COM. NIL.

7) Bank of America NT & SA v. Philippine Racing Club (PRCI), G.R. No. 150228, July
30, 2009

Q: Is the bank liable for encashing a check with obvious discrepancies?
A: Yes. There is no dispute that the signatures appearing on the subject checks were
genuine signatures of the respondents authorized joint signatories. However, the
presence of the irregularities in each check should have alerted the petitioner to be cautious
before proceeding to encash them which it did not do.

Although not in the strict sense material alterations, the misplacement of the
typewritten entries for the payee and the amount on the same blank and the
repetition of the amount using a check writer were glaringly obvious irregularities
on the face of the check. Clearly, someone made a mistake in filling up the checks
and the repetition of the entries was possibly an attempt to rectify the mistake.
Also, if the check had been filled up by the person who customarily accomplishes
the checks of respondent, it should have occurred to petitioners employees that it
would be unlikely such mistakes would be made. All these circumstances should
have alerted the bank to the possibility that the holder or the person who is
attempting to encash the checks did not have proper title to the checks or did not
have authority to fill up and encash the same. As noted by the CA, petitioner could
have made a simple phone call to its client to clarify the irregularities and the loss
to respondent due to the encashment of the stolen checks would have been
prevented.

It is well-settled that banks are engaged in a business impressed with public
interest, and it is their duty to protect in return their many clients and depositors
who transact business with them. They have the obligation to treat their clients
account meticulously and with the highest degree of care, considering the fiduciary
nature of their relationship. The diligence required of banks, therefore, is more than
that of a good father of a family.

FACTS:

PRCI maintains several accounts, one of which is with petitioner BA. The
authorized joint signatories with respect to said account were PRCIs President
(Antonia Reyes) and VP for Finance (Gregorio Reyes). Both of them were
scheduled to go out of the country sometime later in connection with the
corporation‘s business.

In order not to disrupt operations in their absence, they pre-signed several checks
relating to their account with BA. The intention was to insure continuity of PRCI‘s
operations by making available cash/money especially to settle obligations that
might become due. These checks were entrusted to the accountant with instruction
to make use of the same as the need arose. The internal arrangement was, in the
event there was need to make use of the checks, the accountant would prepare
the corresponding voucher and thereafter complete the entries on the pre-signed
checks.

However, it turned out later that a John Doe (later found out to be Clarita Mesina,
an employee of PRCI) presented to BA for encashment 2 checks of PRCI, each
with an indicated value of P110,000. These checks were among those pre-signed
by the authorized signatories of PRCI.

The 2 checks had similar entries with similar infirmities and irregularities. On
the space where the name of the payee should be indicated the following 2-line
entries were instead typewritten: on the upper line was the word ―CASH while the
lower line had the following typewritten words, viz: ―ONE HUNDRED TEN
THOUSAND PESOS ONLY.

Q: In defense of its cashier/tellers questionable action, petitioner insists that
pursuant to Sections 14 and 16 of the NIL, it could validly presume, upon
presentation of the checks, that the party who filled up the blanks had authority and
that a valid and intentional delivery to the party presenting the checks had taken
place. Thus, in petitioners view, the sole blame for this debacle should be shifted to
respondent for having its signatories pre-sign and deliver the subject checks.
Petitioner argues that there was indeed delivery in this case because, following
American jurisprudence, the gross negligence of respondents accountant in
safekeeping the subject checks which resulted in their theft should be treated as a
voluntary delivery by the maker who is estopped from claiming non-delivery of the
instrument. Is this contention correct?
A: No. Petitioners contention would have been correct if the subject checks were correctly
and properly filled out by the thief and presented to the bank in good order. In that instance,
there would be nothing to give notice to the bank of any infirmity in the title of the holder of
the checks and it could validly presume that there was proper delivery to the holder. The
bank could not be faulted if it encashed the checks under those circumstances. However,
the undisputed facts plainly show that there were circumstances that should have alerted
the bank to the likelihood that the checks were not properly delivered to the person who
encashed the same.

CASH
Pay To The Order Of:
ONE HUNDRED TEN THOUSAND PESOS ONLY

Despite all these irregularities/infirmities and the substantial amount involved, BA
never even verified or confirmed the legitimacy of the checks. Not even a
verification process or a phone call was made. Neither was there a transaction by
PRCI that calls for payment of P220,000. Hence PRCI demanded payment from
BA which fell to deaf-ears. Hence PRCI filed the complaint.

