PHILIPPINE NATIONAL BANK, petitioner,
vs. HON. ROMULO S. QUIMPO
FACTS:
Francisco S. Gozon II went to the PNB
in his car accompanied by his friend
Ernesto Santos. When Santos saw that
Gozon left his check book he took a
check therefrom, filled it up for the
amount of P5, 000.00, forged the
signature of Gozon, and encashed
the check on the same day. Gozon
was debited the said amount. Gozon
asked that the said amount of
P5,000.00 should be returned to his
account as his signature on the check
was forged but the bank refused.
Upon complaint of Gozon, Santos was
apprehended by the police authorities
and upon investigation
he admitted the aforementioned
acts.
The Court of First Instance of Rizal
rendered a judgment in favor of the
plaintiff. Not satisfied, the bank filed
the present petition for review on
certiorari.
ISSUES:
1. WON PNB was negligent in
encashing a forged check
without carefully examining the
signature on
the check from the genuine
signature of respondent.
2. WON Gozon was negligent in
leaving his checkbook in the car
with Santos
RULING:
1. YES. It is the prime duty of a
bank is to ascertain the
genuineness of the signature
of the drawer or the depositor
on the check being
encashed. It is expected to
use reasonable business
Negotiable Instruments Law with ATTY. CLAROS (2019-2020)
prudence in accepting and
cashing a check presented to
it. Bank was negligent in
encashing a forged check
without carefully examining
the signature on the check
from the genuine signature of
respondent. Petitioner was
negligent in encashing said
forged check without
carefully examining the
signature which shows
marked variation from the
genuine signature of private
respondent.
2. NO. Private respondent trusted
Ernesto Santos as a classmate
and a friend. He brought him
along in his car to the bank
and he left his personal
belongings in the car. Santos
however removed and stole a
check from his check book
without the knowledge and
consent of private respondent.
No doubt private
respondent cannot be
considered negligent under
the circumstances of the case.
SAMSUNG v. FEBTC,
FACTS:
Plaintiff Samsung Construction
Company Philippines, Inc. ("Samsung
Construction"), while based in Biñan,
Laguna, maintained a current account
with defendant Far East Bank and Trust
Company1 ("FEBTC") at the latter’s Bel-
Air, Makati branch.2 The sole signatory to
Samsung Construction’s account was
Jong Kyu Lee ("Jong"), its Project
Manager,3 while the checks remained in
the custody of the company’s
accountant, Kyu Yong Lee ("Kyu").
On 19 March 1992, a certain Roberto
Gonzaga presented for payment FEBTC
Check No. 432100 to the bank’s branch
in Bel-Air, Makati. The check, payable to
cash and drawn against Samsung
Construction’s current account, was in
the amount of Nine Hundred Ninety
Nine Thousand Five Hundred Pesos
(P999,500.00). The bank teller,
CleofeJustiani, first checked the
balance of Samsung Construction’s
account. After ascertaining there were
enough funds to cover the check,5 she
compared the signature appearing on
the check with the specimen signature
of Jong as contained in the specimen
signature card with the bank. After
comparing the two signatures, Justiani
was satisfied as to the authenticity of
the signature appearing on the check.
She then asked Gonzaga to submit
proof of his identity, and the latter
presented three (3) identification cards.
At the same time, Justiani forwarded the
check to the branch Senior Assistant
Cashier Gemma Velez, as it was bank
policy that two bank branch officers
approve checks exceeding One
Hundred Thousand Pesos, for payment
or encashment. Velez likewise
counterchecked the signature on the
check as against that on the signature
card. He too concluded that the check
was indeed signed by Jong. Velez then
forwarded the check and signature
card to Shirley Syfu, another bank
officer, for approval. Syfu then noticed
that Jose Sempio III ("Sempio"), the
assistant accountant of Samsung
Construction, was also in the bank.
Sempio was well-known to Syfu and the
other bank officers, he being the
assistant accountant of Samsung
Construction. Syfu showed the check to
Sempio, who vouched for the
genuineness of Jong’s signature.
Confirming the identity of Gonzaga,
Sempio said that the check was for the
purchase of equipment for Samsung
Construction. Satisfied with the
genuineness of the signature of Jong,
Syfu authorized the bank’s encashment
of the check to Gonzaga.
The following day, the accountant of
Samsung Construction, Kyu, examined
the balance of the bank account and
discovered that a check in the amount
of Nine Hundred Ninety Nine Thousand
Five Hundred Pesos (P999,500.00) had
Negotiable Instruments Law with ATTY. CLAROS (2019-2020)
been encashed. Aware that he had not
prepared such a check for Jong’s
signature, Kyu perused the checkbook
and found that the last blank check was
missing.7 He reported the matter to
Jong, who then proceeded to the bank.
Jong learned of the encashment of the
check, and realized that his signature
had been forged. The Bank Manager
reputedly told Jong that he would be
reimbursed for the amount of the check
Jong proceeded to the police station
and consulted with his lawyers.
Subsequently, a criminal case for
qualified theft was filed against Sempio
in court.
In a letter dated 6 May 1992, Samsung
Construction, through counsel,
demanded that FEBTC credit to it the
amount of Nine Hundred Ninety Nine
Thousand Five Hundred Pesos
(P999,500.00), with interest. In response,
FEBTC said that it was still conducting an
investigation on the matter. Unsatisfied,
Samsung Construction filed
a Complaint on 10 June 1992 for
violation of Section 23 of the Negotiable
Instruments Law, and prayed for the
payment of the amount debited as a
result of the questioned check plus
interest, and attorney’s fees.
During the trial, both sides presented
their respective expert witnesses to
testify on the claim that Jong’s signature
was forged.Confronted with conflicting
expert testimony, the RTC chose to
believe the findings of the NBI expert. In
a Decision dated 25 April 1994, the RTC
held that Jong’s signature on the check
was forged and accordingly directed
the bank to pay or credit back to
Samsung Construction’s account the
amount of Nine Hundred Ninety Nine
Thousand Five Hundred Pesos
(P999,500.00), together with interest
tolled from the time the complaint was
filed, and attorney’s fees in the amount
of Fifteen Thousand Pesos (P15,000.00).
FEBTC timely appealed to the Court of
Appeals. On 28 November 1996, the
Special Fourteenth Division of the Court
of Appeals
renderedDecision reversing the
RTC Decision and absolving FEBTC from
any liability. The Court of Appeals held
that the contradictory findings of the NBI
and the PNP created doubt as to
whether there was forgery.17 Moreover,
the appellate court also held that
assuming there was forgery, it occurred
due to the negligence of Samsung
Construction, imputing blame on the
accountant Kyu for lack of care and
prudence in keeping the checks, which
if observed would have prevented
Sempio from gaining access thereto.
ISSUE:
Whether or not FEBTC should be held
liable for the loss since it authorized the
discharge of the forged check
HELD:
YES. the general rule remains that the
drawee who has paid upon the forged
signature bears the loss. The exception
to this rule arises only when negligence
can be traced on the part of the
drawer whose signature was forged,
and the need arises to weigh the
comparative negligence between the
drawer and the drawee to determine
who should bear the burden of loss. The
Court finds no basis to conclude that
Samsung Construction was negligent in
the safekeeping of its checks. For one,
the settled rule is that the mere fact that
the depositor leaves his check book
lying around does not constitute such
negligence as will free the bank from
liability to him, where a clerk of the
depositor or other persons, taking
advantage of the opportunity, abstract
some of the check blanks, forges the
depositor’s signature and collect on the
checks from the bank.62 And for
another, in point of fact Samsung
Construction was not negligent at all
since it reported the forgery almost
immediately upon discovery.
Since FEBTC puts into issue the degree of
care it exercised before paying out on
the forged check, we might as well
comment on the bank’s performance of
its duty. It might be so that the bank
complied with its own internal rules prior
to paying out on the questionable
check. Yet, there are several troubling
circumstances that lead us to believe
that the bank itself was remiss in its duty.
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The fact that the check was made out
in the amount of nearly one million
pesos is unusual enough to require a
higher degree of caution on the part of
the bank. Indeed, FEBTC confirms this
through its own internal procedures.
Checks below twenty-five thousand
pesos require only the approval of the
teller; those between twenty-five
thousand to one hundred thousand
pesos necessitate the approval of one
bank officer; and should the amount
exceed one hundred thousand pesos,
the concurrence of two bank officers is
required.67
In this case, not only did the amount in
the check nearly total one million pesos,
it was also payable to cash. That latter
circumstance should have aroused the
suspicion of the bank, as it is not
ordinary business practice for a check
for such large amount to be made
payable to cash or to bearer, instead of
to the order of a specified
person. Moreover, the check was
68
presented for payment by one Roberto
Gonzaga, who was not designated as
the payee of the check, and who did
not carry with him any written proof that
he was authorized by Samsung
Construction to encash the check.
Gonzaga, a stranger to FEBTC, was not
even an employee of Samsung
Construction.69 These circumstances are
already suspicious if taken
independently, much more so if they
are evaluated in concurrence.
Given the shadiness attending
Gonzaga’s presentment of the check, it
was not sufficient for FEBTC to have
merely complied with its internal
procedures, but mandatory that all
earnest efforts be undertaken to ensure
the validity of the check, and of the
authority of Gonzaga to collect
payment therefor.
Even if they alleged that they tried
calling the issuer or drawer of the check
to verify the same was not part of the
standard procedure of the bank, but an
"extra effort."71 Even assuming that such
personal verification is tantamount to
extraordinary diligence, it cannot be
denied that FEBTC still paid out the
check despite the absence of any proof
of verification from the drawer.
Even assuming that FEBTC had a
standing habit of dealing with Sempio,
acting in behalf of Samsung
Construction, the irregular
circumstances attending the
presentment of the forged check should
have put the bank on the highest
degree of alert. The Court recently
emphasized that the highest degree of
care and diligence is required of banks.
Banks are engaged in a business
impressed with public interest,
and it is their duty to protect in
return their many clients and
depositors who transact business
with them. They have the
obligation to treat their client’s
account meticulously and with
the highest degree of care,
considering the fiduciary nature
of their relationship. The diligence
required of banks, therefore, is
more than that of a good father
of a family.76
Given the circumstances, extraordinary
diligence dictates that FEBTC should
have ascertained from Jong personally
that the signature in the questionable
check was his.
Still, even if the bank performed with
utmost diligence, the drawer whose
signature was forged may still recover
from the bank as long as he or she is not
precluded from setting up the defense
of forgery. After all, Section 23 of the
Negotiable Instruments Law plainly
states that no right to enforce the
payment of a check can arise out of a
forged signature. Since the drawer,
Samsung Construction, is not precluded
by negligence from setting up the
forgery, the general rule should apply.
Consequently, if a bank pays a forged
check, it must be considered as paying
out of its funds and cannot charge the
amount so paid to the account of the
depositor.77 A bank is liable, irrespective
of its good faith, in paying a forged
check.78
WHEREFORE, the Petition is GRANTED.
The Decision of the Court of Appeals
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dated 28 November 1996 is REVERSED,
and the Decision of the Regional Trial
Court of Manila, Branch 9, dated 25
April 1994 is REINSTATED. Costs against
respondent.
BPI v. CASA Montessori International
FACTS:
On November 8, 1982, plaintiff, CASA
Montessori International5 opened
Current Account No. 0291-0081-01 with
defendant BPI, with CASA’s President
Ms. Ma. Carina C. Lebron as one of its
authorized signatories.
In 1991, after conducting an
investigation, plaintiff discovered that
nine (9) of its checks had been
encashed by a certain Sonny D. Santos
since 1990 in the total amount of
₱782,000.00
It turned out that ‘Sonny D. Santos’ with
account at BPI’s Greenbelt Branch was
a fictitious name used by third party
defendant Leonardo T. Yabut who
worked as external auditor of CASA.
Third party defendant voluntarily
admitted that he forged the signature
of Ms.Lebron and encashed the
checks.The PNP Crime Laboratory
conducted an examination of the nine
(9) checks and concluded that the
handwritings thereon compared to the
standard signature of Ms.Lebron were
not written by the latter.
Plaintiff filed the herein Complaint for
Collection with Damages against
defendant bank praying that the latter
be ordered to reinstate the amount of
₱782,500.007 in the current and savings
accounts of the plaintiff with interest at
6% per annum.
RTC rendered the appealed decision in
favor of the plaintiff. However, CA
apportioned the loss between BPI and
CASA. The appellate court took into
account CASA’s contributory
negligence that resulted in the
undetected forgery.
ISSUES:
 1. Whether or not there was forgery
under the Negotiable Instruments
Law.
2. Whether or not CASA Montessori
International were negligent and
therefore precluded from setting
up forgery as a defense.
RULING:
well the genuineness of the signatures of
its client-depositors on checks being
encashed, BPI is "expected to use
reasonable business prudence." In the
performance of that obligation, it is
bound by its internal banking rules and
regulations that form part of the
contract it enters into with its depositors.

