Negotiability of instruments examined in Philippine cases

I.
Negotiability
Case no. 1
Philippine Education Co., vs. Soriano

GR No. L-22405 [39 SCRA 587] June 30, 1971
Facts: Enrique Montinola purchased (10) ten money orders payable to E.P. Montinola. He
offered to pay the same with a private check but the teller advised him to see the chief of the
money order division for generally, payment in check is not accepted in payment of money
orders. But instead, Enrique Montinola left the building with his check and the (10) ten
money orders without the knowledge of the teller. Upon the knowledge, notice was made to
all banks instructing them not to pay anyone of the money orders aforesaid if presented for
payment; but the Bank of America received a copy of said notice 3 days later. Upon notice of
the irregular issuance of money orders, the Bank of America debited appellant’s account with
the same amount and gave it advice by means of a debit memo.
Issue: WON the postal money order in question is a negotiable instrument
Held: No, according to the Supreme Court, the postal orders are not a negotiable instrument,
because the reason of establishing and operating a postal money order system, the
government is not engaging in commercial transactions but merely exercise of a
governmental power for the public benefit. Furthermore, some restrictions imposed upon
money orders by postal law and regulations are inconsistent with the character of a
negotiable instrument. Postal money order can only be negotiated once. It does not contain a
conditional promise or order to pay.
The conditions thus imposed in order that to enable the bank to continue enjoying the
facilities therefore enjoyed by its depositors, were accepted by the Bank of America.
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Case no. 2
Caltex Philippines, Inc. vs. CA and Security Bank

GR No. 97753 [212 SCRA 448] August 10, 1992
Facts: Security Bank and Trust Company issued 280 certification of time deposits in favor of
Angel dela Cruz for a total amount of P 1,120,000.00 Angel dela Cruz delivered the said
certificates of time deposit as a security for the purchase of fuel products. Subsequently, dela
Cruz informed the manger of the bank that he lost the CTD’s and then executed an affidavit
of loss to facilitate the issuance of the replacement CTD’s. In view of the loan obtained by
dela Cruz from the bank, he executed a notarized deed of assignment of the CTD’s in favor of
the bank. Later on, Caltex’s credit manager presented for verification the CTD’s declared lost
by dela Cruz to the bank and requested from Caltex a copy of the document evidencing the
agreement with dela Cruz but Caltex failed to do so. The loan of dela Cruz with the bank
matured and thus the bank set-off and applied the CTD’s. Caltex filed a complaint praying
that the bank be ordered to pay the value of the CTD’s including the interest and damages.
Both the trial court and the Court of Appeals rendered judgment against Caltex.
Issue: a.) WON the CTD’s are negotiable

b.) WON the negotiation of the said CTD’s require delivery only
Held: a.) Yes, CTD’s are negotiable instruments. It meets the requirement of laws of
negotiability in Sec. 1 of the Negotiable Instruments Law. According to the Supreme Court, it
has been an accepted rule that the negotiability or non-negotiability of an instrument is
determined from the writing --- from the face of the instrument itself. Furthermore, in
construction of a bill or note, the intention of the parties is in control, if it can be legally
ascertained. “what the parties meant must be determined by what they said.”
b.) Although the CTD’s are bearer instruments, a valid negotiation thereof for the
purpose and agreement between it and dela Cruz, as ultimately ascertained, requires both
delivery and indorsement; as the CTD’s were delivered to it as security for dela Cruz’s
purchases, and not for payment. Hence, there was no negotiation in the sense of a transfer of
title or legal title to the CTD’s in which situation, were delivery of the bearer would have
sufficed. The delivery thereof as a security for the fuel purchases at mst constitutes Caltex as
a holder for value by reason of his lien. Accordingly, a negotiation for such purpose cannot be
affected by mere delivery of the instrument since the term thereof and the subsequent
disposition for such security, in the event of non-payment of the principal obligation, must be
contractually provided for.
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Case no.3
Metropolitan Bank and Trust Company vs. CA

GR No. 88866 [194 SCRA 169] February 18, 1991
Facts: Eduardo Gomez opened an account with Golden Savings and Loan Associations and
deposited 38 treasury warrants with a total value of P1,755,288.37. All these warrants were
subsequently indorsed by Gloria Castillo as cashier for Golden Savings and deposited it to its
savings account in the Metrobank, which forwarded them to the Bureau of Treasury for
special clearing. Thereafter, Castillo asked the branch office several times if the warrants
have been cleared but she was told to wait. Accordingly, Gomez is not allowed for the
meantime to withdraw from his account. Later, however, exasperated over Castillo’s
repeated inquiries, petitioner finally decided Golden Savings to withdraw from the proceeds
of the warrant and that was for 3 times. In turn, Gomez was allowed by Gold Savings to make
withdrawals from his account. Later on, Metrobank informed Golden Savings that 32 of the
warrants had been dishonored by the Bureau of Treasury and demanded for the refund to
which Golden Savings refused. Both the trial and appellate court ruled in favor of Golden
Savings.
Issue: WON treasury warrants are negotiable instruments
Held: Treasury warrants are not negotiable instruments. An instrument to be negotiable must
contain an unconditional promise or order to pay a sum certain in money. But an order or
promise to pay out of a particular fund is not unconditional. The indication of Fund 501 as the
source of payment to be made on treasury warrants make the order or promise to pay “not
unconditional” and the warrants themselves non-negotiable.
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Case no. 4
Sesbreño vs. CA
GR No. 89252 [222 SCRA 466] May 24, 1993
Facts: Raul Sesbreño made a money market placement in the amount of P300,000 with the
Philippine Underwriter Finance Corporation (PhilFinance), with a term of 32 days. PhilFinance
issued to Sesbreño the Certificate of Confirmation of Sale of a Delta Motor Corporation
promissory note, 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 post-dated checks
drawn against the Insular Bank of Asia and America in the amount of P304,533.33 payable on
March 31,1981. However, the checks were dishonored for having been drawn against
insufficient funds. Pilipinas Bank never released the note, nor any instrument related thereto
to Sesbreño, but Sesbreño learned that the security was issued on April 10,1980, maturing on
April 6,1981, has a face value of P2,300,833.33 with PhilFinance as payee and Delta Motor as
maker; and was stamped, “non-negotiable” on its face. As Sesbreño was unable to collect his
instrument and interest thereon, he filed an action for damages against Delta Motors and
Pilipinas Bank.
Issue: WON non-negotiability of a promissory note prevents its assignment
Held: A non-negotiable instrument may, obviously, not be negotiated, but it may be assigned
or transferred, absent an express prohibition against assignment or transfer written in the
face of the instrument; the assignee taking subject to the equities between the original
parties. DMC PN No. 2731, while marked “non-negotiable”, was not at the same time
stamped “non-transferable” or “non-assignable”. It contained no stipulation which prohibit
PhilFinance from assigning or transferring, in whole or in part the note.
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Case no. 5
Firestone Tire and Rubber Company of the Philippines vs. CA

GR No. 113236 [353 SCRA 601] March 5, 2001
Facts: Forjas-Arca Enterprises Company maintains a special savings account with defendant
Luzon Development Bank, and that the withdrawal of funds is through the medium of special
withdrawal of fund supplied by the defendant. Firestone and Forjas-Arca entered into a
franchise dealership agreement whereby Forjas-Arca has the privilege to purchase on credit
and sell plaintiff’s product. The first 6 special withdrawal slips were delivered by Forjas-Arca
to plaintiff was deposited by the latter to its account with the Citibank and was honored and
paid by the defendants. Another four special withdrawal slip were issued by Forjas-Arca to
plaintiff. However, only one was honored and paid. All along, plaintiff believed that the
withdrawal slips were sufficiently funded. Later on, the plaintiff was informed by Citibank that
the other withdrawal slips were honored for the reason “no arrangement”. As a
consequence, the Citibank debited plaintiff’s account. Under such circumstances, the plaintiff
averred that the pecuniary losses it suffered is caused by and directly attributable to the
defendant’s gross negligence. Thus, plaintiff filed a complaint for damages against the
defendant. Both the trial and appellate court ruled against plaintiff.
Issue: WON the withdrawal slips are negotiable instruments
Held: No. In the case at bar, it appears that Citibank, with the knowledge that respondent,
had honored and paid the previous withdrawal slips, automatically credited the petitioner’s
credit account or current account with the amount of the subject withdrawal slips, then
merely waited for the same to be honored and paid by the respondent bank. It presumed
that the withdrawal slips were good.
It bears stressing that the Citibank could not have missed the non-negotiable nature of the
withdrawal slips. The essence of non-negotiability which characterizes a negotiable paper as
a credit instrument lies in its freedom to circulate freely as a substitute for money. The
withdrawal slip in question lacked this character.
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II. Payable to Bearer
Case no. 6
Ang Tek Lian vs. CA

GR No. L-2516 [87 SCRA 383] September 25,1950
Facts: Ang Tek Lian drew a check upon the China Banking Corporation for the sum of
P4,000.00 payable to ther 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 P335.00 only, which
were known to him. Despite repeated effort to notify him that the check was dishonored,
appellant could not be located anywhere. Thus, a complaint for estafa was filed against him.
It is argued that as the checks had been made payable to “cash” and had not been indorsed
by Ang Tek Lian, the defendant is not guilty of the offense charged. Based on the proposition
that “by uniform practice of all banks of the Philippines a check so drawn is invariably
dishonored.
Issue: Whether the check needs the drawer’s indorsements
Held: Under the Negotiable Instruments Law, a check 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. However, if the bank is not sure of the bearer’s identity or
financial insolvency, it has the right to demand identification and/or assurance against
possible implications. The bank therefore may require for its protection, that the
indorsement of the drawer – or of some other person known to it – be obtained.
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III. Complete but Undelivered
Case no. 7
Development Bank of Rizal vs. Sima Wei

