PHILIPPINE EDUCATION CO., INC. v.
SORIANO CALTEX VS CA
FACTS: Enrique Montinola sought to purchase from the Manila Post Office
10 money orders (P200 each), offering to pay for them with a private check.
Montinola was able to leave the building with his check and the 10 money
orders without the knowledge of the teller. Upon discovery that it was stolen,
message was sent to all postmasters and banks involving the unpaid money
orders. One of the money orders was received by the Philippine Education
Co. as part of its sales receipt. It was deposited by the company with the
Bank of America, which cleared it with the Bureau of Post. The Postmaster,
through the Chief of the Money Order Division of the Manila Post Office
informed the bank of the irregular issuance of the money order. The bank
debited the account of the company. The company moved for
reconsideration.
ISSUE: Whether postal money orders are negotiable instruments and the
petitioner as a holder in due course can demand payment.
HELD: Philippine postal statutes are patterned from those of the United
States, and the weight of authority in said country is that Postal money
orders are not negotiable instruments inasmuch as the establishment of a
postal money order is an exercise of governmental power for the public’s
benefit. Furthermore, some of the restrictions imposed upon money order by
postal laws and regulations are inconsistent with the character of negotiable
instruments. For instance, postal money orders may be withheld under a
variety of circumstances, and which are restricted to not more than one
indorsement. Hence, petitioner cannot demand payment and recover the
amount debited.
FACTS: Security Bank and Trust Co. issued 280 certificates of time deposit
(CTD) in favor of one Mr. Angel dela Cruz who deposited with the bank
P1.12 million. Dela Cruz delivered the CTDs to Caltex in connection with his
purchase of fuel products from the latter. Subsequently, dela Cruz informed
the bank that he lost all the CTDs, and thus executed an affidavit of loss to
facilitate the issuance of the replacement CTDs. When Caltex presented
said CTDs for verification with the bank and formally informed the bank of its
decision to preterminate the same, the bank rejected Caltex’ claim and
demand as Caltex failed to furnish copies of certain requested documents.
In 1983, dela Cruz’ loan matured and the bank set-off and applied the time
deposits as payment for the loan. Caltex filed a complaint which was
dismissed on the ground that the subject certificates of deposit are non-
negotiable.
ISSUE: Whether the Certificates of Time Deposit (CTDs) are negotiable
instruments.
RULING: The CTDs in question are negotiable instruments as they meet the
requirements of the law for negotiability as provided for in Section 1 of the
Negotiable Instruments Law. The documents provide that the amounts
deposited shall be repayable to the depositor. And according to the
document, the depositor is the "bearer." The documents do not say that the
depositor is Angel de la Cruz and that the amounts deposited are repayable
specifically to him. Rather, the amounts are to be repayable to the bearer of
the documents or, for that matter, whosoever may be the bearer at the time
of presentment. However, petitioner cannot recover on the CTDs. Although
the CTDs are bearer instruments, a valid negotiation thereof for the true
purpose and agreement between it and dela Cruz, as ultimately ascertained,
requires both delivery and indorsement. In this case, there was no
indorsement as the CTDs were delivered not as payment but only as a
security for dela Cruz' fuel purchases.
METROBANK VS. COURT OF APPEALS
FACTS: Gomez opened an account with Golden Savings and deposited 38
treasury warrants. All these warrants were subsequently indorsed by Castillo,
cashier of Golden Savings and deposited to its Savings Account in
Metrobank. Gloria Castillo went several times to Metrobank for the cleared
warrants. Exasperated over Gloria’s repeated inquiries and also as an
accommodation for a valued client, she was allowed to withdraw from the
proceeds of the warrants. In turn, Golden Savings subsequently allowed
Gomez to make withdrawals. After the withdrawal of Gomez, Metrobank
informed Golden Savings that the warrants were dishonoured by the Bureau
of Treasury for forgery of signatures and demanded the refund of the amount
contending that by indorsing the warrants in general, Golden Savings
assumed the warranty of a general indorser under Section 66.
ISSUE: Whether or not Golden Savings should be liable as a general
indorser under Section 66.
HELD: No, Section 66 is not applicable to the warrants because the same is
non-negotiable. The indication of Fund 501 as the source of the payment to
be made on the treasury warrants makes the order not unconditional and the
warrants themselves non-negotiable.
SESBRENO VS. COURT OF APPEALS
FACTS: Petitioner made a placement with Philfinance. The latter delivered
to him documents, some of which was a promissory note from Delta Motors
and a post-dated check. The post-dated checks were dishonored. This
prompted petitioner to ask for the promissory note from DMC and it was
discovered that the note issued by DMC was marked as non-negotiable. As
Sesbreno failed to recover his money, he filed case against DMC and
Philfinance.
ISSUE: Whether or not a nonnegotiable instrument cannot be transferred .
HELD: The non-negotiability of the instrument doesn’t mean that it is
non-assignable or transferable. It may still be assigned or transferred in
whole or in part, even without the consent of the promissory note, since
consent is not necessary for the validity of the assignment. In assignment,
the assignee is merely placed in the position of the assignors and
acquires the instrument subject to all the defenses that might have been
set up against the original payee.
FIRESTONE TIRE & RUBBER CO. VS. COURT OF APPEALS
FACTS: Fojas Arca and Firestone Tire entered into a franchising agreement
wherein the former purchase on credit the latter’s products. The former
could pay through special withdrawal slips which were deposited and
accepted by Citibank. Firestone believed in the sufficient funding of the
slips until Citibank informed the former that one of the slips was
dishonored. It wrote then a demand letter to Fojas Arca for the
payment and damages but the latter refused to pay, prompting Firestone to
file an action against it.
ISSUE: Whether or not the bank is liable for the alleged belated delay in
notifying the dishonor of the negotiable instrument.
HELD: The withdrawal slips are non-negotiable. The essence of negotiability
which characterizes a negotiable paper as a credit instrument lies in its
freedom to circulate freely as a substitute for money. The withdrawal slips in
question lacked this character. Hence, the rule on immediate notice of
dishonor is non-applicable to the case at hand. Thus, the bank was under no
obligation to give immediate notice that it wouldn't make payment on the
subject withdrawal slips. Nonetheless, Citibank erroneously accepted the
same as such and thus, must bear the risks attendant to the
acceptance of the instruments.
ANG TEK LIAN VS CA
FACTS: In 1946, Ang Tek Lian approached Lee Hua and asked him if he
could give him P4,000.00. He said that he meant to withdraw from the bank
but the bank’s already closed. In exchange, he gave Lee Hua a check which
is “payable to the order of ‘cash’”. The next day, Lee Hua presented the
check for payment but it was dishonored due to insufficiency of funds. Lee
Hua eventually sued Ang Tek Lian. In his defense, Ang Tek Lian argued that
he did not indorse the check to Lee Hua and that when the latter accepted
the check without Ang tek Lian’s indorsement, he had done so fully aware of
the risk he was running thereby.
ISSUE: Whether or not the indorsement of Ang Tek Lian is essential in a
bearer instrument.
HELD: No. Under the Negotiable Instruments Law, a check drawn payable to
the order of “cash” is a check payable to bearer hence a bearer instrument,
and the bank may pay it to the person presenting it for payment without the
drawer’s indorsement. The drawee bank need not obtain any indorsement of
the check, but may pay it to the person presenting it without any
indorsement.
JAI-ALAI CORP VS BPI REPUBLIC VS EBRADA

