

Firestone Tire vs. CA

Firestone Tire & rubber Co. vs. Court of Appeals

GR No. 113236 March 5, 2001
Quisumbing, J.:

Facts:
Forjas-Arca Enterprise Company is maintaining a special savings account with Luzon
Development Bank, the latter authorized and allowed withdrawals of funds though the medium of
special withdrawal slips. These are supplied by Fojas-Arca. Fojas-Arca purchased on credit with
FirestoneTire & Rubber Company, in payment Fojas-Arca delivered a 6 special withdrawal slips.
In turn, these were deposited by the Firsestone to its bank account in Citibank. With this, relying
on such confidence and belief Firestone extended to Fojas-Arca other purchase on credit of its
products but several withdrawal slips were dishonored and not paid. As a consequence, Citibank
debited the plaintiff’s account representing the aggregate amount of the two dishonored special
withdrawal slips. Fojas-Arca averred that the pecuniary losses it suffered are a caused by and
directly attributes to defendant’s gross negligence as a result Fojas-Arca filed a complaint.

Issue:
Whether or not the acceptance and payment of the special withdrawal slips without the
presentation of the depositor’s passbook thereby giving the impression that it is a negotiable
instrument like a check.

Held:
No. Withdrawal slips in question were non negotiable instrument. Hence, the rules
governing the giving immediate notice of dishonor of negotiable instrument do not apply. The
essence of negotiability which characterizes a negotiable paper as a credit instrument lies in its
freedom to circulate freely as a substitute for money. The withdrawal slips in question lacked this
character.

SALAS VS. CA (G.R. No. 76788 January 22, 1990) - Juanita Salas
(Petitioner) bought a motor vehicle from the Violago Motor Sales
Corporation (VMS) as evidenced by a promissory note. This note was
subsequently endorsed to Filinvest Finance & Leasing Corporation (private
respondent) which financed the purchase. Petitioner defaulted in her
installments allegedly due to a discrepancy in the engine and chassis
numbers of the vehicle delivered to her and those indicated in the sales
invoice, certificate of registration and deed of chattel mortgage, which fact
she discovered when the vehicle figured in an accident. This failure to pay
prompted private respondent to initiate an action for a sum of money
against petitioner before the Regional Trial Court. ISSUE: WON private
respondent is a holder in due course? HELD: YES. The Promissory Note
was negotiated by indorsement in writing on the instrument itself payable
to the Order of Filinvest Finance and Leasing Corporation and it is an
indorsement of the entire instrument. Under the circumstances, there
appears to be no question that Filinvest is a holder in due course, having
taken the instrument under the following conditions: [a] it is complete and
regular upon its face; [b] it became the holder thereof before it was
overdue, and without notice that it had previously been dishonored; [c] it
took the same in good faith and for value; and [d] when it was negotiated
to Filinvest, the latter had no notice of any infirmity in the instrument or
defect in the title of VMS Corporation. Accordingly, respondent
corporation holds the instrument free from any defect of title of
prior parties, and free from defenses available to prior parties
among themselves, and may enforce payment of the instrument
for the full amount thereof. This being so, petitioner cannot set
up against respondent the defense of nullity of the contract of
sale between her and VMS.
ANG TEK LIAN VS. CA (GR No. L-2516; Sept. 25, 1950) - Petitioner Ang
Tek Lian approached Lee Hua and asked him if he could give him
P4,000.00. He said that he is supposed to withdraw from the bank but his
bank was already closed. In exchange, he gave respondent Lee Hua a
check which is “payable to the order of ‘cash”. When Lee Hua presented
the check for payment the next day, he discovered that it has an
insufficient funds, hence, was dishonored by the bank. In his defense, Ang
Tek Lian argued that he did not indorse the check to Lee Hua when the
latter accepted the check without his indorsement. ISSUE: WON Ang Tek
Lian’s indorsement of the said check is necessary to hold him liable for the
dishonored check? HELD: No. Under Section 9 of the Negotiable
Instruments Law, a check drawn payable to the order of “cash” is a
check payable to bearer and the bank may pay it to the person
presenting it for payment without drawer’s indorsement.
Consequently, the form of the check was totally unconnected with its
dishonor. The check was returned unsatisfied because the drawer had
insufficient funds and not because the drawer’s indorsement was lacking.
Hence, Ang Tek Lian may be held liable for estafa because under article
315, paragraph d, subsection 2 of the Revised Penal Code, one who issues
a check payable to cash to accomplish deceit and knows that at the time
he had no sufficient deposit with the bank to cover the amount of the
check and without informing the payee of such circumstances is guilty of
estafa.

7. DEVELOPMENT BANK OF RIZAL V. SIMA WEI

219 SCRA 736
FACTS:
Sima Wei executed a promissory note in consideration of a loan secured from petitioner
bank. She was able to pay partially for the loan but failed to pay for the balance. She then
issued two checks to pay the unpaid balance but for some unexplainable reason, the checks
were not received by the bank but ended up in the hands of someone else. The bank
instituted actions against Sima Wei and other people. The trial court dismissed the case
and the CA affirmed this decision.
HELD:
A negotiable instrument, of which a check is, is not only a written evidence of a contract right
but
is also a species of property. Just as a deed to a piece of land must be delivered in order to
convey title to the grantee, so must a negotiable instrument be delivered to the payee in
order to evidence its existence as a binding contract. Section 16 provides that every
contract on a negotiable instrument is incomplete and revocable until delivery of the instrument
for the purpose of giving effect thereto. Thus,
the payee of the negotiable instrument acquires no interest with respect thereto until its
delivery to him. Delivery of an 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.
8. PBCom vs Aruego
Philippine Bank of Commerce vs. Aruego
GR L-25836-37, 31 January 1981, 102 scra 530
--agents
FACTS:
To facilitate payment of the printing of a periodical called “World Current Events.”, Aruego, its
publisher, obtained a credit accommodation from the Philippine Bank of Commerce. For every
printing of the periodical, the printer collected the cost of printing by drawing a draft against the
bank, said draft being sent later to Aruego for acceptance. As an added security for the payment
of the amounts advanced to the printer, the bank also required Aruego to execute a trust receipt
in favor of the bank wherein Aruego undertook to hold in trust for the bank the periodicals and to
sell the same with the promise to turn over to the bank the proceeds of the sale to answer for
the payment of all obligations arising from the draft. The bank instituted an action against
Aruego to recover the cost of printing of the latter’s periodical. Aruego however argues that he
signed the supposed bills of exchange only as an agent of the Philippine Education Foundation
Company where he is president.
ISSUES:
Whether Aruego can be held liable by the petitioner although he signed the supposed bills of
exchange only as an agent of Philippine Education Foundation Company.
RULING:
Aruego did not disclose in any of the drafts that he accepted that he was signing as
representative of the Philippine Education Foundation Company. For failure to disclose his
principal, Aruego is personally liable for the drafts he accepted, pursuant to Section 20 of the
NIL which provides that when a person adds to his signature words indicating that he signs for
or on behalf of a principal or in a representative capacity, he is not liable on the instrument if he
was duly authorized; but the mere addition of words describing him as an agent or as filing a
representative character, without disclosing his principal, does not exempt him from personal
liability.
ADALIA FRANCISCO vs. COURT OF APPEALS, ET AL.
G.R. No. 116320 November 29, 1999
--agents
FACTS:
A. Francisco Realty & Development Corporation (AFRDC), of which petitioner Francisco is the
president, entered into a Land Development and Construction Contract with private respondent
Herby Commercial & Construction Corporation (HCCC), represented by its President and
General Manager private respondent Ong. Under the contract, HCCC was to be paid on the
basis of the completed houses and developed lands delivered to and accepted by AFRDC and
the GSIS. Sometime in 1979, Ong discovered that Diaz and Francisco, the Vice-President of
GSIS, had executed and signed seven checks of various dates and amounts payable to HCCC
for completed and delivered work under the contract. Ong, however, claims that these checks
were never delivered to HCCC. It turned out that Francisco forged the indorsement of Ong on
the checks and indorsed the checks for a second time by signing her name at the back of the
checks, petitioner then deposited said checks in her savings account. A case was brought by
private respondents against petitioner to recover the value of said checks. Petitioner however
claims that she was authorized to sign Ong's name on the checks by virtue of the Certification
executed by Ong in her favor giving her the authority to collect all the receivables of HCCC
from
the GSIS, including the questioned checks.
ISSUE:
Whether petitioner cannot be held liable on the questioned checks by virtue of the Certification
executed by Ong giving her the authority to collect such checks from the GSIS.
RULING:
Petitioner is liable. The Negotiable Instruments Law provides that where any person is under
obligation to indorse in a representative capacity, he may indorse in such terms as to negative
personal liability. An agent, when so signing, should indicate that he is merely signing in behalf
of the principal and must disclose the name of his principal; otherwise he shall be held
personally liable. Even assuming that Francisco was authorized by HCCC to sign Ong's name,
still, Francisco did not indorse the instrument in accordance with law. Instead of signing Ong's
name, Francisco should have signed her own name and expressly indicated that she was
signing as an agent of HCCC. Thus, the Certification cannot be used by Francisco to validate
her act of forgery.
10. Jai-Alai Corp vs BPI
Jai-Alai Corp. of the Phil. vs. Bank of the Phil. Islands
G.R. No. L-29432 August 6, 1975 66 SCRA 29
-forgery
FACTS:
Petitioner deposited 10 checks in its current account with BPI. The checks which were acquired
by petitioner from Ramirez, a sales agent of the Inter-Island Gas were all payable to Inter-Island
Gas Service, Inc. or order. After the checks had been submitted to Inter-bank clearing, Inter-
Island Gas discovered that all the indorsements made on the checks purportedly by its cashiers
were forgeries. BPI thus debited the value of the checks against petitioner's current account
and forwarded to the latter the checks containing the forged indorsements which petitioner
refused to accept.
ISSUE:
Whether BPI had the right to debit from petitioner's current account the value of the checks with
the forged indorsements.
RULING:
BPI acted within legal bounds when it debited the petitioner's account. Having indorsed the
checks to respondent bank, petitioner is deemed to have given the warranty prescribed in
Section 66 of the NIL that every single one of those checks "is genuine and in all respects what
it purports to be." Respondent which relied upon the petitioner's warranty should not be held
liable for the resulting loss.
**The depositor of a check as indorser warrants that it is genuine and in all respects what it
purports to be. Having indorsed the checks to respondent bank, petitioner is deemed to have
given the warranty prescribed in Section 66 of the NIL that every single one of those checks " is
genuine and in all respects what it purports to be."

