Cases on

THE NEGOTIABLE INSTRUMENTS LAW

PRELIMINARY CONSIDERATIONS
Philippine Education Co., Inc. v. Soriano, et al. ....................................................................................... 1
Tibajia, Jr. v. Court of Appeals ................................................................................................................. 2
Philippine Airlines, Inc. v. Court of Appeals ............................................................................................ 3

FORM AND INTERPRETATION OF NEGOTIABLE INSTRUMENTS

Metropolitan Bank & Trust Co. v. Court of Appeals ................................................................................ 4
Caltex (Philippines), Inc. v. Court of Appeal ............................................................................................ 5
Ang Tek Lian v. Court of Appeals ............................................................................................................ 6
Philippine National Bank v. Rodriguez ..................................................................................................... 7
Philippine National Bank v. Manila Oil Refining & By-Products Co., Inc. ............................................. 8
Republic Planters Bank v. Court of Appeals ............................................................................................. 9
Sps. Evangelista v. Mercator Finance Corp., et al................................................................................... 10
Ilano v. Español ....................................................................................................................................... 11

NEGOTIATION
Sesbreño v. Court of Appeals .................................................................................................................. 12
Consolidated Plywood Industries, Inc. v. IFC Leasing and Acceptance Corporation ............................ 13
De la Victoria v. Burgos .......................................................................................................................... 14
Development Bank of Rizal v. Sima Wei ............................................................................................... 15
Metropol Financing & Investment Corp. v. Sambok Motors Co., Ltd. .................................................. 16
Gempesaw v. Court of Appeals ............................................................................................................... 17

HOLDERS
De Ocampo v. Gatchalian ........................................................................................................................ 18
Yang v. Court of Appeals ........................................................................................................................ 19
Mesina v. Intermediate Appellate Court ................................................................................................. 20

LIABILITY OF PARTIES
Philippine National Bank v. Picornell ..................................................................................................... 21
Astro Electronics Corp. v. Philippiner Export and Foreign Loan Guarantee Corp. ................................ 22
Garcia v. Llamas ...................................................................................................................................... 23
Crisologo-Jose v. Court of Appeals......................................................................................................... 24
Sadaya v. Sevilla ..................................................................................................................................... 25
Travel-On, Inc. v. Court of Appeals ........................................................................................................ 26
Agro Conglomerates, Inc. v. Court of Appeals ....................................................................................... 27
Gonzales v. Rizal Commercial Banking Corporation ............................................................................. 28
Ang v. Associated Bank .......................................................................................................................... 29
Far East Bank & Trust Company v. Gold Palace Jewellery Co. ............................................................. 30
Patrimonio v. Napoleon ........................................................................................................................... 31

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DEFENSES
Salas v. Court of Appeals ........................................................................................................................ 32
Philippine National Bank v. Court of Appeals ........................................................................................ 33
International Corporate Bank, Inc. v. Court of Appeals .......................................................................... 34
Associated Bank v. Court of Appeals...................................................................................................... 35
Jai-Alai Corporation of the Philippines v. Bank of the Philippine Islands ............................................. 36
Republic Bank v. Ebrada ......................................................................................................................... 37
Philippine National Bank v. Quimpo ...................................................................................................... 38
Gempesaw v. Court of Appeals ............................................................................................................... 39
Philippine Commercial International Bank v. Court of Appeals ............................................................ 40
Metropolitan Waterworks and Sewerage System v. Court of Appeals ................................................... 41
Ilusorio v. Court of Appeals .................................................................................................................... 42
Samsung Construction Co. Phil. v. Far East Bank and Trust Company ................................................. 43
Metropolitan Bank and Trust Company v. Cabilzo ................................................................................. 44
Bank of America NT & SA v. Philippine Racing Club .......................................................................... 45

ENFORCEMENT OF LIABILITY
Far East Realty Investment, Inc. v. Court of Appeals ............................................................................. 46
Wong v. Court of Appeals ....................................................................................................................... 47
International Corporate Bank v. Sps. Gueco ........................................................................................... 48
Far East Realty Investment, Inc. v. Court of Appeals ............................................................................. 49
State Investment House Inc. v. Court of Appeals ................................................................................... 50
Asia Banking Corporation v. Javier ........................................................................................................ 51
Nyco Sales Corporation v. BA Finance Corporation .............................................................................. 52
Arceo, Jr. v. People.................................................................................................................................. 53
Allied Banking Corp. v. Court of Appeals and G.G. Sportswear Manufacturing Corp. ......................... 54
Areza v. Express Savings Bank, Inc. ....................................................................................................... 55

CHECKS
New Pacific Timber & Supply Co., Inc. v. Seneris ................................................................................. 56
Philippine National Bank v. The National City Bank of New York ....................................................... 57
Bataan Cigar and Cigarette Factory, Inc. v. Court of Appeals ................................................................ 58
Stelco Marketing Corporation v. Court of Appeals................................................................................. 59
State Investment House Inc. v. Intermediate Appellate Court ................................................................ 60
Papa v. A.U. Valencia and Co., Inc. ........................................................................................................ 61
Villanueva v. Nite .................................................................................................................................... 62
Equitable PCI Bank v. Ong ..................................................................................................................... 63
Security Bank and Trust Co. v. RCBC .................................................................................................... 64

— oOo —

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Philippine Education Co., Inc. v. Soriano, et al.
G.R. No. L-22405, June 30, 1971
Dizon, J.:

FACTS:
Petitioner Philippine Education Co., Inc. received one of the ten postal money orders obtained by Enrique
Montinola without the knowledge of the postal teller of the Manila Post Office. Respondent Mauricio A.
Soriano is the Chief of the Money Order Division of the Manila Post Office.

When respondent discovered the disappearance of the unpaid money orders, an urgent message was sent to
all postmasters, and a notice was likewise served upon all banks, instructing them not to pay anyone of the
money orders aforesaid if presented for payment. The Bank of America received a copy of said notice three
days later.

Petitioner filed an action against respondents in the MTC praying that respondents be ordered to
countermand the notice given or indemnify the petitioner for the amount of the postal money orders and to
personally pay petitioner for damages. The MTC ruled in favor of the petitioner. When the case was
appealed to the CFI, the decision of dismissal of the complaint, with costs, was rendered. The petitioner
thus, appealed the decision of dismissal to the Supreme Court.

ISSUE:
Whether or not the postal money order in question is a negotiable instrument?

HELD:
NO, postal money orders are not negotiable instruments. The reason behind this rule being that, in
establishing and operating a postal money order system, the government is not engaging in commercial
transactions but merely exercises a governmental power for the public benefit. It is to be noted in this
connection that some of the restrictions imposed upon money orders by postal laws and regulations are
inconsistent with the character of negotiable instruments. For instance, such laws and regulations usually
provide for not more than one endorsement; payment of money orders may be withheld under a variety of
circumstances.

1
Tibajia Jr. v. Court of Appeals
G.R. No. 100290, June 4, 1993
Padilla, J.:

FACTS:
In a civil case for a collection for a sum of money filed by private respondent Eden Tan (Tan) with the RTC
against petitioners, spouses Norberto Tibajia, Jr. and Carmen Tibajia (Petitioners), the former obtained a
writ of attachment against the latter resulting in the garnishment of their deposit in another case in the RTC
Kalookan in the sum P442,750.

In deciding the civil case, the RTC Pasig rendered a decision ordering petitioners to pay Tan an amount in
excess of P300,000.00. On appeal, the CA modified the decision by reducing the award of moral and
exemplary damages. The decision having become final, Eden Tan filed the corresponding motion for
execution and thereafter, the garnished funds which by then were on deposit with the cashier of the Regional
Trial Court of Pasig, Metro Manila, were levied upon.

Tibajia spouses delivered to Deputy Sheriff Eduardo Bolima the total money judgment in the following
form: Cashier’s Check of P262,750.00 and Cash of P135,733.70. However, Tan, refused to accept the
payment made by the petitioners and instead insisted that the garnished funds deposited with the cashier of
the RTC Pasig be withdrawn to satisfy the judgment obligation.

Thereafter defendant spouses (petitioners) filed a motion to lift the writ of execution on the ground that the
judgment debt had already been paid. Acting on the motion, the RTC denied the same on the ground that
payment in cashier’s check is not payment in legal tender and that payment was made by a third party other
than the defendant. Their motion for reconsideration having been denied, the petitioners filed a petition for
certiorari, prohibition and injunction in the CA, but the latter dismissed the petition and upheld the ruling
of the RTC.

ISSUE:
Whether or not payment by means of check (even by cashier’s check) is considered payment in legal tender?

HELD:
NO, check, whether a manager’s check or ordinary check, is not legal tender, and an offer of a check in
payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor.
The ruling merely applies the statutory provisions which lay down the rule that a check is not legal tender
and that a creditor may validly refuse payment by check, whether it be a manager’s, cashier’s or personal
check.

Petitioners erroneously rely on one of the dissenting opinions in the Philippine Airlines case to support their
cause. The dissenting opinion however does not in any way support the contention that a check is legal
tender but, on the contrary, states that "If the PAL checks in question had not been encashed by Sheriff
Reyes, there would be no payment by the PAL and, consequently, no discharge or satisfaction of its
judgment obligation."