ISSUES: whether the proximate cause of the wrongful encashment of the checks in
question was due to (a) petitioners failure to make a verification regarding the said checks
with the respondent in view of the misplacement of entries on the face of the checks or (b)
the practice of the respondent of pre-signing blank checks and leaving the same with its
employees.
HELD: Petition is dismissed with modifactions

1

In instances where both parties are at fault.T. To reiterate. As the employer of the thief. o For their purchases.T. the spouses Tank. the bank required E. 31600 is hereby AFFIRMED with MODIFICATION. (E. the Court of Appeals affirmed the decision of the lower court in toto.  In all. Hi-Cement (including its general manager and treasurer). even if we concur that the latter was indeed negligent in pre-signing blank checks. Insular Bank G. petitioner will still emerge as the party foremost liable in this case. Henry. the assailed decision of the Court of Appeals in CA-G. purportedly a clerk in respondents accounting department. this Court has consistently applied the doctrine of last clear chance in order to assign liability. we see no reason to depart from the finding in the assailed CA Decision that the subject checks are properly characterized as incomplete and undelivered instruments thus making Section 15 of the NIL applicable in this case. it is but just that respondent shares in the responsibility for the loss. E. notwithstanding such fact. Upon appeal. petitioner Hi-Cement Corporation is discharged from any liability. o So were the checks of Riverside and Kanebo. We agree with the lower courts that both the general manager and treasurer of Hi-Cement were authorized to issue the subjects checks. respondent could not be considered a holder in due course.    Q: In light of respondent’s contributory negligence.T. Henry and the bank were into "re-discounting" of checks. Henry which the latter.T. However.T. Inc. that the deed of assignment bore only the signature of the treasurer. and c. Verily.R. and Kanebo Cosmetics Philippines. the former had the last clear chance to avoid the loss. E. petitioner cannot evade responsibility for the loss by attributing negligence on the part of respondent because. [aka: to encash. This gives the Court more reason to allocate part of the loss to respondent. Henry & Co.T. 132403 (2007) Facts:  Spouses Enrique and Lilia Tan were controlling stockholder of E. that the bank was not a holder in due course as it should not have discounted them for being "crosses checks. petitioner had the final opportunity to avert the injury that befell the respondent. Henry & Co. respondent would expectedly take the blame for the entire loss since the defense of forgery of a drawers signature(s) would be unavailable to it.R. It should have occurred to respondents officers and managers that the pre-signed blank checks could fall into the wrong hands as they did in this case where the said checks were stolen from the company accountant to whom the checks were entrusted. its general manager and treasurer were not authorized to issue the postdated crossed checks. NIL.   Cement).T. was able to re-discount with respondent. CV No. V. Riverside and Kanebo. Only petitioner E. Inc. 8) Hi-Cement Corp." The lower court decided in favor of the bank and against E. The bank filed a complaint for sum of money against E. Insular Bank of Asia and America (the Bank) granted E. Henry was able to re-discount its clients' checks (with deed of assignment) with the bank. the postdated checks of its clients] o For every transaction.  Nevertheless. Henry) which was engaged in the business of processing and distributing bunker fuel. However. No. o From 1979 to 1981. we do agree with petitioner that respondents officers practice of pre-signing of blank checks should be deemed seriously negligent behavior and a highly risky means of purportedly ensuring the efficient operation of businesses. b. 40% should be shouldered by the respondents  We also cannot ignore the fact that the person who stole the pre-signed checks subject of this case from respondents accountant turned out to be another employee." o In this arrangement.  Indeed. Riverside and Kanebo. (Kanebo). However. if not for the fortunate happenstance that the thief failed to properly fill up the subject checks. Henry a credit facility known as "Purchase of Short Term Receivables. must they bear a certain percentage of the loss? A: Yes.T. Both the trial court and the CA concluded that Hi-Cement authorized its general manager and treasurer to issue the subject postdated crossed checks.COM.  In the case at bar. ALL THE CHECKS were dishonored o 20 checks of Hi-Cement (which were crossed and which bore the restriction "deposit to payee's account only") were dishonored. Correct? A: Not entirely. with pre-deducted interest.. ISSUE: Did CA err in affirming RTC? HELD: WHEREFORE.T. Q: Does the general manager and treasurer of hi-cements have authority to issue the postdated crossed checks? A: Yes. in turn. even if we assume that both parties were guilty of negligent acts that led to the loss. Considering that respondent knowingly took the risk that the pre-signed blank checks might fall into the hands of wrongdoers. Henry to execute a promissory note and a deed of assignment bearing the conformity of the client to the re-discounting. Henry. Accordingly. is ORDERED to pay. respondent supposedly had control and supervision over its own employee. Riverside Mills Corporation (Riverside). They both held that Hi-Cement was already estopped from denying such authority since it never objected to the signatories' issuance of all previous checks to E.  Q: Petitioner insists that respondents are to take blame because of their careless acts of leaving with their accountant pre-signed blank checks. Hi-Cement filed an answer alleging that: a.T. Among the company's customers were Hi-Cement Corporation (Hi- 2 . Hi-Cement. petitioners own operations manager admitted that they could have called up the client for verification or confirmation before honoring the dubious checks. these corporation issued postdated checks.

