2019 BAR EXAM REMINDERS (PART II)

Atty. Maria Zarah R. Villanueva-Castro

INSURANCE

A contract of reinsurance is one by which an insurer (the “direct insurer” or “cedant”) procures
a third person (the “reinsurer”) to insure him against loss or liability by reason of such original
insurance.

The reinsurer’s contractual relationship is with the direct insurer, not the original insured, and
the latter has no interest in and is generally not privy to the contract of reinsurance. Put simply,
reinsurance is the “insurance of an insurance.” (Communication and Information Systems
Corporation vs. Mark Sensing Australia Pty. Ltd., 815 SCRA 449, G.R. No. 192159 January 25,
2017)

Anyone has an insurable interest in property who derives a benefit from its existence or would
suffer loss from its destruction.

Indeed, a vendor or seller retains an insurable interest in the property sold so long as he has any
interest therein, in other words, so long as he would suffer by its destruction, as where he has a
vendor’s lien. In this case, the insurable interest of IMC and LSPI pertain to the unpaid accounts
appearing in their Books of Account 45 days after the time of the loss covered by the policies.
(Gaisano Cagayan, Inc. vs. Insurance Company of North America, 490 SCRA 286, G.R. No. 147839
June 8, 2006)

The buyer’s interest is based on the perfected contract of sale. The perfected contract of sale
between him and the seller/shipper of the goods operates to vest in him an equitable title even
before delivery or before he performed the conditions of the sale. The contract of shipment,
whether under “F.O.B.”, “C.I.F.”, or “C & F” is immaterial in the determination of whether the
buyer has insurable interest or not in the goods in transit. (Filipino Merchants Insurance Co. vs.
Court of Appeals, November 28, 1989)

Exceptions to the Cash and Carry Rule (Key Words)

1. life or industrial life policy - grace period applies

2. acknowledgement in the policy of receipt of premium
3. installments
4. credit term
5. Salary deduction
6. estoppel

1
No-fault claim; Proofs required

Claim for death or injury to any passenger or third-party shall be paid without the necessity of
proving fault or negligence of any kind. Proofs of loss are: (1) Police report of accident; and (2)
Death certificate and evidence sufficient to establish the proper payee; or (3) Medical report and
evidence of medical or hospital disbursement in respect of which refund is claimed (Sec. 391,
Insurance Code)

Against whom no-fault claim made be made in a CMVLI

Claim may be made against one motor vehicle only. In the case of an occupant of a vehicle, claim,
shall lie against the insurer of the vehicle in which the occupant is riding, mounting or
dismounting from. In any other case, claim shall lie against the insurer of the directly offending
vehicle. In all cases, the right of the party paying the claim to recover against the owner of the
vehicle responsible for the accident shall be maintained. (Sec. 391[c], Insurance Code)

As subrogee, petitioner merely stepped into the shoes of the consignee and may only exercise
those rights that the consignee may have against the wrongdoer who caused the damage. "It
can recover only the amount that is recoverable by the assured.

Since the right of action of the consignee is subject to a precedent condition stipulated in the
Gate Pass, which includes by reference the terms of the Management Contract, necessarily a suit
by the insurer is subject to the same precedent condition.

Petitioner's assertion that the 15-day prescriptive period could not be enforced upon it to defeat
its claim since the Gate Pass was pro forma and it was not given notice of the Management
Contract is untenable. (Oriental Assurance Corporation vs. Manuel Ong, G.R. No. 189524, October
11, 2017)

Rules in case of suicide

In cases of suicide, the insurer is liable in the following instances:

1) If committed after 2 years from the date of the policy’s issuance or its last reinstatement
2) If committed after the lapse of a shorter period provided in the policy
3) If committed in a state of insanity regardless of the date of the commission unless suicide
is an excepted peril (Sec. 183, ICP)

BANKING

With the respondent (Metrobank) having established that the characteristics of the subject
dollar notes had made it difficult even for the BSP itself as the country’s own currency note

2
expert to identify the counterfeiting with ease despite adhering to all the properly laid out
standard operating procedure and precautions in the handling of US dollar bills, holding it liable
for damages in favor of the petitioners would be highly unwarranted in the absence of proof of
bad faith, malice or fraud on its part.

