case digest in nil

8/12/2019 Case Digest in NIL

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Case Digests in Negotiable Instruments Law

NEGOTIABILITY

(1) Philippine Education Co. vs. SorianoGR L-22405, 30 June 1971

39 SCRA 587

FACTS:

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:

Whether postal money orders are negotiable instruments?

HELD:

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 publics 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 bewithheld under a variety of circumstances, and which are restricted to not more than one

indorsement.

(2) CALTEX (PHILIPPINES), INC. vs. CAG.R. No. 97753, August 10, 1992

212 SCRA 448

FACTS:

Security bank issued Certificates of Time Deposits to Angel dela Cruz. The same were given by Dela

Cruz to petitioner in connection to his purchase of fuel products of the latter. On a later date, DelaCruz approached the bank manager, communicated the loss of the certificates and requested

for a reissuance. Upon compliance with some formal requirements, he was issued replacements.

Thereafter, he secured a loan from the bank where he assigned the certificates as security. Here

comes the petitioner, averred that the certificates were not actually lost but were given as

security for payment for fuel purchases. The bank demanded some proof of the agreement but the

petitioner failed to comply. The loan matured and the time deposits were terminated and then

applied to the payment of the loan.

Petitioner demands the payment of the certificates but to no avail.

ISSUE:

Whether or not the certificates of time deposits (CTDs) are negotiable instruments?


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HELD:

The Court held that the CTDs are negotiable instruments. The CTDs in question undoubtedly meet

the requirements of the law for negotiability. The Negotiable Instruments Law provides, an

instrument to be negotiable must conform to certain requirements, hence, (a) It must be in writing

and signed by the maker or drawer; (b) Must contain an unconditional promise or order to pay a

sum certain in money; (c) Must be payable on demand, or at a fixed or determinable future time; (d)

Must be payable to order or to bearer; and (e) Where the instrument is addressed to a drawee, he

must be named or otherwise indicated therein with reasonable certainty.

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 de la 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.

If it was really the intention of respondent bank to pay the amount to Angel de la Cruz only, it

could have with facility so expressed that fact in clear and categorical terms in the documents,

instead of having the word "BEARER" stamped on the space provided for the name of the depositorin each CTD. On the wordings of the documents, therefore, the amounts deposited are

repayable to whoever may be the bearer thereof. Thus, petitioner's aforesaid witness merely

declared that Angel de la Cruz is the depositor "insofar as the bank is concerned," but obviously

other parties not privy to the transaction between them would not be in a position to know

that the depositor is not the bearer stated in the CTDs. Hence, the situation would require any

party dealing with the CTDs to go behind the plain import of what is written thereon to unravel

the agreement of the parties thereto through facts aliunde. This need for resort to extrinsic

evidence is what is sought to be avoided by the Negotiable Instruments Law and calls for

the application of the elementary rule that the interpretation of obscure words or stipulations in

a contract shall not favor the party who caused the obscurity.

(3) Metropolitan Bank & Trust Company vs. Court of AppealsG.R. No. 88866, February, 18, 1991

194 SCRA 169

FACTS:

Eduardo Gomez opened an account with Golden Savings and deposited 38 treasury warrants. All

warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and deposited

to its Savings account in Metrobank branch in Calapan, Mindoro. They were sent for clearance.

Meanwhile, Gomez is not allowed to withdraw from his account, later, however, exasperated over

Floria repeated inquiries and also as an accommodation for a valued client Metrobank decided to

allow Golden Savings to withdraw from proceeds of the warrants. In turn, Golden Savings

subsequently allowed Gomez to make withdrawals from his own account. Metrobank informed

Golden Savings that 32 of the warrants had been dishonored by the Bureau of Treasury and

demanded the refund by Golden Savings of the amount it had previously withdrawn, to make up the

deficit in its account. The demand was rejected. Metrobank then sued Golden Savings.

ISSUE:

Whether or not treasury warrants are negotiable instruments?

HELD:


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The Court held in the negative. The treasury warrants are not negotiable instruments. Clearly

stamped on their face is the word: non negotiable. Moreover, and this is equal significance, it is

indicated that they are payable from a particular fund, to wit, Fund 501. An instrument to be

negotiable instrument must contain an unconditional promise or orders to pay a sum certain in

money. As provided by Sec 3 of NIL an unqualified order or promise to pay is unconditional though

coupled with: 1st

, an indication of a particular fund out of which reimbursement is to be made or a

particular account to be debited with the amount; or 2nd

, a statement of the transaction which give

rise to the instrument. But an order to promise to pay out of particular fund is not unconditional.The indication of Fund 501 as the source of the payment to be made on the treasury warrants makes

the order or promise to pay not conditional and the warrants themselves non-negotiable. There

should be no question that the exception on Section 3 of NIL is applicable in the case at bar.

(4) Sesbreno vs. CAGR 89252, 24 May 1993

222 SCRA 446

FACTS:

On 9 February 1981, Raul Sesbreno made a money market placement in the amount of P300,000with the Philippine Underwriters Finance Corporation (PhilFinance), with a term of 32 days.

PhilFinance issued to Sesbreno the Certificate of Confirmation of Sale of a Delta Motor Corporation

Promissory Note (2731), the Certificate of Securities Delivery Receipt indicating the sale of the note

with notation that said security was in the custody of Pilipinas Bank, and postdated checks drawn

against the Insular Bank of Asia and America for P304,533.33 payable on 13 March 1981. The checks

were dishonored for having been drawn against insufficient funds. Pilipinas Bank never released the

note, nor any instrument related thereto, to Sesbreno; but Sesbreno learned that the security was

issued 10 April 1980, maturing on 6 April 1981, has a face value of P2,300,833.33 with PhilFinance as

payee and Delta Motors as maker; and was stamped non-negotiable on its face. As Sesbreno was

unable to collect his investment and interest thereon, he filed an action for damages against Delta

Motors and Pilipinas Bank.

ISSUE:

Whether non-negotiability of a promissory note prevents its assignment?

HELD:

Only an instrument qualifying as a negotiable instrument under the relevant statute may be

negotiated either by indorsement thereof coupled with delivery, or by delivery alone if it is in bearer

form. A negotiable instrument, instead of being negotiated, may also be assigned or transferred. The

legal consequences of negotiation and assignment of the instrument are different. A negotiable

instrument may not be negotiated but may be assigned or transferred, absent an express prohibition

against assignment or transfer written in the face of the instrument. Wherein, there was no

prohibition stipulated.