GR No. 85419 [219 SCRA 736] March 9,1993
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 P1.82M on or before June 24,1983 with interest at 32% per
annum. In payment for the balance of the loan, Sima Wei issued two crossed checks payable
to petitioner bank drawn against China Banking Corporation. The said checks were allegedly
issued in full settlement of the drawer’s account evidenced by the promissory note. These 2
checks were not delivered to the petitioner payee or to any of its authorized representative.
For reason not shown, these checks came into possession of respondent Lee Kian Huat, who
deposited the checks without the payee’s indorsement to the account of respondent Plastic
Corporation. Hence, petitioner filed a complaint for a sum of money against respondents.
Issue: Whether petitioner bank has a cause of action against any or all of the defendants
Held: The Supreme Court ruled in the negative. There mere fact that he has issued a check
does not give rise to any liability on his part, until and unless the check is delivered to the
payee or his representative. A negotiable instrument, of which a check is not only a written
evidence of a contract right but is also a species of property.
Thus, the payee of a negotiable instrument acquires no interest with respect thereto until it is
delivered to him. Delivery of an instrument means transfer of possession, actual or
constructive, from one person to another. Without the initial delivery of the instrument from
the drawer to the payee, there can be no liability on the instrument. Moreover, such delivery
must be intended to give effect to the indorsement.
Without the delivery of said checks to petitioner-payee, the former did not acquire any right
or interest therein and cannot therefore assert any cause of action, founded on said checks,
whether against the drawer Sima Wei or against the producers bank or any of the other
respondents.
And even granting, without admitting, that there was delivery to petitioner bank, the delivery
of checks in payment of an obligation does not constitute payment unless they are cashed or
their value is impaired through the fault of the creditor.
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IV. Liability of Persons Signing as Agent
Case no. 8
The Philippine Bank of Commerce (PBCOM) vs. Aruego

GR No. L-25836-37 [102 SCRA 530] January 31,1981
Facts: Jose M. Aruego, President of the Philippine Education Foundation, entered into
transactions with PBCOM on different dates. The former obtained a credit accommodation
from the latter to facilitate the payment of the printing of “World Current Events”. A
periodical published by the defendant (Aruego). Thus for every printing of the said periodical,
the printer, Encal Press and Photo Engraving, collected the cost of printing by drawing a draft
against the plaintiff, said draft being sent later to the defendant for acceptance. Leaving the
obligation unpaid, PBCOM filed complaint against the defendant. The latter interposed as a
defense, that he signed the document which the plaintiff sues in his capacity as President of
the Philippine Education Foundation and that his liability is only secondary; and that he
believed that he was signing only as an accommodation party.
Issue: WON Jpse M. Aruego is liable to the drafts
Held: Yes. The first defense of the defendant is that he signed the supposed bills of exchange
as an agent of the Philippine Education Foundation Company where he is a president. Section
20 of the Negotiable Instruments Law provides that “where the instrument contains or a
person adds to his signature words indicating that he is not liable on the instrument if he was
duly authorized; but the mere addition of the words describing him as an agent or as filling a
representative character, without disclosing his principal, does not exempt him from
liability”. An inspection of the drafts accepted by the defendants shows that nowhere has he
disclosed that he was signing as a representative of the Philippine Education Foundation. He
merely signed as follows: “Jose Aruego (acceptor) (SGD) Jose Aruego”. For failure to disclose
his principal, Aruego is personally liable for the drafts he accepted.
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Case no. 9
Francisco vs. Court of Appeals

GR No. 116320 [319 SCRA 354] November 29,1999
Facts: A. Francisco Realty and Development and HCCC entered into a Land Development and
Construction Contract. Francisco was the President of AFRDC while Ong was the president of
HCCC. It was agreed upon that HCCC would undertake the construction of housing units and
the development of a large parcel of land. The payment would be on a turn-key basis. To
facilitate the payment, AFDRC executed a deed of assignment to enable the HCCC to collect
payments from the GSIS. Further, they opened an account with a bank from which checks
would be issued by Francisco and the GSIS President. HCCC later on filed a complaint for the
unpaid balance pursuant to its agreement with AFDRC. However, an amicable settlement
ensued, which was embodied in a MOA. A year later, it was found out that Diaz and Francisco
had drawn checks payable to Ong. Ong denied accepting said checks and it was further found
out that Diaz entrusted the checks to Francisco who later forged the signature of Ong,
showing that he indorsed the checks to her and then she deposited the checks to her
personal savings account.
Issue: Does the petitioner has authority to sign the checks as agent of Ong?
Held: No. 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 the 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.
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V. Forgery
Case no. 10
Jai-Alai Corp. of the Philippines vs. Bank of the Philippine Islands

GR No. L-29432 [66 SCRA 29] August 6,1975
Facts: A certain Antonio Ramirez was a collector of Inter-Island Gas Corporation. He was an
ordinary collector. As a collector, he was able to obtain certain checks payable to the order of
Inter-Island Gas, the company. They were payable to the order of a corporation. Obviously,
he was a regular bettor at Jai-Alai and he incurred losses. In payment thereof, he negotiated
the checks to Jai-Alai but they were payable to the order of a corporation. They were
deposited by Jai-Alai to BPI, the collecting bank accepted thereafter, they were forwarded to
the different drawee banks. They were paid. Upon receipt of the payments by BPI, BPI
credited the amounts of the checks to the account of Jai-Alai. But when BPI was informed of
the forgery, BPI returned the amounts to the drawee banks and informed Jai-Alai Corporation
and debited the accounts of the checks against the account of Jai-Alai. An action was brought
against BPI.
Issue: In instance of forgery, who shall bear the loss?
Held: Jai-Alai shall bear the loss. According to the Supreme Court, when the petitioner
deposited the checks with the BPI, the nature of the relationship created at the stage was
one of agency, that is, the bank was to collect from the drawee of the checks the
corresponding proceeds. No creditor-debtor relationship was created between the parties. A
forged signature in a negotiable instrument is wholly inoperative and no right to discharge it
or enforce its payment can be acquired through or under the forged signature except against
a party who cannot invoke forgery as a defense.
Having received the checks merely for collection and deposit, the respondent cannot be
expected to know or ascertain the genuineness of all prior indorsements on the said checks.
Moreover, the petitioner was grossly recreant in accepting the checks in question from
Ramirez. It could not have escaped the attention of the petitioners 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 habitual gamer at Jai-Alai without making
any inquiry as to his authority to exchange checks belonging to the payee-corporation.
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Case no. 11
Republic Bank vs. Ebrada

GR No. L-40796 [65 SCRA 680] July 31,1975
Facts: Mauricia T. Ebrada encashed a check for P1,246.08 at the main office of Republic Bank.
The said check was issued by the Bureau of Treasury. Republic Bank was later advised by the
said bureau that the alleged indorsement on the reverse side of the aforesaid check by the
payee, “Martin Lorenzo” was a forgery since the latter had allegedly died as of July 14,1952.
Republic Bank was then requested by the Bureau of Treasury to refund the amount. To cover
what it had refunded the Bureau of Treasury, Republic Bank made verbal and formal
demands upon defendant Ebrada to account for the sum of P1,246.08 but said defendant
refused to do so.
Issue: WON Ebrada shall bear the loss
Held: Where the signature on a negotiable instrument is 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. It is only the negotiation
based on the forged or unauthorized signature which is inoperative. Applying this principle, it
can be safely concluded that it is only the negotiation predicated on the forged instrument
that should be declared inoperative. This mean that, the negotiation of the check in question
from Martin Lorenzo, the original payee, to Ramon R. Lorenzo, the second 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.
Adelaida Dominguez, as an indorser, was duty-bound to contain whether the check in

question was genuine before presenting it to Republic Bank for payment. Her failure to do so
makes her liable for the loss and the bank may recover from her the money received for the
check.
The Supreme Court held that the Republic Bank shall suffer the loss when it paid the amount
of the check in question to Ebrada, but it was the remedy to recover from the latter the
amount it paid to her.
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Case no. 12
Metropolitan Waterworks and Sewerage System vs. Court of Appeals

GR No. L62943 [143 SCRA 20] July 14,1986
Facts: MWSS has several accounts with the PNB, one of which is the NWSA account no. 6. The
authorized signature for the said account were those of MWSS treasurer Jose Sanchez, its
auditor Pedro Aguilar, and its acting General Manager Victor L. Recio. Their specimen
signatures were submitted by the MWSS to and on file with the PNB. By special agreement
with the PNB, the MWSS used personalized checks in drawing from his account. As a result,
23 checks were prepared, processed, issued and released by NWSA, all of which were paid
and cleared by PNB and debited by PNB against NWSA account no. 6. Later on, NBI
investigation showed that Raul Dizon, Arturo Sizon and Antonio Mendoza (payees) were all
fictitious person. But the PNB refused to restore the amount debited in the said account
despite the claim of forgery and/or spurious checks.
Issue: Can PNB be held liable for the alleged forgery of the 23 checks?
Held: No. Forgery cannot be presumed. It must be established by clear, positive, and
convincing evidence. This was not done in the present case.
The records show that at the time the 23 checks were negotiated, prepared, and encashed,
the petitioner was using its own personalized checks, instead of the official PNB commercial
blank checks. In the exercise of his special privilege, however, the petitioner failed to provide
the needed security measures. That there was gross negligence in the printing of its
personalized checks is shown.
The record shows that the respondent drawee bank, had taken the necessary measure in the
detection of forged checks and the prevention of their fraudulent encashment.
Furthermore, the NBI 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.
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Case no. 13
Banco de Oro Savings and Mortgage Bank vs. Equitable Banking Corporation
GR No. L-74917 [137 SCRA 188] January 20,1988
Facts: Banco de Oro through its Visa Card Department, drew 6 crossed manager’s check
payable to certain member establishments of Visa card. Subsequently, the checks were
deposited with the Equitable Banking Corporation to the credit of its depositor, a certain Aida
Trencio. Following normal procedures, and often stamping at the back of the check the usual
indorsements. All prior and/or lack of indorsement guaranteed the defendant sent the checks
for clearing through PCHC. Accordingly, BDO paid the checks, its clearing account was
credited for the same amount. However, upon discovery of the forgery in the indorsements,
BDO claimed reimbursement to Equitable Banking Corporation which the latter refused to
accept and to reimburse BDO the value of the checks.
Issue: WON Equitable Banking Corporation can be compelled to reimburse the value of the
checks
Held: No. The petitioner by its own acts and representation cannot deny liability because it
assumed the liabilities of an indorser by stamping its guarantee of “all prior indorsements
and/or lack of indorsements” 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
interest and purpose treated the said checks as negotiable instruments and accordingly
assumed the warranty of the indorser when it stamped its guarantee of prior indorsements
at the back of the checks. It led the said respondent to believe that it was acting as indorser
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 on opposite posture by claiming that the disputed
checks are not negotiable instruments.
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Case no. 14
Gempesaw vs. Court of Appeals

