RAMON D. VILLANUEVA JR.

JD-2B

Philippine Education Co. Inc. v. Soriano [G.R. No. L-22405. June 30, 1971]

FACTS

Enrique Montinola sought to purchase from the Manila Post Office ten (10) money orders each payable to E.P. Montinola.
After the postal teller had made out money orders, Montinola offered to pay for them with a private checks were not
generally accepted in payment of money orders, the teller advised him to see the Chief of the Money Order Division, but
instead of doing so, Montinola managed to leave building with his own check and the ten(10) money orders without the
knowledge of the teller. Upon discovery of the disappearance of the unpaid money orders, an urgent message was sent to
all postmasters, and the following day notice was likewise served upon all banks, instructing them not to pay anyone of
the money orders aforesaid if presented for payment. The Bank of America received a copy of said notice three days
later. It debited appellant’s account with the same amount and gave it advice thereof by means of a debit memo.

ISSUE
 Whether or not postal money orders are negotiable instruments.

RULING

NO. Postal money orders are not negotiable instruments. Our postal statutes were patterned after statutes in force in the
United States. For this reason, ours are generally construed in accordance with the construction given in the United
States to their own postal statutes, in the absence of any special reason justifying a departure from this policy or practice.
The weight of authority in the United States is that postal money orders are not negotiable instruments, the reason behind
this rule being that, in establishing and operating a postal money order system, the government is not engaging in
commercial transactions but merely exercises a governmental power for the public benefit.It is to be noted in this
connection that some of the restrictions imposed upon money orders by postal laws and regulations are inconsistent with
the character of negotiable instruments. For instance, such laws and regulations usually provide for not more than one
endorsement; payment of money orders may be withheld under a variety of circumstances.
Philippine National Bank v. Court of Appeals [G.R. No. 107508. April 25, 1996]

30
 JUL FACTS

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.

ISSUE
 Whether or not there is “material alteration” on the check.

RULING

NO. An alteration is said to be material if it alters the effect of the instrument. It means an unauthorized change in an
instrument that purports to modify in any respect the obligation of a party or an unauthorized addition of words or numbers
or other change to an incomplete instrument relating to the obligation of a party. Here, the alteration of check number
does not affect its negotiability contemplated in Section 1 of the Negotiable Instruments Law.

ASSOCIATED BANK V. CA
 208 SCRA 465

FACTS:
Reyes was engaged in the RTW business and held transactions with
different department stores. She was about to collect payments from the department stores when she was informed
that the payments had already been made, through crossed checks issued in her business’ name and the
same were deposited with the bank. The bank consequently allowed its transfer to Sayson who later encashed the
checks. This prompted Reyes to sue the bank and its manager for the return of the money. The trial and appellate court
ruled in her favor.

HELD:
There is no doubt that the checks were crossed checks and for payee’s
account only. Reyes was able to show that she has never authorized Sayson to deposit the checks nor to encash
the same; that the bank had allowed all checks to be deposited, cleared and paid to one Sayson in
violation of the instructions in the said crossed checks that the same were
for payee’s account only; and that Reyes maintained a savings account with the bank which never cleared the said
checks.

Under accepted banking practice, crossing a check is done by writing two parallel lines diagonally on the top left portion of
the checks. The crossing is special where the name of a bank or a business institution is written
between the two parallel lines, which means that the drawee should pay
only with the intervention of the company. The crossing is general where the words written in between are “And Co.” and
“for payee’s account only”, as in the case at bar. This means that the drawee bank should not encash the check but
merely accept it for deposit.

The effects of crossing a check are as follows:

1. That the check may not be encashed but only deposited in the bank
2. That the check may be negotiated only once—to one who has an account with a bank
3. That the act of crossing the check serves as a warning to the
holder that the check has been issued for a definite purpose so that he must inquire if he has received the check
pursuant to the
purpose

The subject checks were accepted for deposit by the bank for the account of Sayson although they were crossed checks
and the payee wasn't Sayson but Reyes. The bank stamped thereon its guarantee that all prior
endorsements and/or lack of endorsements guaranteed. By such deliberate and positive act, the bank had for
all legal intents and purposes treated the said checks as negotiable instruments and accordingly assumed the warranty of
the endorser.

When the bank paid the checks so indorsed notwithstanding that title has not passed to the endorser, it did so at its peril
and became liable to the payee for the value of the checks.

