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State Investment House Inc. vs. CA, GR No.

101163 January 11, 1993

Facts: Nora Moulic issued to Corazon Victoriano, as security for pieces of jewellery to be sold on commission, two
postdated checks in the amount of fifty thousand each. Thereafter, Victoriano negotiated the checks to State
Investment House, Inc. When Moulic failed to sell the jewellry, she returned it to Victoriano before the maturity of
the checks. However, the checks cannot be retrieved as they have been negotiated. Before the maturity date Moulic
withdrew her funds from the bank contesting that she incurred no obligation on the checks because the jewellery was
never sold and the checks are negotiated without her knowledge and consent. Upon presentment of for payment, the
checks were dishonoured for insufficiency of funds.

1. Whether or not State Investment House inc. was a holder of the check in due course
2. Whether or not Moulic can set up against the petitioner the defense that there was failure or absence of consideration


1. Yes, Section 52 of the NIL provides what constitutes a holder in due course. The evidence shows that: on the faces
of the post dated checks were complete and regular; that State Investment House Inc. bought the checks from
Victoriano before the due dates; that it was taken in good faith and for value; and there was no knowledge with regard
that the checks were issued as security and not for value. A prima facie presumption exists that a holder of a negotiable
instrument is a holder in due course. Moulic failed to prove the contrary.

2. No, Moulic can only invoke this defense against the petitioner if it was a privy to the purpose for which they were
issued and therefore is not a holder in due course.

No, Section 119 of NIL provides how an instruments be discharged.

Sec. 119. Instrument; how discharged. — A negotiable instrument is discharged: (a) By payment in due course by or
on behalf of the principal debtor; (b) By payment in due course by the party accommodated, where the instrument is
made or accepted for his accommodation; (c) By the intentional cancellation thereof by the holder; (d) By any other
act which will discharge a simple contract for the payment of money; (e) When the principal debtor becomes the
holder of the instrument at or after maturity in his own right.

Moulic can only invoke paragraphs c and d as possible grounds for the discharge of the instruments. Since Moulic
failed to get back the possession of the checks as provided by paragraph c, intentional cancellation of instrument is
impossible. As provided by paragraph d, the acts which will discharge a simple contract of payment of money will
discharge the instrument. Correlating Article 1231 of the Civil Code which enumerates the modes of extinguishing
obligation, none of those modes outlined therein is applicable in the instant case. Thus, Moulic may not unilaterally
discharge herself from her liability by mere expediency of withdrawing her funds from the drawee bank. She is thus
liable as she has no legal basis to excuse herself from liability on her check to a holder in due course. Moreover, the
fact that the petitioner failed to give notice of dishonor is of no moment. The need for such notice is not absolute; there
are exceptions provided by Sec 114 of NIL.

Banco de Oro Savings vs. Equitable Banking Corp., 157 SCRA 188 (1988)


 Plaintiff (Equitable Bank)) drew six crossed Manager's check 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 (Bacnco de Oro) to the credit of its depositor, a certain Aida Trencio.
 Following normal procedures, and after stamping at the back of the Checks the usual endorsements. All prior
and/or lack of endorsement guaranteed the defendant sent the checks for clearing through the Philippine
Clearing House Corporation (PCHC). Accordingly, plaintiff 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, plaintiff discovered that the endorsements appearing at the back of the Checks and 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, plaintiff presented the Checks directly to the
defendant for the purpose of claiming reimbursement from the latter. However, defendant refused to accept
such direct presentation and to reimburse the plaintiff for the value of the Checks; hence, this case.
 Petitioner maintains that the PCHC is not clothed with jurisdiction because the Clearing House Rules and
Regulations of PCHC cover and apply only to checks that are genuinely negotiable. Petitioner alleges that
with the cancellation of the printed words "or bearer from the face of the check, it becomes non-negotiable
so the PCHC has no jurisdiction over the case.