GR No. 92244 [218 SCRA 682] February 9,1993
Facts: Petitioner Natividad Gempesaw owns and operates four grocery stores. She maintains
a checking account with the Philippine Bank of Communications, drawee bank. To facilitate
payment of debts to her suppliers, petitioner draws checks against her checking account with
the drawee bank. The checks were usually prepared and filled up as to all material particulars
by her trusted bookkeeper, Alicia Galang, an employee for more than 8years, and petitioner
signed each and every check without bothering to verify the accuracy of the checks against
the corresponding invoice receipts which indicate the correct obligations due and payable to
her suppliers. But after 2 years, petitioner found out about the fraudulent manipulations of
her bookkeeper. Instead of issuing the checks to the payees as named in the checks, Alicia
Galang delivered them to the chief accountant of the Buendia branch of the respondent
drawee bank, a certain Ernest L. Boon. It was established that the signatures of the payees as
first indorsers were forged. The checks were then indorsed for the second time with the
names Alfredo Y. Romero and Benito Lam, and were deposited in the latter’s accounts.
Issue: WON petitioner can recover and raise the defense of forgery
Held: The Supreme Court ruled that there was negligence on the part of the petitioner and it
was the proximate cause of her loss. And since it was her negligence which caused the
respondent drawee bank to honor the forged checks or prevented it from recovering the
amount it had already paid on the checks, petitioner cannot complain should the bank refuse
to recredit her account with amount of such checks. Under the NIL, section 23, she is now
precluded from using the forgery to prevent the banks from debiting her account.
Thus, it is clear that under the NIL, petitioner is precluded from raising the defense of forgery
by reason of her gross negligence. However, under Article 1170 of the Civil Code the
respondent bank may be held liable for damages.
The drawee bank is bound by its internal banking rules and regulations which form part of
any contract it enters into with any of its depositors. The Supreme Court held that the
banking business is impressed with public interest where the trust and confidence of the
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public in general is of paramount importance such that the appropriate standard of diligence
must be a high degree of diligence, if not the utmost diligence.
Thus, respondent drawee bank is adjudged liable to bear the loss with the petitioner on a 50-
50 ratio.
Case no. 15
Associated Bank vs. Court of Appeals

GR No. 107382 [252 SCRA 620] January 31,1996
Facts: The provincial funds of Tarlac are deposited to the PNB where a portion of it is
allocated to Concepcion Emergency Hospital. After the books of amount were post-audited
by the Provincial Auditor, it was discovered that the hospital did not receive several allotment
checks drawn by the province. Eventually, the provincial treasurer learned that the retired
cashier of the hospital, after forging the signature of the chief of the payee hospital,
encashed thirty (30) checks with the Associated Bank acting as collecting bank. The Provincial
Treasurer wrote the PNB Manager to restore various amounts debited in the current account
of the province. The PNB Manager asked reimbursement from Associated Bank. After both
resisted payment, the province instituted the suit. Trial Court ruled in favor of the province.
CA affirmed the Trial Court’s decision in toto.
Issue: If the payee’s indorsement is forged, what are the respective liabilities of each party
Held: The collecting bank is liable to the drawee bank for the forged instruments. If the
forgery is that of the payee’s or holder’s indorsements, the collecting bank is held liable,
without prejudice to the latter proceeding against the forger. More importantly, by reason of
the statutory warranty of a general indorser in Section 66 of the NIL, a collecting bank which
indorses a check bearing a forged indorsement and presents it to the drawee bank
guarantees all prior indorsements, including the forged instrument. It warrants that the
instrument is genuine, and that it is valid and subsisting at the time of his indorsement.
Because the indorsement is a forgery, the collecting bank commits a breach of this warranty
and will be accountable to the drawee bank. This liability scheme operates without regard to
fault on the part of the collecting bank. Even if the latter bank was not negligent, it would still
be liable to the drawee bank because of its indorsements.
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Case no. 16
Metropolitan Bank and Trust Company vs. The First National City Bank
118 SCRA 537
Facts: Salvador Sales opened a current account with Metrobank depositing five hundrer
pesos. Later, he deposited with the same bank a check payable to cash, drawn by Joaquin
Cunanan and First National City Bank (FNCB). Metrobank immediately sent the cash check
House of the Central Bank. The check was cleared on the same day. The private respondent
paid petitioner through clearing the amount of 50,000 pesos and Sales was credited with the
said amount in his deposit with Metrobank. Sales made withdrawals until he cleared his
account with Metrobank.
Nine days later, FNCB returned cancelled check to drawer Cunanan and company together
with their statement of account with FNCB. On the same day, the company informed the
bank that the check had been altered. The actual amount of 500.00 was raised to 50,000.00
and over the name of Manila Polo Club, was super imposed the word “cash”.
FNCB notified Metrobank that the check was altered confirming it on the same day with a
letter. FNCB wrote Metrobank asking for reimbursement of the amount of 50,000 pesos. The
latter did not comply despite of subsequent requests. Hence, this action.
Issue: Who is liable on the forged check
Held: FNCB, the drawee bank is liable. In the instant case, the check was not returned to
Metrobank in accordance with the 24 hour clearing period. As held by the Supreme Court in
Republic vs. Equitable PCI Bank, since both parties are part of our banking system, and both
are subject to the regulations of the Central Bank, they are bound by the 24 hour clearing
house rule of the Central Bank.
However, notwithstanding the fact that it was not returned to Metrobank within 24hours,
FNCB cleared the check. Failure of FNCB, therefore to call the attention of Metrobank to the
alteration of the check until after the lapse in nine days, negates whatever right it might have
had against Metrobank in the light of the said Central Bank circular. Its remedy lies not
16
against Metrobank but against the party responsible for the changing of the name of the
payee and the amount on the face of the check.
Case no. 17
Republic Bank vs. Court of Appeals

GR No. 42725 [196 SCRA 100] April 22,1991
Facts: San Miguel Corporation (SMC) drew a dividend check for P240, on its account in the
respondent First National City Bank (FNCB) in favor of J. Roberto C. Delgado, the amount on
its face was fraudulently and without authority of the drawer, SMC, altered by increasing
from P240 to P9240. The check was indorsed and deposited on March 14,1966 by Delgado in
his account with the petitioner Republic Bank.
Upon acceptance of the check for deposit, Republic indorsed the check to FNCB by stamping
on the back of the check “all prior and/or lack of indorsement guaranteed” and presented it
to FNCB for payment through the Central Bank Clearing House, and thereafter FNCB paid
P9240 to Republic.
SMC notified FNCB of the material alteration in the amount of the check in question. FNCB
demanded that Republic refund the P9240 on the basis of the latter’s endorsement and
guaranty, but Republic refused, claiming there was delay in giving it notice of alteration.
Issue: Whether Republic, as the collecting bank is protected by the 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: Yes. The 24-hour clearing house rule is a valid rule applicable to commercial banks.
It is true that when an indorsement is forged, the collecting bank or last indorser, as a general
rule bears the loss. But the unqualified indorsement of the collecting bank on the check
should read together with the 24-hour regulation on clearing house operation. Thus, when
the drawee bank within the 24-hour clearing period, the collecting bank is absolved from
liability.
17
Case no. 18
Philippine Commercial and International Bank vs. Court of Appeals

Facts: Ford Philippines drew a Citibank check in favor of the Commissioner of Internal
Revenue (CIR) in consideration of its tac due for the 3rd quarter of 1977. On the face of the
instrument of the check was written “payees account only”. The check was negotiated to
PCIB which accepted it and indorsed the same to Citibank. The latter cleared the check and
gave PCIB its value. However, CIR later informed ford that it never received the tax payment.
Upon investigation, it was discovered that Ford’s accountant, Godofredo Rivera, recalled the
check due to an alleged error in the computation of the tax to be paid. Rivera instructed PCIB
to replace the check with 2 manager’s checks. Eventually, it was further discovered that
Rivera was a member of a syndicate and the manager’s check were subsequently deposited
with the Pacific Banking Corporation by other syndicate members. Four years later, Ford once
again drew 2 checks of the same nature. The said checks were embezzled by the same
syndicate. Rivera created a PCIB account under a fictitious name to which the 2 checks to
Citibank which cleared the checks. Upon clearing, the account was withdrawn by the
syndicate members.
Issue: Should PCIB be made liable for the amounts of the check notwithstanding the fact that
it was embezzled by one of the employees through fraud?
Held: Yes, the mere fact that forgery was committed by a drawer-payor’s confidential
employee or agent, who by virtue of the position had unusual facilities for perpetrating the
fraud and imposing the forged instrument upon the bank does not entitle the bank to shift
the loss to the drawer-payor in the absence of some circumstances raising estoppel against
the drawer. The relationship between payee or holder of a commercial paper and the
collecting bank in the absence of an agreement to the contrary is that of principal and agent.
18
Case no. 19
Ramon Ilusorio vs. Court of Appeals

