Digests.

BDO UNIBANK, INC., Petitioner, -versus- ENGR. SELWYN LAO, DOING BUSINESS UNDER
THENAME AND STYLE "SELWYN F. LAO CONSTRUCTION" AND "WING AN CONSTRUCTION
ANDDEVELOPMENT CORPORATION" AND INTERNATIONAL EXCHANGE BANK (NOW UNION
BANKOF THE PHILIPPINES), Respondent.
G.R. NO. 227005, SECOND DIVISION, JUNE 19, 2017, MENDOZA, J.

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

FACTS
Banco de Oro Unibank (BDO), Everlink Pacific Ventures, Inc. (Ever/ink), and Wu Hsieh
a.k.a.George Wu (Wu).

1. Lao was doing business under the name and style of "Selwyn Lao Construction"; he was
a majority stockholder of Wing An Construction and Development Corporation
(WingAn);

2. he entered into a transaction with Ever link, through its authorized representative Wu,
under which, Everlink would supply him with "HCG sanitary wares";

3. for the down payment, he issued two (2) Equitable crossed checks payable to Everlink:

4. when the checks were encashed, he contacted Everlink for the immediate delivery of
the sanitary wares, but the latter failed to perform its obligation.

5. Lao learned that the checks were deposited in two different bank accounts at
respondent International Exchange Bank, now respondent Union Bank of the Philippines
(UnionBank

6. He was later informed that the two bank accounts belonged to Wu and a company
named New Wave Plastic (NewWave)

7. Lao was prompted to file a complaint against Everlink and Wu for their failure to
comply with their obligation and against BDO for allowing the encashment of the two
(2) checks.

8. He later withdrew his complaint against Everlink as the corporation had ceased existing.
 9. (DEFENSE) BDO asserted that it had no obligation to ascertain the owner of the
account/s to which the checks were deposited because the instruction to deposit the
said checks to the payee's account only was directed to the payee and the collecting
bank, which in this case was Union Bank.

10. (DEFENSE) that as the drawee bank, its obligations consist in examining the
genuineness of the signatures appearing on the checks, and paying the same if there
were sufficient funds in the account under which the checks were drawn;

11. (DEFENSE) and that the subject checks were properly negotiated and paid in accordance
with the instruction of Lao in crossing them as they were deposited to the account of
the payee Ever link with Union Bank, which then presented them for payment with BDO.

12. On August 24, 2001, Lao filed an Amended Complaint, wherein he impleaded Union
Bank as additional defendant for allowing the deposit of the crossed checks in two
bank accounts other than the payee's, in violation of its obligation to deposit the same
only to the payee's account.

13. (DEFENSE) In its answer, Union Bank argued

a. that Check No. 0127-242249 was deposited in the account of Everlink;

b. that Check No. 0127-242250 was validly negotiated by Everlink to New Wave;

c. that Check No. 0127-242250 was presented for payment to BDO, and the proceeds
thereof were credited to New Wave's account;

14. (DEFENSE) that it was under no obligation to deposit the checks only in the account of
Everlink because there was nothing on the checks which would indicate such
restriction;

15. and that a crossed check continues to be negotiable, the only limitation being that it
should be presented for payment by a bank.

ISSUE
Whether or not a collecting bank assumes responsibility for a crossed check as a general
endorser in accordance with section 66 of the negotiable instruments law?

(YES)

RULING
in cases of unauthorized payment of checks to a person other than the payee named therein,
the drawee bank may be held liable to the drawer.
The drawee bank, in turn, may seek reimbursement from the collecting bank for the amount
of the check. This rule on the sequence of recovery in case of unauthorized check transactions
had already been deeply embedded in jurisprudence.

The liability of the drawee bank is based on its contract with the drawer and its duty to
charge to the latter’s accounts only those payables authorized by him. A drawee bank is
under strict liability to pay the check only to the payee or to the payee’s order.

When the drawee bank pays a person other than the payee named in the check, it does not
comply with the terms of the check and violates its duty to charge the drawer’s account only for
properly payable items.

The liability of the collecting bank is anchored on its guarantees as the last endorser of the
check.

Under Section 66 of the Negotiable Instruments Law, an endorser warrants

“that the instrument is genuine and in all respects what it purports to be; that he has good title
to it;

that all prior parties had capacity to contract; and that the instrument is at the time of his
endorsement valid and subsisting.”

If any of the warranties made by the collecting bank turns out to be false, then the drawee bank
may recover from it up to the amount of the check.