Moreover, in the case at bar for in that case the checks issued by the judgment debtor were made payable
to the sheriff, Emilio Z. Reyes, who encashed the checks but failed to deliver the proceeds of said
encashment to the judgment creditor.

2
Philippine Airlines, Inc. v. Court of Appeals
G.R. No. L49188, January 30, 1990
Gutierrez, Jr., J.:

FACTS:
After commencing a complaint for damages before the CFI, private respondent Amelia Tan (Tan), under
the name and style of Able Printing Press (APP), obtained a favorable judgment and petitioner Philippine
Airlines, Inc. (PAL) was ordered to pay for damages caused to Tan. On appeal to the CA, the appellate
court modified the amount to be paid. When Tan filed a motion for reconsideration, it was subsequently
denied by the CA in a resolution and since no further appeal was taken, the judgment became final and
executory.

Subsequently, Tan filed for an issuance of a writ of execution, thus, the case was remanded to the CFI for
execution and an order of execution with the corresponding writ in favor of Tan was issued. The writ was
referred to Deputy Sheriff Emilio Z. Reyes (Reyes) for enforcement. Thereafter as payment for the
judgment debt, PAL issued a check with Reyes as payee and the latter issued cash vouchers signed by him.
However, Reyes absconded or disappeared When Tan again sought to have a writ of execution issued,
petitioner filed an opposition to the motion for the issuance of an alias writ of execution stating that it had
already fully paid its obligation to plaintiff through the Reyes.

ISSUE:
Whether or not the payment in check made by PAL as judgment debtor to the sheriff extinguish the
judgment debt?

HELD:
NO, a payment must be made to the proper person. Therefore, payment must be made to the obligee himself
or to an agent having authority, express or implied, to receive the particular payment. The theory is, where
payment is made to a person authorized and recognized by the creditor, the payment to such a person so
authorized is deemed payment to the creditor. Under ordinary circumstances, payment by the judgment
debtor in the case at bar, to the sheriff should be valid payment to extinguish the judgment debt.

In the absence of an agreement, either express or implied, payment means the discharge of a debt or
obligation in money and unless the parties so agree, a debtor has no rights, except at his own peril, to
substitute something in lieu of cash as medium of payment of his debt. Consequently, unless authorized to
do so by law or by consent of the oblige, a public officer has no authority to accept anything other than
money in payment of an obligation under a judgment being executed. Strictly speaking, the acceptance by
the sheriff of the petitioner's checks, in the case at bar, does not, per se, operate as a discharge of the
judgment debt. Since a negotiable instrument is only a substitute for money and not money, the delivery of
such an instrument does not, by itself, operate as payment. A check, whether a manager's check or ordinary
cheek, is not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment and
may be refused receipt by the obligee or creditor. Mere delivery of checks does not discharge the obligation
under a judgment. The obligation is not extinguished and remains suspended until the payment by
commercial document is actually realized

Payment in money or cash to the implementing officer may be deemed absolute payment of the judgment,
however, due to big amounts and the possibility of the cash being lost, the courts encourage the practice of
payments by check provided adequate controls are instituted to prevent wrongful payment and illegal
withdrawal or disbursement of funds.

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Metropolitan Bank & Trust Co. v. Court of Appeals
G.R. No. 88866, February 18, 1991
Cruz, J.:

FACTS:
The Metropolitan Bank and Trust Co. (Metrobank) is a commercial bank with branches throughout the
Philippines and even abroad. Golden Savings and Loan Association (GSLA), with the private respondents,
Lucia, Magno and Gloria all named Castillo, as its principal officers, has a savings account with Metrobank.

Eduardo Gomez (Gomez) opened an account with GSLA and deposited over a period of 2 months 38
treasury warrants. Six of these were directly payable to Gomez while the others appeared to have been
indorsed by their respective payees, followed by Gomez as second indorser.

On various dates, all these warrants were subsequently indorsed by Gloria Castillo as Cashier of GSLA and
deposited to its savings account in the Metrobank, sent to its principal office for clearing, and which was
later forwarded to the Bureau of Treasury (BoT) for special clearing.

Gloria went to Metrobank and repeatedly asked whether the warrants had been cleared. Accordingly,
Gomez was meanwhile not allowed to withdraw from his account. Later, however, "exasperated" over
Gloria's repeated inquiries and also as an accommodation for a "valued client," the Metrobank finally
decided to allow GSLA to withdraw from the proceeds of the warrants, and GSLA subsequently allowed
Gomez to make withdrawals from his own account.

32 of the warrants had been dishonored by the BoT, prompting Metrobank to inform GSLA of said dishonor
and demanded the refund by GSLA of the amount it had previously withdrawn, to make up the deficit in
its account. Having been rejected, Metrobank sued GSLA contending that by indorsing the warrants in
general, Golden Savings assumed that they were "genuine and in all respects what they purport to be," in
accordance with Section 66 of the Negotiable Instruments Law.

ISSUE:
Whether or not Treasury Warrants are negotiable instruments within the meaning of the Negotiable
Instruments Law?

HELD:
NO, the treasury warrants in question are not negotiable instruments. Clearly stamped on their face is the
word "non-negotiable." Moreover, and this is of equal significance, it is indicated that they are payable
from a particular fund, to wit, Fund 501. The indication of Fund 501 as the source of the payment to be
made on the treasury warrants makes the order or promise to pay "not unconditional" and the warrants
themselves non-negotiable. There should be no question that the exception on Section 3 of the Negotiable
Instruments Law is applicable in the case at bar.

Thus, the contention of Metrobank is incorrect for the simple reason is that this law is not applicable to the
non-negotiable treasury warrants. The indorsement was made by Gloria Castillo not for the purpose of
guaranteeing the genuineness of the warrants but merely to deposit them with Metrobank for clearing. It
was in fact Metrobank that made the guarantee when it stamped on the back of the warrants: "All prior
indorsement and/or lack of endorsements guaranteed, Metropolitan Bank & Trust Co., Calapan Branch."

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Caltex (Philippines), Inc. v. Court of Appeals
G.R. No. 97753, August 10, 1992
Regalado, J.:

FACTS:
Respondent Security Bank and Trust Company (Security Bank) is a commercial banking institution.
Petitioner Caltex (Philippines), Inc. (Caltex) is a corporation engaged in the business of fuel products.

On various dates, Security Bank issued 280 Certificates of Time Deposits (CTDs) in favor of one Angel
dela Cruz (dela Cruz) who deposited with Security Bank an amount of P1,120,000. Thereafter, to guarantee
his purchase of fuel products, dela Cruz delivered to Caltex the CTDs.

Subsequently, dela Cruz informed the branch manager of Security Bank that he lost the CTDs. And after
submitting an Affidavit of Loss, 280 replacement CTDs were again issued to dela Cruz, which he negotiated
to Security Bank to obtain a loan and authorized the latter to pre-terminate, set-off and apply the CTDs to
the payment of the loan upon its maturity. The Credit Manager of Caltex then went to Security Bank and
presented the CTDs delivered to it by dela Cruz, however, the demand and claim for payment of the value
was rejected by Security Bank. Thereafter, the loan of dela Cruz with Security Bank matured and fell due
and subsequently, the latter set-off and applied the CTDs to the payment of the loan.

Caltex then filed a complaint praying that Security Bank be ordered to pay the value of the CTDs. The RTC
rendered a decision, which the CA affirmed holding that the subject CTDs are non-negotiable instruments
and that Caltex did not become a holder in due course.

ISSUE:
Whether or not the Certificate of Time Deposits in question are negotiable instruments?

HELD:
YES, the CTDs are negotiable instruments. The accepted rule is that the negotiability or non-negotiability
of an instrument is determined from the writing, that is, from the face of the instrument itself. In the
construction of a bill or note, the intention of the parties is to control, if it can be legally ascertained.

The documents provide that the amounts deposited shall be repayable to the depositor. The documents do
not say that the depositor is Angel de la Cruz and that the amounts deposited are repayable specifically to
him. Rather, the amounts are to be repayable to the bearer of the documents or, for that matter, whosoever
may be the bearer at the time of presentment. If it was really the intention of respondent bank to pay the
amount to Angel de la Cruz only, it could have with facility so expressed that fact in clear and categorical
terms in the documents, instead of having the word "BEARER" stamped on the space provided for the name
of the depositor in each CTD.

However, Caltex cannot rightfully recover. although the CTDs are bearer instruments, a valid negotiation
thereof for the true purpose and agreement between it and De la Cruz, as ultimately ascertained, requires
both delivery and indorsement. For, although petitioner seeks to deflect this fact, the CTDs were in reality
delivered to it as a security for De la Cruz' purchases of its fuel products. Any doubt as to whether the CTDs
were delivered as payment for the fuel products or as a security has been dissipated and resolved in favor
of the latter by petitioner's own authorized and responsible representative himself.