(5) Firestone Tire and Rubber Co. vs CAG.R. No. 113236. March 5, 2001

353 SCRA 601

FACTS:

Fojas-Arca Enterprises Company maintained a special account with respondent Luzon Development

Bank which authorized and allowed the former to withdraw funds from its account through themedium of special withdrawal slips. Fojas-Arca purchased on credit products from Firestone with a


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total amount of P4,896,000.00. In payment of these purchases, Fojas-Arca delivered to plaintiff six

special withdrawal slips drawn upon the respondent bank. In turn, these were deposited by the

plaintiff with its current account with the Citibank. All of them were honored and paid by the

defendant. However, in a subsequent transaction involving the payment of withdrawal slips by

Fojas-Arca for purchases on credit from petitioner, two withdrawal slips for the total sum of

P2,078,092.80 were dishonored and not paid by respondent bank for the reason "NO

ARRANGEMENT".

ISSUE:

Whether or not the acceptance and payment of the special withdrawal slips gives the impression

that it is a negotiable instrument like a check?

HELD:

No. 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. As the withdrawal slips in question were non-negotiable, the rules governing the giving

of immediate notice of dishonor of negotiable instruments do not apply. The respondent bank was

under no obligation to give immediate notice that it would not make payment on the subjectwithdrawal slips. Citibank should have known that withdrawal slips were not negotiable

instruments. It could not expect these slips to be treated as checks by other entities. Payment or

notice of dishonor from respondent bank could not be expected immediately, in contrast to the

situation involving checks. Citibank was not bound to accept the withdrawal slips as a valid mode of

deposit. But having erroneously accepted them as such, Citibankand petitioner as account-holder

must bear the risks attendant to the acceptance of these instruments.

PAYABLE TO BEARER

(6) Ang Tek Lian vs. CAG.R. No. L-2516

September 25, 1950

Negotiable Instruments Law Negotiable Instruments in General 87 Phil 383 Indorsement to

Cash Bearer Instrument

FACTS:

In 1946, Ang Tek Lian approached Lee Hua and asked him if he could give him P4,000.00. He said

that he meant to withdraw from the bank but the banks already closed. In exchange, he gave Lee

Hua a check which is payable to the order of cash. The next day, Lee Hua presentedthe check for

payment but it was dishonored due to insufficiency of funds. Lee Hua eventually sued Ang Tek Lian.

In his defense, Ang Tek Lian argued that he did not indorse the check to Lee Hua and that when the

latter accepted the check without Ang tek Lians indorsement, he had done so fully aware of the risk

he was running thereby.

ISSUE:

Whether or not Ang Tek Lian is correct?

HELD:

No. Under the Negotiable Instruments Law (sec. 9 *d+), a check drawn payable to the order of cash

is a check payable to bearer hence a bearer instrument, and the bank may pay it to the personpresenting it for payment without the drawers indorsement. Where a check is made payable to the


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there can be no liability on the instrument. Petitioner however has a right of action against Sima

Wei for the balance due on the promissory note.

(9) SAN MIGUEL CORPORATION,Petitioner,vs.

BARTOLOME PUZON, JR.,Respondent.

G.R. No. 167567

September 22, 2010

FACTS:

Respondent Bartolome V. Puzon, Jr., (Puzon) owner of Bartenmyk Enterprises, was a dealer of beer

products of petitioner San Miguel Corporation (SMC) for Paraaque City. Puzon purchased SMC

products on credit. To ensure payment and as a business practice, SMC required him to issue

postdated checks equivalent to the value of the products purchased on credit before the same were

released to him. Said checks were returned to Puzon when the transactions covered by these checks

were paid or settled in full.

On December 31, 2000, Puzon purchased products on credit amounting to P11,820,327 for which heissued, and gave to SMC, Bank of the Philippine Islands (BPI) Check Nos. 27904 (for P309,500.00) and

27903 (for P11,510,827.00) to cover the said transaction.

On January 23, 2001, Puzon, together with his accountant, visited the SMC Sales Office in Paraaque

City to reconcile his account with SMC. During that visit Puzon allegedly requested to see BPI Check

No. 17657. However, when he got hold of BPI Check No. 27903 which was attached to a bond paper

together with BPI Check No. 17657 he allegedly immediately left the office with his accountant,

bringing the checks with them.

SMC sent a letter to Puzon on March 6, 2001 demanding the return of the said checks. Puzon

ignored the demand hence SMC filed a complaint against him for theft with the City Prosecutors

Office of Paraaque City.

ISSUE:

Whether or not there is complete delivery of negotiable instrument?

HELD:

The Court held in the negative. Sec. 12. Antedated and postdatedThe instrument is not invalid for

the reason only that it is antedated or postdated, provided this is not done for an illegal or

fraudulent purpose. The person to whom an instrument so dated is delivered acquires the title

thereto as of the date of delivery. (Underscoring supplied.)

Note however that delivery as the term is used in the aforementioned provision means that the

party delivering did so for the purpose of giving effect thereto.12

Otherwise, it cannot be said that

there has been delivery of the negotiable instrument. Once there is delivery, the person to whom

the instrument is delivered gets the title to the instrument completely and irrevocably.

If the subject check was given by Puzon to SMC in payment of the obligation, the purpose of giving

effect to the instrument is evident thus title to or ownership of the check was transferred upon

delivery. However, if the check was not given as payment, there being no intent to give effect to the

instrument, then ownership of the check was not transferred to SMC.
http://www.lawphil.net/judjuris/juri2010/sep2010/gr_167567_2010.html#fnt12http://www.lawphil.net/judjuris/juri2010/sep2010/gr_167567_2010.html#fnt12http://www.lawphil.net/judjuris/juri2010/sep2010/gr_167567_2010.html#fnt12http://www.lawphil.net/judjuris/juri2010/sep2010/gr_167567_2010.html#fnt12


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The evidence of SMC failed to establish that the check was given in payment of the obligation of

Puzon. There was no provisional receipt or official receipt issued for the amount of the check. What

was issued was a receipt for the document, a"POSTDATED CHECK SLIP."

LIABILITY OF PERSON SIGNING AS AN AGENT

(10) Philippine Bank of Commerce vs. AruegoGR L-25836-37, 31 (102 SCRA 530)January 1981,

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 infavor 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?

HELD:

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.

(11) ADALIA FRANCISCO vs. COURT OF APPEALS, ET AL.G.R. No. 116320

November 29, 1999

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, hadexecuted and signed seven checks of various dates and amounts payable to HCCC for completed and


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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?

HELD:

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 didnot 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.

