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G.R. No.

L-22405 June 30, 1971


PHILIPPINE EDUCATION CO., INC.,
vs.
MAURICIO A. SORIANO, ET AL.,
DOCTRINE: Postal Money Orders are not negotiable instruments. In establishing and operating a postal money order
system, the government is not engaged in commercial transactions but is merely exercising a governmental power for the
public benefit. Restrictions upon postal money orders imposed by postal laws and regulations are inconsistent with the
character of negotiable instruments as defined under Sec.1, NIL

FACTS: Enrique Montinola sought to purchase from the Manila Post Office 10 money orders (P200 each), offering to pay
for them with a private check. Montinola was able to leave the building with his check and the 10 money orders without the
knowledge of the teller. Upon discovery, message was sent to all postmasters and banks involving the unpaid money orders.
One of the money orders was received by the Philippine Education Co. as part of its sales receipt. It was deposited by the
company with the Bank of America, which cleared it with the Bureau of Post. The Postmaster, through the Chief of the
Money Order Division of the Manila Post Office informed the bank of the irregular issuance of the money order. The bank
debited the account of the company. The company moved for reconsideration.

ISSUE: WON postal money orders are negotiable instruments?

HELD: No. Philippine postal statutes are patterned from those of the United States, and the weight of authority in said
country is that Postal money orders are not negotiable instruments inasmuch as the establishment of a postal money order
is an exercise of governmental power for the public’s benefit. Furthermore, some of the restrictions imposed upon money
order by postal laws and regulations are inconsistent with the character of negotiable instruments. For instance, postal
money orders may be withheld under a variety of circumstances, and which are restricted to not more than one indorsement.

G.R. No. 97753 August 10, 1992


CALTEX (PHILIPPINES), INC.,
vs.
COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY,
DOCTRINE: The negotiability or non-negotiability of an instrument is determined from the writing on the face of the
instrument itself.

FACTS: Respondent bank issued 280 certificates of time deposit (CTDs) in favor of Angel dela Cruz who delivered the
same to herein petitioner in connection with his purchased fuel products. Eventually, dela Cruz executed and delivered an
Affidavit of Loss for the reissuance of the CTDs. Dela Cruz later on obtained a loan from respondent bank and negotiated
the said CTDs, executing a Deed of Assignment of Time Deposit which stated, among others, that the bank has full control
of the indicated time deposits from and after date of the assignment and may set-off such and apply the same to the payment
of amount or amounts that may be due on the loan upon maturity.

Petitioner then went to the Sucat branch for verification of the CTDs declared lost, alleging that the same were delivered to
herein petitioner as “security for purchases made with Caltex Philippines, Inc.” and requested that the CTDs be pre-
terminated, which was refused by the respondent bank due to the failure of petitioner to present requested documents to
prove such allegation. Petitioner then filed a complaint in the RTC, which was dismissed. On appeal, the CA affirmed the
decision of the RTC. Thus, the present petition.

ISSUE: WON the CTDs are considered negotiable?

HELD: Yes. A sample text of the certificates of time deposit is reproduced below:

SECURITY BANK
 AND TRUST COMPANY
 6778 Ayala Ave., Makati No. 90101 Metro Manila, Philippines
 SUCAT
OFFICE P4,000.00 CERTIFICATE OF DEPOSIT
 Rate 16%

Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____
 This is to Certify that B E A R E R has deposited in this Bank the
sum of PESOS: FOUR THOUSAND ONLY, SECURITY BANK SUCAT OFFICE P4,000 & 00 CTS Pesos, Philippine
Currency, repayable to said depositor 731 days. after date, upon presentation and surrender of this certificate, with interest
at the rate of 16% per cent per annum.

(Sgd. Illegible) (Sgd. Illegible) AUTHORIZED SIGNATURES

Section 1, of Act No. 2031, otherwise known as the Negotiable Instruments Law, enumerates the requisites for an instrument
to become negotiable. The CTDs in question undoubtedly meet the requirements of the law for negotiability. The accepted
rule is that the negotiability or non- negotiability of an instrument is determined from the writing, that is, from the fact of the
instrument itself. Contrary to what respondent court held (that the CTDs are payable to the “depositor” which is Angel dela
Cruz), the documents provide that the amounts deposited shall be repayable to the depositor. And who, according to the
document is the depositor? It is the “bearer”. The documents do not say that the depositor is Angel dela Cruz and that the
amounts deposited are repayable specifically to him. Rather, the amounts are to be repayable to the bearer of the
documents or, for that matter, whosoever may be the bearer at the time of presentment.

G.R. No. 88866 February 18, 1991


METROPOLITAN BANK & TRUST COMPANY
vs.
COURT OF APPEALS, GOLDEN SAVINGS & LOAN ASSOCIATION, INC., LUCIA CASTILLO, MAGNO CASTILLO and
GLORIA CASTILLO,
DOCTRINE: The indication of a particular fund as the source of payment makes the order to pay conditional. An order or
promise to pay out of a particular fund is ‘not unconditional’, as stated in Sec.3, NIL

FACTS: Eduardo Gomez opened an account with Golden Savings and deposited over a period of two months 38 treasury
warrants. They were all drawn by the Philippine Fish Marketing Authority and purportedly signed by its General Manager
and counter-signed by its Auditor. Six of these were directly payable to Gomez while the others appeared to have been
indorsed by their respective payees, followed by Gomez as second indorser. On various dates all these warrants were
subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its Savings Account in the
Metrobank. They were then sent for clearing by the branch office to the principal office of Metrobank, which forwarded them
to the Bureau of Treasury for special clearing. After being told to wait several times, Gloria Castillo and Gomez made
subsequent withdrawals at Metrobank with the impression that the treasury warrants had been cleared. Metrobank informed
Golden Savings that 32 of the warrants had been dishonored by the Bureau of Treasury and demanded the refund by
Golden Savings of the amount it had previously withdrawn, to make up the deficit in its account. The demand was rejected.

ISSUE: WON treasury warrants are negotiable instruments?

HELD: No. The treasury warrants in question are not negotiable instruments. Clearly stamped on their face is the word
"non-negotiable." Moreover, it is indicated that they are payable from a particular fund, to wit, Fund 501. Sections 1 and 3
of the Negotiable Instruments Law especially underscored this requirement. 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 unconditional" and the warrants
themselves non-negotiable. Metrobank cannot contend that by indorsing the warrants in general, Golden Savings assumed
that they were "genuine and in all respects what they purport to be," in accordance with Section 66 of the Negotiable
Instruments Law. The simple reason is that this law is not applicable to the non-negotiable treasury warrants. The
indorsement was made by Gloria Castillo not for the purpose of guaranteeing the genuineness of the warrants but merely
to deposit them with Metrobank for clearing.

G.R. No. 89252 May 24, 1993


RAUL SESBREÑO
vs.
HON. COURT OF APPEALS, DELTA MOTORS CORPORATION AND PILIPINAS BANK
DOCTRINE: A non-negotiable document may not be negotiated; but it may be assigned or transferred, absent an express
prohibition against assignment or transfer written on the face of the instrument. [A] note, though not negotiable, may be
transferred by assignment, the assignee taking it being subject to the equities between the original parties

FACTS: Petitioner Sesbreno made a money market placement in the amount of P300,000 with the Philippine Underwriters
Finance Corporation (PhilFinance), with a term of 32 days. PhilFinance issued to Sesbreno (1) the Certificate of
Confirmation of Sale of a Delta Motor Corporation Promissory Note, (2) the Certificate of Securities Delivery Receipt
indicating the sale of the note with notation that said security was in the custody of Pilipinas Bank, and (3) post-dated checks
drawn against the Insular Bank of Asia and America for P304,533.33 payable on March 13, 1981. The checks were
dishonored for having been drawn against insufficient funds. Pilipinas Bank never released the note, nor any instrument
related thereto, to Sesbreno; but Sesbreno learned that the Delta Promissory Note maturing on 6 April 1981, has a face
value of P2,300,833.33 with PhilFinance as payee and Delta Motors as maker; and was stamped “non-negotiable” on its
face. PhilFrance was later on placed under the custody of the Securities and Exchange Commission. As Sesbreno was
unable to collect his investment and interest thereon, he filed an action for damages against Delta Motors and Pilipinas
Bank. Delta Motors contends that said promissory note was not intended to be negotiated or otherwise transferred by
Philfinance as manifested by the word "non-negotiable" stamped across the face of the Note. The trial court and the CA
dismissed petitioner’s complaint and appeal, respectively, for lack of cause of action. If anything, petitioner has a cause of
action against Philfrance, which, however, was not impleaded.
ISSUE: WON the non-negotiability of a promissory note prevents its assignment?

HELD: No. A negotiable instrument, instead of being negotiated, may also be assigned or transferred. The legal
consequences of negotiation and assignment of the instrument are different. A non- negotiable instrument may not be
negotiated but may be assigned or transferred, absent an express prohibition against assignment or transfer written in the
face of the instrument. The subject promissory note, while marked "non-negotiable," was not at the same time stamped
"non-transferable" or "non-assignable." It contained no stipulation which prohibited Philfinance from assigning or transferring
such note, in whole or in part.

G.R. No. 113236. March 5, 2001


FIRESTONE TIRE & RUBBER COMPANY OF THE PHILIPPINES
vs.
COURT OF APPEALS and LUZON DEVELOPMENT BANK
DOCTRINE: Withdrawal slips are not negotiable instruments. The essence of negotiability which characterizes a negotiable
paper as a credit instrument lies in its freedom to circulate freely as a substitute for money. Withdrawal slips lack this
character.

FACTS: Forjas-Arca Enterprise Company is maintaining a special savings account with Luzon Development Bank, the latter
authorized and allowed withdrawals of funds though the medium of special withdrawal slips. These are supplied by Fojas-
Arca. Fojas-Arca purchased on credit with FirestoneTire & Rubber Company, in payment Fojas-Arca delivered a 6 special
withdrawal slips. In turn, these were deposited by the Firsestone to its bank account in Citibank. With this, relying on such
confidence and belief Firestone extended to Fojas-Arca other purchase on credit of its products but several withdrawal slips
were dishonored and not paid. As a consequence, Citibank debited the plaintiff’s account representing the aggregate
amount of the two dishonored special withdrawal slips. Fojas-Arca averred that the pecuniary losses it suffered are a caused
by and directly attributes to defendant’s gross negligence as a result Fojas-Arca filed a complaint.

ISSUE: Whether or not the acceptance and payment of the special withdrawal slips without the presentation of the
depositor’s passbook thereby giving the impression that it is a negotiable instrument like a check.

HELD: No. Withdrawal slips in question were non negotiable instrument. Hence, the rules governing the giving immediate
notice of dishonor of negotiable instrument do not apply. The essence of negotiability which characterizes a negotiable
paper as a credit instrument lies in its freedom to circulate freely as a substitute for money. The withdrawal slips in question
lacked this character.

G.R. No. L-2516 September 25, 1950


ANG TEK LIAN
vs.
THE COURT OF APPEALS, respondent.
DOCTRINE: Where a check is made payable to the order of ‘cash’, the word ‘cash’ does not purport to be the name of any
person and hence the instrument is payable to bearer. The drawee-bank may pay it to the person presenting it without need
of obtaining any endorsement

FACTS: Knowing he had no funds therefor, petitioner Ang Tek Lian drew a check upon the China Banking Corporation for
the sum of P4,000, payable to the order of “cash”. He delivered it to Lee Hua Hong in exchange for money which the latter
handed in the act. The next business day, the check was presented by Lee Hua Hong to the drawee bank for payment, but
it was dishonored for insufficiency of funds, the balance of the deposit of Ang Tek Lian on both dates being P335 only.
Petitioner was sued for estafa. In his defense, however, he argues that as the check had been made payable to “cash” and
had not been endorsed by Ang Tek Lian, the defendant is not guilty of the offense charged.

ISSUE: WON a check payable to “cash” needs indorsement?

HELD: NO. Under the Negotiable Instruments Law (sec. 9 [d], a check drawn payable to the order of “cash” is a check
payable to bearer, and the bank may pay it to the person presenting it for payment without the drawer’s indorsement. Where
a check is made payable to the order of ‘cash’, the word cash ‘does not purport to be the name of any person’, and hence
the instrument is payable to bearer. The drawee bank need not obtain any indorsement of the check, but may pay it to the
person presenting it without any indorsement.