Facts: Ramon Ilusorio, a prominent businessman, running about 20 corporations, and was
going out of the country a number of times, entrusted to his secretary, Katherine E. Eugenio,
his credit cards and his check book with blank checks. It was also Eugenio who verified and
reconciled the statements of said checking account. A friend of Ilusorio found that his
secretary was using the credit card. Furthermore, Eugenio was able to encash the deposit to
her personal account about 17 checks drawn against the account of the petitioner at the
Manila Banking Corporation (defendant bank) with the aggregate amount of P119,634.34.
Petitioner then requested the respondent bank to credit back and restore to its account the
value of the checks which were wrongfully encashed but respondent bank refused.
Issue: WON the defendant bank be held liable for the forgery and bear the loss
Held: No. As borne by the records, it was petitioner, not the bank, who was negligent.
Negligence is the omission which ordinarily regulate the conduct of human affairs, would do,
or the doing of something which a reasonable man, guided by those considerations to do
something which a prudent and reasonable man would do.
In the present case, it appears that petitioner accorded his secretary unusual degree of trust,
and unrestricted access to his credit cards, passbooks, checkbooks, bank statements,
including custody and possession of cancelled checks and reconciliation of accounts.
Petitioner’s failure to examine his bank statements appears as the proximate cause of his
own damage.
19
Case no. 20
Samsung Construction Co. Philippines, Inc. vs. Far East Bank and Trust Company
GR No. 129015 [436 SCRA 402] August 13,2004
Facts: Samsung Construction held an account with Far East Bank. One day, a check worth
P900,000 payable to cash was presented by one Roberto Gonzaga in the Makati Branch of Far
East Bank. The check was certified to be true by Jose Sempio, the assistant accountant of
Samsung, who was also present during the time the check was cashed. Later, however, it was
never approved by the Samsung’s head accountant, the president of the company also never
signed any such check.
Issue: WON Far East Bank is liable to reimburse Samsung for cashing out of forged check,
which was drawn from the account of Samsung
Held: Far East Bank is liable for reimbursement. Sec. 23 of the NIL states that a forged
signature makes the instrument “wholly inoperative”, if payment is made the drawee cannot
charge it to the drawer’s account. The fact that the forgery is clever is immaterial. The forged
signature may so closely resemble the genuine as to defy detection by the depositor himself.
And yet, if the bank pays the check, it is paying out with its own money and not of the
depositor’s. the rule of liability can be stated briefly in these words: “a bank is bound to know
its depositor’s signature”. The accusation of negligence on the part of Samsung was not
clearly proven in the absence of proof to the contrary, the presumption is that the ordinary
course of business was followed.
20
VI. Material Alteration
Case No. 21
Philippine National Bank vs. Court of Appeals

GR No. 107508 [256 SCRA 491] April 25,1996
Facts: A check in the amount of P97,650 was issued by the Ministry of Education and Culture
payable to F. Abajante Marketing. This check was drawn against PNB. F. Abajante Marketing,
a client of Capitol City Development Bank, deposited the questioned check in its savings
account with the 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, on October 19,1981, petitioner 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 bank/ agent of
Capitol, then proceeded to debit the latter’s account for the same amount, and
subsequently, sent the check back to petitioner. Petitioner, however, returned the check to
PBCOM. Capitol could not, in turn, debit F. Abajante Marketing’s account since the latter had
already withdrawn the amount of the check.
Issue: WON petitioner is liable for the alteration of the serial number of the checks
Held: 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 NIL.
What was altered is the serial number of the check, an item which is not an essential
requisite for negotiability under Section 1 of the NIL. The aforementioned alteration did not
change the relations between the parties. The name of the drawer and the drawee were not
21
altered. The intended payee was the same. The sum of money due to the payee remained
the same.
Case no. 22
Montinola vs. Philippine National Bank

GR No. L-2861 [88 PHIL 178] February 26,1951
Facts: The provincial treasurer of Misamis Oriental, issued a check to Ramos in the sum of
P100,000 as drawer, on PNB as drawee. Ramos sold P30,000 of the check to Montinola for
90,000 Japanese Military Notes, of which only 45,000 was paid by Montinola. The writing
made by Ramos at the back of the check was to the effect that he was assigning only 30,000
of the value of the document with an instruction to the bank to pay 30,000 to Montinola to
deposit the balance to Ramos’ credit. However, this writing was mysteriously obliterated and
its place, a supposed document appearing in the back of the check to Montinola. The check
was long overdue by 2 ½ years. Montinola instituted an action against PNB and the Provincial
Treasurer of Misamis Oriental to collect the sum of P100,000, the amount of the aforesaid
check. There now appears on the face of the said check the words in parenthesis “agent,
Philippine National Bank” under the signature of the Provincial Treasurer purportedly
showing that provincial treasurer issued the check as agent of the PNB.
Issue: Is there a material alteration if a person inserts entries in the instrument that will make
the drawee the drawer of the instrument?
Held: Yes, 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 material
alteration of the instrument without the consent of the parties liable thereon, and so
discharges the instrument.
As there is also no known reason, known to the court why provincial treasurer Laya should
issue the check as agent of the PNB, then the complaint of Montinola cannot prosper.
22
VII. Accomodation Party
Case no. 23
Sadaya vs. Sevilla
Facts: Victor Sevilla, Oscar Varona and Simeon Sadaya executed jointly and severally, in favor
of BPI, or its order, a promissory note for P15,000 with interest at 8% per annum, payable on
demand. The entire amount of the promissory note, was received from the bank by Oscar
Varona alone. Victor Sevilla and Simeon Sadaya signed the promissory notes as co-makers
only as a favor to Oscar Varona. The bank collected from Sadaya the foregoing balance.
Varona failed to reimburse Sadaya despite repeated demands. Upon the death of Sevilla,
Sadaya filed a creditor’s claim for the sum of P1,500. The administrator resisted the claim
upon the averment that the deceased Victor Sevilla “did not receive any amount for the
promissory note” but signed it only “as surety for Oscar Varona”.
Issue: Can Sadaya demand Sevilla the share which is proportionately owing from him?
Held: No. Under the rules on reimbursement under Article 2073: a solidary accommodation
maker:
1.) May demand from the principal debtor reimbursement of the amount which he paid
on the promissory note, and
2.) He may demand contribution from his co-accomodation maker, without first
directing his action against the principal debtor, provided that:
a.) He made the payment by virtue of a judicial demand; or
b.) The principal debtor is insolvent.
The Court of Appeals found that Sadaya’s payment to the bank “was made voluntarily
and without any judicial demand”, and that “there is an absolute absence of evidence
showing that Varona is insolvent.
23
Case no. 24
Crisologo-Jose vs. Court of Appeals
GR No. 80599 [177 SCRA 594] September 15,1989
Facts: Atty. Oscar Z. Benares, President of Mover Enterprises, Inc., in accommodation of

his clients, the spouses Jaime and Clarita Ong, issued a check drawn against Traders Royal
Bank for P45,000 payable to Ernestina Crisologo-Jose. The check was signed by Ricardo S.
Santos Jr. because the treasurer of the corporation was not available. The check was
issued in consideration of the waiver of quit-claim by Crisologo-Jose over a certain
property which the GSIS agreed to sell to the clients of Atty. Benares with the
undertaking that upon approval by the GSIS of the compromise agreement with the
spouses Ong, the check will be encashed accordingly. But subsequently, the check was
dishonored for insufficiency of funds. Petitioner alleged that he is not liable thereon
under the NIL, because he merely signed the check in question in a representative
capacity and that the Mover Enterprises, Inc. was the accommodation party.
Issue: WON the petitioner is liable for the check?
Held: Yes. Section 29 of the NIL which holds an accommodation party liable on the
instrument to a holder for value, although such holder at the time of taking the
instrument knew him to be only an accommodation party, 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. Hence, 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.
24
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
3rd person only if specifically authorized to do so.
Such accommodation paper cannot thus be enforced against the corporation, especially
since it is not involved in any aspect of the corporate business or corporations, the
inescapable conclusion in law and in logic is that the signatories thereof shall personally
be liable thereof, as well as the consequences arising from their acts in connection
therewith.
Case no. 25
Stelco Marketing Corporation vs. Court of Appeals

GR No. 96160 [210 SCRA 51] June 17,1992
Facts: Steelweld Corporation of the Philippines thru its President Peter Rafael Limson
admitted to have issued a check payable to cash in favor of his friend Romeo Lim who
was the President of RYL Construction by way of accommodation. The check was actually
issued in the amount of P126,129.86, and was given by R.Y. Lim to Armstrong Industries,
sister corporation and manufacturing arm of Stelco, in payment of an obligation with
Stelco for the purchase of steel bars of various sizes and rolls of G.I. wire. When
Armstrong Industries deposited the check at its bank, it was dishonored because “drawn
against insufficient funds”
Issue: WON Steelweld Corporation of the Philippines, as an accommodation party liable

for the drawn check.
Held: No. A holder of a check who is not a holder in due course cannot sue the drawer-
accomodation party. What the record shows 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
25
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.
Case no. 26
Travel-on, Inc. vs. Court of Appeals