That it formally apologized to them and even offered to reinstate the USD$500.00 in their
account as well as to give them the all-expense-paid round trip ticket to Hong Kong as means to
assuage their inconvenience did not necessarily mean it was liable. (Carbonell vs. Metropolitan
Bank and Trust Company, 825 SCRA 1, G.R. No. 178467 April 26, 2017)

PDIC coverage of Joint Accounts

1) A joint account regardless of whether the conjunction 'and,' 'or,' 'and/or' is used, shall be
insured separately from any individually-owned deposit account.
2) Unless a different sharing is stipulated in the document of deposit, share is presumed
equal
3) If the account is held by a juridical person or entity jointly with one or more natural
persons, the maximum insured deposits shall be presumed to belong entirely to such
juridical person or entity.

4) The aggregate of the interest of each co-owner over several joint accounts, whether
owned by the same or different combinations of individuals, juridical persons or entities,
shall likewise be subject to the maximum insured deposit of Five hundred thousand pesos
(P500,000.00): (Source: Sec. 3, RA 9576)

Legitimate Deposit under PDIC

Section 2(d) of Philippine Deposit Insurance Corporation (PDIC) Regulatory Issuance No. 2011-
02 states that for deposit to be considered as legitimate, it should be 1) received by a bank as
a deposit in the usual course of business; 2) recorded in the books of the bank as such; 3)
opened in accordance with established forms and requirements of the Bangko Sentral ng
Pilipinas (BSP) and/or the PDIC. (Chugani vs. Philippine Deposit Insurance Corporation, 859
SCRA 488, G.R. No. 230037 March 19, 2018)

Here, upon investigation by the PDIC, it was discovered that 1) the money allegedly placed by
the petitioners in RBMI was in fact credited to the personal account of Garan, hence, they
could not be construed as valid liabilities of RBMI to petitioners; 2) based on bank records and
the certified list of the bank’s outstanding deposit liabilities, the alleged deposits of petitioners
are not part of RBMI’s outstanding liabilities; and 3) the CTDs are not validly issued by RBMI,
but were mere replicas of the unissued and unused CTDs still included in the inventory of
RBMI.

3
Further, the act of petitioners in opening Time Deposits and thereafter depositing several
amounts of money through inter-branch deposits with Metrobank and China Bank for the
account of RBMI can hardly be considered as in the ordinary course of business.

The PDIC did not commit any grave abuse of discretion in denying petitioners’ claim for deposit
insurance as the same were validly grounded on the facts, law and regulations issued by the
PDIC. (Chugani vs. Philippine Deposit Insurance Corporation, 859 SCRA 488, G.R. No. 230037
March 19, 2018)

Insured Deposit

The term ‘insured deposit’ means the amount due to any bona fide depositor for legitimate
deposits in an insured bank net of any obligation of the depositor to the insured bank as of
date of closure, but not to exceed P500,000.00. (Sec. 4[g], RA 3591, as amended by RA 9576).

Denial of deposit claim

Clearly, a petition for certiorari, questioning the PDIC’s denial of a deposit insurance claim
should be filed before the CA, not the RTC. (So vs. Philippine Deposit Insurance Corporation,
859 SCRA 478, G.R. No. 230020 March 19, 2018)

Not included in PDIC insurance coverage

1. Investment products such as bonds and securities, trust accounts, and other similar
instruments
2. Deposit accounts or transactions which are unfunded, or that are fictitious or
fraudulent
3. Deposit accounts or transactions constituting, and/or emanating from, unsafe and
unsound banking practice/s, as determined by the Corporation, in consultation with
the BSP, after due notice and hearing, and publication of a cease and desist order
issued by the Corporation against such deposit accounts or transactions
4. Deposits that are determined to be the proceeds of an unlawful activity as defined
under Republic Act No. 9160, as amended
5. Splitting of deposits

DOSRI

No director or officer of any bank shall, directly or indirectly, for himself or as the representative
or agent of others borrow from such bank nor shall he become a guarantor, indorser or surety
for loans from such bank to others, or in any manner be an obligor or incur any contractual
liability to the bank except with the written approval of the majority of all the directors of the
bank, excluding the director concerned. xxx

4
The required approval shall be entered upon the records of the bank and a copy of such entry
shall be transmitted forthwith to the appropriate supervising and examining department of the
Bangko Sentral.

Dealings of a bank with any of its directors, officers or stockholders and their related interests
shall be upon terms not less favorable to the bank than those offered to others. (Arm’s Length
transaction) (Sec. 36, GBL).