REPUBLIC BANK VS. EBRADA (GR No. L-40769; July 31, 1975) - This is a
case of what appeared to be an indorsed check by one Martin Lorenzo who
turned out to be dead since 1952. The forged signature of the deceased
appeared at the dorsal portion of the check indorsed in favor of one Ramon
Lorenzo. From Ramon Lorenzo the same was indorsed to one Delia
Dominguez and then from Dominguez to herein respondent Ebrada.
Subsequently, Ebrada encashed the same in 1963 at herein petitioner
Republic Bank's main office in Escolta. Upon informing petitioner Republic
Bank, however, that the payee's (Lorenzo) indorsement was a forgery, the
Bureau of Treasury requested the Bank to refund them the amount given to
Ebrada. The Bank sued Ebrada upon the latter’s refusal to return the money
of the forged check. ISSUE: WON Ebrada is liable to return the money paid
to him by Republic Bank subject of a forged check and may the petitioner
recover the proceeds given? HELD: It is clear from the provision of Section
23 of the NIL that where the signature on a negotiable instrument if forged,
the negotiation of the check is without force or effect. But does this mean
that the existence of one forged signature therein will render void all the
other negotiations of the check with respect to the other parties whose
signature are genuine? No. Applying the principle of Beam vs. Farrel, 135
Iowa 670, 113 N.W. 590, it can be safely concluded that it is only the
negotiation predicated on the forged indorsement that should be declared
inoperative. This means that the negotiation of the check in question from
Martin Lorenzo, the original payee, to Ramon R. Lorenzo, the 2nd indorser,
should be declared of no effect, but the negotiation of the aforesaid check
from Ramon R. Lorenzo to Adelaida Dominguez, the 3rd indorser, and from
Adelaida Dominguez to the defendant-appellant who did not know of the
forgery, should be considered valid and enforceable, barring any claim of
forgery. Being the last indorser, however, Ebrada warrants that she has good
title to the check subject of this action. The petitioner, drawee of the check
can recover from the holder [Ebrada] the money paid to the latter on a
forged instrument. It is not supposed to be its duty to ascertain whether the
signatures of the payee or indorsers are genuine or not. This is because the
indorser is supposed to warrant to the drawee that the signatures of the
payee and previous indorsers are genuine, warranty not extending only to
holders in due course. Ebrada, upon receiving the check in question from
Dominguez, was duty-bound to ascertain whether the check in question was
genuine before presenting it to plaintiff Bank for payment. Indorsers own
credulity or recklessness or misplaced confidence was the sole
cause of the loss. Why should he be permitted to shift the loss due
to his own fault in assuming the risk, upon the drawee, simply
because of the accidental circumstance that the drawee afterwards
failed to detect the forgery when the check was presented for
payment.
MWSS VS. CA
143 SCRA 20
FACTS:
MWSS had an account from PNB. Its treasurer, auditor, and General Manager are the
ones authorized to sign checks. During a period of time, 23 checks were drawn and debited
against the account of petitioner. Bearing the same check numbers, the amounts stated
therein were again
debited from the account of petitioner. The amounts drawn were deposited in the accounts of
the payees in PCIB. It was found out though that the names stated in the drawn checks were all
fictitious. Petitioner demanded the return of the amounts debited but the bank refused to do so.
Thus, it filed a complaint.
HELD:
There was no categorical finding that the 23 checks were signed by persons other than
those authorized to sign. On the contrary, the NBI reports shows that the fraud was an
“inside job” and that the delay in the reconciliation of the bank statements and the laxity
and loss of records
control in the printing of the personalized checks facilitated the fraud. It further doesn’t provide
that the signatures were forgeries.
Forgery cannot be presumed. It should be proven by clear, convincing and positive evidence.
This wasn’t done in the present case.
The petitioner cannot invoke Section 23 because it was guilty of negligence not only before the
questioned checks but even after the same had already been negotiated..j

BANCO DE ORO SAVING V. EQUITABLE

157 SCRA 188

FACTS:
BDO drew checks payable to member establishments. Subsequently, the
checks were deposited in Trencio’s account with Equitable. The checks
were sent for clearing and was thereafter cleared. Afterwards, BDO discovered that the
indorsements in the back of the checks were forged. It
then demanded that Equitable credit its account but the latter refused to do so. This
prompted BDO to file a complaint against Equitable and PCHC. The trial court and RTC held in
favor of the Equitable and PCHC.

HELD:
First, PCHC has jurisdiction over the case in question. The articles of incorporation of
PHHC extended its operation to clearing checks and other clearing items. No doubt transactions
on non-negotiable checks are within the ambit of its jurisdiction. Further, the participation of the
two banks in the clearing operations is submission to the jurisdiction of the PCHC.

Petitioner is likewise estopped from raising the non-negotiability of the

checks in issue. It stamped its guarantee at the back of the checks and
subsequently presented it for clearing and it was in the basis of these
endorsements by the petitioner that the proceeds were credited in its
clearing account. The petitioner cannot now deny its liability as it assumed
the liability of an indorser by stamping its guarantee at the back of the checks.

Furthermore, the bank cannot escape liability of an indorser of a check and which may turn out
to be a forged indorsement. Whenever a bank treats the signature at the back of the checks as
indorsements and thus logically
guarantees the same as such there can be no doubt that said bank had considered the
checks as negotiable.

A long line of cases also held that in the matter of forgery in

endorsements, it is the collecting bank that generally suffers the loss
because it had the dutyh to ascertain the genuineness of all prior indorsements 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 indorsements.

14. Gempesaw
Gempensaw was the owner of many grocery stores. She paid her suppliers through the
issuance of checks drawn against her checking account with respondent bank. The
checks were prepared by her bookkeeper Galang. In the signing of the checks prepared by
Galang, Gempensaw didn't bother
herself in verifying to whom the checks were being paid and if the issuances were
necessary. She didn't even verify the returned checks of the bank when the latter notifies
her of the same. During her two years in business, there were incidents shown that the
amounts paid for were in excess of what should have been paid. It was also shown that even
if the checks were crossed, the intended payees didn't receive the amount of the checks. This
prompted Gempensaw to demand the bank to credit her account for the amount of the
forged checks. The bank refused to do so and this prompted her to file the case against the
bank.
HELD:
Forgery is a real defense by the party whose signature was forged. A party whose signature
was forged was never a party and never gave his consent to the instrument. Since his
signature doesn’t appear in the instrument, the same cannot be enforced against him even
by a holder in due course. The drawee bank cannot charge the account of the drawer whose
signature was forged because he never gave the bank the order to pay.
In the case at bar the checks were filled up by petitioner’s employee Galang and were
later given to her for signature. Her signing the checks made the negotiable instruments
complete. Prior to signing of the checks, there was no valid contract yet. Petitioner
completed the checks by signing them and thereafter authorized Galang to deliver the same
to their respective payees. The checks were then indorsed, forged indorsements thereon.
As a rule, a drawee bank who has paid a check on which an indorsement has been forged
cannot debit the account of a drawer for the amount of said check. An exception to
this rule is when the drawer is guilty of negligence which causes the bank to honor such
checks. Petitioner in this case has relied solely on the honesty and loyalty of her
bookkeeper and never bothered to verify the accuracy of the amounts of the checks she
signed the invoices attached thereto. And though she received her bank statements, she
didn't carefully examine the same to double-check her
payments. Petitioner didn't exercise reasonable diligence which eventually led to the fruition of
her bookkeeper’s fraudulent schemes.