Yes, there was forgery of the drawer’s

signature on the check. G.R. NO. L-26001, October
Respondent Yabut himself had 29, 1968
voluntarily admitted, through an PHILIPPINE NATIONAL BANK,
Affidavit, that he had forged the petitioner,
drawer’s signature and encashed the Title of the vs.
checks. Having established the forgery Case THE COURT OF APPEALS and
of the drawer’s signature, BPI -- the PHILIPPINE COMMERCIAL
drawee -- erred in making payments by AND INDUSTRIAL BANK,
virtue thereof. The forged signatures are respondents.
wholly inoperative, and CASA -- the
drawer whose authorized signatures do The drawee who pays
not appear on the negotiable money on a check on
instruments -- cannot be held liable which the signature is
Doctrine
thereon. Neither is the latter precluded forged cannot recover the
from setting up forgery as a real money from the one who
defense. received it.
 Two months
Since the banking business is impressed on/before
with public interest, of paramount November 1961,
importance thereto is the trust and
GSIS had notified
confidence of the public in general.
PNB, which
Consequently, the highest degree of
diligence is expected, and high acknowledged the
standards of integrity and performance receipt of notice,
are even required, of it.It cannot now that a check has
feign ignorance, for very early on we been lost and
have already ruled that a bank is requested that its
Facts
"bound to know the signatures of its
PNB – payment be
customers; and if it pays a forged
drawee stopped.
check, it must be considered as making
PCIB –  Sometime in January
the payment out of its own funds, and
collecting
cannot ordinarily charge the amount so 1962, one Augusto
bank
paid to the account of the depositor Lim deposited in his
GSIS -
whose name was forged." current account with
drawer
Lim - the PCIB,
For allowing payment on the checks to
payee respondent, a GSIS
a wrongful and fictitious payee, BPI --
the drawee bank -- becomes liable to its check amounting to
depositor-drawer.In both law and Php 57, 415. 00 with
equity, when one of two innocent PNB, petitioner. The
persons "must suffer by the wrongful act check was
of a third person, the loss must be borne forwarded for
by the one whose negligence was the
clearing and PNB
proximate cause of the loss or who put it
paid the amount
into the power of the third person to
perpetrate the wrong. without returning the
Pursuant to its prime duty to ascertain same to PCIB.

Negotiable Instruments Law with ATTY. CLAROS (2019-2020)

  Subsequently upon Pedro Aguilar, and its acting
demand of GSIS, General Manager Victor L. Recio.
PNB re-credited the
 Specimen signatures were submitted
amount to its
by the MWSS to and on file with the
account for the PNB
reason that the
signatures of its  By special arrangement with the
officers on the check PNB, the MWSS used personalized
were forged. checks in drawing from this
 PNB demanded PCIB account.
a refund; the latter
 printed for MWSS by its printer, F.
refused. Mesina Enterprises
 Hence the present
action.  March, April and May 1969: 23
checks were prepared, processed,
WON PNB may recover issued and released by NWSA, all of
Issue
from PCIB. which were paid and cleared by
No. PNB and debited by PNB against
NWSA Account No. 6
By not returning the check
to the PCIB, it indicated  deposited by the fictitious payees
Raul Dizon, Arturo Sison and Antonio
that PNB found nothing
Mendoza in their respective current
wrong with the check and accounts with the Philippine
would honor the same. The Commercial and Industrial Bank
actual payment of the (PCIB) and Philippine Bank of
amount of a check implies Commerce (PBC)
not only an assent to said
Ruling  At the time of their presentation to
order of drawer and
PNB these checks bear the standard
recognition of the drawer’s indorsement which reads 'all prior
obligation to pay the indorsement and/or lack of
aforementioned sum, but endorsement guaranteed'
also, a compliance with
such obligation. Also, it is  NWSA filed against PNB before the
undeniable that PNB has CFI
been negligent which was
 PNB also filed a 3rd party complaint
the main or the proximate against the negotiating banks PBC
cause of the loss. and PCIB on the ground that they
failed to ascertain the Identity of the
payees and their title to the checks
Metropolitan Waterworks and Sewerage which were deposited in the
System (MWSS) vs. CA respective new accounts of the
payees with them
FACTS:
 February 6, 1976: CFI favored MWSS
 Metropolitan Waterworks and
Sewerage System (MWSS) is a GOCC  CA: reversed and favored PNB
and successor-in- interest of the
defunct NWSA.  applied Section 24 of the Negotiable
Instruments Law
 The authorized signature for PNB
Account No. 6 were those of MWSS
treasurer Jose Sanchez, its auditor

Negotiable Instruments Law with ATTY. CLAROS (2019-2020)