FACTS: Petitioner deposited 10 checks in its current account with BPI. The
checks which were acquired by petitioner from Ramirez, a sales agent of the
Inter-Island Gas were all payable to Inter-Island Gas Service, Inc. or
order. After the checks had been submitted to Inter-bank clearing, Inter-
Island Gas discovered that all the indorsements made on the checks
purportedly by its cashiers were forgeries. BPI thus debited the value of the
checks against petitioner's current account and forwarded to the latter the
checks containing the forged indorsements which petitioner refused to
accept.
FACTS: A check was issued to Lorenzo who turned out to be dead for 11
years. The check was indorsed to Lorenzo to Dominguez and to Ebrada. It
was encashed by Ebrada at the Republic Bank’s main office. Informing the
bank that the indorsement of Lorenzo was forged, the Bureau of Treasury
requested the Bank to refund the amount. Thereafter, the Bank sued Ebrada
to return the money.
ISSUE: Whether or not Ebrada is liable to return the value of the check
bearing a forged signature.

HELD: Yes, as last indorser, Ebrada was supposed to have warranted that
ISSUE: Whether BPI had the right to debit from petitioner's current account
she has good title to said check. The drawee of a check can recover from the
the value of the checks with the forged indorsements.
holder the money paid to him on a forged instrument. This is because the
indorser is supposed to warrant to the drawee that the signatures of the
RULING: BPI acted within legal bounds when it debited the petitioner's
payee and previous indorser are genuine.
account. Having indorsed the checks to respondent bank, petitioner is
deemed to have given the warranty prescribed in Section 66 of the NIL that
every single one of those checks "is genuine and in all respects what it
purports to be." Respondent which relied upon the petitioner's warranty
should not be held liable for the resulting loss.
MWSS VS. CA BANCO DE ORO VS. EQUITABLE BANKING CORPORATION

FACTS: Banco De Oro drew six crossed manager’s check payable to certain
FACTS: MWSS issued 23 personalized checks against its account with
member establishments of Visa Card. The checks were deposited with
PNB. During the same month, a second batch of 23 checks bearing the
Equitable Bank. After stamping at the bank the usual endorsements, the
same numbers were issued. Both were paid and cleared by PNB and debited
checks were sent for clearing through the PCHC. Banco De Oro paid the
against the account of MWSS. Investigation was conducted by NBI showed
checks. Thereafter, Banco De Oro discovered that the endorsements
that all the payees for the 2nd batch were all fictitious persons. Thereafter,
appearing at the back of the Checks were forged and/or unauthorized, hence
MWSS demanded from PNB to restore the amount of the 2nd batch
he claimed reimbursement from Equitable bank.
payments which were claimed as forged.

ISSUE: Whether or not Banco de Oro could collect reimbursement from

ISSUE: Whether or not the drawee bank PNB is liable. Equitable Bank.

HELD: Yes. The petitioner having stamped its guarantee and indorsed is
HELD: No. Forgery cannot be presumed. It must be established by clear,
estopped from claiming that the checks under consideration are not
positive and convincing evidence which is lacking in the case at bar. Further,
negotiable instruments. The collecting bank or last endorser generally suffers
petitioner was using its own personalized checks, instead of the official PNB
the loss because it has the duty to ascertain the genuineness of all prior
Commercial blank checks. The Drawee bank PNB cannot be faulted for not
indorsements.
having detected the fraudulent encashment of the checks because the printin

was not done under the supervision and control of the Bank. The petitioner

was in a better position to detect and prevent the fraudulent encashment of

its checks.
GEMPESAW VS. COURT OF APPEALS ASSOCIATED BANK VS. CA

FACTS: In the signing of the checks prepared by Galang, Gempensaw didn't

bother herself in verifying to whom the checks were being paid and if FACTS: The Province of Tarlac maintains a current account with PNB.
the issuances were necessary. She didn't verify the returned checks of
the bank when the latter notifies her of the same. During her two years in Checks were issued and received by the hospital’s administrative officer and
business, there were incidents shown that the amounts paid for were
in excess of what should have been paid. It was also shown that even if the cashier, Pangilinan. Panilinan, through the help of Associated Bank but after
checks were crossed, the intended payees didn't receive the amount of the
forging the signature of the hospital’s chief was able to deposit the checks in
checks. This prompted Gempesaw to demand the bank to credit her
account for the amount of the forged checks. The bank refused to do so and
his personal account. The province discovered that the hospital did not
this prompted her to file the case against the bank.
receive several allotted checks, and sought the restoration of the debited
ISSUE: Whether or not the bank Gempesaw has the right to demand the
credit of the amount forged. amounts from PNB. In turn, PNB demanded reimbursement from Associated
HELD: Forgery is a real defense by the party whose signature was forged. Bank. Both banks resisted payment. Hence, this present action.
As a rule, a drawee bank who has paid a check on which an indorsement
has been forged cannot debit the account of a drawer for the amount
of said check. An exception to this rule is when the drawer is guilty ISSUE: Whether or not Associated Bank should bear the loss.
of negligence which causes the bank to honor such checks. Petitioner in
this case has relied solely on the honesty and loyalty of her
bookkeeper and never bothered to verify the accuracy of the amounts HELD: Associated Bank, and not PNB, is the one duty-bound to warrant the
of the checks she signed the invoices attached thereto. And though
she received her bank statements, she didn't carefully examine the instrument as genuine, valid and subsisting at the time of indorsement
same to double-check her payments. Petitioner didn't exercise reasonable
diligence which eventually led to the fruition of her bookkeeper’s fraudulent pursuant to Section 66 of the NIL. The stamp guaranteeing prior indorsement
schemes.
is not an empty rubric; the collecting bank is held accountable for checks

deposited by its customers.