GR No. 56169 [210 SCRA 351] June 26,1992
Facts: Arturo S. Miranda, issued (6) six checks with the total amount of P115,000 to
Travel-on, Inc. for the purchased and delivered various airline tickets to Travel-on but the
said checks were all dishonored by the drawee bank. Miranda claimed that he had
already fully paid and even overpaid his obligations and that refunds were in face due to
him. He argued that he had issued the post-dated checks for purposes of
accommodation. He had issued the checks in the name of Travel-on in order that its
General Manager, Elita Montilla could show to Travel-on’s Board of Directors that the
accounts receivable of the company were still good.
Issue: Is the private respondent liable to the petitioner as a holder for value despite the
check being on accommodation only?
Held: Yes. The private respondent is liable to the petitioner. The CA, contrary to the
established rules, placed the burden of proving the existence of valuable consideration
upon the petitioner. This cannot be countenanced. It was up to the private respondent to
show that he had indeed issued the checks without sufficient consideration. The fact that
all the checks issued by the private respondent to petitioner were presented for payment
would lead to no other conclusion that these checks were intended for encashment. In
an accommodation transactions recognized by the NIL, an accommodating party lends
his credit to the accommodated party, by issuing or indorsing a check which is held by the
payee or indorsee as a holder in due course, who gave full value therefor to the
26
accommodated party. The accommodation extended to Travel-on’s passengers abroad
involved not the accommodation transactions recognized by the NIL, but rather
circumvention of then existing foreign exchange regulations by passengers back by the
Travel-on, which incidentally involved receipt of free consideration by the private
respondent. Petitioner is entitled to the statutory presumption that it was a holder in due
course and that the checks were supported by valuable consideration.
Case no. 27
Bank of Philippine Islands vs. Court of Appeals

GR No. 112392 [326 SCRA 641] February 29, 2000
Facts: Benjamin C. Napiza, respondent, deposited in FCDU savings account a manager’s

check payable to cash in the amount of $2,500 and duly indorsed by private respondent
on its dorsal side. The check belonged to Henry Chan. Private respondent delivered to
Chan a signed blank withdrawal slip. Using the name, one Reuben Gayon Jr, was able to
withdraw the amount of P12,541.67. it turned out that the check was a counterfeit
check. Petitioner filed a suit to recover the said amount.
Issue: Can the petitioner recover from the respondent
Held: No. The petitioner cannot recover from the respondent. It is clear that ordinarily,
private respondent may be held liable as an indorser of the check or even as an
accommodation party. However, to hold private respondent liable for the check he
deposited by the strict application of the law and without consideration of attending
circumstances in the case would result in an injustice and in the erosion of public trust in
the banking system. The proximate cause of the loss of the amount on petitioner’s part
was personnel’s negligence in allowing such withdrawal in disregard of its own rules and
the clearing requirement in the banking system. In so closing, petitioner assumed the risk
of incurring loss on its part on account of a forged or counterfeit foreign check and hence
it should suffer the resulting damage.
27
Case no. 28
Agro Conglomerates, Inc. vs. Court of Appeals

GR No. 117660 [348 SCRA 450] December 18,2000
Facts: Petitioner sold two parcels of land to Wonderland Food Industries, Inc. for
P5,000,000. The vendor, vendee and respondent bank Regent Savings and Loan Bank
executed an addendum to the previous memorandum of agreement which pertained to
the revision of settlement of the initial payments and prepaid interests. The vendee
instead of paying the amount in cash authorized the vendor to obtain a loan from
Regent. Consequently, petitioner Mario Soriano signed as a maker several promissory
notes payable to respondent bank which thereafter released the proceeds. Petitioners
failed to meet their obligation but interposed the defense of novation and insisted that
there was a valid substitution of debtor. They alleged that the addendum specifically
provided that although the promissory notes were in their names, Wonderland should be
responsible for the payment thereof.
Issue: Was there a novation which exempts the petitioners from liability over the
promissory note?
Held: No. there was no novation by substitution of the debtor a subsidiary contract of
suretyship had taken effect since petitioners signed the promissory note as maker and
accommodation party for the benefit of Wonderland. Petitioner 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 became
28
one of a principal and surety. In the instant case, the first requisite for a valid novation
was lacking. There was no prior obligation which was substituted by a new one. The
promissory note which bound the petitioners to pay were executed after the addendum.
Consequently, only a contract of surety is present.
VIII. Holder in Due Course
Case no. 29
Vicente R. De Ocampo vs. Gatchalian

GR No. L-15126 [3 SCRA 596] November 30,1961
Facts: Manuel Gonzales represented by defendant Anita C. Gatchalian that he was duly
authorized by the owner of the car, Ocampo Clinic, to look for a buyer for the said car. For
the purchase of the car, Gonzales requested from Gatchalian to give him a check which will
be an evidence of the latter’s intentions of purchasing the car. On the failure of Gonzales to
appear and bring the car and to return the check, defendant issued a stop payment order.
However, Gonzales was able to use the check as payment for the hospitalization of his wife to
De Ocampo Clinic.
Issue: Is the plaintiff a holder in due course?
Held: No. The plaintiff is not a holder in due course. Where the payee acquired the check
under circumstances which should put into inquiry, duty is developed into it to prove that it
actually acquired said checks in good faith. The circumstances in the case, such as the fact
that appellants had no obligation to the Ocampo Clinic, that the amount did not correspond
directly with the obligation, and that the check is a crossed check, should put the plaintiff to
inquiry as to why and wherefore of the possession of the check by Gonzales. Plaintiff was
29
guilty amounting to legal absence of good faith and it may not be considered a holder of the
check in good faith.
Where a holder’s title is defective or suspicious, it cannot be stated that the payee acquired
the check without the knowledge of said defects in holder’s title, and for this reason the
presumption that there is a holder in due course or that it acquired the instrument in good
faith does not exist.
Case no. 30
Mesina vs. Intermediate Appellate Court

GR No. L-70145 [145 SCRA 497] November 13,1986
Facts: Respondent Jose Go purchased from Associated Bank cashier’s check for P800,000.
The bank manager entrusted the check for safekeeping to a bank official, Albert Uy, who had
then a visitor in the person of Alexander Lim. Uy proceeded to the CR and when he returned,
Lim was gone. When Go inquired for his cashier’s check, it was nowhere to be found. Jose Go
ordered stop payment order and executed an affidavit of loss. Several days later, private
respondent, Associated Bank received a letter demanding for the payment of said check from
a certain Atty. Lorenzo Navarro, for the petitioner.
Issue: Is the petitioner a holder in due course?
Held: No. Petitioner is not a holder in due course. The same failed to substantiate his claim
that he is a holder in due course, petitioner became the holder of the cashier’s check as
indorsed 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 as a result, he cannot
30
enforce such check against the issuing bank. The bank from said check was bought and was
aware of the facts surrounding its loss may refuse to pay the same when presented.
IX. Liability of the General Indorser
Case no. 31
Metropol (Bacolod) Financing & Investment Corp. vs. Sambok Motors Co.
GR No. L-39641 [120 SCRA 864] February 28,1983
Facts: Dr. Javier Villareal executed a promissory note in favor of Ng Sambok Sans Motors Co.,
Ltd., Sambok Motors Company, a sister company of the former, negotiated the note in favor
of plaintiff Metropol Financing and Investment Corporation. Dr. Villareal failed to pay the
promissory note as demanded, hence, plaintiff notified Sambok as an indorsee of the note,
the fact that it had been dishonored and demanded payment. Sambok failed to pay and
maintained that by adding the words without recourse in the indorsement, it becomes a
qualified indorser, who does warrant that it will pay if it had been dishonored.
Issue: Is Sambok a qualified indorser?
31
Held: No. Sambok is not a qualified indorser. A qualified indorsement constitutes the indorser
a mere assignee of the title and may be made by adding the words “without recourse” or any
other words of similar import. Such an indorsement relieves the indorser of the obligation to
pay if the instrument is dishonored but not liable arising from warranties as provided in
Section 65 of the NIL. Appellant by indorsing the note with recourse does not make itself a
qualified indorser but a general one who is secondarily liable for such note.
Case no. 32
Maralit vs. Imperial

Facts: Maralit alleged that she was assistant manager of Naga City Branch of PNB; that
respondent separately deposited in her savings account at the PNB three US treasury
warrants and that they were altered. As a consequence, Maralit was held primarily liable for
the amount of P320,287.30. Petitioner filed a case to recover such amount.
Issue: Is respondent liable to the petitioner for the sum of money?
Held: Yes. Respondent is liable. The court sympathize with the complainant that there was
indeed damage and loss, but the same is chargeable to the accused who upon her
indorsements warrant that the instrument is genuine in all respects what it purports to be
and that she will pay the amount thereof in case of dishonor. Thus, while the MTC found
32
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 facts
that respondent executed a notarized acknowledgment of debt promising to pay the total
amount of said warrants. The respondent should pay petitioner the amounts of altered
treasury warrants is the logical consequence of MTC’s holding that the former is civilly liable
for the treasury warrants subject of the case.
Case no. 33
Sapiera vs. Court of Appeals

Facts: Remedies Sapiera purchased from Monrico Maut certain grocery items and paid them
with checks issued by one Arturo De Guzman. The check was dishonored and both failed to
pay the value of the checks. Hence, four charges of Estafa were filed against both of them
and 2 counts of violation of BP 22. Petitioner was acquitted.
Issue: Is the petitioner civilly liable despite her acquittal?
Held: Yes. Petitioner is still civilly liable despite her acquittal. The exoneration of the
petitioner was based on the failure of the prosecution to present sufficient evidence showing
conspiracy between her and Arturo de Guzman in defrauding private respondent. It was
33
undisputed that the four checks issued by De Guzman were signed by petitioner at the back
without any indication as to how she should be bound thereby, thus she is deemed to be an
indorser.
Where a signature is so placed upon the instrument that it is not clear in what capacity the
person making the same intended to sign, he is deemed an indorser.
The NIL clearly provides – Sec. 17. Construction where instrument is ambiguous – where the
language of the instrument is ambiguous, or there are admission therein, the following rules
of construction apply:
(f) where a signature is so placed upon the instrument that it is so clear in what capacity
the person making the same intended to sign, he is deemed an indorser.
Case no. 34
Bank of the Philippine Islands vs. Court of Appeals

