V.

Consideration
65 SCRA 680 Mercantile Law Negotiable Instruments Law Consideration Forgery Liability of
Accommodation Party
On January 15, 1963, the Bureau of Treasury issued a back pay check to Martin Lorenzo in the amount of
P1,246.08. The drawee named therein was Republic Bank. The check was subsequently indorsed to Ramon
Lorenzo, then to Delia Dominguez and then to Mauricia Ebrada. Ebrada encashed the check with the Republic
Bank. Republic Bank paid the amount of the check to Ebrada. Ebrada, upon receiving the cash, gave it to
Dominguez; Dominguez in turn gave the cash to Ramon Lorenzo.
Later, the Bureau of Treasury notified that the check was a forgery because the payee named therein (Martin
Lorenzo) was actually dead 11 years ago before the check was issued. Republic Bank refunded the amount to
the Bureau of Treasury. The bank then demanded Ebrada to refund them.
ISSUE: Whether or not Republic Bank may recover from Ebrada.
HELD: Yes. Ebrada, being the last indorser, warranted the genuineness of the signatures of the payee and the
previous indorsers. The drawee bank is not duty bound to ascertain whether or not the signatures of the
payee and the indorsers are genuine. One who purchases a check or draft is bound to satisfy himself that the
paper is genuine and that by indorsing it or presenting it for payment or putting it into circulation before
presentation he impliedly asserts that he has performed his duty and the drawee (in this case Republic Bank)
who has paid the forged check, without actual negligence on his part, may recover the money paid from such
negligent purchasers.
But Ebrada did not profit from this because she, upon receiving the encashment, gave the same to
Dominguez?
She is still liable because she is considered as an accommodation party pursuant to Section 29 of the
Negotiable Instruments Law. An accommodation party is one who has signed the instrument as maker, drawer,
acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other
person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder at the
time of taking the instrument knew him to be only an accommodation party.

143 SCRA 7 Mercantile Law Negotiable Instruments Law Consideration Liability of Accommodation
Party Holder in Course
In 1955, Concepcion and Tamayo Construction Enterprise had a contract with the Bureau of Public Works. The
firm needed fund to push through with the contract so it convinced spouses Eulalio and Elisa Prudencio to
mortgage their parcel of land with the Philippine National Bank for P10,000.00. Prudencio, without
consideration, agreed and so he mortgaged the land and executed a promissory note for P10k in favor of PNB.
Prudencio also authorized PNB to issue the P10k check to the construction firm.
In December 1955, the firm executed a Deed of Assignment in favor of PNB which provides that any payment
from the Bureau of Public Works in consideration of work done (by the firm) so far shall be paid directly to
PNB this will also ensure that the loan gets to be paid off before maturity.
Notwithstanding the provision in the Deed of Assignment, the Bureau of Public Works asked PNB if it can make
the payments instead to the firm because the firm needs the money to buy construction materials to complete
the project. Notwithstanding the provision of the Deed of Assignment, PNB agreed. And so the loan matured
without PNB actually receiving any payment from the Bureau of Public Works. Prudencio, upon learning that

no payment was made on the loan, petitioned to have the mortgage canceled (to save his property from
foreclosure). The trial court ruled against Prudencio; the Court of Appeals affirmed the trial court.
ISSUE: Whether or not Prudencio should pay the promissory note to PNB.
HELD: No. PNB is not a holder in due course.
Prudencio is an accommodation party for he signed the promissory note as maker but he did not receive value
or consideration therefor. He expected the firm (accommodated party) to pay the loan this obligation was
shifted to the Bureau of Public Works by way of the Deed of Assignment). As a general rule, an
accommodation party is liable on the instrument to a holder for value/in due course, notwithstanding such
holder at the time of taking the instrument knew him to be only an accommodation party. The exception is
that if the holder, in this case PNB, is not a holder in due course. The court finds that PNB is not a holder in
due course because it has not acted in good faith (pursuant to Section 52 of the Negotiable Instruments Law)
when it waived the supposed payments from the Bureau of Public Works contrary to the Deed of Assignment.
Had the Deed been followed, the loan would have been paid off at maturity.