METROBANK VS. FIRST NATIONAL CITY BANK
FACTS: A check was drawn by Joaquin Cunanan & Company on First
National City Bank (FNCB) which was deposited in Metrobank by Salvador
Sales. The check was cleared the same day and the latter withdrew it and
closed his account. Thereafter, upon return of the cancelled check, Joaquin
Cunanan & Company notified the bank that the check was altered from
actual amount of P50 raised to P50,000 and over the name superimpose the
word Cash. FNCB notified and reiterated the request to Metrobank for the
reimbursement but the latter was adamant in its refusal, hence, this action.
ISSUE: Wether or not Metrobank should bear the loss from a materially
altered check?
HELD: In this case, the check was not returned to Metro Bank in accordance
with the 24-hour clearing house period, but was cleared by FNCB. Failure of
FNCB, therefore, to call the attention of Metro Bank to the alteration of the
check in question until after the lapse of nine days, negates whatever right it
might have had against Metro Bank in the light of the said Central Bank
Circular. Its remedy lies not against Metro Bank, but against the party
responsible for the changing the name of the payee and the amount on the
face of the check.
REPUBLIC BANK VS. COURT OF APPEALS
FACTS: San Miguel Corporation (SMC) drew a check amounting to P240.00
on its account in First National City Bank (FNCB) in favor of Delgado, a
stockholder. Delgado fraudulently altered the amount of the check to P9,240
after which he endorsed and deposited it with Republic Bank. Republic
Bank endorsed the check to First National City Bank (FNCB), the drawee
bank, by stamping on the back of the check “all prior and / or lack of
indorsement guaranteed". Based on such endorsement, FNCB paid the
amount to Republic Bank. Later on, San Miguel informed FNCB of the
material alteration of the amount. FNCB recredited the amount to San
Miguel’s account, and demanded refund from Republic Bank. Republic
Bank refused, claiming there was delay in giving it notice of the alteration.
ISSUE: Whether petitioner Republic Bank as the collecting bank should bear
the loss resulting from the altered check.
RULING: 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 be read together with the 24-hour
regulation on clearing house operation. Hence, when a drawee bank fails to
return a forged or altered check to the collecting bank within the 24-hour
clearing period, the collecting bank is absolved from liability.
 PHILIPPINE COMMERCIAL INTERNATIONAL BANK VS. COURT OF
APPEALS
FACTS: Ford Philippines filed actions to recover from the drawee bank
Citibank and collecting bank PCIB the value of several checks
payable to the Commissioner of Internal Revenue which were embezzled
allegedly by an organized syndicate. What prompted this action was
the drawing of a check by Ford, which it deposited to PCIB as
payment and was debited from their Citibank account. It later on found out
that the payment wasn’t received by the Commissioner. Meanwhile,
according to the NBI report, one of the checks issued by petitioner was
withdrawn from PCIB for alleged mistake in the amount to be paid. This was
replaced with manager’s check by PCIB, which were allegedly stolen by
the syndicate and deposited in their own account. The trial court decided
in favor of Ford.
ISSUE: Has Ford the right to recover the value of the checks intended as
payment to CIR?
HELD: The checks were drawn against the drawee bank but the title of the
person negotiating the same was allegedly defective because the instrument
was obtained by fraud and unlawful means, and the proceeds of the
checks were not remitted to the payee. The mere fact that the forgery
was committed by a drawer-payor’s confidential employee or agent, who
by virtue of his position had unusual facilities for perpetrating the fraud and
imposing the forged paper upon the bank, doesn’t entitle the bank to shift the
loss to the drawer-payor, in the absence of some circumstance raising
estoppel against the drawer.
RAMON ILUSORIO VS. COURT OF APPEALS
FACTS: Petitioner was a prominent businessman who, because of different
business commitments, entrusted to his then secretary the handling of
his credit cards and checkbooks. For a material period of time, the
secretary was able to encash and deposit in her personal account
money from the account of petitioner. Upon knowledge of her acts,
she was fired immediately and criminal actions were filed against her.
Thereafter, petitioner requested the bank to restore its money but the bank
refused to do so.
ISSUE: Whether or not the bank is liable for the forged checks.
HELD: The petitioner doesn’t have a course of action against the
bank. To be entitled to damages, petitioner has the burden of proving
negligence on the part of the bank for failure to detect the discrepancy in the
signatures on the checks. It is incumbent upon petitioner to establish the
fact of forgery. It was petitioner who was negligent in this case. He failed to
examine his bank statements and this was the proximate cause of his
own damage. Because of this negligence, he is precluded from setting up
the defense of forgery with regard the checks.
SAMSUNG CONSTRUCTION COMPANY PHILS., INC VS FEBTC
FACTS: Petitioner maintains a current account with the respondent bank
and authorized Jong to sign checks in behalf of the company. The checks
are in the custody of an accountant Kyu. On one occasion, a certain
Gonzaga presented a check to FEBTC purportedly drawn by the Company
in the amount of P999,500. The check was payable to cash and appeared to
be signed by Jong. FEBTC upon ascertaining that there are sufficient fund to
cover the check and finding the signature of Jong appears to be genuine
paid Gonzaga. Later, the forgery was discovered. Samsung demanded that
the amount paid to Gonzaga be credited back to its account because they
have not authorized the encashment of the check. On the other hand, the
respondent bank claimed negligence on the part of the petitioner in
protecting its check.
ISSUE: Whether or not FEBTC should bear the loss.
HELD: The SC held that the FEBTC should bear the loss. Under Sec. 62 of
NIL, among the warranties to be assumed by the acceptor is it admits the
existence of the drawer, the genuineness of his signature, and his capacity
and authority to draw the instrument. It is incumbent upon the drawee bank
to ascertain the genuineness of the signature of its depositor. The
respondent bank in this case did not exercise the degree of diligence
required to enable it to detect the forgery.
DEVELOPMENT BANK OF THE PHILS VS. SIMA WEI
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. However, two checks were not delivered to the petitioner or
to any of its authorized representatives. Instead for these checks came into
the possession of respondent Lee Kian Huat, who deposited the checks
without the petitioner’s indorsement to the account of respondent Plastic
Corporation in Producers Bank which was afterwards credited to Plastic
Corporation’s account.
ISSUE: Whether petitioner Bank can hold petitioner liable for the undelivered
check.
HELD: A negotiable instrument must be delivered to the payee in order to
evidence its existence as a binding contract. 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 instrument. 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.
PHILIPPINE BANK OF COMMERCE VS. ARUEGO
FACTS: Plaintiff instituted an action against defendant Aruego for recovery
of money signed by the defendent. The latter interposes that he signed the
drafts in a representative capacity, that he signed only as an accommodation
party and that he is not liable. The court denied the motion and rendered
judgement against the defendant. Hence this petition.
ISSUE: Whether or not defendant is liable by accepting the instrument?
HELD: Yes, an inspection of the drafts accepted by the defendant shows
that nowhere has he disclosed that he was signing as representative of the
Philippine Education Foundation Company. For failure to disclose his
principal as required under Section 20 of the NIL, he is personally liable for
the drafts he accepted.
FRANSISCO VS. COURT OF APPEALS
FACTS: Sometime in 1979, Ong discovered that Diaz and Francisco had
executed and signed seven checks drawn against the Insular Bank of Asia &
America (IBAA) and payable to Herby Commercial & Construction
Corporation (HCC) for completed and delivered work under the contract.
Ong, however, claims that these checks were never delivered to HCCC.
Upon inquiry with Diaz, Ong learned that the GSIS gave Francisco custody
of the checks since she promised that she would deliver the same to HCCC.
Instead, Francisco forged the signature of Ong, without his knowledge or
consent, at the dorsal portion of the said checks to make it appear that
HCCC had indorsed the checks; Francisco then indorsed the checks for a
second time by signing her name at the back of the checks and deposited
the checks in her IBAA savings account. IBAA credited Francisco’s account
with the amount of the checks and the latter withdrew the amount so
credited.
Petitioner claims that she was, in any event, authorized to sign Ong’s name
on the checks by virtue of the Certification executed by Ong in her favor
giving her the authority to collect all the receivables of HCCC from the GSIS,
including the questioned checks.