5
Ang Tek Lian v. Court of Appeals
G.R. No. L-2516, September 25, 1950
Bengzon, J.:

FACTS:
Petitioner Ang Tek Lian (Petitioner), knowing he had no funds, drew a check upon the China Banking
Corporation (Drawee Bank) for the sum of P4,000, payable to the order of “cash.” He then delivered said
check to Lee Hua Hong in exchange for money which the latter handed in the act. The next business day,
the check was presented by Lee Hua Hong to the drawee bank for payment, but it was dishonored for
insufficiency of funds, the balance of the deposit of Ang Tek Lian being P335 only.

For having issued a rubber check, Ang Tek Lian was convicted of estafa in the Court of First Instance of
Manila. The Court of Appeals affirmed the verdict. In his appeal to the SC It is argued, however, that as the
check had been made payable to "cash" and had not been endorsed by Ang Tek Lian, the defendant is not
guilty of the offense charged.

ISSUE:
Whether or not a check made payable to “cash” requires the indorsement of the drawer before a drawee
bank may honor the same?

HELD:
NO, Under the Negotiable Instruments Law (sec. 9 [d], a check drawn payable to the order of "cash" is a
check payable to bearer, and the bank may pay it to the person presenting it for payment without the drawer's
indorsement. Where a check is made payable to the order of "cash", the word cash "does not purport to be
the name of any person", and hence the instrument is payable to bearer. The drawee bank need not obtain
any indorsement of the check, but may pay it to the person presenting it without any indorsement.

Of course, if the bank is not sure of the bearer's identity or financial solvency, it has the right to demand
identification and /or assurance against possible complications. The bank may therefore require, for its
protection, that the indorsement of the drawer — or of some other person known to it — be obtained. But
where the Bank is satisfied of the identity and /or the economic standing of the bearer who tenders the check
for collection, it will pay the instrument without further question; and it would incur no liability to the
drawer in thus acting.

A check payable to bearer is authority for payment to holder. Where a check is in the ordinary form, and is
payable to bearer, so that no indorsement is required, a bank, to which it is presented for payment, need not
have the holder identified, and is not negligent in failing to do so.

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Philippine National Bank v. Rodriguez
G.R. No. 170325, September 26, 2008
Reyes, R.T., J.:

FACTS:
Respondents-Spouses Erlando and Norma Rodriguez (Respondents) were engaged in the informal lending
business and had an arrangement with the Philnabank Employees Savings and Loan Association
(PEMSLA), an association of petitioner Philippine National Bank’s (PNB) employees. Both the spouses
Rodriguez and PEMSLA were clients of PNB.

PEMSLA regularly granted loans to its members. Respondents would rediscount the postdated checks
issued to members whenever PEMSLA was short of funds and then would replace the postdated checks
with their own checks issued in the name of the members. However, PEMSLA had policy not to approve
loans to members with outstanding debts. To subvert this policy, some PEMSLA officers took out loans in
the names of unknowing members, without the knowledge or consent of the latter. The PEMSLA checks
issued for these loans and were then given to the spouses for rediscounting. In return, respondents issued
their personal checks in the name of the members and delivered the checks to an officer of PEMSLA.

After discovering the fraudulent acts, PNB closed the current account of PEMSLA. The PEMSLA checks
deposited by the spouses were dishonored and returned to the latter, however, the amounts of the
respondents’ checks were debited from respondents’ account and thus, incurred losses. The respondents
sued PEMSLA and PNB seeking to recover the value of their checks. PNB denies liability for the checks
which it paid to the PEMSLA account without any indorsement from the payees contending that
respondents did not intend for the named payees to receive the proceeds of the checks. Consequently, the
payees were considered as fictitious payees and thus, checks are bearer instruments

ISSUE:
Whether or not the payees are fictitious so as to make the checks bearer instruments?

HELD:
NO, 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. When the person making the check so payable did not intend for the
specified payee to have any part in the transactions, the payee is considered as a fictitious payee. The check
is then considered as a bearer instrument to be validly negotiated by mere delivery.

For the fictitious-payee rule to be available as a defense, it must be shown that the makers did not intend
for the named payees to be part of the transaction involving the checks. At most, the banks 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 that
the payees would not receive the checks proceeds. Considering that respondents were transacting with
PEMSLA and not the individual payees, it is understandable that they relied on the information given by
the officers of PEMSLA that the payees would be receiving the checks. Because of a failure to show that
the payees were fictitious in its broader sense, the fictitious-payee rule does not apply. Thus, the checks are
to be deemed payable to order. Consequently, the drawee bank bears the loss.

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Philippine National Bank v. Manila Oil Refining & By-Products Co., Inc.
G.R. No. L-18103, June 8, 1922
Malcolm, J.:

FACTS:
The manager Vicente Sotelo (Sotelo) and the treasurer Rafael Lopez (Lopez) of respondent Manila Oil
Refining & By-Products Company, Inc. (Respondent), executed and delivered to the petitioner Philippine
National Bank (PNB), a promissory note for a sum of P61,000 with a provision that in case the same is not
paid at maturity, the maker authorizes any attorney to appear and confess judgment thereon for the principal
amount, with interest, costs, and attorney's fees, and waives all errors, rights to inquisition, and appeal, and
all property exceptions.

Respondent failed to pay, prompting PNB to bring an action in the CFI to recover the amount of the note,
together with interest and costs. Mr. Elias N. Rector, an attorney associated with the Philippine National
Bank, entered his appearance in representation of the defendant, and filed a motion confessing judgment.
The defendant, however, in a sworn declaration, objected strongly to the unsolicited representation of
attorney Recto.

Respondent questioned the validity in this jurisdiction of a confession of judgment or judgment note
provision in the promissory note. The attorney for PNB contends that the Negotiable Instruments Law (Act
No. 2031) expressly recognizes judgment notes, and that they are enforceable under the regular procedure.

ISSUE:
Whether or not confession judgment or judgment notes are valid?

HELD:
NO, the Code of Civil Procedure nor any other remedial statute expressly or tacitly recognizes a confession
of judgment commonly called a judgment note. On the contrary, the provisions of the Code of Civil
Procedure, in relation to constitutional safeguards relating to the right to take a man's property only after a
day in court and after due process of law, contemplate that all defendants shall have an opportunity to be
heard. Further, the provisions of the Code of Civil Procedure pertaining to counter claims argue against
judgment notes, especially as the Code provides that in case the defendant or his assignee omits to set up a
counterclaim, he cannot afterwards maintain an action against the plaintiff therefor. At least one provision
of the substantive law, namely, that the validity and fulfillment of contracts cannot be left to the will of one
of the contracting parties, constitutes another indication of fundamental legal purposes.

Warrants of attorney to confess judgment are not authorized nor contemplated by our law. Further,
provisions in notes authorizing attorneys to appear and confess judgments against makers should not be
recognized in this jurisdiction by implication and should only be considered as valid when given express
legislative sanction.

8
Republic Planters Bank v. Court of Appeals
G.R. No. 93073, December 21, 1992
Campos, Jr., J.:

FACTS:
Shozo Yamaguchi (Yamaguchi) and private respondent Fermin Canlas (Canlas) were President/Chief
Operating Officer and Treasurer, respectively, Worldwide Garment Manufactruing, Inc. (WGMI) who were
authorized to apply for credit facilities with the petitioner Republic Planters Bank (RPB) in the forms of
export advances and letters of credit/trust receipts accommodations.

RPB issued 9 promissory notes all containing the phrase “I/we, jointly and severally promise to pay to the
order of the Republic Planters Banks…,” which was signed by Yamaguchi and Canlas over their printed
names and the phrase “and (in) his personal capacity” typewritten below. Thereafter, WGMI changed its
name to Pinch Manufacturing Corporation (PMC).

RPB then filed a complaint for the recovery of sums of money against PMC, Yamaguchi, and Canlas,
however, Canlas denied having issued the promissory notes, as he was not an officer of PMC, but instead
of WGMI and that when the notes in behalf of WGMI was issued by him, they were in blank, the typewritten
entries not appearing therein prior to the time he affixed his signature.

ISSUE:
Whether or not Canlas is solidarily liable on each promissory note bearing his signature?

HELD:
YES, Under the NIL, persons who write their names on the face of promissory notes are makers and are
liable as such. By signing the notes, the maker promises to pay to the order of the payee or any holder
according to the tenor thereof. Based on the above provisions of law, there is no denying that private
respondent Fermin Canlas is one of the co-makers of the promissory notes. As such, he cannot escape
liability arising therefrom.

Where an instrument containing the words "I promise to pay" is signed by two or more persons, they are
deemed to be jointly and severally liable thereon. An instrument which begins" with "I, We," or "Either of
us" promise to, pay, when signed by two or more persons, makes them solidarily liable. The fact that the
singular pronoun is used indicates that the promise is individual as to each other; meaning that each of the
cosigners is deemed to have made an independent singular promise to pay the notes in full.