VI. Negotiation
326 SCRA 641 Mercantile Law Negotiable Instruments Law Negotiation Indorsement Withdrawal Slip
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 was notified 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.

VII
RIGHTS OF THE HOLDER

3 SCRA 596 Mercantile Law Negotiable Instruments Law Rights of the Holder What Constitutes a
Holder in Due Course Is a payee a holder in due course?
Matilde Gonzales was a patient of the De Ocampo Clinic owned by Vicente De Ocampo. 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 Vicente 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;
(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 as to 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 P600.00 more than the indebtedness; that why
was Manuel in possession of the check all 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.

350 SCRA 446 Mercantile Law Negotiable Instruments Law Rights of the Holder What
Constitutes a Holder in Due Course Negligence of the Collecting Bank and the Drawee Bank
There are three cases consolidated here: G.R. No. 121413 (PCIB vs CA and Ford and Citibank), G.R. No.
121479 (Ford vs CA and Citibank and PCIB), and G.R. No. 128604 (Ford vs Citibank and PCIB and CA).
G.R. No. 121413/G.R. No. 121479
In October 1977, Ford Philippines drew a Citibank check in the amount of P4,746,114.41 in favor of the
Commissioner of the Internal Revenue (CIR). The check represents Fords tax payment for the third quarter of
1977. On the face of the check was written Payees account only which means that the check cannot be

encashed and can only be deposited with the CIRs savings account (which is with Metrobank). The said check
was however presented to PCIB and PCIB accepted the same. PCIB then indorsed the check for clearing to
Citibank. Citibank cleared the check and paid PCIB P4,746,114.41. CIR later informed Ford that it never
received the tax payment.
An investigation ensued and it was discovered that Fords accountant Godofredo Rivera, when the check was
deposited with PCIB, recalled the check since there was allegedly an error in the computation of the tax to be
paid. PCIB, as instructed by Rivera, replaced the check with two of its managers checks.
It was further discovered that Rivera was actually a member of a syndicate and the managers checks were
subsequently deposited with the Pacific Banking Corporation by other members of the syndicate. Thereafter,
Rivera and the other members became fugitives of justice.
G.R. No. 128604
In July 1978 and in April 1979, Ford drew two checks in the amounts of P5,851,706.37 and P6,311,591.73
respectively. Both checks are again for tax payments. Both checks are for Payees account only or for the
CIRs bank savings account only with Metrobank. Again, these checks never reached the CIR.
In an investigation, it was found that these checks were embezzled by the same syndicate to which Rivera was
a member. It was established that an employee of PCIB, also a member of the syndicate, created a PCIB
account under a fictitious name upon which the two checks, through high end manipulation, were deposited.
PCIB unwittingly endorsed the checks to Citibank which the latter cleared. Upon clearing, the amount was
withdrawn from the fictitious account by syndicate members.
ISSUE: What are the liabilities of each party?
HELD: G.R. No. 121413/G.R. No. 121479
PCIB is liable for the amount of the check (P4,746,114.41). PCIB, as a collecting bank has been negligent in
verifying the authority of Rivera to negotiate the check. It failed to ascertain whether or not Rivera can validly
recall the check and have them be replaced with PCIBs managers checks as in fact, Ford has no knowledge
and did not authorize such. A bank (in this case PCIB) which cashes a check drawn upon another bank (in this
case Citibank), without requiring proof as to the identity of persons presenting it, or making inquiries with
regard to them, cannot hold the proceeds against the drawee when the proceeds of the checks were
afterwards diverted to the hands of a third party. Hence, PCIB is liable for the amount of the embezzled check.
G.R. No. 128604
PCIB and Citibank are liable for the amount of the checks on a 50-50 basis.
As a general rule, a bank is liable for the negligent or tortuous act of its employees within the course and
apparent scope of their employment or authority. Hence, PCIB is liable for the fraudulent act of its employee
who set up the savings account under a fictitious name.
Citibank is likewise liable because it was negligent in the performance of its obligations with respect to its
agreement with Ford. The checks which were drawn against Fords account with Citibank clearly states that
they are payable to the CIR only yet Citibank delivered said payments to PCIB. Citibank however argues that
the checks were indorsed by PCIB to Citibank and that the latter has nothing to do but to pay it. The Supreme
Court cited Section 62 of the Negotiable Instruments Law which mandates the Citibank, as an acceptor of the
checks, to engage in paying the checks according to the tenor of the acceptance which is to deliver the
payment to the payees account only.