the payee named therein. the President of RYL (Lim) asked his friend (Limson) to accommodate the former by issuing a check. in the absence of due presentment. they could not be further negotiated to it) (d) at the time it was negotiated to him. o They were acquitted on the ground that the check in question was not issued by the drawer "to apply on account for value.  Four years after the issuance of the check. o It is then settled that crossing of checks should put the holder on inquiry and upon him devolves the duty to ascertain the indorsers title to the check or the nature of his possession. Inc. go after? A: The NIL does not absolutely bar a holder who is not a holder in due course from recovering on the checks. the last two requirements were not met. CA June 1992 Facts:  STELCO sold quantities of steel bars and rolls of G. specially so where the checks it dealt with were crossed. the consensus of authority is to the effect that the holder of the check is not a holder in due course. Intermediate Appellate Court. Such party may recover from the party who indorsed/encashed the checks if the latter has no valid excuse for refusing payment. the subject checks were crossed and bore restrictions that they were for deposit to payee's account only. who can the bank. the check came to the hands of Stelco.) where Limson was the president. the holder is not a holder in due course. i.. To wit: (c) he took it in good faith and for value  Since. We ruled that: The three subject checks in the case at bar had been crossed which could only mean that the drawer had intended the same for deposit only by the rightful person. the liability did not attach to the drawer of the checks.  In the case at bar. the drawer of the postdated crossed checks was not liable to the holder who was deemed not a holder in due course. Since E.T.T. the holder (although not a HDC) of the checks. he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it  Since respondent completely disregarded a telling sign of irregularity in the re-discounting of the checks when the general manager did not acquiesce to it as only the treasurer's signature appeared on the deed of assignment. Henry had no justification to refuse payment. w/c sought to enforce payment. it was not the payee who presented the same for payment and therefore. Q: Is the respondent bank a HDC? (with regard to the discounting arrangement) A: No.  Bataan Cigar Case (case where cross checks sold on discount as well): In order to preserve the credit worthiness of checks. the holder is declared guilty of gross negligence amounting to legal absence of good faithand as such.  Stelco filed a complaint for recovery of a sum of money against RYL and Steelweld  RYL could no longer be located so Steelweld was the only one that filed an Answer Q: How can a person who receives a cross-check be a HDC? A: Determine the purpose for which the cross-check was given. Apparently. Q: Was there a proper presentment to respondent bank to make Hi-Cement liable? (in other words. In the case at bar. 9) Stelco Marketing Coproration v. claiming that it was a holder for value because it had possession of the check. there was no proper presentment. The judgment however conditioned the acquittal with the following pronouncement: This is not however to release Steelweld Corporation from its liability under Sec.  Absent any of the elements set forth in Section 52. which is described as the “sister coproration” and “manufacturing arm” of Stelco  Indorsed by Armstrong and RYL. we deemed that its presentment to the drawee bank was not proper. Henry (as payee therein) fails to convince us.e.I. respondent's claim that it acted in good faith when it accepted and discounted Hi-Cements postdated crossed checks from E. the drawer did not become liable. result. thus. there was no doubt that it was E. jurisprudence has pronounced that crossing of a check should have the following effects: (a) the check may not be encashed but only deposited in the bank.  Here. he is not a holder in due course. Failing in this respect.859. (c) the act of crossing the checks serves as warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose.  Later. Inc. (SIHI) v. it should pay respondent. Its business is impressed with public interest. Q: Does this mean that a person who is not a HDC cannot recover at all? In this case. when it presented the checks for deposit.61 o but the latter failed to pay for these  Later. hence. is the drawer of the postdated crossed checks liable to the holder who was deemed not a holder in due course?) A: No. it was not expected to be careless and negligent. Thus. however.COM. SIHI rediscounted crossed checks and was declared not a holder in due course. wire to RYL Construction. Henry that re-discounted Hi-Cement's checks and received their value from respondent. one way or another. otherwise. RYL gave the check to Armstrong Industries.  In State Investment House. Armstrong deposited the check at its bank but this was dishonored due to insufficiency of funds  The drawers were charged by Armstrong with a violation of BP 22 . it behooved respondent to act with extraordinary diligence in every transaction. Good faith becomes inconsequential amidst proof of respondent's grossly negligent conduct in dealing with the subject checks. and the liability did not attach to the drawer. 29 of the Negotiable Instruments Law for having issued it for the accommodation of Romeo Lim.T. which was made out in the amount the same as the obligation due to Stelco  The check was a company check (Steelweld Corporation of the Phil. As a 3 ." it being merely for accommodation purposes.  As a banking institution. for P126. (b) the check may be negotiated only once to one who has an account with a bank [and]. NIL. hence.