9
Sps. Evangelista v. Mercator Finance Corp., et al.
G.R. No. 148864, August 21, 2003
Puno, J.:

FACTS:
For and in consideration of certain loans, and/or other forms of credit accommodations from respondent
Mercator Financing Corp. (MFC), petitioner-spouses Eduardo and Epifania Evangelista (petitioners) and
Embassy Farms, Inc. (EFI) executed a mortgage on their 5 parcels of land in favor of MFC, and to secure
payment for said accommodations, petitioners signed a promissory note containing the phrase “I/We jointly
and severally promise to pay...” Petitioners failed to pay, thus, the mortgage was foreclosed and sold to
respondent Lydia Salazar (Salazar), who in turn sold the same to respondent Lamec’s Realty and
Development Corp. (LRDC).

Petitioners filed an action to annul the titles of respondents alleging that they executed the mortgage in
favor of MFC only as officers of EFI and did not receive the proceeds of the loan as it all went to EFI. Thus,
due to the absence of consideration the mortgage and subsequent sale of the property was void. In its answer,
MFC contended that since petitioners and EFI signed the promissory notes as co-makers, petitioners are
jointly and severally liable with EFI. On the other hand, Salazar and Lamecs asserted that they were
innocent purchasers for value and in good faith.

ISSUE:
Whether or not the petiioners are solidarily liable with EFI?

HELD:
YES. Courts can interpret a contract only if there is doubt in its letter. But, and examination of the
promissory note shows no such ambiguity. Besides, assuming arguendo that there is an ambiguity, Section
17 of the Negotiable Instruments Law states, viz: SECTION 17. Construction where instrument is
ambiguous. — where the language of the instrument is ambiguous or there are omissions therein, the
following rules of construction apply: . . . (g) Where an instrument containing the word "I promise to pay"
is signed by two or more persons, they are deemed to be jointly and severally liable thereon.

10
Ilano v. Español
G.R. No. 161756, December 16, 2005
Carpio-Morales, J.:

FACTS:
Due to the trust reposed by petitioner Victoria J. Ilano (Ilano) to her employee Private respondent Amelia
O. Alonzo (Alonzo), she occasionally entrusted her checkbook containing either signed or unsigned blank
checks.

Ilano then sought to Revoko/Cancel of certain promissory notes and checks, alleging that Alonzo by means
of deceit and abuse of confidence and in collusion with others procured promissory notes and signed blank
checks, from Ilano. In her answer, Alonzo invoked among other grounds for dismissal, lack of cause of
action, for while the checks had been issued on account and for value, some had been dishonored due to
"Account Closed;" and the allegations in the complaint are bare and general.

The RTC dismissed petitioner's complaint for failure to allege facts which to base her claim that her right
was violated and that she suffered damages thereby. Ilano appealed to the CA, however the latter affirmed
the dismissal order of the RTC and held that the elements of a cause of action are absent in the case.

ISSUE:
Whether or not Ilano has a cause of action against the private respondents?

HELD:
YES, with respect to the checks subject of the complaint, it is gathered that, except for Check No.
0084078, they were drawn all against petitioner's Metrobank Account No. 00703-955536-7.

Check No. 0085134, shows that it was dishonored on January 12, 2000 due to " Account Closed." When
petitioner then filed her complaint on March 28, all the checks subject hereof which were drawn against
the same closed account were already rendered valueless or non-negotiable, hence, with respect to them,
petitioner had no cause of action.

Check No. 0084078, however, which was drawn against another account of petitioner, albeit the date of
issue bears only the year — 1999, its validity and negotiable character at the time the complaint was filed
on March 28, 2000 was not affected. For Section 6 of NIL provides that the validity and negotiable character
of an instrument are not affected by the fact that It is not dated (Sec. 6 (a), NIL)

However, even if the holder of Check No. 0084078 would have filled up the month and day of issue thereon
to be "December" and "31," respectively, it would have, as it did, become stale six (6) months or 180 days
thereafter, following current banking practice. It is, however, with respect to the questioned promissory
notes that the present petition assumes merit. For, petitioner's allegations in the complaint relative thereto,
even if lacking particularity, does not as priorly stated call for the dismissal of the complaint.

11
Sesbreño vs. Court of Appeals
G.R. No. 89252, May 24, 1993
Feliciano, J.:

FACTS:
Private respondent Delta Motors Corp. (DMC) invested by making a money market placement with
Philippine Underwriters Finance Corporation (Philfinance), but borrowed back a bulk of the placement by
issuing 2 promissory notes (DMC PNs).

Petitioner Raul Sesbreño (Sesbreño) made a money market placement with Philfinance. On the same date,
Philfinance executed a Certificate of Confirmation of Sale in favor of Sesbreño over one DMC PN executed
by DMC in favor of Philfinance, and which promissory note was kept by private respondent Pilipinas Bank
(Pilipinas), as per Denominated Custodian Receipt (DCR No. 10805). The DCR No. 10805 was delivered
by Philfinance to Sesbreño.

Sesbreño demanded from Pilipinas the delivery of DMC PN. It was then that Sesbreño discovered that the
DMC PN bears a stamp “Not-Negotiable.” The bank did not release the DMC PN. Thereafter, Sesbreño
demanded payment from DMC but the latter refused to pay on the ground that the obligation convered by
the DMC PN was already subject of off-setting or compensation with an obligation owed by Philfinance.

ISSUE:
Whether or not an instrument stamped “Non-Negotiable” would vest a person a right to recover from said
instrument?

HELD:
YES, the negotiation of a negotiable instrument must be distinguished from the assignment or transfer of
an instrument whether that be negotiable or non-negotiable. Only an instrument qualifying as a negotiable
instrument under the relevant statute may be negotiated either by indorsement thereof coupled with
delivery, or by delivery alone where the negotiable instrument is in bearer form. A negotiable instrument
may, however, instead of being negotiated, also be assigned or transferred. The legal consequences of
negotiation as distinguished from assignment of a negotiable instrument are, of course, different. A non-
negotiable instrument may, obviously, not be negotiated; but it may be assigned or transferred, absent an
express prohibition against assignment or transfer written in the face of the instrument.

The words 'not negotiable,' stamped on the face of an instrument, does not destroy its assignability, but the
sole effect was to exempt the instrument from the statutory provisions relative thereto, and a bill, though not
negotiable, may be transferred by assignment; the assignee taking subject to the equities between the
original parties.

DMC PN No. 2731, while marked "non-negotiable," was not at the same time stamped "non-transferrable"
or "non-assignable." It contained no stipulation which prohibited Philfinance from assigning or transferring,
in whole or in part, that Note.

12
Consolidated Plywood Industries, Inc. vs IFC Leasing and Acceptance Corporation
G.R. No. 72593, April 30, 1987
Gutierrez, Jr., J.:

FACTS:
Petitioner Consolidated Plywood Industries, Inc. (CPII), needing two tractors for its logging business,
agreed to purchase the used tractors of Industrial Products Marketing (IPM) with an assurance from the
latter that the tractors were fit for the job, and a 90-day warranty on performance and parts. A sales invoice
over the units was issued by IPM and a deed of sale with chattel mortgage with promissory note containing
the phrase “...I/we jointly and severally promise to pay to the Industrial Products Marketing…” was
executed. IPM then assigned its rights and interest in the chattel mortgage in favor of respondent IFC
Leasing and Acceptance Corporation (IFC-LAC)

The two tractors broke down, delaying CPII’s operation. CPII then informed IPM that the payment of the
installments would also be delayed. IFC-LAC then filed a complaint before the RTC against CPII for the
recovery of a sum of money on the promissory note. The RTC as affirmed by the CA held that IFC-LAC is
a holder in due course of a negotiable instrument and ordered CPII to pay IFC-LAC

ISSUE:
Whether or not the promissory note is a negotiable instrument as to make IFC-LAC a holder in due course?

HELD:
NO, the instrument is not a negotiable instrument as it does not contain words of negotiability, thus, the
person to whom it is negotiated would never be a holder in due course. An instrument in order to be
considered negotiable must contain the so called “words of negotiability” — i.e., must be payable to 'order'
or 'bearer'. These words serve as an expression of consent that the instrument may be transferred. This
consent is indispensable since a maker assumes greater risk under a negotiable instrument than under a non-
negotiable one. Therefore, considering that the subject promissory note is not a negotiable instrument, it
follows that IFC-LAC can never be a holder in due course but remains a mere assignee of the note in
question. Thus, CPII may raise against the respondent all defenses available to it as against IPM.

Even conceding for purposes of discussion that the promissory note in question is a negotiable instrument,
IFC-LAC cannot be a holder in due course for having knowledge of the fact that the IPM’s right to collect
the purchase price was not unconditional, and that it was subject to the condition that the tractors sold were
not defective. The IFC-LAC knew that when the tractors turned out to be defective, it would be subject to
the defense of failure of consideration and cannot recover the purchase price from the CPII.

13
De la Victoria v. Burgos
G.R. No. 111190, June 27, 1995
Bellosillo, J.:

FACTS:
Petitioner Loreto D. De la Victoria (petitioner) is the City Fiscal of Mandaue City where defendants
Bienvenido N. Mabanto, Jr. (Mabanto, Jr.), and Dario D. Rama, Jr. (Rama, Jr.) was then detailed. Private
respondent Raul H. Sesbreño (Sesbreño) is the plaintiff in a complaint for damages against defendants
before the RTC presided over by respondent Hon. Jose Burgos.

