PNB vs.
RODRIGUEZ RULING:
Facts:
1. Spouses Rodriguez maintained
savings and demand/checking
accounts with petitioner.
2. The spouses have their informal
lending business.
3. They had a discounting
arrangement with PEMSLA, an
association of PNB employees,
which regularly granted loans to its
members.
4. Spouses would rediscount the
postdated checks issued to members
whenever the association was short
of funds, and would replace the
postdated checks with their own
checks issued in the name of the
members.
5. PNB found out that some
PEMSLA officers took out loans in
the names of other members, without
their knowledge or consent by
forging the indorsement of the
named payees in the checks.
6. PNB closed the current account of
PEMSLA. The checks deposited to
PEMSLA however were debited from
the Rodriguez account.
7. Spouses Rodriguez incurred
losses
ACTION: Spouses filed a civil
complaint for damages against
PEMSLA and PNB. Recover the
value of their checks that were
deposited to the PEMSLA savings
account amounting to P 2, 345, 804.
00
WHY? Alleged: PNB paid the wrong
payees, hence, it should bear the
loss.
1. RTC = PNB is liable
2. CA = Affirmed
Issue: Whether the subject checks
are payable to order or to bearer and
who bears the loss
RULING: Checks are to be deemed
payable to order. Consequently, the
drawee bank bears the loss.
1. A check is “a bill of exchange
drawn on a bank payable on
demand.” It is either an order or a
bearer instrument.
As a rule, when the payee is fictitious
or not intended to be the true
recipient of the proceeds, the check
is considered as a bearer instrument.
Under Section 30 of the NIL, an
order instrument requires an
indorsement from the payee or
holder before it may be validly
negotiated. A bearer instrument, on
the other hand, does not require an
indorsement to be validly negotiated.
It is negotiable by mere delivery.
Under Section 9(c) of the NIL, a
check payable to a specified payee
may nevertheless be considered as
a bearer instrument if it is payable to
the order of a fictitious or non-
existing person, and such fact is
known to the person making it so
payable. Thus, checks issued to
“Prinsipe Abante” or “Si Malakas at si
Maganda,” who are well-known
characters in Philippine mythology,
are bearer instruments because the
named payees are fictitious and non-
existent.
For the fictitious-payee rule to be
available as a defense, PNB must
show that the makers did not intend
for the named payees to be part of
the transaction involving the checks.
At most, the bank’s thesis shows that
the payees did not have knowledge
of the existence of the checks. This
lack of knowledge on the part of the
payees, however, was not
tantamount to a lack of intention on
the part of respondents-spouses that
the payees would not receive the
checks’ proceeds. Considering that
respondents-spouses were
transacting with PEMSLA and not
the individual payees, it is
understandable that they relied on
the information given by the officers
of PEMSLA that the payees would
be receiving the checks.
Verily, the subject checks are
presumed order instruments. This is
because, as found by both lower
courts, PNB failed to present
sufficient evidence to defeat the
claim of respondents that the named
payees were the intended recipients
of the checks’ proceeds. The bank
failed to satisfy a requisite condition
of a fictitious-payee situation – that
the maker of the check intended for
the payee to have no interest in the
transaction.
Because of a failure to show that the
payees were “fictitious” in its broader
sense, the fictitious-payee rule does
not apply. Thus, the checks are to be
deemed payable to order.
Consequently, the drawee bank
bears the loss.
De La Victoria v Judge Burgos
FACTS:
1. Assistant City Fiscal Bienvenido
N. Mabanto was ordered to pay
herein private respondent Raul
Sesbreño P11,000.00 as damages.
2. A notice of garnishment was
served on herein petitioner Loreto D.
de la Victoria as City Fiscal of
Mandaue City where Mabanto was
detailed. V was directed not to
disburse, transfer, release or convey
to any other person except to the
deputy sheriff concerned the salary
checks or other checks, monies, or
cash due or belonging to Mabanto,
Jr., under penalty of law. Later, V
was directed to submit his report
showing the amount of the garnished
salaries. V moved to quash the
notice of garnishment claiming that
he was not in possession of any
money, funds, credit, property or
anything of value belonging to
Mabanto, Jr., except his salary and
RATA checks, but that said checks
were not yet properties of Mabanto,
Jr., until delivered to him. He further
claimed that, as such, they were still
public funds which could not be
subject to garnishment.
ISSUE: W/N a check still in the
hands of the maker or its duly
authorized representative is owned
by the payee before physical delivery
to the latter.
RULING:
As Assistant City Fiscal, the source
of the salary of Mabanto, Jr., is
public funds. He receives his
compensation in the form of checks
from the DOJ through V as City
Fiscal of Mandaue City and head of
office. Under Sec. 16 of the
Negotiable Instruments Law, every
contract on a negotiable instrument
is incomplete and revocable until
delivery of the instrument for the
purpose of giving effect thereto. As
ordinarily understood, delivery
means the transfer of the possession
of the instrument by the maker or
drawer with intent to transfer title to
the payee and recognize him as the
holder thereof.