G.R. No. 85419 March 9, 1993


DEVELOPMENT BANK OF RIZAL
vs.
SIMA WEI and/or LEE KIAN HUAT, MARY CHENG UY, SAMSON TUNG, ASIAN INDUSTRIAL PLASTIC
CORPORATION and PRODUCERS BANK OF THE PHILIPPINES
DOCTRINE: The payee of a negotiable instrument acquires no interest thereto until its delivery to him. Delivery of an
instrument means transfer of possession, actual or constructive, from one person to another with intent of transferring title
thereto. However, it does not follow that the drawer of an undelivered instrument is freed from the liability of the principal
contract which gave rise thereto

FACTS: In consideration for a loan extended by petitioner Bank to respondent Sima Wei, the latter executed and delivered
to the former a promissory note, engaging to pay the petitioner Bank or order the amount of P1,820,000.00 on or before
June 24, 1983 with interest at 32% per annum. Sima Wei made partial payments on the note, leaving a balance of
P1,032,450.02. On November 18, 1983, Sima Wei issued two crossed checks payable to petitioner Bank drawn against
China Banking Corporation, bearing respectively the serial numbers 384934, for the amount of P550,000.00 and 384935,
for the amount of P500,000.00. The said checks were allegedly issued in full settlement of the drawer's account evidenced
by the promissory note. These two checks were not delivered to the petitioner-payee or to any of its authorized
representatives. For reasons not shown, these checks came into the possession of respondent Lee Kian Huat, who
deposited the checks without the petitioner-payee's indorsement (forged or otherwise) to the account of respondent Plastic
Corporation, at the Balintawak branch, Caloocan City, of the Producers Bank. Cheng Uy, Branch Manager of the Balintawak
branch of Producers Bank, relying on the assurance of respondent Samson Tung, President of Plastic Corporation, that the
transaction was legal and regular, instructed the cashier of Producers Bank to accept the checks for deposit and to credit
them to the account of said Plastic Corporation, inspite of the fact that the checks were crossed and payable to petitioner
Bank and bore no indorsement of the latter. Hence, petitioner filed the complaint as aforestated.

ISSUE: Whether or not petitioner singing in a representative capacity is liable to the questioned checks.

HELD: The Negotiable Instruments Law provides that when a person is under obligation to indorse in a representative
capacity, he may indorse in such terms as to negative personal liability. An agent, when so signing, should indicate that he
is merely signing as an agent in behalf of the principal and must disclose the name of his principal. Otherwise, he will be
held liable personally. If fransisco was indeed authorized, she didn’t comply with the requirements of the law. Instead of
signing Ong’s name, she should have signed in her own name as agent of HCCC. Hence, she is liable.

G.R. Nos. L-25836-37 January 31, 1981


THE PHILIPPINE BANK OF COMMERCE
vs.
JOSE M. ARUEGO
DOCTRINE: A party who signs a bill of exchange as an agent, but failed to disclose his principal becomes personally liable
for the drafts he accepted.

FACTS: Herein plaintiff instituted against an action against defendant for the recovery of the total sum of money plus
interests and attorney’s fees. The complaint filed by the Philippine Bank of Commerce contains twenty-two (22) causes of
action referring to twenty-two (22) transactions entered into by the said Bank and Aruego on different dates. The sum sought
to be recovered represents the cost of the printing of "World Current Events," a periodical published by the defendant. To
facilitate the payment of the printing the defendant obtained a credit accommodation from the plaintiff. Thus, for every
printing of the "World Current Events," the printer collected the cost of printing by drawing a draft against the plaintiff, said
draft being sent later to the defendant for acceptance. As an added security for the payment of the amounts advanced to
printer, the plaintiff bank also required defendant Aruego to execute a trust receipt in favor of said bank wherein said
defendant undertook to hold in trust for plaintiff the periodicals and to sell the same with the promise to turn over to the
plaintiff the proceeds of the sale of said publication to answer for the payment of all obligations arising from the draft.
Defendant filed an answer interposing for his defense that he signed the drafts in a representative capacity, that he signed
only as accommodation party and that the drafts signed by him were not really bills of exchange but mere pieces of evidence
of indebtedness because payments were made before acceptance.

ISSUE1: WON the drafts Aruego signed were bills of exchange?

HELD: YES. Under the Negotiable Instruments Law, a bill of exchange is an unconditional order in writing addressed by
one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at
a fixed or determinable future time a sum certain in money to order or to bearer. As long as a commercial paper conforms
with the definition of a bill of exchange, that paper is considered a bill of exchange. The nature of acceptance is important
only in the determination of the kind of liabilities of the parties involved, but not in the determination of whether a commercial
paper is a bill of exchange or not.

ISSUE2: WON Aruego is personally liable?

HELD: YES. Firstly, Section 20 of the Negotiable Instruments Law provides that "Where the instrument contains or a person
adds to his signature words indicating that he signs for or on behalf of a principal or in a representative capacity, he is not
liable on the instrument if he was duly authorized; but the mere addition of words describing him as an agent or as filing a
representative character, without disclosing his principal, does not exempt him from personal liability." An inspection of the
drafts accepted by the defendant shows that nowhere has he disclosed that he was signing as a representative of the
Philippine Education Foundation Company. He merely signed as follows: "JOSE ARUEGO (Acceptor) (SGD) JOSE
ARGUEGO for failure to disclose his principal, Aruego is personally liable for the drafts he accepted. Secondly, an
accommodation party is one who has signed the instrument as maker, drawer, indorser, without receiving value therefor
and for the purpose of lending his name to some other person. Such person is liable on the instrument to a holder for value,
notwithstanding such holder, at the time of the taking of the instrument knew him to be only an accommodation party. In
lending his name to the accommodated party, the accommodation party is in effect a surety for the latter. He lends his name
to enable the accommodated party to obtain credit or to raise money. He receives no part of the consideration for the
instrument but assumes liability to the other parties thereto because he wants to accommodate another. In the instant case,
the defendant signed as a drawee/acceptor. Under the Negotiable Instrument Law, a drawee is primarily liable. Thus, if the
defendant who is a lawyer, he should not have signed as an acceptor/drawee. In doing so, he became primarily and
personally liable for the drafts.

G. R. No. 116320. November 29, 1999


ADALIA FRANCISCO
vs.
COURT OF APPEALS, HERBY COMMERCIAL & CONSTRUCTION CORPORATION AND JAIME C. ONG
DOCTRINE: The NIL provides that where any person is under obligation to endorse in a representative capacity, he may
endorse in such terms as to negative personal liability. An agent, when so signing, should indicate that he is merely signing
on behalf of the principal and must disclose the name of his principal; otherwise he shall be held personally liable.

FACTS: A. Francisco Realty & Development Corporation (AFRDC), of which petitioner Francisco is the president, entered
into a Land Development and Construction Contract with private respondent Herby Commercial & Construction Corporation
(HCCC), represented by its President and General Manager private respondent Ong. Under the contract, HCCC was to be
paid on the basis of the completed houses and developed lands delivered to and accepted by AFRDC and the GSIS.
Sometime in 1979, Ong discovered that Diaz and Francisco, the Vice-President of GSIS, had executed and signed seven
checks of various dates and amounts payable to HCCC for completed and delivered work under the contract. Ong, however,
claims that these checks were never delivered to HCCC. It turned out that Francisco forged the indorsement of Ong on the
checks and indorsed the checks for a second time by signing her name at the back of the checks, petitioner then deposited
said checks in her savings account. A case was brought by private respondents against petitioner to recover the value of
said checks. Petitioner however claims that she was authorized to sign Ong's name on the checks by virtue of the
Certification executed by Ong in her favor giving her the authority to collect all the receivables of HCCC from the GSIS,
including the questioned checks.

ISSUE: Whether petitioner cannot be held liable on the questioned checks by virtue of the Certification executed by Ong
giving her the authority to collect such checks from the GSIS.

RULING: Petitioner is liable. The Negotiable Instruments Law provides that where any person is under obligation to indorse
in a representative capacity, he may indorse in such terms as to negative personal liability. An agent, when so signing,
should indicate that he is merely signing in behalf of the principal and must disclose the name of his principal; otherwise he
shall be held personally liable. Even assuming that Francisco was authorized by HCCC to sign Ong's name, still, Francisco
did not indorse the instrument in accordance with law. Instead of signing Ong's name, Francisco should have signed her
own name and expressly indicated that she was signing as an agent of HCCC. Thus, the Certification cannot be used by
Francisco to validate her act of forgery.

G.R. No. L-29432. August 6, 1975.


JAI-ALAI CORPORATION OF THE PHILIPPINES
v.
BANK OF THE PHILIPPINE ISLAND
DOCTRINE: The collecting bank which endorsed the checks to the drawee-bank for clearing, should be liable to the latter
for reimbursement because the endorsement of the checks had been forged prior to delivery. The payments made by the
drawee-bank to the collecting bank on account of the forged checks were ineffective because the creditor-debtor relationship
between the depositor and the collecting bank had not been validly effected

FACTS: Petitioner deposited 10 checks in its current account with BPI which were acquired from Antonio Ramirez, a regular
jai-alai bettor and a sales agent of the Inter-Island Gas. All the checks were payable to Inter- Island Gas Service, Inc. or
order. After the checks, had been submitted to Inter-bank clearing, Inter-Island Gas discovered that all the indorsements
made on the checks purportedly by its cashiers were forgeries. The drawers of the checks demanded reimbursement from
the drawee-banks, who in turn demanded from BPI. BPI thus debited the value of the checks against petitioner's current
account and forwarded to the latter the checks containing the forged indorsements which petitioner refused to accept.
ISSUE: WON BPI had the right to debit from petitioner's current account the value of the checks with the forged
indorsements?

HELD: Yes. BPI acted within legal bounds when it debited the petitioner's account. When the petitioner deposited the checks
with the respondent, the nature of the relationship created at that stage was one of agency, that is, the bank was to collect
from the drawees of the checks the corresponding proceeds. It is true that the respondent had already collected the
proceeds of the checks when it debited the petitioner's account, so that following the rule in Gullas vs. Philippine National
Bank 2 it might be argued that the relationship between the parties had become that of creditor and debtor as to preclude
the respondent from using the petitioner's funds to make payments not authorized by the latter. It is our view nonetheless
that no creditor-debtor relationship was created between the parties. Since the indorsements were forgeries, they are
inoperative, the payment made by the drawee banks therefore is inoperative and relationship of a creditor and debtor was
not created. Having indorsed the checks to respondent bank, petitioner is deemed to have given the warranty prescribed in
Section 66 of the NIL that every single one of those checks "is genuine and in all respects what it purports to be." BPI, being
the collecting bank is liable to the drawee banks when it submitted the checks for clearing. The petitioner was, moreover,
grossly recreant in accepting the checks in question from Ramirez. It could not have escaped the attention of the petitioner
that the payee of all the checks was a corporation — the Inter- Island Gas Service, Inc. Yet, the petitioner cashed these
checks to a mere individual who was admittedly a habitue at its jai-alai games without

G.R. No. L-40796 July 31, 1975


REPUBLIC BANK
vs.
MAURICIA T. EBRADA
DOCTRINE: It is only the negotiation predicated on the forged instrument that should be declared inoperative. The
negotiation of the check in question between the parties after the immediate parties to the forgery should be considered
valid and enforceable, barring any claim of forgery.

FACTS: This is a case of what appeared to be an indorsed check by one Martin Lorenzo who turned out to be dead since
1952. The forged signature of the deceased appeared at the dorsal portion of the check indorsed in favor of one Ramon
Lorenzo. From Ramon Lorenzo the same was indorsed to one Delia Dominguez and then from Dominguez to herein
respondent Ebrada. Subsequently, Ebrada encashed the same in 1963 at herein petitioner Republic Bank's main office in
Escolta. Upon informing petitioner Republic Bank, however, that the payee's (Lorenzo) indorsement was a forgery, the
Bureau of Treasury requested the Bank to refund them the amount given to Ebrada. The Bank sued Ebrada upon the latter’s
refusal to return the money of the forged check.

ISSUE: WON Ebrada is liable to return the money paid to him by Republic Bank subject of a forged check and may the
petitioner recover the proceeds given?

HELD: It is clear from the provision of Section 23 of the NIL that where the signature on a negotiable instrument if forged,
the negotiation of the check is without force or effect. But does this mean that the existence of one forged signature therein
will render void all the other negotiations of the check with respect to the other parties whose signature are genuine? No.
Applying the principle of Beam vs. Farrel, 135 Iowa 670, 113 N.W. 590, it can be safely concluded that it is only the
negotiation predicated on the forged indorsement that should be declared inoperative. This means that the negotiation of
the check in question from Martin Lorenzo, the original payee, to Ramon R. Lorenzo, the 2nd indorser, should be declared
of no effect, but the negotiation of the aforesaid check from Ramon R. Lorenzo to Adelaida Dominguez, the 3rd indorser,
and from Adelaida Dominguez to the defendant-appellant who did not know of the forgery, should be considered valid and
enforceable, barring any claim of forgery. Being the last indorser, however, Ebrada warrants that she has good title to the
check subject of this action. The petitioner, drawee of the check can recover from the holder [Ebrada] the money paid to
the latter on a forged instrument. It is not supposed to be its duty to ascertain whether the signatures of the payee or
indorsers are genuine or not. This is because the indorser is supposed to warrant to the drawee that the signatures of the
payee and previous indorsers are genuine, warranty not extending only to holders in due course. Ebrada, upon receiving
the check in question from Dominguez, was duty-bound to ascertain whether the check in question was genuine before
presenting it to plaintiff Bank for payment. Indorsers own credulity or recklessness or misplaced confidence was the sole
cause of the loss. Why should he be permitted to shift the loss due to his own fault in assuming the risk, upon the drawee,
simply because of the accidental circumstance that the drawee afterwards failed to detect the forgery when the check was
presented for payment.

