Metropolitan Bank & Trust Company vs.

Court of Appeals
G.R. No. 88866 February, 18, 1991
Cruz, J.:

Facts:
Eduardo Gomez opened an account with Golden Sav ings and deposited 38 treasury warrants. All warrants were subsequently
indorsed by Gloria Castillo as Cashier of Golden Sav ings and deposited to its Sav ings account in Metrobank branch in Calapan, Mindoro.
They were sent for clearance. Meanwhile, Gomez is not allowed to withdraw from his account, later, howev er, exasperated ov er Floria
repeated inquiries and also as an accommodation for a v alued client Metrobank decided to allow Golden Sav ings to withdraw from
proceeds of the warrants. In turn, Golden Sav ings subsequently allowed Gomez to make withdrawals from his own account. Metrobank
informed Golden Sav ings that 32 of the warrants had been dishonored by the Bureau of Treasury and demanded the refund by Golden
Sav ings of the amount it had prev iously withdrawn, to make up the deficit in its account. The demand was rejected. Metrobank then sued
Golden Sav ings.

Issue:
1. Whether or not Metrobank can demand refund agaist Golden Sav ings with regard to the amount withdraws to make up with the
deficit as a result of the dishonored treasury warrants.
2. Whether or not treasury warrants are negotiable instruments

Held:
No. Metrobank is negligent in giv ing Golden Sav ings the impression that the treasury warrants had been cleared and that,
consequently, it was safe to allow Gomez to withdraw. Without such assurance, Golden Sav ings would not hav e allowed the withdrawals.
Indeed, Golden Sav ings might ev en hav e incurred liability for its refusal to return the money that all appearances belonged t o the depositor,
who could therefore withdraw it anytime and for any reason he saw fit.
It was, in fact, to secure the clearance of the treasury warrants that Golden Sav ings deposited them to its account with Metrobank.
Golden Sav ings had no clearing facilities of its own. It relied on Metrobank to determine the v alidity of the warrants through its own services.
The proceeds of the warrants were withheld from Gomez until Metrobank allowed Golden Sav ings itself to withdraw them from its own deposit.
Metrobank cannot contend that by indorsing the warrants in general, Golden Sav ings assumed that they were genuine and in all respects
what they purport to be, in accordance with Sec. 66 of NIL. The simple reason that NIL is not applicable to non negotiable i nstruments,
treasury warrants.

No. The treasury warrants are not negotiable instruments. Clearly stamped on their face is the word: non negotiable. Moreov er,
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 i n money. As prov ided by Sec 3 of NIL an unqualified order
or promise to pay is unconditional though coupled with: 1
st
, 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 2
nd
, a statement of the transaction which giv e 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 themselv es non-negotiable. There should be no
question that the exception on Section 3 of NIL is applicable in the case at bar.

PNB v. Rodriguez
FACTS:
Spouses Erlando and Norma Rodriguez were engaged in the informal lending business and had a discounting arrangement with
the Philnabank Employees Savings and Loan Association (PEMSLA), an association of PNB employees
The association maintained current and savings accounts with Philippine National Bank (PNB)
PEMSLA regularly granted loans to its members. Spouses Rodriguez would rediscount the postdated checks issued to members
whenever the association was short of funds.
o As was customary, the spouses would replace the postdated checks with their own checks issued in the name of the
members.
It was PEMSLAs policy not to approve applications for loans of members with outstanding debts.
o To subv ert this policy, some PEMSLA officers dev ised a scheme to obtain additional loans despit e their outstanding loan
accounts.
They took out loans in the names of unknowing members, without the knowledge or consent of the latter.
The officers carried this out by forging the indorsement of the named payees in the checks
Rodriguez checks were deposited directly by PEMSLA to its sav ings account without any indorsement from the named payees.
This was an irregular procedure made possible through the facilitation of Edmundo Palermo, Jr., treasurer of PEMSLA and bank
teller in the PNB Branch.
o this became the usual practice for the parties.
Nov ember 1998-February 1999: spouses issued 69 checks totalling to P2,345,804. These were payable to 47 indiv idual payees who
were all members of PEMSLA
PNB ev entually found out about these fraudulent acts
o To put a stop to this scheme, PNB closed the current account of PEMSLA.
o As a result, the PEMSLA checks deposited by the spouses were returned or dishonored for the reason Account Closed.
o The amounts were duly debited from the Rodriguez account
Spouses filed a civ il complaint for damages against PEMSLA, the Multi-Purpose Cooperative of Philnabankers (MCP), and PNB.
o PNB credited the checks to the PEMSLA account even without indorsements = PNB v iolated its contractual obligation to
them as depositors - so PNB should bear the losses
RTC: fav ored Rodriguez
o makers, actually did not intend for the named payees to receive the proceeds of the checks = fictitious payees (under
the Negotiable Instruments Law) = negotiable by mere deliv ery
CA: Affirmed - checks were obv iously meant by the spouses to be really paid to PEMSLA = payable to order