But the Supreme Court ruled that in the consolidated cases, that PCIB and Citibank are not the only negligent
parties. Ford is also negligent for failing to examine its passbook in a timely manner which could have avoided
further loss. But this negligence is not the proximate cause of the loss but is merely contributory.
Nevertheless, this mitigates the liability of PCIB and Citibank hence the rate of interest, with which PCIB and
Citibank is to pay Ford, is lowered from 12% to 6% per annum.

145 SCRA 497 Mercantile Law Negotiable Instruments Law Rights of the Holder What
Constitutes a Holder in Due Course Stolen Check
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.
X
NOTICE OF DISHONOR

35 SCRA 140 Mercantile Law Negotiable Instruments Law Notice of Dishonor 24 Hour Clearing House
Rule
On March 8, 1965, the Philippine Long Distance Telephone Company (PLDT) drew a check against its account
with the Hongkong and Shanghai Banking Corporation (HSBC) for P14,608.05. The check was also made
payable to HSBC. PLDT mailed the check to HSBC but somehow the check wound up in the hands of one
Florentino Changco. Changco managed to erase HSBC as the payee and replaced the payees name with his
own name. He then made a check deposit with Peoples Bank and Trust Company on March 16, 1965. The
check was presented by the Peoples Bank for clearing wherein the Peoples Bank made the following
indorsement:
For clearance, clearing office. All prior endorsements and/or lack of endorsements guaranteed.

Peoples Bank and Trust Company.

The check was cleared on March 17, 1965 and Changco was able to withdraw all the money. On March 31,
1965, he closed his account with Peoples Bank.

The alteration was subsequently discovered and on April 12, 1965 or 27 days after the clearing, HSBC notified
Peoples Bank that the check was altered (hence in effect being dishonored). HSBC was asking for a refund but
Peoples Bank refused as it invoked the 24 hour clearing house rule issued by the Central Bank. HSBC argued
that the Peoples Bank is liable to refund them the amount of the check because of the guarantee that Peoples
Bank made in indorsing the check to HSBC.
ISSUE: Whether or not Peoples Bank should refund the amount of the check to HSBC.
HELD: No. The 24 hour clearing house rule applies. This rule mandates banks that after a clearing, all cleared
items must be returned not later than 3:00 PM of the following business day. Therefore, when HSBC was
sending its notice [of dishonor] to the Peoples Bank, it was already 27 days late. Further, it is a settled rule
that a person who presents for payment checks guarantees the genuineness of the check, and the drawee
bank need concern itself with nothing but the genuineness of the signature, and the state of the account with
it of the drawee. HSBC should go after Chango and not after the Peoples Bank.