15. ASSOCIATED BANK V. CA

252 SCRA 620
FACTS:
The province of Tarlac maintains an account with PNB-Tarlac. Part of its funds is
appropriated for the benefit of Concepcion Emergency Hospital. During a post-audit done
by the province, it was found out that 30 of its checks weren’t received by the hospital. Upon
further investigation, it was found out that the checks were encashed by Pangilinan who was a
former cashier and administrative officer of the hospital through forged indorsements.
This prompted the provincial treasurer to ask for
reimbursement from PNB and thereafter, PNB from Associated Bank. As the two banks
didn't want to reimburse, an action was filed against them.
HELD:
There is a distinction on forged indorsements with regard bearer instruments and
instruments payable to order.
With instruments payable to bearer, the signature of the payee or holder is unnecessary to pass
title to the instrument. Hence, when the indorsement is a forgery, only the person whose
signature is forged can raise the defense of forgery against holder in due course.
In instruments payable to order, the signature of the rightful holder is essential to
transfer title to the same instrument. When the holder’s signature is forged, all parties
prior to the forgery may raise the real defense of forgery against all parties subsequent
thereto. In connection to this, an indorser warrants that the instrument is genuine. A
collecting bank is such an indorser. So even if the indorsement 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.
Furthermore, in cases involving checks with forged indorsements, such as the case at bar,
the chain of liability doesn't 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, the forger himself, if available. In
other words, the drawee bank can seek reimbursement or a return of the amount it paid from
the collecting bank or person. The collecting bank generally suffers the loss because it
has te 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 indorsements.
16. metribank vs fncb
iFACTS:
August 25, 1964: Check dated July 8, 1964 for P50,000.00, payable to CASH, drawn by
Joaquin Cunanan & Company on First National City Bank (FNCB) was deposited with
Metropolitan Bank and Trust Company (Metro Bank) by Salvador Sales.
Earlier that day, Sales had opened a current account with Metro Bank depositing P500.00 in
cash
Metro Bank immediately sent the cash check to the Clearing House of the Central Bank with the
following words stamped at the back of the check:
Metropolitan Bank and Trust Company Cleared (illegible) office All prior endorsements and/or
Lack of endorsements Guaranteed.
The check was cleared the same day. Private respondent paid petitioner through clearing the
amount of P50,000.00, and Sales was credited with the said amount in his deposit with Metro
Bank.
August 26, 1964: Sales made his 1st withdrawal of P480.00 from his current account
August 28, 1964: he withdrew P32,100.00
August 31, 1964: he withdrew the balance of P17,920 and closed his account with Metro Bank
September 3, 1964: FNCB returned cancelled Check to drawer Joaquin Cunanan & Company,
together with the monthly statement of the company's account with FNCB.
notified FNCB that the check had been altered
actual amount of P50.00 was raised to P50,000.00
name of the payee, Manila Polo Club, was superimposed the word CASH.
September 10, 1964: FNCB wrote Metro Bank asking for reimbursement
June 29, 1965: FNCB filed for recovery
CA affirmed Trial Court: Metro Bank to reimburse FNCB
ISSUE: W/N Metrobank should reimsburse FNCB for the altered amount as indorser
HELD: NO. FNCB liable.
Under the procedure prescribed, the drawee bank receiving the check for clearing from the
Central Bank Clearing House must return the check to the collecting bank within the 24-hour
period if the check is defective for any reason. - FNCB failed to do so
indorsement must be read together with the 24-hour regulation on clearing House Operations of
the Central Bank
Metro Bank can not be held liable for the payment of the altered check.
Moreover, FNCB did not deny the allegation of Metro Bank that before it allowed the
withdrawal
of the balance of P17,920.00 by Salvador Sales, Metro Bank withheld payment and first verified,
through its Assistant Cashier Federico Uy, the regularity and genuineness of the check deposit
from Marcelo Mirasol, Department Officer of FNCB, because its (Metro Bank) attention was
called by the fast movement of the account

17. Republic Bank vs. Court of Appeals

GR No. 42725 April 22, 1991
Grino – Aquino, J.:
Facts:
San Miguel Corporation drew a dividend check worth P240 on its account in First
National City Bank in favor of J. Roberto Delgado, a stock holder. The amount on its face was
fraudulently and without authority of the drawer, altered by increasing it from P240 to P9, 240.
The check was indorsed and deposited by Delgado to his account with Republic bank. Republic
endorsed the check to FNCB and presented I for payment through the Central Bank Clearing
House. FNCB paid P9, 240 to the Republic through the Central Bank Clearing House. SMC
notified FNCB of trhe material alteration in the check in question. FNCB informed Republic
with
regard to the alteration nand forgery of the endorsement of Delgado. By the, Delgado had
already withdrawn his account from the republic. FNCB demanded that Republic refund the P9,
240. Trial court rendered judgment in favor of FNCB and it was affirmed by the Court of
Appeals.
Issue:
Whether Republic, as the collecting bank, is protected, by 24-hour clearing house rule,
found in CB circular No. 9, as amended, from liability to refund the amount paid by FNCB, as
drawee of the SMC dividend check.
Held:
No. The 24-hour clearing house rule is valid rule applicable to commercial banks. It is
true that when an indorsement is forged, the collecting bank or last endorser, as general rule,
bears the loss. But the unqualified endorsement of the collecting bank on the check should be
read together with the 24-hour regulation on the clearing house operation. Thus, when the
drawee bank fails to return a forged or altered check to the collecting bank is absolved from
liability. Unless an alteration is attributable to the fault or negligence of the drawer himself, such
as when he leaves spaces on the check which would allow the fraudulent insertion of additional
numerals in the amount appearing thereon, the remedy of the drawee bank that negligently
clears a forged and/or honor altered check for payment is against the party responsible for the
forgery or alteration, otherwise, it bears the loss. It may not charge the amount so paid to the
account of the drawer, if the latter was free from blame, nor recover it from the collecting bank is
the latter made payment after proper clearance from the drawee.
PHILIPPINE COMMERCIAL INTERNATIONAL BANK VS. CA (GR No.
121413; Jan. 29, 2001) - Ford Philippines filed actions to recover from the
drawee bank Citibank and collecting bank PCIB the value of several
checks payable to the Commissioner of Internal Revenue as payment of
percentage or manufacturer's sales taxes. What prompted this action was
the drawing of a check by Ford, which it deposited to PCIB as
payment and was debited from their Citibank account. It was later on
found out that the payment wasn’t received by the Commissioner.
Meanwhile, according to the NBI report, one of the checks issued by Ford
was withdrawn from PCIB for alleged mistake in the amount to be paid. This
was replaced with manager’s check by PCIB, which were allegedly stolen
by a syndicate and deposited in their own account. The trial court
decided in favor of Ford. In this petition, PCIB claims that the action of Ford
had prescribed because of its inability to seek judicial relief seasonably,
considering that the alleged negligent act took place prior to December 19,
1977 but the relief was sought only in 1983, or seven years thereafter.
ISSUE: WON Ford’s cause of action has prescribed, hence, cannot recover
anymore from PCIB? HELD: The statute of limitations begins to run when
the bank gives the depositor notice of the payment, which is ordinarily when
the check is returned to the alleged drawer as a voucher with a statement of
his account. An action upon a check is ordinarily governed by the statutory
period applicable to instruments in writing. Our laws on the matter provide
that the action upon a written contract must be brought within ten years
from the time the right of action accrues. Hence, the reckoning time for the
prescriptive period begins when the instrument was issued and the
corresponding check was returned by the bank to its depositor. Applying the
same rule, the cause of action for the recovery of the proceeds of Citibank
would normally be a month after December 19, 1977, when Citibank paid the
face value of the check in the amount of P4,746,114.41. Since the original
complaint for the cause of action was filed on January 20, 1984, barely six
years had lapsed. Thus, Ford's cause of action to recover the amount was
seasonably filed within the period provided by law. Hence, PCIB was
declared solely responsible for the loss of the proceeds of Citibank in the
amount P4,746,114.41, which shall be paid together with 6% interest
thereon to Ford from the date when the original complaint was filed until
said amount is fully paid.
Samsung Construction v. Far East Bank (August 15, 2004)
Post under case digests, Commercial Law at Monday, February 20, 2012 Posted by Schizophrenic
Mind
Facts: Samsung Construction held an account with Far East Bank. One day a check worth 900,000,
payable to cash, was presented by one Roberto Gonzaga in the Makati Branch of Far East Bank.
The check was certified to be true by Jose Sempio, the assistant accountant of Samsung, who was
also present during the time the check was cashed. Later however it was discovered that no such
check was ever approved by the Samsung’s head accountant, the president of the company also
never signed any such check.

Issue: Whether or not Far East Bank is liable to reimburse Samsung for cashing out the forged
check, which was drawn from the account of Samsung

Held: Far East Bank is liable for reimbursement. Sec. 23 of the Negotiable Instrument Law states
that a forged signature makes the instrument “wholly inoperative”. If payment is made the drawee
(Far East) cannot charge it to the drawer’s account (Samsung). The fact that the forgery is clever
is immaterial. The forged signature may so closely resemble the genuine as to defy detection by
the depositor himself. And yet, if the bank pays the check, it is paying out with its own money and
not of the depositor’s. This rule of liability can be stated briefly in these words: “A bank is bound
to know its depositor’s signature.” The accusation of negligence on the part of Samsung was not
clearly proven. Absence of proof to the contrary, the presumption is that the ordinary course of
business was followed.