Fit and Proper Rule

To maintain the quality of bank management and afford better protection to depositors
and the public in general the Monetary Board shall prescribe, pass upon and review the
qualifications and disqualifications of individuals elected or appointed bank directors or
officers and disqualify those found unfit. (Sec. 17, GBL)

Conservatorship

Ground: state of continuing inability or unwillingness to maintain a condition of liquidity

deemed adequate to protect the interest of depositors and creditors (Sec. 29, NCBA)

Receivership

Grounds: (Key Words)

(a) unable to pay its liabilities as they become due in the ordinary course of business;
(b) insufficient realizable assets, as determined by the BSP, to meet its liabilities;
(c) cannot continue in business without involving probable losses to its depositors or
creditors; or
(d) has willfully violated a cease and desist order (Sec. 30, NCBA)

Close Now, Hear Later

Under Republic Act (RA) No. 7653, when the Monetary Board finds a bank insolvent, it may
“summarily and without need for prior hearing forbid the institution from doing business in the
Philippines and designate the Philippine Deposit Insurance Corporation (PDIC) as receiver of the
banking institution.” (Banco Filipino Savings and Mortgage Bank vs. Bangko Sentral ng Pilipinas,
864 SCRA 32, G.R. No. 200678 June 4, 2018)

The designation of a conservator is not a precondition to the designation of a receiver. (Apex

Bancrights Holdings, Inc. vs. Bangko Sentral ng Pilipinas, G.R. No. 214866 October 2, 2017)

Nothing in Section 30 of Republic Act (RA) No. 7653 requires the Bangko Sentral ng Pilipinas
(BSP), through the Monetary Board, to make an independent determination of whether a bank
may still be rehabilitated or not.

5
If the receiver determines that the institution cannot be rehabilitated or permitted to resume
business in accordance with the next preceding paragraph, the Monetary Board shall notify in
writing the board of directors of its findings and direct the receiver to proceed with the
liquidation of the institution. xxx

Suffice it to say that if the law had indeed intended that the Monetary Board make a separate
and distinct factual determination before it can order the liquidation of a bank or quasi-bank,
then there should have been a provision to that effect. (Apex Bancrights Holdings, Inc. vs. Bangko
Sentral ng Pilipinas, G.R. No. 214866 October 2, 2017, J. Perlas-Bernabe)

Philbank can hardly be deemed negligent under the premises since the ultimate cause of the
mortgagors’ (the Dys’) defective title was the simulated sale to which Sps. Delgado were
privies.

While Philbank failed to exercise greater care in conducting the ocular inspection of the
properties offered for mortgage, its omission did not prejudice any innocent third parties. In
particular, the buyer did not pursue her cause and abandoned her claim on the property. On the
other hand, Sps. Delgado were parties to the simulated sale in favor of the Dys which was
intended to mislead Philbank into granting the loan application.

Thus, no amount of diligence in the conduct of the ocular inspection could have led to the
discovery of the complicity between the ostensible mortgagors (the Dys) and the true owners
(Sps. Delgado). (Apex Bancrights Holdings, Inc. vs. Bangko Sentral ng Pilipinas, G.R. No. 214866
October 2, 2017, J. Perlas-Bernabe)

Single Borrower’s Limit (SBL)

Except as the Monetary Board may otherwise prescribe for reasons of national interest, the
total amount of loans, credit accommodations and guarantees as may be defined by the
Monetary Board that may be extended by a bank to any person, partnership, association,
corporation or other entity shall at no time exceed twenty-five percent (25%) of the net worth
of such bank. (Sec. 35.1, GBL)

Prohibited acts of Borrowers

No borrower of a bank shall -

(a) Fraudulently overvalue property offered as security for a loan or other credit
accommodation from the bank;
(b) Furnish false or make misrepresentation or suppression of material facts for the
purpose of obtaining, renewing, or increasing a loan or other credit
accommodation or extending the period thereof;
(c) Attempt to defraud the said bank in the event of a court action to recover a loan
or other credit accommodation; or

6
 (d) Offer any director, officer, employee or agent of a bank any gift, fee, commission,
or any other form of compensation in order to influence such persons into
approving a loan or other credit accommodation application.”(Sec. 55.2, GBL)

AMLA

Money Laundering

Money laundering is committed by any person who, knowing that any monetary instrument or
property represents, involves, or relates to the proceeds of any unlawful activity:

"(a) transacts said monetary instrument or property;

"(b) converts, transfers, disposes of, moves, acquires, possesses or uses said monetary
instrument or property;