200 SCRA 637 Mercantile Law Negotiable Instruments Law Notice of Dishonor Assignment of Credit
Nyco Sales Corporation has discounting privileges with BA Finance Corporation. In 1978, brothers Renato
Fernandez and Santiago Renato (officers of Sanshell Corporation) approached Nyco Sales Corporation for a
credit accommodation in order for the brothers make use of Nycos discounting privileges. Nyco Sales agreed
and so, on November 15, 1978, Sanshell issued a post-dated (November 17, 1978) BPI check to Nyco Sales in
the amount of P60,000.00. Following the discounting process agreed upon, Nyco Sales, thru its president
Rufino Yao, endorsed the check in favor of BA Finance. Thereafter, BA Finance issued a check payable to Nyco
Sales which endorsed it in favor of Sanshell. Sanshell then made use of and/or negotiated the check.
Accompanying the exchange of checks was a Deed of Assignment executed by Nyco Sales (assignor) in favor
of BA Finance (assignee) with the conformity of Sanshell. Under the said Deed, the subject of the discounting
was P60k BPI check.
The check bounced. BA Finance notified Sanshell. Sanshell substituted the BPI check with a Security Bank and
Trust Company check for P60k. This check again bounced. BA Finance made repeated demands to Nyco Sales
and Sanshell but neither of the two settled the obligation. Hence, BA Finance sued Nyco Sales. Nyco Sales
averred that it received no notice of dishonor when the second check was dishonored.
ISSUE: Whether or not Nyco Sales is liable to pay BA Finance.
HELD: Yes. The relationship between Nyco Sales and BA Finance is one of assignor-assignee. The assignorvendor warrants both the credit itself (its existence and legality) and the person of the debtor (his solvency), if
so stipulated, as in the case at bar. Consequently, if there be any breach of the above warranties, the
assignor-vendor should be held answerable therefor. There is no question then that the assignor-vendor is
indeed liable for the invalidity of whatever he assigned to the assignee-vendee. Considering now the facts of
the case at bar, it is beyond dispute that Nyco executed a deed of assignment in favor of BA Finance with
Sanshell Corporation as the debtor-obligor. BA Finance is actually enforcing said deed and the check covered
thereby is merely an incidental or collateral matter. This particular check merely evidenced the credit which
was actually assigned to BA Finance. Thus, the designation is immaterial as it could be any other check. It is
only what is represented by the said checks that Nyco is being asked to pay.
Nyco Sales pretension that it had not been notified of the fact of dishonor is belied not only by the formal
demand letter issued by BA Finance but also by the fact that Nyco Sales and Sanshell had frequent contacts
before, during and after the dishonor. More importantly, as long as the credit remains outstanding, Nyco Sales
shall continue to be liable to BA Finance as its assignor. The dishonor of an assigned check simply stresses its
liability and the failure to give a notice of dishonor will not discharge it from such liability. This is because the

cause of action stems from the breach of the warranties embodied in the Deed of Assignment, and not from
the dishonoring of the check alone.

274 SCRA 572 Mercantile Law Negotiable Instruments Law Notice of Dishonor Bouncing Checks Law
Corporate Checks Signed By Employee
Father Artelijo Palijo was investing with Premiere Investment House through the latters trader, Rosemarie
Lachenal. Through the course of his business with Premiere Investment, he was issued three Traders Royal
Bank checks in the amounts of P150k, P150k, and P26k, respectively. These checks were eventually
dishonored.
The checks, before they were issued to Palijo went through the normal procedure within Premiere investment,
to wit; First, the checks are required to be co-signed by Lina Lim Lao, a junior officer of Premiere Investment.
Second, the checks are then forwarded to her head office to be co-signed by one Teodulo Asprec. Third,
Asprec would then decide to whom the checks were to be ultimately issued and delivered, in this case to
Palijo.
Since the checks were dishonored, Palijo sent notices of dishonor to Premiere Investment but he sent the
same to the latters main office in Cubao (note that Lao and Asprec were holding office in the Binondo Branch
of Premiere Investment). Premiere Investment was only able to pay P5k and no further payment was made.
Apparently, Premiere Investment was going insolvent and was subsequently placed under receivership.
Palijo filed a criminal case against Lao and Asprec for violation of Batas Pambansa Blg. 22.
ISSUE: Whether or not Lao is guilty of the crime charged.
HELD: No. The elements of violations against BP 22 are as follows:
1. That a person makes or draws and issues any check.
2. That the check is made or drawn and issued to apply on account or for value.
3. That the person who makes or draws and issues the check knows at the time of issue that he does not have
sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment.
4. That the check is subsequently dishonored by the drawee bank for insufficiency of funds or credit, or would
have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to
stop payment.
In the present case, the fact alone that petitioner was a signatory to the checks that were subsequently
dishonored merely engenders the prima facie presumption that she knew of the insufficiency of funds, but it
does not render her automatically guilty under B.P. 22. After a thorough review of the case at bar, the SC finds
that Petitioner Lao did not have actual knowledge of the insufficiency of funds in the corporate accounts at the
time she affixed her signature to the checks involved in this case, at the time the same were issued, and even
at the time the checks were subsequently dishonored by the drawee bank. The scope of Laos duties and
responsibilities did not encompass the funding of the corporations checks; her duties were limited to the
marketing department of the Binondo branch.
Further, there can be no prima facie evidence of knowledge of insufficiency of funds in the instant case
because no notice of dishonor was actually sent to or received by Lao. Pariljo sent the notices of dishonor to
Premiere Investments main branch. The main branch did not send the notices to the Binondo branch because
it deemed it futile because at that time it knows that it does not have sufficient funds to cover the debt

anyway. Notice to the main branch does not serve as constructive notice to Lao. BP 22 is a personal crime
hence notice should have been sent to her personally if she were to be made liable.