FORGERY

(12) JAI ALAI VS. BPI66 SCRA 29

FACTS:

Checks were deposited by petitioner in its current account with the bank. These checks were

from a certain Ramirez, a consistent better in its games, who was a sales agent from Inter-

Island Gas. Inter-Island later found out that of the forgeries committed in the checks and

thus, it informed all the parties concerned. Upon the demands on the bank as the collecting bank, it

debited the account of petitioner. Thereafter, petitioner tried to issue a check for payment of

shares of stock but such was dishonored for insufficient funds. It filed a complaint against the

bank.

ISSUE:

Whether or not the petitioner is liable?

HELD:

Considering that the petitioner indorsed the said checks when it deposited them with the

respondent, the petitioner as an indorser guaranteed the genuineness of all prior

indorsements thereon. The respondent which relied upon the petitioners warranty should

not be held liable for the resulting loss.

Furthermore, the provision in the deposit slip on the right of reservation by the bank applies only

when there is actual receipt of current funds or solvent credits. But as earlier on indicated, the

transfer on account of the checks were ineffectual because it was made under the mistaken and

valid assumption that the indorsements of the payee thereon were genuine.


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(13) Republic Bank vs. EbradaGR L-40796,

31 July 1975

First Division, Martin (J)

FACTS:

Mauricia Ebrada encashed a back pay check for P1,246.08 at Republic Bank (Escolta Branch). TheBureau of Treasury, which issued the check advised the bank that the alleged indorsement of the

check by one Martin Lorenzo was a forgery as the latter has been dead since 14 July 1952; and

requested that it be refunded the sum deducted from its account. The bank refunded the amount to

the Bureau and demanded upon Ebrada the sum in question, who refused. Hence, the present

action.

ISSUE:

Whether the bank can recover from the last indorser?

HELD:According to Section 23 of the Negotiable Instruments Law, where the signature on a Negotiable

instrument is forged, the negotiation of the check is without force or effect. However, following the

ruling in Beam vs. Farrel (US case), where a check has several indorsements on it, only the

negotiation based on the forged or unauthorized signature which is inoperative. The last indorser,

Ebrada, was duty-bound to ascertain whether the check was genuine before presenting it to the

bank for payment. Her failure to do so makes her liable for the loss and the Bank may recover from

her the money she received for the check. Had she performed her duty, the forgery would have

been detected and fraud defeated. Even if she turned over the amount to Dominguez immediately

after receiving the cash proceeds of the check, she is liable as an accommodation party under

Section 29 of the Negotiable Instruments Law.

(14) MWSS vs. CAGR L-62943,

14 July 1986

Second Division, Gutierrez Jr. (J)

FACTS:

By special arrangement with PNB, MWSS used personalized checks in drawing from its account. The

checks were printed by its printer, F. Mesina Enterprises. 23 checks were paid and cleared by PNB,

and debited against MWSS account from March to May 1969. The checks were deposited by payees

Raul Dizon, Arturo Sison, and Antonio Mendoza in their account with PCIBank. Said persons were

later found to be fictitious. MWSS requested PNB to restore the amount debited due to the 23

checks, allegedly forged, to its account. The bank refused. Hence, the present action.

ISSUE:

Who shall bear the loss resulting from the alleged forged checks?

HELD:

There was no express and categorical finding that the 23 checks were forged or signed by persons

other than the authorized MWSS signatories. Forgery is not presumed but should be established byclear, positive and convincing evidence. MWSS is barred from setting up defense of forgery under


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Section 23 of the Negotiable Instruments Law as MWSS committed gross negligence in the printing

of its personalized checks, failed to reconcile its bank statements with its own records, and failed to

provide appropriate security measures over its own record. PNB, the drawee bank, had taken

necessary measures in the detection of forged checks and the prevention of their fraudulent

encashment through constant reminders to all its current account bookkeepers informing them of

the activities of forgery syndicates. MWSS gross negligence was the proximate cause of the loss (P3

million), and should bear the loss.

(15) BANCO DE ORO SAVING V. EQUITABLE157 SCRA 188

January 20, 1988

FACTS:

BDO drew checks payable to member establishments. Subsequently, the checks were deposited in

Trencios 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.

ISSUE:

Whether or not BDO is liable on the forged indorsement?

HELD:

Petitioner is 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 forgedindorsement. 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.

In 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 duty 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.

(16) Gempesaw vs. CAGR 922449 February 1993

FACTS:

Natividad Gempesaw issued checks, prepared by her bookkeeper, a total of 82 checks in favor of

several supplies. Most of the checks for amounts in excess of actual obligations as shown in their

corresponding invoices. It was only after the lapse of more than 2 years did she discovered the

fraudulent manipulations of her bookkeeper. It was also learned that the indorsements of the payee

were forged, and the checks were brought to the chief accountant of Philippine Bank of Commerce

(the Drawee Bank, Buendia Branch) who deposited them in the accounts of Alfredo Romero andBenito Lam. Gempesaw made demand upon the bank to credit the amount charged due the checks.

The bank refused. Hence, the present action.


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ISSUE:

Who shall bear the loss resulting from the forged indorsements?

HELD:

As a rule, a drawee bank who has paid a check on which an indorsement has been forged cannot

charge the drawers account for the amount of said check. An exception to the rule is where the

drawer is guilty of such negligence which causes the bank to honor such checks. Gempesaw did notexercise prudence in taking steps that a careful and prudent businessman would take in

circumstances to discover discrepancies in her account. Her negligence was the proximate cause of

her loss, and under Section 23 of the Negotiable Instruments Law, is precluded from using forgery as

a defense. On the other hand, the banking rule banning acceptance of checks for deposit or cash

payment with more than one indorsement unless cleared by some bank officials does not invalidate

the instrument; neither does it invalidate the negotiation or transfer of said checks. The only kind of

indorsement which stops the further negotiation of an instrument is a restrictive indorsement which

prohibits the further negotiation thereof, pursuant to Section 36 of the Negotiable Instruments Law.

In light of any case not provided for in the Act that is to be governed by the provisions of existing

legislation, pursuant to Section 196 of the Negotiable Instruments Law, the bank may be held liablefor damages in accordance with Article 1170 of the Civil Code. The drawee bank, in its failure to

discover the fraud committed by its employee and in contravention banking rules in allowing a chief

accountant to deposit the checks bearing second indorsements, was adjudged liable to share the

loss with Gempesaw on a 50:50 ratio.

(17) Associated Bank vs. CAGR 89802

7 May 1992

FACTS:

Melissas RTWs customers issued cross checks payable to Melissas RTW, which its proprietor Merle

Reyes did not receive. It was learned that the checks had been deposited with the Associated Bank

by one Rafael Sayson. Sayson was not authorized by Reyes to deposit and encash said checks. Reyes

filed an action for the recovery of the total value of the checks plus damages.