A crossed check is one where two parallel lines are drawn across its face or across the comer
thereof. A check may be crossed generally or specially. A check is crossed especially when the
name of a particular banker or company is written between the parallel lines drawn. It is
crossed generally when only the words “and company” are written at all between the parallel
lines. Jurisprudence dictates that the effects of crossing a check are:

(1) that the check may not be encashed but only deposited in the bank;

(2) that the check may be negotiated only once — to one who has an account
with a bank; and

(3) that the act of crossing the check serves as a warning to the holder that the check has been
issued for a definite purpose so that he must inquire if he has received the check pursuant
to that purpose.

The effects of crossing a check, thus, relate to the mode of payment, meaning that the drawer
had intended the check for deposit only by the rightful person, i.e., the payee named therein.
ASSOCIATED BANK AND CONRADO CRUZ, Petitioner, -versus- COURT OF APPEALS, AND MERLE
V. REYES, DOING BUSINESS UNDER THE NAME AND STYLE "MELISSA’S RTW", Respondent.
G.R. No. 89802, FIRST DIVISION, May 7, 1992, CRUZ, J.

In State Investment House vs. IAC, this Court declared that “the effects of crossing a check are:
(1) that the check may not be encashed but only deposited in the bank;
(2) that the check may be negotiated only once—to one who has an account with a bank; and
(3) that the act of crossing the check serves as a warning to the holder that the check has been
issued for a definite purpose so that he must inquire if he has received the check pursuant to
that purpose.”

FACTS
1. The private respondent is engaged in the business of ready-to-wear garments under the
firm name "Melissa’s RTW."
2. She deals with, among other customers, Robinson’s Department Store, Payless
Department Store, Rempson Department Store, and the Corona Bazaar
3. These companies issued in payment of their respective accounts crossed checks
payable to Melissa’s RTW.

4. When she went to these companies to collect on what she thought were still unpaid
accounts, she was informed of the issuance of the above-listed crossed checks.

5. Further inquiry revealed that the said checks had been deposited with the Associated
Bank (hereinafter, "the Bank") and subsequently paid by it to one Rafael Sayson, one
of its "trusted depositors," in the words of its branch manager and co-petitioner,
Conrado Cruz. Sayson had not been authorized by the private respondent to deposit and
encash the said checks.

6. The private respondent sued the petitioners in the Regional Trial Court of Quezon City
for recovery of the total value of the checks plus damages

7. {DEFENSE} petitioners appealed to the respondent court, reiterating their argument that
the private respondent had no cause of action against them and should have proceeded
instead against the companies that issued the checks.

8. There is no dispute that the same are crossed checks or for payee’s account only, which
is Melissa’s RTW.

RULING
Under accepted banking practice, crossing a check is done by writing two parallel lines
diagonally on the left top portion of the checks. The crossing is special where the name of a
bank or a business institution is written between the two parallel lines, which means that the
drawee should pay only with the intervention of that company.
The crossing is general where the words written between the two parallel lines are “and Co.” or
“for payee’s account only,” as in the case at bar. This means that the drawee bank should not
encash the check but merely accept it for deposit.

“the effects of crossing a check are:

(1)that the check may not be encashed but only deposited in the bank;
(2) that the check may be negotiated only once—to one who has an account with a bank; and
(3) that the act of crossing the check serves as a warning to the holder that the check has been
issued for a definite purpose so that he must inquire if he has received the check pursuant to
that purpose.”

The effects therefore of crossing a check relate to the mode of its presentment for payment.
Under
Sec. 72 of the Negotiable Instruments Law, presentment for payment, to be sufficient, must be
made by the holder or by some person authorized to receive payment on his behalf. Who the
holder or authorized person is depends on the instruction stated on the face of the check.

When the Bank paid the checks so endorsed notwithstanding that title had not passed to the
endorser, it did so at its peril and became liable to the payee for the value of the checks. This
liability attached whether or not the Bank was aware of the unauthorized endorsement.

PRODUCERS BANK OF PHILIPPINES v. EXCELSA INDUSTRIES, GR No.

173820, 2012-04-16
Facts:
1. Excelsa Industries, Inc. is a manufacturer and exporter of fuel products, particularly
charcoal briquettes, as an alternative fuel source.

2. Respondent applied for a packing credit line or a credit export advance with petitioner
Producers Bank of the Philippines.