"(c) conceals or disguises the true nature, source, location, disposition, movement or
ownership of or rights with respect to said monetary instrument or property;

"(d) attempts or conspires to commit money laundering offenses referred to in

paragraphs (a), (b) or (c);

"(e) aids, abets, assists in or counsels the commission of the money laundering offenses
referred to in paragraphs (a), (b) or (c) above; and

"(f) performs or fails to perform any act as a result of which he facilitates the offense of
money laundering referred to in paragraphs (a), (b) or (c) above. (Sec. 4, AMLA, as
amended)

Covered Transaction

'Covered transaction' is a transaction in cash or other equivalent monetary instrument involving

a total amount in excess of Five hundred thousand pesos (P500,000.00) within one (1) banking
day. (Sec. 3[b], AMLA)

Suspicious Transaction

'Suspicious transaction' refers to transactions with covered institutions, regardless of the

amounts involved, where any of the following circumstances exist:
1. there is no underlying legal or trade obligation, purpose or economic justification;
2. the client is not properly identified;

7
 3. the amount involved is not commensurate with the business or financial capacity of the
client;
4. taking into account all known circumstances, it may be perceived that the client’s
transaction is structured in order to avoid being the subject of reporting requirements
under the Act;
5. any circumstance relating to the transaction which is observed to deviate from the profile
of the client and/or the client’s past transactions with the covered institution;
6. the transaction is in any way related to an unlawful activity or offense under this Act
that is about to be, is being or has been committed; or
7. any transaction that is similar or analogous to any of the foregoing. (Sec. 3 [b-1]), AMLA)

The AMLC’s investigation of money laundering offenses and its determination of possible
money laundering offenses, specifically its inquiry into certain bank accounts allowed by court
order, does not transform it into an investigative body exercising quasi-judicial powers.

Hence, Section 11 of the AMLA, authorizing a bank inquiry court order, cannot be said to violate
SPCMB’s constitutional right to procedural due process. (Subido Pagente Certeza Mendoza and
Binay Law Offices vs. Court of Appeals, G.R. No. 216914 December 6, 2016)

That there are no specific rules governing the bank inquiry order does not signify that the CA
cannot confirm to the actual owner of the bank account reportedly being investigated whether
it had in fact issued a bank inquiry order for covering its accounts, of course after the issuance
of the Freeze Order.

Even in Ligot v. Republic, 692 SCRA 509 (2013), we held that by implication, where the law did
not specify, the owner of the “frozen” property may move to lift the freeze order issued under
Section 10 of the AMLA if he can show that no probable cause exists or the 20-day period of the
freeze order has already lapsed without any extension being requested from and granted by the
CA. Drawing a parallel, such a showing of the absence of probable cause ought to be afforded
SPCMB. (Subido Pagente Certeza Mendoza and Binay Law Offices vs. Court of Appeals, G.R. No.
216914 December 6, 2016)

There is nothing in Section 11 nor the implementing rules and regulations (IRR) of the Anti-Money
Laundering Act (AMLA) which prohibits the owner of the bank account to ascertain from the
Court of Appeals (CA), post issuance of the bank inquiry order ex parte, if his account is indeed
the subject of an examination. (Id)

E-COMMERCE

Obligation of Confidentiality

Any person who obtained access to any electronic key, electronic data message or electronic
document, book, register, correspondence, information, or other material pursuant to any

8
powers conferred under this Act, shall not convey to or share the same with any other person.
(Sec. 32, ECA)

Digital Signature

It refers to an electronic signature consisting of a transformation of an electronic document or

an electronic data message using an asymmetric or public cryptosystem such that a person having
the initial untransformed electronic document and the signer's public key can accurately
determine:
a. whether the transformation was created using the private key that corresponds to the
signer's public key; and
b. whether the initial electronic document had been altered after the transformation was
made. (Rule 2, Sec. 1[e], Rule 2, A.M. No. 01-7-01-SC )

Legal significance of an electronic data message

Information shall not be denied legal effect, validity or enforceability solely on the grounds that
it is in the data message purporting to give rise to such legal effect, or that it is merely referred
to in that electronic data message. (Sec. 6, R.A. No. 8792)

Contracts can be expressed in electronic documents

Except as otherwise agreed by the parties –

a. an offer;
b. the acceptance of an offer; and
c. such other elements required under existing laws for the formation of contracts
may be expressed in, demonstrated and proved by means of electronic data message or
electronic documents.