PNB VS. CA (GR No. 107508; April 25, 1996) - A check with serial number
7-3666-223-3, dated August 7, 1981 in the amount of P97,650.00 was issued
by the Ministry of Education and Culture payable to F. Abante Marketing.
This check was drawn against Philippine National Bank (herein petitioner).
F. Abante Marketing, a client of Capitol City Development Bank (Capitol),
deposited the questioned check in its savings account with said bank. In
turn, Capitol deposited the same in its account with the Philippine Bank of
Communications (PBCom) which, in turn, sent the check to petitioner for
clearing. Petitioner cleared the check as good and, thereafter, PBCom
credited Capitol’s account for the amount stated in the check. However,
petitioner PNB returned the check to PBCom and 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 the latter’s account for the same amount.
On the other hand, Capitol could not, in turn, debit F. Abante Marketing’s
account since the latter had already withdrawn the amount of the check.
ISSUE: WON AN ALTERATION OF THE SERIAL NUMBER OF A CHECK IS A
MATERIAL ALTERATION UNDER THE NEGOTIABLE INSTRUMENTS LAW?
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 Section 1 of the
Negotiable Instrument Law. The case at the bench is unique in the
sense that what was altered is the serial number of the check in
question, an item which, it can readily be observed, is not an
essential requisite for negotiability under Section 1 of the
Negotiable Instruments Law. The aforementioned alteration did
not change the relations between the parties. The name of the
drawer and the drawee were not altered. The intended payee was
the same. The sum of money due to the payee remained the same.
If the purpose of the serial number is merely to identify the issuing
government office or agency, its alteration in this case had no material effect
whatsoever on the integrity of the check. The identity of the issuing
government office or agency was not changed thereby and the amount of
the check was not charged against the account of another government office
or agency which had no liability under the check.
ENRIQUE MONTINOLA VS. PNB (supra, p. 12) – Provincial Treasurer
(PT) of Misamis Oriental Ubaldo Laya issued the check in question as PT and
not as agent of PNB when he signed it as drawer payable to the order of MV
Ramos who later on sold the check to Montinola. On trial, the check was
severely mutilated and beneath Laya’s signature appears the words “Agent,
Phil. National Bank. HELD: The insertion of the words "Agent, Phil. National
Bank" which converts the bank from a mere drawee to a drawer and
therefore changes its liability, constitutes a material alteration of the
instrument without the consent of the parties liable thereon, and so
discharges the instrument.
 SADAYA V. SEVILLA

19 SCRA 924

FACTS:
Sadaya, Sevilla and Varona signed solidarily a promissory note in favor of the bank. Varona was
the only one who received the proceeds of the note. Sadaya and Sevilla both signed as co-
makers to accommodate Varona. Thereafter, the bank collected from Sadaya. Varona failed to
reimburse.

Consequently, Sevilla died and intestate estate proceedings were established. Sadaya
filed a creditor’s claim on his estate for the payment he made on the note. The administrator
resisted the claim on the ground
that Sevilla didn't receive any proceeds of the loan. The trial court admitted the claim of
Sadaya though tis was reversed by the CA.

HELD:
Sadaya could have sought reimbursement from Varona, which is right and
just as the latter was the only one who received value for the note executed. There is an
implied contract of indemnity between Sadaya and Varona upon the former’s payment of the
obligation to the bank.

Surely enough, the obligations of Varona and Sevilla to Sadaya cannot be joint and several. For
indeed, had payment been made by Varona, Varona couldn't had reason to seek reimbursement
from either Sadaya or Sevilla. After all, the proceeds of the loan went to Varona alone.

On principle, a solidary accommodation maker—who made payment—has the right to

contribution, from his co-accomodation maker, in the absence of agreement to the contrary
between them, subject to conditions imposed
by law. This right springs from an implied promise to share equally the
burdens thay may ensue from their having consented to stamp their signatures on the
promissory note.

The following are the rules:

1. A joint and several accommodation maker of a negotiable
promissory note may demand from the principal debtor reimbursement for the amount
that he paid to the payee
2. A joint and several accommodation maker who pays on the said promissory note may
directly demand reimbursement from his co-accommodation maker without first directing his
action against the
principal debtor provided that
a. He made the payment by virtue of a judicial demand
b. A principal debtor is insolvent.
It was never shown that there was a judicial demand on Sadaya to pay the obligation and also, it
was never proven that Varona was insolvent. Thus, Sadaya cannot proceed against Sevilla for
reimbursement.

ERNESTINA CRISOLOGO-JOSE VS. CA (GR No. 80599; Sept. 15,

1989) - The Vice-president of Mover Enterprises, Inc. issued a check
drawn against Traders Royal Bank, payable to petitioner Ernestina
Crisologo-Jose, for the accommodation of his client. Petitioner-payee was
charged with the knowledge that the check was issued at the instance and
for the personal account of the President who merely prevailed upon
respondent vice-president to act as co-signatory in accordance with the
arrangement of the corporation with its depository bank. While it was the
corporation's check which was issued to petitioner for the amount
involved, petitioner actually had no transaction directly with said
corporation. ISSUE: WON private respondent, one of the signatories of
the check issued under the account of Mover Enterprises, Inc., is an
accommodation party under NIL and a debtor of petitioner to the extent
of the amount of said check. HELD: Yes. To be considered an
accommodation party, a person must (1) be a party to the instrument,
signing as maker, drawer, acceptor, or indorser, (2) not receive value
therefor, and (3) sign for the purpose of lending his name for the credit of
some other person. It is not a valid defense that the accommodation party
did not receive any valuable consideration when he executed the
instrument. He is liable to a holder for value as if the contract was not for
accommodation, in whatever capacity such accommodation party signed
the instrument, whether primarily or secondarily. Thus, it has been held
that in lending his name to the accommodated party, the accommodation
party is in effect a surety for the latter. The foregoing notwithstanding,
the liability of an accommodation party to a holder for value, although
such holder does not include nor apply to corporations which are
accommodation parties. This is because the issue or indorsement of
negotiable paper by a corporation without consideration and for
the accommodation of another is ultra vires. One who has taken the
instrument with knowledge of the accommodation nature thereof cannot
recover against a corporation where it is only an accommodation party. By
way of exception, an officer or agent of a corporation shall have the
power to execute or indorse a negotiable paper in the name of the
corporation for the accommodation of a third person only if specifically
authorized to do so. Corollarily, corporate officers, such as the president
and vice-president, have no power to execute for mere accommodation a
negotiable instrument of the corporation for their individual debts or
transactions arising from or in relation to matters in which the corporation
has no legitimate concern. Since such accommodation paper cannot thus
be enforced against the corporation, especially since it is not involved in
any aspect of the corporate business or operations, the signatories thereof
(president and vice-president) shall be personally liable therefor, as well
as the consequences arising from their acts in connection therewith.

STELCO MKTG VS. CA

Facts: Petitioner Stelco Marketing Corp (Stelco) is engaged in the distribution and sale to the
public of structural steel bars. It sold on 7 occasions quantities of steel bars and rolls of G.I sheets
with an aggregate amount of P126,859.61 to RYL Construction, Inc. (RYL). Despite the parties’
agreement that payment would be on COD basis, RYL never paid upon delivery of the materials
and despite insistent demands.

One year later, RYL issued a check drawn against Metrobank to Armstrong Industries, the sister
company and manufacturing arm of Stelco, to the amount of its obligations to the latter. The check
however was a company check of another corporation Steelweld Corporation of the Philippines
(Steelweld) signed by its President and Vice President. Said check was issued by the president of
Steelweld at the request of the president of RYL as an accommodation and “only as guaranty but
not to pay for anything.” Armstrong subsequently deposited the check but was dishonoured
because it was DAIF*. It bore the endorsements of RYL and Armstrong. The latter filed a
complaint against the pres and vp of Steelweld for violation of BP22. The trial court acquitted the
defendants noting that the checks were not issued to apply on account for value, it being merely
for accommodation purposes. However, the court did not release Steelweld from its liabilities,
relying on Sec 29 of the NIL for issuing a check for accommodation.

Relying on the previous decision and averring that it was a holder in due course, Stelco
subsequently filed a complaint for recovery of the value of the materials from RYL and Steelweld.
However, RYL had already been dissolved leading the trial court to rule against Steelweld and
hold them liable. Steelweld appealed to the CA which reversed the decision of the RTC declaring
that STELCO was not a holder in due course and Steelweld was a stranger to the contract between
STELCO and RYL.

Issue: Whether or not STELCO was a holder in due course

Held: STELCO’s reliance on the RTC’s decision in the previous criminal case is misplaced.
Although the RTC maintained that Steelweld was liable for issuing a check for accommodation,
the RTC did not specify to whom it was liable. Despite the records showing that STELCO was in
possession of the check, such possession does not give a presumption that the holder is one for
value. There was no evidence that STELCO had possession before the checks were presented and
dishonoured nor evidence that the checks were given to STELCO, indorsed to STELCO in any
manner or form of payment. Only after said checks were dishonoured were they acquired by
STELCO.

STELCO never became a holder for value since nowhere in the check was STELCO identified as
payee, indorsee, or depositor. Evidence shows that Armstrong was the intended payee, that it was
the injured party, and the proper party to bring the action.