ISSUE: W/N the 69 checks are payable to order for not being issued to fictitious persons thereby dismissing PNB from liability

HELD: NO. CA Affirmed
GR: when the payee is fictitious or not intended to be the true recipient of the proceeds, the check is considered as a bearer
instrument (Sections 8 and 9 of the NIL)
EX: However, there is a commercial bad faith exception to the fictitious-payee rule. A showing of commercial bad faith on the
part of the drawee bank, or any transferee of the check for that matter, will work to strip it of this defense. The exception will
cause it to bear the loss.
The distinction between bearer and order instruments lies in their manner of negotiation
o order instrument - requires an indorsement from the payee or holder before it may be v alidly negotiated
o bearer instrument - mere deliv ery
US jurisprudence: fictitious if the maker of the check did not intend for the payee to in fact receiv e the proceeds of the check
In a fictitious-payee situation, the drawee bank is absolved from liability and the drawer bears the loss
When faced with a check payable to a fictitious payee, it is treated as a bearer instrument that can be negotiated by delivery
o underlying theory: one cannot expect a fictitious payee to negotiate the check by placing his indorsement thereon
lack of knowledge on the part of the payees, however, was not tantamount to a lack of intention on the part of respondents-
spouses that the payees would not receive the checks proceeds
PNB did not obey the instructions of the drawers when it accepted absent indorsement, forged or otherwise. It was negligent in
the selection and supervision of its employees

Republic Planters Bank v. CA
Negot i able Inst rument s i n General 216 SCRA 738 Si gnat ure of Makers
In 1979, World Garment Manufacturing, through its board authorized Shozo Yamaguchi (president) and Fermin Canlas (treasurer) to obt ain
credit facilities from Republic Planters Bank (RPB). For this, 9 promissory notes were executed. Each promissory note was uni formly written in
the following manner:

___________, after date, for v alue received, I/we, jointly and severally promise to pay to the ORDER of the REPUBLIC PLANTERS BANK, at its
office in Manila, Philippines, the sum of ___________ PESOS(.) Philippine Currency
Please credit proceeds of this note to:
________ Savings Account ______XX Current Account
No. 1372-00257-6 of WORLDWIDE GARMENT MFG. CORP.
Sgd. Shozo Yamaguchi
Sgd. Fermi n Canlas

The note became due and no payment was made. RPB eventually sued Yamaguchi and Canlas. Canlas, in his defense, averred that he
should not be held personally liable for such authorized corporate acts that he performed inasmuch as he signed the promissor y notes in his
capacity as officer of the defunct Worldwide Garment Manufacturing.
ISSUE: Whether or not Canlas should be held liable for the promissory notes.
HELD: Yes. The solidary liability of priv ate respondent Fermin Canlas is made clearer and certain, without reason for ambiguity, by the
presence of the phrase joint and several as describing the unconditional promise to pay to the order of Republic Planters Bank. Where an
instrument containing the words I promise to pay is signed by two or more persons, they are deemed to be jointly and sev erally liable
thereon.
Canlas is solidarily liable on each of the promissory notes bearing his signature for the following reasons:
The promi ssory notes are negoti able i nstruments and must be governed by the Negoti able Instruments Law.
Under the Negotiable lnstruments Law, persons who write their names on the face of promissory notes are makers and are liable as
such. By signing the notes, the maker promises to pay to the order of the payee or any holder according to the tenor thereof.
INTL CORPORATE BANK v CA
FACTS
The Ministry of Education and Culture issued 15 checks drawn against PNB which International Corp. Bank (Int'l) accepted for
deposit on v arious dates.
After 24 hours from submission of the checks to Int'l for clearing, it paid the v alue of the checks and allowed the withdrawals of the
deposits
October 14, 1981, PNB returned all the checks to Int'l without clearing them on the ground that they were materially altered.
Int'l instituted an action for collection of sums of money against respondent to recov er the v alue of the checks.
RTC: dismissed
CA: Rev ersed

o materially altered shall be returned within 24 hours after discov ery of the alteration.