392 SCRA 61 Mercantile Law Negotiable Instruments Law Notice of Dishonor Bouncing Checks Law
Knowledge on Insufficiency of Funds
Ben Rico is a contractor who purchases construction materials from Ever Lucky Commercial. Through the
course of his business with Ever Lucky, he issued 5 post-dated checks. The checks were dishonored due to
insufficiency of funds as well as due to closed account. Ever Lucky immediately made demands for Rico to
pay up. No formal letter of demand was sent to Rico. Ever Lucky eventually sued Rico for violation of Batas
Pambansa 22.
ISSUE: Whether or not Rico is guilty of violating BP 22.
HELD: No. The law enumerates the elements of violation of B.P. 22, namely (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 the
check in full upon its presentment; and (3) the subsequent dishonor of the check by the drawee bank for
insufficiency of funds or credit or dishonor for the same reason had not the drawer, without any valid cause,
ordered the bank to stop payment.
The prosecution only proved elements one and two in the case at bar. But it failed to prove that Rico has
knowledge of the insufficiency of funds in the drawee bank when the checks were presented for payment.
Under the law, there shall be a prima facie evidence of knowledge of insufficiency on the part of the accused
by making, drawing and issuance of a check payment of which is refused by the drawee because of insufficient
funds or credit with such bank, when presented within ninety (90) days from the date of the check. However,
this prima facie presumption shall not arise if within 5 days from receiving the notice of dishonor, the accused
shall have paid or made arrangement to pay in full.
In the case at bar, no notice of dishonor was sent to Rico hence the presumption did not arise. And so since
the presumption did not arise, it was up to the prosecution to prove Ricos knowledge of insufficiency which it
failed to do.

XII
BILLS OF EXCHANGE, CHECKS AND PROMISSORY NOTES

217 SCRA 32 Mercantile Law Negotiable Instruments Law Holder in Due Course Notice of Dishonor
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 to Victoriano. 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, Inc. 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.

350 SCRA 446 Mercantile Law Negotiable Instruments Law Rights of the Holder What Constitutes a
Holder in Due Course Negligence of the Collecting Bank and the Drawee Bank
There are three cases consolidated here: G.R. No. 121413 (PCIB vs CA and Ford and Citibank), G.R. No.
121479 (Ford vs CA and Citibank and PCIB), and G.R. No. 128604 (Ford vs Citibank and PCIB and CA).
G.R. No. 121413/G.R. No. 121479
In October 1977, Ford Philippines drew a Citibank check in the amount of P4,746,114.41 in favor of the
Commissioner of the Internal Revenue (CIR). The check represents Fords tax payment for the third quarter of
1977. On the face of the check was written Payees account only which means that the check cannot be
encashed and can only be deposited with the CIRs savings account (which is with Metrobank). The said check
was however presented to PCIB and PCIB accepted the same. PCIB then indorsed the check for clearing to
Citibank. Citibank cleared the check and paid PCIB P4,746,114.41. CIR later informed Ford that it never
received the tax payment.
An investigation ensued and it was discovered that Fords accountant Godofredo Rivera, when the check was
deposited with PCIB, recalled the check since there was allegedly an error in the computation of the tax to be
paid. PCIB, as instructed by Rivera, replaced the check with two of its managers checks.
It was further discovered that Rivera was actually a member of a syndicate and the managers checks were
subsequently deposited with the Pacific Banking Corporation by other members of the syndicate. Thereafter,
Rivera and the other members became fugitives of justice.
G.R. No. 128604
In July 1978 and in April 1979, Ford drew two checks in the amounts of P5,851,706.37 and P6,311,591.73
respectively. Both checks are again for tax payments. Both checks are for Payees account only or for the
CIRs bank savings account only with Metrobank. Again, these checks never reached the CIR.
In an investigation, it was found that these checks were embezzled by the same syndicate to which Rivera was
a member. It was established that an employee of PCIB, also a member of the syndicate, created a PCIB
account under a fictitious name upon which the two checks, through high end manipulation, were deposited.
PCIB unwittingly endorsed the checks to Citibank which the latter cleared. Upon clearing, the amount was
withdrawn from the fictitious account by syndicate members.
ISSUE: What are the liabilities of each party?
HELD: G.R. No. 121413/G.R. No. 121479