3. Prior to the application for the packing credit line, respondent had obtained a loan
from petitioner in the form of a bill discounted and secured credit accommodation in
the amount of P200,000.00, of which P110,000.00 was outstanding at the time of the
approval of the packing credit line.

4. The loan was secured by a real estate mortgage.

5. Kwang Ju Bank, Ltd. notified petitioner through cable that the Korean buyer refused to
pay respondent’s export documents on account of typographical discrepancies.

6. Kwang Ju Bank, Ltd. returned to petitioner the export documents.

 7. Kwang Ju Bank, Ltd. informed petitioner that it would be returning the export
documents on account of the non-acceptance by the importer.

8. Petitioner demanded from respondent the payment of the peso equivalent of the
export documents, plus interest and other charges, and also of the other due and
unpaid loans.

9. Due to respondent’s failure to heed the demand, petitioner moved for the extrajudicial
foreclosure on the real estate mortgage over respondent’s properties.

10. The RTC rendered a decision upholding the validity of the extrajudicial foreclosure and
ordering the issuance of a writ of possession in favor of petitioner. The Court of Appeals
reversed the trial court’s decision. Hence, this petition.

Issue: Does the extrajudicial foreclosure of the real estate mortgage discharge the instrument?

Ruling: Yes.

The Court adopts and approves the aforequoted findings by the RTC, the same being fully
supported by the evidence on record. Excelsa Industries is estopped from questioning the
foreclosure.

Excelsa Industries is guilty of laches and cannot at this point in time question the foreclosure
of the subject properties. Pruducers Bank made demands against the Excelsa Industries for the
payment of Excelsa Industries’ outstanding loans and advances with the defendant as early as
July 1997.

Excelsa Industries acknowledged such outstanding loans and advances to the defendant bank
and committed to liquidate the same.

For failure of the Excelsa Industries SOL-Negotiable Instrument Law to pay its obligations on
maturity, Producers Bank foreclosed the mortgage on subject properties on January 5, 1988 the
certificate of sale was annotated on March 24, 1988 and there being no redemption made by
the Excelsa Industries, title to said properties were consolidated in the name of Producers Bank
in July 1989. Undeniably, subject foreclosure was done in accordance with the prescribed rules

Velasquez vs. Solidbank G.R. No. 157309 Mar. 28, 2008

Facts:
1. Petitioner is engaged in the export business operating under the name Wilderness
Trading.The petitioner is a domestic banking corporation under Philippine laws.
2. The case arose out of a business transaction for the sale of dried sea cucumber for
export to South Korea between Wilderness Trading (Seller) and Goldwell Trading of
Pusan, South Korea (Buyer).
 3. To facilitate payment of the products, Goldwell Trading opened a letter of credit in
favour of Wilderness Trading in the amount of $87,500.00USD with the Bank of Seoul,
Pusan, Korea.
4. Velasquez (Petitioner) applied for credit accommodation with respondent bank for pre-
shipment financing and was granted. (Nov. 12, 1992)

Velasquez was successful in his first 2 export transactions both drawn on the letter of credit,
but not on the third one.

5. Petitioner submitted to respondent the necessary documents for his third shipment on
Feb. 22, 1993.

6. Petitioner , wanting to be paid the value of the shipment in advance, negotiated for a
documentary sight draft to be drawn on the letter of credit, chargeable to the account
of Bank of Seoul with a value of the shipment amount of US$59,640.00

7. As a condition of the sight draft, petitioner executed a letter of undertaking in favour of

respondent. Under the terms of the letter of undertaking, petitioner promised that the
draft will be accepted and paid by Bank of Seoul according to its tenor as well as being
liable if the sight draft was not accepted.
By virtue of the letter of undertaking, respondent advanced the value of the shipment which, at
the current rate of exchange at that time was P1,495,115.16 less bank charges, to petitioner.

8. Respondent failed to collect on the sight draft as it was dishonoured by non-acceptance

by the Bank of Seoul. The reasons given for the dishonour were late shipment, forged
inspection certificate, and absence of countersignature of the negotiating bank on the
inspection certificate.
Goldwell likewise issued a stop payment order on the sight draft because most of the
bags of dried sea cucumber contained soil.

9. Due to the dishonour of the sight draft and the stop payment order, respondent
demanded restitution of the sum advanced. Petitioner failed to heed the amount.