ISSUE:
Whether or Not MWSS can claim against
PNB
HELD:
NO. CA reversed.
Every negotiable instrument is deemed
prima facie to have been issued for
valuable consideration and every
person whose signature appears
thereon to have become a party
thereto for value
 A bank is bound to know the
signatures of its customers; and if it
pays a forged check it must be
considered as making the payment
out of its obligation funds, and
cannot ordinarily charge the
amount so paid to the account of
the depositor whose name was
forged.
 NBI showed that the MWSS fraud was
an "inside job" and that the MWSS'
delay in the reconciliation of bank
statements and the laxity and loose
records control in the printing of its
personalized checks facilitated the
fraud. These 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 2 or more different
persons.
 Forgery cannot be presumed. It must
be established by clear, positive,
and convincing evidence. This was
not done in the present case.
SEC. 23. FORGED SIGNATURE; EFFECT
OF.- When the signature is forged or
made without authority of the person
whose signature it purports to be, it is
wholly inoperative, and no right to retain
the instrument, or to give a discharge
therefor, or to enforce payment thereof
against any party thereto can be
acquired through or under such
signature unless the party against whom
Negotiable Instruments Law with ATTY. CLAROS (2019-2020)
it is sought to enforce such right is
precluded from setting up the forgery or
want of authority.
 Gross negligence in the printing of its
personalized checks - MWSS failed to
1. give its printer, Mesina Enterprises,
specific instructions relative to the
safekeeping and disposition of
excess forms, check vouchers, and
safety papers
2. retrieve from its printer all spoiled
check forms
3. provide any control regarding the
paper used in the printing of said
checks
4. furnish the respondent drawee
bank with samples of typewriting,
cheek writing, and print used by its
printer in the printing of its checks
and of the inks and pens used in
signing the same
5. send a representative to the
printing office during the printing of
said checks
6. to reconcile the bank statements
with its own records
 MWSS requested the PNB to
discontinue the practice of mailing
the bank statements, but instead to
deliver it to Mr. EmilianoZaporteza.
However, he was unreasonably
delayed in taking prompt deliveries
of the bank statements and credit
and debit memos. As a
consequence, Mr. Zaporteza failed
to reconcile the bank statements. If
Mr. Zaporteza had not been remiss in
his duty of taking the bank
statements and reconciling them
with the petitioner's records, the
fraudulent encashments of the first
checks should have been
discovered, and further frauds
prevented. This negligence was,
therefore, the proximate cause of
the failure to discover the fraud.
 One factor which facilitate this fraud
was the delay in the reconciliation of
PNB statements with the NAWASA
 bank accounts. x xx. Had the
NAWASA representative come to
the PNB early for the statements and
had the bank been advised
promptly of the reported bogus
check, the negotiation of practically
all of the remaining checks on May,
1969 could have been prevented.
 The records likewise show that the
petitioner failed to provide
appropriate security measures over
its own records thereby laying
confidential records open to
unauthorized persons. The
petitioner's own Fact Finding
Committee, in its report submitted to
their General managerunderscored
this laxity of records control. It
observed that the "office of Mr.
Ongtengco (Cashier No. VI of the
Treasury Department at the
NAWASA) is quite open to any
person known to him or his staff
members and that the check writer
is merely on top of his table
 Even if the 23 checks in question are
considered forgeries, considering the
petitioner's gross negligence, it is
barred from setting up the defense
of forgery under Section 23 of the
Negotiable Instruments Law
 PNB had taken the necessary
measures in the detection of forged
checks and the prevention of their
fraudulent encashment. In fact, long
before the encashment of the 23
checks in question, the it had issued
constant reminders to all Current
Account Bookkeepers informing
them of the activities of forgery
syndicates.
 Under the circumstances, MWSS was
in a better position to detect and
prevent the fraudulent encashment
of its checks.
Great Eastern Life Ins. Co. v. Hongkong
Shanghai Bank (1922)
FACTS:
May 3, 1920: Great Eastern Life Ins. Co.
(Eastern) drew its check for P2,000 on
the Hongkong and Shanghai Banking
Negotiable Instruments Law with ATTY. CLAROS (2019-2020)
Corporation (HSBC) payable to the
order of Lazaro Melicor.
E. M. Maasim fraudulently obtained
possession of the check, forged
Melicor's signature, as an endorser, and
then personally endorsed and
presented it to the Philippine National
Bank (PNB) and it was placed to his
credit.
Next day: PNB endorsed the check to
the HSBC who paid it
HSBC sent a bank statement to the
Eastern showing the amount of the
check was charged to its account, and
no objection was made
4 months after the check was charged,
it developed that Lazaro Melicor, to
whom the check was made payable,
had never received it, and that his
signature, as an endorser, was forged by
Maasim,
Eastern promptly made a demand
upon the HSBC to credit the amount of
the forged check
Eastern filed against HSBC and PNB
RTC: dismissed the case
ISSUE:
W/N Eastern has the right to recover the
amount of the forged check
HELD:
YES. lower court is reversed. Eastern
against HSBC who can claim against
PNB
forgery was that of Melicor (payees and
NOT the maker)
Eastern received it banks statement, it
had a right to assume that Melicor had
personally endorsed the check, and
that, otherwise, the bank would not
have paid it
Section 23 of Negotiable Instruments
Law:
When a signature is forged or made
without the authority of the person
whose signature it purports to be, it is
wholly inoperative, and no right to retain
the instrument, or to give a discharge
therefor, or to enforce payment thereof
against any party thereto, can be
acquired through or under such
signature, unless the party against
whom it is sought to enforce such right is
precluded from setting up the forgery or
want of authority.
The Philippine National Bank had no
license or authority to pay the money to
Maasim or anyone else upon a forge
signature.
Its remedy is against Maasim to whom it
paid the money.
Gempesaw vs. Court of Appeals
Facts:
Natividad O. Gempesaw owns and
operates four grocery stores and that
she maintains a checking account with
the Philippine Bank of Communications
(drawee Bank) for easier payment of
debts to her suppliers.
Her customary practice were as follows:
Checks were prepared by her trusted
bookkeeper, Alicia Galang; Checks,
together with the invoice receipts
reflecting her obligations with the
suppliers, were submitted to her for
signature;
That she signs all the checks without
bothering to verify the accuracy of the
checks against the corresponding
invoices considering the trust and
confidence she reposed upon her
bookkeeper;
Issuance and delivery of the checks to
the payees were left to the bookkeeper;
that she did not verify whether checks
were actually delivered to their
respective payees.
Although the drawee Bank notified her
of all checks presented to and paid by
the bank, Gempesaw did not verify the
correctness of the returned checks nor if
the payees actually received the
checks in payment for the supplies she
Negotiable Instruments Law with ATTY. CLAROS (2019-2020)
received.
Gempesaw issued 82 checks in favor of
several suppliers for the
span of 2 years and the drawee bank
debited the total amount of
P1,208,606.89 against her checking
account since all of the issued checks
were honored by the drawee bank.
These checks were all crossedchecks.
It was only after the lapse of more than
2 years that Gempesaw found out
about the fraudulent manipulations of
her bookkeeper.
Gempesaw made a written demand on
respondent drawee Bank to credit her
account with the money value of the 82
checks totalling P1,208,606.89 for having
been wrongfully charged against her
account. Drawee Bank refused to grant
her demand.
About 30 of the payees whose names
were specifically written on the checks
testified that they did not receive nor
even see the subject checks and that
the indorsements appearing at the
back of the checks were not theirs.
It was learned that all the 82 checks with
forged signatures of the payees were
brought to Ernest L. Boon, Chief
Accountant of drawee who, without
authority therefor, accepted them all for
deposit to the credit and/or in the
accounts of Alfredo Y. Romero and
Benito Lam.
Regional Trial Court
The Regional Trial Court, tried the case
and rendered a decision
dismissing the complaint as well as the
drawee Bank's counterclaim.
Court of Appeals
On appeal, the Court of Appeals in a
decision affirmed the decision of the
RTC on two grounds, namely (1) that
Gempesaw’s gross negligence in issuing
the checks was the
proximate cause of the loss and (2)
assuming that the bank was also
negligent, the loss must nevertheless be
borne by the party whose negligence
was the proximate cause of the loss.
Hence, a petition for review was filed
before SC.
Issue:
Whether or not the petitioner can raise
the defense of forgery, therefore the
drawee bank alone shall bear the loss.
Ruling:
Gempesaw precluded from using
forgery as a defense; Gempesaw’s
negligence was proximate cause of her
loss.
Had Gempesaw examined her records
more carefully, she would
have noticed discrepancies. Had
Gempesaw been more vigilant in going
over her current account by taking
careful note of the daily reports made
by the drawee Bank on her issued
checks, or at least made random
scrutiny of her cancelled checks
returned by drawee Bank at the close of
each month, she could have easily
discovered the fraud being perpetrated
by Alicia Galang,
and could have reported the matter to
the drawee Bank. The drawee Bank
then could have taken immediate steps
to prevent further commission of such
fraud.
Thus, Gempesaw's negligence was the
proximate cause of her loss. And since it
was her negligence which caused the
drawee Bank to honor the forged
checks or prevented it from recovering
the amount it had already paid on the
checks, Gempesaw cannot now
complain should the bank refuse to
recredit her account with the amount of
such checks.
Under Section 23 of the NIL, she is now
precluded from using the forgery to