Travel-On vs CA

Travel-On, Inc. vs Court of Appeals

G.R. No. L-56169 June 26, 1992
-accommodation party

FACTS:
Petitioner Travel-On Inc. is a travel agency from which Arturo Miranda procured tickets on behalf
of airline passengers and derived commissions therefrom. Miranda was sued by petitioner to
collect on the six postdated checks he issued which were all dishonored by the drawee
banks. Miranda, however, claimed that he had already fully paid and even overpaid his obligations
and that refunds were in fact due to him. He argued that he had issued the postdated checks not for
the purpose of encashment to pay his indebtedness but for purposes of accommodation, as he had
in the past accorded similar favors to petitioner. Petitioner however urges that the postdated
checks are per se evidence of liability on the part of private respondent and further argues that
even assuming that the checks were for accommodation, private respondent is still liable
thereunder considering that petitioner is a holder for value.

ISSUE:
Whether Miranda is liable on the postdated checks he issued even assuming that said checks were
issued for accommodation only.

RULING:
There was no accommodation transaction in the case at bar. In accommodation transactions
recognized by the Negotiable Instruments Law, an accommodating party lends his credit to the
accommodated party, by issuing or indorsing a check which is held by a payee or indorsee as a
holder in due course, who gave full value therefor to the accommodated party. The latter, in other
words, receives or realizes full value which the accommodated party then must repay to the
accommodating party. But the accommodating party is bound on the check to the holder in due
course who is necessarily a third party and is not the accommodated party. In the case at bar,
Travel-On was payee of all six (6) checks, it presented these checks for payment at the drawee
bank but the checks bounced. Travel-On obviously was not an accommodated party; it realized no
value on the checks which bounced. Miranda must be held liable on the checks involved as
petitioner is entitled to the benefit of the statutory presumption that it was a holder in due course
and that the checks were supported by valuable consideration.

Facts: Private respondent Benjamin Napiza deposited in his foreign current deposit with BPI a
dollar check owned by Henry Chan in which he affixed his signature at the dorsal side thereof. For
this purpose, Napiza gave Chan a signed blank withdrawal slip. However, Gayon Jr. got hold of
the withdrawal slip and used it to withdraw the proceeds of the dollar check, even before the check
was cleared and without the presentation of the bank passbook.
Issues:
(1) Whether or not petitioner can hold private respondent liable for the proceeds of the check for
having affixed his signature at the dorsal side as indorser; and

(2) Whether or not the bank was negligent as the proximate cause of the loss and should be held
liable.

Held:
(1) No. Ordinarily, private respondent may be held liable as an indorser of the check or even as an
accommodation party. However, to hold him liable would result in an injustice. The interest of
justice thus demands looking into the events that led to the encashment of the check.

Under the rules appearing in the passbook that BPI issued to private respondent, to be able to
withdraw under the Philippine foreign currency deposit system, two requisites must be presented
to petitioner BPI by the person withdrawing an amount:

1) A duly filled-up withdrawal slip; and

2) The depositor’s passbook.

Petitioner bank alleged that had private respondent indicated therein the person authorized to
receive the money, then Gayon could not have withdrawn any amount. However, the withdrawal
slip itself indicates a special instruction that the amount is payable to “Ramon de Guzman and/or
Agnes de Guzman”. Such being the case, petitioner’s personnel should have been duly warned that
Gayon was not the proper payee of the proceeds of the check. Moreover, the fact that private
respondent’s passbook was not presented during the withdrawal is evidenced by the entries therein
showing that the last transaction that he made was when he deposited the subject check.

(2) Yes. A bank is under obligation to treat the accounts of its depositors “with meticulous care,
always having in mind the fiduciary nature of their relationship”. Petitioner failed to exercise the
diligence of a good father of a family. In total disregard of its own rules, petitioner’s personnel
negligently handled private respondent’s account to petitioner’s detriment.

The proximate cause of the withdrawal and eventual loss of the amount of $2,500.00 on
petitioner’s part was its personnel’s negligence in allowing such withdrawal in disregard of its own
rules and the clearing requirement in the banking system. In so doing, petitioner assumed the risk
of incurring a loss on account of a forged or counterfeit foreign check and hence, it should suffer
the resulting damage.

Agro Conglomerates vs. CA

FACTS:

 July 17, 1982: Agro Conglomerates, Inc. (Agro) sold 2 parcels of land to Wonderland Food
Industries, Inc (Wonderland) for P 5M under terms and conditions:
 1. P 1M Pesos shall be paid in cash upon the signing of the agreement

2. P 2M Pesos worth of common shares of stock of the Wonderland Food Industries, Inc.

3. balance of P2,000,000.00 shall be paid in 4 equal installments, the first installment falling
due, 180 days after the signing of the agreement and every six months thereafter, with an
interest rate of 18% per annum, to be advanced by the vendee upon the signing of the
agreement

 July 19, 1982: Agro, Wonderland and Regent Savings & Loan Bank (Regent) (formerly
Summa Savings & Loan Association) amended the arrangement resulting to a revision -
addedum was not notarized

 Agro would secure a loan in the name of Agro Conglomerates Inc. for the total amount of the
initial payments, while the settlement of loan would be assumed by Wonderland

 Mario Soriano (of Agro) signed as maker several promissory notes, payable to Regent in
favor of Wonderland

 subsidiary contract of suretyship had taken effect since Agro signed the promissory notes as
maker and accommodation party for the benefit of Wonderland

 bank released the proceeds of the loan to Agro who failed to meet their obligations as they
fell due

 bank, experiencing financial turmoil, gave Agro opportunity to settle their account by
extending payment due dates

 Mario Soriano manifested his intention to re-structure the loan, yet did not show up nor
submit his formal written request

 Regent filed 3 separate complaints before the RTC for Collection of sums of money

 CA affirmed Trial court: held Agro liable

ISSUE: W/N Agro should be liable because there was no accomodation or surety

HELD: YES. CA affirmed.

 First, there was no contract of sale that materialized. The original
agreement was that Wonderland would pay cash and Agro would
deliver possession of the farmlands. But this was changed through an addendum, that
Agro would instead secure a loan and the settlement
of the same would be shouldered by Wonderland.
 contract of surety between Woodland and petitioner was extinguished by the rescission of
the contract of sale of the farmland

 With the rescission, there was confusion in the persons of

the principal debtor and surety. The addendum thereon likewise lost its efficacy

 accommodation party - NOT in this case because of recission

 person who has signed the instrument as:

 maker

 acceptor

 indorser

 without receiving value therefor

 for the purpose of lending his name to some other person

 is liable on the instrument to a holder for value, notwithstanding such holder at the time of
taking the instrument knew (the signatory) to be an accommodation party

 has the right, after paying the holder, to obtain reimbursement from the party accommodated,
since the relation between them has in effect become one of principal and surety, the
accommodation party being the surety.

 Suretyship

 relation which exists where:

 1 person has undertaken an obligation

 another person is also under the obligation or other duty to the obligee, who is entitled to but
one performance

 The surety’s liability to the creditor or promisee is directly and equally bound with the
principal and the creditor may proceed against any one of the solidary debtors

 Novation - NOT in this case

 extinguishment of an obligation by the substitution or change of the obligation by a

subsequent one which extinguishes or modifies the first, either by changing the object or
principal conditions, or by substituting another in place of the debtor, or by subrogating a
third person in the rights of the creditor
 never presumed and it must be clearly and unequivocally shown

 requisites:

1. There must be a previous valid obligation - lacking

2. There must be an agreement of the parties concerned to a new contract

3. There must be the extinguishment of the old contract; and

4. There must be the validity of the new contract

 Sec. 22 of the Civil Code provides:

Every person who through an act of performance by another, or any other means, acquires or
comes into possession of something at the expense of the latter without just or legal ground, shall
return the same to him.

 Agro had no legal or just ground to retain the proceeds of the loan at the expense of
Wonderland.

 Neither could Agro excuse themselves and hold Wonderland still liable to pay the loan upon
the rescission of their sales contract - surety no effect because of the rescission

 If Agro sustained damages as a result of the rescission, they should have impleaded
Wonderland and asked damages

 The non-inclusion of a necessary party does not prevent the court from proceeding in the
action, and the judgment rendered therein shall be without prejudice to the rights of such
necessary party

 But respondent appellate court did not err in holding that Agro are duty-bound under the law
to pay the claims of Regent from whom they had obtained the loan proceeds

Facts: Anita Gatchalian was interested in buying a car when she was offered by Manuel
Gonzales to a car owned by the Ocampo Clinic. Gonzales claim that he was duly authorized to
look for a buyer, negotiate and accomplish the sale by the Ocampo Clinic. Anita accepted the
offer and insisted to deliver the car with the certificate of registration the next day but Gonzales
advised that the owners would only comply only upon showing of interest on the part of the
buyer. Gonzales recommended issuing a check (P600 / payable-to-bearer /cross-checked) as
evidence of the buyer’s good faith. Gonzales added that it will only be for safekeeping and will
be returned to her the following day.
The next day, Gonzales never appeared. The failure of Gonzales to appeal resulted in Gatchalian
to issue a STOP PAYMENT ORDER on the check. It was later found out that Gonzales used the
check as payment to the Vicente de Ocampo (Ocampo Clinic) for the hospitalization fees of his
wife (the fees were only P441.75, so he got a refund of P158.25). De Ocampo now demands
payment for the check, which Gatchalian refused, arguing that de Ocampo is not a holder in due
course and that there is no negotiation of the check.

The Court of First Instance ordered Gatchalian to pay the amount of the check to De Ocampo.
Hence this case.