The RTC ordered defendants to pay Sesbreño. A notice of garnishment was served on petitioner, directing
him not to disburse, transfer, release or convey to any other person except the deputy sheriff concerned the
salary checks, monies, or cash due or belonging to Mabanto, Jr. Petitioner moved to quash the notice of
garnishment claiming that he was not in possession of any money, funds, credit, property or anything of
value belonging to Mabanto, Jr., except his salary and RATA checks, but that said checks were not yet
properties of Mabanto, Jr., until delivered to him.

The RTC denied the motion and opined that upon service of the writ of garnishment, petitioner as custodian
of the checks was under obligation to hold them for the judgment creditor. Additionally, there was no
sufficient reason for petitioner to hold the checks because they were no longer government funds and
presumably delivered to the payee, conformably with the last sentence of Sec. 16 of the NIL.

ISSUE:
Whether or not a check still in the hands of the maker or its duly authorized representative is owned by the
payee before physical delivery to the latter?

HELD:
NO, the check, prior to delivery, does not belong to the payee. In as much as said checks had not yet been
delivered to Mabanto, Jr., they did not belong to him and still had the character of public funds.

The salary check of a government officer or employee does not belong to him before it is physically
delivered to him. Until that time the check belongs to the government. Accordingly, before there is actual
delivery of the check, the payee has no power over it; he cannot assign it without the consent of the
Government. The reason being that the functions and public services rendered by the State cannot be
allowed to be paralyzed or disrupted by the diversion of public funds from their legitimate and specific
objects, as appropriated by law.

Under Sec. 16 of the NIL, every contract on a negotiable instrument is incomplete and revocable
until delivery of the instrument for the purpose of giving effect thereto. As ordinarily understood, delivery
means the transfer of the possession of the instrument by the maker or drawer with intent to transfer title to
the payee and recognize him as the holder thereof.

14
Development Bank of Rizal v. Sima Wei
G.R. No. 85419, March 9, 1993
Campos, Jr., J.:

FACTS:
In consideration for a loan extended by petitioner Development Bank of Rizal (DBR), respondent Sima
Wei (Wei) executed and delivered to the former a promissory note, engaging to pay the petitioner Bank or
order the amount of P1,820,000.00 with interest at 32% per annum. Sima Wei made partial payments on
the note, leaving a balance of P1,032,450.02.

Thereafter, to settle the balance of the note, Wei issued two crossed checks payable to DBR drawn against
China Banking Corporation (CBC). However, the checks were not delivered to DBR or to any of its
authorized representatives. And for reasons not known, these checks came into the possession of respondent
Lee Kian Huat (Huat), who deposited the checks without the DBR's indorsement to the account of
respondent Asian Industrial Plastic Corporation (AIPC) with Producers Bank of the Philippines (PBP). PBP
accepted the checks for deposit and credited them to the account of AIPC, inspite of the fact that the checks
were crossed, payable to DBR and bore no indorsement of the latter. Hence, DBR filed the complaint
against Wei, Huat, AIPC and PBP.

ISSUE:
Whether or not the drawer of a complete but undelivered negotiable instrument is liable to pay the same?

HELD:
NO, a negotiable instrument, of which a check is, is not only a written evidence of a contract right but is
also a species of property. Just as a deed to a piece of land must be delivered in order to convey title to the
grantee, so must a negotiable instrument be delivered to the payee in order to evidence its existence as a
binding contract. Sec. 16 of the NIL provides in part that "Every contract on a negotiable instrument is
incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto...." The
payee of a negotiable instrument acquires no interest with respect thereto until its delivery to him. Delivery
of an instrument means transfer of possession, actual or constructive, from one person to another. Without
the initial delivery of the instrument from the drawer to the payee, there can be no liability on the instrument.
Moreover, such delivery must be intended to give effect to the instrument.

15
Metropol Financing & Investment Corp. v. Sambok Motors Co., Ltd.
G.R. No. L-39641, February 28, 1983
De Castro, J.:

FACTS:
Dr. Javier Villaruel (Dr. Villaruel) executed a promissory note with an acceleration clause in favor of Ng
Sambok Sons Motors Co., Ltd. (NSSMCL). Sambok Motors Company (Sambok), a sister company, and
under the same management as NSSMCL, negotiated and indorsed the note in favor of petitioner Metropol
Financing & Investment Corporation (MFIC) with recourse and waiver of notice of Demand, Dishonor,
Protest and Presentment.

When Dr. Villaruel defaulted in payment, MFIC presented the promissory note for payment to him, but
likewise failed to pay. Hence MFIC notified Sambok as indorsee of said note of the fact that the same has
been dishonored and demanded payment Sambok failed to pay. MFIC filed a complaint before the CFI.
Sambok did not deny its liability but contended that, as a qualified indorser who does not warrant payment
to the holder in case of dishonor, it could not be obliged to pay until after its co-defendant Dr. Villaruel,
has been declared insolvent.

ISSUE:
Whether or not by indorsing the instrument “with recourse”, the indorser is a qualified indorser?

HELD:
NO, a qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. It may
be made by adding to the indorser's signature the words "without recourse" or any words of similar
import. Such an indorsement relieves the indorser of the general obligation to pay if the instrument is
dishonored but not of the liability arising from warranties on the instrument as provided in Section 65 of
the Negotiable Instruments Law already mentioned herein. However, appellant Sambok indorsed the note
"with recourse" and even waived the notice of demand, dishonor, protest and presentment.

"Recourse" means resort to a person who is secondarily liable after the default of the person who is primarily
liable. Appellant, by indorsing the note "with recourse" does not make itself a qualified indorser but a
general indorser who is secondarily liable, because by such indorsement, it agreed that if Dr. Villaruel fails
to pay the note, MCIF can go after Sambok. The effect of such indorsement is that the note was indorsed
without qualification. A person who indorses without qualification engages that on due presentment, the
note shall be accepted or paid, or both as the case may be, and that if it be dishonored, he will pay the
amount thereof to the holder. Sambok's intention of indorsing the note without qualification is made even
more apparent by the fact that the notice of demand, dishonor, protest and presentment were all waived.
The words added by said appellant do not limit his liability, but rather confirm his obligation as a general
indorser.

16
Gempesaw v. Court of Appeals
G.R. No. 92244, February 9, 1993
Campos, Jr., J.:

FACTS:
Petitioner Natividad Gempesaw (Gempesaw) owns and operates four grocery stores, and maintains a
checking account with respondent drawee bank Philippine Bank of Communications (PBC). To facilitate
payment of debts to her suppliers, petitioner draws checks, which were prepared and filled up with all
material particulars by her bookkeeper, submitted to her for signature with the corresponding invoice
receipts indicating the obligations due and payable to her suppliers, and then delivered by the bookkeeper
to the payees.

For two years, Gempesaw issued 82 crossed checks. All the checks issued were honored by PBC and the
amounts thereof debited from the account of Gempesaw. However, Gempesaw found out about the
fraudulent manipulations of her bookkeeper.

Gempesaw sued PBC, as drawee bank, for the money value of 82 checks charged against her account with
PCIB on the ground that the payees' indorsements were forgeries. The RTC rendered a decision which was
affirmed by the CA dismissing the complaint. Hence, the present petition, to support her claim, Gempesaw
contends that banking rules prohibit the drawee bank from having checks with more than one indorsement.

ISSUE:
Whether or not the banking rule that bans acceptance of checks with more than one indorsement unless
clear, invalidates the instrument?

HELD:
NO, the banking rule banning acceptance of checks for deposit or cash payment with more than one
indorsement unless cleared by some bank officials does not invalidate the instrument; neither does it
invalidate the negotiation or transfer of the said check. In effect, this rule destroys the negotiability of
bills/checks by limiting their negotiation by indorsement of only the payee. Under the NIL, the only kind
of indorsement which stops the further negotiation of an instrument is a restrictive indorsement which
prohibits the further negotiation thereof.

In this kind of restrictive indorsement, the prohibition to transfer or negotiate must be written in express
words at the back of the instrument, so that any subsequent party may be forewarned that it ceases to be
negotiable. However, the restrictive indorsee acquires the right to receive payment and bring any action
thereon as any indorser, but he can no longer transfer his rights as such indorsee where the form of the
indorsement does not authorize him to do so.

Although the holder of a check cannot compel a drawee bank to honor it because there is no privity between
them, as far as the drawer-depositor is concerned, such bank may not legally refuse to honor a negotiable
bill of exchange or a check drawn against it with more than one indorsement if there is nothing irregular
with the bill or check and the drawer has sufficient funds. The drawee cannot be compelled to accept or pay
the check by the drawer or any holder because as a drawee, he incurs no liability on the check unless he
accepts it. But the drawee will make itself liable to a suit for damages at the instance of the drawer for
wrongful dishonor of the bill or check.

17
De Ocampo v. Gatchalian
G.R. No. L-15126, November 30, 1961
Labrador, J.:

But the facts were unknown to the petitioner Vicente R. De Ocampo (De Ocampo).