ISSUE:

Whether the bank was negligent for the loss?

HELD:

Crossing a check means that the drawee bank should not encash the check but merely accept it for

deposit, that the check may be negotiated only once by one who has an account in a bank, and that

the check serves as warning that it was issued for a definite purpose so that he must inquire if he has

received the check pursuant to that purpose. The effect, thus, relate to the mode of its presentment

for payment, in accordance with Section 72 of the Negotiable Instruments Law. The bank paid the

checks notwithstanding that title had not passed to the indorser, as the checks had been crossed

and issued for payees account only. It does did so in its own peril and became liable to the payee

for the value of the checks. The failure of the bank to make an inquiry as to Saysons authority was a

breach of its duty. The bank is negligent and is thus liable to Reyes.

(18) Metrobank vs. First National City Bank118 SCRA 537


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FACTS:

On August 25, 1964, a check payable for P50,000.00 to CASH drawn by Joaquin Cunanan and Co. on FNCB was

deposited with the Metrobank by a certain Salvador Sales. The check was cleared by FNCB the same day and

the amount credited to his deposit with Metro Bank. Sales withdrew his total deposit with Metrobank and the

withdrawal of the balance was allowed only when FNCB, upon verification made by Metrobank of the

regularity and genuineness of the check deposit, assured Metrobank that the fast movement of the account

was not unusual. Subsequently, FNCB returned the cancelled check to drawer Joaquin Cunanan and Co. and

the company notified FNCB that the check had been altered, the actual amount of P50.00 having been raised

to P50,000.00, and the name of the payee, Manila Polo Club, having been superimposed with the word CASH.FNCB notified Metrobank of the alteration on September 4, 1964. When Metrobank refused to reimburse

FNCB for the amount of P50,000.00, it filed an action for recovery of the amount with the Court of First

Instance of Manila. After trial, the Trial Court rendered judgment ordering Metrobank to reimburse FNCB the

amount of P50,000.00. On appeal, the Court of Appeals affirmed the decision. Hence, the present petition.

ISSUE:

Whether or not Metrobank is liable for the payment of the altered check?

HELD:

The Supreme Court held in the negative. Metrobank is not liable. The drawee bank FNCB is the bank liable.

Under the Central Bank Circular No. 9 as amended by Circular No. 138 and Circular No. 169, the drawee bankreceiving the check for clearing from the Central Clearing House must return the check to the collecting bank

within the 24-hour period if the check is defective for any reason.

In the case at bar, the check was not returned to Metrobank in accordance within the 24-hour clearing house

period, but was cleared by FNCB. Failure of FNCB, therefore, to call the attention of Metrobank to the

alteration of the check in question until after the lapse of nine days, negates whatever right it might have had

against Metro Bank in the light of the said Central Bank Circular. Its remedy lies not against Metrobank, but

against the party responsible for the changing the name of the payee and amount on the face of the check.

(19) Republic Bank vs. CAGR 4272522 April 1991

First Division, Grino Aquino (J)

FACTS:

San Miguel Corporation issued a dividend check for P240 in favor of J. Roberto Delgado, a

stockholder. Delgado altered the amount of the check to P9,240. The check was indorsed and

deposited by Delgado with Republic Bank. Republic Bank endorsed the check to First National City

Bank (FNCB), the drawee bank, by stamping on the back of the check all prior and / or lack of

indorsements guaranteed. Relying on the endorsement, FNCB paid the amount to Republic Bank.Later on, San Miguel informed FNCB of the material alteration of the amount. FNCB recredited the

amount to San Miguels account, and demanded refund from Republic Bank. Republic Bank refused.

Hence, the present action.

ISSUE:

Who shall bear the loss resulting from the altered check?

HELD:

When an indorsement is forged, the collecting bank or last indorser, as a general rule, bears the loss.

But the unqualified indorsement of the collecting bank on the check should be read together withthe 24-hour regulation on clearing house operation. Thus, when the drawee bank fails to return a

forged or altered check to the collecting bank within the 24-hour clearing period (as provided by


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Section 4c of Central Bank Circular 9, as amended), the collecting bank is absolved from liability. The

drawee bank, FNCB, should bear the loss for the payment of the altered check for its failure to

detect and warn Republic Bank of the fraudulent character of the check within the 24-hour clearing

house rule.

(20) Philippine Commercial Industrial Bank vs. CAGR 121413

29 January 2001

Second Division, Quisumbing (J)

FACTS:

Ford issued Citibank checks in favor of the Commissioner of Internal Revenue as payments of its

taxes, through the depository bank Insular Bank of Asia and America (later PCIBank). Proceeds of the

checks were never received by the Commissioner, but were encashed and diverted to the accounts

of members of a syndicate, to which Fords General Ledger Accountant Godofredo Rivera belongs.

Upon demand of the Commissioner anew, Ford was forced to make second payment of its taxes.

Thus, Ford instituted actions to recover the amounts from the collecting (depository) and draweebanks.

ISSUE:

Whether Ford has the right to recover from the collecting bank (PCI Bank) and/or the drawee bank

(Citibank) the value of the checks?

HELD:

The mere fact that forgery was committed by a drawer-payors confidential employee or agent, who

by virtue of his position had unusual facilities to perpetrate the fraud and imposing the forged paper

upon the bank, does not entitle the bank to shift the loss to the drawer-payor, in the absence of

some circumstance raising estoppel against the drawer. The rule applies to checks fraudulently

negotiated or diverted by the confidential employees who hold them in their possession.

In GRs 121413 and 121479, PCIBank failed to verify the authority of Mr. Rivera to negotiate the

checks. Furthermore, PCIBanks clearing stamp which guarantees prior or lack of indorsements

render PCIBank liable as it allowed Citibank without any other option but to pay the checks. PCIBank,

being a depository / collecting bank of the BIR, had the responsibility to make sure that the crossed

checks were deposited in Payees account only as found in the instrument.

In GR 128604, on the other hand, the switching operation involving the checks, while in transit for

clearing, were the clandestine or hidden actuations performed by the members of the syndicate in

their own personal, covert and private capacity; without the knowledge nor official or conscious

participation of PCIBank in the process of embezzlement. Central Bank Circular 580 (1977), however,

provide d that any theft affecting items in transit for clearing are for the account of the sending bank

(herein PCIBank). Still, Citibank was likewise negligent in the performance of its duties as it failed to

establish its payment of Fords checks were made in due course and legally in order. The fact that

drawee bank did not discover the irregularity seasonably constitutes negligence in carrying out the

banks duty to its depositors.