C.B. Circular does not prov ide the drawee bank the license to be grossly negligent on the one hand nor does it
preclude the collecting bank from raising av ailable defenses even if the check is properly returned within the
24-hour period after discov ery of the material alteration

ISSUES: W/N PNB should be liable for not returning the check with material alteration w/in the 24-hour period

HELD: NO. CA set aside
Alt eration of Seri al Number Not Material
The Court will not rule on the proper application of Central Bank Circular No. 580 in this case since there were no material
alterations on the checks, PNB as drawee bank has no right to dishonor them and return them to petitioner, the collecting bank
MBTC v CABILZO
Lessons Applicable: Discharge of instrument and persons secondarily liable (Negotiable Instruments Law)

FACTS:
Nov ember 12,1994: Renato D. Cabilzo (Cabilzo) issued a Metrobank Check payable to "CASH" and postdated on Nov ember 24,
1994 in the amount of P1,000 drawn against his Metrobank account to Mr. Marquez, as his sales commission
check was presented to Westmont Bank for payment who indorsed it to Metrobank for appropriate clearing
After the entries thereon were examined, including the availability of funds and the authenticity of the signature of the drawer,
Metrobank cleared the check for encashment in accordance with the Philippine Clearing House Corporation (PCHC) Rules
Nov ember 16, 1994: Cabilzos representative was at Metrobank when he was asked by a bank personnel if Cabilzo had issued a
check in the amount of P91K to which he replied in negativ e
That afternoon: Cabilzo called Metrobank to reiterate that he did not issue the check
o He later discov ered that the check of P1K was altered to P91K and date was changed from Nov 24 to Nov 14.
o Cabilzo demanded that Metrobank re-credit the amount of P91,000.00 to his account
June 30, 1995: Through counsel sent a letter-demand for the amount of P90K
CA affirmed RTC: Fav ored Cablizo
ISSUE: W/N Cablizo can recover from Metrobank


HELD: YES. CA Affirmed
material alteration
o changes the items which are required to be stated under Section 1 of the Negotiable Instruments Law
Section 1. Form of negotiable instruments. - An instrument to be negotiable must conform to the following
requirements:
(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 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.
o changes the effect of the instrument
Section 125. What constitutes material alteration. Any alteration which changes:
(a) The date;
(b) The sum payable, either for principal or interest;
(c) The time or place of payment;
(d) The number or the relation of the parties;
(e) The medium or currency in which payment is to be made;
Or which adds a place of payment where no place of payment is specified, or any other change or addition which alters the effect of the
instrument in any respect is a material alteration.
In the case at bar, the check was altered so that the amount was increased from P1,000.00 to P91,000.00 and the date was
changed from 24 Nov ember 1994 to 14 Nov ember 1994.
Section 124. Alteration of instrument; effect of. Where a negotiable instrument is materially altered without the assent of all
parties liable thereon, it is av oided, except as against a party who has himself made, authorized,and assented to the
alteration and subsequent indorsers.
But when the instrument has been materially altered and is in the hands of a holder in due course not a party to the alteration, he
may enforce the payment thereof according to its original tenor.
Cabilzo was not the one who made nor authorized the alteration. Neither did he assent to the alteration by his express or implied
acts
o There is no showing that he failed to exercise such reasonable degree of diligence required of a prudent man which
could have otherwise prevented the loss.
bank must be a high degree of diligence, if not the utmost diligence
o Surprisingly, however, Metrobank failed to detect the above alterations which could not escape the attention of ev en
an ordinary person
"NINETY" is also typed differently and with a lighter ink
only 2 asterisks were placed before the amount in figures, while 3 asterisks were placed after such amount
"NINETY" are likewise a little bigger when compared with the letters of the words "ONE THOUSAND PESOS ONLY"
When the drawee bank pays a materially altered check, it v iolates the terms of the check, as well as its duty to charge its clients
account only for bona fide disbursements he had made.
The corollary liability of Westmont Ban's indorsement, if any, is separate and independent from the liability of Metrobank to
Cabilzo.