The authorized joint signatories with respect to said account were PRCIs President (Antonia Reyes) and VP for Finance (Gregorio Reyes).Y. (4) Armstrong deposited the check to its account. On the space where the name of the payee should be indicated the following 2-line entries were instead typewritten: on the upper line was the word ―CASH while the lower line had the following typewritten words. Q: What is the effect of possession of a negotiable instrument after presentment and dishonor? A: Possession of a negotiable instrument after presentment and dishonor. it turned out later that a John Doe (later found out to be Clarita Mesina. or payment. The intention was to insure continuity of PRCI‘s operations by making available cash/money especially to settle obligations that might become due. or any communication of any sort between STEELWELD and STELCO.COM. or indorsed to it in any manner or form in payment of an obligation or as security for an obligation. o There is no evidence whatsoever that the check was ever given to it. in the event there was need to make use of the checks. Q: Is STELCO a HDC? A: No.  However. and without notice that it had been previously dishonored. i. These checks were entrusted to the accountant with instruction to make use of the same as the need arose. No. Both of them were scheduled to go out of the country sometime later in connection with the corporation‘s business. July 30. 150228. indorsee or depositor thereof o The record does show that after the check had been deposited and dishonored. 765380 ever dated back to any time before the instrument's presentment and dishonor. STELCO came into possession of it in some way. each with an indicated value of P110. or for any other purpose before it was presented for payment." (3) in breach of the agreement. (2) they had notice that it had already been dishonored. at the time of taking the instrument. It did not become "the holder of it before it was overdue. It does not meet two of the essential requisites prescribed by the statute. and was able. R. STELCO cannot be deemed a holder of the check for value. or between either of them and Armstrong Industries.  In order not to disrupt operations in their absence. an employee of PRCI) presented to BA for encashment 2 checks of PRCI. the defendant Steelweld thru its President Peter Rafael Limson admitted to have issued a check payable to cash in favor of his friend Romeo Lim who was the President of RYL Construction by way of accommodation.. 7) Bank of America NT & SA v. it gives rise to no liability on the part of the maker or drawer and indorsers. WHEREFORE. the petition is DENIED and the Decision of the Court of Appeals affirmed In sum. Lim indorsed the check to Armstrong in payment of obligation. Philippine Racing Club (PRCI). Lim. Q: Can a person be a HDC despite knowing that the party is only an accommodation party? A: Yes."  What the record shows is that: (1) the STEELWELD company check in question was given by its president to R. G. and (3) they did not take the check in good faith and for value.e. has no application. the check’s intended indorsee was Armstrong.000. it does not make the possessor a holder for value within the meaning of the law. CASH Pay To The Order Of: ONE HUNDRED TEN THOUSAND PESOS ONLY 4 . several years after the dishonor of the check. there is no evidence whatever that STELCO's possession of Check No.R. to be "used as collateral for another obligation. however. after indorsing it. lack of notice of any infirmity in the instruments or defect in title of the persons negotiating it. they pre-signed several checks relating to their account with BA. NIL. Stelco never became a holder for value. These checks were among those pre-signed by the authorized signatories of PRCI. (5) the check was dishonored. (2) it was given only by way of accommodation. 2009 FACTS:  PRCI maintains several accounts. nor a holder in due course because (1) the check was already overdue several years back. the fourth condition. Stelco was never a party to the instrument. o Nowhere in the check itself does the name of Stelco Marketing appear as payee."  In this case.   The RTC ruled in favor of Stelco but the CA reversed this ISSUE: WON STELCO ever became a holder in due course HELD: No. Under the NIL an accommodation party is liable. one of which is with petitioner BA.  The 2 checks had similar entries with similar infirmities and irregularities." and it did not take the check "in good faith and for value. knew him to be only an accommodation party. As regards an accommodation party (such as STEELWELD).Y. This is because Section 29 of the NIL preserves the right of recourse of a "holder for value" against the accommodation party notwithstanding that "such holder. It is also neither a holder for value. The internal arrangement was. the accountant would prepare the corresponding voucher and thereafter complete the entries on the pre-signed checks. at any time before the dishonor of the check. o The trouble is. The record does not show any intervention or participation by STELCO in any manner of form whatsoever in these transactions. viz: ―ONE HUNDRED TEN THOUSAND PESOS ONLY. is utterly inconsequential or insignificant.