G.R. No. L-62943 July 14, 1986


METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM
vs.
COURT OF APPEALS (Now INTERMEDIATE APPELLATE COURT) and THE PHILIPPINE NATIONAL BANK
DOCTRINE: Petitioner MWSS was guilty of gross negligence in the printing of its personalized checks. The drawee-bank
PNB cannot be faulted for not having detected the fraudulent encashment of the checks because the printing of MWSS’s
personalized checks was not done under its supervision and control. MWSS was in a better position to detect and prevent
the fraudulent encashment.

FACTS: 23 checks were deposited by the payees Dizon, Sison and Mendoza in their respective current accounts with the
PCIB and PBC. Thru the Central Bank Clearing, these checks were presented for payment by PBC and PCIB to the
defendant PNB, and were paid. At the time of their presentation to PNB, these checks bear the standard indorsement which
reads 'all prior indorsement and/or lack of endorsement guaranteed.' Subsequent investigation however, conducted by the
NBI showed that Raul Dizon, Arturo Sison and Antonio Mendoza were all fictitious persons. NWSA addressed a letter to
PNB requesting the immediate restoration to its Account No. 6, of the total sum of P3,457,903.00 corresponding to the total
amount of these twenty-three (23) checks claimed by NWSA to be forged and/or spurious checks.

ISSUE: WON THE DRAWEE BANK WAS LIABLE FOR THE LOSS UNDER SECTION 23 OF THE NEGOTIABLE
INSTRUMENTS LAW?

HELD: The NBI does not declare or prove that the signatures appearing on the questioned checks are forgeries. These
reports did not touch on the inherent qualities of the signatures which are indispensable in the determination of the existence
of forgery. There must be conclusive findings that there is a variance in the inherent characteristics of the signatures and
that they were written by two or more different persons. Forgery cannot be presumed. It must be established by clear,
positive, and convincing evidence. This was not done in the present case. Even if the twenty-three (23) checks in question
are considered forgeries, considering the petitioner's gross negligence, it is barred from setting up the defense of forgery
under Section 23 of the Negotiable Instruments Law. One factor which facilitates this fraud was the delay in the reconciliation
of bank (PNB) statements with the NAWASA bank accounts. The records likewise show that the petitioner failed to provide
appropriate security measures over its own records thereby laying confidential records open to unauthorized persons. We
cannot fault the respondent drawee Bank for not having detected the fraudulent encashment of the checks because the
printing of the petitioner's personalized checks was not done under the supervision and control of the Bank. Under the
circumstances, therefore, the petitioner was in a better position to detect and prevent the fraudulent encashment of its
checks.

G.R. No. 74917 January 20, 1988


BANCO DE ORO SAVINGS AND MORTGAGE BANK
vs.
EQUITABLE BANKING CORPORATION, PHILIPPINE CLEARING HOUSE CORPORATION, AND REGIONAL TRIAL
COURT OF QUEZON CITY, BRANCH XCII (92)
DOCTRINE: Having stamped its guarantee of ‘all prior endorsements and/or lack of endorsements’, the collecting bank is
estopped from claiming otherwise. Whenever any bank treats the signature at the back of the check as an endorsement,
and thus guarantees the same, it is liable. The drawer cannot be held liable for the negligence of the collecting bank. There
is no privity between the drawer and the collecting bank.

FACTS: Manager's checks (Checks) having an aggregate amount of P45,982.23 and payable to certain member
establishments of Visa Card. Subsequently, the Checks were deposited with the defendant (respondent Equitable) to the
credit of its depositor (Aida Trencio’s account). Following normal procedures, and after stamping at the back of the Checks
the usual endorsements (All prior and/or lack of endorsement guaranteed), Equitable sent the checks for clearing through
the Philippine Clearing House Corporation (PCHC). Accordingly, BDO paid the Checks; its clearing account was debited
for the value of the Checks and defendant's clearing account was credited for the same amount. Thereafter, BDO discovered
that the endorsements appearing at the back of the Checks, purporting to be that of the payees, were forged and/or
unauthorized or otherwise belong to persons other than the payees. Pursuant to the PCHC Clearing Rules and Regulations,
it presented the Checks directly to Equitable for the purpose of claiming reimbursement from the latter. However, Equitable
refused to do so. After an exhaustive investigation and hearing, the Arbiter rendered a decision in favor of BDO and against
Equitable ordering the PCHC to debit the clearing account of the defendant (E), and to credit the clearing account of the
plaintiff (B) of the foregoing amount with interest at the rate of 12% per annum from date of the complaint. The Board of
Directors of the PCHC affirmed the decision of the Arbiter. Hence this petition.

ISSUE 1: Were the subject checks nonnegotiable and if not, does it fall under the ambit of the power of the PCHC? OR
Does the PCHC has jurisdiction over the controversy involved in view of petitioner’s claim that the subject matter of the case
(the Checks) was not negotiable.

HELD: Yes. As provided in the articles of incorporation of PCHC, its operation extend to "clearing checks and other
clearing items." No doubt transactions on non-negotiable checks are within the ambit of its jurisdiction. The term check as
used in the said Articles of Incorporation of PCHC can only connote checks in general use in commercial and business
activities. It cannot be conceived to be limited to negotiable checks only. Checks are used between banks and bankers and
their customers, and are designed to facilitate banking operations. It is of the essence to be payable on demand, because
the contract between the banker and the customer is that the money is needed on demand. Further, the participation of the
two banks, petitioner and private respondent, in the clearing operations of PCHC is a manifestation of their submission to
its jurisdiction.

ISSUE 2: How does principle of estoppel apply?

HELD: Petitioner is estopped from raising the defense of nonnegotiability of the checks in question. It stamped its guarantee
on the back of the checks and subsequently presented these checks for clearing and it was on the basis of these
endorsements by the petitioner that the proceeds were credited in its clearing account. The principle of estoppel effectively
prevents the defendant from denying liability for any damages sustained by the plaintiff which, relying upon an action or
declaration of the defendant, paid on the Checks. The same principle of estoppel effectively prevents the defendant from
denying the existence of the Checks. The petitioner by its own acts and representation cannot now deny liability because it
assumed the liabilities of an endorser by stamping its guarantee at the back of the checks. The petitioner having stamped
its guarantee of "all prior endorsements and/or lack of endorsements" (Exh. A-2 to F-2) is now estopped from claiming that
the checks under consideration are not negotiable instruments. The checks were accepted for deposit by the petitioner
stamping thereon its guarantee, in order that it can clear the said checks with the respondent bank. By such deliberate and
positive attitude of the petitioner it has for all legal intents and purposes treated the said cheeks as negotiable instruments
and accordingly assumed the warranty of the endorser when it stamped its guarantee of prior endorsements at the back of
the checks. It led the said respondent to believe that it was acting as endorser of the checks and on the strength of this
guarantee said respondent cleared the checks in question and credited the account of the petitioner. Petitioner is now barred
from taking an opposite posture by claiming that the disputed checks are not negotiable instrument.

G.R. No. 92244 February 9, 1993


NATIVIDAD GEMPESAW
vs.
THE HONORABLE COURT OF APPEALS and PHILIPPINE BANK OF COMMUNICATIONS
DOCTRINE: As a rule, a drawee bank who has paid a check on which an endorsement has been forged cannot charge the
drawer’s account for the amount of said check. An exception to the rule is where the drawer is guilty of such negligence
which causes the bank to honor such a check or checks.

FACTS: Natividad Gempesaw issued checks, prepared by her bookkeeper, a total of 82 checks in favor of several supplies.
Most of the checks for amounts in excess of actual obligations as shown in their corresponding invoices. It was only after
the lapse of more than 2 years did she discovered the fraudulent manipulations of her bookkeeper. It was also learned that
the indorsements of the payee were forged, and the checks were brought to the chief accountant of Philippine Bank of
Commerce (the Drawee Bank, Buendia Branch) who deposited them in the accounts of Alfredo Romero and Benito Lam.
Gempesaw made demand upon the bank to credit the amount charged due the checks. The bank refused. Hence, the
present action.

ISSUE: Who shall bear the loss resulting from the forged indorsements?

HELD: As a rule, a drawee bank who has paid a check on which an indorsement has been forged cannot charge the
drawer’s account for the amount of said check. An exception to the rule is where the drawer is guilty of such negligence
which causes the bank to honor such checks. Gempesaw did not exercise prudence in taking steps that a careful and
prudent businessman would take in circumstances to discover discrepancies in her account. Her negligence was the
proximate cause of her loss, and under Section 23 of the Negotiable Instruments Law, is precluded from using forgery as a
defense. On the other hand, the banking rule banning acceptance of checks for deposit or cash payment with more than
one indorsement unless cleared by some bank officials, does not invalidate the instrument; neither does it invalidate the
negotiation or transfer of said checks. The only kind of indorsement which stops the further negotiation of an instrument is
a restrictive indorsement which prohibits the further negotiation thereof, pursuant to Section 36 of the Negotiable Instruments
Law. In light of any case not provided for in the Act that is to be governed by the provisions of existing legislation, pursuant
to Section 196 of the Negotiable Instruments Law, the bank may be held liable for damages in accordance with Article 1170
of the Civil Code. The drawee bank, in its failure to discover the fraud committed by its employee and in contravention
banking rules in allowing a chief accountant to deposit the checks bearing second indorsements, was adjudged liable to
share the loss with Gempesaw on a 50:50 ratio.

G.R. No. 107382/G.R. No. 107612 January 31, 1996


ASSOCIATED BANK
vs.
HON. COURT OF APPEALS, PROVINCE OF TARLAC and PHILIPPINE NATIONAL BANK
DOCTRINE: The drawee-bank cannot debit the account of the drawer because it paid checks which bore forged
endorsements. However, if the drawer was negligent to the point of contributing substantially to the loss, then the drawee-
bank can charge the drawer’s account. If both the drawee- bank and the drawer were negligent, the loss should be
apportioned between them

FACTS: The Province of Tarlac maintains a current account with PNB. Checks were issued and received by the hospital’s
administrative officer and cashier, Pangilinan. Panilinan, through the help of Associated Bank but after forging the signature
of the hospital’s chief was able to deposit the checks in his personal account. The province discovered that the hospital did
not receive several allotted checks, and sought the restoration of the debited amounts from PNB. In turn, PNB demanded
reimbursement from Associated Bank. Both banks resisted payment. Hence, this present action.

ISSUE: WON Private Respondent Merle Reyes, doing business under the name and style Melissa’s RWT, has a cause of
action against petitioners Associated Bank and Conrado Cruz for their encashment and payment to another person of
certain crossed checks issued in her favor?

HELD: Yes. Under accepted banking practice, crossing a check is done by writing two parallel lines diagonally on the left
top portion of the checks. The crossing is special where the name of a bank or a business institution is written between the
two parallel lines, which means that the drawee should pay only with the intervention of that company. The crossing is
general where the words written between the two parallel lines are "and Co." or "for payee's account only," as in the case
at bar. This means that the drawee bank should not encash the check but merely accept it for deposit. In State Investment
House Inc vs. IAC (supra, p. 19), the Court declared the effects of crossing a check. The effects therefore of crossing a
check relate to the mode of its presentment for payment. Under Sec. 72 of the Negotiable Instruments Law, presentment
for payment, to be sufficient, must be made by the holder or by some person authorized to receive payment on his behalf.
Who the holder or authorized person is depends on the instruction stated on the face of the check. The six checks in the
case at bar had been crossed and issued "for payee's account only." This could only signify that the drawers had intended
the same for deposit only by the person indicated, to wit, Melissa's RTW. There being no evidence that the crossed checks
were actually received by the private respondent, she would have a right of action against the drawer companies, which in
turn could go against their respective drawee banks, which in turn could sue the herein petitioner as collecting bank. In a
similar situation, it was held that, to simplify proceedings, the payee of the illegally encashed checks should be allowed to
recover directly from the bank responsible for such encashment regardless of whether or not the checks were actually
delivered to the payee.

G.R. No. L-55079 November 19, 1982


METROPOLITAN BANK and TRUST COMPANY
vs.
THE FIRST NATIONAL CITY BANK and THE COURT OF APPEALS
DOCTRINE: The failure of FNCB as drawee-bank to inform the collecting bank, Metrobank, about the alteration of in
question until after the lapse of 9 days negates whatever right it might have had against Metrobank in the light of Central
Bank Circular No.9, as amended by Circular No.138, which requires all items cleared on a particular clearing to be returned
not later than 3:30PM on the following business day. While it is true that Metrobank endorsed the check, such an
endorsement must be read together with the 24-hour rule on Clearing House Operations of the Central Bank

FACTS: A check was drawn by Joaquin Cunanan & Company on First National City Bank (FNCB) which was deposited in
Metrobank by Salvador Sales. The check was cleared the same day and the latter withdrew it and closed his account.
Thereafter, upon return of the cancelled check, Joaquin Cunanan & Company notified the bank that the check was altered
from actual amount of P50 raised to P50,000 and over the name superimpose the word Cash. FNCB notified and reiterated
the request to Metrobank for the reimbursement but the latter was adamant in its refusal, hence, this action.