Banco de Oro Savings and Mortgage Bank v. Equitable Banking Corp. [G.R. No. 74917. January 20, 1988]
FACTS

Equitable Bank drew six crossed manager’s check payable to certain member establishments of Visa Card.
Subsequently, the checks were deposited with Banco De Oro (BDO) to the credit of its depositor. Following normal
procedures and after stamping at the back of the checks the usual endorsements,BDOsent the checks for clearing
through the Philippine Clearing House Corporation (PCHC). Accordingly, Equitable Banking paid the checks; its clearing
account was debited for the value of the checks and BDO’s clearing account was credited for the same amount.
Thereafter, Equitable Banking discovered that the endorsements appearing at the back of the checks and purporting to be
that of the payees were forged and/or unauthorized or otherwise belong to persons other than the payees.Equitable
Banking presented the checks directly to BDO for the purpose of claiming reimbursement from the latter. However, BDO
refused to accept such direct presentation and to reimburse Equitable Banking for the value of the checks.

ISSUES

(a) Whether or not BDO is estopped from claiming that checks under consideration are non-negotiable instruments.

(b) Whether or not BDO can escape liability by reasons of forgery.
 (c) Whether or not only negotiable checks are within
the jurisdiction of PCHC.

RULING

(a) YES. BDO having stamped its guarantee of “all prior endorsements and/or lack of endorsements” is now estopped
from claiming that the checks under consideration are not negotiable instruments. The checks were accepted for deposit
by the petitioner stamping thereon its guarantee, in order that it can clear the said checks with the respondent bank. By
such deliberate and positive attitude of the petitioner it has for all legal intents and purposes treated the said cheeks as
negotiable instruments and accordingly assumed the warranty of the endorser when it stamped its guarantee of prior
endorsements at the back of the checks. It led the said respondent to believe that it was acting as endorser of the checks
and on the strength of this guarantee said respondent cleared the checks in question and credited the account of the
petitioner. Petitioner is now barred from taking an opposite posture by claiming that the disputed checks are not
negotiable instrument.

(b) NO. A commercial bank cannot escape the liability of an endorser of a check and which may turn out to be a forged
endorsement. Whenever any bank treats the signature at the back of the checks as endorsements and thus logically
guarantees the same as such there can be no doubt said bank has considered the checks as negotiable.The collecting
bank or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior
endorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party
making the presentment has done its duty to ascertain the genuineness of the endorsements.

(c) NO. PCHC’s jurisdiction is not limited to negotiable checks only. The term check as used in the said Articles of
Incorporation of PCHC can only connote checks in general use in commercial and business activities. Thus, no
distinction. Ubi lex non distinguit, nec nos distinguere debemus. Checks are used between banks and bankers and their
customers, and are designed to facilitate banking operations. It is of the essence to be payable on demand, because the
contract between the banker and the customer is that the money is needed on demand.

CESAR V. AREZA AND LOLITA B. AREZA, PETITIONERS, VS.EXPRESS SAVINGS BANK, INC. AND MICHAEL
POTENCIANO, RESPONDENTS.
G.R. No. 176697 / September 10, 2014 / J. Perez
Facts:
Petitioners Cesar V. Areza and Lolita B. Areza have two bank deposits with respondent Express Savings Bank.
They were engaged in the business of “buy and sell” of brand new and second-hand motor vehicles. On May 2, 2000,
they received an order from a certain Gerry Mambuay for the purchase of a second-hand Mitsubishi Pajero and a brand-
new Honda CRV.

The buyer, Mambuay, paid petitioners with nine (9) Philippine Veterans Affairs Office (PVAO) checks payable to
different payees and drawn against the Philippine Veterans Bank, each valued at Two Hundred Thousand Pesos
(P200,000.00) for a total of One Million Eight Hundred Thousand Pesos (P1,800,000.00).

Michael Potenciano, the branch manager of Express Savings Bank, was present during the transaction and
immediately offered the services of the bank for the processing and eventual crediting of the checks to the account of the
petitioners because the Arezas were valued clients of the bank.

The petitioners then deposited the checks to Express Savings Bank which in turn deposited the checks with its
depository bank, Equitable-PCI Bank. Equitable-PCI Bank then presented the checks to the drawee bank, Philippine
Veterans Bank, which honoured the checks.

Sometime in July 2000, the checks were returned by PVAO to the drawee on the ground that the amount on the
face of the checks was altered from the original amount of P4,000.00 to P200,000.00. The drawee bank, in turn, returned
the checks to Equitable-PCI Bank. Equitable-PCI Bank then informed Express Savings Bank that the drawee dishonored
the checks on the ground of material alterations. It also debited the deposit account of Express Savings Bank in the
amount of P1,800,000.00. Express Savings Bank insisted that it informed the petitioners of what happened to the checks.
On the other hand, the petitioners maintained that the said bank never informed them of the said progress.