FACTS:
Respondent Anita Gatchalian (Gatchalian), was looking to purchase a car. Manuel Gonzales (Gonzales),
representing himself to be duly authorized by the owner, Ocampo Clinic (Clinic) to look for a buyer, to
negotiate and accomplish the sale for the same, showed and offered her one and requested that she issue a
check, to show that she is interested in buying the car and for the owner to allow him to bring the certificate
of registration the day after.

When assured that it was for safe keeping only. Gatchalian issued a check payable to the Clinic, however,
Gonzales delivered the same not for the purpose it was intended, but for the payment of his wife’s
hospitalization. The Clinic accepted the check without any inquiry, applied the amount therein to the
hospitalization fees and delivered the balance to Gonzales.

When Gonzales failed to appear the following day, Gatchalian issued a stop payment order. De Ocampo
filed a complaint against Gatchalian for the recovery of the value of the check before the CFI. A decision
was rendered ordering Gatchalian to pay. On appeal Gatchalian contended that the check is not a negotiable
instrument, as it was issued only for safekeeping, and that plaintiff is not a holder in due course.

ISSUE:
Whether or not De Ocampo may recover the value of the check?

HELD:
NO, while as a rule, a possessor of the instrument is prima facie a holder in due course, however, such rule
does not apply in cases where there was a defect in the title of the holder (Gonzales), because the instrument
is not payable to him or to bearer.

The fact that the drawer had no account with the payee; that the holder did not show or tell the payee why
he had the check in his possession and why he was using it for the payment of his own personal account —
show that holder's title was defective or suspicious, to say the least. As the holder's title was defective or
suspicious, it cannot be stated that the payee acquired the check without knowledge of said defect in holder's
title, and for this reason the presumption that it is a holder in due course or that it acquired the instrument
in good faith does not exist.

De Ocampo, as payee, had the duty to ascertain from the holder Gonzales what the nature of the latter's title
to the check was or the nature of his possession. Failing to do so, it be declared that De Ocampo was guilty
of gross neglect amounting to legal absence of good faith, and may not be considered as a holder of the
check in good faith.

18
Yang v. Court of Appeals
G.R. No. 138074, August 15, 2003
Quisumbing, J.:

FACTS:
Petitioner Cely Yang (Yang) and Prem Chandiramani (Chandiramani) entered into an agreement where
Chandiramani would issue to Yang a manager’s check in exchange for Yang’s two manager’s checks both
payable to the order of Fernando David (David).

Yang issued a crossed check, to be delivered by the messenger, Danilo Ranigo (Ranigo). At the rendezvous,
it was reported by Ranigo that Chandiramani didn't show up and the drafts and checks were allegedly stolen.
However, in reality, Chandimari was able to get hold of the drafts and checks, and deliver to David the two
checks in exchange for $360,000. Consequently, Yang requested the banks to stop payment on the
instruments she believe to be lost. The stoppage order was eventually lifted by the banks and the drafts and
checks were able to be encashed.

Yang then filed an action against the banks, Chandimari and David. The RTC and CA held that David is a
holder in due course. On appeal to the SC, Yang alleges that David is not a holder in due course contending
among others that since the checks were crossed, David should have been put on guard that the checks were
issued for a definite purpose and accordingly, made inquiries to determine if he received the checks pursuant
to that purpose.

ISSUE:
Whether or not a payee of a crossed check is required to inquire on the purpose for which it was crossed to
be considered in good faith?

HELD:
NO, the practice that a check with two parallel lines in the upper left-hand corner means that it could only
be deposited and not converted into cash. The effects of crossing a check, thus, relates to the mode of
payment, meaning that the drawer had intended the check for deposit only by the rightful person, the payee
named therein. The rediscounting of a check by the payee knowingly violates the avowed intention of
crossing a check. Thus, in accepting cross checks and paying cash for them, despite the warning of the
crossing, the subsequent holder could not be considered in good faith and thus, not a holder in due course.

In the case at bar, the payee did not negotiate further the checks in question but promptly deposited them
in his bank account. The crossed checks were delivered and duly deposited by David, the payee named
therein, in his bank account. In other words, the purpose behind the crossing of the checks was satisfied by
the payee.

19
Mesina v. Intermediate Appellate Court
G.R. No. 70145, November 13, 1986
Paras, J.:

FACTS:
Private respondent Jose Go (Go) purchased a Cashier’s Check from respondent Associated Bank (AB) as
a safer means of transferring funds. Go unintentionally left the check on the bank manager’s desk when he
left the bank. The manager found said check and entrusted the same to a bank official, Albert Uy (Uy), who
then had a visitor in the person of Alexander Lim (Lim).

However, when Uy returned to his desk after answering a phone call and proceeding to the men’s room,
Lim and the check were nowhere to be found. Go accomplished a “stop payment” order and executed an
affidavit of loss. The check was indorsed by Lim to petitioner Marcelo A. Mesina (Mesina). When AB
received the check for clearing from Prudential Bank, it dishonored and returned the same to the latter.

Thereafter, Mesina demanded payment from AB. However, the latter replied saying the check belonged to
Jose Go who lost it in the bank and is laying claim to it. Mesina argues that a cashier’s check cannot be
countermanded in the hands of a holder in due course.

ISSUE:
Whether or not a person in possession of a negotiable instrument without being issued can be a holder in
due course?

HELD:
NO, the check in question suffers from the infirmity of not having been properly negotiated and for value
by the real owner of said instrument.

Mesina became the holder of the cashier's check as indorsed by Lim who stole the check. He refused to say
how and why it was passed to him. He had therefore notice of the defect of his title over the check from the
start. The holder of a cashier's check who is not a holder in due course cannot enforce such check against
the issuing bank which dishonors the same. If a payee of a cashier's check obtained it from the issuing bank
by fraud, or if there is some other reason why the payee is not entitled to collect the check, AB would, of
course, have the right to refuse payment of the check when presented by the payee, since AB was aware of
the facts surrounding the loss of the check in question.

20
Philippine National Bank v. Picornell
G.R. No. L-18751, L-18915, September 26, 1922
Romualdez, J.:

FACTS:
Following the instruction of the firm of Hyndman, Tavera & Ventura (HTV), now dissolved with
respondent Joaquin Pardo de Tavera (Tavera) as successor, to buy 1,753 bales of tobacco, respondent
Bartolome Picornell (Picornell) obtained from petitioner Philippine National Bank (PNB) the sum of
P39,529.83, the value of the tobacco, in exchange of a bill of exchange in favor of PNB. The instrument
together with the invoice and bill of lading was delivered to PNB. Upon presentment by PNB to HTV, the
latter accepted the same through Tavera.

The tobacco arrived, however, upon examination it was discovered that a portion was of no use and was
damaged, thus, the bill of exchanged was then not paid. PNB sought to recover the value of the bill of
exchange alleging that HTV unconditionally accepted the bill but did not pay, thus, it is liable or that of its
successor, to pay the same. And that Picornell, as drawer, warranted that it would be accepted upon proper
presentment and paid in due course, and it was not paid.

ISSUE:
Whether or not the drawee may refuse payment on the instrument after acceptance?

HELD:
NO, HTV, as the drawee, by accepting unconditionally the bill, becomes liable to the holder, and cannot
allege want to consideration between him and the drawer. The holder is a stranger as regards the transaction
between the drawer and the drawee, and if he has given value to the drawer and has no knowledge of any
equity between the drawer and the drawee, he is in the same situation as an indorsee in good faith. Hence,
in an action brought by the holder against the acceptor it is no defense that the merchandise sent by the
drawer, and which constituted the consideration for the drawing of the bill, is of inferior quality than was
ordered by the drawee to such a degree that it is not worth the value of the bill.

Picornell, as drawer of the bill, by drawing it warrants that it will be accepted on due presentment and paid
in due course; hence if it is not paid, he become liable for the payment of its value to the holder. The fact
that Picornell was a commission agent of the drawee in the purchase of the merchandise covered by the bill
does not necessarily make him an agent of the drawee in his obligations emanating from the bill drawn by
him. His acts in negotiating the bill constitute a contract distinct from that made by his having purchased
the merchandise on behalf of the drawee, unless at the time of signing the bill he should have added to his
signature some expression to indicate it. Nor is his liability as drawer affected by the fact that the
merchandise shipped by him, which constituted the consideration for the drawing of the bill, was or was
not of inferior quality.

21
Astro Electronics Corp. v. Philippine Export and Foreign Loan Guarantee Corp.
G.R. No. 136729, September 23, 2003
Austria-Martinez, J.:

FACTS:
Petitioner Astro Electronics Corp. (Astro) was granted several loans by the Philippine Trust Company
(Philtrust), secured by three promissory notes which uniformly provide that “for value received, I/We
jointly, severally and solidarily, promise to pay...” signed twice by petitioner Peter Roxas (Roxas), as
President of Astro and in his personal capacity. When Astro thereafter failed to pay these loan obligations
to Philtrust, respondent Philippine Export and Foreign Loan Guarantee Corp. (Philguarantee) paid 70% of
the amount as guaranteed in behalf of Astro.

Subsequently, Philguarantee filed a complaint for sum of money against Astro and Roxas and both the RTC
and CA ruled in favor of Philguarantee. Roxas, however, disclaims any liability on the instruments alleging
that he merely signed the same in blank and the phrases "in his personal capacity" and "in his official
capacity" were fraudulently inserted without his knowledge.