prevent the bank's debiting of her
account.
Section 23 of the NIL provides that"when
a signature is forged or made without
the authority of the person whose
signature it purports to be, it is wholly
inoperative, and no right to retain the
instrument, or to give a discharge
therefor, or to enforce payment thereof
against any party thereto, can be
Negotiable Instruments Law with ATTY. CLAROS (2019-2020)
acquired through or under such
signature, unless the party against
whom it is sought to enforce such right is
precluded from
setting up the forgery or want of
authority."
Two types of cases of problems arising
from forged indorsements of checks
Problems arising from forged
indorsements of checks may generally
be broken into two types of cases: (1)
where forgery was accomplished by a
person not associated with the drawer
[for example a mail robbery]; and (2)
where the indorsement was forged by
an agent of the drawer. This difference
in situations would determine the effect
of the drawer's negligence with respect
to forged indorsements.
Duty of drawer; Effect of negligence
A depositor is under a duty to set up an
accounting system and a business
procedure as are reasonably
calculated to prevent or
render difficult the forgery of
indorsements, particularly by the
depositor's own employees. And if the
drawer (depositor) learns that a check
drawn by him has been paid under a
forged indorsement, the drawer is under
duty promptly to report such fact to the
drawee bank.
For his negligence or failure either to
discover or to report promptly the fact
of such forgery to the drawee, the
drawer loses his right against the
drawee who has debited his account
under the forged indorsement. In other
words, he is precluded from using
forgery as a basis for his claim for
recrediting of his account.
Banking business impressed with public
interest; Utmost diligence required
The banking business is so impressed
with public interest where the trust and
confidence of the 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. Surely, drawee Bank cannot
claim it exercised such a degree of
diligence that is required of it. There is no
way that it be allowed to escape
liability for such negligence. Its liability as
obligor is not merely vicarious but
primary wherein the defense of exercise
of due diligence in the selection and
supervision of its employees is of no
moment.
Premises considered, respondent
drawee Bank is adjudged liable to share
the loss with the petitioner on a fifty-fifty
ratio in accordance with
Article 172 which provides:
Responsibility arising from negligence in
the performance of every kind of
obligation is also demandable, but such
liability may be regulated by the courts
according to the circumstances.
ASSOCIATED BANK vs. CA, PROVINCE OF
TARLAC and PHILIPPINE NATIONAL BANK
FACTS:
The Province of Tarlac maintains a
current account with the Philippine
National Bank (PNB Tarlac Branch)
where the provincial funds are
deposited. Portions of the funds were
allocated to the Concepcion
Emergency Hospital. Checks were
issued to it and were received by the
hospital’s administrative officer and
cashier (Fausto Pangilinan). Pangilinan,
through the help of Associated Bank but
after forging the signature of the
hospital’s chief (Adena Canlas), was
able to deposit the checks in his
personal account. All the checks bore
the stamp “All prior endorsement
guaranteed Associated Bank.” Through
post-audit, the province discovered that
the hospital did not receive several
allotted checks, and sought the
restoration of the debited amounts from
PNB. In turn, PNB demanded
reimbursement from Associated Bank.
Both banks resisted payment. Hence,
the present action.
Issue:
Who shall bear the loss resulting from the
forged checks.
Negotiable Instruments Law with ATTY. CLAROS (2019-2020)
Held:
PNB is not negligent as it is not required
to return the check to the collecting
bank within 24 hours as the banks
involved are covered by Central Bank
Circular 580 and not the rules of the
Philippine Clearing House. Associated
Bank, and not PNB, is the one duty-
bound to warrant the instrument as
genuine, valid and subsisting at the time
of indorsement pursuant to Section 66 of
the Negotiable Instruments Law. The
stamp guaranteeing prior indorsement is
not an empty rubric; the collecting bank
is held accountable for checks
deposited by its customers. However,
due to the fact that the Province of
Tarlac is equally negligent in permitting
Pangilinan to collect the checks when
he was no longer connected with the
hospital, it shares the burden of loss from
the checks bearing a forged
indorsement. Therefore, the Province
can only recover 50% of the amount
from the drawee bank (PNB), and the
collecting bank (Associated Bank) is
liable to PNB for 50% of the same
amount.
BANK OF THE PHILIPPINE ISLANDS, vs. THE
HON. COURT OF APPEALS (SEVENTH
JUDICIAL),.
FACTS:
On October 9, 1981, BPI’s Money Market
Department through its dealer trainee,
Reginaldo Eustaquio, received a call by
a woman who identified herself as Eligia
G. Fernando.
The caller wanted to preterminate her
money market placement evidenced
by a promissory note with a maturity
date of November 11, 1981 and a
maturity value of P2,462,243.19.
Although not familiar with the voice of
the real Eligia G. Fernando, Eustaquio
"made certain" that the caller was the
real Eligia G. Fernando by "verifying" that
the details the caller gave about the
placement tallied with the details in "the
ledger/folder" of the account. Even
though Eustaquio had knowledge that
Fernando was the Treasurer of Philippine
American Life Insurance Company
(Philamlife), he did not bother to call the
latter at her office to verify the request
for pretermination. The caller then asked
that two checks be issued for the
proceeds of the placement and that
the checks be delivered to her office at
Philamlife. When the checks were about
to be dispatched, the caller asked that
the checks would instead be picked up
by her niece, Rosemarie Fernando.
A person alleging to be Rosemarie
Fernando thereafter picked up the
checks with a written authorization.
However, the dispatcher failed to get or
require to surrender the promissory note
evidencing the placement. There is also
no showing that Eligia G. Fernando's
purported signature on the letter
requesting the pretermination and the
latter authorizing Rosemarie Fernando to
pick up the two checks, both of which
letters were presumably handed to the
dispatcher by Rosemarie Fernando, was
compared or verified with Eligia G.
Fernando's signature in BPI's file.
In the afternoon of October 13, 1981, a
woman who represented herself to be
Eligia G. Fernando applied at China
Banking Corporation's Head Office for
the opening of a current account. The
woman was introduced to Emily Cuaso,
the Cash Supervisor, by Antonio
Concepcion who was a depositor in
said bank. The woman was able to
open such account without an interview
and made an initial deposit of
P10,000.00. The next day, the woman
then deposited the aforementioned two
checks from BPI. Her endorsement on
the two checks was found to conform
with the depositor’s specimen signature.
CBC's guaranty of prior endorsements
and/or lack of endorsement was then
stamped on the two checks, which CBC
forthwith sent to clearing and which BPI
cleared on the same day. Two days
after, withdrawals began on the newly
opened account by means of check
payable to cash which the woman
identifying herself as Eligia G. Fernando
encashed over the counter. By the last
withdrawal, the account was left with a
balance of P571.61.
On November 11, 1981, the
maturity date of Eligia G. Fernado's
Negotiable Instruments Law with ATTY. CLAROS (2019-2020)
money market placement with BPI, it
was discovered that the real Eligia G.
Fernando never preterminated her
placement and that the signature on
the back of the checks was forged. The
next day, on November 12, 1981, BPI
returned the two checks in controversy
to CBC for the reason "Payee's
endorsement forged". Criminal actions
for "Estafa Thru Falsification of
Commercial Documents" were then
filed against four employees of BPI, and
the woman who impersonated Eligia G.
Fernando, Susan Lopez San Juan.
The Arbitration Committee ruled
in favor of petitioner BPI and ordered
China Banking Corporation to pay the
former the amount of P1,206,607.58 with
interest thereon at 12% per annum.
However, upon motion for
reconsideration filed by respondent
CBC, the Board of Directors of the
Philippine Clearing House Corporation
reversed the Arbitration Committee's
decision and sentenced BPI to pay CBC
the sum of P1,206,607.58. BPI then filed a
petition for review of the abovestated
order with the Regional Trial Court of
Makati. The trial court dismissed the
petition but modified the order. Not
satisfied with the trial court's decision,
petitioner BPI filed with the Supreme
Court a petition for review
on certiorari under Rule 45 of the Rules
of Court. However, the case was
referred to the Court of Appeals for
proper determination and disposition.
Thereafter, the appellate court affirmed
the trial court's decision. Hence, the
present petition was filed by BPI. It
argued that the proximate cause for the
loss of the proceeds of the two checks
was the negligence of the employees of
CBC and not BPI. It further argued that
the doctrine of last clear chance should
have been applied considering the
circumstances of the case
ISSUES:
(1) Whether or not the doctrine of last
clear chance should be applied
in the case?
(2) Whether or not the proximate cause
for the loss of the proceeds
of the two checks was the
 negligence of the
employees of China Banking
Corporation?
RULING:
(1) NO. The Supreme Court held that
the last clear chance doctrine cannot
be applied in the case. Under the
doctrine, the person who has the last
fair chance to avoid the impending
harm and fails to do so is chargeable
with the consequences, without
reference to the prior negligence of the
other party. However, in the case, China
Banking Corporation had no prior
notice of the fraud perpetrated by BPI's
employees on the pretermination of
Eligia G. Fernando's money market
placement.
Moreover, Fernando is not a depositor
of CBC. Hence, a comparison of the
signature of Eligia G. Fernando with that
of the impostor Eligia G. Fernando,
which respondent CBC did, could not
have resulted in the discovery of the
fraud. Respondent CBC had no way to
discover the fraud at all. The records
failed to show that respondent CBC had
knowledge, actual or implied, of the