The petitioners then issued a check in the amount of P500,000.00 but it was dishonored. They demanded the
bank to honor the check but it refused. Instead, it closed the Special Savings Account of the petitioners with a balance of
P1,179,659.69 and transferred said amount to their savings account. Express Savings Bank then withdrew the amount of
P1,800,000.00 representing the returned checks from petitioners’ savings account.

The petitioners filed a Complaint for Sum of Money with Damages against Express Savings Bank and Potenciano
for the alleged arbitrary and groundless dishonouring of their checks and the unlawful and unilateral withdrawal from their
savings account.

The RTC, through Judge Antonio S. Pozas, initially ruled in favor of the petitioners but the same court, through
Pairing Judge Romeo C. De Leon, eventually granted the Motion for Reconsideration filed by the respondents and set
aside the Pozas Decision. On appeal, the Court of Appeals affirmed the ruling of the RTC. Hence, this petition for review
on certiorari.

Issues:
I. Whether or not the drawee bank is liable for the altered tenor of acceptance in case the negotiable instrument is
altered before acceptance.
II. Whether or not the respondent bank has the right to debit P1,800,000.00 from the petitioners’ accounts.

Ruling:
I.
Section 63 of Act No. 2031 or the Negotiable Instruments Law provides that the acceptor, by accepting the
instrument, engages that he will pay it according to the tenor of his acceptance. The acceptor is a drawee who accepts
the bill. In Philippine National Bank v. Court of Appeals, the payment of the amount of a check implies not only
acceptance but also compliance with the drawee’s obligation.

In case the negotiable instrument is altered before acceptance, is the drawee liable for the original or the altered
tenor of acceptance? There are two divergent intepretations proffered by legal analysts. The first view is that the
obligation of the acceptor should be limited to the tenor of the instrument as drawn by the maker, as was the rule at
common law, but that it should be enforceable in favor of a holder in due course against the acceptor according to its
tenor at the time of its acceptance or certification.

The second view is that the acceptor/drawee despite the tenor of his acceptance is liable only to the
extent of the bill prior to alteration. This view appears to be in consonance with Section 124 of the Negotiable
Instruments Law which states that a material alteration avoids an instrument except as against an assenting
party and subsequent indorsers, but a holder in due course may enforce payment according to its original tenor.
Thus, when the drawee bank pays a materially altered check, it violates the terms of the check, as well as its duty to
charge its client’s account only for bona fide disbursements he had made. If the drawee did not pay according to the
original tenor of the instrument, as directed by the drawer, then it has no right to claim reimbursement from the drawer,
much less, the right to deduct the erroneous payment it made from the drawer’s account which it was expected to treat
with utmost fidelity. The drawee, however, still has recourse to recover its loss. It may pass the liability back to the
collecting bank which is what the drawee bank exactly did in this case. It debited the account of Equitable-PCI Bank for
the altered amount of the checks.

II.
No. The Bank cannot debit the savings account of petitioners. A depositary/collecting bank may resist or defend
against a claim for breach of warranty if the drawer, the payee, or either the drawee bank or depositary bank was
negligent and such negligence substantially contributed to the loss from alteration. In the instant case, no negligence can
be attributed to petitioners. We lend credence to their claim that at the time of the sales transaction, the Bank’s branch
manager was present and even offered the Bank’s services for the processing and eventual crediting of the checks. True
to the branch manager’s words, the checks were cleared three days later when deposited by petitioners and the entire
amount of the checks was credited to their savings account.

Moreover, the Bank cannot set-off the amount it paid to Equitable-PCI Bank with petitioners’ savings account.
Under Art. 1278 of the New Civil Code, compensation shall take place when two persons, in their own right, are creditors
and debtors of each other. It is well-settled that the relationship of the depositors and the Bank or similar institution is that
of creditor-debtor. But as previously discussed, petitioners are not liable for the deposit of the altered checks. The Bank,
as the depositary and collecting bank ultimately bears the loss. Thus, there being no indebtedness to the Bank on the part
of petitioners, legal compensation cannot take place.

To recap, the drawee bank, Philippine Veterans Bank in this case, is only liable to the extent of the check prior to
alteration. Since Philippine Veterans Bank paid the altered amount of the check, it may pass the liability back as it did, to
Equitable-PCI Bank, the collecting bank. The collecting banks, Equitable-PCI Bank and Express Savings Bank, are
ultimately liable for the amount of the materially altered check. It cannot further pass the liability back to the petitioners
absent any showing in the negligence on the part of the petitioners which substantially contributed to the loss from
alteration.

Based on the foregoing, the SC granted the petition and affirmed the Pozas decision only insofar as it ordered
respondents to jointly and severally pay petitioners P1,800,000.00, representing the amount withdrawn from the latter’s
account.