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ASIAN BANKING CORPORATION v. JUAN JAVIER G.R. No. L-19051 April 4, 1923 Doctrine: When a negotiable instrument is dishonored for non-acceptance or non-payment, notice thereof must be given to the drawer and each of the indorsers, and those who are not notified shall be discharged from liability, except as provided otherwise. It is incumbent upon a person, who seeks to enforce the indorsers liability, to establish said liability by proving that notice was within the time, and in the manner, required by the law. Facts: Salvador B. Chaves drew a check on the Philippine National Bank for P11,000 in favor of La Insular. This check was indorsed by the limited partners of La Insular, and then deposited by Salvador B. Chaves in his current account with the plaintiff, Asia Banking Corporation. Another check was drawn and deposited in similar fashion. The amount represented by both checks was used by Salvador B. Chaves after they were deposited in the plaintiff bank, by drawing checks on the plaintiff. Subsequently these checks were presented by the plaintiff to the Philippine National Bank for payment, but the latter refused to pay on the ground that the drawer, Salvador B. Chaves, had no funds therein. The lower court sentenced the defendant, as indorser, to pay the plaintiff P11,000. From this judgment the defendant appealed. Issue: Whether or not the defendants liability as an indorser is extinguished for lack of notice Held: Yes. Section 89 of the Negotiable Instruments Law (Act No. 2031) provides that, when a negotiable instrument is dishonored for non-acceptance or non-payment, notice thereof must be given to the drawer and each of the indorsers, and those who are not notified shall be discharged from liability, except where this act provides otherwise. According to this, the indorsers are not liable unless they are notified that the document was dishonored. Then, under the general principle of the law of procedure, it will be incumbent upon the plaintiff, who seeks to enforce the defendants liability upon these checks as indorser, to establish said liability by proving that notice was given to the defendant within the time, and in the manner, required by the law that the checks in question had been dishonored. If these facts are not proven, the plaintiff has not sufficiently established the defendants liability. There is no proof in the record tending to show that plaintiff gave any notice whatsoever to the defendant that the checks in question had been dishonored, and there it has not established its cause of action. MONTINOLA V. PNB 88 PHIL 178 FACTS: Ramos, as a disbursing officer of an army division of the USAFE, made cash advancements w/ the Provincial Treasurer of Lanao. In exchange, the Provl Treasurer of Lanao gave him a P500,000 check. Thereafter, Ramos presented the check to Laya for encashment. Laya in his capacity as Provincial Treasurer of Misamis Oriental as drawer, issued a check to Ramos in the sum of P100000, on the Philippines National Bank as drawee; the P400000 value of the check was paid in military notes. Ramos was unable to encash the said check for he was captured by the Japanese. But after his release, he sold P30000 of the check to Montinola for P90000 Japanese Military notes, of which only P45000 was paid by the latter. The writing made by Ramos at the back of the check was to the effect that he was assigning only P30000 of the value of the

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document with an instruction to the bank to pay P30000 to Montinola and to deposit the balance to Ramos's credit. This writing was, however, mysteriously obliterated and in its place, a supposed indorsement appearing on the back of the check was made for the whole amount of the check. At the time of the transfer of this check to Montinola, the check was long overdue by about 2-1/2 years. Montinola instituted an action against the PNB and the Provincial Treasurer of Misamis Oriental to collect the sum of P100,000, the amount of the aforesaid check. There now appears on the face of said check the words in parenthesis "Agent, Phil. National Bank" under the signature of Laya purportedly showing that Laya issued the check as agent of the Philippine National Bank. HELD: The words "Agent, Phil. National Bank" now appearing on the face of the check were added or placed in the instrument after it was issued by the Provincial Treasurer Laya to Ramos. The check was issued by only as Provincial Treasurer and as an official of the Government, which was under obligation to provide the USAFE with advance funds, and not as agent of the bank, which had no such obligation. The addition of those words was made after the check had been transferred by Ramos to Montinola. 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. OR FACTS:

April-May, 1942: Ubaldo D. Laya was the Provincial Treasurer of Misamis Oriental. o As such Provincial Treasurer he was ex officio agent of the Philippine National Bank branch in the province. o Mariano V. Ramos worked under him as assistant agent in thebank branch o currency being used in Mindanao, particularly Misamis Oriental and Lanao which had not yet been occupied by the Japanese invading forces, was the emergency currency which had been issued since January, 1942 by the Mindanao Emergency Currency Board by authority of the late President Quezon. April 26, 1942: thru the recommendation of Provincial Treasurer Laya, his assistant agent M. V. Ramos was inducted into the United States Armed Forces in the Far East (USAFFE) as disbursing officer of an army division. April 30, 1942: M. V. Ramos,disbursing officer, went to Province Lanao to procure a cash advance in the amount of P800K for the use of the USAFFE o Pedro Encarnacion, Provincial Treasurer of Lanao did not have that amount in cash so he gave Ramos P300,000 in emergency notes and a check for P500,000 o Ramos had no opportunity to cash the check because in the evening, the Japanese forces entered the capital May 2, 1942: Ramos went to the office of Provincial Treasurer Laya at Misamis Oriental to encash the check for P500,000 which he had received from the Provincial Treasurer of Lanao. Laya did not have enough cash to cover the check so he gave Ramos P400,000 in emergency notes and a check No. 1382 for P100,000 drawn on the Philippine National Bank. According to Laya he had previously deposited P500,000 emergency notes in the Philippine National Bankbranch in Cebu and he expected to have the check issued by him cashed in Cebu against said deposit. June 10, 1942: the USAFFE forces to which he was attached surrendered. o Ramos was made a prisoner of war until February 12, 1943 December, 1944: M. V. Ramos allegedly indorsed the check to Enrique P. Montinola. August, 1947: Enrique P. Montinola filed a complaint to collect the sum of P100,000, the amount of Check issued by the Provincial Treasurer of Misamis Oriental to Mariano V. Ramos and supposedly indorsed to Montinola court: dismissed

ISSUE:

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1. W/N Montinola cannot hold PNB liable because there is "Agent, Phil. National Bank" is an alteration - YES 2. W/N Montinola is a holder in due course - NO

Montinola's Version o June, 1944: Ramos, needing money with which to buy foodstuffs and medicine, offered to sell him the check; to be sure that it was genuine and negotiable, Montinola, accompanied by his agents and by Ramos himself, went to see President Carmona of the Philippine National Bank in Manila about said check, agreed to the sale of the check for P850,000 Japanese military notes, payable in installments; that of this amount, P450,000 was paid to Ramos in Japanesemilitary notes in 5 installments, and the balance of P400,000 was paid in kind, that upon payment of the full price, M. V. Ramos duly indorsed the check to him. o "Agent, Phil. National Bank" now appearing under the signature of the Provincial Treasurer on the face of the original check - 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. (Section 124 of the Negotiable Instruments Law). doesn't make sense so alteration Montinola may therefore not be regarded as an indorsee. At most he may be regarded as a mere assignee of the P30,000 sold to him by Ramos, in which case, as such assignee, he is subject to all defenses available to the drawer Provincial Treasurer of Misamis Oriental and against Ramos. Neither can Montinola be considered as a holder in due course because section 52 of said law defines a holder in due course as a holder who has taken the instrument under certain conditions, one of which is that he became the holder before it was overdue. When Montinola received the check, it was long overdue. Neither could it be said that he took it in good faith. He has not paid the full amount of P90,000 for which Ramos sold him P30,000 of the value of the check. check was issued to M. V. Ramos not as a person but M. V. Ramos as the disbursing officer of the USAFFE. Therefore, he had no right to indorse it personally to plaintiff

PNB V. CA- Material Alteration 256 SCRA 491 FACTS: DECS issued a check in favor of Abante Marketing containing a specific serial number, drawn against PNB. The check was deposited by Abante in its account with Capitol and the latter consequently deposited the same with its account with PBCOM which later deposited it with petitioner for clearing. The check was thereafter cleared. However, on a relevant date, petitioner PNB returned the check on account that there had been a material alteration on it. Subsequent debits were made but Capitol cannot debit the account of Abante any longer for the latter had withdrawn all the money already from the account. This prompted Capitol to seek reclarification from PBCOM and demanded the recrediting of its account. PBCOM followed suit by doing the same against PNB. Demands unheeded, it filed an action against PBCOM and the latter filed a third-party complaint against petitioner. HELD: An alteration is said to be material if it alters the effect of the instrument. It means an unauthorized change in the 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 the party. In other words, a material alteration is one which changes the items which are required to be stated under Section 1 of the NIL. In this case, the alleged material alteration was the alteration of the serial number of the check in issuewhich is not an essential element of a negotiable instrument under Section 1. PNB alleges that the alteration was material since it is an accepted concept that a TCAA check by its very nature is the medium of exchange of governments,

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instrumentalities and agencies. As a safety measure, every government office or agency is assigned checks bearing different serial numbers. But this contention has to fail. The checks serial number is not the sole indicia of its origin. The name of the government agency issuing the check is clearly stated therein. Thus, the checks drawer is sufficiently identified, rendering redundant the referral to its serial number. Therefore, there being no material alteration in the check committed, PNB could not return the check to PBCOM. It should pay the same. FACTS:

January 15, 1962: Augusto Lim deposited in his current account withthe PCIB branch at Padre Faura, Manila a GSIS Check of P57,415.00 drawn against the PNB o PCIB stamped the following on the back of the check: "All prior indorsements and/or Lack of Endorsement Guaranteed, Philippine Commercial and Industrial Bank," Padre Faura Branch, Manila Same date: following an established banking practice in the Philippines, the check was forwarded for clearing through the CentralBank to the PNB o did not return said check the next day, or at any other time, but retained it and paid its amount to the PCIB, as well as debited it against the account of the GSIS in the PNB o PNB received a formal notice from the GSIS that the check had been lost, with the request that payment thereof be stopped January 31, 1962: Upon demand from the GSIS, the P57,415.00 was re-credited to them bec. the signatures of its officers on the check were forged o signatures of the General Manager and the Auditor of the GSIS on the check, as drawer, are forged o payee Mariano D. Pulido indorsed it to Manuel Go and then indorsed by Manuel Go to Augusto Lim February 2, 1962: PNB demanded from the PCIB the refund PNB filed against the PCIB CA affirmed CFI: dismissed

ISSUE: W/N PCIB as indorser is liable despite the fact that the check is forged when PNB is also negligent HELD: NO. Affirmed

PCIB stamped on the back of the check: "All prior indorsements and/or Lack of Endorsement Guaranteed, Philippine Commercial and Industrial Bank," Padre Faura Branch, Manila o indorsements falsified is immaterial to the PNB's liability as a drawee, or to its right to recover from the PCIB, for, as against the drawee, the indorsement of an intermediate bankdoes not guarantee the signature of the drawer, since the forgery of the indorsement is not the cause of the loss. Guaranteed not the authenticity of the signatures of the officers of the GSIS who signed because the GSIS is not an indorser of the check, but its drawer warranty is irrelevant to the PNB's alleged right to recover from the PCIB in general, "acceptance" is not required for checks since they are payable on demand o acceptance promise to perform an act the acceptance of a bill is the signification by the drawee of his assent to the order of the drawer o payment actual performance compliance with obligation PNB had been guilty of a greater degree of negligence, because it had a previous and formal notice from the GSIS that the check had been lost, with the request that payment thereof be stopped o PNB's negligence was the main or proximate cause for the corresponding loss

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PNB did not return the check when 1 of 2 innocent persons must suffer by the wrongful act of a third person, the loss must be borne by the one whose negligence was the proximate cause of the loss or who put it into the power of the third person to perpetrate the wrong where the collecting (PCIB) and the drawee (PNB) banks are equally at fault, the court will leave the parties where it finds them o applies in the case of a drawee who pays a bill without having previously accepted it Section 62 of Act No. 2031 provides

The acceptor by accepting the instrument engages that he will pay it according to the tenor of hisacceptance; and admits: (a) The existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the instrument; and (b) The existence of the payee and his then capacity to indorse. Philippine Bank of Commerce vs. Aruego 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 latters 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. PHILIPPINE BANK OF COMMERCE v. ARUEGO G.R. No. L-25836-37 January 31, 1981 Fernandez, J. Doctrines: 1. An accommodation party is one who has signed the instrument as maker, drawer, indorser, without receiving value therefor and for the purpose of lending his name to some other person. Such person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of the taking of the instrument knew him to be only an accommodation party. One cannot be an accommodation party if he signs as a drawee/acceptor.