10. (June 3, 1993) The respondent filed a complaint for recovery of sum of money with the
RTC in Cebu City.
11. [In his answer], petitioner alleged that his liability undr the sight draft was extinguished
when respondent failed to protest its non-acceptance, as required under the Negotiable
Instruments Law.
Petitioner also alleged that the letter of undertaking is not binding because it is a superfluous
document, and that he did not violate any of the provisions of the letter of credit.
Both RTC and CA ruled against the petitioner, ordering Velasquez to pay Solidbank plus
interest.
Issue:
Whether or not petitioner should be held liable to respondent under the sight draft of the letter
of undertaking.
Held:
Petition is without merit.
1. Petitioner is not liable under the sight draft but he is liable under his letter of
undertaking; liability under the letter of undertaking was not extinguished by non-
protest of the dishonour of the sight draft.

Petitioner contended that his liability under the letter of undertaking is that of a mere
guarantor; that the letter of undertaking is only an accessory contract to the sight draft. Since
he was discharged from the liability under the sight draft, he cannot be held liable under the
letter of undertaking.
Respondent counters that petitioners liability springs form the letter of undertaking,
independently of the sight draft. It would not have advanced the amount without the LOU. The
LOU is an independent agreement and not merely an accessory contract.

2. Petitioner’s escaping liability under the LOU would result in unjust enrichment.
SC rules that “petitioner’s” liability under the LOU is independent from his liability under the
sight draft. He may be held liable under ither the sight draft or the letter of undertaking or both.
3. Petitioner was discharged from liability under the sight draft when respondent failed
to protest it for non-acceptance by the Bank of Seoul.
When a foreign bill is dishonoured by non-acceptance or non-payment, protest is necessary to
hold the drawer and indorsers liable.
Respondent’s failure to protest the non-acceptance of the sight draft resulted in the discharge
of petitioner from liability under the instrument. (Section 152 of the NIL)
Petitioner, however, can still be made liable under the LOU, since it is a separate contract form
the sight draft.
The SC did not accept the petitioners thesis that he is only a mere guarantor under the LOC
(letter of credit). Petitioner cannot be both the primary debtor and guarantor of this own
debt.
This is inconsistent with the very purpose of guarantee which is for the creditor to proceed
against a third person if the debtor defaults in his obligation.
Petitioner bound himself liable to respondent under the LOU if the sight draft is not accepted.
He also warranted that the sight draft is genuine; will be paid by the issuing bank in accordance
with its tenor; and that he will be held liable for the full amount of the draft upon demand,
without necessity of proceeding against the drawee bank.
Petitioner breached his undertaking when the Bank of Seoul dishonoured the sight draft and
Goldwell Trading ordered a stop payment order on it for discrepancies in the export
document.

Far East Realty Investment Inc. vs. CA

Far East Realty Investment Inc. vs. The Honorable Court of Appeals, Dy Hian Tat, Siy Chee and
Gaw Suy An
G.R. No. L-36549, October 5, 1988
166 SCRA 256
FACTS:
1. On September 13, 1960, the private respondents, because of business needs, applied
for an accommodation loan in the amount of Php4,500.00  with petitioner Far East
Realty Investment Inc.

2. They promised to pay jointly and severally, in one month time and delivered to
petitioner a check dated September 13, 1960, for P4,500.00, drawn by Dy Hian Tat,
and signed by them at the back.

They assured the petitioner that they would redeem the said check by paying in cash the said
amount after a month from September 13, 1960, or that the said check could be presented for
payment on or after a month from the date indicated on the check.

3. The accommodation loan was extended to the respondents, however, on March 5,

1964, when the check was presented for payment to the the China Banking
Corporation, said check bounced because the current account of the drawer had
already been closed.

4. Demand for payment failed so the petitioner filed an action for the collection and
payment of P4,500.00 representing the face value of the unpaid and dishonored check.

ISSUE: Whether or not presentment for payment and notice of dishonor of the questioned
check were made within reasonable time.

RULING: The Court ruled that, in this case, presentment and notice of dishonor were not
made within a reasonable time. The check was issued on September 13, 1960, but was
presented to the drawee bank only on March 5, 1964, and dishonored on the same date. After
dishonor by the drawee bank, a formal notice of dishonor was made by the petitioner through
a letter dated April 27, 1968. The petitioner failed to exercise prudence and diligence on what
he ought to do as required by law. Likewise, it failed to show any justification for the
unreasonable delay.