ISSUE: Wether or not Metrobank should bear the loss from a materially altered check?

HELD: In this case, the check was not returned to Metro Bank in accordance with the 24-hour clearing house period, but
was cleared by FNCB. Failure of FNCB, therefore, to call the attention of Metro Bank to the alteration of the check in question
until after the lapse of nine days, negates whatever right it might have had against Metro Bank in the light of the said Central
Bank Circular. Its remedy lies not against Metro Bank, but against the party responsible for the changing the name of the
payee and the amount on the face of the check.

G.R. No. 42725. April 22, 1991.


REPUBLIC BANK
v.
COURT OF APPEALS and FIRST NATIONAL CITY BANK
DOCTRINE: It is true that when an endorsement is forged, the collecting bank or last endorser, as a general rule, bears the
loss. But the unqualified endorsement of the collecting bank should be read together with the 24-hour rule on clearing house
regulations. When the drawee bank fails to return a forged or altered check to the collecting bank within the 24- hour clearing
period, the collecting bank is absolved from liability.
FACTS: San Miguel Corporation drew a dividend check worth P240 on its account in First National City Bank in favor of J.
Roberto Delgado, a stock holder. The amount on its face was fraudulently and without authority of the drawer, altered by
increasing it from P240 to P9, 240. The check was indorsed and deposited by Delgado to his account with Republic bank.
Republic endorsed the check to FNCB and presented I for payment through the Central Bank Clearing House. FNCB paid
P9, 240 to the Republic through the Central Bank Clearing House. SMC notified FNCB of trhe material alteration in the
check in question. FNCB informed Republic with regard to the alteration nand forgery of the endorsement of Delgado. By
the, Delgado had already withdrawn his account from the republic. FNCB demanded that Republic refund the P9, 240. Trial
court rendered judgment in favor of FNCB and it was affirmed by the Court of Appeals.

ISSUE: Whether Republic, as the collecting bank, is protected, by 24-hour clearing house rule, found in CB circular No. 9,
as amended, from liability to refund the amount paid by FNCB, as drawee of the SMC dividend check.

HELD: No. The 24-hour clearing house rule is valid rule applicable to commercial banks. It is true that when an indorsement
is forged, the collecting bank or last endorser, as general rule, bears the loss. But the unqualified endorsement of the
collecting bank on the check should be read together with the 24-hour regulation on the clearing house operation. Thus,
when the drawee bank fails to return a forged or altered check to the collecting bank is absolved from liability. Unless an
alteration is attributable to the fault or negligence of the drawer himself, such as when he leaves spaces on the check which
would allow the fraudulent insertion of additional numerals in the amount appearing thereon, the remedy of the drawee bank
that negligently clears a forged and/or honor altered check for payment is against the party responsible for the forgery or
alteration, otherwise, it bears the loss. It may not charge the amount so paid to the account of the drawer, if the latter was
free from blame, nor recover it from the collecting bank is the latter made payment after proper clearance from the drawee.

G.R. No. 121413 January 29, 2001


PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly INSULAR BANK OF ASIA AND AMERICA)
vs.
COURT OF APPEALS and FORD PHILIPPINES, INC. and CITIBANK, N.A.
DOCTRINE: The mere fact that the forgery was committed by a drawer-payor’s confidential employee or agent, who by
virtue of his position had unusual facilities for perpetrating the fraud and imposing the forged paper upon the bank, does not
entitle the bank to shift the loss to the drawer-payor, in the absence of circumstances raising estoppel against the drawer.
A bank is liable for the fraudulent acts or representations of an office or agent acting within the scope of his employment or
authority. But in this case, responsibility for negligence does not lie on the collecting bank’s shoulders alone. Citibank, as
drawee-bank was likewise negligent, and must also answer for the damages suffered by the drawer because of the
contractual relationship between it and the latter. Thus, invoking the doctrine of comparative negligence, both PCI and
Citibank are equally liable.

FACTS: Ford Philippines filed actions to recover from the drawee bank Citibank and collecting bank PCIB the value of
several checks payable to the Commissioner of Internal Revenue as payment of percentage or manufacturer's sales taxes.
What prompted this action was the drawing of a check by Ford, which it deposited to PCIB as payment and was debited
from their Citibank account. It was later on found out that the payment wasn’t received by the Commissioner. Meanwhile,
according to the NBI report, one of the checks issued by Ford was withdrawn from PCIB for alleged mistake in the amount
to be paid. This was replaced with manager’s check by PCIB, which were allegedly stolen by a syndicate and deposited in
their own account. The trial court decided in favor of Ford. In this petition, PCIB claims that the action of Ford had prescribed
because of its inability to seek judicial relief seasonably, considering that the alleged negligent act took place prior to
December 19, 1977 but the relief was sought only in 1983, or seven years thereafter.

ISSUE: WON Ford’s cause of action has prescribed, hence, cannot recover anymore from PCIB?

HELD: The statute of limitations begins to run when the bank gives the depositor notice of the payment, which is ordinarily
when the check is returned to the alleged drawer as a voucher with a statement of his account. An action upon a check is
ordinarily governed by the statutory period applicable to instruments in writing. Our laws on the matter provide that the
action upon a written contract must be brought within ten years from the time the right of action accrues. Hence, the
reckoning time for the prescriptive period begins when the instrument was issued and the corresponding check was returned
by the bank to its depositor. Applying the same rule, the cause of action for the recovery of the proceeds of Citibank would
normally be a month after December 19, 1977, when Citibank paid the face value of the check in the amount of
P4,746,114.41. Since the original complaint for the cause of action was filed on January 20, 1984, barely six years had
lapsed. Thus, Ford's cause of action to recover the amount was seasonably filed within the period provided by law. Hence,
PCIB was declared solely responsible for the loss of the proceeds of Citibank in the amount P4,746,114.41, which shall be
paid together with 6% interest thereon to Ford from the date when the original complaint was filed until said amount is fully
paid.

G.R. No. 139130. November 27, 2002


RAMON K. ILUSORIO
vs.
HON. COURT OF APPEALS, and THE MANILA BANKING CORPORATION
DOCTRINE: It is a rule that when a signature is forged or made without the authority of the person whose signature is forged
or made without the authority of the person whose signature it purports to be, the check is wholly inoperative. However, the
rule does provide for an exception, namely: ‘unless the party against whom it is sought to enforce such right is precluded
from setting up the forgery or want of authority.’ In the instant case, it is the exception that applies. Petitioner is precluded
from setting up the forgery, assuming there is forgery, due to his own negligence in entrusting to his secretary his credit
cards and checkbook including the verification of his statements of account

FACTS: Ilusorio was a businessman who was in charge of 20 or so corporations. He was a depositor in good standing of
Manila Banking Corporation. As he was in charge of a big number of corporations, he was usually out of the country for
business. He then entrusted his credit cards, checkbook, blank checks, passbooks, etc to his secretary, Katherine Eugenio.
Eugenio was also in charge of verifying and reconciling the statements of Ilusorio’s checking account.

Eugenio was able to encash and deposit to her personal account checks drawn against Ilusorio’s account with an aggregate
amount of 119K. Ilusorio didn’t bother to check his statement of account until a business partner informed him that he saw
Eugenio using his credit cards. Ilusorio then fired her and instituted criminal case of Estafa thru falsification against Eugenio.
Manila Banking Corp. also instituted a complaint of estafa against Eugenio based on the affidavit of Dante Razon, an
employee. Razon stated that he personally examined and scrutinized the encashed checks in accordance with their
verification procedures.

Manila Bank sought the expertise of NBI in determining the genuineness of the checks but Ilusorio failed to submit specimen
signatures and thus, NBI could not conduct the examination.

ISSUE: W/N Manila Bank is liable for damages for failing to detect a forged check

HELD: No. To be entitled to damages, Ilusorio has the burden of poving that the bank was negligent in failing to detect the
discrepancy in the signatures on the checks. Ilusorio had to establish the fact of forgery which he failed to do by failing to
submit his specimen signatures for NBI to conclusively establish forgery.

Furthermore, the Bank was not negligent in verifying the checks as they verified the drawer’s signatures against their
specimen signatures and in doubt, referred to more experienced verifier for further verification.

On the contrary, it was Ilusorio who was found to be negligent. He accorded his secretary with an unusual degree of trust
and unrestricted access to his finances. Furthermore, despite the fact that the bank was regularly sending statements of
account, he failed to check them until he found out that his secretary was using his credit cards.

Sec. 23 of the Negotiable Instruments law provides that a forged check is inoperative, meaning there was no right to enforce
payment against any party. But it also provides an exception: “unless the party against whom it is sought enforce such right
is precluded from setting up the forgery or want of authority”. This case falls under the exception since Ilusorio is precluded
from setting up forgery due to his own negligence considering that he allowed his secretary access to his credit cards,
checkbook, and allowed his secretary to verify his statements of account.

G.R. No. 129015. August 13, 2004


SAMSUNG CONSTRUCTION COMPANY PHILIPPINES, INC.
vs.
FAR EAST BANK AND TRUST COMPANY AND COURT OF APPEALS
DOCTRINE: The bare fact that the forgery was committed by an employee of the party whose signature was forged cannot
necessarily imply that such party’s negligence was the cause of the forgery. Employers do not possess the preternatural
gift of cognition as to the evil that may lurk within the hearts and minds of their employees.

FACTS: Petitioner maintained a current account with respondent bank. The sole signatory to petitioner’s account was Jong
Kyu Lee ("Jong"), its Project Manager, while the checks remained in the custody of the company’s accountant, Kyu Yong
Lee ("Kyu"). A certain Roberto Gonzaga presented for payment FEBTC Check to the bank. The check, payable to cash and
drawn against Samsung Construction’s current account, was in the amount of P999, 500.00. After the bank teller
ascertained that there were enough funds to cover the check and compared the signature as contained in the specimen
signature, the bank teller forwarded the check with two other bank branch officers, who counterchecked the signature. One
of the bank officers noticed Sempio, the assistant accountant of Samsung Construction, was also in the bank and when
asked, Sempio vouched for the genuineness of Jong’s signature. The following day, Kyu examined the balance of the bank
account and discovered that a check amounting to P999, 500.00 had been encashed. Aware that he had not prepared such
a check for Jong’s signature, Kyu perused the checkbook and found that the last blank check was missing. He reported the
matter to Jong, who then proceeded to the bank. Jong learned of the encashment of the check, and realized that his
signature had been forged. Samsung Construction filed before the RTC against respondent bank for violation of Section 23
of the Negotiable Instruments Law who ruled in favor of Samsung Construction while the CA reversed the RTC Decision
and absolved FEBTC from any liability. The Court of Appeals invoked the ruling in PNB v. National City Bank of New York
that, if a loss, which must be borne by one or two innocent persons, can be traced to the neglect or fault of either, such loss
would be borne by the negligent party, even if innocent of intentional fraud. (equity principle).

ISSUE: WON Samsung Construction was precluded from setting up the defense of forgery under Section 23 of the
Negotiable Instruments Law?

HELD: No. On the premise that Jong’s signature was indeed forged, FEBTC is liable for the loss since it authorized the
discharge of the forged check. Such liability attaches even if the bank exerts due diligence and care in preventing such
faulty discharge. Forgeries often deceive the eye of the most cautious experts; and when a bank has been so deceived, it
is a harsh rule which compels it to suffer although no one has suffered by its being deceived. The forgery may be so near
like the genuine as to defy detection by the depositor himself, and yet the bank is liable to the depositor if it pays the check.
The Court recognize that Section 23 of the Negotiable Instruments Law bars a party from setting up the defense of forgery
if it is guilty of negligence. Yet, we are unable to conclude that Samsung Construction was guilty of negligence in this case.
The appellate court failed to explain precisely how the Korean accountant was negligent or how more care and prudence
on his part would have prevented the forgery. We cannot sustain this "tar and feathering" resorted to without any basis.
When the bank receives the deposit, it impliedly agrees to pay ONLY UPON THE DEPOSITOR’S ORDER. When the Bank
pays a check, on which the depositor’s signature is a forgery, it has failed to comply with its contract in this respect.

G.R. No. L-17845 April 27, 1967


INTESTATE ESTATE OF VICTOR SEVILLA. SIMEON SADAYA
vs.
FRANCISCO SEVILLA
DOCTRINE: A solidary accommodation maker who made payment has the right to contribution from is co-accommodation
makers, in the absence of agreement to the contrary between them, and subject to conditions imposed by law.