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

Held: NO. De Ocampo is not a holder in due course. De Ocampo was negligent in his
acquisition of the check. There were many instances that arouse suspicion: the drawer in the
check (Gatchalian) has no liability with de Ocampo ; it was cross-checked(only for deposit) but
was used a payment by Gonzales; it was not the exact amount of the medical fees. The
circumstances should have led him to inquire on the validity of the check. However, he failed to
exercise reasonable prudence and caution.

In showing a person had knowledge of facts that his

action in taking the instrument amounted to bad faith need not prove that he knows the exact
fraud. It is sufficient to show that the person had NOTICE that there was something wrong. The
bad faith here means bad faith in the commercial sense – obtaining an instrument with no
questions asked or no further inquiry upon suspicion.

The presumption of good faith did not apply to de Ocampo because the defect was apparent on
the instruments face – it was not payable to Gonzales or bearer. Hence, the holder’s title is
defective or suspicious. Being the case, de Ocampo had the burden of proving he was a holder in
due course, but failed.
Jose Go maintains an account with Associated Bank. He needed to transfer P800,000.00 from
Associated Bank to another bank but he realized that he does not want to be carrying that cash so
he bought a cashier’s check from Associated Bank worth P800,000.00. Associated Bank then
issued the check but Jose Go forgot to get the check so it was left on top of the desk of the bank
manager. The bank manager, when he found the check, entrusted it to Albert Uy for the later to
safe keep it. The check was however stolen from Uy by a certain Alexander Lim.
Jose Go learned that the check was stolen son he made a stop payment order against the check.
Meanwhile, Associated Bank received the subject check from Prudential Bank for clearing.
Apparently, the check was presented by a certain Marcelo Mesina for payment. Associated Bank
dishonored the check.
When asked how Mesina got hold of the check, he merely stated that Alfredo Lim, who’s already
at large, paid the check to him for “a certain transaction”.
ISSUE: Whether or not Mesina is a holder in due course.
HELD: No. Admittedly, Mesina became the holder of the cashier’s check as endorsed by
Alexander Lim who stole the check. Mesina however refused to say how and why it was passed
to him. Mesina 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. The check in question suffers from the infirmity of not
having been properly negotiated and for value by Jose Go who is the real owner of said instrument.

Metropol vs. Sambok

Metropol vs. Sambok

L-39641 February 28, 1983
De Castro, J.:

Facts:
Dr. Javier Villaruel executed a promissory note in favor of Ng Sambok Sons Motors Co.,
Ltd. Payable in 12 equal monthly installments with interest. It is further provided that in case on
non-payment of any of the installments, the total principal sum then remaining unpaid shall
become due and payable with an additional interest. Sambok Motors co., a sister company of Ng
Sambok Sons negotiated and indorsed the note in favor of Metropol Financing & investment
Corporation. Villaruel defaulted in the payment, upon presentment of the promissory note he failed
to pay the promissory note as demanded, hence Ng Sambok Sons Motors Co., Ltd. notified
Sambok as indorsee that the promissory note has been dishonored and demanded payment.
Sambok failed to pay. Ng Sambok Sons filed a complaint for the collection of sum of money.
During the pendency of the case Villaruel died. Sambok argues that by adding the words “with
recourse” in the indorsement of the note, it becomes a qualified indorser, thus, it does not warrant
that in case that the maker failed to pay upon presentment it will pay the amount to the holder.

Issue:
Whether or not Sambok Motors Co is a qualified indorser, thus it is not liable upon the
failure of payment of the maker.

Held:
No. A qualified indorserment constitutes the indorser a mere assignor of the title to the
instrument. It may be made by adding to the indorser’s signature the words “without recourse” or
any words of similar import. Such indorsement relieves the indorser of the general obligation to
pay if the instrument is dishonored but not of the liability arising from warranties on the
instrument as provided by section 65 of NIL. However, Sambok indorsed the note “with recourse”
and even waived the notice of demand, dishonor, protest and presentment.
Recourse means resort to a person who is secondarily liable after the default of the person
who is primarily liable. Sambok by indorsing the note “with recourse” does not make itself a
qualified indorser but a general indorser who is secondarily liable, because by such indorsement,
it agreed that if Villaruel fails to pay the not the holder can go after it. The effect of such
indorsement is that the note was indorsed witout qualification. A person who indorses without
qualification engages that on due presentment, the note shall be accepted or paid, or both as the
case maybe, and that if it be dishonored, he will pay the amount thereof to the holder. The words
added by Sambok do not limit his liability, but rather confirm his obligation as general indorser.
Sapiera vs CA

Sapiera vs Court of Appeals

[G.R. No. 128927. September 14, 1999]

FACTS:
Petitioner Remedios Sapiera, a sari-sari store owner, was issued by one Arturo de Guzman checks
as payment for purchases he made at her store. She used said checks to pay for certain items she
purchased from the grocery store of Ramon Sua. These checks were signed at the back by
petitioner. When presented for payment the checks were dishonored because the drawer’s account
was already closed. Sua informed Arturo de Guzman and petitioner about the dishonor but both
failed to pay the value of the checks. Petitioner was acquitted in the charge of estafa filed against
her but she was found liable for the value of the checks.

ISSUE:
Whether petitioner is liable for the value of the checks even if she signed the subject checks only
for the identification of the signature of Arturo de Guzman.

RULING:
Petitioner is liable for the value of the checks. As she (petitioner) signed the subject checks on the
reverse side without any indication as to how she should be bound thereby, she is deemed to be an
unqualified indorser thereof. Every indorser who indorses without qualification, warrants to all
subsequent holders in due course that, on due presentment, it shall be accepted or paid or both,
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.
Facts: Private respondent Benjamin Napiza deposited in his foreign current deposit with BPI a
dollar check owned by Henry Chan in which he affixed his signature at the dorsal side thereof. For
this purpose, Napiza gave Chan a signed blank withdrawal slip. However, Gayon Jr. got hold of
the withdrawal slip and used it to withdraw the proceeds of the dollar check, even before the check
was cleared and without the presentation of the bank passbook.

Issues:
(1) Whether or not petitioner can hold private respondent liable for the proceeds of the check for
having affixed his signature at the dorsal side as indorser; and

(2) Whether or not the bank was negligent as the proximate cause of the loss and should be held
liable.

Held:
(1) No. Ordinarily, private respondent may be held liable as an indorser of the check or even as an
accommodation party. However, to hold him liable would result in an injustice. The interest of
justice thus demands looking into the events that led to the encashment of the check.

Under the rules appearing in the passbook that BPI issued to private respondent, to be able to
withdraw under the Philippine foreign currency deposit system, two requisites must be presented
to petitioner BPI by the person withdrawing an amount:

1) A duly filled-up withdrawal slip; and

2) The depositor’s passbook.

Petitioner bank alleged that had private respondent indicated therein the person authorized to
receive the money, then Gayon could not have withdrawn any amount. However, the withdrawal
slip itself indicates a special instruction that the amount is payable to “Ramon de Guzman and/or
Agnes de Guzman”. Such being the case, petitioner’s personnel should have been duly warned that
Gayon was not the proper payee of the proceeds of the check. Moreover, the fact that private
respondent’s passbook was not presented during the withdrawal is evidenced by the entries therein
showing that the last transaction that he made was when he deposited the subject check.

(2) Yes. A bank is under obligation to treat the accounts of its depositors “with meticulous care,
always having in mind the fiduciary nature of their relationship”. Petitioner failed to exercise the
diligence of a good father of a family. In total disregard of its own rules, petitioner’s personnel
negligently handled private respondent’s account to petitioner’s detriment.

The proximate cause of the withdrawal and eventual loss of the amount of $2,500.00 on
petitioner’s part was its personnel’s negligence in allowing such withdrawal in disregard of its own
rules and the clearing requirement in the banking system. In so doing, petitioner assumed the risk
of incurring a loss on account of a forged or counterfeit foreign check and hence, it should suffer
the resulting damage.
Prudential Bank vs IAC

PRUDENTIAL BANK vs. INTERMEDIATE APPELLATE COURT

G.R. No. 74886 December 8, 1992, 216 scra 257
--presentment for payment

FACTS:
Philippine Rayon Mills, Inc. entered into a contract with Nissho Co., Ltd. of Japan for the
importation of textile machineries under a five-year deferred payment plan. To effect payment for
said machineries, Philippine Rayon Mills opened a commercial letter of credit with the Prudential
Bank and Trust Company in favor of Nissho. Against this letter of credit, drafts were drawn and
issued by Nissho, which were all paid by the Prudential Bank through its correspondent in
Japan. Two of these drafts were accepted by Philippine Rayon Mills while the others were
not. Petitioner instituted an action for the recovery of the sum of money it paid to Nissho as
Philippine Rayon Mills was not able to pay its obligations arising from the letter of
credit. Respondent court ruled that with regard to the ten drafts which were not presented and
accepted, no valid demand for payment can be made. Petitioner however claims that the drafts
were sight drafts which did not require presentment for acceptance to Philippine Rayon.

ISSUE:
Whether presentment for acceptance of the drafts was indispensable to make Philippine Rayon
liable thereon.