Facts: Private respondent deposited in FCDU Savings Account a manager’s check payable to
cash in the amount of $2,500 and duly indorsed by private respondent. The checks belonged
to Henry Chan. Private respondent delivered to Chan a signed blank withdrawal slip. Using
the blank withdrawal slip, Ruben Gayon Jr. was able to withdraw $2,541.67. Plaintiff filed for
the recovery of the amount against the private respondent.
Issue: Is the private respondent liable under his warranties as a general indorser?
34
Held: No. Private respondent is not liable. Ordinarily, private respondent may be held liable as
an indorser of the check or even as an accommodation party. However, to hold the same
liable for the amount of the checks he deposited by strict application of the law and without
considering the attending circumstances would result in an injustice and in the erosion of
public trust in the banking system. The proximate cause of the withdrawal and eventual loss
of the amount of $2500 on petitioner’s part was its personnel’s negligence involving such
withdrawal in disregard of its own rules and the clearing requirement in the banking system.
In so doing, petitioner assumed the risk of incurring a loss on account of a forged or
counterfeit check and hence, it should suffer the resulting damage.
X. Presentment for Payment/Acceptance
Case no. 35
Prudential Bank vs. Intermediate Appellate Court

Facts: Philippine Rayon Mills entered into a contract with Nissho Co. Ltd. Of Japan for the
importation of textile under a five-year deferred payment plan. To effect payment, Rayon
applied for a commercial letter of credit with the petitioner bank in favor of Nissho, drafts
were then drawn by Nissho, which were all paid by Prudential thereof its corresponding bank
in Japan, Bank of Tokyo. Two of the drafts were accepted by defendant through its president,
35
Anacleto Chi. Upon the arrival of the machine, Prudential then indorsed the shipping
documents to then defendants. To enable Tayon to take delivery of the machines, it executed
a receipt, which was signed by Anacleto in his capacity as the President of the Company. At
the back of the trust receipt is a printed form to be accomplished by two sureties who were
to be jointly and severally liable to Prudential Bank. On 1969, Rayon ceased business
operations and five years later, the trust receipt still remained unpaid.
Issue: WON the presentment for acceptance is necessary for Rayon to be held liable for the
trust receipt
Held: No. on the issue of acceptance, Rayon contends that acceptance is necessary is
signifying the drawer’s assent to the order of the drawer. The court held that acceptance is
not necessary. A different conclusion would violate the principle upon which commercial
letters of credit are founded because such a case, Prudential would be placed at the mercy of
Rayon. The signature of Chi does not bind him solidarily with Rayon.
Case no. 36
Wong vs. Court of Appeals

Facts: Luis S. Wong, agent of Limtong Press, Inc. (LPI), issued 6 post-dated checks totaling
P18,025. These checks were 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 check as guarantees. Instead, the parties agreed to apply the checks to the
payment of petitioner’s unremitted collections for 1984 amounting to P18,077.07. Before the
maturity of the checks, petitioner, Wong, prevailed upon LPI not to deposit the checks and
36
promised to replace them within 30days, but the petitioner reneged on his promise. Hence,
when LPI deposited the checks with RCBC, the checks were returned for reason of “account
closed”. The petitioner was charged with 3 counts of violation of BP 22
Issue: WON petitioner Wong is liable for the returned check?
Held: Yes. Under Section 186 of the 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”.
By current banking practice, a check becomes stale after more than 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 re-
assurance 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 5 banking days
thereof.
Case no. 37
International Corporate Bank vs. Gueco

Facts: Gueco spouses obtained a loan from ICB (now Union Bank) to purchase a car. In
consideration thereof, the debtors executed promissory notes, 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.
37
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: WON the signing of the joint motion to dismiss is a part of the compromise agreement
between the spouses and the bank?
WON the spouses should replace the check paid to the bank after it became stale?
Held: No. It is not part of the compromise agreement entered by the parties. And thus, the
signing is dispensable in releasing the car to the spouses.
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 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 issue. It is valueless and, therefore, should not be paid. A check should be presented for
payment within reasonable time after its issue. Here what is involved is a manager’s check,
which is essentially a banks own check and may be treated as a PN with the bank as the
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 there is no loss sustained. Still, such failure to present on time does
not wipe out liability.
XI. Checks
Case no. 38
State Investment House, Inc. vs. Court of Appeals

38
Facts: Nora B. Moulic issued to Corazon Victoriano, as security for pieces to be sold on
commission, 2 post-dated Equitable Banking Corporation checks in the amount of P50,000
each. Thereafter, the payee negotiated the checks to petitioner State Investment House, Inc.
Moulic failed to sell the pieces of jewelry, so she returned them to the payee before the
maturity of the checks. The checks however, could no longer be retrieved as they had already
been negotiated. Consequently, before their maturity dates, Moulic withdrew her funds from
the drawee bank. Upon presentment for payment, the checks were dishonored for
insufficiency of funds. State sued to recover the value of the checks plus attorney’s fees and
expenses of litigation.
Issue: WON Moulic is liable for the check issued as a security for the jewelry
Held: Yes. A prima facia presumption exists that a holder of a negotiable instrument is a
holder in due course. The burden of proving that State is not a holder in due course is upon
Moulic. In this regard she failed to do so.
The evidence shows that the dated checks were complete and regular, petitioner bought the
checks from Victoriano before their due dates; it took the checks in good faith and for value;
and it was never informed nor made aware that these checks were merely issued to payee as
security.
Consequently, State is a holder in due course. Moulic cannot set up the defense that there
was a failure or want of consideration. It can only invoke the defense if State was a privy to
the purpose for which they were issued and therefore is not a holder in due course.
Furthermore, the mere fact that the checks were issued as security is not sufficient ground to
discharge the instrument as against a holder in due course. And also, Moulic was responsible
for the dishonor of her checks. She withdrew her funds from her account & could not have
expected her checks to be honored by them.
Case no. 39
Bataan Cigar and Cigarette Factory, Inc. vs. Court of Appeals

GR No. 93048 [230 SCRA 643] March 3,1994
39
Facts: Bataan Cigar and Cigarette Facory, Inc. (BCCFI), engaged with King Tim Pua George, to
deliver 2,000 bales of tobacco leaf starting October 1978. BCCFI issued post-dated checks in
exchange. Trusting King’s words, BCCFI issued another post-dated crossed check for another
purchase of tobacco leaves. During these time, King was dealing with State Investment House
Inc. On 2 separate occasions, King sold the post-dated crossed checks to SIHI that was drawn
by BCCFI in favor of King. Because King failed to deliver the leaves, BCCFI issued a stop
payment to all the checks, including those sold to SIHI. The RTC held that SIHI had a valid
claim of being a holder in due course and to collect the checks issued by BCCFI.
Issue: Whether SIHI is a holder in due course
Held: The Supreme Court held that SIHI is not a holder in due course thus granting the
petition of BCCFI. The purpose of cross-checks is to avoid those bouncing or encashing of
forged checks. Crossed checks have the following effects:
1.) It cannot be encashed but only deposited in a bank;
2.) It can only be negotiated on its respective bank once;
3.) It serves as a warning to the holder that it has been issued for a definite purpose – thus
making SIHI not a holder in due course. Still, SIHI can collect from the immediate
indorser, in this case, George King.
Case no. 40
Citytrust Banking Corp. vs. Intermediate Appellate Court
40
GR No. 84281 [232 SCRA 559] May 27,1994
Facts: Emme Herrero filed a complaint for damages against petitioner Citytrust Banking
Corporation. She averred that she made regular deposits with the petitioner bank in order to
amply cover six (6) post-dated checks she issued. When presented for encashment upon
maturity, all the checks were dishonored due to “insufficient funds”. Petitioner bank,
asserted that it was due to private respondent’s fault that her checks were dishonored. It
averred that instead of stating her correct account number in her deposit slip, she
inaccurately wrote 2900823 (omitted 1 zero)
Issue: WON the petitioner bank is correct in denying to fund the post-dated checks because
of the omission in 1 zero in the account name written in the deposit slip
Held: No. the Supreme Court disagree with the petitioner’s position. For even if it be true that
there was error on the part of the plaintiff in omitting a ‘zero’ in her account number, yet it is
a fact that her name “Emme E. Herrero” is clearly written on said deposit slip. 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, especially a number with 8 digits as the account numbers of
defendant’s depositors.
The court further ruled that the use of numbers as simply for the convenience of the bank
but was never intended to disregard the real name of the depositors, the bank is engaged in
business impressed with public interest, and it is its duty to protect in return its many 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 it
that all funds interested with it are properly accounted for and duly posted in its ledgers.
Case no. 41
41
Tan vs. Court of Appeals
Facts: Petitioner Ramon Tan had maintained since 1976 a current account with RCBC. To
avoid carrying cash while en route to Manila, he secured a cashier’s check from the Philippine
Commercial Industrial Bank (PCIB). He deposited the check in his account with 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 misrouted, but the respondent bank did not inform
Tan. Thereafter, petitioner issued 2 personal checks to Go LAC and MS development Trading
Corporation but the same was returned twice for insufficiency of funds. Hence this case.
Issue: WON a respondent bank is liable for the missent cashier’s check?
Held: Yes. The respondent bank cannot exculpate itself from liability by claiming that its
depositor “impliedly instructed” the bank to clear his check with the Central Bank by filing a
local check deposit slip. Suc posture is disingenuous to say the least.
First, why would RCBC follow a patently erroneous act born of ignorance or inattention or
both.
Second, bank transactions pass through a succession of bank personnel whose duty is to
check and counter check transactions for possible errors.
In the instant case, the teller should not have accepted the local deposit slip with the
cashier’s check that on its face was clearly a regional check without calling the depositors
attention to the mistake at the very moment this was presented to her. Neither should
everyone else down the line who processed the same check for clearing have allowed the
check to be sent to Central Bank.
42
Case no. 42
Papa vs. Au Valencia and Co. Inc.