fraud perpetrated by the impostor and
the employees of BPI.
(2) NO. The Supreme Court held that
the proximate cause of the payment of
the forged checks by an impostor was
due to the negligence of petitioner BPI.
The gap of one (1) day between the
issuance and delivery of the checks
bearing the impostor's name as payee
and the impostor's negotiating the said
forged checks by opening an account
and depositing the same with
respondent CBC is not controlling. It is
not unnatural or unexpected that after
taking the risk of impersonating Eligia G.
Fernando with the connivance of BPI's
employees, the impostor would
complete her deception by encashing
the forged checks.
The Court found that the BPI
employees were not only negligent but
are also guilty of criminal acts. The act
of BPI's dealer-trainee Eustaquio of
disclosing information about the money
market placement of its client over the
Negotiable Instruments Law with ATTY. CLAROS (2019-2020)
telephone is a violation of Sec. 87 (a) of
the General Banking Act. There was also
lack of care in the failure to verify or
compare Eligia G. Fernando's purported
signature on the letter requesting for
pre-termination and the letter
authorizing the pick-up of the checks in
controversy with the signatures on file.
Furthermore, a significant lapse was
committed when the two checks in
controversy were delivered without
requiring the surrender of the promissory
note evidencing the placement that
was supposedly preterminated.
While it is true that petitioner BPI's
negligence may have been the
proximate cause of the loss, the Court
added that respondent China Banking
Corporation's
negligence contributed equally to the
success of the impostor in encashing the
proceeds of the forged checks. While
the last clear chance doctrine was not
controlling in the case, the CBC
employees still had ample opportunity
to avoid the harm. Under the
circumstances, the Court applied Article
2179 of the Civil Code to the effect that
while respondent CBC may recover its
losses, such losses are subject to
mitigation by the courts. Considering the
comparative negligence of the two (2)
banks, the Court allocated the loss of
P2,413,215.16 and the costs of the
arbitration proceeding in the amount of
P7,250.00 and the cost of litigation on a
60-40 ratio. Thus, petitioner Bank of the
Philippine Islands was held responsible
for sixty percent (60%) while respondent
China Banking Corporation for forty
percent (40%) of the loss of 2,413,215.16
and the arbitration costs of 7,250.00.
Allied Bank vs Lim Sio Wan
Facts:
• Nov. 14, 1983 - respondent Lim
deposited with petitioner Allied a
money market placement of
P1,152,597.35 for a term of 31 days to
mature on December 15, 1983
• On Dec. 5, 1983, a person
claiming to be Lim called up an officer
of Allied, and instructed to pre-
terminate Lim’s money market
placement, to issue a manager’s check
representing the proceeds of the
placement, and to give the check to
one Deborah Dee Santos who would
pick up the check
• The bank issued Manager’s
Check representing the proceeds of
Lim’s money market placement in the
name of the latter, as payee. The check
was cross-checked “For Payee’s
Account Only” and given to Santos.
• Thereafter, the manager’s check
was deposited in the account of
Filipinas Cement Corporation (FCC) at
Metrobank with the forged signature of
Lim as indorser.
• Prior to the aforesaid event, on
Sept. 21, 1983, FCC had deposited a
money market placement for P2M with
Producers Bank. Santos was the money
market trader assigned to handle FCC’s
account
• When the placement matured,
FCC demanded the payment of the
proceeds of the placement.
• On December 5, 1983 (the same
date that Allied received the phone call
instructing to pre-terminate Lim’s
placement), the Allied manager’s
check in the name of Lim was
deposited with Metrobank in the
account of FCC, purportedly
representing the proceeds of FCC’s
money market placement with
Producers Bank.
• To clear the check and in
compliance with the Philippine Clearing
House Corporation(PCHC) rules,
Metrobank stamped a guaranty on the
check, which reads: “All prior
endorsements and/or lack of
endorsement guaranteed.”
• Upon the presentment of the
check, Allied funded the check even
without checking the authenticity of
Lim’s purported indorsement. Thus, the
amount on the face of the check was
credited to the account of FCC.
• On December 14, 1983, upon the
maturity date of the first money market
Negotiable Instruments Law with ATTY. CLAROS (2019-2020)
placement, Lim went to Allied to
withdraw it. She was then informed that
the placement had been pre-
terminated upon her instructions. She
denied giving any instructions and
receiving the proceeds.
• Lim sent a demand letter to Allied
asking for the payment of the
placement. Allied refused to pay,
claiming that the latter had authorized
the pre-termination and its subsequent
release to Santos.
• Lim filed with the RTC a complaint
against Allied to recover the proceeds
of money market placement.
• RTC rendered a decision against
Allied. It ordered Allied to pay Lim the
amount of P1,158,648.49 plus interest
until fully paid.
• CA modified the RTC’s decision. It
ordered Allied to pay 60% and
Metrobank 40% of the amount of
P1,158,648.49 plus 12% interest until fully
paid.
Issue:
Whether or not Metrobank is liable for
being a collecting bank
Held:
Both are liable. 60% - 40%
Pursuant to Sec. 66 in relation to
Sec. 65 of the NIL, the warranty “that the
instrument is genuine and in all respects
what it purports to be” covers all the
defects in the instrument affecting the
validity thereof, including a forged
indorsement. Thus, the last indorser will
be liable for the amount indicated in
the negotiable instrument even if a
previous indorsement was forged.
Precedents show that the court
held in a line of cases that 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
indorsement itself, and ultimately should
be held liable. However, this general
rule is subject to exceptions. One such
exception is when the issuance of the
check itself was attended with
negligence. Thus, where the checks
were negligently issued, this Court held
the institution issuing the check just as
liable as or more liable than the
collecting bank.
In the instant case, the trial court
correctly found Allied negligent in
issuing the manager’s check and in
transmitting it to Santos without even a
written authorization. In fact, Allied did
not even ask for the certificate
evidencing the money market
placement or call up Lim at her
residence or office to confirm her
instructions. Both actions could have
prevented the whole fraudulent
transactions. Allied’s negligence must
be considered as the proximate cause
of the resulting loss. To reiterate, had
Allied exercised the diligence due from
a financial institution, the check would
not have been issued and no loss of
funds would have resulted. In fact, there
would have been no issuance of
indorsement had there been no check
in the first place.
The liability of Allied, however, is
concurrent with that of Metrobank as
the last indorser of the check. When
Metrobank indorsed the check in
compliance with the PCHC Rules and
Regulations without verifying the
authenticity of Lim’s indorsement and
when it accepted the check despite
the fact that it was cross-checked
payable to payee’s account only, its
negligent indorsement contributed to
the easier release of Lim’s money and
perpetuation of the fraud. Given the
relative participation of Allied and
Metrobank, both banks cannot be
adjudged as equally liable. Hence, the
60:40 ratio of the liabilities of Allied and
Metrobank, as ruled by the CA, must be
upheld.
Doctrine
Section 66 in relation to Sec. 65 of the
Negotiable Instruments Law provides:
Section 65. Warranty where
negotiation by delivery, so forth.—Every
person negotiating an instrument by
delivery or by a qualified indorsement,
warrants:
Negotiable Instruments Law with ATTY. CLAROS (2019-2020)
a) That the instrument is genuine and
in all respects what it purports to be;
XXXX
Section 66. Liability of general
indorser.—Every indorser who indorses
without qualification, warrants to all
subsequent holders in due course;
a) The matters and things mentioned
in subdivisions (a), (b) and (c) of the
next preceding section;
XXXX
Notes
-Two (2) money market placements
were deposited by Lim but this case only
involves the first money placement
-Money Market - is a market dealing in
standardized short-term credit
instruments (involving large amounts)
where lenders and borrowers do not
deal directly with each other but
through a middle man or dealer in open
market. In a money market transaction,
the investor is a lender who loans his
money to a borrower through a
middleman or dealer.
In the case at bar, the money market
transaction is in the nature of a loan
Westmont (formerly ASSOCIATED
BANKING CORP) vs. EUGENE Ong
Principle: Desirable shortcut
Facts:
A maintained a current account with
the bank, B. A sold certain share of
stocks to C. To pay A, C purchased
manager’s check from D wherein A as
the payee. E, a friend of A was able to
get hold of the checks forged A’s
signature and deposited with B where E
was also a depositor. B accepted and
credited the checks to E’s account
without verifying the signature
endorsement appearing at the back of
it. E immediately withdraw the amount
and abscond.
A seeks help from E’s family to and
Central bank to recover the amount but
to no recourse. 5 months after, he filed a
complaint against B for the value of the
check on the ground of gross
negligence.
RTC rendered a decision in favor of A
which the CA affirmed in toto. Hence
this petition.
Issue:
Whether or not B is liable to the value of
the checks
Ruling:
Yes, B is liable to the value of the checks
being credited and withdrawn by E in
prejudice of A.
The principle of desirable shortcuts
states that the person who ought in any
event to be ultimately liable as among
the innocent persons involved in the
transaction.
The payee A is ought to be allowed to
recover directly from the collecting
bank B regardless of whether the check
was delivered to A.
B committed gross negligence and had
the last clear chance to stop the
fraudulent encashment of the subject
checks had it exercise due diligence
and follow the proper and regular
banking procedures in clearing the
checks.
Therefore, B is ultimately liable.
Manila Lighter Transportation Inc. vs CA
& China Banking Corp
Facts:
This case arose when petitioner Manila
Lighter Transportation filed a complaint