Issue: Were the subject checks non-negotiable and if not, does it fall under the ambit of the power of the PCHC?

Ruling: Yes. Yes. Petitioner's theory cannot be maintained. As will be noted, the PCHC makes no distinction as
to the character or nature of the checks subject of its jurisdiction. The pertinent provisions quoted in petitioners
memorandum simply refer to check(s). Where the law does not distinguish, we shall not distinguish. (Ubi lex non
distinguitnec nos distinguere debemos)

In the case of Reyes vs. Chuanico, the Appellate Court categorically stated that there are four kinds of checks in
this jurisdiction; the regular check; the cashier's check; the traveller's check; and the crossed check. The Court,
further elucidated, that while the Negotiable Instruments Law does not contain any provision on crossed checks,
it is coon practice in commercial and banking operations to issue checks of this character, obviously in accordance
with Article 541 of the Code of Commerce. Attention is likewise called to Section 185 of the Negotiable
Instruments Law:

Sec. 185. Check defined. — A check is a bill of exchange drawn on a bank payable on demand. Except as herein
otherwise provided, the provisions of this act applicable to a bill of exchange payable on demand apply to a

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.

Republic vs. PNB

Facts: Republic of the Philippines filed a complaint for escheat of certain unclaimed bank deposits balances under
the provisions of Act No. 3936 against several banks, among them the First National City Bank of New York. All
the credits and deposits held by them in favor of persons known to be dead or who have not made further deposits
or withdrawals during the period of 10 years or more.

The First National City Bank of New York claims that P100,000 which remained dormant for 10 years or more,
are subject to escheat however, it has inadvertently included in said report certain items amounting to P18,589.89
which are not credits or deposits within the contemplation of Act No. 3936.

The court a quo rendered judgment holding that cashier’s or manager’s checks and demand drafts as those which
defendant wants excluded from the complaint come within the purview of Act No. 3936, but not the telegraphic
transfer payment which orders are of different category.

After a motion to reconsider was filed by defendant, the court a quo changed its view and held that even said
demand drafts do not come within the purview of said Act and so amended its decision accordingly. Plaintiff has

Issue: Does a demand draft come within the meaning of the term “credits”or “deposits” employed in the law.

Ruling: No.
To begin with, we may say that a demand draft is a bill of exchange payable on demand. Considered as a bill of
exchange, a draft is said to be, like the former, an open letter of request from, and an order by, one person on
another to pay a sum of money therein mentioned to a third person, on demand or at a future time therein specified.
As a matter of fact, the term "draft" is often used, and is the common term, for all bills of exchange. And the
words "draft" and "bill of exchange" are used indiscriminately.

On the other hand, a bill of exchange within the meaning of our Negotiable Instruments Law (Act No. 2031) does
not operate as an assignment of funds in the hands of the drawee who is not liable on the instrument until he
accepts it. This is the clear import of Section 127. It says: "A bill of exchange of itself does not operate as an
assignment of the funds in the hands of the drawee available for the payment thereon and the drawee is not liable
on the bill unless and until he accepts the same." In other words, in order that a drawee may be liable on the draft
and then become obligated to the payee it is necessary that he first accepts the same.

Since it is admitted that the demand drafts herein involved have not been presented either for acceptance or for
payment, the inevitable consequence is that the appellee bank never had any chance of accepting or rejecting
them. Verily, appellee bank never became a debtor of the payee concerned and as such the aforesaid drafts cannot
be considered as credits subject to escheat within the meaning of the law.

But a demand draft is very different from a cashier's or manager's cheek, contrary to appellant's pretense, for it
has been held that the latter is a primary obligation of the bank which issues it and constitutes its written promise
to pay upon demand. Thus, a cashier's check has been clearly characterized in In Re Bank of the United States,
277 N.Y.S. 96. 100, as follows:

A cashier's check issued by a bank, however, is not an ordinary draft. The latter is a bill of exchange payable
demand. It is an order upon a third party purporting to drawn upon a deposit of funds. It is the primary obligation
of the bank which issues it (Nissenbaum v. State, 38 Ga. App. 253, S.E. 776) and constitutes its written promise
to pay upon demand (Steinmetz v. Schultz, 59 S.D. 603, 241 N.W. 734
A demand draft is not therefore of the same category as a cashier's check which should come within the purview
of the law.