ASSOCIATED BANK v CA
Negot i able Inst rument s Law 208 SCRA 465 Crossed Checks Effect s of Crossi ng Checks
Merle Reyes is a businesswoman who was issued 6 checks by her customers as payments for her serv ices. The 6 checks are crossed checks
which on their faces are written: Payees account only. The checks never reached the hands of Reyes. Instead, a certain Rafael Sayson
got hold of the checks and had them deposited, and subsequently encashed, from his deposit account with Associated Bank.
Reyes demanded refund from Associated Bank as she av erred that those checks are crossed checks and should have only be deposited
with Reyes account which is with Prudential Bank. Associated Bank argued that the checks were indorsed to Sayson by Reyess husband,
Eddie Reyes.
ISSUE: Whether or not Associated Bank should refund the 6 checks.
HELD: Yes. The six checks in the case at bar had been crossed and issued for payees account only. This could only signify that t he
drawers (Reyes clients) had intended the same for deposit only by the person indicated, to wit, Merle Reyes.
The court also elucidated the effects of crossing a check namely:
1. that the check may not be encashed but only deposited in the bank;
2. that the check may be negotiated only once to one who has an account with a bank; and
3. that the act of crossing the check serv es as a warning to the holder that the check has been issued for a definite purpose so that
he must inquire if he has receiv ed the check pursuant to that purpose.
On the other hand, even if indeed Eddie Reyes indorsed the checks, Associated Bank is still liable because in the first place, the husband is
not authorized to make indrosements. And ev en if the endorsements were forged, as alleged, Associated Bank would still be liable to Reyes
for not v erifying the endorsers authority. There is no substantial difference between an actual forging of a name to a check as an
endorsement by a person not authorized to make the signature and the affixing of a name to a check as an endorsement by a per son not
authorized to endorse it.
ILUSORIO v CA



Samsung Construction v. Far East Bank (August 15, 2004)
Post under case digests, Commercial Law at Monday, February 20, 2012 Posted by Schizophrenic Mind
Facts: Samsung Construction held an account with Far East Bank. One day a check worth 900,000, payable to cash, was presented by one
Roberto Gonzaga in the Makati Branch of Far East Bank. The check was certified to be true by Jose Sempio, the assistant accountant of
Samsung, who was also present during the time the check was cashed. Later howev er it was discov ered that no such check was ev er
approv ed by the Samsungs head accountant, the president of the company also nev er 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 inoperativ e. If payment is made the drawee (Far East) cannot charge it to the drawers account (Samsung). The fact that the forgery
is clev er is immaterial. The forged signature may so closely resemble the genuine as to defy detection by the depositor himself. And yet, if the
bank pays the check, it is paying out with its own money and not of the depositors. This rule of liability can be stated bri efly in these words:
A bank is bound to know its depositors signature. The accusation of negligence on the part of Samsung was not clearly prov en. Absence
of proof to the contrary, the presumption is that the ordinary course of business was followed.
GEMPESAW v CA
Negot i able Inst rument s Law Li abi li t i es of Part i es 218 SCRA 682 Forgery Forged Indorsement s
Nativ idad Gempesaw is a businesswoman who entrusted to her bookkeeper, Alicia Galang, the preparation of checks about to be i ssued
in the course of her business transactions. From 1984 to 1986, 82 checks amounting to P1,208,606.89, were prepared and were supposed to
be deliv ered to Gempesaws clients as payees named thereon. However, through Galang, these checks were never delivered to the
supposed payees. Instead, the checks were fraudulently indorsed to Alfredo Romero and Benito Lam.
ISSUE: Whether or not the bank should refund the money lost by reason of the forged indorsements.
HELD: No. Gempesaw cannot set up the defense of forgery by reason of her negligence. As a rule, a drawee bank (in this case the
Philippine Bank of Communications) who has paid a check on which an indorsement has been forged cannot charge the drawers
(Gempesaws) account for the amount of said check. An exception to this rule is where the drawer is guilty of such negligence which
causes the bank to honor such a check or checks. If a check is stolen from the payee, it is quite obv ious that the drawer cannot possibly
discov er the forged indorsement by mere examination of his cancelled check. A different situation arises where the indorsement was
forged by an employee or agent of the drawer, or done with the active participation of the latter.
The negligence of a depositor which will prevent recovery of an unauthorized payment is based on failure of the depositor to act as a
prudent businessman would under the circumstances. In the case at bar, Gempesaw relied implicitly upon the honesty and loyalty of
Galang, and did not even verify the accuracy of amounts of the checks she signed against the invoices attached thereto. Furthermore,
although she regularly receiv ed her bank statements, she apparently did not carefully examine the same nor the check stubs and the
returned checks, and did not compare them with the same invoices. Otherwise, she could have easily discovered the discrepancies
between the checks and the documents serving as bases for the checks. With such discov ery, the subsequent forgeries would not have
been accomplished. It was not until two years after Galang commenced her fraudulent scheme that Gempesaw discovered that eighty-
two (82) checks were wrongfully charged to her account, at which she notified the Philippine Bank of Communications.