In that instance. As the employer of the thief.  Indeed. petitioner will still emerge as the party foremost liable in this case. purportedly a clerk in respondents accounting department. petitioner could have made a simple phone call to its client to clarify the irregularities and the loss to respondent due to the encashment of the stolen checks would have been prevented. we do agree with petitioner that respondents officers practice of pre-signing of blank checks should be deemed seriously negligent behavior and a highly risky means of purportedly ensuring the efficient operation of businesses. It should have occurred to respondents officers and managers that the pre-signed blank checks could fall into the wrong hands as they did in this case where the said checks were stolen from the company accountant to whom the checks were entrusted. it could validly presume. the gross negligence of respondents accountant in safekeeping the subject checks which resulted in their theft should be treated as a voluntary delivery by the maker who is estopped from claiming non-delivery of the instrument. even if we assume that both parties were guilty of negligent acts that led to the loss. NIL. As noted by the CA. Clearly. Despite all these irregularities/infirmities and the substantial amount involved.COM. if the check had been filled up by the person who customarily accomplishes the checks of respondent. Not even a verification process or a phone call was made. even if we concur that the latter was indeed negligent in pre-signing blank checks. HELD: Petition is dismissed with modifactions Q: Is the bank liable for encashing a check with obvious discrepancies? A: Yes. following 5 . the presence of the irregularities in each check should have alerted the petitioner to be cautious before proceeding to encash them which it did not do. considering the fiduciary nature of their relationship. and it is their duty to protect in return their many clients and depositors who transact business with them. the misplacement of the typewritten entries for the payee and the amount on the same blank and the repetition of the amount using a check writer were glaringly obvious irregularities on the face of the check. petitioner insists that pursuant to Sections 14 and 16 of the NIL. Q: In light of respondent’s contributory negligence. Correct? A: Not entirely.  In the case at bar. Verily. However. the undisputed facts plainly show that there were circumstances that should have alerted the bank to the likelihood that the checks were not properly delivered to the person who encashed the same.  It is well-settled that banks are engaged in a business impressed with public interest. there would be nothing to give notice to the bank of any infirmity in the title of the holder of the checks and it could validly presume that there was proper delivery to the holder. This gives the Court more reason to allocate part of the loss to respondent. Hence PRCI demanded payment from BA which fell to deaf-ears. In instances where both parties are at fault. therefore. petitioners own operations manager admitted that they could have called up the client for verification or confirmation before honoring the dubious checks. They have the obligation to treat their clients account meticulously and with the highest degree of care. we see no reason to depart from the finding in the assailed CA Decision that the subject checks are properly characterized as incomplete and undelivered instruments thus making Section 15 of the NIL applicable in this case. it should have occurred to petitioners employees that it would be unlikely such mistakes would be made. Thus. must they bear a certain percentage of the loss? A: Yes. petitioner had the final opportunity to avert the injury that befell the respondent. petitioner cannot evade responsibility for the loss by attributing negligence on the part of respondent because. in petitioners view. the sole blame for this debacle should be shifted to respondent for having its signatories pre-sign and deliver the subject checks. ISSUES: whether the proximate cause of the wrongful encashment of the checks in question was due to (a) petitioners failure to make a verification regarding the said checks with the respondent in view of the misplacement of entries on the face of the checks or (b) the practice of the respondent of pre-signing blank checks and leaving the same with its employees. Neither was there a transaction by PRCI that calls for payment of P220. All these circumstances should have alerted the bank to the possibility that the holder or the person who is attempting to encash the checks did not have proper title to the checks or did not have authority to fill up and encash the same.  In all. Also. However. The bank could not be faulted if it encashed the checks under those circumstances. There is no dispute that the signatures appearing on the subject checks were genuine signatures of the respondents authorized joint signatories.  Although not in the strict sense material alterations. The diligence required of banks. Hence PRCI filed the complaint. upon presentation of the checks. the former had the last clear chance to avoid the loss. However. that the party who filled up the blanks had authority and that a valid and intentional delivery to the party presenting the checks had taken place. Is this contention correct? A: No. respondent would expectedly take the blame for the entire loss Q: In defense of its cashier/tellers questionable action. someone made a mistake in filling up the checks and the repetition of the entries was possibly an attempt to rectify the mistake.  American jurisprudence. respondent supposedly had control and supervision over its own employee. BA never even verified or confirmed the legitimacy of the checks. To reiterate. is more than that of a good father of a family. Petitioners contention would have been correct if the subject checks were correctly and properly filled out by the thief and presented to the bank in good order. this Court has consistently applied the doctrine of last clear chance in order to assign liability. 40% should be shouldered by the respondents  We also cannot ignore the fact that the person who stole the pre-signed checks subject of this case from respondents accountant turned out to be another employee.000. if not for the fortunate happenstance that the thief failed to properly fill up the subject checks. Petitioner argues that there was indeed delivery in this case because. Q: Petitioner insists that respondents are to take blame because of their careless acts of leaving with their accountant pre-signed blank checks.  Nevertheless.