for the recovery of the value of 49
checks with alleged forged or
unauthorized indorsements of the payee
against the China Banking Corporation,
herein respondent.
The complaint alleged that the checks
were issued by customers of the
petitioner in payment of
brokerage/lighterage services and were
all delivered, without petitioner's
knowledge, to its collector, Augusto
Perez. It is also alleged that Luis Gaskell,
the General Manager of the petitioner,
forged the indorsements of the checks.
The checks were negotiated by Wilfredo
Lagamon- accountant of the petitioner
and relative of Luis Gaskell- with Cao
Pek and Co. whose treasurer is Ko Lit.
Negotiable Instruments Law with ATTY. CLAROS (2019-2020)
Most of the checks were deposited in
Ko Lit’s account with China Banking
Corporation.
Upon knowing this, petitioner made its
initial demand against respondent bank
for the refund of the amount of the
checks. There were some attempts
made to negotiate an amicable
settlement, but nothing came of it.
Hence, this complaint for recovery
against the respondent bank. On the
other hand, respondent bank filed a
third-party complaint against Cao Pek
and Co. and Ko Lit.
RTC found both parties equally
negligent(50-50 liability), the petitioner
for allowing a state of affairs in which its
employees could appropriate the
checks and falsify the indorsement
thereon of its manager with impunity,
and the respondent bank for not
detecting the falsification made by the
plaintiffs employees when the checks
were presented to it.
Both appealed to CA, contending that
the other should be entirely liable. The
dipositive portion:
WHEREFORE, the judgment
appealed from is hereby
modified such that the complaint
is dismissed and the respondent
bank is freed from any liability to
the petitioner. The third-party
defendants are adjudged
directly liable to the plaintiff-
appellant for the checks they
respectively indorsed.
Aggrieved, petitioner elevated this to
SC.
Issue:
WON respondent China Bank Corp. is
negligent; and thus, be liable for the
value of the checks.
Ruling:
No, China Banking Corp. is not negligent
to warrant its liability for the value of the
checks.
Since the petitioner was not a client of
respondent Bank, i.e., did not maintain
an account in said Bank, the latter had
no way of ascertaining the authenticity
of its indorsements on the checks which
were deposited in the accounts of the
third-party defendants in said Bank.
Respondent Bank was not negligent
because, in accordance with banking
practice, it caused the checks to pass
through the clearing house before it
allowed their proceeds to be withdrawn
by the depositors (third-party
defendants in the lower court).
METROPOLITAN BANK AND TRUST COMPANY
(formerly ASIANBANK CORPORATION) V. BA
FINANCE CORPORATION and MALAYAN
INSURANCE CO. INC.
[G.R. No. 179952, Dec. 4, 2009] (607 SCRA
620)
FACTS:
Lamberto Bitanga (Bitanga) obtained
from respondent BA Finance Corporation
(BA Finance) a loan to secure which, he
mortgaged his car to respondent BA
Finance. Bitanga thus had the mortgaged
car insured by respondent Malayan
Insurance Co., Inc. (Malayan Insurance). The
car was stolen. On Bitangas claim, Malayan
Insurance issued a check payable to the
order of B.A. Finance
Corporation and Lamberto Bitanga
for P224,500, drawn against China Banking
Corporation (China Bank). The check was
crossed with the notation For Deposit
Payees Account Only.
Without the indorsement or authority
of his co-payee BA Finance, Bitanga
deposited the check to his account with the
Asianbank Corporation (Asianbank), now
merged with petitioner Metropolitan Bank
and Trust Company (Metrobank). Bitanga
subsequently withdrew the entire proceeds
of the check.
In the meantime, Bitangas loan
became past due, but despite demands, he
failed to settle it. BA Finance thereupon
demanded the payment of the value of the
check from Asianbank but to no avail,
prompting it to file a complaint for sum of
money and damages against Asianbank
and Bitanga alleging that, inter alia, it is
entitled to the entire proceeds of the check.
On the issue of whether or not BA
Finance has a cause of action, Metrobank
contends that Bitanga is authorized to
indorse the check as the drawer names him
as one of the payees. Moreover, his
signature is not a forgery nor has he or
anyone forged the signature of the
representative of BA Finance
Negotiable Instruments Law with ATTY. CLAROS (2019-2020)
Corporation. No unauthorized indorsement
appears on the check. Absent the
indispensable fact of forgery or
unauthorized indorsement, the payee may
not recover from the collecting bank.
ISSUE 1:
Whether BA Finance has a cause of
action against Metrobank even if the
subject check had not been delivered to BA
Finance by the issuer itself?
HELD:
YES. Section 41 of the Negotiable
Instruments Law provides:
Where an instrument is payable to
the order of two or more payees or
indorsees who are not partners, all must
indorse unless the one indorsing has
authority to indorse for the others.
Bitanga alone endorsed the crossed
check, and petitioner allowed the deposit
and release of the proceeds thereof,
despite the absence of authority of Bitangas
co-payee BA Finance to endorse it on its
behalf. Petitioners argument that since there
was neither forgery, nor unauthorized
indorsement because Bitanga was a co-
payee in the subject check, the dictum
in Associated Bank v. CA does not apply in
the present case fails. The payment of an
instrument over a missing indorsement is the
equivalent of payment on a forged
indorsement or an unauthorized
indorsement in itself in the case of joint
payees.
Accordingly, one who credits the
proceeds of a check to the account of the
indorsing payee is liable in conversion to the
non-indorsing payee for the entire amount
of the check.
ISSUE 2:
Is Metrobank liable to BA Finance for
the full value of the check, under the
Negotiable Instruments Law?
HELD:
YES. Section 68 of the Negotiable
Instruments Law instructs that joint payees
who indorse are deemed to indorse jointly
and severally. When the maker dishonors
the instrument, the holder thereof can turn
to those secondarily liable the indorser for
recovery.
A collecting bank, Asianbank in this
case, where a check is deposited and
which indorses the check upon presentment
with the drawee bank, is an indorser. his is
because in indorsing a check to the drawee
bank, a collecting bank stamps the back of
the check with the phrase all prior
endorsements and/or lack of endorsement
guaranteed and, for all intents and
purposes, treats the check as a negotiable
instrument, hence, assumes the warranty of
an indorser.
Petitioner, as the collecting bank or
last indorser, generally suffers the loss
because it has the duty to ascertain the
genuineness of all prior indorsements
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 prior indorsements.
PHILIPPINE NATIONAL BANK, vs. COURT
OF APPEALS, CAPITOL CITY
DEVELOPMENT BANK
FACTS:
On August 7, 1981, the Ministry of
Education and Culture issued a check
payable to F. Abante Marketing. This
check was drawn against Philippine
National Bank (herein petitioner).
On August 11, 1981, F. Abante
Marketing, a client of Capitol City
Development Bank (Capitol), deposited
the questioned check in its savings
account with said bank. In turn, Capitol
deposited the same in its account with
the Philippine Bank of Communications
(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 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.
On the other hand, Capitol could not, in
turn, debit F. Abante Marketing's
account since the latter had already
withdrawn the amount of the check as
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of October 15, 1981. Capitol sought
clarification from PBCom and
demanded the re-crediting of the
amount. PBCom followed suit by
requesting an explanation and re-
crediting from petitioner.
Since the demands of Capitol were not
heeded, it filed a civil suit with the
Regional Trial Court of Manila against
PBCom which, in turn, filed a third-party
complaint against petitioner for
reimbursement/indemnity with respect
to the claims of Capitol. Petitioner, on its
part, filed a fourth-party complaint
against F. Abante Marketing.
ISSUE:
WHETHER OR NOT AN ALTERATION OF
THE SERIAL NUMBER OF A CHECK IS A
MATERIAL ALTERATION UNDER THE
NEGOTIABLE INSTRUMENTS LAW.
RULING:
NO.
An alteration is said to be material if it
alters the effect of theinstrument. 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
Negotiable Instruments Law.
Section 1 of the Negotiable Instruments
Law provides:
Sec. 1. — Form of
negotiable instruments. An
instrument to be
negotiable must conform
to the following
requirements:
(a) It must be in writing
and signed by the maker
or drawer;
(b) Must contain an
unconditional promise or
 order to pay a sum certain
in money;
(c) Must be payable on
demand, or at a fixed or
determinable future time;
(d) Must be payable to
order or to bearer; and
(e) Where the instrument is
addressed to a drawee,
he must be named or
otherwise indicated
therein with reasonable
certainty.
In his book entitled "Pandect of
Commercial Law and Jurisprudence,"
Justice Jose C. Vitug opines that "an
innocent alteration (generally, changes
on items other than those required to be
stated under Sec. 1, N.I.L.) and
spoliation (alterations done by a
stranger) will not avoid the instrument,
but the holder may enforce it only
according to its original tenor."
A. Material Alterations:
(1) Substituting the words "or bearer" for
"order."
(2) Writing "protest waived" above blank
indorsements.
(3) A change in the date from which
interest is to run.
(4) A check was originally drawn as
follows: "Iron County Bank, Crystal Falls,
Mich. Aug. 5, 1901. Pay to G.L. or order
$9 fifty cents CTR" The insertion of the
figure 5 before the figure 9, the
instrument being otherwise unchanged.
(5) Adding the words "with interest" with
or without a fixed rate.
(6) An alteration in the maturity of a
note, whether the time for payment is
thereby curtailed or extended.
(7) An instrument was payable "First Nat'l
Bank" the plaintiff added the word
"Marion."
(8) Plaintiff, without consent of the
defendant, struck out the name of the
defendant as payee and inserted the
name of the maker of the original note.
(9) Striking out the name of the payee
and substituting that of the person who
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actually discounted the note.
(10) Substituting the address of the
maker for the name of a co-maker.
METROPOLITAN BANK AND TRUST