(21) Samsung Construction vs. Far East BankG.R. No. 129015August 15, 2004


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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 Samsungs 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 drawers 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 thedepositor himself. And yet, if the bank pays the check, it is paying out with its own money and not of

the depositors. This rule of liability can be stated briefly in these words: A bank is bound to know

its depositors 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.

MATERIAL ALTERATION

(22) PHILIPPINE NATIONAL BANK, petitioner,vs.

COURT OF APPEALS and CARMELO H. FLORES, respondents.

G.R. No. 116181

April 17, 1996

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.

ISSUE:

Whether or not there is material alteration of the check?

HELD:

An alteration is said to be material if it alters the effect of the instrument. It means an unauthorizedchange in the instrument that purports to modify in any respect the obligation of a party or an


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Anent the issue of alteration, the apparent purpose of which is to make the drawee (PNB) the

drawer against which Montinola can recover from directly. Such material alteration which was done

by Montinola without the consent of the parties liable thereon discharges the instrument, pursuant

to Sec. 124 of the NIL.

Montinola cannot be said to be a holder. He is an assignee. And even if he is a holder, he is not in

good faith because he did not pay the full amount of the consideration for which the P30k was

issued to himhe only paid 45k Japanese notes out of the 90k Japanese notes consideration.

At any rate, even assuming that there is proper negotiation, Montinola can no longer encash said

check because when he sought to have it encashed in January 1945, it is already stale there being

two and half years passing since its time of issuance.

ACCOMODATION PARTY

(24) SADAYA vs. SEVILLA19 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

creditors 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.

ISSUE:

Whether or not

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 formers payment of the obligation to thebank.

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 makerwho made paymenthas 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 they 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 maydemand from the principal debtor reimbursement for the amount that he paid to thepayee


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2. A joint and several accommodation maker who pays on the said promissory note maydirectly 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.

(25) Crisologo-Jose vs. Court of Appeals177 SCRA 594

(1989)

FACTS:

Plaintiff Ricardo S. Santos, Jr. was the vice-president of Mover Enterprises, Inc. in-charge of

marketing and sales; and the president of the said corporation was Atty. Oscar Z. Benares. Atty.

Benares, in accommodation of his clients, the spouses Jaime and Clarita Ong, issued check against

Traders Royal Bank, payable to defendant Ernestina Crisologo-Jose. Since the check was under theaccount of Mover Enterprises, Inc., the same was to be signed by its president, Atty. Oscar Z.

Benares, and the treasurer of the said corporation. However, since at that time, the treasurer of

Mover Enterprises was not available, Atty. Benares prevailed upon the plaintiff, Ricardo S. Santos,

Jr., to sign the aforesaid check. The check was issued to defendant Ernestina Crisologo-Jose in

consideration of the waiver or quitclaim by said defendant over a certain property which the

Government Service Insurance System (GSIS) agreed to sell to the spouses Jaime and Clarita Ong,

with the understanding that upon approval by the GSIS of the compromise agreement with the

spouses Ong, the check will be encashed accordingly. Since the compromise agreement was not

approved within the expected period of time, the aforesaid check was replaced by Atty. Benares.

This replacement check was also signed by Atty. Oscar Z. Benares and by the plaintiff Ricardo S.

Santos, Jr. When defendant deposited this replacement check with her account at Family Savings

Bank, Mayon Branch, it was dishonored for insufficiency of funds. The petitioner filed an action

against the corporation for accommodation party.

ISSUE:

WON the corporation can be held liable as accommodation party?

HELD:

No. Accommodation party liable on the instrument to a holder for value, although such holder at the

time of taking the instrument knew him to be only an accommodation party, 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. Hence, 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. If the

form of the instrument, or the nature of the transaction, is such as to charge the indorsee with

knowledge that the issue or indorsement of the instrument by the corporation is for the

accommodation of another, he cannot recover against the corporation thereon. 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 thecorporation for their individual debts or transactions arising from or in relation to matters in which


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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 inescapable conclusion in law and in logic is that the signatories thereof

shall be personally liable therefor, as well as the consequences arising from their acts in connection

therewith.

(26) STELCO MARKETING V. CA210 SCRA 51

FACTS:

Petitioner was engaged in the distribution and sale of structural steel bars. RYL bought on several

occasion large quantities of steel bars but the same were never paid for despite several demands by

petitioner.

On a relevant date, RYL gave to Armstrong Industries a check in payment of its obligations. The

check was drawn by Steelweld Corporationallegedly the owner of RYL persuaded the

president of Steelweld to accommodate the former in its obligation. The check, when deposited

was thereafter dishonored due to insufficient funds. A case ensued for violations of BP22 butthe case was dismissed as the check was held to be for accommodation purposes only.

Thereafter a complaint was filed by petitioner against RYL and Steelweld for the recovery of

sum of money in payment of the steel bars ordered. RYL was nowhere to be found that is why

the proceedings commenced as against Steelweld only. The trial court decided in favor of

petitioner but this was reversed by the CA.

ISSUE:

Whether or not

HELD:

Petitioner contends that the acquittal of Lim and Tianson didn't operate to release Steelweld from

its liability as an accommodation party. Noteworthy is that neither said pronouncement nor any

other part of the judgment of acquittal declared it liable to petitioner. To be sure, as regards

an accommodation party, the condition of lack of notice of any infirmity or defect in title of

the persons negotiating it is of no application since the law preserves the right of recourse of

a holder for value against an accommodation party notwithstanding knowledge that at the time

of taking the instrument, knew him only as an accommodation party.

Further, there is no evidence to show that petitioner possessed the check before the instruments

presentment and dishonor. In what transpired during the transactions involving the check,

evidence and facts show that there was any participation or intervention on the part of petitioner.

What the record shows is that only after the check was deposited and dishonored, petitioner

came into possession of it in some way and was able to give it in evidence at the trial of the civil case

it has instituted against the drawers of the check.

(27) BANK OF THE PHILIPPINE ISLANDS vs. COURT OF APPEALS326 SCRA 641

Negotiable Instruments Law Negotiation Indorsement 326 SCRA 641 Withdrawal Slip

FACTS:


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Benjamin Napiza maintains an account with the Bank of the Philippine Islands (BPI). In 1987, Napiza

was approached by Henry Chan and the latter gave him a $2,500 Continental Bank Managers check.

Chan asked if Napiza can deposit the check to his (Napizas BPI account) by way of accommodation

and for the purpose of clearing the said check. Napiza agreed and so he deposited the check on

September 3, 1987. Napiza then delivered a signed blank withdrawal slip to Chan with the condition

that the $2,500.00 may only be withdrawn if the check cleared. For some reason, the withdrawal slip

ended up in the hands of one Ruben Gayon who went to BPI and successfully withdrew the

$2,500.00. At the time of the withdrawal, the check was not yet cleared. Then days later, BPI wasnotified by the drawee bank named in the check that the check is actually a counterfeit.