PCIB is liable for the amount of the check (P4,746,114.41). PCIB, as a collecting bank has been negligent in
verifying the authority of Rivera to negotiate the check. It failed to ascertain whether or not Rivera can validly
recall the check and have them be replaced with PCIBs managers checks as in fact, Ford has no knowledge
and did not authorize such. A bank (in this case PCIB) which cashes a check drawn upon another bank (in this
case Citibank), without requiring proof as to the identity of persons presenting it, or making inquiries with
regard to them, cannot hold the proceeds against the drawee when the proceeds of the checks were
afterwards diverted to the hands of a third party. Hence, PCIB is liable for the amount of the embezzled check.
G.R. No. 128604
PCIB and Citibank are liable for the amount of the checks on a 50-50 basis.
As a general rule, a bank is liable for the negligent or tortuous act of its employees within the course and
apparent scope of their employment or authority. Hence, PCIB is liable for the fraudulent act of its employee
who set up the savings account under a fictitious name.
Citibank is likewise liable because it was negligent in the performance of its obligations with respect to its
agreement with Ford. The checks which were drawn against Fords account with Citibank clearly states that
they are payable to the CIR only yet Citibank delivered said payments to PCIB. Citibank however argues that
the checks were indorsed by PCIB to Citibank and that the latter has nothing to do but to pay it. The Supreme
Court cited Section 62 of the Negotiable Instruments Law which mandates the Citibank, as an acceptor of the
checks, to engage in paying the checks according to the tenor of the acceptance which is to deliver the
payment to the payees account only.
But the Supreme Court ruled that in the consolidated cases, that PCIB and Citibank are not the only negligent
parties. Ford is also negligent for failing to examine its passbook in a timely manner which could have avoided
further loss. But this negligence is not the proximate cause of the loss but is merely contributory.
Nevertheless, this mitigates the liability of PCIB and Citibank hence the rate of interest, with which PCIB and
Citibank is to pay Ford, is lowered from 12% to 6% per annum.

208 SCRA 465 Mercantile Law Negotiable Instruments Law Crossed Checks Effects of Crossing
Checks
Merle Reyes is a businesswoman who was issued 6 checks by her customers as payments for her services. 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 averred 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 the 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 serves as a warning to the holder that the check has been issued for a
definite purpose so that he must inquire if he has received the check pursuant to that purpose.
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 even if the endorsements were
forged, as alleged, Associated Bank would still be liable to Reyes for not verifying 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
person not authorized to endorse it.
351 SCRA 100 Mercantile Law Negotiable Instruments Law Batas Pambansa 22 Knowledge of
Insufficiency
Luis 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, six of LPIs clients were not able to give the check
payments to Wong. Wong then made arrangements 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 five 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 presumption of knowledge of lack of funds against the drawer.
According to Wong, this element is lost by reason of the belated deposit of the 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 or dishonor 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 is presented
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.
360 SCRA 127 Mercantile Law Negotiable Instruments Law Check Payments Due Diligence in
Presenting Checks for Payment
Honor Moslares and Pio Barretto Realty Development Corporation are disputing over the estate of Nicolai
Drepin, represented by Atty. Tomas Trinidad. To settle the dispute, and while the case was in court, they
entered into a Compromise Agreement by which they agreed to have the estate in dispute be sold; that in
case Moslares was able to buy the property first, he should pay P3,000,000.00 to Barretto Realty
(representing the amount of investments by Barretto Realty in the estate); that should Barretto Realty buy the
property first, it should pay P1,000,000.00 to Moslares (representing interest). The compromise agreement
was approved by the judge (Judge Perfecto Laguio).
Barretto Realty was able to buy the property first hence it delivered a managers check worth P1,000,000.00
to Moslares but the latter refused to accept the same. Barretto Realty filed a petition before the trial court to
direct Moslares to comply with the Compromise Agreement. Barretto Realty also consigned the check payment
with the court. The judge issued a writ of execution against Moslares and the sheriff also delivered the check
to Moslares which the latter accepted. However, three years later, Moslares filed a motion for reconsideration
alleging that the check payment did not amount to legal tender and that he never even encashed the check.
The judge agreed with Moslares.
ISSUE: Whether or not the judge was correct.
HELD: No. There was already a final and executory order issued by the same judge three years prior. The
same may no longer be amended regardless of any claim or error or incorrectness (save for clerical errors
only). It is true that a check is not a legal tender and while delivery of a check produces the effect of payment
only when it is encashed, the rule is otherwise if the debtor (Barretto Realty) was prejudiced by the creditors
(Moslares) unreasonable delay in presentment. Acceptance of a check implies an undertaking of due diligence
in presenting it for payment. If no such presentment was made, the drawer cannot be held liable irrespective
of loss or injury sustained by the payee. Payment will be deemed effected and the obligation for which the
check was given as conditional payment will be discharged.