New Pacific Timber vs. Hon. Seneris

Facts: Petitioner, New Pacific Timber & Supply Co. Inc. was the defendant in a complaint for collection of money
filed by private respondent, Ricardo A. Tong. In this complaint, respondent Judge rendered a compromise
judgment based on the amicable settlement entered by the parties wherein petitioner will pay to private respondent
P54,500.00 at 6% interest per annum and P6,000.00 as attorney's fee of which P5,000.00 has been paid. Upon
failure of the petitioner to pay the judgment obligation, a writ of execution worth P63,130.00 was issued levied
on the personal properties of the petitioner. Before the date of the auction sale, petitioner deposited with the Clerk
of Court in his capacity as the Ex-Officio Sheriff P50,000.00 in Cashier's Check of the Equitable Banking
Corporation and P13,130.00 in cash for a total of P63,130.00. Private respondent refused to accept the check and
the cash and requested for the auction sale to proceed. The properties were sold for P50,000.00 to the highest
bidder with a deficiency of P13,130.00.

Petitioner subsequently filed an ex-parte motion for issuance of certificate of satisfaction of judgment which was
denied by the respondent Judge. Hence this present petition, alleging that the respondent Judge capriciously and
whimsically abused his discretion in not granting the requested motion for the reason that the judgment obligation
was fully satisfied before the auction sale with the deposit made by the petitioner to the Ex-Officio Sheriff.

In upholding the refusal of the private respondent to accept the check, the respondent Judge cited Article 1249 of
the New Civil Code which provides that payments of debts shall be made in the currency which is the legal tender
of the Philippines and Section 63 of the Central Bank Act which provides that checks representing deposit money
do not have legal tender power. Issue: Whether or not the private respondent can validly refuse acceptance of the
payment of the judgment obligation in Cashier’s check which it deposited with the Ex-Officio Sheriff before the
date of the scheduled auction sale.

Issue: Can the check be considered a valid payment of the judgment obligation?
Ruling: (directly in SC for a special action of certiorari) YES. It is to be emphasized that it is a well-known and
accepted practice in the business sector that a Cashier's Check is deemed cash. Moreover, since the check has
been certified by the drawee bank, this certification implies that the check is sufficiently funded in the drawee
bank and the funds will be applied whenever the check is presented for payment. The object of certifying a check
is to enable the holder to use it as money. When the holder procures the check to be certified, it operates as an
assignment of a part of the funds to the creditors. Hence, the exception provided in Section 63 of the Central Bank
Act which states that checks which have been cleared and credited to the account of the creditor shall be equivalent
to a delivery to the creditor in cash the amount equal to that which is credited to his account. The Cashier's Check
and the cash are valid payment of the obligation of the petitioner. The private respondent has no valid reason to
refuse the acceptance of the check and cash as full payment of the obligation.

Where a check is certified by the bank on which it is drawn, the certification is equivalent to acceptance. By the
certification of drawee bank, the funds represented by the check are transferred from the credit of the maker to
that of the payee or holder, and for all intents and purposes, the latter becomes the depositor of the drawee bank.
Said certification implies that the check is drawn upon sufficient funds in the hands of the drawee that they have
been set apart for its satisfaction, that they shall be so applied whenever the check is presented for payment. The
object of certifying a check, as regards to both parties, is to enable the holder to use it as money. When the holder
procures the check to be certified, the check operates as an assignment of a part of the funds to the creditors.
Certification of a check is an exception to the rule enunciated under Sec 63 of the CB.