No contract shall be denied validity or enforceability on the sole ground that it is in the form of
an electronic data message or electronic document, or that any or all of the elements required
under existing laws for the formation of the contracts is expressed, demonstrated and proved by
means of electronic documents. (Sec. 16[a], R.A. No. 8792)

DATA PRIVACY

Sensitive personal information refers to personal information:

(1) About an individual’s race, ethnic origin, marital status, age, color, and religious,
philosophical or political affiliations;

9
 (2) About an individual’s health, education, genetic or sexual life of a person, or to any
proceeding for any offense committed or alleged to have been committed by such person,
the disposal of such proceedings, or the sentence of any court in such proceedings;

(3) Issued by government agencies peculiar to an individual which includes, but not
limited to, social security numbers, previous or cm-rent health records, licenses or its
denials, suspension or revocation, and tax returns; and

(4) Specifically established by an executive order or an act of Congress to be kept

classified. (Sec. 3 (l), DPA)

Persons bound to comply with the DPA

The Data Privacy Act applies to any natural or juridical persons involved in the processing of
personal information. It also covers those who, although not found or established in the
Philippines, use equipment located in the Philippines, or those who maintain an office, branch,
or agency in the Philippines.

Consent of the data subject

It refers to any freely given, specific, informed indication of will, whereby the data subject agrees
to the collection and processing of personal information about and/or relating to him or her.
Consent shall be evidenced by written, electronic or recorded means. It may also be given on
behalf of the data subject by an agent specifically authorized by the data subject to do so. (Sec.
3[b], DPA)

Data Subject

Data subject refers to an individual whose personal information is processed. (Sec. 3[c], DPA)

Personal information

Personal Information refers to any information whether recorded in a material form or not, from
which the identity of an individual is apparent or can be reasonably and directly ascertained by
the entity holding the information, or when put together with other information would directly
and certainly identify an individual. (Sec. 3[g], DPA)

Processing of Personal Information

Processing refers to any operation or any set of operations performed upon personal information
including, but not limited to, the collection, recording, organization, storage, updating or
modification, retrieval, consultation, use, consolidation, blocking, erasure or destruction of data.
(Sec. 3[g], DPA)

10
DPA does not apply to the following: (Key Words)

Information on1:

(a) government employment

(b) Service contract for the government

(c) license or permit given by the government

(d) Personal information processed for journalistic, artistic, literary or research purposes;

(e) functions of public authority

(f) banks and other financial institutions

1
This Act does not apply to the following:

(a) Information about any individual who is or was an officer or employee of a government institution that relates to the position or functions of
the individual, including: (1) The fact that the individual is or was an officer or employee of the government institution; (2) The title, business
address and office telephone number of the individual;(3) The classification, salary range and responsibilities of the position held by the individual;
and(4) The name of the individual on a document prepared by the individual in the course of employment with the government;

(b) Information about an individual who is or was performing service under contract for a government institution that relates to the services
performed, including the terms of the contract, and the name of the individual given in the course of the performance of those services;

(c) Information relating to any discretionary benefit of a financial nature such as the granting of a license or permit given by the government to
an individual, including the name of the individual and the exact nature of the benefit;

(d) Personal information processed for journalistic, artistic, literary or research purposes;

(e) Information necessary in order to carry out the functions of public authority which includes the processing of personal data for the
performance by the independent, central monetary authority and law enforcement and regulatory agencies of their constitutionally and
statutorily mandated functions. Nothing in this Act shall be construed as to have amended or repealed Republic Act No. 1405, otherwise known
as the Secrecy of Bank Deposits Act; Republic Act No. 6426, otherwise known as the Foreign Currency Deposit Act; and Republic Act No. 9510,
otherwise known as the Credit Information System Act (CISA);(

f) Information necessary for banks and other financial institutions under the jurisdiction of the independent, central monetary authority or Bangko
Sentral ng Pilipinas to comply with Republic Act No. 9510, and Republic Act No. 9160, as amended, otherwise known as the Anti-Money
Laundering Act and other applicable laws; and (g) Personal information originally collected from residents of foreign jurisdictions in accordance
with the laws of those foreign jurisdictions, including any applicable data privacy laws, which is being processed in the Philippines.

11
 (g) collected from residents of foreign jurisdictions (Sec. 4, DPA)

Right to be Forgotten

The Right to be Forgotten is the right given to a data subject to order the blocking, removal or
destruction of his personal data in the possession or under the control of a personal information
controller.