ISSUE: Whether or not petitioner singing in a representative capacity is
liable to the questioned checks.
HELD: The Negotiable Instruments Law provides that when a person is
under obligation to indorse in a representative capacity, he may indorse in
such terms as to negative personal liability. An agent, when so signing,
should indicate that he is merely signing as an agent in behalf of the
principal and must disclose the name of his principal. Otherwise, he will be
held liable personally. If Francisco was indeed authorized, she didn't
comply with the requirements of the law. Instead of signing Ong’s
name, she should have signed in her own name as agent of HCCC. Hence,
she is liable.
PHILIPPINE NATIONAL BANK VS. COURT OF APPEALS
FACTS: DECS issued a check in favor of Abante Marketing containing
a specific serial number, drawn against PNB. The check was deposited by
Abante in its account with Capitol and the latter consequently deposited
the same with its account with PBCOM which later deposited it with
petitioner for clearing. The check was thereafter cleared. However, on a
relevant date, petitioner PNB returned the check on account that there
had been a material alteration on it. Subsequent debits were made but
Capitol cannot debit the account of Abante any longer for the latter had
withdrawn all the money already from the account. This prompted
Capitol to seek reclarification from PBCOM and demanded the
recrediting of its account.
ISSUE: Whether or not PBCOM should bear the loss for the check
materially altered.
HELD: An alteration is said to be material if it alters the effect of the
instrument. It means an unauthorized change in the 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 the 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.
In this case, the alleged material alteration was the alteration of the serial
number of the check in issue—which is not an essential element of a
negotiable instrument under Section 1. Therefore, there being no material
alteration in the check committed, PNB could not return the check to
PBCOM. It should pay the same.
MONTINOLA VS. PHILIPPINE NATIONAL BANK
FACTS: Ramos, a disbursing officer of USAFE made cash advancements
with the provincial Treasurer of Lanao. The latter gave him a P500,000
check. Thereafter, Ramos presented the check to laya for encashment. Laya
in his capacity as Provincial Treasurer issued a check to Ramos in the sum
of P100,000. Ramos was assigned only P30000 of the value of the
document to Montinola and to deposit the balance to Ramos’s credit. This
writing however, mysteriously obliterated and in its place, a supposed
indorsement appearing on the back of the check was made for the whole
amount of the check “Agent, Phil. National Bank” under the signature of
Laya purportedly showing that Laya issued the check as agent of the PNB.
ISSUE: Whether the words, “Agent, Phil. National Bank” were added after
Laya had issued the check and thus constitutes a material alteration which
discharges the instrument.
HELD: The insertion of the words “Agent, Phil. National Bank,” which
converts the bank from a mere drawer and therefore changes its liability,
constitutes a material alteration of the instrument without the consent of the
parties liable thereon, and so discharges the instrument.
STATE INVESTMENT HOUSE VS. COURT OF APPEALS
FACTS: New Sikatuna Wood Industries Inc. (NSWI) requested for a loan
from Harris Chua, who issued 3 crossed checks. Subsequently, NSWI
entered in an agreement with State Investment House Inc. (SIHI) where the
former discounted several checks including the crossed checks. When the
crossed checks were deposited by SIHI, the checks were dishonoured by
reason of insufficient funds and account closed. SIHI made demands upon
Chua to make good said checks by Chua failed.
ISSUE: Whether SIHI is a holder in due course so as to recover the amounts
in the checks from Chua.
HELD: No, the act of crossing a check serves as a warning to the holder that
the check has been issued for a definite purpose so that he must inquire if
he has received the check pursuant to that purpose, otherwise he is not a
holder in due course. His failure to inquire from the holder the purpose
prevents him from being considered in good faith. SIHI, is subject to
personal defences for such as the lack of consideration between the NSWI
and Chua.
BATAAN CIGAR AND CIGARETTE FACTORY, INC. VS. COURT OF
APPEALS
FACTS: Petitioner engaged one of its suppliers King Tim Pua George to
deliver bales of tobacco leaf. In consideration thereof, petitioner issued a
crossed check. Relying on the supplier's representation, petitioner agreed to
purchase additional bales of tobacco leaves, despite the supplier's failure to
deliver in accordance with their earlier agreement upon which he issued post
dated crossed checks. However, the supplier sold the said check at a
discount to private respondent State Investment House Inc.(SIHI). Upon
failure to deliver said bales of tobacco leaf, petitioner issued a stop order
payment on all checks. SIHI then instituted this action, upon dishonour of the
check, on the ground that the same is a holder in due course and would be
able to collect from petitioner.
ISSUE: Whether or not SIHI, a holder of a crossed check, is a holder in due
course and would be able to collect from petitioner.
HELD: It is a settled ruled that crossing of checks should put the holder on
inquiry and upon him devolves the duty to ascertain the indorser’s title to the
check or the nature of his possession. Failing in this respect, the holder is
declared guilty of gross negligence amounting to legal absence of good faith
and is to the effect that the holder of the check is not a holder in due course.
There being failure of consideration which is a personal defense, cannot be
obliged to pay the checks to SIHI who is not a holder in due course.
CITYTRUST BANKING CORPORATION VS. COURT OF APPEALS
FACTS: The case emanated from a complaint filed by respondent Emme for
damages against petitioner. Respondent deposited with petitioner several
cash in order to amply cover the post dated checks she issued. When
presented for encahsement upon maturity, all checks were dishonoured due
to insufficiency of funds. Petitioner in its answer averred that it was
respondent’s fault that her checks were dishonoured because the account
no. Reflected in the deposit slip which is 2900823 was not her correct no.
Which is 29000823.
ISSUE: Whether of not petitioner is liable for damages on the dishonoured
checks.
HELD: The depositor expects the bank to treat his account with utmost
fidelity, whether such account consists only of a few hundred pesos or of
millions. 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 is under obligation to treat the accounts of its depositors
with meticulous care having in mind the fiduciary nature of their relationship.
Hence, nominal damages may be awarded in order that a right of the
plaintiff, which have been violated or invaded by the defendant, may be
vindicated or recognized, and not for the purpose of indemnifying the plaintiff
for any loss suffered by him.
RAMON TAN VS. COURT OF APPEALS
FACTS: Ramon tan secured a cashier’s from Philippine Commercial
Industrial Bank (PCIB) payable to his order. He deposited his check in his
account with Rizal Commercial Banking Corporation (RCBC) Binondo. On
the same day, RCBC erroneously sent the same cashier’s check for clearing
to the Central Bank which was returned for having been “missent” or
“misrouted.” The next day, RCBC debited the amount covered by the same
cashier’s check from the account of the petitioner. Respondent bank at this
time had not informed the petitioner of its action.
Relying that said checks were honoured, petitioner issued two personal
check which was dishonoured due to insufficiency of funds. Petitioner
alleging to have suffered humiliation and loss of face in the business sector
due to the bounced check filed a complaint against RCBC.
ISSUE: Whether or not RCBC may be held liable for damages upon
erroneous debit covered by the cashier’s check.
HELD: A bank cannot exculpate itself from liability for the consequences of
the use of wrong deposit slip resulting in the misrouting of a regional check
to the Central Bank for clearing. The bank is not expected to be infallible but
it must bear the blame for not discovering the mistake of its teller despite the
established procedure requiring the papers and bank books to pass through
a battery of bank personnel whose duty it is to check and countercheck them
for possible errors. As the result of the negligence of the bank, the depositor
has the right to recover moral damages even if the bank’s negligence may
not have been attended with malice and bad faith if the former suffered
mental anguish, serious anxiety, embarrassment and humiliation.
PAPA VS. A.U. VALENCIA AND CO. INC.
FACTS: On 1992, a complaint was against Petitioner Myron C. Papa as
attornery-in-fact of Angela M. Butte sold to respondent Penaroyo through
respondent Valencia a parcel of land on 1973. Petitioner appealed decision,
alleging among others that the sale was never “consummated” as he did not
encash the check given by respondents Valencia and Peñarroyo in payment
of the full purchase price of the subject lot. He maintained that what said
respondents had actually paid was only the amount of P5,000.00 (in cash)
as earnest money.