Reasonable time” has been defined as so much time as is necessary under the circumstances
for a reasonable prudent and diligent man to do, conveniently, what the contract or duty
requires should be done, having a regard for the rights, and possibility of loss, if any, to the
other party (Citizens’ Bank Bldg. v. L & E. Wertheirmer 189 S.W. 361, 362, 126 Ark, 38, Ann. Cas.
1917 E, 520).

NOTES:
Where an instrument is payable on demand, presentment must be made within a reasonable
time after issue; Reasonable time depends upon the peculiar facts and circumstances in each
case. – Where the instrument is not payable on demand, presentment must be made on the
day it falls due. Where it is payable on demand, presentment must be made within a
reasonable time after issue, except that in the case of a bill of exchange, presentment for
payment will be sufficient if made within a reasonable time after the last negotiation thereof.
(Section 71, Negotiable Instruments Law).

Notice may be given as soon as the instrument is dishonored; and unless delay is excused must
be given within the time fixed by the law (Section 102, Negotiable Instruments Law).

No hard and fast demarcation line can be drawn between what may be considered as a
reasonable or an unreasonable time, because “reasonable time” depends upon the peculiar
facts and circumstances in each case (Tolentino, Commentaries and Jurisprudence on
Commercial Laws of the Philippines, Vol. I, Eighth Edition, p. 327).

HONGKONG v. CECILIA DIEZ CATALAN, GR No. 159590, 2004-10-18

1. Thomson issued five HSBANK checks payable to Catalan

2. The checks when deposited were returned by HSBANK

purportedly for reason of "payment stopped" pending
confirmation, despite the fact that the checks were duly funded.

3. On March 18, 1997, Thomson wrote a letter to a certain Ricky

Sousa[7] of HSBANK confirming... the checks he issued to
Catalan and requesting that all his checks be cleared.

4. On March 20, 1997, Thomson wrote another letter to Sousa of

HSBANK requesting an advice in writing to be sent to the
Philippine National Bank, through the fastest means, that the
checks he previously... issued to Catalan were already cleared.
Thereafter, Catalan demanded that HSBANK make good the
checks issued by Thomson.

5. Marilou A. Lozada, personal secretary and attorney-in-fact of

Thomson, wrote a letter to Sousa of HSBANK informing him that
HSBANK's failure... to clear all the checks had saddened
Thomson and requesting that the clearing of the checks be
facilitated.

6. Thomson died and Catalan forwarded her demand to HSBC

TRUSTEE. Catalan sent photocopies of the returned checks to
 HSBC TRUSTEE. Not satisfied, HSBC TRUSTEE... through deceit
and trickery, required Catalan, as a condition for the acceptance
of the checks, to submit the original copies of the returned
checks, purportedly, to hasten payment of her claim.

7. Catalan and her former counsel went to Hongkong at their own

expense to personally deliver the originals of the returned
checks to the officers of HSBC TRUSTEE, anxious of receiving
the money value of the checks but HSBC TRUSTEE despite
receipt of the original checks, refused to... pay Catalan's claim.
Having seen and received the original of the checks, upon its
request, HSBC TRUSTEE is deemed to have impliedly accepted
the checks.

8. the refusal of HSBANK and HSBC TRUSTEE to pay the checks is

equivalent to illegal freezing of one's deposit.Catalan made
several demands and after several more follow ups, on August
16, 1999, Phoenix Lam, Senior Vice President of HSBC TRUSTEE,
in obvious disregard of her valid claim, informed Catalan that her
claim is disapproved. No reason or explanation whatsoever was
made... why her claim was disapproved, neither were the checks
returned to her.

9. Catalan appealed for fairness and understanding, in the hope that

HSBC TRUSTEE would act fairly and justly on her claim but these
demands were met by a stonewall of silence

10. Catalan through... counsel sent a last and final demand to

HSBC TRUSTEE to remit the amount covered by the checks but
despite receipt of said letter, no payment was made. Clearly, the
act of the HSBANK and HSBC TRUSTEE in refusing to honor and
pay the checks validly issued by Thomson violates the... abuse of
rights principle under Article 19 of the Civil Code which requires
that everyone must act with justice, give everyone his due and
observe honesty and good faith. The refusal of HSBANK and
HSBC TRUSTEE to pay the checks without any valid reason is
intended solely to... prejudice and injure Catalan.
 11. When they declined payment of the checks despite
instructions of the drawer, Thomson, to honor them, coupled with
the fact that the checks were duly funded, they acted in bad
faith, thus causing damage to Catalan. A person may not
exercise his right... unjustly or in a manner that is not in keeping
with honesty or good faith, otherwise he opens himself to liability
for abuse of right.