NEGOTIABLE INSTRUMENTS

“Fictitious payee” rule

As a rule, when the payee is fictitious or not intended to be the true recipient of the proceeds,
the check is considered as a bearer instrument. An actual, existing, and living payee may also be
“fictitious” if the maker of the check did not intend for the payee to in fact receive the proceeds
of the check. This usually occurs when the maker places a name of an existing payee on the check
for convenience or to cover up an illegal activity. (Philippine National Bank vs. Rodriguez, G.R. No.
170325, 26 September 2008)

For the fictitious-payee rule to be available as a defense, PNB must show that the makers did
not intend for the named payees to be part of the transaction involving the checks.

At most, the bank’s thesis shows that the payees did not have knowledge of the existence of the
checks. This lack of knowledge on the part of the payees, however, was not tantamount to a lack
of intention on the part of respondents-spouses (makers) that the payees would not receive the
checks’ proceeds. (Philippine National Bank vs. Rodriguez, 566 SCRA 513, G.R. No. 170325.
September 26, 2008)

The acceptor is a drawee who accepts the bill. Thus, as a general rule, the drawee bank is not
liable until it accepts.

Once he accepts, the drawee admits the following:

(a) existence of the drawer;

(b) genuineness of the drawer’s signature;
(c) capacity and authority of the drawer to draw the instrument; and
(d) existence of the payee and his then capacity to endorse. (RCBC Savings Bank vs. Odrada,
G.R. No. 219037, 19 October 2016; Sec. 62, NIL)

12
The payment of the amount of a check implies not only acceptance but also compliance with the
drawee’s obligation. (Areza vs. Express Savings Bank, Inc., G.R. No. 176697, 10 September 2014;
Philippine National Bank vs. Court of Appeals, G.R. No. L-26001, 29 October 1968)

The acceptor/drawee, despite the tenor of his acceptance, is liable only to the extent of the bill
prior to alteration. This view appears to be in consonance with Section 124 of the Negotiable
Instruments Law which states that a material alteration avoids an instrument except as against
an assenting party and subsequent indorsers, but a holder in due course may enforce payment
according to its original tenor.

Thus, when the drawee bank pays a materially altered check, it violates the terms of the check,
as well as its duty to charge its client’s account only for bona fide disbursements he had made. If
the drawee did not pay according to the original tenor of the instrument, as directed by the
drawer, then it has no right to claim reimbursement from the drawer, much less, the right to
deduct the erroneous payment it made from the drawer’s account which it was expected to treat
with utmost fidelity.

The drawee, however, still has recourse to recover its loss. It may pass the liability back to the
collecting bank which is what the drawee bank exactly did in this case. It debited the account of
Equitable-PCI Bank for the altered amount of the checks. (Areza vs. Express Savings Bank, Inc.,
G.R. No. 176697, 10 September 2014)

The liability of the drawee bank to the drawer in cases of unauthorized payment of checks has
been regarded in jurisprudence to be strict by nature. This means that once an unauthorized
payment on a check has been made, the resulting liability of the drawee bank to the drawer
for such payment attaches even if the former had acted merely upon the guarantees of a
collecting bank.

It is only when the unauthorized payment of a check had been caused or was attended by the
fault or negligence of the drawer himself can the drawee bank be excused, whether wholly or
partially, from being held liable to the drawer for the said payment. (Metrobank vs. Junnel’s
Marketing Corporation, et al, G.R. No. 235565, June 20, 2018; Bank of Commerce vs. Junnel’s
Marketing Corporation, et al., G.R. No. 235565, June 20, 2018)

In the present case, it is apparent that Metrobank had breached JMC's instructions when it paid
the value of the subject checks to Bankcom for the benefit of a certain Account No. 0015-32987-
7. The payment to Account No. 0015-32987-7 was unauthorized as it was established that the
said account does not belong to Jardine or Premiere, the payees of the subject checks, or to their
indorsees. In addition, causal or concurring negligence on the part of JMC had not been proven.
Under such circumstances, Metrobank is clearly liable to return to JMC the amount of the subject
checks. (Metrobank vs. Junnel’s Marketing Corporation, et al, G.R. No. 235565, June 20, 2018;
Bank of Commerce vs. Junnel’s Marketing Corporation, et al., G.R. No. 235565, June 20, 2018)

13
The instrument is not invalid for the reason only that it is antedated or postdated, provided this
is not done for an illegal or fraudulent purpose.