No. Henry & Co. o It is then settled that crossing of checks should put the holder on inquiry and upon him devolves the duty to ascertain the indorsers title to the ISSUE: Did CA err in affirming RTC? HELD: WHEREFORE. it was not expected to be careless and negligent. was able to re-discount with respondent. Riverside and Kanebo.T. 8) Hi-Cement Corp. Accordingly.T. that the bank was not a holder in due course as it should not have discounted them for being "crosses checks.T.. Henry) which was engaged in the business of processing and distributing bunker fuel. he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it  Since respondent completely disregarded a telling sign of irregularity in the re-discounting of the checks when the general manager did not acquiesce to it as only the treasurer's signature appeared on the deed of assignment. 31600 is hereby AFFIRMED with MODIFICATION. (c) the act of crossing the checks serves as warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose."  The lower court decided in favor of the bank and against E. Inc.T.T. the last two requirements were not met. Q: How can a person who receives a cross-check be a HDC? A: Determine the purpose for which the cross-check was given. Hi-Cement (including its general manager and treasurer). they could not be further negotiated to it) (d) at the time it was negotiated to him. he is not a holder in due course.R. [aka: to encash. hence. Its business is impressed with public interest. (b) the check may be negotiated only once to one who has an account with a bank [and]. Henry to execute a promissory note and a deed of assignment bearing the conformity of the client to the re-discounting. respondent could not be considered a holder in due course.T. is ORDERED to pay. with pre-deducted interest. the subject checks were crossed and bore restrictions that they were for deposit to payee's account only.  As a banking institution. e. Hi-Cement.  Bataan Cigar Case (case where cross checks sold on discount as well): In order to preserve the credit worthiness of checks. CV No. the spouses Tank. specially so where the checks it dealt with were crossed. Henry (as payee therein) fails to convince us. Insular Bank G. Henry was able to re-discount its clients' checks (with deed of assignment) with the bank. However. thus. 132403 (2007) Facts:  Spouses Enrique and Lilia Tan were controlling stockholder of E. E. respondent's claim that it acted in good faith when it accepted and discounted Hi-Cements postdated crossed checks from E. Henry which the latter. o From 1979 to 1981. notwithstanding such fact. that the deed of assignment bore only the signature of the treasurer. petitioner Hi-Cement Corporation is discharged from any liability. Inc.T.  In the case at bar. its general manager and treasurer were not authorized to issue the postdated crossed checks. Q: Does the general manager and treasurer of hi-cements have authority to issue the postdated crossed checks? A: Yes. Only petitioner E. Henry.T. the assailed decision of the Court of Appeals in CA-G. E. the holder is not a holder in due course. Good faith becomes inconsequential amidst proof of respondent's grossly negligent conduct in dealing with the subject checks.T.  Insular Bank of Asia and America (the Bank) granted E. o So were the checks of Riverside and Kanebo. Henry and the bank were into "re-discounting" of checks.  The bank filed a complaint for sum of money against E. Both the trial court and the CA concluded that Hi-Cement authorized its general manager and treasurer to issue the subject postdated crossed checks.  Upon appeal. We agree with the lower courts that both the general manager and treasurer of Hi-Cement were authorized to issue the subjects checks.R. since the defense of forgery of a drawers signature(s) would be unavailable to it.  Hi-Cement filed an answer alleging that: d.COM. and Kanebo Cosmetics Philippines. the Court of Appeals affirmed the decision of the lower court in toto. (Kanebo). the bank required E. o For their purchases. Considering that respondent knowingly took the risk that the pre-signed blank checks might fall into the hands of wrongdoers. (E. ALL THE CHECKS were dishonored o 20 checks of Hi-Cement (which were crossed and which bore the restriction "deposit to payee's account only") were dishonored. In the case at bar. NIL.  However. To wit: (c) he took it in good faith and for value  Since. it behooved respondent to act with extraordinary diligence in every transaction. jurisprudence has pronounced that crossing of a check should have the following effects: (a) the check may not be encashed but only deposited in the bank.T.  Absent any of the elements set forth in Section 52. the postdated checks of its clients] o For every transaction. 6 . it is but just that respondent shares in the responsibility for the loss. V. in turn.T. Henry a credit facility known as "Purchase of Short Term Receivables. Among the company's customers were Hi-Cement Corporation (HiCement). Riverside Mills Corporation (Riverside). otherwise. Henry & Co. They both held that Hi-Cement was already estopped from denying such authority since it never objected to the signatories' issuance of all previous checks to E. Q: Is the respondent bank a HDC? (with regard to the discounting arrangement) A: No. Riverside and Kanebo. Henry. and f. these corporation issued postdated checks." o In this arrangement.