ISSUE: Whether or not the check did not amount to payment.
HELD: While it is true that the delivery of a check produces the effect of
payment only when it is cashed, pursuant to Art. 1249 of the Civil Code, the
rule is otherwise if the debtor is prejudiced by the creditor’s unreasonable
delay in presentment. The acceptance of a check implies an undertaking of
due diligence in presenting it for payment, and if he from whom it is received
sustains loss by want of such diligence, it will be held to operate as actual
payment of the debt or obligation for which it was given.
It has, likewise, been held that if no presentment is made at all, the drawer
cannot be held liable irrespective of loss or injury unless presentment is
otherwise excused. This is in harmony with Article 1249 of the Civil Code
under which payment by way of check or other negotiable instrument is
conditioned on its being cashed, except when through the fault of the
creditor, the instrument is impaired. The payee of a check would be a
creditor under this provision and if its non-payment is caused by his
negligence, payment will be deemed effected and the obligation for which
the check was given as conditional payment will be discharged. Failure of a
payee to encash a check for more than ten (10) years undoubtedly resulted
in the impairment of the check through his unreasonable and unexplained
delay.
PIO BARRETTO REALTY DEVELOPMENT CORPORATION VS COURT
OF APPEALS
FACTS: Honor Moslares and Pio Barretto Realty Development Corporation
are disputing over the estate of Nicolai Drepin, represented by Atty. Tomas
Trinidad. To settle the dispute, and while the case was in court, they entered
into a Compromise Agreement by which they agreed to have the estate in
dispute be sold; that in case Moslares was able to buy the property first, he
should pay P3,000,000.00 to Barretto Realty (representing the amount of
investments by Barretto Realty in the estate); that should Barretto Realty buy
the property first, it should pay P1,000,000.00 to Moslares (representing
interest). The compromise agreement was approved by the judge (Judge
Perfecto Laguio).
Barretto Realty was able to buy the property first hence it delivered a
manager’s check worth P1,000,000.00 to Moslares but the latter refused to
accept the same. Barretto Realty filed a petition before the trial court to
direct Moslares to comply with the Compromise Agreement. Barretto Realty
also consigned the check payment with the court. The judge issued a writ of
execution against Moslares and the sheriff also delivered the check to
Moslares which the latter accepted. However, three years later, Moslares
filed a motion for reconsideration alleging that the check payment did not
amount to legal tender and that he never even encashed the check. The
judge agreed with Moslares.
ISSUE: Whether or not the judge was correct.
HELD: No. There was already a final and executory order issued by the
same judge three years prior. The same may no longer be amended
regardless of any claim or error or incorrectness (save for clerical errors
only). It is true that a check is not a legal tender and while delivery of a
check produces the effect of payment only when it is encashed, the rule is
otherwise if the debtor (Barretto Realty) was prejudiced by the creditor’s
(Moslares’) unreasonable delay in presentment. Acceptance of a check
implies an undertaking of due diligence in presenting it for payment. If no
such presentment was made, the drawer cannot be held liable irrespective
of loss or injury sustained by the payee. Payment will be deemed effected
and the obligation for which the check was given as conditional payment will
be discharged.
PRUDENTIAL BANK VS. IAC
FACTS: To effect payment for machineries purchased by Philippine Rayon
Mills with Nissho Co., Ltd, the former opened a commercial letter of credit
with the Prudential Bank and Trust Company in favor of Nissho. Drafts were
drawn and issued by Nissho, which were all paid by the Prudential Bank
through its correspondent in Japan. Two of these drafts were accepted by
Philippine Rayon Mills while the others were not. Petitioner instituted an
action for the recovery of the sum of money it paid to Nissho as Philippine
Rayon Mills was not able to pay its obligations arising from the letter of
credit. Respondent court ruled that with regard to the ten drafts which were
not presented and accepted, no valid demand for payment can be made.
Petitioner however claims that the drafts were sight drafts which did not
require presentment for acceptance to Philippine Rayon.
ISSUE: Whether presentment for acceptance of the drafts was
indispensable to make Philippine Rayon liable thereon.
HELD: In the case at bar, the drawee was necessarily the herein petitioner.
It was to the latter that the drafts were presented for payment. There was in
fact no need for acceptance as the issued drafts are sight drafts.
Presentment for acceptance is necessary only in the cases expressly
provided for in Section 143 of the Negotiable Instruments Law (NIL). In no
other case is presentment for acceptance necessary in order to render any
party to the bill liable. Obviously then, sight drafts do not require
presentment for acceptance.
WONG VS. COURT OF APPEALS
FACTS: Petitioner Wong was an agent of Limtong Press, Inc. (LPI), a
manufacturer of calendars. After printing the calendars, LPI would ship the
calendars directly to the customers. Thereafter, the agents would come
around to collect the payments. Petitioner, however, had a history of
unremitted collections, which he duly acknowledged in a confirmation receipt
he co-signed with his wife.
Petitioner issued several checks in December 1985, initially to guarantee the
payment of unremitted collections, however, upon agreement between the
parties, the checks will be applied to unremitted collections. Before maturity,
petitioner advised not to deposit the said checks, but after failing to replace
them, respondent presented the check on June 1986 which was later on
dishonoured by reason of “account closed”. Having failed to pay, a case of
violation of BP 22 was filed against petitioner. Petitioner contends that he is
not liable by reason of the delay in presenting the checks.
ISSUE: Whether or not the petitioner is discharged from the liability on the
said checks due to delay in presentment.
HELD: Under Section 186 of the Negotiable Instruments Law, “a check must
be presented for payment within a reasonable time after its issue or the
drawer will be discharged from liability thereon to the extent of the loss
caused by the delay.” By current banking practice, a check becomes stale
after more than six (6) months,23 or 180 days. Private respondent herein
deposited the checks 157 days after the date of the check. Hence, said
checks cannot be considered stale.
 THE INTERNATIONAL CORPORATE BANK VS. SPS. FRANCIS S. NYCO SALES CORP v BA FINANCE
GUECO AND MA. LUZ E. GUECO
FACTS: NYCO Sales Corp extended a credit accommodation to the
FACTS: Gueco spouses obtained a loan from ICB to purchase a car. In Fernandez Brothers. The brothers, acting in behalf of Sanshell Corp,
consideration thereof, the debtors executed PNs, and a chattel discounted a BPI check for P60,000 with NYCO, which then indorsed the
mortgage was made over the car. The spouses defaulted in payment said check to BA Finance accompanied by a Deed of Assignment. BA
of their obligations whereupon they entered into a compromise agreement Finance, in turn, released the funds,which were used by the brothers. The
with the bank. After some negotiation and computation, they tendered a BPI check was dishonored. The brothers issued a substitute check,which
manager’s check in favor of the bank based on the reduced amount. was also dishonored. Now BA Finance goes after NYCO, which disclaims
Nonetheless, the car was still detained for the spouses refused to sign the liability.
joint motion to dismiss. Because of this, the spouses filed an action for
ISSUE: W/N NYCO, as the assignor, is liable for breach of warranties.
recovery of the car and damages against the bank. As the result of the
proceeding, the manager’s check tendered to the bank had become stale in
HELD: YES. The assignor (NYCO) warrants both the existence and legality
the hands of the bank.
of the credit, as well as the solvency of the debtor. If there is a breach of any
of the2 warranties, the assignor is liable to the assignee. That being the
ISSUE: Whether or not the bank should bear the loss on the stale manager’s
case, NYCO cannot evade liability. So long as the credit remains unpaid, the
check as a result of the proceedings.
assignor remains liable notwithstanding failure to give notice of dishonor that
HELD: Failure to present for payment within a reasonable time will result to is because the liability of NYCO stems from the assignment, not on the
the discharge of the drawer only to the extent of the loss caused by the checks alone.
delay. It does not totally wipe out all liability. In fact, the legal situation
amounts to an acknowledgment of liability in the sum stated in the check. In
this case, the Gueco spouses have not alleged, much less shown that they
or the bank which issued the manager’s check has suffered damage or loss
caused by the delay or non-presentment. Definitely, the original obligation to
pay certainly has not been erased.
DE OCAMPO VS. GATCHALIAN MESINA VS. IAC