The person to whom an instrument so dated is delivered acquires the title thereto as of the date
of delivery. (San Miguel Corporation vs. Puzon, Jr., G.R. No. 167567, 22 September 2010)

Erasure on checks

Effective 4 January 2016, any check that shows or indicates on its face any erasure or alteration
of the date, name of the payee, amount in figures, amount in words, signature, account name,
account number, check number, or MICR characters regardless of any signature or initials that
appear to indicate authorization of the alteration or erasure or does not indicate the date, payee,
amount payable in figures, amount payable in words, or signature shall no longer be eligible or
acceptable for clearing, except post-dated checks bearing the required bank stamp. (CHOM No.
15-460.A issued by Philippine Clearing House Corporation on 2 September 2015)

Rule on forgery; Exception

No right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof
against any party, can be acquired through or under such forged signature. However, the rule
does provide for an exception, namely: “unless the party against whom it is sought to enforce
such right is precluded from setting up the forgery or want of authority.” In the instant case, it is
the exception that applies.

In our view, petitioner is precluded from setting up the forgery, assuming there is forgery, due to
his own negligence in entrusting to his secretary his credit cards and checkbook including the
verification of his statements of account. (Ilusorio vs. Court of Appeals, G.R. No. 139130, 27
November 2002)

Cut off Rule

Parties prior to the forged signature are cut-off from the parties after the forgery in the sense
that prior parties cannot be held liable and can raise the defense of forgery. The holder can only
enforce the instrument against parties who became such after the forgery.

There may be exceptional circumstances where the aggrieved party may be allowed to recover
directly from the person which caused the loss when circumstances warrant.

In Associated Bank vs. Court of Appeals (G.R. No. 89802, 7 May 1992), the person who suffered
the loss as a result of the unauthorized encashment of crossed checks was allowed to recover
the loss directly from the negligent bank despite the latter’s contention of lack of privity of
contract. The Court said: There being no evidence that the crossed checks were actually received
by the private respondent, she would have a right of action against the drawer companies, which

14
in turn could go against their respective drawee banks, which in turn could sue the herein
petitioner as collecting bank.

In a similar situation, it was held that, to simplify proceedings, the payee of the illegally encashed
checks should be allowed to recover directly from the bank responsible for such encashment
regardless of whether or not the checks were actually delivered to the payee. We approve such
direct action in the case at bar. (BDO Unibank, Inc. vs. Lao, G.R. No. 227005, 19 June 2017)

A manager’s check is considered as good as cash.

A manager’s check stands on the same footing as a certified check, which is deemed to have been
accepted by the bank that certified it, as it is an order of the bank to pay, drawn upon itself,
committing in effect its total resources, integrity and honor behind its nuisance.

By its peculiar character and general use in commerce, a manager’s check is regarded
substantially to be as good as the money it represents. (Land Bank of the Philippines vs. Kho, G.R.
No. 205839, 7 July 2016; Philippine National Bank vs. Tria, G.R. No. 193250, 25 April 2012)

While indeed, it cannot be said that manager’s and cashier’s checks are precleared, clearing
should not be confused with acceptance. Manager’s and cashier’s checks are still the subject of
clearing to ensure that the same have not been materially altered or otherwise completely
counterfeited.

However, manager’s and cashier’s checks are pre-accepted by the mere issuance thereof by the
bank, which is both its drawer and drawee. Thus, while manager’s and cashier’s checks are still
subject to clearing, they cannot be countermanded for being drawn against a closed account, for
being drawn against insufficient funds, or for similar reasons such as a condition not appearing
on the face of the check.

Long-standing and accepted banking practices do not countenance the countermanding of

manager’s and cashier’s checks on the basis of a mere allegation of failure of the payee to comply
with its obligations towards the purchaser. On the contrary, the accepted banking practice is that
such checks are as good as cash. (Metropolitan Bank and Trust Company vs. Wilfred N. Chiok,
G.R. No. 175394, 26 November 2014)

BUT SEE:
The drawee bank of a manager’s check may interpose personal defenses of the purchaser of
the manager’s check if the holder is not a holder in due course.

The drawee bank of a manager’s check may interpose personal defenses of the purchaser of the
manager’s check if the holder is not a holder in due course. In short, the purchaser of a
manager’s check may validly countermand payment to a holder who is not a holder in due
course. (RCBC Savings Bank vs. Odrada, G.R. No. 219037 October 19, 2016)

15
Effects of certifying a check

(1) It is equivalent to acceptance and is the operative act that makes the bank liable.
(2) It amounts to the assignment of the funds of the drawer in the hands of the drawee.
(3) If obtained by the holder, persons secondarily liable are discharged.