ISSUE:

Whether or not Napiza may be held liable to refund the amount of the check?

HELD:

No. The Supreme Court ruled that ordinarily, Napiza would have been liable because he is an

accommodation indorser. But due to the attendant circumstances, Napiza is discharged from

liability.

The withdrawal slip indicates as well as the rules promulgated by BPI that withdrawal from the bank

should be accompanied by the presentment of the account holders (Napizas) savings bankbook.

This was not done so in the case at bar because Gayon was able to withdraw without it. Further, BPI

allowed the withdrawal even before the check cleared. BPI already credited the $2,500.00 to

Napizas account even without the drawee bank clearing the check. This is contrary to common

banking practices and because of such negligence and lack of diligence, BPI, as the collecting bank,

shall suffer the loss.

(28) Agro Conglomerates Inc. vs. CA348 SCRA 450

(2000)

FACTS:

Petitioner sold to Wonderland Food Industries two parcels of land. They stipulated under a

Memorandum of Agreement that the terms of payment would be P1,000,000 in cash, P2,000,000

in shares of stock, and the balance would be payable in monthly installments. Thereafter,

an addendum was executed between them, qualifying the cash payment. Instead of cash

payment, the vendee authorized the vendor to obtain a loan from the financier on which the

vendee bound itself to pay for. This loan was to cover for the payment of P1,000,000. This

addendum was not notarized.

Petitioner Soriano signed as maker the promissory notes payable to the bank. However, the

petitioners failed to pay the obligations as they were due. During that time, the bank was in

financial distress and this prompted it to endorse the promissory notes for collection. The bank

gave ample time to petitioners then to satisfy their obligations.

The trial court held in favor of the bank. It didn't find merit to the contention that

Wonderland was the one to be held liable for the promissory notes.

ISSUE:

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


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HELD:

First, there was no contract of sale that materialized. The original agreement was that

Wonderland would pay cash and petitioner would deliver possession of the farmlands. But

this was changed through an addendum, that petitioner would instead secure a loan and the

settlement of the same would be shouldered by Wonderland. Petitioners became liable as

accommodation parties. They have the right after paying the instrument to seek reimbursement

from the party accommodated, since the relation between them has in effect became one of

principal and surety.

Furthermore, as it turned out, the 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.

HOLDERS IN DUE COURSE

(29) De Ocampo vs. Gatchalian3 SCRA 596

Negotiable Instruments Law Rights of the Holder 3 SCRA 596 What Constitutes a Holder in Due

Course Is a payee a holder in due course?

FACTS:

Matilde Gonzales was a patient of the De Ocampo Clinic. She incurred a debt amounting to P441.75.

Her husband, Manuel Gonzales designed a scheme in order to pay off this debt: In 1953, Manuel

went to a certain Anita Gatchalian. Manuel purported himself to be selling the car of De Ocampo.

Gatchalian was interested in buying said car but Manuel told her that De Ocampo will only sell the

car if Gatchalian shows her willingness to pay for it. Manuel advised Gatchalian to draw a check of

P600.00 payable to De Ocampo so that Manuel may show it to De Ocampo and that Manuel in the

meantime will hold it for safekeeping. Gatchalian agreed and gave Manuel the check. After that,

Manuel never showed himself to Gatchalian.

Meanwhile, Manuel gave the check to his wife who in turn gave the check to De Ocampo as

payment of her bills with the clinic. De Ocampo received the check and even gave Matilde her

change (sukli). On the other hand, since Gatchalian never saw Manuel again, she placed a stop-

payment on the P600.00 check so De Ocampo was not able to cash on the check. Eventually, the

issue reached the courts and the trial court ordered Gatchalian to pay de Ocampo the amount of the

check.

Gatchalian argued that De Ocampo is not entitled to payment because there was no valid

indorsement. De Ocampo argued tha he is a holder in due course because he is the named payee.

ISSUE:

Whether or not De Ocampo is a holder in due course?

HELD:

No. Section 52 of the Negotiable Instruments Law, defines holder in due course, thus:

A holder in due course is a holder who has taken the instrument under the following conditions:

(a) That it is complete and regular upon its face;


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(b) 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;

(c) That he took it in good faith and for value;

(d) 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.

The Supreme Court emphasized that if one is such a holder in due course, it is immaterial that he

was the payee and an immediate party to the instrument. The Supreme Court however ruled that De

Ocampo is not a holder in due course for his lack of good faith. De Ocampo should have inquired asto the legal title of Manuel to the said check. The fact that Gatchalian has no obligation to De

Ocampo and yet hes named as the payee in the check hould have apprised De Ocampo; that the

check did not correspond to Matilde Gonzales obligation with the clinic because of the fact that it

was for P600.00more than the indebtedness; that why was Manuel in possession of the checkall

these gave De Ocampo the duty to ascertain from the holder Manuel Gonzales what the nature of

the latters title to the check was or the nature of his possession.

(30) Mesina vs. Inter Appelate Court14 SCRA 497

Negotiable Instruments Law Rights of the Holder 145 SCRA 497 What Constitutes a Holder in

Due Course Stolen Check

FACTS:

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 cashiers 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, whos 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 cashiers 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 cashiers

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.

LIABILITY OF GENERAL INDORSERS


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(31) METROPOL V. SAMBOK MOTORS CO.120 SCRA 864

FACTS:

Dr. Villareal issued a promissory note in favor of Sambok, which was payable in monthly

installments. The promissory note was then indorsed to Metropol. Villareal defaulted payment

and this prompted Metropol to run after Sampol. Sampol alleged that it is not liable since

it was a qualified indorser through the wordings it inserted in its indorsementwith recourse.

ISSUE:

Whether or not Sampol is liable as an indorser?

HELD:

A qualified indorsement 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 an 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 in Section 65 of the Negotiable Instruments Law already mentionedherein. However, appellant 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. 3 Appellant, 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 Dr. Villaruel fails to pay the note, plaintiff-appellee can go after said appellant. The

effect of such indorsement is that the note was indorsed without qualification. A person who

indorses without qualification engages that on due presentment, the note shall be accepted or paid,

or both as the case may be, and that if it be dishonored, he will pay the amount thereof to the

holder. 4 Appellant Sambok's intention of indorsing the note without qualification is made even

more apparent by the fact that the notice of demand, dishonor, protest and presentment

were an waived. The words added by said appellant do not limit his liability, but rather

confirm his obligation as a general indorser.