FACTS: Anita Gatchalian was interested in buying a car when she was
offered by Manuel Gonzales to a car owned by the Ocampo Clinic. Anita
accepted the offer but Gonzales advised that the owners would only comply
only upon showing of interest on the part of the buyer. Relying on the
latter’s representation, Anita issued a check.
The next day, Gonzales never appeared. The failure of Gonzales to appeal
resulted in Gatchalian to issue a STOP PAYMENT ORDER on the check. It
was later found out that Gonzales used the check as payment to the Vicente
de Ocampo for the hospitalization fees of his wife. De Ocampo now
demands payment for the check, which Gatchalian refused, arguing that de
Ocampo is not a holder in due course and that there is no negotiation of the
check.
FACTS: Jose Go purchased from Associate Bank a Cashier’s Check, which
he left on top of the manager’s desk when left the bank. The bank
manager then had it kept for safekeeping by one of its employees.
The employee was then in conference with one Alexander Lim. He left the
check in his desk and upon his return, Lim and the check were gone.
When Go inquired about his check, the same couldn't be found and Go was
advised to request for the stoppage of payment which he did. He executed
also an affidavit of loss as well as reported it to the police. Thereafter,
petitioner demanded payment on the said check which she acquired as
payment from Alexander Lim in certain transaction.
ISSUE: Whether or not petitioner is a holder in due course and can demand
payment.