and without notice that it had been previously dishonored.61 o but the latter failed to pay for these  Later. Intermediate Appellate Court.859. the drawer of the postdated crossed checks was not liable to the holder who was deemed not a holder in due course. Inc. WHEREFORE. the holder (although not a HDC) of the checks. (5) the check was dishonored. R. Stelco filed a complaint for recovery of a sum of money against RYL and Steelweld RYL could no longer be located so Steelweld was the only one that filed an Answer The RTC ruled in favor of Stelco but the CA reversed this o Q: Was there a proper presentment to respondent bank to make Hi-Cement liable? (in other words.) where Limson was the president." it being merely for accommodation purposes. the consensus of authority is to the effect that the holder of the check is not a holder in due course. it should pay respondent. the President of RYL (Lim) asked his friend (Limson) to accommodate the former by issuing a check. lack of notice of any infirmity in the instruments or defect in title of the persons negotiating it.  Later. Apparently. when it presented the checks for deposit. Inc. They were acquitted on the ground that the check in question was not issued by the drawer "to apply on account for value.Y. Henry that re-discounted Hi-Cement's checks and received their value from respondent. Armstrong deposited the check at its bank but this was dishonored due to insufficiency of funds  The drawers were charged by Armstrong with a violation of BP 22 . hence. is the drawer of the postdated crossed checks liable to the holder who was deemed not a holder in due course?) A: No. and the liability did not attach to the drawer. Since E. there was no doubt that it was E. 29 of the Negotiable Instruments Law for having issued it for the accommodation of Romeo Lim. SIHI rediscounted crossed checks and was declared not a holder in due course. it was not the payee who presented the same for payment and therefore. (SIHI) v.. which was made out in the amount the same as the obligation due to Stelco  The check was a company check (Steelweld Corporation of the Phil. go after? A: The NIL does not absolutely bar a holder who is not a holder in due course from recovering on the checks. As a result. the payee named therein. The judgment however conditioned the acquittal with the following pronouncement: This is not however to release Steelweld Corporation from its liability under Sec. or any communication of any sort between STEELWELD and STELCO. Q: Does this mean that a person who is not a HDC cannot recover at all? In this case.e.Y. The record does not show any intervention or participation by STELCO in any manner of form whatsoever in these transactions.. Lim. Failing in this respect. to be "used as collateral for another obligation. i. the drawer did not become liable. who can the bank. knew him to be only an accommodation party. Thus.T. We ruled that: The three subject checks in the case at bar had been crossed which could only mean that the drawer had intended the same for deposit only by the rightful person.COM." and it did not take the check "in good faith and for value.  Here. or between either of them and Armstrong Industries. check or the nature of his possession.I.     ISSUE: WON STELCO ever became a holder in due course HELD: No. STELCO cannot be deemed a holder of the check for value. 9) Stelco Marketing Coproration v. w/c sought to enforce payment. Lim indorsed the check to Armstrong in payment of obligation. one way or another. i. 7 . RYL gave the check to Armstrong Industries. for P126. NIL."  