Inasmuch as said checks had not yet
been delivered to Mabanto, Jr., they
did not belong to him and still had
the character of public funds. The
salary check of a government officer
or employee does not belong to him
before it is physically delivered to
him. Until that time the check
belongs to the government.
Accordingly, before there is actual
delivery of the check, the payee has
no power over it; he cannot assign it
without the consent of the
Government. Being public fund, the
checks may not be garnished to
satisfy the judgment in consideration
of public policy.
Dev't Bank of Rizal vs Sima Wei
FACTS:
Respondent Sima Wei executed and
delivered to petitioner Bank a
promissory note engaging to pay the
petitioner Bank or order the amount
of P1,820,000.00. Sima Wei
subsequently issued two crossed
checks payable to petitioner Bank
drawn against China Banking
Corporation in full settlement of the
drawer's account evidenced by the
promissory note. These two checks
however were not delivered to the
petitioner-payee or to any of its
authorized representatives but
instead came into the possession of
respondent Lee Kian Huat, who
deposited the checks without the
petitioner-payee's indorsement to the
account of respondent Plastic
Corporation with Producers
Bank. Inspite of the fact that the
checks were crossed and payable to
petitioner Bank and bore no
indorsement of the latter, the Branch
Manager of Producers Bank
authorized the acceptance of the
checks for deposit and credited them
to the account of said Plastic
Corporation.
ISSUE:
Whether petitioner Bank has a cause
of action against Sima Wei for the
undelivered checks.
RULING:
No. A negotiable instrument must be
delivered to the payee in order to
evidence its existence as a binding
contract. Section 16 of the NIL
provides that every contract on a
negotiable instrument is incomplete
and revocable until delivery of the
instrument for the purpose of giving
effect thereto. Thus, the payee of a
negotiable instrument acquires no
interest with respect thereto until its
delivery to him. Without the initial
delivery of the instrument from the
drawer to the payee, there can be no
liability on the instrument. Petitioner
however has a right of action against
Sima Wei for the balance due on the
promissory note.
Metropol v Sambok
Dr. Javier Villaruel executed a
promissory note in favor of Ng
Sambok Sons Motors Co., Ltd.
Payable in 12 equal monthly
installments with interest. It is further
provided that in case on non-
payment of any of the installments,
the total principal sum then
remaining unpaid shall become due
and payable with an additional
interest. Sambok Motors co., a sister
company of Ng Sambok Sons
negotiated and indorsed the note in
favor of Metropol Financing &
investment Corporation. Villaruel
defaulted in the payment, upon
presentment of the promissory note
he failed to pay the promissory note
as demanded, hence Ng Sambok
Sons Motors Co., Ltd. notified
Sambok as indorsee that the
promissory note has been
dishonored and demanded payment.
Sambok failed to pay. Ng Sambok
Sons filed a complaint for the
collection of sum of money. During
the pendency of the case Villaruel
died. Sambok argues that by adding
the words “with recourse” in the
indorsement of the note, it becomes
a qualified indorser, thus, it does not
warrant that in case that the maker
failed to pay upon presentment it will
pay the amount to the holder.
Issue:
Whether or not Sambok
Motors Co is a qualified indorser,
thus it is not liable upon the failure of
payment of the maker.
Held:
No. A qualified indorserment
constitutes the indorser a mere
assignor of the title to the instrument.
It may be made by adding to the
indorser’s signature the words
“without recourse” or any words of
similar import. Such indorsement
relieves the indorser of the general
obligation to pay if the instrument is
dishonored but not of the liability
arising from warranties on the
instrument as provided by section
65 of NIL. However, Sambok
indorsed the note “with recourse”
and even waived the notice of
demand, dishonor, protest and
presentment.
Recourse means resort to a person
who is secondarily liable after the
default of the person who is primarily
liable. Sambok 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 Villaruel fails to pay the
not the holder can go after it. The
effect of such indorsement is that the
note was indorsed witout
qualification. A person who indorses
without qualification engages that on
due presentment, the note shall be
accepted or paid, or both as the case
maybe, and that if it be dishonored,
he will pay the amount thereof to the
holder. The words added by Sambok
do not limit his liability, but rather
confirm his obligation as general
indorser.
De Ocampo vs Gatchalian
Lessons Applicable: Rights of the
holder (Negotiable Instruments Law)
FACTS:
Sept 8 1953 evening: Anita C.