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2. As long as a commercial paper conforms with the definition of a bill of exchange, that paper is considered a bill of exchange. The nature of acceptance is important only in the determination of the kind of liabilities of the parties involved, but not in the determination of whether a commercial paper is a bill of exchange or not. Facts: Plaintiff instituted against Aruego a case for the recovery of Php. 35,000.00 with daily interest plus attorneys fees. The sum sought to be recovered represents the cost of the printing of World Current Events, a periodical published by the defendant. To facilitate the payment of the printing the defendant obtained a credit accommodation from the plaintiff. Thus, for every printing, the printer, Encal Press and Photo Engraving (EPPE), collected the cost of printing by drawing a draft against the plaintiff, said draft being sent later to the defendant for acceptance. As an added security for the payment of the amounts advanced to Encal Press and PhotoEngraving, the plaintiff bank also required defendant Aruego to execute a trust receipt in favor of said bank wherein said defendant undertook to hold in trust for plaintiff the periodicals and to sell the same with the promise to turn over to the plaintiff the proceeds of the sale of said publication to answer for the payment of all obligations arising from the draft. Defendant argued that he is an accommodating party hence shall be liable only secondarily. The defendant also contends that the drafts signed by him were not really bills of exchange but mere pieces of evidence of indebtedness because payments were made before acceptance. Issues: 1. Whether or not the defendant is an accommodation party 2. Whether or not the drafts signed were bills of exchange Held: 1. No. Section 29 of the Negotiable Instruments Law (NIL) provides: An accommodation party is one who has signed the instrument as maker, drawer, indorser, without receiving value therefor and for the purpose of lending his name to some other person. Such person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of the taking of the instrument knew him to be only an accommodation party. In lending his name to the accommodated party, the accommodation party is in effect a surety for the latter. He lends his name to enable the accommodated party to obtain credit or to raise money. He receives no part of the consideration for the instrument but assumes liability to the other parties thereto because he wants to accommodate another. In the instant case, the defendant signed as a drawee/acceptor. Under the Negotiable Instrument Law, a drawee is primarily liable. Thus, the defendant should not have signed as an acceptor/drawee. In doing so, he became primarily and personally liable for the drafts. 2. Yes. Pursuant to Section 126 of the NIL, a bill of exchange is an unconditional order in writting addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer. As long as a commercial paper conforms with the definition of a bill of exchange, that paper is considered a bill of exchange. The nature of acceptance is important only in the determination of the kind of liabilities of the parties involved, but not in the determination of whether a commercial paper is a bill of exchange or not. PRUDENTIAL BANK vs. INTERMEDIATE APPELLATE COURT --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

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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. CHAN WAN V. TAN KIM 109 PHIL 706 FACTS: Tam Kim issued 11 checks payable to cash or bearer. Chan Wan presented these for payment but were dishonored for insufficiency of funds. This prompted Chan Wan to institute an action against Tam Kim. She didn't take the witness stand and merely presented the checks for payment. Tan Kim on the other hand alleged that the checks were for mere receipts only. The trial court dismissed the complaint as Chan Wan failed to show that she was a holder in due course. HELD: Eight of the checks were crossed checks specially to Chinabank and should have been presented for payment by Chinabank and not by Chan Wan. Inasmuch as Chan Wan didn't present them for payment himself, there was no proper presentment, and the liability didn't attach to the drawer. The facts show that the checks were indeed deposited with Chinabank and were by the latter presented for collection to the drawee bank. But as the account had no sufficient funds, they were unpaid and returned, some of them stamped account closed. How it reached the hands of Chan Wan, she didn't indicate. Most probably, as the trial court surmised, she acquired them after they have been dishonored. Chan Wan is then not a holder in due course. Nonetheless, it doesn't mean that she couldn't

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collect on the checks. He can still collect against Tan Kim if the latter has no valid excuse for refusing payment. The only disadvantage for Chan Kim is that she is susceptible to defenses of Tan Kim but what are the defenses of latter? This has to be further deliberated by the trial court. BATAAN CIGAR AND CIGARETTE FACTORY V. COURT OF APPEALS Lessons Applicable: Rights of a holder (Negotiable Instruments Law) FACTS:

Bataan Cigar & Cigarette Factory, Inc. (BCCFI), a corporation involved in themanufacturing of cigarettes purchased from King Tim Pua George (George King) 2,000 bales of tobacco leaf to be delivered starting October 1978. o 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 o 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 crossedchecks 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 theinstrument or defect in the title of the person negotiating it

Sec. 59 o every holder is deemed prima facie a holder in due course o However, when it is shown that the title of any person who has negotiated theinstrument 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

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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

PNB V. SEETO, 91 SCRA 757 FACTS: Seeto called at a branch of bank and presented a check payable to cash or bearer, and drawn by Kiao against PBC. After consultation with the employees, Seeto made a general and qualified indorsement of the check. He was then paid the amount of the check by bank. The check was consequently dishonored, a letter was sent to Seeto and was asked to refund the money given to him. A second letter was sent to him and he averred that case against him be deferred while he inquired about why the check was dishonored. Thereafter, he refused to pay, alleging that the account against the check was drawn had sufficient funds when the check was drawn and if the bank didnt delay in clearing the check, there would have been sufficient funds. The appellate court reversed the lower court in its decision. It ruled that the bank was guilty of unreasonably retaining and withholding the check, and that the delay in the presentment was inexcusable, so that respondent thereby was discharged from liability. HELD: Section 84 is applicable, nonetheless, it should be read in correlation with Section 186, which says that presentment should be within reasonable time.