COMPANY, vs. REYNATOD. CABILZO,
FACTS:
Petitioner Metrobank is a banking
institution duly organized and existing
under Philippine laws.Respondent
Renato D. Cabilzo (Cabilzo) was one of
Metrobank’s clients who maintained a
current account with
MetrobankPasongTamo Branch.
On 12 November 1994, Cabilzo issued a
Metrobank CheckNo. 985988, payable
to "CASH" and postdated on 24
November 1994 in the amount of One
Thousand Pesos (P1,000.00). The check
was drawn against Cabilzo’s Account
with MetrobankPasongTamo Branch
and was paid by Cabilzo to a certain
Mr. Marquez, as his sales commission.The
check was presented to Westmont Bank
for payment. Westmont Bankindorsed
the check to Metrobank for appropriate
clearing. After the entries thereon were
examined, Metrobank cleared the
check for encashment in accordance
with the Philippine Clearing House
Corporation (PCHC) Rules.
On 16 November 1994, Cabilzo’s
representative was at
MetrobankPasongTamo Branch to make
some transaction when he was asked
by a bank personnel if Cabilzo had
issued a check in the amount of
P91,000.00 to which the former replied in
the negative. On the afternoon of the
same date, Cabilzo himself called
Metrobank to reiterate that he did not
issue a check in the amount of
P91,000.00 and requested that the
questioned check be returned to him
for verification, to which Metrobank
complied.
Upon receipt of the check, Cabilzo
discovered that Metrobank Check No.
985988 which he issued on 12 November
1994 in the amount of P1,000.00 was
altered to P91,000.00 and the date 24
November 1994 was changed to 14
November 1994.
Hence, Cabilzo demanded that
Metrobank re-credit the amount of
P91,000.00 to his account but the latter
refused. Repeated verbal demands
followed but Metrobank still failed to re-
credit the amount of P91,000.00 to
Cabilzo’s account.Cabilzo, thru counsel,
finally sent a letter-demand to
Metrobank but again, the latterstill failed
or refused to comply with its
obligation.Cabilzo then instituted a civil
action for damages against Metrobank
before the RTC of Manila. The RTC
rendered a decision in favor of Cabilzo.
Aggrieved, Metrobank appealed the
adverse decision to the Court of
Appeals. However, the CA affirmed the
decision of the RTC with modification.
The Motion for Reconsideration was also
denied, thus, this petition.
ISSUE:
Whether or not the alteration made in
the subject check is a material
alteration.
RULING:
Yes. An alteration is said to be material if
it changes the effect of the instrument. It
means that 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
Negotiable Instruments Law.
Section 125. What constitutes
material alteration. – Any
alteration which changes:
(a) The date;
(b) The sum payable,
either for principal or
interest;
(c) The time or place of
payment;
(d) The number or the
relation of the parties;
(e) The medium or
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currency in which
payment is to be made;
Or which adds a place of
payment where no place of
payment is specified, or any
other change or addition which
alters the effect of the instrument
in any respect is a material
alteration.
In the case at bar, the check was
altered so that the amount was
increased from P 1,000.00 to P91,000.00
and the date was changed from 24
November 1994 to 14 November 1994.
Apparently, since the entries altered
were among those enumerated under
Section 1 and 125, namely, the sum of
money payable and the date of the
check, the instant controversy therefore
squarely falls within the purview of
material alteration.
Now, having laid the premise that the
present petition is a case of material
alteration, it is now necessary for us to
determine the effect of a materially
altered instrument, as well as the rights
and obligations of the parties
thereunder. The following provision of
the Negotiable Instrument Law will shed
us some light in threshing out this issue:
Section 124. Alteration of
instrument; effect of. – Where a
negotiable instrument is
materially altered without the
assent of all parties liable
thereon, it is avoided, except as
against a party who has himself
made, authorized, assented to
the alteration and subsequent
indorsers.
But when the instrument has
been materially altered and is in
the hands of a holder in due
course not a party to the
alteration, he may enforce the
payment thereof according to its
original tenor.
Indubitably, Cabilzo was not the one
who made nor authorized 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. As correctly ruled by the
appellate court, Cabilzo was never
remiss in the preparation and issuance
of the check, and there were no indicia
of evidence that would prove
otherwise. Indeed, Cabilzo placed
asterisks before and after the amount in
words and figures in order to forewarn
the subsequent holders that nothing
follows before and after the amount
indicated other than the one specified
between the asterisks.
The degree of diligence required of a
reasonable man in the exercise of his
tasks and the performance of his duties
has been faithfully complied with by
Cabilzo. In fact, he was wary enough
that he filled with asterisks the spaces
between and after the amounts, not
only those stated in words, but also
those in numerical figures, in order to
prevent any fraudulent insertion, but
unfortunately, the check was still
successfully altered, indorsed by the
collecting bank, and cleared by the
drawee bank, and encashed by the
perpetrator of the fraud, to the damage
and prejudice of Cabilzo.
Verily, Metrobank cannot lightly impute
that Cabilzo was negligent and is
therefore prevented from asserting his
rights under the doctrine of equitable
estoppel when the facts on record are
bare of evidence to support such
conclusion. The doctrine of equitable
estoppel states that when one of the
two innocent persons, each guiltless of
any intentional or moral wrong, must
suffer a loss, it must be borne by the one
whose erroneous conduct, either by
omission or commission, was the cause
of injury. Metrobank’s reliance on this
dictum, is misplaced. For one,
Metrobank’s representation that it is an
innocent party is flimsy and evidently,
misleading. At the same time,
Metrobank cannot asseverate that
Cabilzo was negligent and this
negligence was the proximate cause of
the loss in the absence of even a
scintilla proof to buttress such claim.
Negligence is not presumed but must
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be proven by the one who alleges it.
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. Since
the drawee bank, in the instant case,
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.
Montinola v. PNB
Facts:
Ubaldo D. Laya was the Provincial
Treasurer of Misamis Oriental. As such
Provincial Treasurer he was ex
officio agent of the Philippine National
Bank branch in the province.
Mariano V. Ramos,disbursing officer,
went to Province Lanao to procure a
cash advance in the amount of
P800,000 for the use of the USAFFE.
Pedro Encarnacion, Provincial Treasurer
of Lanao did not have that amount in
cash so he gave Ramos P300,000 in
emergency notes and a check for
P500,000.
Ramos went to the office of Provincial
Treasurer Laya at Misamis Oriental to
encash the check for P500,000 which he
had received from the Provincial
Treasurer of Lanao. Laya did not have
enough cash to cover the check so he
gave Ramos P400,000 in emergency
notes and a check No. 1382 for P100,000
drawn on the Philippine National Bank.
According to Laya he had previously
deposited P500,000 emergency notes in
the Philippine National Bank branch in
Cebu and he expected to have the
check issued by him cashed in Cebu
against said deposit.
The USAFFE forces to which he was
attached surrendered.Ramos was
made a prisoner of war but after he was
released,Ramos allegedly indorsed the
check to Enrique P. Montinola.
Montinola instituted an action against
the 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 said check the words in parenthesis
"Agent, Phil.National Bank” under
thesignature ofLaya purportedly
showing that Laya issued the check as
agent of the Philippine National Bank.
Issues:
1. W/N Montinola can hold PNB liable
because there is "Agent, Phil.
National Bank" - NO
2. W/N Montinola is a holder in due
course – NO
Ruling:
The check was issued by Laya only as
Provincial Treasurer and as an official of
the Government which was under
obligation to provide the USAFFE with
advance funds, and not by the
Philippine National Bank which has no
such obligation.
"Agent, Phil. National Bank" now
appearing under the signature of the
Provincial Treasurer on the face of the
original check - converts the bank from
a mere drawee to a 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. (Section 124 of the
Negotiable Instruments Law).
Furthermore, the check was issued to M.
V. Ramos not as a person but M. V.
Ramos as the disbursing officer of the
USAFFE. Therefore, he had no right to
indorse it personally to Montinola.
Montinola may therefore not be
regarded as an indorsee. At most he
may be regarded as a mere assignee of
the P30,000 sold to him by Ramos, in
which case, as such assignee, he is
subject to all defenses available to the
drawer Provincial Treasurer of Misamis
Oriental and against Ramos.
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Montinolais not a holder in due course
because section 52 of said law defines a
holder in due course as a holder who
has taken the instrument under certain
conditions, one of which is that he
became the holder before it was
overdue. When Montinola received the
check, it was long overdue by about 2
½ years.
Neither could it be said that he took it in
good faith. He has not paid the full
amount of P90,000 for which Ramos sold
him P30,000 of the value of the check.
Areza vs. Express Savings Bank
Thesis:
The petitioner Areza commenced an
action for collection of sum of money
against Express Savings Bank when the
latter unlawfully debited 1.8M from their
account for the reason that the drawee
dishonored the check intended for the
petitioner because of material
alteration.
Facts:
Petitioners received an order for the
purchase of a motor vehicle from Gerry
Mambuay where the latter paid
petitioners with nine (9) Philippine
Veterans Affairs Office (PVAO) checks
payable to different payees and drawn
against the Philippine Veterans Bank
(drawee), each valued at Two Hundred
Thousand Pesos (₱200,000.00).
Petitioners deposited the said checks in
their savings account with the Express
Savings Bank which, in turn, deposited