(32) MARALIT vs IMPERIALG.R. No. 130756

January 21, 1999

FACTS:

Petitioner Ester B. Maralit filed three complaints for estafa three falsification of commercial documentsthrough reckless imprudence against respondent Jesusa Corazon L. Imperial.

1Maralit alleged that she was

assistant manager of the Naga City branch of the Philippine National Bank, (PNB); that on May 20, 1992, June

1, 1992, and July 1, 1992 respondent Imperial separately deposited in her savings account at the PNB three

United States treasury warrants bearing USTW Nos. 2034-91254963, 2034-91180047, and 2034-33330760

and on the same days withdrew their peso equivalent of P59,216.86, P130,743.60, and P130,326.00,

respectively; and that the treasury warrants were subsequently returned one after the other by the United

States Treasury, through the Makati branch of the Citibank, on the ground that the amounts thereof had been

altered. Maralit claimed that as a consequence, she was held personally liable by the PNB for the total

amount of P320,287.30.

In her counter-affidavit, respondent claimed that she merely helped a relative, Aida Abengoza, encash thetreasury warrants; that she deposited the treasury warrants in her savings account and then withdrew their

peso equivalent with the approval of petitioner; that she gave the money to Aida Abengoza; that she did not


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know that the amounts on the treasury warrants had been altered nor did she represent to petitioner that

the treasury warrants were genuine; and that upon being informed of the dishonor of the warrants she

immediately contacted Aida Abengoza and signed an acknowledgment of debt promising to pay the total

amount of the treasury warrants.

ISSUE:

Whether or not respondent is civilly liable as indorser of the checks?

HELD:Following the decision of the lower court in its statement that, the Court is of the opinion that there was

negligence on both the complainant and the accused but greater responsibility should be borne by the private

complainant, Mrs. Maralit, considering that being more knowledgeable of the banking procedures of the bank

of which she is the assistant manager. The accused could not have encashed and deposited the checks

without her approval. If the complainant was not remiss in her duty in imposing the banking rules strictly,

then these things could not have happened.

The Court symphatizes with the complainant that there was indeed damage and loss, but said loss is

chargeable to the accused who upon her indorsements warrant that the instrument is genuine in all respect

what it purports to be and that she will pay the amount thereof in case of dishonor.

Thus, while the MTC found petitioner partly responsible for the encashment of the altered checks, it found

respondent civilly liable because of her indorsements of the treasury warrants, in addition to the fact that

respondent executed a notarized acknowledgment of debt promising to pay the total amount of said

warrants.

(33) Sapiera vs Court of AppealsG.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 drawers 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.

(34) BPIvs. Court of Appeals and Napiza


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G.R. No. 112392

February 29, 2000

326 scra 641

FACTS:

A certain Henry Chan owned a Continental Bank Managers Check payable to "cash" in the amount

of Two Thousand Five Hundred Dollars ($2,500.00). Chan went to the office of Benjamin Napiza and

requested him to deposit the check in his dollar account by way of accommodation and for thepurpose of clearing the same. Private respondent acceded, and agreed to deliver to Chan a signed

blank withdrawal slip, with the understanding that as soon as the check is cleared, both of them

would go to the bank to withdraw the amount of the check upon private respondents presentation

to the bank of his passbook. Napiza thus endorsed the check and deposited it in a Foreign Currency

Deposit Unit (FCDU) Savings Account he maintained with BPI. Using the blank withdrawal slip given

by private respondent to Chan, one Ruben Gayon, Jr. was able to withdraw the amount of $2,541.67

from Napiza's FCDU account. It turned out that said check deposited by private respondent was a

counterfeit check.

When BPI demanded the return of $2,500.00, private respondent claimed that he deposited thecheck "for clearing purposes" only to accommodate Chan.

Petitioner claims that private respondent, having affixed his signature at the dorsal side of the check,

should be liable for the amount stated therein in accordance with the provision of the Negotiable

Instruments Law on the liability of a general indorser (Sec. 66).

ISSUE:

Whether or not respondent Napiza is liable under his warranties as a general indorser?

RULING:

Ordinarily private respondent may be held liable as an indorser of the check or even as an

accommodation party. However, petitioner BPI, in allowing the withdrawal of private respondents

deposit, failed to exercise the diligence of a good father of a family. BPI violated its own rules by

allowing the withdrawal of an amount that is definitely over and above the aggregate amount of

private respondents dollar deposits that had yet to be cleared.The proximate cause of the eventual

loss of the amount of $2,500.00 on BPI's part was its personnels negligence in allowing such

withdrawal in disregard of its own rules and the clearing requirement in the banking system. In so

doing, BPI assumed the risk of incurring a loss on account of a forged or counterfeit foreign check

and hence, it should suffer the resulting damage.

PRESENTMENT FOR PAYMENT/ACCEPTANCE

(35) PRUDENTIAL BANK vs. INTERMEDIATE APPELLATE COURTG.R. No. 74886

December 8, 1992

216 scra 257

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 Bankand Trust Company in favor of Nissho. Against this letter of credit, drafts were drawn and issued by


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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.

(36) WONG vs. COURT OF APPEALS351 SCRA 100

FACTS:

Wong is a collector of Limtong Press, Inc., a company which prints calendars. Wong was assigned to

collect check payments from LPI clients.One time, 6 of LPIs clients were not able to give the check

payments to Wong. Wong then made arrangement with LPI so that for the meantime, Wong can use

his personal checks to guarantee the calendar orders of the LPIs clients. LPI however has a policy of

not accepting personal checks of its agents. LPI instead proposed that the personal checks should be

used to cover Wongs debt with LPI which arose from unremitted checks by Wong in the past. Wong

agreed. So he issued 6 checks dated December 30, 1985.

Before the maturity of the checks, Wong persuaded LPI not to deposit the checks because he said

hell be replacing them within 30 days. LPI complied however Wong reneged on the payment. On

June 5, 1986 or 157 days from date of issue, LPI presented the check to RCBC but the checks were

dishonored (account closed). On June 20, 1986, LPI sent Wong a notice of dishonor. Wong failed to

make good the amount of the checks within 5 banking days from his receipt of the notice. LPI then

sued Wong for violations of Batas Pambansa Blg. 22.

Among others, Wong argued that hes not guilty of the crime of charged because one of the

elements of the crime is missing, that is,prima facie presumptionof knowledge of lack of fundsagainst the drawer. According to Wong, this element is lost by reason of the belated deposit of the


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checks by LPI which was 157 days after the checks were issued; that he is not expected to keep his

bank account active beyond the 90-day period 90 days being the period required for the prima

facie presumption of knowledge of lack of fund to arise.