FACTS: Sadaya, Sevilla and Varona signed solidarily a promissory note in favor of the bank. Varona was the only one who
received the proceeds of the note. Sadaya and Sevilla both signed as co-makers to accommodate Varona. Thereafter, the
bank collected from Sadaya. Varona failed to reimburse.

Consequently, Sevilla died and intestate estate proceedings were established. Sadaya filed a creditor’s claim on his
estate for the payment he made on the note. The administrator resisted the claim on the ground that Sevilla didn't receive
any proceeds of the loan. The trial court admitted the claim of Sadaya though tis was reversed by the CA.

ISSUE: W/N Sadaya can claim against the estate of Sevilla as co-accomodation party when Verona as principal debtor is
not yet insolvent

HELD: NO. Sadaya could have sought reimbursement from Varona, which is right and just as the latter was the only one
who received value for the note executed. There is an implied contract of indemnity between Sadaya and Varona upon the
former’s payment of the obligation to the bank.

Surely enough, the obligations of Varona and Sevilla to Sadaya cannot be joint and several. For indeed, had payment been
made by Varona, Varona couldn't had reason to seek reimbursement from either Sadaya or Sevilla. After all, the proceeds
of the loan went to Varona alone.

On principle, a solidary accommodation maker—who made payment—has the right to contribution, from his co-
accomodation maker, in the absence of agreement to the contrary between them, subject to conditions imposed by law.
This right springs from an implied promise to share equally the
burdens thay may ensue from their having consented to stamp their signatures on the promissory note.

The following are the rules:

1. A joint and several accommodation maker of a negotiable promissory note may demand from the principal debtor
reimbursement for the amount that he paid to the payee

2. A joint and several accommodation maker who pays on the said promissory note may directly demand reimbursement
from his co-accommodation maker without first directing his action against the
principal debtor provided that
a. He made the payment by virtue of a judicial demand
b. A principal debtor is insolvent.

It was never shown that there was a judicial demand on Sadaya to pay the obligation and also, it was never proven that
Varona was insolvent. Thus, Sadaya cannot proceed against Sevilla for reimbursement.

G.R. No. 80599 September 15, 1989


ERNESTINA CRISOLOGO-JOSE,
vs.
COURT OF APPEALS and RICARDO S. SANTOS, JR. in his own behalf and as Vice-President for Sales of Mover
Enterprises, Inc.
DOCTRINE: Sec.29, NIL does not include nor apply to corporations which are accommodation parties, because the issue
or endorsement of negotiable paper by a corporation without consideration and for the accommodation of another is ultra
vires. By way of exception, an officer or agent of a corporation shall have the power to execute or endorse a negotiable
paper in the name of the corporation for the accommodation of a third person only if specifically authorized to do so.

FACTS: The Vice-president of Mover Enterprises, Inc. issued a check drawn against Traders Royal Bank, payable to
petitioner Ernestina Crisologo-Jose, for the accommodation of his client. Petitioner-payee was charged with the knowledge
that the check was issued at the instance and for the personal account of the President who merely prevailed upon
respondent vice-president to act as co-signatory in accordance with the arrangement of the corporation with its depository
bank. While it was the corporation's check which was issued to petitioner for the amount involved, petitioner actually had
no transaction directly with said corporation.

ISSUE: WON private respondent, one of the signatories of the check issued under the account of Mover Enterprises, Inc.,
is an accommodation party under NIL and a debtor of petitioner to the extent of the amount of said check.

HELD: Yes. To be considered an accommodation party, a person must (1) be a party to the instrument, signing as maker,
drawer, acceptor, or indorser, (2) not receive value therefor, and (3) sign for the purpose of lending his name for the credit
of some other person. It is not a valid defense that the accommodation party did not receive any valuable consideration
when he executed the instrument. He is liable to a holder for value as if the contract was not for accommodation, in whatever
capacity such accommodation party signed the instrument, whether primarily or secondarily. Thus, it has been held that in
lending his name to the accommodated party, the accommodation party is in effect a surety for the latter. The foregoing
notwithstanding, the liability of an accommodation party to a holder for value, although such holder does not include nor
apply to corporations which are accommodation parties. This is because the issue or indorsement of negotiable paper
by a corporation without consideration and for the accommodation of another is ultra vires. One who has taken the
instrument with knowledge of the accommodation nature thereof cannot recover against a corporation where it is only an
accommodation party. By way of exception, an officer or agent of a corporation shall have the power to execute or indorse
a negotiable paper in the name of the corporation for the accommodation of a third person only if specifically authorized to
do so. Corollary, corporate officers, such as the president and vice-president, have no power to execute for mere
accommodation a negotiable instrument of the corporation for their individual debts or transactions arising from or in relation
to matters in which the corporation has no legitimate concern. Since such accommodation paper cannot thus be enforced
against the corporation, especially since it is not involved in any aspect of the corporate business or operations, the
signatories thereof (president and vice-president) shall be personally liable therefor, as well as the consequences arising
from their acts in connection therewith.

G.R. No. 96160 June 17, 1992


STELCO MARKETING CORPORATION
vs.
HON. COURT OF APPEALS and STEELWELD CORPORATION OF THE PHILIPPINES, INC
DOCTRINE: A holder of a check who is not a holder in due course cannot sue the drawer-accommodation party. The
Steelweld check was given by its president to R.Y. Lim only by way of accommodation, to be used as collateral for another
obligation. In breach of trust, R.Y. Lim endorsed the check in payment of an obligation to a third person, Armstrong. When
the latter deposited the same, it was dishonored and after the dishonor, Stelco came into possession of it. Stelco’s mere
possession of the check does not make it a holder for value and gives no rise to liability on the part of the accommodation
party, Steelweld, under Sec.29, NIL.

FACTS: Petitioner was engaged in the distribution and sale of structural steel bars. RYL bought on several occasion large
quantities of steel bars but the same were never paid for despite several demands by petitioner. On a relevant date, RYL
gave to Armstrong Industries a check in payment of its obligations. That check was a company check of another corporation,
Steelweld Corporation of the Philippines, signed by its President, Peter Rafael Limson, and VP. The check was issued by
Limson at the behest of his friend, Romeo Y. Lim, President of RYL. Romeo Lim had asked Limson, for financial assistance,
and the latter had agreed to give Lim a check only by way of accommodation, "only as guaranty but not to pay for anything.
Stelco filed a complaint against RYL and Steelweld for the recovery of sum of money in payment of the steel bars
ordered on the ground that the said check has been given for payment of steel bars.

ISSUE NO. 1 WON the fourth condition, i.e. as to notice, for a holder in due course is applicable to an accommodation
party?

HELD: "A holder in due course," says the law, "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 persons negotiating
it." As regards an accommodation party (such as STEELWELD), the fourth condition, i.e., lack of notice of any infirmity in
the instrument or defect in title of the persons negotiating it, has no application. This is because Section 29 of the law above
quoted preserves the right of recourse of a "holder for value" against the accommodation party notwithstanding that "such
holder, at the time of taking the instrument, knew him to be only an accommodation party."

ISSUE NO.2: WON STELCO ever became a holder in due course of Check 765380, a bearer instrument within the
contemplation of the Negotiable Instruments Law?

HELD: NO. It never did. There is no evidence whatever that STELCO's possession of Check 765380 ever dated back to
any time before the instrument's presentment and dishonor. There is no evidence whatsoever that the check was ever given
to it, or indorsed to it in any manner or form in payment of an obligation or as security for an obligation, or for any other
purpose before it was presented for payment. On the contrary, STELCO never became a holder for value and that
"(n)owhere in the check itself does the name of Stelco Marketing appear as payee, indorsee or depositor thereof." What the
record shows is that: (1) the STEELWELD company check in question was given by its president to R.Y. Lim; (2) it was
given only by way of accommodation, to be "used as collateral for another obligation;" (3) in breach of the agreement,
however, R.Y. Lim indorsed the check to Armstrong in payment of an obligation; (4) Armstrong deposited the check to its
account, after indorsing it; (5) the check was dishonored. The record does not show any intervention or participation by
STELCO in any manner or form whatsoever in these transactions, or any communication of any sort between STEELWELD
and STELCO, or between either of them and Armstrong Industries, at any time before the dishonor of the check. The record
does show that after the check had been deposited and dishonored, STELCO came into possession of it in some way, and
was able, several years after the dishonor of the check, to give it in evidence at the trial of the civil case it had instituted
against the drawers of the check (Limson and Torres) and RYL. Possession of a negotiable instrument after presentment
and dishonor, or payment, is utterly inconsequential; it does not make the possessor a holder for value within the meaning
of the law; it gives rise to no liability on the part of the maker or drawer and indorsers. It is clear from the relevant
circumstances that STELCO cannot be deemed a holder of the check for value. It does not meet two of the essential
requisites prescribed by the statute. It did not become "the holder of it before it was overdue, and without notice that it had
been previously dishonored," and it did not take the check "in good faith and for value." Neither is there any evidence
whatever that Armstrong Industries, to whom R.Y . Lim negotiated the check, accepted the instrument and attempted to
encash it in behalf, and as agent of STELCO. On the contrary, the indications are that Armstrong was really the intended
payee of the check and was the party actually injured by its dishonor; it was after all its representative (a Mr. Young) who
instituted the criminal prosecution of the drawers, Limson and Torres, albeit unsuccessfully.

G.R. No. L-56169 June 26, 1992


TRAVEL-ON, INC.
vs.
COURT OF APPEALS and ARTURO S. MIRANDA
DOCTRINE: An accommodating party lends his credit to the accommodated party by issuing or endorsing a check which is
held by a payee or endorsee as a holder in due course who gave full value therefor to the accommodated party. The
accommodated party receives full value, for which he must then repay the accommodating party unless of course the latter
intended to make a donation to the former. But the accommodating party is bound on the check to the holder in due course
who is necessarily a third person and is not the accommodated party.

FACTS: Petitioner Travel-On. Inc. (“Travel-On”) is a travel agency selling airline tickets on commission basis for and in
behalf of different airline companies. Private respondent Arturo S. Miranda had a revolving credit line with petitioner. He
procured tickets from petitioner on behalf of airline passengers and derived commissions therefrom. On 14 June 1972,
Travel-On filed suit before the Court of First Instance (“CFI”) of Manila to collect on six (6) checks issued by private
respondent with a total face amount of P115,000.00. The complaint, with a prayer for the issuance of a writ of preliminary
attachment and attorney’s fees, averred that from 5 August 1969 to 16 January 1970, petitioner sold and delivered various
airline tickets to respondent at a total price of P278,201.57; that to settle said account, private respondent paid various
amounts in cash and in kind, and thereafter issued six (6) postdated checks amounting to P115,000.00 which were all
dishonored by the drawee banks. Travel-On further alleged that in March 1972, private respondent made another payment
of P10,000.00 reducing his indebtedness to P105,000.00. The writ of attachment was granted by the court a quo. In his
answer, private respondent admitted having had transactions with Travel-On during the period stipulated in the complaint.
Private respondent, however, claimed that he had already fully paid and even overpaid his obligations and that refunds
were in fact due to him. He argued that he had issued the postdated checks for purposes of accommodation, as he had in
the past accorded similar favors to petitioner. During the proceedings, private respondent contested several tickets alleged
to have been erroneously debited to his account. He claimed reimbursement of his alleged over payments, plus litigation
expenses, and exemplary and moral damages by reason of the allegedly improper attachment of his properties.

ISSUE: Whether or not petitioner is an accommodated party.

HELD: No. In accommodation transactions recognized by the Negotiable Instruments Law, an accommodating party lends
his credit to the accommodated party, by issuing or indorsing a check which is held by a payee or indorsee as a holder in
due course, who gave full value therefor to the accommodated party. The latter, in other words, receives or realizes full
value which the accommodated party then must repay to the accommodating party, unless of course the accommodating
party intended to make a donation to the accommodated party. But the accommodating party is bound on the check to the
holder in due course who is necessarily a third party and is not the accommodated party. Having issued or indorsed the
check, the accommodating party has warranted to the holder in due course that he will pay the same according to its tenor.

Travel-On was entitled to the benefit of the statutory presumption that it was a holder in due course, that the checks were
supported by valuable consideration. Private respondent maker of the checks did not successfully rebut these presumptions.
The only evidence aliunde that private respondent offered was his own self-serving uncorroborated testimony. He claimed
that he had issued the checks to Travel-On as payee to “accommodate” its General Manager who allegedly wished to show
those checks to the Board of Directors of Travel-On to “prove” that Travel-On’s account receivables were somehow “still
good.” It will be seen that this claim was in fact a claim that the checks were merely simulated, that private respondent did
not intend to bind himself thereon. Only evidence of the clearest and most convincing kind will suffice for that purpose; no
such evidence was submitted by private respondent. The latter’s explanation was denied by Travel-On’s General Manager;
that explanation, in any case, appears merely contrived and quite hollow to us. Upon the other hand, the “accommodation”
or assistance extended to Travel-On’s passengers abroad as testified by petitioner’s General Manager involved, not the
accommodation transactions recognized by the NIL, but rather the circumvention of then existing foreign exchange
regulations by passengers booked by Travel-On, which incidentally involved receipt of full consideration by private
respondent.