In this case. the liability did not attach to the drawer of the checks. It did not become "the holder of it before it was overdue. the defendant Steelweld thru its President Peter Rafael Limson admitted to have issued a check payable to cash in favor of his friend Romeo Lim who was the President of RYL Construction by way of accommodation.T. Henry had no justification to refuse payment. however. the holder is declared guilty of gross negligence amounting to legal absence of good faithand as such. CA June 1992 Facts:  STELCO sold quantities of steel bars and rolls of G. wire to RYL Construction. has no application. after indorsing it. in the absence of due presentment. Q: Is STELCO a HDC? A: No. As regards an accommodation party (such as STEELWELD). It does not meet two of the essential requisites prescribed by the statute. at any time before the dishonor of the check. the fourth condition. This is because Section 29 of the NIL preserves the right of recourse of a "holder for value" against the accommodation party notwithstanding that "such holder. the check came to the hands of Stelco. Under the NIL an accommodation party is liable. we deemed that its presentment to the drawee bank was not proper. which is described as the “sister coproration” and “manufacturing arm” of Stelco  Indorsed by Armstrong and RYL. (4) Armstrong deposited the check to its account. however. there was no proper presentment. at the time of taking the instrument. claiming that it was a holder for value because it had possession of the check. Four years after the issuance of the check.e." (3) in breach of the agreement.  In State Investment House. (2) it was given only by way of accommodation."  What the record shows is that: (1) the STEELWELD company check in question was given by its president to R. Such party may recover from the party who indorsed/encashed the checks if the latter has no valid excuse for refusing payment. the petition is DENIED and the Decision of the Court of Appeals affirmed Q: Can a person be a HDC despite knowing that the party is only an accommodation party? A: Yes.

the check’s intended indorsee was Armstrong. STELCO came into possession of it in some way. 765380 ever dated back to any time before the instrument's presentment and dishonor. or payment. o Nowhere in the check itself does the name of Stelco Marketing appear as payee. NIL. there is no evidence whatever that STELCO's possession of Check No. It is also neither a holder for value. o There is no evidence whatsoever that the check was ever given to it. it does not make the possessor a holder for value within the meaning of the law. Stelco was never a party to the instrument. it gives rise to no liability on the part of the maker or drawer and indorsers. 8 . several years after the dishonor of the check. o  Q: What is the effect of possession of a negotiable instrument after presentment and dishonor? A: Possession of a negotiable instrument after presentment and dishonor. or indorsed to it in any manner or form in payment of an obligation or as security for an obligation. The trouble is. and was able. indorsee or depositor thereof o The record does show that after the check had been deposited and dishonored. In sum. or for any other purpose before it was presented for payment. (2) they had notice that it had already been dishonored. and (3) they did not take the check in good faith and for value. Stelco never became a holder for value. nor a holder in due course because (1) the check was already overdue several years back. is utterly inconsequential or insignificant.COM.