ISSUE:

Whether or not Wong is guilty of the crime charged?

HELD:Yes. Wong is guilty of violating BP 22. The elements of violation of BP 22 pertinent to this case are:

1. The making, drawing and issuance of any check to apply for account or for value;2. 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

3. The subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit ordishonor for the same reason had not the drawer, without any valid cause, ordered the bank to

stop payment.

Under the second element, the presumption of knowledge of the insufficiency arises if the check ispresented within 90 days from the date of issue of the check. This presumption is lost, as in the case

at bar, by failure of LPI to present it within 90 days. But this does not mean that the second element

was not attendant with respect to Wong. The presumption is lost but lack of knowledge can still be

proven, LPI did not deposit the checks because of the reassurance of Wong 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, Wong was duly notified of such fact but failed to make arrangements for full

payment within five (5) banking days thereof. There is, on record, sufficient evidence that Wong had

knowledge of the insufficiency of his funds in or credit with the drawee bank at the time of issuance

of the checks.

The Supreme Court also noted that under Section 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 six (6) months, or 180 days. LPI deposited the

checks 157 days after the date of the check. Hence said checks cannot be considered stale.

(37) THE INTERNATIONAL CORPORATE BANK V. SPOUSES GUECO351 SCRA 516

FACTS:

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

thereof, the debtors executed PNs, and a chattel mortgage was made over the car. As the

usual story goes, the spouses defaulted in payment of their obligations and despite the

lowering of the amount to be paid, they still failed to pay. Thereafter, they tendered a

managers check in favor of the bank. Nonetheless, the car was still detained for the spouses

refused to sign the joint motion to dismiss. The bank averred that the joint motion to dismiss is

part of standard office procedure to preclude the filing of other claims. 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.

ISSUE:

Whether or not there is timely presentment for payment?


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HELD:

It appeared that the check has not been encashed. The delivery of the managers 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. 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. There is no bad faith or

negligence on the part of ICB.

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. Here, what is involved is a managers

check, which is essentially a banks 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 delaybut here there is no loss sustained. Still, such failure to present on time does not wipe

out liability.

CHECKS

(38) STATE INVESTMENT vs CAG.R. No. 101163

January 11, 1993

FACTS:

Corazon Victoriano provided pieces of jewelry to Nora Moulic so that the latter may sell the same.

As security for the jewelries, Moulic issued to Victoriano two post dated checks in the aggregate

amount of P100,000.00. Moulic was not able to sell the jewelries so she returned the same toVictoriano. Victoriano was however unable to return the checks hence Moulic withdrew all her funds

from the bank.

Apparently, the checks were negotiated by Victoriano to State Investment House. So when the

checks were dishonored, State Investment demanded Moulic to pay. Moulic refused to pay because

she said the checks were merely used as security for the jewelry. Moulic further averred that she

received no notice of dishonor.

ISSUE:

Whether or not State Investment House is entitled to be paid?

HELD:

Yes. State Investment is a holder in due course as it met all the requirements to be one pursuant to

Section 52 of the Negotiable Instruments Law. In particular, it is clearly shown that: (a) on their faces

the post-dated checks were complete and regular: (b) State Investment bought these checks from

Victoriano, before their due dates;(c) State Investment took these checks in good faith and for

value, (d) State Investment was never informed nor made aware that these checks were merely

issued to Victoriano as security and not for value.

Further, there is no need to issue a notice of dishonor to Moulic. After Moulic withdrew her funds,

she could not have expected her checks to be honored. It would only be futile for State Investment

to be sending her notices of dishonor for the two checks.


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(39) BATAAN CIGAR vs. THE COURT OF APPEALSG.R. No. 93048

March 3, 1994

FACTS:

Bataan Cigar & Cigarette Factory, Inc. engaged one of its suppliers, King Tim PuaGeorge to deliver

2,000 bales of tobacco leaf starting October 1978. BCCFI, on July13, 1978 issued crossed checks postdated sometime in March 1979 in the totalamount of P820,000.00.Relying on the supplier's

representation that he would complete delivery within threemonths from December 5, 1978,

petitioner agreed to purchase additional 2,500 balesof tobacco leaves, despite the supplier's failure

to deliver in accordance with their earlier agreement. Again petitioner issued post dated crossed

checks in the totalamount of P1,100,000.00, payable sometime in September 1979. George

King failedto deliver the bales of tobacco leaf as agreed despite petitioner's demand, BCCFIissued on

March 30, 1979, a stop payment order on all checks payable to George KingEfforts of SIHI to collect

from BCCFI failed, the trial court pronounced SIHI ashaving a valid claim being a holder in due

course. Which was affirmed by the CA.

ISSUE:

Whether or not SIHI, a second indorser, a holder of crossed checks, is a holder indue course, to be

able to collect from the drawer, BCCFI?

HELD:

No. Crossing of a check should have the following effects: (a) the check may not beencashed but

only deposited in the bank; (b) the check may be negotiated only once to one who has an account

with a bank; (c) and the act of crossing the check servesas warning to the holder that the check has

been issued for a definite purpose so thathe must inquire if he has received the check pursuant to

that purpose, otherwise, he isnot a holder in due courseBCCFI's defense in stopping payment is as

good to SIHI as it is to George King.Because, really, the checks were issued with the intention that

George King wouldsupply BCCFI with the bales of tobacco leaf. There being failure of

consideration,SIHI is not a holder in due course.

(40) Citytrust banking Corp., vs. Intermediate Appellate CourtGR No. 84281

May 27, 1994

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 Herreros 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:


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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 forpayment worth40000 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 anundertaking 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, Papas 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.

(43) Engr. Jose E. Cayanan vs. North Star International Travel, Inc.G.R. No. 172954

October 5, 2011

FACTS:

North Star International Travel Incorporated (North Star) is a corporation engaged in the travel

agency business while petitioner is the owner/general manager of JEAC International Management

and Contractor Services, a recruitment agency. Virginia Balagtas, the General Manager of North Star,

in accommodation and upon the instruction of its client, petitioner herein, sent the amount of

US$60,000 to View Sea Ventures Ltd., in Nigeria from her personal account in Citibank Makati. On

March 29, 1994, Virginia again sent US$40,000 to View Sea Ventures by telegraphic transfer, with

US$15,000 coming from petitioner. Likewise, on various dates, North Star extended credit to

petitioner for the airplane tickets of his clients, with the total amount of such indebtedness under

the credit extensions eventually reaching P510,035.47.To cover payment of the obligations,

petitioner issued five checks to North Star. When presented for payment, the checks in the amount

of P1,500,000 and P35,000 were dishonored fo

case digest in nil

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