ISSUE:
Whether or not Roxas is solidarily liable with Astro on the instrument?

HELD:
YES, persons who write their names on the face of promissory notes are makers, promising that they will
pay to the order of the payee or any holder according to its tenor. Thus, even without the phrase "personal
capacity," Roxas will still be primarily liable as a joint and several debtor under the notes considering that
his intention to be liable as such is manifested by the fact that he affixed his signature on each of the
promissory notes twice which necessarily would imply that he is undertaking the obligation in two different
capacities, official and personal.

An instrument which begins with "I", "We", or "Either of us" promise to pay, when signed by two or more
persons, makes them solidarily liable. Also, the phrase "joint and several" binds the makers jointly and
individually to the payee so that all may be sued together for its enforcement, or the creditor may select one
or more as the object of the suit. Having signed under such terms, Roxas assumed the solidary liability of
a debtor and Philtrust Bank may choose to enforce the notes against him alone or jointly with Astro.

22
Garcia v. Llamas
G.R. No. 154127, December 8, 2003
Panganiban, J.:

FACTS:
Petitioner Romeo C. Garcia (Garcia) and Eduardo de Jesus (de Jesus) borrowed P400,000 from
respondent Dionisio V. Llamas (Llamas). On the same day, Garcia and de Jesus executed a promissory
note, which reads as follows:

PROMISSORY NOTE

"P400,000.00

"RECEIVED FROM ATTY. DIONISIO V. LLAMAS, the sum of FOUR HUNDRED THOUSAND
PESOS, Philippine Currency payable on or before January 23, 1997 at No. 144 K-10 St. Kamias,
Quezon City, with interest at the rate of 5% per month or fraction thereof.

"It is understood that our liability under this loan is jointly and severally [sic].

"Done at Quezon City, Metro Manila this 23rd day of December, 1996.

However, despite repeated demands, Garcia and de Jesus failed and refused to pay it. As a result, Llamas
filed a complaint against Garcia and de Jesus. Resisting the complaint, Garcia averred that he assumed no
liability under the promissory note because he signed it merely as an accommodation party for de Jesus.

ISSUE:
Whether or not an accommodation party is free from liability on an instrument?

HELD:
NO, by its terms, the note was made payable to a specific person rather than to bearer or to order — a
requisite for negotiability under the NIL. Hence, petitioner cannot avail himself of the NIL's provisions on
the liabilities and defenses of an accommodation party. Besides, a non-negotiable note is merely a simple
contract in writing and is evidence of such intangible rights as may have been created by the assent of the
parties. The promissory note is thus covered by the general provisions of the Civil Code, not by the NIL.

Even granting arguendo that the NIL was applicable, still, petitioner would be liable for the promissory
note. Under section 29 of the NIL, an accommodation party is liable for the instrument to a holder for value
even if, at the time of its taking, the latter knew the former to be only an accommodation party. The relation
between an accommodation party and the party accommodated is, in effect, one of principal and surety —
the accommodation party being the surety. It is a settled rule that a surety is bound equally and absolutely
with the principal and is deemed an original promisor and debtor from the beginning. The liability is
immediate and direct.

23
Crisologo-Jose v. Court of Appeals
G.R. No. 80599, September 15, 1989
Regalado, J.:

FACTS:
Respondent Ricardo Santos (Santos) and Atty. Oscar Benares (Atty. Benares), vice-president and president
of Mover Enterprises, Inc. (Mover), issued and signed a check payable to petitioner Ernestina Crisologo-
Jose (petitioner) to accommodate Atty. Benares’ clients, spouses Jaime and Clarita Ong.

Petitioner deposited the check, but it was dishonored for insufficiency of funds. Petitioner filed a criminal
complaint for violation of BP 22 against Santos and Atty. Benares. During the preliminary investigation,
Santos tendered to petitioner a cashier’s check, however, the latter refused. Thus, Santos consigned the
amount thereof with the CFI.

The CFI dismissed the case. On appeal, the CA revived the complaint for consignation. Hence, the petition
before the SC, petitioner avers that the accommodation party in this case is Mover Enterprises, Inc. and not
private respondent who merely signed the check in question in a representative capacity.

ISSUE:
Whether or not a corporation may be held liable on an accommodation instrument?

HELD:
NO, to be considered an accommodation party, a person must (1) be a party to the instrument, signing as
maker, drawer, acceptor, or indorser, (2) not receive value therefor, and (3) sign for the purpose of lending
his name for the credit of some other person. Based on the foregoing requisites, it is not a valid defense that
the accommodation party did not receive any valuable consideration when he executed the instrument.

Section 29 of the Negotiable Instruments Law which holds an accommodation party liable on the instrument
to a holder for value, although such holder at the time of taking the instrument knew him to be only an
accommodation party, does not include nor apply to corporations which are accommodation parties. This
is because the issue or indorsement of negotiable paper by a corporation without consideration and for the
accommodation of another is ultra vires. Hence, one who has taken the instrument with knowledge of the
accommodation nature thereof cannot recover against a corporation where it is only an accommodation
party. If the form of the instrument, or the nature of the transaction, is such as to charge the indorsee with
knowledge that the issue or indorsement of the instrument by the corporation is for the accommodation of
another, he cannot recover against the corporation thereon.

24
Sadaya v. Sevilla
G.R. No. L-17845. April 27, 1967
Sanchez, J.:

FACTS:
Victor Sevilla (Sevilla), Oscar Varona (Varona) and Simeon Sadaya (Sadaya) executed a promissory note,
jointly and severally, in favor of BPI, or its order, payable on demand. The entire amount of the promissory
note, was received by Varona alone. Sevilla and Sadaya signed the promissory note as co-makers only as a
favor to Varona. Partial payments were made, however, a balance was left unpaid.

The bank collected the balance from Sadaya the foregoing balance which, together with interest. Varona
failed to reimburse Sadaya despite repeated demands.

Victor Sevilla died. Intestate estate proceedings were started in the CFI. Respondent Francisco Sevilla was
named administrator (administrator). In said proceedings, Sadaya filed a claim for reimbursement, but the
administrator resisted the claim arguing Sevilla did not receive any consideration for the amount and signed
promissory not as surety for Varona.

The CFI admitted the claim and ordered the administrator to pay Sevilla. The administrator appealed to the
CA, where the order was set aside.

ISSUE:
Whether or not an accommodation co-maker who pays a promissory note may directly demand
reimbursement from his co-accommodation maker?

HELD:
YES, A solidary accommodation maker-who made payment — has the right to contribution, from his co-
accommodation maker, in the absence of agreement to the contrary between them, and subject to conditions
imposed by law.

A joint and several accommodation maker of a negotiable promissory note may demand from the principal
debtor reimbursement for the amount that he paid to the payee; and a joint and several accommodation
maker who pays on the said promissory note may directly demand reimbursement from his co-
accommodation maker without first directing his action against the principal debtor provided that (a) he
made the payment by virtue of a judicial demand, or (b) the principal debtor is insolvent.

Where a co-accommodation maker paid voluntarily the outstanding balance of the account of the principal
debtor without previous judicial demand and when the principal debtor is not insolvent, he cannot, as a
matter of right, demand from his co- accommodation maker of the share which is proportionately owing
him.

25
Travel-On, Inc. v. Court of Appeals
G.R. No. 56169, June 26, 1992
Feliciano, J.:

FACTS:
Petitioner Travel-On, Inc. (Travel-On) sold and delivered to private respondent Arturo S. Miranda
(Miranda) various airline tickets at a total price of P278, 201.57. To settle said account, Miranda paid partly
in cash, in kind, and thereafter issued 6 post-dated checks amounting to P115,000.00. However, the checks
were all dishonored by the drawee banks.

Travel-On filed suit before the CFI to collect on the checks. However, Miranda claimed that he has already
paid the same and even overpaid his obligations, and refunds were due to him. He argued that he issued the
postdated checks for purposes of accommodation, so that Travel-On’s GM Elita Montilla could show the
board of directors that the accounts receivable of the company was still good.

The CFI ruled in favor of Miranda and ordered Travel-On to pay the refund. On appeal, the CA affirmed
the decision. On appeal to the SC, Travel-On argues that even assuming that the checks were for
accommodation, Miranda is still liable thereunder considering that Travel-On is a holder for value.

ISSUE:
Whether or not Travel-On was an accommodated party so as to absolve Miranda from liability on the
instrument?

HELD:
NO, it is important to stress that a check which is regular on its face is deemed prima facie to have been
issued for a valuable consideration and every person whose signature appears thereon is deemed to have
become a party thereto for value. Thus, the mere introduction of the instrument sued on in evidence prima
facie entitles the plaintiff to recovery. Further, the rule is quite settled that a negotiable instrument is
presumed to have been given or indorsed for a sufficient consideration unless otherwise contradicted and
overcome by other competent evidence.

In the case at bar, private respondent was unable to rebut satisfactorily this legal presumption. It must also
be noted that those checks were issued immediately after a letter demanding payment had been sent to
private respondent by petitioner Travel-On.