the checks with its depositary bank,
Equitable-PCI Bank and the latter
presented the checks to the drawee,
the Philippine Veterans Bank, which
honored the checks.
However, the subject 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 ₱4,000.00 to ₱200,000.00.
After informing Express Savings Bank that
the drawee dishonored the checks,
Equitable-PCI Bank debited the deposit
account of ESB in the amount of P1.8M.
Express Savings Bank then withdrew the
amount of P1.8M representing the
returned checks from petitioners saving
account.
Issue:
Whether or not Express Savings Bank
had the right to debit ₱1,800,000.00 from
petitioners’ accounts.
Held:
No,
Doctrines: A depositary/collecting bank
where a check is deposited, and which
endorses the check upon presentment
with the drawee bank, is an endorser.
Under Section 66 of the Negotiable
Instruments Law, an endorser warrants
“that the instrument is genuine and in all
respects what it purports to be; that he
has good title to it; that all prior parties
had capacity to contract; and that the
instrument is at the time of his
endorsement valid and subsisting.”
It is well-settled that the relationship of
the depositors and the Bank or similar
institution is that of creditor-debtor.
Article 1980 of the New Civil Code
provides that fixed, savings and current
deposits of money in banks and similar
institutions shall be governed by the
provisions concerning simple loans. The
bank is the debtor and the depositor is
the creditor. The depositor lends the
bank money and the bank agrees to
pay the depositor on demand. The
savings deposit agreement between
the bank and the depositor is the
contract that determines the rights and
obligations of the parties.
Express Savings Bank cannot debit the
savings account of petitioners. A
depositary/collecting bank where a
check is deposited, and which endorses
the check upon presentment with the
drawee bank, is an endorser. Under
Section 66 of the Negotiable Instruments
Law, an endorser warrants “that the
instrument is genuine and in all respects
what it purports to be; that he has good
title to it; that all prior parties had
capacity to contract; and that the
instrument is at the time of his
endorsement valid and subsisting.” As
Negotiable Instruments Law with ATTY. CLAROS (2019-2020)
collecting bank, Express Savings Bank is
liable for the amount of the materially
altered checks. 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.
VICKY TY VS PEOPLE
FACTS:
Ty’s mother was confined in Manila
Doctor’s Hospital to which a medical bill
amounting to 600,000 pesos was made
to be paid to TY, after signing a contract
of responsibility with the hospital. Ty,
issued 7 checks to cover the said
expenses, all of which were dishonored
for being drawn against a closed a
account. Manila Doctors Hospital then
instituted criminal actions against Ty for
violation of BP22.
In her defense she alleged that she
issued the checks involuntarily because
her mother threatened to commit
suicide due to the inhumane treatment
she allegedly suffered while confined in
the hospital. She further claimed that no
consideration was obtained by her
because all the checks were made as
payment to the medical bills.
ISSUE:
Whether or not the defense of
uncontrollable fear is tenable to warrant
her exemption from criminal liability.
RULING:
For this exempting circumstance to be
invoked successfully, the following
requisites must concur: (1) existence of
an uncontrollable fear; (2) the fear must
be real and imminent; and (3) the fear
of an injury is greater than or at least
equal to that committed.
It must appear that the threat that
caused the uncontrollable fear is of
such gravity and imminence that the
ordinary man would have succumbed
to it. It should be based on a real,
imminent or reasonable fear for ones life
or limb. A mere threat of a future injury is
not enough. It should not be
speculative, fanciful, or remote. A
person invoking uncontrollable fear must
show therefore that the compulsion was
such that it reduced him to a mere
instrument acting not only without will
but against his will as well. It must be of
such character as to leave no
opportunity to the accused for escape.
In this case, far from it, the fear, if any,
harbored by Ty was not real and
imminent. Ty claims that she was
compelled to issue the checksa
condition the hospital allegedly
demanded of her before her mother
could be discharged for fear that her
mothers health might deteriorate further
due to the inhumane treatment of the
hospital or worse, her mother might
commit suicide. This is speculative fear; it
is not the uncontrollable fear
contemplated by law.
To begin with, there was no showing
that the mothers illness was so life-
threatening such that her continued
stay in the hospital suffering all its
alleged unethical treatment would
induce a well-grounded apprehension
of her death. Secondly, it is not the law’s
intent to say that any fear exempts one
from criminal liability much less
petitioners flimsy fear that her mother
might commit suicide. In other words,
the fear she invokes was not impending
or insuperable as to deprive her of all
volition and to make her a mere
instrument without will, moved
exclusively by the hospitals threats or
demands.
Ty has also failed to convince the Court
that she was left with no choice but to
commit a crime. She did not take
advantage of the many opportunities
available to her to avoid committing
one. By her very own words, she
admitted that the collateral or security
the hospital required prior to the
discharge of her mother may be in the
form of postdated checks or jewelry.
And if indeed she was coerced to open
an account with the bank and issue the
checks, she had all the opportunity to
leave the scene to avoid involvement.
Moreover, petitioner had sufficient
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knowledge that the issuance of checks
without funds may result in a violation of
B.P. 22.
At any rate, the law punishes the mere
act of issuing a bouncing check, not the
purpose for which it was issued nor the
terms and conditions relating to its
issuance. B.P. 22 does not make any
distinction as to whether the checks
within its contemplation are issued in
payment of an obligation or to merely
guarantee the obligation. The thrust of
the law is to prohibit the making of
worthless checks and putting them into
circulation
Caltex (Philippines), Inc., v. Court of
Appeals and Security Bank and Trust Co.
Facts:
On various dates, Security Bank, through
its Sucat Branch issued 280 certificates
of time deposit (CTDs) in favor of Angel
dela Cruz who deposited with said bank
the aggregate amount of P1,120,000.00.
Angel dela Cruz delivered the said
certificates of time (CTDs) to herein
petitioner, Caltex, in connection with his
purchase of fuel products from the
latter.
In March 1982, Angel dela Cruz
informed Mr. Timoteo Tiangco, the Sucat
Branch Manager of Security Bank, that
he lost all the certificates of time deposit
in dispute. Mr. Tiangco advised said
depositor to execute and submit a
notarized Affidavit of Loss, as required
by Security Bank's procedure, if he
desired replacement of said lost CTDs.
Thereafter, Angel dela Cruz executed
and delivered to Security Bank the
required Affidavit of Loss. On the basis of
said affidavit, 280 replacement CTDs
were issued in favor of said depositor.
Afterwards, Angel dela Cruz negotiated
and obtained a loan from Security Bank
in the amount of P875,000.00. On the
same date, said depositor executed a
notarized Deed of Assignment of Time
Deposit which stated, among others,
that he (de la Cruz) surrenders to
Security Bank "full control of the
indicated time deposits from and after
date" of the assignment and further
authorizes said bank to pre-terminate,
set-off and "apply the said time deposits
to the payment of whatever amount or
amounts may be due" on the loan upon
its maturity.
In November 1982, Mr. Aranas, Credit
Manager of Caltex, went to Security
Bank's Sucat branch and presented for
verification the CTDs declared lost by
Angel dela Cruz alleging that the same
were delivered to Caltex "as security for
purchases made with Caltex Philippines,
Inc." by said depositor.
Security Bank rejected the Caltex’s
demand and claim for payment of the
value of the CTDs.
In April 1983, the loan of Angel dela Cruz
with Security Bank matured and fell due.
On August 5, 1983, the latter set-off and
applied the time deposits in question to
the payment of the matured loan.
In view of the foregoing, Caltex filed a
complaint, praying that Security Bank
be ordered to pay it the aggregate
value of the CTDs worth P1,120,000.00
plus accrued interest and compounded
interest therein at 16% per annum, moral
and exemplary damages as well as
attorney's fees.
one person to another in such a manner
as to constitute the transferee the
holder thereof. In the present case,
however, there was no negotiation in
the sense of a transfer of the legal title
to the CTDs in favor of petitioner. Here,
the delivery thereof only as security (not
as payment) for the purchases of Angel
de la Cruz could at the most constitute
petitioner only as a holder for value by
reason of his lien.
Accordingly, a negotiation for such
purpose cannot be effected by mere
delivery of the instrument since,
necessarily, the terms thereof and the
subsequent disposition of such security,
in the event of non-payment of the
principal obligation, must be
contractually provided for.
The records reveal that Angel de la Cruz
delivered the CTDs to petitioner.
Although the CTDs are bearer
instruments, a valid negotiation thereof
for the true purpose and agreement
between Caltex and De la Cruz,
requires both delivery and indorsement.
Consequently, the mere delivery of the
CTDs did not legally vest in petitioner
any right effective against and binding
upon respondent bank.

Ruling of the lower court:

The RTC dismissed the complaint filed by
petitioner Caltex against respondent
Security Bank. The CA affirmed the
decision of the RTC, hence the instant
petition for review on certiorari.

Issue:

1. Whether or not petitioner Caltex

became a holder in due course of the
said CTDs, and can recover on the
CTDs.

Ruling:

Petition was denied and the CA’s

decision was affirmed.

No, Caltex is not a holder in due course

and cannot rightfully recover on the
CTDs.Petitioner's insistence that the CTDs
were negotiated to it begs the question.
Under the NIL, an instrument is
negotiated when it is transferred from

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