HSBANK & HSBC TRUSTEE filed  Motions to Dismiss.

The RTC denied the two motions to dismiss.
HSBANK and HSBC TRUSTEE filed separate petitions for certiorari and/or prohibition with the
CA.
The CA dismissed the two petitions for certiorari.
Hence, the present petitions.
ISSUE:
Whether or not the payee may sue the drawee bank based on tort under Art. 19 of the New
Civil Code.
RULING:
Yes, the payee may sue the bank under Art. 19.
In order to be liable under the abuse of rights principle, three elements must concur, to wit: (a)
that there is a legal right or duty; (b) which is exercised in bad faith; and (c) for the sole intent of
prejudicing or injuring another.
It is evident that Catalan is suing HSBANK and HSBC TRUSTEE for unjustified and willful
refusal to pay the value of the checks.

HSBANK claims that Catalan has no cause of action because under Section 189 of the Negotiable
Instruments Law, “a check of itself does not operate as an assignment of any part of the funds to the
credit of the drawer with the bank, and the bank is not liable to the holder unless and until it accepts or
certifies it.”

However, HSBANK is not being sued on the value of the check itself but for how it acted in relation to
Catalan’s claim for payment despite the repeated directives of the drawer Thomson to recognize the
check the latter issued.

Anent HSBC TRUSTEE, it is being sued for the baseless rejection of Catalan’s claim. When Catalan went
to the extent of traveling to Hongkong to deliver personally the checks, HSBC TRUSTEE summarily
disapproved her claim with nary a reason.

Negotiable Instruments Case Digest: Far East Bank & Trust Co. V. Gold Palace Jewelry
Co. (2008)

G.R. No. 168274 August 20, 2008

Lessons Applicable: Liabilities of the Parties (Negotiable Instruments Law)

FACTS:
 1. June 1998: Samuel Tagoe, a foreigner, purchased from Gold Palace
Jewellery Co.'s (Gold Palace's) store at SM-North EDSA several pieces
of jewelry valued at P258,000

2. paid w/ Foreign Draft issued by the United Overseas Bank (Malaysia)

to Land Bank of the Philippines, Manila (LBP) for P380,000

3. Teller of Far East Bank, next door tenant, informed Julie Yang-Go

(manager of Gold Palace) that a foreign draft has similar nature to
a manager's check, but advised her not to release the pieces of
jewelry until the draft had been cleared

4. Yang issued Cash Invoice so the jewelries can be released 

5. Yang deposited the draft in the company's account with the Far East
on June 2, 1998

6. When Far East, the collecting bank, presented the draft for clearing to
LBP, the drawee bank, cleared the it and Gold Palace's account with
Far East was credited 

7. June 6, 1998: The foreigner eventually returned to claim the

purchased goods. 

8. After ascertaining that the draft had been cleared, Yang released the
pieces of jewelry and his change, Far East Check of P122,000 paid by
the bank

9. June 26, 1998: LBP informed Far East that the Foreign Draft had been
materially altered from P300 to P300,000and that it was returning the
same

10. Far East refunded the amount to LBP and debit only P168,053.36 of
the amount left in Gold Palace' account without a prior written notice
to the account holder

11. Far East only notified by phone the representatives of the Gold Palace

12. August 12, 1998: Far East demanded from Gold Palace the payment of
balance and upon refusal filed in the RTC

RTC: in favor of Far East on the basis that Gold Palace was liable under the
liabilities of a general indorser
CA: reversed since Far East failed to undergo the proceedings on the protest
of the foreign draft or to notify Gold Palace of the draft's dishonor; thus, Far
East could not charge Gold Palace on its secondary liability as an indorser

ISSUE: W/N Gold Palace should be liable for the altered Foreign Draft

HELD: NO.  AFFIRMED WITH THE MODIFICATION that the award of exemplary damages
and attorney's fees is DELETED

Act No. 2031, or the Negotiable Instruments Law (NIL), explicitly provides
that the acceptor, by accepting the instrument, engages that he will pay
it according to the tenor of his acceptance.
This provision applies with equal force in case the drawee pays a bill without
having previously accepted it. 

Actual payment by the drawee is greater than his acceptance, which is

merely a promise in writing to pay

The payment of a check includes its acceptance

The tenor of the acceptance is determined by the terms of the bill as it is

when the drawee accepts.

LBP was liable on its payment of the check according to the tenor of the
check at the time of payment, which was the raised amount.