RULING:
In the case at bar, the drawee was necessarily the herein petitioner. It was to the latter that the
drafts were presented for payment. There was in fact no need for acceptance as the issued drafts
are sight drafts. Presentment for acceptance is necessary only in the cases expressly provided for
in Section 143 of the Negotiable Instruments Law (NIL). The said section provides that
presentment for acceptance must be made:

(a) Where the bill is payable after sight, or in any other case, where presentment for
acceptance is necessary in order to fix the maturity of the instrument; or
(b) Where the bill expressly stipulates that it shall be presented for acceptance; or
(c) Where the bill is drawn payable elsewhere than at the residence or place of business of
the drawee.

In no other case is presentment for acceptance necessary in order to render any party to the bill
liable. Obviously then, sight drafts do not require presentment for acceptance.
LUIS WONG vs. CA
Posted on November 24, 2012
G.R. No. 117857
February 2, 2001
FACTS:
Wong was an agent of Limtong Press Inc. (LPI), a manufacturer of calendars. However,
petitioner had a history of unremitted collections. Hence, petitioner’s customers were required to
issue postdated checks before LPI would accept their purchase orders.

In early December 1985, Wong issued 6 postdated checks totaling P18,025, all dated December
30, 1985 and drawn payable to the order of LPI. The checks were drawn against Allied Banking
Corporation.

The checks were initially intended to guarantee the calendar orders of customers who failed to
issue post-dated checks. However, following company policy, LPI refused to accept the checks
as guarantees. Instead, the parties agreed to apply the checks to the payment of petitioner’s
unremitted collections for 1984 amounting to P18,077.07. LPI waived the P52.07 difference.

Before the maturity of the checks, petitioner prevailed upon LPI not to deposit the checks and
promised to replace them within 30 days. However, petitioner reneged on his promise. Hence, on
June 5, 1986, LPI deposited the checks with Rizal Commercial Banking Corporation (RCBC).
The checks were returned for the reason “account closed.”

On June 20, 1986, complainant notified the petitioner of the dishonor. However, petitioner failed
to make arrangements for payment within 5 banking days.

On November 6, 1987, petitioner was charged with 3 counts of violation of B.P. Blg. 22 under 3
separate Informations for the 3 checks amounting to P5,500.00, P3,375.00, and P6,410.00.

Petitioner was similarly charged in Criminal Case No. 12057 for ABC Check No. 660143463 in
the amount of P3,375.00, and in Criminal Case No. 12058 for ABC Check No. 660143464 for
P6,410.00. Both cases were raffled to the same trial court.

The version of the defense is that petitioner issued the 6 checks to guarantee the 1985 calendar
bookings of his customers, not as payment for any obligation. In fact, the face value of the 6
postdated checks tallied with the total amount of the calendar orders of the 6 customers of the
accused. Although these customers had already paid their respective orders, petitioner claimed
LPI did not return the said checks to him.

On August 30, 1990, the trial court found petitioner guilty beyond reasonable doubt with 3
counts of Violations of Sec.1 of B.P. Blg. 22.

Petitioner appealed his conviction to the CA. However, it affirmed the trial court’s decision in
toto on October 28, 1994.

ISSUES:
1. Whether the checks were issued merely as guarantee or for payment of petitioner’s unremitted
collections.

2. WON the prosecution was able to establish beyond reasonable doubt all the elements of the
offense penalized under B.P. Blg. 22.

3. WON petitioner’s penalty may be modified to only payment of fine.

HELD:
1.This is a factual issue involving as it does the credibility of witnesses. Said factual issue has
been settled by the trial court and CA. Its findings of fact are generally conclusive, and there is
no cogent reason to depart from such. In cases elevated from the CA, the SC’s review is confined
to alleged errors of law. Absent any showing that the findings by the respondent court are
entirely devoid of any substantiation on record, the same must stand. The lack of accounting
between the parties is not the issue in this case. As repeatedly held, the SC is not a trier of facts.

2. There are 2 ways of violating B.P. Blg. 22:

(a) by making or drawing and issuing a check to apply on account or for value knowing at the
time of issue that the check is not sufficiently funded; and

(b) by having sufficient funds in or credit with the drawee bank at the time of issue but failing to
keep sufficient funds therein, or credit with, said bank to cover the full amount of the check
when presented to the drawee bank within a period of 90 days.

The elements of B.P. Blg. 22 under the 1st situation, pertinent to the present case, are:

(a) The making, drawing & issuance of any check to apply for account or for value;

(b) The knowledge of the maker, drawer, or issuer that at the time of issue he does not have
sufficient funds in or credit with the drawee bank for the payment of such check in full upon its
presentment; and

(c) The subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit
or dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to
stop payment.

As to the 1st element, the RTC & CA have both ruled that the checks were in payment for
unremitted collections, and not as guarantee. What B.P. Blg. 22 punishes is the issuance of a
bouncing check, and not the purpose for which it was issued nor the terms and conditions
relating to its issuance.
As to the 2nd element, B.P. Blg. 22 creates a presumption juris tantum that the 2nd element
prima facie exists when the 1st & 3rd elements of the offense are present. Thus, the maker’s
knowledge is presumed from the dishonor of the check for insufficiency of funds.

An essential element of the offense is “knowledge” on the part of the maker/drawer of the check
of the insufficiency of his funds in, or credit with, the bank to cover the check upon its
presentment. Since this involves a state of mind difficult to establish, the statute itself creates a
prima facie presumption of such knowledge where payment of the check “is refused by the
drawee because of insufficient funds in, or credit with, such bank when presented within 90 days
from the date of the check.” The statute provides that such presumption shall not arise if within 5
banking days from receipt of the notice of dishonor, the maker/drawer makes arrangements for
payment of the check by the bank or pays the holder the amount of the check.

Nowhere in the said provision does the law require a maker to maintain funds in his bank
account for only 90 days. Rather, the clear import of the law is to establish a prima facie
presumption of knowledge of such insufficiency of funds under the following conditions: (1)
presentment within 90 days from date of the check, and (2) the dishonor of the check & failure of
the maker to make arrangements for payment in full within 5 banking days after notice thereof.
That the check must be deposited within 90 days is simply one of the conditions for the prima
facie presumption of knowledge of lack of funds to arise. It is not an element of the offense.
Neither does it discharge petitioner from his duty to maintain sufficient funds in the account
within a reasonable time thereof. Under Sec. 186 of the Negotiable Instruments Law, “a check
must be presented for payment within a reasonable time after its issue or the drawer will be
discharged from liability thereon to the extent of the loss caused by the delay.” By current
banking practice, a check becomes stale after more than 6 months (180 days).

Private respondent herein deposited the checks 157 days after the date of the check. Hence said
checks cannot be considered stale. Only the presumption of knowledge of insufficiency of funds
was lost, but such knowledge could still be proven by direct or circumstantial evidence. As found
by the RTC, private respondent did not deposit the checks because of the reassurance of
petitioner that he would issue new checks. Upon his failure to do so, LPI was constrained to
deposit the said checks. After the checks were dishonored, petitioner was duly notified of such
fact but failed to make arrangements for full payment within 5 banking days thereof. There is, on
record, sufficient evidence that petitioner had knowledge of the insufficiency of his funds in or
credit with the drawee bank at the time of issuance of the checks. And despite petitioner’s
insistent plea of innocence, the respondent court is not in error for affirming his conviction by
the trial court for violations of the Bouncing Checks Law.

3. Pursuant to the policy guidelines in Administrative Circular No. 12-2000, which took effect on
November 21, 2000, the penalty imposed on petitioner should now be modified to a fine of not
less than but not more than double the amount of the checks that were dishonored. The penalty
imposed on him is modified so that the sentence of imprisonment is deleted.
International Corporate Bank vs. Gueco
351 SCRA 516

Facts:

Respondent Gueco spouses obtained a loan from petitioner International Corporate Bank (now
Union Bank of Philippines) to purchase a car – Nissan Sentra 1989 model.

In consideration, spouses executed promissory note which were payable in monthly installment
& chattel mortgage over the car.

The spouses defaulted payment. Dr. Gueco had a meeting & the unpaid installment of P184k was
reduced to P150k. However, the car was detained by the bank.

When Dr. Gueco delivered the manger’s check of P150k, the car was not released because of his
refusal to sign the Joint Motion to Dismiss.

The bank insisted that the JMD is a standard operating procedure to effect a compromise & to
preclude future filing of claims or suits for damages.

Gueco spouses filed an action against the bank for fraud, failing to inform them regarding JMD
during the meeting & for not releasing the car if they do not sign the said motion.

Issue:

WON the bank was guilty of fraud? NO

Held:

Fraud has been defined as the deliberate intention to cause damage or prejudice. It is the
voluntary execution of a wrongful act, or a willful omission, knowing and intending the effects
which naturally and necessarily arise from such act or omission. the fraud referred to in Article
1170 of the Civil Code is the deliberate and intentional evasion of the normal fulfillment of
obligation.

We fail to see how the act of the petitioner bank in requiring the respondent to sign the joint
motion to dismiss could constitute as fraud.

The JMD cannot in any way have prejudiced Dr. Gueco. The motion to dismiss was in fact also
for the benefit of Dr. Gueco, as the case filed by petitioner against it before the lower court
would be dismissed with prejudice. The whole point of the parties entering into the compromise
agreement was in order that Dr. Gueco would pay his outstanding account and in return
petitioner would return the car and drop the case for money and replevin before the Metropolitan
Trial Court. The joint motion to dismiss was but a natural consequence of the compromise
agreement and simply stated that Dr. Gueco had fully settled his obligation, hence, the dismissal
of the case. Petitioner’s act of requiring Dr. Gueco to sign the joint motion to dismiss cannot be
said to be a deliberate attempt on the part of petitioner to renege on the compromise agreement
of the parties.