284 SCRA 643 Mercantile Law Negotiable Instruments Law Consummation of Sale in Lieu of Check
Payment
Myron Papa is the administrator of the estate of Angela Butte. In 1973, he sold a portion of said estate to Felix
Pearroyo through A.U. Valencia and Co., Inc. Pearroyo gave Papa P5,000.00 plus a check worth P40,000.00.
However, Papa was not able to deliver the certificate of title to Pearroyo. A litigation ensued and ten years
after, Papa argued that the sale between him and Pearroyo was never consummated because he did not
encash the P40,000.00 check and that the P5,000.00 cash was merely earnest money.

ISSUE: Whether or not Papa is correct.

HELD: No. 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. Granting that Papa had never encashed the check, his
failure to do so for more than ten (10) years undoubtedly resulted in the impairment of the check through his
unreasonable and unexplained delay. While it is true that the delivery of a check produces the effect of
payment only when it is cashed, pursuant to Article 1249 of the Civil Code, the rule is otherwise if the debtor
(Pearroyo) is prejudiced by the creditors (Papas) unreasonable delay in presentment. The acceptance of a
check implies an undertaking of due diligence in presenting it for payment, and if he from whom it is received
sustains loss by want of such diligence, it will be held to operate as actual payment of the debt or obligation
for which it was given.
227 SCRA 723 Mercantile Law Negotiable Instruments Law Purpose of BP 22
Marlyn Lazaro, a businesswoman, was paid by Rudy Chua a check worth P90,000.00 so that Lazaro may
deliver goods ordered by Chua. Lazaro was only able to deliver P18,000.00 worth of goods hence she issued a
check worth P72,000.00 to Chua as refund. The check bounced and Chua notified Lazaro about the dishonor.
Lazaro failed to pay within the prescribed period hence she was sued by Chua for estafa and violation of Batas
Pambansa Blg. 22. The trial court convicted her for violating BP 22 but was acquitted in the estafa case.
Lazaro was made to suffer one year imprisonment and to pay the P72,000.00. On appeal, Lazaro claimed that
she should be acquitted on the BP 22 case as well because there was no damage done against Chua because
Lazaro executed a deed of sale in favor of Chua for her car.
ISSUE: Whether or not Lazaro should be acquitted.
HELD: No. The clear intention of the framers of Batas Pambansa Bilang 22 is to make the mere act of issuing
a worthless check malum prohibitum. It is not important whether or not the victims thereon are prejudiced
and/or damaged. The law has clearly provided that the mere issuance of any kind of check, regardless of the
intent of the parties; i.e. whether the check is intended merely to serve as a guarantee or deposit, but which
check is subsequently dishonored, makes the person who issued the check liable. The intent of the law is to
curb the proliferation of worthless checks as a means of payment of obligations. On the other hand, the fine
provided for in BP 22 was intended as an additional penalty for the act of issuing a worthless check. This is the
only logical conclusion since the law does not require that there be damage or prejudice to the individual
complainant by reason of the issuance of the worthless check.