G.R. No. 112392. February 29, 2000


BANK OF THE PHILIPPINE ISLANDS
vs.
COURT OF APPEALS and BENJAMIN C. NAPIZA
DOCTRINE: Ordinarily, Napiza having affixed his signature at the dorsal side of the check, should be liable for the amount
stated therein in accordance with Sec.66, NIL (i.e.: as a general indorser, and not as an accommodation maker), however,
to hold him liable by the strict application of the law would result in injustice. The proximate cause of the withdrawal and
eventual loss on BPI’s part was its own personnel’s negligence in allowing withdrawals in disregard of its own rules and the
clearing requirement in the banking system. In so doing, BPI assumed the risk of a forged or counterfeit foreign check and
hence, should suffer the resulting damage.

FACTS: A certain Henry Chan owned a Continental Bank Manager’s Check payable to "cash" in the amount of Two
Thousand Five Hundred Dollars ($2,500.00). Chan went to the office of Benjamin Napiza and requested him to deposit the
check in his dollar account by way of accommodation and for the purpose of clearing the same. Private respondent acceded,
and agreed to deliver to Chan a signed blank withdrawal slip, with the understanding that as soon as the check is cleared,
both of them would go to the bank to withdraw the amount of the check upon private respondent’s presentation to the bank
of his passbook. Napiza thus endorsed the check and deposited it in a Foreign Currency Deposit Unit (FCDU) Savings
Account he maintained with BPI. Using the blank withdrawal slip given by private respondent to Chan, one Ruben Gayon,
Jr. was able to withdraw the amount of $2,541.67 from Napiza's FCDU account. It turned out that said check deposited by
private respondent was a counterfeit check.

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

**Petitioner claims that private respondent, having affixed his signature at the dorsal side of the check, should be liable for
the amount stated therein in accordance with the provision of the Negotiable Instruments Law on the liability of a general
indorser (Sec. 66).

ISSUE:* Whether private respondent is obliged to return the money paid out by BPI on a counterfeit check even if he
deposited the check "for clearing purposes" only to accommodate Chan.
ISSUE:** Whether or not respondent Napiza is liable under his warranties as a general indorser.

HELD: Ordinarily private respondent may be held liable as an indorser of the check or even as an accommodation party.
However, petitioner BPI, in allowing the withdrawal of private respondent’s deposit, failed to exercise the diligence of a good
father of a family. BPI violated its own rules by allowing the withdrawal of an amount that is definitely over and above the
aggregate amount of private respondent’s dollar deposits that had yet to be cleared. The proximate cause of the eventual
loss of the amount of $2,500.00 on BPI's part was its personnel’s negligence in allowing such withdrawal in disregard of its
own rules and the clearing requirement in the banking system. In so doing, BPI assumed the risk of incurring a loss on
account of a forged or counterfeit foreign check and hence, it should suffer the resulting damage.

G.R. No. 117660. December 18, 2000


AGRO CONGLOMERATES, INC. and MARIO SORIANO
vs.
THE HON. COURT OF APPEALS and REGENT SAVINGS and LOAN BANK, INC.
DOCTRINE: An accommodation party has the right, after paying the holder, to obtain reimbursement from the party
accommodated, since the relationship between them has in effect become one of principal and surety, the accommodation
party being the surety.

FACTS: Petitioner Agro-Conglomerates, Inc. as vendor, sold two parcels of land to Wonderland Food Industries, Inc. The
vendor, the vendee, and the respondent bank Regent Savings & Loan Bank, executed an Addendum4 to the previous
Memorandum of Agreement. It provided, among others, that the vendee undertakes to pay the loan procured in the name
of the VENDOR, the VENDEE will be the one liable to pay the entire proceeds thereof including interest and other charges.
Consequently, petitioner Mario Soriano signed as maker several promissory notes,6 payable to the respondent bank.
Thereafter, the bank released the proceeds of the loan to petitioners. However, petitioners failed to meet their obligations
as they fell due Mario Soriano manifested his intention to re-structure the loan, yet did not show up nor submit his formal
written request.

ISSUE: Whether or not petitioner is liable as an accommodation party.

HELD: By this time, we note a subsidiary contract of suretyship had taken effect since petitioners signed the promissory
notes as maker and accommodation party for the benefit of Wonderland. Petitioners became liable as accommodation
party. He has the right, after paying the holder, to obtain reimbursement from the party accommodated, since the relation
between them has in effect become one of principal and surety, the accommodation party being the surety. The surety’s
liability to the creditor or promisee of the principal is said to be direct, primary and absolute; in other words, he is directly
and equally bound with the principal. And the creditor may proceed against any one of the solidary debtors.

G.R. No. L-15126 November 30, 1961


VICENTE R. DE OCAMPO & CO.
vs.
ANITA GATCHALIAN, ET AL.
DOCTRINE: Where a holder’s title is defective or suspicious, it cannot be stated that the payee acquired the check without
the knowledge of such defect in holder’s title, and for this reason the presumption that he is a holder in due course or that
he acquired the instrument in good faith does not exist. Where the payee acquired the check under circumstances which
should have put him on inquiry (i.e.: why the holder had the check and used it to pay his own personal account) the duty
devolved upon him to prove that he actually acquired the check in good faith.

FACTS: 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: 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 he’s 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 latter’s title to the check was or the nature of his possession.

G.R. No. 70145 November 13, 1986


MARCELO A. MESINA
vs.
THE HONORABLE INTERMEDIATE APPELLATE COURT, HON. ARSENIO M. GONONG, in his capacity as Judge of
Regional Trial Court — Manila (Branch VIII), JOSE GO, and ALBERT UY
DOCTRINE: The holder of a cashier’s check who is not a holder in due coruse cannot enforce such check against the
issuing bank which dishonors the same. If a payee of a cashier’s check obtained it from the issuing bank by fraud, or if there
is some other reason why the payee is not entitled to collect the check, the bank would, of course, have the right to refuse
payment on the check when presented by the payee since the bank was aware of the facts and circumstances surrounding
the check.

FACTS: Jose Go purchased from Associated Bank a cashier's check for P800,000.00. Unfortunately, he left said check on
the top of the desk of the bank manager when he left the bank. The bank manager entrusted the check for safekeeping to
a bank official, a certain Albert Uy. While Uy went to the men's room, the check was stolen by his visitor in the person of
Alexander Lim. Upon discovering that the check was lost, Jose Go accomplished a "STOP PAYMENT" order. Two days
later, Associated Bank received the lost check for clearing from Prudential Bank. After dishonoring the same check twice,
Associated Bank received summons and copy of a complaint for damages of Marcelo Mesina who was in possession of the
lost check and is demanding payment. Petitioner claims that a cashier's check cannot be countermanded in the hands of a
holder in due course.

ISSUE: WON petitioner can collect on the stolen check on the ground that he is a holder in due course?

HELD: No. Petitioner failed to substantiate his claim that he is a holder in due course and for consideration or value as
shown by the established facts of the case. Admittedly, petitioner became the holder of the cashier's check as endorsed by
Alexander Lim who stole the check. He refused to say how and why it was passed to him. He had therefore notice of the
defect of his title over the check from the start. The holder of a cashier's check who is not a holder in due course cannot
enforce such check against the issuing bank which dishonors the same. A person who became the holder of a cashier's
check as endorsed by the person who stole it and who refused to say how and why it was passed to him is not a holder in
due course.

G.R. No. L-39641 February 28, 1983


METROPOL (BACOLOD) FINANCING & INVESTMENT CORPORATION
vs.
SAMBOK MOTORS COMPANY and NG SAMBOK SONS MOTORS CO., LTD.
DOCTRINE: ‘Recourse’ means resort to a person who is secondarily liable after the default if the person who is primarily
liable. Sambok, by endorsing the note ‘with recourse’ does not make itself a qualified endorser but a general endorser who
is secondarily liable.
FACTS: Sambok Motors Company negotiated and indorsed the note in favor of plaintiff Metropol Financing & Investment
Corporation with the following indorsement: "Pay to the order of Metropol Bacolod Financing & Investment Corporation with
recourse. Notice of Demand; Dishonor; Protest; and Presentment are hereby waived. SAMBOK MOTORS CO. (BACOLOD)
By: RODOLFO G. NONILLO Asst. General Manager". The maker, Dr. Villaruel defaulted in the payment. Plaintiff notified
Sambok as indorsee of said note of the fact that the same has been dishonored and demanded payment. Sambok failed to
pay. Trial court rendered its decision in favor of Plaintiff. Appellant Sambok argues that by adding the words "with recourse"
in the indorsement of the note, it becomes a qualified indorser; that being a qualified indorser, it does not warrant that if said
note is dishonored by the maker on presentment, it will pay the amount to the holder.

ISSUE: WON Sambok is a qualified indorser?

HELD: Appellant, by indorsing the note "with recourse'' does not make itself a qualified indorser but a general
indorser who is secondarily liable, because by such indorsement, it agreed that if Dr. Villaruel fails to pay the note, plaintiff-
appellee can go after said appellant. The effect of such indorsement is that the note was indorsed without qualification. A
person who indorses without qualification engages that on due presentment, the note shall be accepted or paid, or both as
the case may be, and that if it be dishonored, he will pay the amount thereof to the holder. Appellant Sambok's intention of
indorsing the note without qualification is made even more apparent by the fact that the notice of' demand, dishonor, protest
and presentment were all waived. The words added by said appellant do not limit his liability, but rather confirm his
obligations as a general indorser.

G.R. No. 130756. January 21, 1999


ESTER B. MARALIT
vs.
JESUSA CORAZON L. IMPERIAL
DOCTRINE: Notwithstanding criminal liability, Imperial is still civilly liable on the checks, having signed the same as a
general endorser. The dispositive portion acquitting her dealt only with her criminal liability, not her civil liability.

FACTS: Petitioner Maralit claimed that, as a consequence of the materially altered treasury warrant encashed by respondent
imperial, she was held personally liable by the PNB for the total amount of P320,287.30. However, respondent claimed that
she merely helped a relative, Aida Abengoza, to encash the treasury warrant and that she did not know the amounts were
altered nor did she represent to petitioner that the treasury warrants are genuine and that upon being informed of dishonor,
she immediately contacted her relative and signed an acknowledgement to pay the total amount of the treasury warrant.

ISSUE: Whether or not respondent should be held liable as a general indorse.

HELD: The Court symphatizes with the petitioner that there was indeed damage and loss, but said loss is chargeable to the
respondent who upon her indorsements warrant that the instrument is genuine in all respect what it purports to be and that
she will pay the amount thereof in case of dishonor. Thus, while the MTC found petitioner partly responsible for the
encashment of the altered checks, it found respondent civilly liable because of her indorsements of the treasury warrants,
in addition to the fact that respondent executed a notarized acknowledgment of debt promising to pay the total amount of
said warrants.

G.R. No. 128927. September 14, 1999


REMEDIOS NOTA SAPIERA
vs.
COURT OF APPEALS and RAMON SUA
DOCTRINE: Sec.17, NIL states that where a signature is so placed upon the instrument that it is not clear in what capacity
the person making it intended to sign, he is deemed an endorser. Under Sec.63, NIL, a person placing his signature other
than as maker, drawer, or acceptor, is deemed to be an endorser unless an intention to be bound in some other capacity
can be shown. The liabilities of a general endorser are set forth in Sec.606, NIL. It is undisputed that the 4 checks were
signed by petitioner at the back without any indication as to how she would be bound thereby, and therefore, she is deemed
to be an endorser thereof.

FACTS: Petitioner Remedios Sapiera, a sari-sari store owner, was issued by one Arturo de Guzman checks as payment
for purchases he made at her store. She used said checks to pay for certain items she purchased from the grocery store
of Ramon Sua. These checks were signed at the back by petitioner. When presented for payment the checks were
dishonored because the drawer’s account was already closed. Sua informed Arturo de Guzman and petitioner about the
dishonor but both failed to pay the value of the checks. Petitioner was acquitted in the charge of estafa filed against her but
she was found liable for the value of the checks.

ISSUE: Whether petitioner is liable for the value of the checks even if she signed the subject checks only for the identification
of the signature of Arturo de Guzman.
RULING: Petitioner is liable for the value of the checks. As she (petitioner) signed the subject checks on the reverse side
without any indication as to how she should be bound thereby, she is deemed to be an unqualified indorser thereof. Every
indorser who indorses without qualification, warrants to all subsequent holders in due course that, on due presentment, it
shall be accepted or paid or both, according to its tenor, and that if it be dishonored and the necessary proceedings on
dishonor be duly taken, he will pay the amount thereof to the holder or to any subsequent indorser who may be compelled
to pay it.