The law presumes good faith. Dr. Gueco failed to present an iota of evidence to overcome this
presumption. In fact, the act of petitioner bank in lowering the debt of Dr. Gueco from
P184,000.00 to P150,000.00 is indicative of its good faith and sincere desire to settle the case. If
respondent did suffer any damage, as a result of the withholding of his car by petitioner, he has
only himself to blame. Necessarily, the claim for exemplary damages must fail. In no way, may
the conduct of petitioner be characterized as “wanton, fraudulent, reckless, oppressive or
malevolent.

State Investment House Inc. vs. CA

State Investment House Inc. vs. CA

GR No. 101163 January 11, 1993

Bellosillo, J.:

Facts:
Nora Moulic issued to Corazon Victoriano, as security for pieces of jewellery to be sold on
commission, two postdated checks in the amount of fifty thousand each. Thereafter, Victoriano
negotiated the checks to State Investment House, Inc. When Moulic failed to sell the jewellry, she
returned it to Victoriano before the maturity of the checks. However, the checks cannot be retrieved
as they have been negotiated. Before the maturity date Moulic withdrew her funds from the bank
contesting that she incurred no obligation on the checks because the jewellery was never sold and
the checks are negotiated without her knowledge and consent. Upon presentment of for payment,
the checks were dishonoured for insufficiency of funds.

Issues:
1. Whether or not State Investment House inc. was a holder of the check in due course
2. Whether or not Moulic can set up against the petitioner the defense that there was failure or
absence of consideration
Held:

Yes, Section 52 of the NIL provides what constitutes a holder in due course. The evidence shows
that: on the faces of the post dated checks were complete and regular; that State Investment House
Inc. bought the checks from Victoriano before the due dates; that it was taken in good faith and
for value; and there was no knowledge with regard that the checks were issued as security and not
for value. A prima facie presumption exists that a holder of a negotiable instrument is a holder in
due course. Moulic failed to prove the contrary.
No, Moulic can only invoke this defense against the petitioner if it was a privy to the purpose for
which they were issued and therefore is not a holder in due course.

No, Section 119 of NIL provides how an instruments be discharged. Moulic can only invoke
paragraphs c and d as possible grounds for the discharge of the instruments. Since Moulic failed
to get back the possession of the checks as provided by paragraph c, intentional cancellation of
instrument is impossible. As provided by paragraph d, the acts which will discharge a simple
contract of payment of money will discharge the instrument. Correlating Article 1231 of the Civil
Code which enumerates the modes of extinguishing obligation, none of those modes outlined
therein is applicable in the instant case. Thus, Moulic may not unilaterally discharge herself from
her liability by mere expediency of withdrawing her funds from the drawee bank. She is thus liable
as she has no legal basis to excuse herself from liability on her check to a holder in due course.
Moreover, the fact that the petitioner failed to give notice of dishonor is of no moment. The need
for such notice is not absolute; there are exceptions provided by Sec 114 of NIL.

FACTS:
 Bataan Cigar & Cigarette Factory, Inc. (BCCFI), a corporation involved in the
manufacturing of cigarettes purchased from King Tim Pua George (George King) 2,000
bales of tobacco leaf to be delivered starting October 1978.
 July 13, 1978: it issued crossed checks post dated sometime in March 1979 in the total
amount of P820K
 George represented that he would complete delivery w/in 3 months from Dec 5 1978
so BCCFI agreed to purchase additional 2,500 bales of tobacco leaves, despite the previous
failure in delivery
 It issued post dated crossed checks in the total amount of P1.1M payable sometime in
September 1979.
 July 19, 1978: George sold to SIHI at a discount check amounting to P164K, post dated
March 31, 1979, drawn by BCCFI w/ George as payee.
 December 19 and 26, 1978: George sold 2 checks both in the amount of P100K, post dated
September 15 & 30, 1979 respectively, drawn by BCCFI w/ George as payee
 Upon failure to deliver, BCCFI issued on March 30, 1979 and September 14 & 28, 1979 a
stop payment order for all checks
 SIHI failing to claim, filed a claim against BCCFI
 RTC: SIHI = holder in due course. Non-inclusion of Gearoge as party is immaterial to the
case
ISSUE: W/N SIHI is a holder in due course beign a second indorser and a holder of crossed
checks

HELD: YES. GRANTED. RTC reversed.

 Sec. 52
1. That it is complete and regular upon its face
2. 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
3. That he took it in good faith and for value
4. 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
 Sec. 59
 every holder is deemed prima facie a holder in due course
 However, when it is shown that the title of any person who has negotiated the instrument was
defective, the burden is on the holder to prove that he or some person under whom he claims,
acquired the title as holder in due course.
 effect of crossing of a check

1. check may not be encashed but only deposited in the bank

2. check may be negotiated only once — to one who has an account with a bank
3. act of crossing the check serves as warning to the holder that the check has been issued for
a definite purpose - he must inquire if he has received the check pursuant to that purpose,
otherwise, he is not a holder in due course

 crossing of checks should put the holder on inquiry and upon him devolves the duty to
ascertain the indorser's title to the check or the nature of his possession - failure = guilty of
gross negligence amounting to legal absence of good faith, contrary to Sec. 52(c) of the
Negotiable Instruments Law
 SIHI is not a holder in due course. Consequently, BCCFI cannot be obliged to pay the
checks. However, that SIHI could not recover from the checks. The only disadvantage of a
holder who is not a holder in due course is that the instrument is subject to defenses as if it
were non-negotiable. Hence, SIHI can collect from the immediate indorser, George
Citytrust vs. IAC
Citytrust banking Corp., vs. Intermediate Appellate Court

GR No. 84281 May 27, 1994

Vitug, J:

Facts:
Emme Herrero, businesswoman, made regular deposits with Citytrust Banking Corp. at
its Burgoa branch in Calamba, Laguna. She deposited the amount of P31, 500 in order to amply
cover 6 postdated checks she issued. All checks were dishonored due to insufficiency of funds
upon the presentment for encashment. Citytrust banking Corp. asserted that it was due to
Herrero’s fault that her checks were dishonored, for he inaccurately wrote his account number in
the deposit slip. RTC dismissed the complaint for lack of merit. CA reversed the decision of
RTC.

Issue:
Whether or not Citytrust banking Corp. has the duty to honor checks issued by Emme
Herrero despite the failure to accurately stating the account number resulting to insufficiency of
funds for the check.

Held:
Yes, even it is true that there was error on the account number stated in the deposit slip,
its is, however, indicated the name of “Emme Herrero.” This is controlling in determining in
whose account the deposit is made or should be posted. This is so because it is not likely to
commit an error in one’s name than merely relying on numbers which are difficult to remember.
Numbers are for the convenience of the bank but was never intended to disregard the real name
of its depositors. The bank is engaged in business impressed with public trust, and it is its duty to
protect in return its clients and depositors who transact business with it. It should not be a matter
of the bank alone receiving deposits, lending out money and collecting interests. It is also its
obligation to see to it that all funds invested with it are properly accounted for and duly posted in
its ledgers.
Papa v. AU Valencia (284 SCRA 643)
Post under case digests, Commercial Law at Sunday, February 05, 2012 Posted by Schizophrenic
Mind
Facts: Myron Papa, acting as attorney-in-fact of Angela Butte, allegedly sold a parcel of land in
La Loma, Quezon City to Felix Penarroyo. However, prior to the alleged sale, the land was
mortgaged by Butte to Associated Banking Corporation along with other properties and after the
alleged sale but prior to the property’s release by delivery, Butte died. The Bank refused to release
the property despite Penarroyo’s unless and until the other mortgaged properties by Butte have
been redeemed and because of this Penarroyo settled to having the title of the property annotated.

It was later discovered that the mortgage rights of the Bank were transferred to one Tomas Parpana,
administrator of the estate of Ramon Papa Jr. and his since then been collecting rents. Despite
repeated demands of Penarroyo and Valencia, Papa refused to deliver the property which led to a
suit for specific performance. The trial court ruled in favor of Penarroyo and Valencia.

On appeal to the CA, and ultimately in relation to negotiable instruments, Papa averred that the
sale of the property was not consummated since the PCIB check issued by Penarroyo for payment
worth 40000 pesos was not encashed by him. However, the CA saw the contrary and that Papa in
fact encashed the check by means of a receipt.

Finally on appeal to the SC, Papa cited that according to Art 1249 of the Civil Code, payment of
checks only produce effect once they have been encashed and he insists that he never encashed the
check. He further alleged that if check was encashed, it should have been stamped as such or at
least a microfilm copy. It must be noted that the check was in possession of Papa for ten (10) years
from the time payment was made to him.

Issue: Whether or not the check was encashed and can be considered effective as payment

Held: YES. The Court held that 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 is given.
In this case, granting that check was never encashed, Papa’s failure to do so for more than ten (10)
years undoubtedly resulted in the impairment of the check through his unreasonable and
unexplained delay.
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.