Gold Palace was not a participant in the alteration of the draft, was not
negligent, and was a holder in due course

LBP, having the most convenient means to correspond with UOB, did not
first verify the amount of the draft before it cleared and paid the same

Gold Palace had no facility to ascertain with the drawer, UOB Malaysia, the
true amount in the draft. It was left with no option but to rely on the
representations of LBP that the draft was good

Principle that the drawee bank, having paid to an innocent holder the
amount of an uncertified, altered check in good faith and without negligence
which contributed to the loss, could recover from the person to whom
payment was made as for money paid by mistake - NOT applicable

The Court is also aware that under the Uniform Commercial Code in the
United States of America, if an unaccepted draft is presented to a drawee for
payment or acceptance and the drawee pays or accepts the draft, the
person obtaining payment or acceptance, at the time of presentment, and a
previous transferor of the draft, at the time of transfer, warrant to the
drawee making payment or accepting the draft in good faith that the draft
has not been altered - absent any similar provision in our law, cannot
extend the same preferential treatment to the paying bank

Gold Palace is protected by Section 62 of the NIL, its collecting agent, Far
East, should not have debited the money paid by the drawee bank from
respondent company's account. When Gold Palace deposited the check with
Far East, it, under the terms of the deposit and the provisions of the NIL,
became an agent of the Gold Palace for the collection of the amount in the
draft

The subsequent payment by the drawee bank and the collection of the
amount by the collecting bank closed the transaction insofar as the drawee
and the holder of the check or his agent are concerned, converted the check
into a mere voucher, and, as already discussed, foreclosed the recovery by
the drawee of the amount paid. This closure of the transaction is a matter of
course; otherwise, uncertainty in commercial transactions, delay and
annoyance will arise if a bank at some future time will call on the payee for
the return of the money paid to him on the check

As the transaction in this case had been closed and the principal-agent
relationship between the payee and the collecting bank had already ceased,
the latter in returning the amount to the drawee bank was already acting on
its own and should now be responsible for its own actions. Neither can
petitioner be considered to have acted as the representative of the drawee
bank when it debited respondent's account, because, as already explained,
the drawee bank had no right to recover what it paid. Likewise, Far East
cannot invoke the warranty of the payee/depositor who indorsed the
instrument for collection to shift the burden it brought upon itself. This is
precisely because the said indorsement is only for purposes of collection
which, under Section 36 of the NIL, is a restrictive indorsement.  It did not in
any way transfer the title of the instrument to the collecting bank. Far East
did not own the draft, it merely presented it for payment. Considering that
the warranties of a general indorser as provided in Section 66 of the NIL are
based upon a transfer of title and are available only to holders in due
course, these warranties did not attach to the indorsement for deposit and
collection made by Gold Palace to Far East. Without any legal right to do so,
the collecting bank, therefore, could not debit respondent's account for the
amount it refunded to the drawee bank.

THE INTERNATIONAL CORPORATE BANK V. SPOUSES GUECO

351 SCRA 516
FACTS:

1. Gueco spouses obtained a loan from ICB (now Union Bank) to purchase a car. 

2. In  consideration  thereof,  the  debtors  executed  PNs,  and  a  chattel

mortgage  was  made  over  the  car.   

3. the  spouses defaulted  in  payment  of  their  obligations  and  despite  the 
lowering  of  the  amount  to  be  paid,  they  still  failed  to  pay.   

4. Thereafter,  they  tendered  a manager’s  check  in  favor  of  the  bank.  

5.   Nonetheless,  the  car  was  still detained for the spouses refused to sign the
joint motion to dismiss. 

6. The bank  averred  that  the  joint  motion  to  dismiss  is  part  of  standard 
office procedure  to  preclude  the  filing  of  other  claims.   

7. Because  of  this,  the spouses filed an action for damages against the bank. 
And by the time the case was instituted, the check had become stale in the
hands of the bank.
 
HELD:
The main issue though unrelated to Negotiable Instruments Law in this case was
whether or not the signing of the joint motion to dismiss a part of the compromise
agreement between the spouses and the bank.

  The answer is no, it is not a part of the compromise agreement entered by the parties. 
And thus, the signing is dispensible in releasing the car to the spouses. 

And on the ancillary issue of the case, which is the relevant issue for the subject,
whether or not the spouses should replace the check they paid to the  bank  after  it 
became  stale, 

the  answer  is  yes. 