G.R. No. 74886 December 8, 1992


PRUDENTIAL BANK
vs.
INTERMEDIATE APPELLATE COURT, PHILIPPINE RAYON MILLS, INC. and ANACLETO R. CHI
DOCTRINE: Presentment for acceptance is necessary only in the cases expressly provided for in Sec.143, NIL. Sight draft
do not require presentment for acceptance. Corollarily, sight drafts, pursuant to sec.7, NIL are payable on demand.

FACTS: Philippine Rayon Mills, Inc.(PRMI) entered into a contract with Nissho Co., Ltd. of Japan for the importation of
textile machineries under a 5-year deferred payment plan. To effect the payment, PRMI applied for a commercial letter of
credit with the Prudential Bank and Trust Company in favor of Nissho. Prudential Bank opened Letter of Credit No. DPP-
63762 for $128,548.78 Against this letter of credit, drafts were drawn and issued by Nissho, which were all paid by the
Prudential Bank through its correspondent in Japan, the Bank of Tokyo, Ltd. Two of the original drafts were accepted by
PRMI through its president, Anacleto R. Chi, while the others were not. Upon the arrival of the machineries, the Prudential
Bank indorsed the shipping documents to the PRMI which accepted delivery of the same. To enable PRMI to take delivery
of the machineries, it executed, by prior arrangement with the Prudential Bank, a trust receipt which was signed by Anacleto
R. Chi in his capacity as President of PRMI company

At the back of the trust receipt was printed a form to be accomplished by 2 sureties who, by the very terms and conditions
thereof, were to be jointly and severally liable to the Prudential Bank should the PRMI fail to pay the total amount or any
portion of the drafts issued by Nissho and paid for by Prudential Bank. . PRMI was able to take delivery of the textile
machineries and installed the same at its factory site. Chi argued that presentment for acceptance was necessary to make
PRMI liable. The trial court ruled that that presentment for acceptance was an indispensable requisite for Philippine Rayon’s
liability on the drafts to attach.

ISSUE: Whether or not presentment for acceptance was needed in order for PRMI to be liable under the draft.

HELD: Presentment for acceptance is defined an the production of a bill of exchange to a drawee for acceptance.
Acceptance, however, was not even necessary in the first place because the drafts which were eventually issued were sight
drafts. Even if these were not sight drafts, thereby necessitating acceptance, it would be the Bank (Bank of America) — and
not Philippine Rayon — which had to accept the same for the latter was not the drawee.

The trial court and the public respondent, therefore, erred in ruling that presentment for acceptance was an indispensable
requisite for Philippine Rayon’s liability on the drafts to attach. Contrary to both courts’ pronouncements, Philippine Rayon
immediately became liable upon Bank of America’s payment on the letter of credit. Such is the essence of the letter of credit
issued by the petitioner. A different conclusion would violate the principle upon which commercial letters of credit are
founded because in such a case, both the beneficiary and the issuer, Nissho Company Ltd. and the petitioner, respectively,
would be placed at the mercy of Philippine Rayon even if the latter had already received the imported machinery and the
petitioner had fully paid for it.

In fact, there was no need for acceptance as the issued drafts are sight drafts. Presentment for acceptance is necessary
only in the cases expressly provided for in Section 143 of the Negotiable Instruments Law (NIL).

In the instant case then, the drawee was necessarily the herein the Bank of America. It was to the latter that the drafts were
presented for payment.

G.R. No. 117857. February 2, 2001


LUIS S. WONG
vs.
COURT OF APPEALS and PEOPLE OF THE PHILIPPINES
DOCTRINE: Nowhere in Batas Pambansa 22 is a person required to maintain funds in his account for only 90 days. That
the check must be deposited within 90 days is simply one of the conditions for the prima facie presumption of knowledge of
lack of funds to arise. Corollarily, under Sec.185, NIL, 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.
FACTS: Petitioner Wong was an agent of Limtong Press. Inc. (LPI). LPI would print sample calendars, then give them to
agents to present to customers. The agents would get the purchase orders of customers and forward them to LPI. After
printing the calendars, LPI would ship the calendars directly to the customers. Thereafter, the agents would come around
to collect the payments. Petitioner, however, had a history of unremitted collections, which he duly acknowledged in a
confirmation receipt he co-signed with his wife. Hence, petitioner’s customers were required to issue post-dated checks
before LPI would accept their purchase orders. Wong issued six (6) post- dated checks initially intended to guarantee the
calendar orders of customers who failed to issue post-dated checks. However, following company policy, LPI refused to
accept the checks as guarantees. Instead, the parties agreed to apply the checks to the payment of petitioner’s unremitted.
Before the maturity of the checks, petitioner prevailed upon LPI not to deposit the checks and promised to replace them
within 30 days. However, petitioner reneged on his promise. LPI deposited the checks with Rizal Commercial Banking
Corporation (RCBC) which were returned because the account was closed. Despite receipt of the notice of dishonor,
petitioner failed to make arrangements for payment within five (5) banking days so he was charged with violation of BP 22.

ISSUE: What constitutes REASONABLE TIME for checks?

HELD: Contrary to petitioner’s assertions, the law does not require a maker to maintain funds in his bank account for only
90 days. 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. Private respondent
herein deposited the checks 157 days after the date of the check. Hence said checks cannot be considered stale. Only the
presumption of knowledge of insufficiency of funds was lost, but such knowledge could still be proven by direct or
circumstantial evidence. As found by the trial court, private respondent did not deposit the checks because of the
reassurance of petitioner 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, petitioner 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 petitioner had knowledge of the
insufficiency of his funds in or credit with the drawee bank at the time of issuance of the checks. And despite petitioner’s
insistent plea of innocence, we find no error in the respondent court’s affirmance of his conviction by the trial court for
violations of the Bouncing Checks Law.

G.R. No. 141968. February 12, 2001


THE INTERNATIONAL CORPORATE BANK (now UNION BANK OF THE PHILIPPINES)
vs.
SPS. FRANCIS S. GUECO and MA. LUZ E. GUECO
DOCTRINE: While it is true that failure to present for payment within a reasonable time will result in the discharge of the
drawer to the extent of the loss caused by the delay, failure to present on time does not totally wipe out all liability. The
original obligation to pay certainly has not been erased.

FACTS: Gueco spouses obtained a loan from ICB (now Union Bank) to purchase a car. In consideration, thereof, the debtors
executed PNs, and a chattel mortgage was made over the car. As the usual story goes, the spouses defaulted in payment
of their obligations and despite the lowering of the amount to be paid, they still failed to pay. Thereafter, they tendered a
manager’s check in favor of the bank. Nonetheless, the car was still detained for the spouses refused to sign the joint motion
to dismiss. The bank averred that the joint motion to dismiss is part of standard office procedure to preclude the filing of
other claims. Because of this, the spouses filed an action for damages against the bank. And by the time the case was
instituted, the check had become stale in the hands of the bank.

ISSUE: Whether or not the signing of the joint motion to dismiss a part of the compromise agreement between the spouses
and the bank

HELD:
No, it is not a part of the compromise agreement entered by the parties. And thus, the signing is dispensible in releasing
the car to the spouses. And on the ancillary issue of the case, which is the relevant issue for the subject, whether or not
the spouses should replace the check they paid to the bank after it became stale, the answer is yes. It appeared that the
check has not been encashed. The delivery of the manager’s check did not constitute payment. The original obligation to
pay still exists. Indeed, the circumstances that caused the non-presentment of the check should be considered to determine
who should bear the loss. In this case, ICB held on the check and refused to encash the same because of the controversy
surrounding the signing of the joint motion to dismiss. There is no bad faith
or negligence on the part of ICB.

A stale check is one which has not been presented for payment within a reasonable time after its issue. It is valueless and,
therefore, should not be paid. A check should be presented for payment within a reasonable time after its issue. Here,
what is involved is a manager’s check, which is essentially a bank’s own check and may be treated as a PN with the bank
as a maker. Even assuming that presentment is needed, failure to present for payment within a reasonable time will result
to the discharge of the drawer only to the extent of the loss caused by the delay—but here there is no loss sustained. Still,
such failure to present on time does not wipe out liability.

G.R. No. 71694 August 16, 1991


NYCO SALES CORPORATION
vs.
BA FINANCE CORPORATION, JUDGE ROSALIO A. DE LEON—REGIONAL TRIAL COURT, BR. II, INTERMEDIATE
APPELLATE COURT, FIRST CIVIL CASES DIVISION
DOCTRINE: 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.

FACTS: Nyco Sales has discounting privileges with BA Finance. In 1978, brothers Renato Fernandez and Santiago Renato
(officers of Sanshell Corporation) approached Rufino Yao, president and general manager of Nyco Sales Corporation (Nyco)
for a credit accommodation in order for the brothers to make use of Nyco’s discounting privileges. Nyco agreed and so on
November 15, 1978, Sanshell issued a post-dated (November 17, 1978) BPI check to Nyco in the amount of P60,000.
Following the discounting process agreed upon, Nyco, thru its president Rufino Yao, endorsed the check in favor of BA
Finance. Thereafter, BA Finance issued a check payable to Nyco 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 (assignor) in favor of BA Finance (assignee) with the conformity of Sanshell. The check bounced. BA Finance notified
Sanshell. Sanshell substituted the BPI check with a Security Bank and Trust Company check. This check again bounced.
BA Finance made repeated demands to Nyco and Sanshell but neither of the two settled the obligation. Hence, BA Finance
sued Nyco who averred that it received no notice of dishonor when the second check was dishonored.

ISSUE: WON Nyco Sales is liable to pay BA Finance?

HELD: Yes. The relationship between Nyco and BA Finance is one of assignor-assignee. The assignor-vendor 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’s 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
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.

G.R. No. 101163 January 11, 1993


STATE INVESTMENT HOUSE, INC.
vs.
COURT OF APPEALS and NORA B. MOULIC
DOCTRINE: That State Investment failed to give notice of dishonor to Moulic is of no moment. The need for such notice is
not absolute; there are exceptions under Sec.114, NIL (i.e.: when notice need not be given to drawer). Moulic already knew
of the dishonor because, by withdrawing her funds to protect herself, she could not have expected her checks to be honored.

The withdrawal of the money from the drawee bank to avoid liability on the checks cannot prejudice the rights of holders in
due course. The drawing and negotiation of a check have certain effects aside from the transfer of title or the incurring of
liability in regard to the instrument by the transferor. The holder who takes the negotiated paper makes a contract with the
parties on the face of the instrument. There is an implied representation that funds or credit are available for the payment
of the instrument in the bank upon which it is drawn. Consequently, the withdrawal of money renders Moulic liable to State
Investment, a holder in due course.

FACTS: New Sikatuna Wood Industries, Inc. requested for a loan from Chua. The latter agreed to grant the same subject
to the condition that the former should wait until December 1980 when he would have the money. In view of this agreement,
private respondent Chua issued three (3) "crossed checks" payable to New Sikatuna Wood Industries, Inc. all postdated
December 22, 1980. Subsequently, New Sikatuna entered into an agreement with herein petitioner State Investment House,
Inc. whereby New Sikatuna assigned and discounted with petitioner eleven (11) postdated checks including the
aforementioned three (3) postdated checks issued by Chua. The checks, however, were dishonored by reason of
"insufficient funds", "stop payment" and "account closed", respectively. Petitioner claims that despite demands on Chua to
make good said checks, the latter failed to pay the same necessitating the former to file an action for collection. When the
CA reversed the trial court ruling favoring State Investment House, the latter elevated the issue before the SC.

ISSUE: WON petitioner is a holder in due course as to entitle it to proceed against private respondents Chua for the amount
stated in the dishonored checks?

HELD: The Intermediate Appellate Court (now Court of Appeals), correctly elucidated that the effects of crossing a check
are: the check may not be encashed but only deposited in the bank; the check may be negotiated only once to one who has
an account with a bank; and 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, otherwise he is not a
holder in due course. It results therefore that when State Investment House rediscounted the check knowing that it was a
crossed check he was knowingly violating the avowed intention of crossing the check. Furthermore, his failure to inquire
from the holder, party defendant New Sikatuna Wood Industries, Inc., the purpose for which the three checks were cross
despite the warning of the crossing, prevents him from being considered in good faith and thus he is not a holder in due
course. Being not a holder in due course, plaintiff is subject to personal defenses, such as lack of consideration
between appellants and New Sikatuna Wood Industries. Note that under the facts the checks were postdated and issued
only as a loan to New Sikatuna Wood Industries, Inc. if and when deposits were made to back up the checks. Such deposits
were not made, hence no loan was made, hence, the three checks are without consideration (Sec. 28, Negotiable
Instruments Law).

G.R. No. L-26001 October 29, 1968


PHILIPPINE NATIONAL BANK
vs.
THE COURT OF APPEALS and PHILIPPINE COMMERCIAL AND INDUSTRIAL BANK
DOCTRINE: The case at the bench is unique in the sense that what was altered is the serial number of the check in question,
an item which, it can readily be observed, is not an essential requisite for negotiability under Section 1 of the Negotiable
Instruments Law.