Since there was no delivery, presentment of the check to the bank for payment did not occur.
An order to debit the account of the Spouses was never made.

As a result, the assigned fund is deemed to remain part of the account of the Spouses who
procured the manager’s check. The doctrine that the deposit represented by a manager’s check
automatically passes to the payee is inapplicable, because the instrument – although accepted
in advance – remained undelivered. The Spouses should have been informed that the deposit
had been left inactive for more than ten (10) years, and that it may be subjected to escheat
proceedings, if left unclaimed. (Rizal Commercial Banking Corporation vs. Hi-Tri Development
Corporation, G.R. No. 192413, 13 June 2012)

24-hour Clearing Rule; Not applicable to altered checks

Under the 24-hour Clearing Rule, any check which should be refused by the drawee bank in
accordance with long standing and accepted banking practices shall be returned through the
PCHC/ local clearing office, as the case may be, not later than the next regular clearing (24-hour).
Else, the drawee bank will not be able to recover from the collecting bank.

Items involving material alteration or bearing forged endorsement may be returned even beyond
24 hours so long as it is returned within the prescriptive period, i.e., ten (10) years because a
check or the endorsement thereon is a written contract (Areza vs. Express Savings Bank, Inc., G.R.
No. 176697, 10 September 2014).

Drawer’s failure to inform the bank that the consideration for the check did not materialize
does not justify clearing of the fake check.

Land Bank’s confirmation and clearing of a fake check bearing the forged signatures of its own
officers. Whether or not the deal pushed through, the check remained in Kho’s possession. He
was entitled to a reasonable expectation that the bank would not release any funds
corresponding to the check. (Land Bank of the Philippines vs. Kho, G.R. No. 205839, 7 July 2016)

An accommodation party lends his name to enable the accommodated party to obtain credit
or to raise money; he receives no part of the consideration for the instrument but assumes
liability to the other party or parties thereto.

Prescinding from the foregoing, an accommodation party is one who meets all the following
three requisites, viz.: (1) he must be a party to the instrument, signing as maker, drawer,

16
acceptor, or indorser; (2) he must not receive value therefor; and (3) he must sign for the purpose
of lending his name or credit to some other person. (Virata vs. Ng Wee, 830 SCRA 271, G.R. No.
220926, G.R. No. 221058, G.R. No. 221109, G.R. No. 221135, G.R. No. 221218 July 5, 2017)

The accommodation party is liable on the instrument to a holder for value even though the
holder, at the time of taking the instrument, knew him or her to be merely an accommodation
party, as if the contract was not for accommodation.

The relation between an accommodation party and the accommodated party is one of principal
and surety – the accommodation party being the surety. (Virata vs. Alejandro Ng Wee, G.R. No.
220926, 5 July 2017)

Discharge of a negotiable instrument

(1) By payment in due course by or on behalf of the principal debtor;

(2) By payment in due course by the party accommodated, where the instrument is made or
accepted for his accommodation;

(3) By the intentional cancellation thereof by the holder;

(4) By any other act which will discharge a simple contract for the payment of money;

(5) When the principal debtor becomes the holder of the instrument at or after maturity in his
own right. (Sec. 119, NIL)

Barring any extrajudicial or judicial demand that may toll the 10-year prescription period and
any evidence which may indicate any other time when the obligation to pay is due, the cause
of action based on a check is reckoned from the date indicated on the check.

If the check is undated, however, as in the present petition, the cause of action is reckoned from
the date of the issuance of the check. This is so because regardless of the omission of the date
indicated on the check, Section 17 of the Negotiable Instruments Law instructs that an undated
check is presumed dated as of the time of its issuance.

While the space for the date on a check may also be filled, it must, however, be filled up strictly
in accordance with the authority given and within a reasonable time. Assuming that Yu had
authority to insert the dates in the checks, the fact that he did so after a lapse of more than 10
years from their issuance certainly cannot qualify as changes made within a reasonable time.

Given the foregoing, the cause of action on the checks has become stale, hence, time-barred. No
written extrajudicial or judicial demand was shown to have been made within 10 years which

17
could have tolled the period. Prescription has indeed set in. (Benjamin Evangelista vs. Screenex,
Inc., G.R. No. 211564, November 20, 2017)

18