It  appeared  that  the check has not been encashed.
The delivery of the manager’s check did not constitute payment.
The original obligation to pay still exists.
Indeed, the circumstances  that  caused  the  non-presentment  of  the  check 
should  be considered to determine who  should bear the  loss.
1. In this case, ICB held on the check and refused to encash the same because
of the controversy surrounding the signing of the joint motion to dismiss.
 2. There is no bad faith
or negligence on the part of ICB. 

3. A  stale  check  is  one  which  has  not  been  presented  for  payment 
within  a reasonable time after its issue. It is valueless and, therefore, should
not be paid.  A  check  should  be  presented  for  payment  within  a 
reasonable  time after  its  issue. 

4. Here,  what  is  involved  is  a  manager’s  check,  which  is

essentially a bank’s own check and may be treated as a PN with the bank as
a maker. Even assuming that presentment is needed, failure to present for 
payment  within  a  reasonable  time  will  result  to  the  discharge  of  the
drawer only to the extent of the loss caused by the delay—but here there is
no loss sustained. Still, such failure to present on time does not wipe out
liability.  

PACIFICO B. ARCEO, JR vs. PEOPLE OF THE PHILIPPINES. G.R. No.

142641. July 17, 2006.
FACTS:

1. Pacifico Arceo obtained a loan from Josefino Cenizal.

2.He then issued a check in favor of Cenizal, in which he promised

verbally seven times that he would replace it with cash.

3. After not replacing the check, he encashed the check but was
dishonored due to insufficient funds.

4. Cenizal went to Arceo's house to inform him of the dishonor but he

was not around anymore so he went to Arceo's lawyer and gave him a
letter giving him three days to pay the check.

5. When Arceo failed, Cenizal charged him in violation of BP 22.

The lower court found him guilty.

DEFENSE
Arceo contends that he should not be held liable because it was
presented beyond the 90-day period provided under the law; that he
only given three days to pay and not five banking days as per law; and
that he paid his obligation.

ISSUE: Whether Arceo is guilty.

RULING:

The SC denied Arceo's petition. The SC held that the life of a check is
six months. Cenizal presented the check within four months of
issuance.

The 90-day period in the law is not an element of the offense.

Arceo cannot claim that he was not given five banking days (the rule is
three), because he still remained unpaid after five days of his receipt
of dishonor.

Lastly, his claim that he paid the obligation was only mere allegation
as there was no proof of his payment and that the check still remained
on Arceo.

Papa v Valencia
G.R. No. 105188 January 23, 1998
Art. 1249 – Payment of debts in money shall be made in currency.
Facts:
          The respondents filed with the RTC Pasig a complaint for specific performance
against petitioner to deliver the title and turn over the accrued rentals.
          The petitioner, acting as attorney-in-fact of Angela M. Butte, sold to Peñarroyo
through Valencia, a parcel of land, which was mortgaged to the Associated Banking
Corporation, together with several other parcels of land.
          The bank refused to release it unless and until all the mortgaged properties were
also redeemed.
          Respondents discovered that petitioner had been collecting monthly rentals from
the tenants of the property, knowing that said property had already been sold to
Peñarroyo.

DEFENSE
        
On appeal, the petitioner argued that alleged sale of the subject property had not
been consummated because he did not encashed the check (in the amount of
P40,000.00), which did not produce the effect of payment as in Art. 1249 of the Civil
Code.

Issue:
WoN the delivery of a check produces the effect of payment only when it is cashed.

Held:
            No, the Court holds that while it is true that the delivery of a check produces the
effect of payment only when it is cashed, pursuant to Art. 1249 of the Civil Code, the
rule is otherwise if the debtor is prejudiced by the creditor's unreasonable delay in
presentment.
           
 Art. 1249 of the Civil Code provides, in part, that payment by checks shall produce the
effect of payment only when they have been cashed or when through the fault of the
creditor they have been impaired.
            In the instant case, the acceptance of a check implies an undertaking of due
diligence in presenting it for payment, and if he from whom it is received sustains loss
by want of such diligence, it will be held to operate as actual payment of the debt or
obligation for which it was given

. It has, likewise, been held that if no presentment is made at all, the drawer cannot be
held liable irrespective of loss or injury12 unless presentment is otherwise excused.

Granting that petitioner had never encashed the check, his failure to do so for more
than ten (10) years undoubtedly resulted in the impairment of the check through his
unreasonable and unexplained delay.
            Thus, the petition for review is DENIED.