Facts: Myron Papa is the administrator of the estate of Angela M. Butte. In 1973, he sold a
portion of said estate to Felix Penamoyo through A.U. Valencia an Co. Inc. Penamoyo gave
Papa P5,000 plus a check worth P40,000. However, Papa was not able to deliver the
certificate of title to Penamoyo. A litigation ensued and ten years after. Papa argued that the
sale between him and Penamoyo was never consummated because he did not encash the
P40,000 check and that the P5,000 was merely earnest money.
Issue: WON Papa is correct
Held: No. after more than 10 years from the payment in part by cash and in part by check,
the presumption is that the check had been encashed. Granting that Papa had never
encashed the check, his failure to do so for more than 10 years undoubtedly resulted in the
impairment of the check through his unreasonable and unexplained delay. While it is true
that the delivery of the check produces the effect of payment only when it is cashed,
pursuant to Article 1249 of the Civil Code, the rule is 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
contains 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.
43
XII. Additional Cases
Case no. 43
Allied Banking Corporation vs. Court of Appeals

GR No. 125851 [494 SCRA 467]
Facts: Allied Bank Manila purchased an export bill by checking First Bank, Ltd. Fir G.G. Sports
Wear Mfg. Corp. It was drawn under a letter of credit to cover Men’s Training Suit that was in
transit to West Germany. On the same day, Nari Gidwani and Alcron International Ltd.
executed letters of guaranty holding themselves liable on the export bill if dishonored.
Spouses De Villa also executed a continuing guaranty/comprehensive surety guaranteeing
payment of any such credit accommodations which Allied Bank extended to G.G. Sports
Wear. However, due to some material discrepancies in the document submitted by the GGS,
payment was refused when Allied negotiated the export bill checking. Consequently, Allied
demanded payments from all the respondents. Respondents refused to pay, so Allied filed an
action for sum of money. The trial court dismissed the complaint but the CA modified the
decision of the trial court. Hence, this action.
Issue: Did the respondents, in their capacity as guarantors and surety, be held liable in the
absence of protest on the bill in accordance with Section 152 of Act. No. 2031?
Held: Yes. Section 152 of Act No. 2081 is not pertinent to this case well-defined destinations
between the contract of an indorser and that of a guarantor/surety of a commercial paper.
The contract of indorsement is primarily that of transfer, while the contract of guaranty is
that of personal security. The liability of guarantor/surety is broader than that of an indorser.
Moreover, no protest on the export bill is necessary to charge all respondents jointly and
severally liable with GSS since they held themselves liable upon demand in case instrument
was dishonored.
44
Case no. 44
Villanueva vs. Nite

GR No. 148211 [496 SCRA 459] July 25,2006
Facts: Marlyn Nite took out a loan of P409,000 from Sincere Villanueva. Nite issued an Asian
Bank Corporation (ABC) check worth P325,500. The check was dishonored due to material
alteration. Then, through Nite's representative, she remitted P235,000 to Villanueva as
partial payment. The other balance was to be paid on a much later date.
A few days later, Villanueva filed an action for a sum of money and damages against ABC for
the full amount of the dishonored check. The RTC ruled in his favor but when Nite was to
withdraw money from her account, she was unable to do so because the RTC had ordered
ABC to pay Villanueva the P325,000 check.
ABC then remitted to the sheriff the check which Villanueva received. Nite filed a petition to
seek to annul the RTC's decision. The CA held in favor Nite and was ordered to pay Nite a sum
of money for extrinsic fraud.
Issue: Whether the receipt of the check was legal.
Held: The SC ruled in favor of Nite and that Villanueva was fraudulent. The SC pointed out
Villanueva's action of having to file his complaint against the bank days after he received the
P235,000 payment. By filing a complaint against the bank and Nite not impleaded within, it
shows his intent to prevent her from opposing his action.
Still, the RTC decision was to be annulled because as the NIL provides, the drawee cannot be
held liable unless he accepts the check. There was no privity between ABC and Villanueva.
45
Case no. 45
Bank of the Philippine Islands vs. Commissioner of Internal Revenue

GR No. 137002 [496 SCRA 601] July 27,2006
Facts: BPI sold to the Banko Sentral ng Pilipinas, US Dollars for P1,608,541,900. BPI instructed
through cable its corresponding bank in New York to transfer US dollars deposited in BPI’s
account therein to the Federal Reserve Bank in New York for credit to BPI’s account. Federal
Reserve Bank sent confirmation to Sentral Bank that the funds has been credited to its
account. The BSP transferred BPI’s account in the Philippines to the amount in Philippine
Pesos. The BSP was exempted from taxes from June 11,1985 until March 9,1987. However, in
1985. PD 1994 was enacted amending the Sec. 222 of the NIRC, which provides that
“whenever one party to the taxable document enjoys exemption from the tax herein
imposed, the other party who is not exempt shall be the one directly liable for tax”. BSP
issued an assessment notice to BPI, informing the same of its liability for the documentary
stamp tax. BPI disputed the notice and later on protested but the protest was denied. BPI
received final notice and filed a petition for review with CTA.
BPI alleged that the assailed decision must be reversed since the sale between BPI and
Central Bank of foreign exchange, is not subject to DST, as distinguished from foreign bills of
exchange.
Issue: WON foreign bills of exchange is taxable subject to the documentary stamp?
Held: Yes. Section 195 of the NIRC imposes DST on foreign bills of exchange, letters of credit
and orders by telegraph or otherwise, for the payment of money issued by companies or by
any person or persons. This enumeration is limited by the qualification that the should be
drawn in the Philippines and payable outside the Philippines. In the instant case, it is not the
sale of foreign exchange that is being taxed under Section 195 of the NIRC. This Section refers
to a documentary stamp tax, which is an exercise upon the facilities used in the transaction of
the business separate from the business itself, also, the fact that the funds belong to the BPI
and were not advanced by co-respondent bank will not remove the transaction from the
coverage of Section 195 of NIRC. The act of BPI instructing the respondent bank to transfer
funds of Federal Reserve Bank was performed in the Philippines. Thereafter, the excise tax
may be levied by the Philippine Government.
46
Case no. 46
Citibank N.A. vs. Modesta R. Sabeniano

GR No. 156132 [504 SCRA 378] October 18,2008
Facts: Modesto R. Sabeniano had deposits and money market placements with both Citibank
and Investors Finance Corporation, including the dollar accounts. Sabeniano obtained several
loans from Citibank, which were given to her by way of manager’s check, with her as payee.
Sabeniano executed a promissory note secured by a declaration of pledge of her dollar
accounts in Citibank Geneva, and a Deed of Assignment of her money market placements
with FNCB Finance. However, when deposited in her account, Sabeniano failed to place her
signature at the back of said checks. Due to Sabeniano’s failure to pay her loans despite
Citibank’s repeated demands, the latter off-set Sabeniano’s loans with her deposits.
Sabeniano then filed a complaint against Citibank and Finance FNCB. The trial court ruled in
favor of Sabeniano. The Court of Appeals affirmed the RTC ruling. Hence, this action.
Issue: Has Sabeniano received the proceeds of the said check even if she failed to place her
signature at the back of the check?
Held: Yes. The proceeds of the loan were paid to Sabeniano in manager’s check, with
Sabeniano specifically name as payee. Manager’s check are drawn by the bank’s manager
upon the bank itself and regarded to be good as money it represents. Also, the manager’s
check were crossed checks, with the words “payee’s amount only”. In general, a crossed
check cannot be presented to the drawee bank for payment in cash. Instead, the check can
only be deposited by the payee’s bank, which in turn must present it for payment against the
drawee bank in the course of normal banking procedure or banking hours. Crossed checks
cannot be presented for payment but it can only pat to another bank in the payee’s or
indorser’s account.
The mere fact that the manager’s check do not have Sabeniano’s signature at the back does
not negate deposit thereof in her account. The liability for the lack of indorsement on the
manager’s checks no longer fall on Citibank, but on the bank who received the same for
deposit, BPI. Thus, crossing of the MC’s was already a warning to BPI to receive said checks
for deposit only in Sabeniano’s account. It was up to BPI to verify whether it was receiving the
crossed MC in accordance with the instructions on the face thereof.
47
Case no. 47
Equitable PCI Bank vs. Ong

Facts: Warliza Sarande deposited a check in her account with the Equitable PCI Bank.
Sarande, upon inquiring on whether the check had been cleared, received an affirmative
answer, and she issued 2 checks drawn against the proceeds of said checks, one of which was
issued to Rowena Ang. Ang presented to PCI Bank the said check and requested PCI Bank to
convert the proceeds thereof into a manager’s check. Which PCI obliged. Ang deposited the
MC in her account with Equitable Banking Corporation. PCI refused to pay the checks as PCI
Bank had stopped payment of said check due to irregular issuance. Ang filed a complaint
against PCI Bank. The RTC and CA ruled in Ang’s favor.
Issue: Is the PCI Bank liable for clearing a check and issuing in favor of Ong a Manager’s
Check?
Held: Yes. PCI Bank had certified Ong’s check and since certification is equivalent to
acceptance, PCI, as drawee bank is bound to the instrument upon certification and it is
immaterial to the instrument to such liability in favor of plaintiff who is a holder in due course
whether the drawer has funds or none with PCI on the drawee was indebted to the bank for
more than the amount of the check certifying bank as all the liabilities under Sec. 62 of the
NIL which refers to the liability of acceptor. It may be true that Ang’s check, which was paid
to her by Sarande was actually not funded but since Ang became a holder in due course, PCI
cannot interpose a defense of want or lack of consideration because that defense is a
personal defense and cannot prosper against a holder in due course.
48
Case no. 48
International Corporate Bank vs. Court of Appeals, PNB