FACTS: A check with serial number 7-3666-223-3, dated August 7, 1981 in the amount of P97,650.00 was issued by the
Ministry of Education and Culture payable to F. Abante Marketing. This check was drawn against Philippine National Bank
(herein petitioner). F. Abante Marketing, a client of Capitol City Development Bank (Capitol), deposited the questioned
check in its savings account with said bank. In turn, Capitol deposited the same in its account with the Philippine Bank of
Communications (PBCom) which, in turn, sent the check to petitioner for clearing. Petitioner cleared the check as good and,
thereafter, PBCom credited Capitol’s account for the amount stated in the check. However, petitioner PNB returned the
check to PBCom and debited PBCom’s account for the amount covered by the check, the reason being that there was a
“material alteration” of the check number. PBCom, as collecting agent of Capitol, then proceeded to debit the latter’s account
for the same amount. On the other hand, Capitol could not, in turn, debit F. Abante Marketing’s account since the latter had
already withdrawn the amount of the check.

ISSUE: WON AN ALTERATION OF THE SERIAL NUMBER OF A CHECK IS A MATERIAL ALTERATION UNDER THE
NEGOTIABLE INSTRUMENTS LAW?

HELD: No. An alteration is said to be material if it alters the effect of the instrument. It means an unauthorized change in an
instrument that purports to modify in any respect the obligation of a party or an unauthorized addition of words or numbers
or other change to an incomplete instrument relating to the obligation of a party. In other words, a material alteration is one
which changes the items which are required to be stated under Section 1 of the Negotiable Instrument Law. The case at
the bench is unique in the sense that what was altered is the serial number of the check in question, an item which,
it can readily be observed, is not an essential requisite for negotiability under Section 1 of the Negotiable
Instruments Law. The aforementioned alteration did not change the relations between the parties. The name of the drawer
and the drawee were not altered. The intended payee was the same. The sum of money due to the payee remained the
same. If the purpose of the serial number is merely to identify the issuing government office or agency, its alteration in this
case had no material effect whatsoever on the integrity of the check. The identity of the issuing government office or agency
was not changed thereby and the amount of the check was not charged against the account of another government office
or agency which had no liability under the check.

G.R. No. L-2861 February 26, 1951


ENRIQUE P. MONTINOLA
vs.
THE PHILIPPINE NATIONAL BANK, ET AL.
DOCTRINE: The insertion of the words "Agent, Phil. National Bank" which converts the bank from a mere drawee to a
drawer and therefore changes its liability, constitutes a material alteration of the instrument without the consent of the parties
liable thereon, and so discharges the instrument.

FACTS: In 1942, Mariano Ramos, as disbursing officer of an army division of United States Armed Forces in the Far East
(USAFFE) and based in Misamis Oriental, procured cash advances in the amount of Php800,000 with the Provincial
Treasurer (PT) of Lanao for the use of USAFFE in Cagayan de Misamis. PT-Lanao did not have that amount in cash so he
gave Ramos P300,000 in emergency notes and a check for P500,000. Thereafter, Ramos presented the check to their PT
in their province for encashment. PT-Misamis did not have enough cash to cover the check so he gave Ramos P400,000
in emergency notes and a check for P100,000 drawn on the PNB as he had previously deposited P500,000 emergency
notes in the PNB branch in Cebu and thus he expected to have the check issued by him cashed in Cebu against said
deposit. Ramos was unable to encash said check for he was captured by the Japanese and later made a prisoner of war.
After his release, sometime in 1945, Ramos allegedly indorsed the check to herein plaintiff-appellant. According to
Montinola’s version of the circumstances that roused the present controversy, Ramos, who then was no longer connected
with the USAFFE but already a civilian who needed the money only for himself and his family, offered to sell the check to
him. But as stated by Ramos, he and Montinola agreed to the sale of said check and the agreement regarding the transfer
of the check was that he was selling only P30,000 of it and for such reason, at the back of the document he wrote in
longhand: Pay to the order of Enrique P. Montinola P30,000 only. The balance to be deposited in the Philippine National
Bank to the credit of M. V. Ramos. Ramos further said that in exchange for this assignment of P30,000, Montinola would
pay him P90,000 in Japanese military notes but that the latter gave him only two checks of P20,000 and P25,000, leaving
a balance unpaid of P45,000. The writing made at the back of the check was, however, mysteriously obliterated and in its
place, a supposed indorsement appearing on the back of the check was made for the whole amount of the check.

ISSUE: WON the check was legally negotiated within the meaning of the NIL in view of the fact that the instrument was
indorsed for a lesser amount?

HELD: NO. Section 32 of the NIL provides that "the indorsement must be an indorsement of the entire instrument. An
indorsement which purports to transfer to the indorsee a part only of the amount payable (as in this case) does not operate
as a negotiation of the instrument." As to what was really written at the back of the check which Montinola claims to be a
full indorsement of the check, the Court agreed with trial court that the original writing of Ramos on the back of the check
was to the effect that he was assigning only P30,000 of the value of the document and that he was instructing the bank to
deposit to his credit the balance. Montinola may therefore not be regarded as an indorsee. At most he may be regarded as
a mere assignee of the P30,000 sold to him by Ramos, in which case, as such assignee, he is subject to all defenses
available to the drawer Provincial Treasurer of Misamis Oriental and against Ramos.

G.R. No. 93048 March 3, 1994


BATAAN CIGAR AND CIGARETTE FACTORY, INC.
vs.
THE COURT OF APPEALS and STATE INVESTMENT HOUSE, INC.
DOCTRINE: The crossing of a check has the following effects: (a) the check may not be encashed but only deposited in
the bank; (b) the check may be negotiated only once – to the one who has an account with the bank; (c) the act of crossing
a 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, otherwise he is not a holder in due course.

FACTS: BCCFI issued to King Tim Pua George (George King) post-dated crossed checks for the delivery tobacco leaves.
George King later on sold at a discount the subject checks to SIHI. In as much as George King failed to deliver the bales of
tobacco leaves as agreed, despite petitioner’s demand, BCCFI issued a stop payment order on all checks payable to George
King. Unable to collect, SIHI instituted an action to recover from herein petitioner and was granted relief by the trial court
and later on upheld by the CA. Hence, the present petition.

ISSUE: WON SIHI, a second indorser, a holder of crossed checks, a holder in due course?

HELD: No. Sec. 52 of the Negotiable Instruments Law (NIL) states what constitutes a holder in due course, thus:
Sec. 52 – 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.
Jurisprudence has pronounced that crossing a check should have the following effects: (a) the check may not be encashed
but only deposited in the bank; (b) the check may be negotiated only once – to one who has an account with a bank; (c)
and the act of crossing the check 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, otherwise, he is not a holder in due course. It is
settled that crossing the checks should put the holder on inquiry and upon him devolves the duty to ascertain the indorser’s
title to the check or the nature of his possession. Failing in this respect, the holder is declared guilty of gross negligence
amounting to legal absence of good faith, contrary to Sec. 52(c) of the NIL. In the present case, BCCFIs defense in stopping
payment is as good to SIHI as it is to George King. Because, really, the checks were issued with the intention that George
King would supply BCCFI with the bales of tobacco leaf. There being failure of consideration, SIHI is not a holder in due
course. Consequently, BCCFI cannot be obliged to pay the checks.

G.R. No. 84281 May 27, 1994


CITYTRUST BANKING CORPORATION
vs.
THE INTERMEDIATE APPELLATE COURT and EMME HERRERO
DOCTRINE: A bank is liable for dishonoring checks which are sufficiently funded, notwithstanding the fact that the depositor
wrote down an inaccurate account number. The use of numbers is simply for the convenience of the bank but was never
intended to disregard the real name of the depositor.

FACTS: Emme Herrero, businesswoman, made regular deposits with Citytrust Banking Corp. at its Burgoa branch in
Calamba, Laguna. She deposited the amount of P31, 500 in order to amply cover 6 postdated checks she issued. All checks
were dishonored due to insufficiency of funds upon the presentment for encashment. Citytrust banking Corp. asserted that
it was due to Herrero’s fault that her checks were dishonored, for he inaccurately wrote his account number in the deposit
slip. RTC dismissed the complaint for lack of merit. CA reversed the decision of RTC.

ISSUE: Whether or not Citytrust banking Corp. has the duty to honor checks issued by Emme Herrero despite the failure
to accurately stating the account number resulting to insufficiency of funds for the check.

HELD: Yes, even it is true that there was error on the account number stated in the deposit slip, its is, however, indicated
the name of “Emme Herrero.” This is controlling in determining in whose account the deposit is made or should be posted.
This is so because it is not likely to commit an error in one’s name than merely relying on numbers which are difficult to
remember. Numbers are for the convenience of the bank but was never intended to disregard the real name of its depositors.
The bank is engaged in business impressed with public trust, and it is its duty to protect in return its clients and depositors
who transact business with it. It should not be a matter of the bank alone receiving deposits, lending out money and collecting
interests. It is also its obligation to see to it that all funds invested with it are properly accounted for and duly posted in its
ledgers.

G.R. No. 108555 December 20, 1994


RAMON TAN
vs.
THE HONORABLE COURT OF APPEALS and RIZAL COMMERCIAL BANKING CORPORATION
DOCTRINE: A cashier’s check is a primary obligation of the issuing bank and accepted in advance by its issuance. By its
very nature, a cashier’s check is a bank’s order to pay, drawn upon itself, committing in effects its total resources, integrity
and honor behind the check

FACTS: Ramon tan secured a cashier’s from Philippine Commercial Industrial Bank (PCIB) payable to his order. He
deposited his check in his account with Rizal Commercial Banking Corporation (RCBC) Binondo. On the same day, RCBC
erroneously sent the same cashier’s check for clearing to the Central Bank which was returned for having been “missent”
or “misrouted.” The next day, RCBC debited the amount covered by the same cashier’s check from the account of the
petitioner. Respondent bank at this time had not informed the petitioner of its action.
Relying that said checks were honoured, petitioner issued two personal check which was dishonoured due to insufficiency
of funds. Petitioner alleging to have suffered humiliation and loss of face in the business sector due to the bounced check
filed a complaint against RCBC.

ISSUE: Whether or not RCBC may be held liable for damages upon erroneous debit covered by the cashier’s check.

HELD: A bank cannot exculpate itself from liability for the consequences of the use of wrong deposit slip resulting in the
misrouting of a regional check to the Central Bank for clearing. The bank is not expected to be infallible but it must bear the
blame for not discovering the mistake of its teller despite the established procedure requiring the papers and bank books to
pass through a battery of bank personnel whose duty it is to check and countercheck them for possible errors. As the result
of the negligence of the bank, the depositor has the right to recover moral damages even if the bank’s negligence may not
have been attended with malice and bad faith if the former suffered mental anguish, serious anxiety, embarrassment and
humiliation.
G.R. No. 105188. January 23, 1998
MYRON C. PAPA, Administrator of the Testate Estate of Angela M. Butte, petitioner
vs.
A. U. VALENCIA and CO. INC., FELIX PEARROYO, SPS. ARSENIO B. REYES & AMANDA SANTOS, and DELFIN JAO
DOCTRINE: 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 is prejudiced by the creditor’s unreasonable delay in
presentment

FACTS: On 1992, a complaint was against Petitioner Myron C. Papa as attornery-in-fact of Angela M. Butte sold to
respondent Penaroyo through respondent Valencia a parcel of land on 1973. Petitioner appealed decision, alleging among
others that the sale was never “consummated” as he did not encash the check given by respondents Valencia and
Peñarroyo in payment of the full purchase price of the subject lot. He maintained that what said respondents had actually
paid was only the amount of P5,000.00 (in cash) as earnest money.

ISSUE: Whether or not the check did not amount to payment.

HELD: While it is true that the delivery of a check produces the effect of payment only when it is cashed, pursuant to Art.
1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced by the creditor’s 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.
It has, likewise, been held that if no presentment is made at all, the drawer cannot be held liable irrespective of loss or injury
unless presentment is otherwise excused. This is in harmony with Article 1249 of the Civil Code under which payment by
way of check or other negotiable instrument is conditioned on its being cashed, except when through the fault of the creditor,
the instrument is impaired. The payee of a check would be a creditor under this provision and if its non-payment is caused
by his negligence, payment will be deemed effected and the obligation for which the check was given as conditional payment
will be discharged. Failure of a payee to encash a check for more than ten (10) years undoubtedly resulted in the impairment
of the check through his unreasonable and unexplained delay

G.R. No. 132362. June 28, 2001


PIO BARRETTO REALTY DEVELOPMENT CORPORATION
vs.
COURT OF APPEALS, JUDGE PERFECTO A. S. LAGUIO, JR., RTC-Branch 18, Manila, and HONOR P. MOSLARES
DOCTRINE: While delivery of a check produces the effect of payment only when it is encashed, the rule is otherwise if the
debtor was prejudiced by the creditor's 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.

FACTS: 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 manager’s 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 creditor’s (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.