Gatchalian was looking for a car for
the use of her husband and the
family and Manuel Gonzales who
was accompanied by Emil Fajardois
(personally known to Anita) offered
her a car
Manuel Gonzales represented to
defendant Anita that he was duly
authorized by Ocampo Clinic, the
owner of the car, to look for a buyer
and negotiate for and accomplish the
sale, but which facts were not known
to Ocampo
September 9 1953
Anita requested Manuel to bring the
car the day following together with
the certificate of registration of the
car so that her husband would be
able to see same
Manuel Gonzales told her that unless
there is a showing that the party
interested in the purchase is ready
he cannot bring the certificate of
registration
Anita gave him a check which will be
shown to the owner as evidence of
buyer's GF in the intention to
purchase, it being for safekeeping
only of Manuel and to be returned
For the hospitalization of the wife of
Manuel, he paid the check to
Ocampo clinic
P441.75 - payment of said fees and
expenses
P158.25 -given to Manual as balance
Next Day: Manual did not appear so
Anita issued a stop payment order
Anita filed with the Office of the City
Fiscal of Manila, a complaint for
estafa against Manuel
Appeal Manuel contends that:
the check is not a negotiable
instrument, under the facts and
circumstances stated in the
stipulation of facts - no delivery
(Section 16, Negotiable Instruments
Law) because only for safekeeping
(conditional delivery)
Ocampo is not a holder in due
course
no negotiation prior to acquiring the
check
check is not a personal check of
Manuel
could have inquired why a person
would use the check of another to
pay his own debt, Gatchalian being
personally acquainted with V. R. de
Ocampo
ISSUES:
W/N Ocampo is a holder in due
course - NO
W/N prima facie holder in due course
applies - NO
HELD:
NO
Sec. 191
holder - payee or indorsee of a bill or
note, who is in possession of it, or
the bearer
Sec. 52
holder in due course - holder who
has taken the instrument under the ff
conditions:
That it is complete and regular on its
face
That he became the holder of it
before it was overdue, and without
notice that it had been previously
dishonored, it such was the fact.
That he took it in good faith and for
value.
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
Yang vs Court of Appeals
FACTS:
December 22, 1987: Cely Yang and
Prem Chandiramani entered into an
agreement whereby Yang was to
give 2 P2.087M PCIB managers
check in the amount of P4.2 million
both payable to the order of
Fernando David. Yang and
Chandiramani agreed that the
difference of P26K in the exchange
would be their profit to be divided
equally between them.
Yang and Chandiramani also further
agreed that the Yang would secure
from FEBTC a dollar draft in the
amount of US$200K, payable to
PCIB FCDU Account No. 4195-
01165-2, which Chandiramani would
exchange for another dollar draft in
the same amount to be issued by
Hang Seng Bank Ltd. of Hong Kong.
December 22, 1987, Yang procured
the ff:
a) Equitable Cashiers Check No.
CCPS 14-009467 in the sum of
P2,087,000.00, dated December 22,
1987, payable to the order of
Fernando David;
b) FEBTC Cashiers Check No.
287078, in the amount of
P2,087,000.00, dated December 22,
1987, likewise payable to the order
of Fernando David; and
c) FEBTC Dollar Draft No. 4771,
drawn on Chemical Bank, New York,
in the amount of US$200,000.00,
dated December 22, 1987, payable
to PCIB FCDU Account No. 4195-
01165-2.
December 22, 1987 1 p.m.: Yang
gave the cashiers checks and dollar
drafts to her business associate,
Albert Liong, to be delivered to
Chandiramani by Liongs messenger,
Danilo Ranigo
Ranigo was to meet Chandiramani at
2 p.m. at Philippine Trust Bank,
Ayala Avenue, Makati where he
would turn over Yangs cashiers
checks and dollar draft to
Chandiramani who, in turn, would
deliver to Ranigo a PCIB managers
check in the sum of P4.2 million and
a Hang Seng Bank dollar draft for
US$200K in exchange but
Chandiramani did not appear
December 22, 1987 4 p.m.: Ranigo
reported the alleged loss of the
checks and the dollar draft to Liong.
Liong, in turn, informed Yang, and
the loss was then reported to the
police.
Chandiramani was able to get hold of
the instruments
Chandiramani delivered the 2
cashiers checks to Fernando David
at China Banking Corporation branch
in San Fernando City, Pampanga
In exchange, he got US$360K from
David, which he deposited in the
savings account of his wife, Pushpa;
and his mother, Rani Reynandas,
who held FCDU Account No. 124
with the United Coconut Planters
Bank branch in Greenhills
He also deposited FEBTC Dollar
Draft No. 4771, dated December 22,
1987, drawn upon the Chemical
Bank, New York for US$200K in
PCIB FCDU Account No. 4195-
01165-2 on the same date.
Yang requested FEBTC and
Equitable to stop payment on the
instruments she believed to be lost
Both banks complied with her
request
Yang filed against David and
Chandiramani
CA affirms RTC: in favor of David
ISSUE: W/N David is a holder in due
course
HELD:
Although negotiable instruments do
not constitute legal tender, they often
take the place of money as a means
of payment
checks were crossed
Section 24 of the Negotiable
Instruments Law creates a
presumption that every party to an
instrument acquired the same for a
consideration or for value
David took the step of asking the
manager of his bank to verify from
FEBTC and Equitable as to the
genuineness of the checks and only
accepted the same after being
assured that there was nothing
wrong with said checks
David did not close his eyes
deliberately to the nature or the
particulars of a fraud allegedly
committed by Chandiramani upon
the petitioner, absent any knowledge
on his part that the action in taking
the instruments amounted to bad
faith
Mesina vs CA
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:
Whether or not petitioner can collect
on the stolen check on the ground
that he is a holder in due course.

RULING:
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.