ISSUE: Whether or not De Ocampo is a holder in due course. HELD: No, petitioner is not a holder in due course. Admittedly, petitioner
became the holder of the cashier's check as endorsed by Alexander Lim
HELD: No. De Ocampo is not a holder in due course. Under the
who stole the check. He refused to say how and why it was passed to him.
circumstances of the case, instead of the presumption that payee was a
He had therefore notice of the defect of his title over the check from the start.
holder in good faith, the fact is that it acquired possession of the instrument
The holder of a cashier's check who is not a holder in due course cannot
under circumstances that should have put it to inquiry as to the title of the
enforce such check against the issuing bank which dishonors the same.
holder who negotiated the check to it. The holder did not show or tell the
payee why he had the check in his possession and why he was using it for
the payment of his own personal account which shows that holder's title was
defective or suspicious.
METROPOL VS. SAMBOK
FACTS: Dr. Javier executed a promissory note in favor of Ng Sambok Sons
Motors Co., Ltd. On the same date, Sambok Motors, a sister company
negotiated and indorsed the note in favour of Metropol Financing &
Investment Corporation adding the word “with recourse”. When Dr. Villaruel
failed to pay the promissory note after the demand of Metropol, the latter
notified Sambok of the dishonor and demand payment. Sambok contended
that it could not be obliged to pay until after its co-defendant Dr. Villaruel has
been declared insolvent.
ISSUE: Whether or not Sambok Motors Company, by adding the words “with
recourse” becomes a qualified indorser and therefor does not warrant that if
said not is dishonored, it will pay the amount to the holder.
HELD: Recourse means resort to a person who is secondarily liable after
the default of the person who is primarily liable. Appellant, by indorsing the
note “with recourse” does not make itself a qualified indorser but a general
indorser who is secondarily liable, because by such indorsement, it agreed
that if Dr. Villaruel fails to pay the note, plaintiff-appellee can go after said
appellant. The effect of such indorsement is that the note was indorsed
without qualification.
MARALIT VS. IMPERIAL
FACTS: Petitioner Maralit claimed that, as a consequence of the materially
altered treasury warrant encashed by respondent imperial, she was held
personally liable by the PNB for the total amount of P320,287.30. However,
respondent claimed that she merely helped a relative, Aida Abengoza, to
encash the treasury warrant and that she did not know the amounts were
altered nor did she represent to petitioner that the treasury warrants are
genuine and that upon being informed of dishonor, she immediately
contacted her relative and signed an acknowledgement to pay the total
amount of the treasury warrant.
ISSUE: Whether or not respondent should be held liable as a general
indorse.
HELD: The Court symphatizes with the petitioner that there was indeed
damage and loss, but said loss is chargeable to the respondent who upon
her indorsements warrant that the instrument is genuine in all respect what it
purports to be and that she will pay the amount thereof in case of dishonor.
Thus, while the MTC found petitioner partly responsible for the encashment
of the altered checks, it found respondent civilly liable because of her
indorsements of the treasury warrants, in addition to the fact that respondent
executed a notarized acknowledgment of debt promising to pay the total
amount of said warrants.
SAPIERA VS. COURT OF APPEALS
FACTS: On several occasions, petitioner Sapiera, a sari-sari store owner,
purchased from Monnico Mart certain grocery items, mostly cigarettes, and
paid for them with checks issued by one Arturo de Guzman. These checks
were signed at the back by the petitioner. When presented for payment, the
checks were dishonored because the drawer’s account was already closed.
Private respondent Roman Sua informed De Guzman and petitioner about
the dishonor but both failed to pay the value of the checks.
ISSUE: Whether or not petitioner be required to pay civil indemnity to private
respondent.
HELD: Yes. It is undisputed that the four (4) checks issued by De Guzman
were signed by petitioner at the back without any indication as to how she
should be bound thereby and, therefore, she is deemed to be an indorser
thereof. The NIL clearly provides – Sec. 17. Construction where instrument
is ambiguous. --- Where the language of the instrument is ambiguous, or
there are admissions therein, the following rules of construction apply: x x x
(f) 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. x x x
BPI VS. COURT OF APPEALS AND NAPIZA
FACTS: Private respondent Benjamin Napiza deposited in his foreign
current deposit with BPI a dollar check owned by Henry Chan in which he
affixed his signature at the dorsal side thereof. For this purpose, Napiza
gave Chan a signed blank withdrawal slip. However, Gayon Jr. got hold of
the withdrawal slip and used it to withdraw the proceeds of the dollar check,
even before the check was cleared and without the presentation of the bank
passbook.
ISSUES: Whether or not petitioner can hold private respondent liable for the
proceeds of the check for having affixed his signature at the dorsal side as
indorser.
HELD: No. It is thus clear that ordinarily private respondent may be held
liable as an indorser of the check or even as an accommodation party.[17]
However, to hold private respondent liable for the amount of the check he
deposited by the strict application of the law and without considering the
attending circumstances in the case would result in an injustice and in the
erosion of the public trust in the banking system. The interest of justice thus
demands looking into the events that led to the encashment of the check.
SADAYA VS. SEVILLA CRISOLOGO-JOSE V. CA