Facts: The International Corporate Bank Inc. accepted for deposit 15 checks issued by the
Ministry of Education and Culture. The checks were drawn against PNB. After 24 hours from
submission of the checks to PNB for clearing, ICBI paid the value of the checks and allowed
withdrawals of the deposits. On October 14,1981, PNB returned all the checks to ICBI without
clearing them on the ground that they were materially altered. Hence, ICBI filed an action for
collection of sums of money against PNB to recover the value of the checks, the trial court
dismissed the action. The appellate court reversed the said decision. Subsequently, the CA
reversed its own decision for it failed to appreciate the rule on return of altered checks within
24 hours from discovery of alteration.
Issue: Are alterations in serial numbers of check ne considered as material alteration, giving
the right of drawee to dishonor the check
Held: No. Alteration is said to be material if it alters the effect of the instrument. It means an
authorized change in an instrument that purports to modify in any respect the obligation of a
party or an authorized addition of words or numbers or other change to an incomplete
instrument relation to the obligation of the party. In other words, a material alteration is one
which changes the items which are required to be stated under Section 1 of Act No. 2031. In
the instant case, the alteration of the said check by altering its serial numbers do not
constitute material alteration on the checks. Hence, PNB as drawee bank has no right to
dishonor them and return them to ICBI, the collecting bank.
49
Case no. 49
Melva Theresa Gonzales vs. Rizal Commercial Banking Corporation

Facts: Dr. Don Zapanta of the Ade Medical Group drew a foreign check of $7,500 against the
drawee bank, Willshire Center Bank, LA, California, payable to Eva Alviar, Gonzales’ mother.
Alviar then indorsed this check. Since RCBC gives special accommodations to its employees to
receive the check’s value without waiting for the clearing period, Gonzales presented the
foreign check to Olivia Gomez, the RCBC’s head of retail banking. RCBC tried to collect
through its correspondent Bank of California but it was dishonored because of irregular
indorsement and account closed. Unable to collect, RCBC demanded from Gonzales and the
latter agreed that the payment be made through salary deductions. Upon default of
payment, RCBC filed a complaint for sum of money against Eva Alviar, Melva Theresa Alviar.
Gonzales and the latter’s husband Gino. CA affirmed RTC that Eva Alviar is liable as principal
debtor and Melva Theresa Alviar-Gonzales as guarantor.
Issue: WON Eva Alviar and Melva Theresa Alviar-Gonzales is liable as general indorsers
Held: No. Under Section 66, the warranties for which Alviar and Gonzales are liable as general
indorsers in favor of subsequent indorsers extend only to the state of the instrument at the
time of their indorsements.
This provision cannot be used by the party which introduced defect on the instrument which
qualifiedly indorsed it. Had it not been for the qualified indorsement “up to P17,500 only” of
Alivia Gomez, who is the employee of RCBC, there would have been no reason for dishonor of
the check.
The holder or subsequent indorser who tries to claim under the instrument which have been
dishonored for “irregular indorsement” must not be the irregular indorser himself who gave
cause for the dishonor.
50
Case no. 50
Metropolitan Bank and Trust Co. vs. Renato Cabilzo

Facts: On November 12,1994, Renato Cabilzo issued a Metrobank check payable to “cash”
and post date on November 24,1994 for P1,000. It was drawn against Cabilzo’s personal
account with Metrobank and was paid by Cabilzo to Mr. Marquez. The check was presented
to Westmont Bank for payment which, in turn, indorsed the check to Metrobank for clearing.
Metrobank cleared the check for encashment. Cabilzo called Metrobank to inform them that
he did not issue a check in the amount of P91,000 and requested its return for verification.
He discovered that the check was altered from P1,000 to P91,000. Cabilzo demanded that
Metrobank recredit P91,000 to his account but Metrobank refused. Cabilzo filed an action for
damages against Metrobank before the RTC of Manila
Issue: Does the alteration constitute a material alteration as to avoid the check against the
drawer?
Held: Yes. Since the entries altered were among those enumerated under Sec. 1 and Sec. 125,
the instant case falls within the purview of material alteration. In this case, Cabilzo did not
make nor authorize the alteration. Neither did he assent to the alteration by his express or
implied acts. There is no showing that he failed to exercise such reasonable degree of
diligence required of a prudent man which could have otherwise prevented the loss.
51
Case no. 51
Macalalag vs People of the Philippines

Facts: Petitioner Theresa Macalalag obtained loans in the amount of P100,000 at 10%
interest per month from Grace Estrella. Macalalag consistently paid the interest at first.
However, after finding that the interest is burdensome, Macalalag requested Estrella for
reduction, to which the latter agreed. Macalalag executed an acknowledgement receipt
promising to pay Estrella the face value of the loans amounting to P200,000 within 2 months
from the date of execution plus 6% interest per month on each loan. Macalalag issued to PNB
checks in favor of Estrella as security for payment of the loans. However, when Estrella
presented said checks for payment with the drawee bank, the same was dishonored and a
demand to make good the said checks to Macalalag was sent by Estrella, but the former still
failed to pay. Estrella filed a criminal case against petitioner for violation of BP 22
Issue: Does payment prior to presentment have an effect of serving the purpose of the
check?
Held: Yes. Where the checks were issued as security for a loan, payment by the accused of
the amount of the check prior to its presentation or payment would serve the same purpose.
BP 22 was not intended to shelter nor favor nor encourage users of the banking system to
enrich themselves through the manipulation and circumvention of the noble purpose and
objectives of the law.
Moreover, only a full payment of the face value of the second check at the time of its
presentment or during the 5-day grace period could have exonerated her from criminal
liability. A contrary interpretation would defeat the purpose of the banking system and the
legitimate public check account user as the drawee could very well have himself exonerated
with by mere expediency of paying a minimal fraction of the face value of the check.
52
Case no. 52
Bank of the Philippine Islands vs Court of Appeals

Facts: Julio R. Templonuevo demanded from BPI the payment of the aggregate value of the 3
checks payable to him, but which were deposited to Salazar’s account with BPI. Templonuevo
allegedly, have no knowledge and did not indorse the said check to Salazar’s account.
Consequently, the BPI froze the account of AA Salazar and Construction and Engineering
instead of another account where the checks were deposited since to the latter account was
already closed by Salazar or had insufficient balance. Salazar and Templonuevo did not arrive
at any settlement. BPI debited the amount funds transaction cost from Salazar’s account.
Hence, AA Salazar Constructions and Engineering Services filed an action for sum of money
with damages against BPI before the RTC of Pasig City.
Issue: Was there a valid transfer or negotiation of the check given by the fact that it was
indorsed by the payee?
Held: None. Sec. 49 of Act No. 2031 provides that the holder of an instrument payable to his
order transfers it for value without indorsing it, the transfer rests in the transferee such title
as the transferor had therein, and the transferee acquires in addition, right to have the
indorsement to be actually made. The weight of authority is that the mere possession of a
negotiable instrument does not in itself conclusively establish either the right of the
possession to receive payment, or right of one who has made payment to be discharged from
liability.
Since the present case involves check payable to order, Salazar could not be a holder thereof
since he is not a payee or indorsee of the checks.
53
54

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Negotiability of instruments examined in Philippine cases

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I.

Philippine Education Co., vs. Soriano

Issue: WON the postal money order in question is a negotiable instrument

Caltex Philippines, Inc. vs. CA and Security Bank

Issue: a.) WON the CTD’s are negotiable

Metropolitan Bank and Trust Company vs. CA

Issue: WON treasury warrants are negotiable instruments

Issue: WON non-negotiability of a promissory note prevents its assignment

Firestone Tire and Rubber Company of the Philippines vs. CA

Issue: WON the withdrawal slips are negotiable instruments

Ang Tek Lian vs. CA

Issue: Whether the check needs the drawer’s indorsements

Development Bank of Rizal vs. Sima Wei

The Philippine Bank of Commerce (PBCOM) vs. Aruego

Issue: WON Jpse M. Aruego is liable to the drafts

Francisco vs. Court of Appeals

Jai-Alai Corp. of the Philippines vs. Bank of the Philippine Islands

Issue: In instance of forgery, who shall bear the loss?

Republic Bank vs. Ebrada

Issue: WON Ebrada shall bear the loss

Adelaida Dominguez, as an indorser, was duty-bound to contain whether the check in

Metropolitan Waterworks and Sewerage System vs. Court of Appeals

Gempesaw vs. Court of Appeals

Associated Bank vs. Court of Appeals

Issue: Who is liable on the forged check

Republic Bank vs. Court of Appeals

Philippine Commercial and International Bank vs. Court of Appeals

Ramon Ilusorio vs. Court of Appeals

Philippine National Bank vs. Court of Appeals

Montinola vs. Philippine National Bank

Sadaya vs. Sevilla

Crisologo-Jose vs. Court of Appeals

GR No. 80599 [177 SCRA 594] September 15,1989

Facts: Atty. Oscar Z. Benares, President of Mover Enterprises, Inc., in accommodation of

Issue: WON the petitioner is liable for the check?

Stelco Marketing Corporation vs. Court of Appeals

Issue: WON Steelweld Corporation of the Philippines, as an accommodation party liable

Travel-on, Inc. vs. Court of Appeals

Bank of Philippine Islands vs. Court of Appeals

Facts: Benjamin C. Napiza, respondent, deposited in FCDU savings account a manager’s

Issue: Can the petitioner recover from the respondent

Agro Conglomerates, Inc. vs. Court of Appeals

VIII. Holder in Due Course

Vicente R. De Ocampo vs. Gatchalian

Issue: Is the plaintiff a holder in due course?

Mesina vs. Intermediate Appellate Court

Issue: Is the petitioner a holder in due course?

IX. Liability of the General Indorser

Issue: Is Sambok a qualified indorser?

Maralit vs. Imperial

Issue: Is respondent liable to the petitioner for the sum of money?

Sapiera vs. Court of Appeals

Issue: Is the petitioner civilly liable despite her acquittal?

Bank of the Philippine Islands vs. Court of Appeals

X. Presentment for Payment/Acceptance

Prudential Bank vs. Intermediate Appellate Court

Wong vs. Court of Appeals

Issue: WON petitioner Wong is liable for the returned check?

International Corporate Bank vs. Gueco

State Investment House, Inc. vs. Court of Appeals

Bataan Cigar and Cigarette Factory, Inc. vs. Court of Appeals

Issue: Whether SIHI is a holder in due course

Citytrust Banking Corp. vs. Intermediate Appellate Court