FACTS: Sadaya, Sevilla and Varona signed solidarily a promissory note in FACTS: The VP of Mover Enterprises, Inc. issued a check drawn against

favor of the bank. Varona was the only one who received the proceeds of Traders Royal Bank, payable to petitioner Ernestina Crisologo-Jose, for the

the note. Sadaya and Sevilla both signed as co-makers to accommodation of his client. Petitioner payee was charged with the

accommodate Varona. Thereafter, the bank collected from Sadaya. knowledge that the check was issued for the personal account of teh

Varona failed to reimburse. President who merely prevailed upon the VP to act as co-signatory in

accordance with the arrangement of the corporation with its depository bank.
Consequently, Sevilla died and intestate estate proceedings were

established. Sadaya filed a creditor’s claim on his estate for the payment he ISSUE: Whether or not private respondent, is an accommodation party

made on the note. The administrator resisted the claim on the ground that under NIL and is liable for the amount of said check.

Sevilla didn't receive any proceeds of the loan.

HELD: Yes. To be considered an accommodation party, a person must (1)

ISSUE: Whether or not Sadaya had the right to demand payment. be a party to the instrument, (2) not receive value therefor, (3) sign for the

purpose of lending his name for the credit of some other person. It is not a
HELD: A solidary accommodation maker—who made payment—has the
valid defense that the accommodation party did not receive any valuable
right to contribution, from his co-accomodation maker, in the absence of
consideration when he executed the instrument. He is liable to a holder for
agreement to the contrary between them, subject to conditions imposed by
value as if the contract was not for accommodation, in whatever capacity
law. This right springs from an implied promise to share equally the
such accommodation party signed the instrument, whether primarily or
burdens thay may ensue from their having consented to stamp their
secondarily.
signatures on the promissory note.
STELCO MARKETING VS. COURT OF APPEALS TRAVEL-ON VS. COURT OF APPEALS

FACTS: Petitioner was engaged in the distribution and sale of structural

steel bars. RYL bought on several occasion large quantities of steel bars FACTS: Travel-On filed suit to collect on 6 checks issued by private
but the same were never paid for despite several demands by petitioner. On
respondent with a total face amount of P115 ,000 as payment of various
a relevant date, RYL gave to Armstrong Industries a check in payment of its
obligations. That check was a company check of another corporation, airline tickets sold to respondent. Private respondent claimed that he had
Steelweld Corporation of the Philippines, signed by its President, Peter
Rafael Limson, and VP. The check was issued by Limson at the behest of already fully paid the obligations. He argued that he had issued postdated
his friend, Romeo Y. Lim, President of RYL. Romeo Lim had asked Limson,
for financial assistance, and the latter had agreed to give Lim a check only checks for purposes of accommodation, as he had in past accorded similar
by way of accommodation, "only as guaranty but not to pay for anything.
favors to petitioner.
Stelco filed a complaint against RYL and Steelweld for the recovery of
sum of money in payment of the steel bars ordered on the ground that
the said check has been given for payment of steel bars. ISSUE: Whether or not said checks were for accommodation and that

ISSUE: Whether or not petitioner as a holder for value may recover from the private respondent is still liable considering that petitioner is a holder for
accommodation party.
value.
HELD: No. An accommodation party is liable to a holder for value. However,
Stelco cannot be considered as a holder for value for there is no evidence
HELD: Travel-on is not an accommodated party; it realize no value on the
whatsoever that the check was ever given to it, or indorsed to it in any
manner or form in payment of an obligation or as security for an obligation, checks bounced. It presented these checks for payment at the drawee bank
or for any other purpose before it was presented for payment. STELCO
never became a holder for value and that nowhere in the check itself does but the checks bounced. Thus private responded must be held liable on the
the name of Stelco Marketing appear as payee, indorsee or depositor
six checks here involved. Those checks in themselves constituted evidence
thereof.
of indebtedness of private respondent.
BPI VS. COURT OF APPEALS
FACTS: Private respondent Benjamin Napiza deposited in his foreign
current deposit with BPI a dollar check owned by Henry Chan in which he
affixed his signature at the dorsal side thereof. For this purpose, Napiza
gave Chan a signed blank withdrawal slip. However, Gayon Jr. got hold of
the withdrawal slip and used it to withdraw the proceeds of the dollar check,
even before the check was cleared and without the presentation of the bank
passbook.
ISSUES: Whether or not petitioner can hold private respondent liable for the
proceeds of the check for having affixed his signature at the dorsal side as
indorser.
HELD: A person ‘who has signed the instrument as maker, drawer,
acceptor, or indorser, without receiving value therefor, and for the purpose of
lending his name to some other person.’ As such, she is under the law ‘liable
on the instrument to a holder for value, notwithstanding such holder at the
time of taking the instrument knew * * (her) to be only an accommodation
party,’ although she has the right, after paying the holder, to obtain
reimbursement from the party accommodated, ‘since the relation between
them is in effect that of principal and surety, the accommodation party being
the surety."
It is thus 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 amount of the check he deposited by the
strict application of the law and without considering the attending
circumstances in the case would result in an injustice and in the erosion of
the public trust in the banking system. The interest of justice thus demands
looking into the events that led to the encashment of the check.
AGRO CONGLOMERATES, INC. VS. COURT OF APPEALS
FACTS: Petitioner sold to Wonderland Food Industries two parcels of
land. They stipulated under a Memorandum of Agreement that the terms of
payment would be P1,000,000 in cash, P2,000,000 in shares of stock,
and the balance would be payable in monthly installments. Petitioner
Soriano signed as maker the promissory notes payable to the bank.
However, the petitioners failed to pay the obligations as they were due.
During that time, the bank was in financial distress and this prompted
it to endorse the promissory notes for collection. The bank gave ample time
to petitioners then to satisfy their obligations.
ISSUE: Whether or not Agro Conglomerates is liable as accommodation
parties.
HELD: Petitioners became liable as accommodation parties. They have the
right after paying the instrument to seek reimbursement from the party
accommodated, since the relation between them has in effect became one
of principal and surety.
Furthermore, as it turned out, the contract of surety between
Woodland and petitioner was extinguished by the rescission of the contract
of sale of the farmland. With the rescission, there was confusion in the
persons of the principal debtor and surety.