In accommodation transactions recognized by the NIL, an accommodating party lends his credit to the
accommodated party, by issuing or indorsing a check which is held by a payee or indorsee as a holder in
due course, who gave full value therefor to the accommodated party. The latter, in other words, receives or
realizes full value which the accommodated party then must repay to the accommodating party, unless of
course the accommodating party intended to make a donation to the accommodated party. But the
accommodating party is bound on the check to the holder in due course who is necessarily a third party and
is not the accommodated party. Having issued or indorsed the check, the accommodating party has
warranted to the holder in due course that he will pay the same according to its tenor.

In the case at bar, Travel-On was payee of all six (6) checks; it presented these checks for payment at the
drawee bank but the checks bounced. Travel-On obviously was not an accommodated party; it realized no
value on the checks which bounced.

26
Agro Conglomerates, Inc. v. Court of Appeals
G.R. No. 117660, December 18, 2000
Quisumbing, J.:

FACTS:
Petitioner Agro Conglomerates, Inc. (ACI) sold two parcels of farmland to Wonderland Food Industries,
Inc. (WFI). The parties executed a Memorandum of Agreement (MoA) which provides that the P5M
purchase price shall be paid as follows: P1M shall be paid in cash upon the signing of the agreement, P2M
worth of common shares of stock of WFI, and the remaining P2M shall be paid in four equal installments.

Soon after, ACI as vendor, WFI as vendee, and respondent Regent Savings and Loan Bank (RSLB executed
an addendum providing instead, that the petitioners would secure a loan in the name of ACI for the total
amount of the initial payments, while the settlement of said loan would be assumed by WFI. Thereafter,
Soriano signed several promissory notes and received the proceeds in behalf of ACI. Subsequently, ACI
and Soriano failed to meet their obligations as they fell due.

Thus, after several opportunities given to petitioners to settle their accounts, the respondent bank filed three
separate complaints for Collection of Sums of Money before the RTC against the petitioners. In their
answer, petitioners interposed a defense and alleged that the addendum states that although the promissory
notes were in their names, Wonderland shall be responsible for the payment thereof. After trial, the RTC
rendered judgment in favor of RSLB. The CA affirmed in toto the judgment. Hence, this Petition.

ISSUE:
Whether or not petitioners are liable on the promissory notes?

HELD:
YES, a subsidiary contract of suretyship had taken effect since petitioners signed the promissory notes as
maker and accommodation party for the benefit of WFI. Petitioners became liable as accommodation
party. An accommodation party is a person who has signed the instrument as maker, acceptor, or indorser,
without receiving value therefor, and for the purpose of lending his name to some other person and is liable
on the instrument to a holder for value, notwithstanding such holder at the time of taking the instrument
knew the signatory to be an accommodation party. He has the right, after paying the holder, to obtain
reimbursement from the party accommodated, since the relation between them has in effect become one
of principal and surety, the accommodation party being the surety. Suretyship is defined as the relation
which exists where one person has undertaken an obligation and another person is also under the obligation
or other duty to the obligee, who is entitled to but one performance, and as between the two who are bound,
one rather than the other should perform. The surety's liability to the creditor or promisee of the principal
is said to be direct, primary and absolute; in other words, he is directly and equally bound with the
principal. And the creditor may proceed against any one of the solidary debtors.

27
Gonzales v. Rizal Commercial Banking Corporation
G.R. No. 156294, November 29, 2006
Garcia, J.:

FACTS:
Petitioner Melva Theresa Alviar Gonzales (Gonzales) was an employee of Rizal Commercial Banking
Corporation (RCBC) as New Accounts Clerk in the Retail Banking Department at its Head Office. RCBC
gives special accommodations to its employees to receive the check's value without awaiting the clearing
period.

Dr. Don Zapanta (Dr. Zapanta) of the Ade Medical Group, drew a foreign check against the drawee bank
Wilshire Center Bank, N.A., of Los Angeles, California, U.S.A., payable to Gonzales’ mother, Eva Alviar
(Alviar). The latter then indorsed the check. Gonzales presented the foreign check to the RCBC's Head of
Retail Banking Olivia Gomez (Gomez), who, after examining the check, acquiesced to the early encashment
of the check and signed the check but indicated thereon her authority of "up to P17,500.00 only".

RCBC then tried to collect the amount of the check with the drawee bank, but the check was dishonored
because of "End. Irregular," i.e., an irregular endorsement. Unable to collect, RCBC demanded from
Gonzales the payment of the peso equivalent of the check that she received. Not having received any
response, RCBC filed a complaint before the RTC for a sum of money against Alviar, Gonzales and the
latter's husband. The RTC rendered judgment, which was affirmed by the CA, holding Alviar and Gonzales
liable to pay RCBC for the value of the instrument.

ISSUE:
Whether or not a party who caused the defect in the instrument have any recourse against prior indorsers in
good faith?

HELD:
NO, a subsequent party which caused the defect in the instrument cannot have any recourse against any of
the prior endorsers in good faith.

Under Sec.66, the warranties for which Alviar and Gonzales are liable as general endorsers in favor of
subsequent endorsers extend only to the state of the instrument at the time of their endorsements,
specifically, that the instrument is genuine and in all respects what it purports to be; that they have good
title thereto; that all prior parties had capacity to contract; and that the instrument, at the time of their
endorsements, is valid and subsisting. This provision, however, cannot be used by the party which
introduced a defect on the instrument, such as respondent RCBC in this case, which qualifiedly endorsed
the same, to hold prior endorsers liable on the instrument because it results in the absurd situation whereby
a subsequent party may render an instrument useless and inutile and let innocent parties bear the loss while
he himself gets away scot-free. It cannot be over-stressed that had it not been for the qualified of Gomez,
who is the employee of RCBC, there would have been no reason for the dishonor of the check, and full
payment by drawee bank therefor would have taken place as a matter of course.

Sec. 66 of the NIL which further states that the general endorser additionally engages that, on due
presentment, the instrument shall be accepted or paid, or both, as the case may be, according to its tenor,
and that if it be dishonored and the necessary proceedings on dishonor be duly taken, he will pay the amount
thereof to the holder, or to any subsequent endorser who may be compelled to pay it, must be read in the
light of the rule in equity requiring that those who come to court should come with clean hands.

28
Ang v. Associated Bank
G.R. No. 146511, September 5, 2007
Azcuna, J.:

FACTS:
On two separate dates, Antonio Ang Eng Liong (Liong) and petitioner Tomas Ang (Ang) obtained a loan
from respondent Associated Bank (respondent) and issued a promissory note therefor. As agreed the loan
would be payable, jointly and severally. However, despite repeated demands for payment on Liong and
Ang, the latter failed and refused to settle the obligation.

Respondent thus filed a collection suit against Liong and Ang. In his answer, Ang interposed the affirmative
defense among others that the bank knew that he did not receive any valuable consideration for affixing his
signatures on the notes but merely lent his name as an accommodation party. Respondent replied that the
fact that Ang never received any moneys in consideration of the 2 loans and that such was known to the
bank are immaterial because, as an accommodation maker, he is considered as a solidary debtor who is
primarily liable for the payment of the promissory notes.

ISSUE:
Whether or not an accommodation party may be released from liability upon the finality of judgment against
the accommodated party?

HELD:
NO, 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/ies
thereto. 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.

As Ang acknowledged it to be, the relation between an accommodation party and the accommodated party
is one of principal and surety, the accommodation party being the surety. As such, he is deemed an original
promisor and debtor from the beginning; he is considered in law as the same party as the debtor in relation
to whatever is adjudged touching the obligation of the latter since their liabilities are interwoven as to be
inseparable. Although a contract of suretyship is in essence accessory or collateral to a valid principal
obligation, the surety's liability to the creditor is immediate, primary and absolute; he is directly and equally
bound with the principal. As an equivalent of a regular party to the undertaking, a surety becomes liable to
the debt and duty of the principal obligor even without possessing a direct or personal interest in the
obligations nor does he receive any benefit therefrom.

Ang agreed to be "jointly and severally" liable under the two promissory notes that he co-signed with Liong
as the principal debtor. This being so, it is completely immaterial if the bank would opt to proceed only
against Ang or Liong or both of them since the law confers upon the creditor the prerogative to choose
whether to enforce the entire obligation against any one, some or all of the debtors. Nonetheless, Ang, as
an accommodation party, may seek reimbursement from Liong, being the party accommodated.

29
Far East Bank & Trust Company v. Gold Palace Jewellery Co.
G.R. No. 168274, August 20, 2008
Nachura, J.:

FACTS:
Samuel Tagoe (Tagoe) purchased from respondent Gold Palace Jewellery Co.’s (GPJC) store several pieces
of jewelry and paid using a Foreign Draft, issued by the United Overseas Bank (UOB) addressed to the
Land Bank of the Philippines (LBP). GPJC deposited the draft with FEBTC. FEBTC presented the draft
for clearing to LBP the latter cleared the same.

Three weeks later, LBP informed FEBTC that the amount in the draft had been materially altered and that
it was returning the same. As the amounts were already utilized, FEBTC was not able to debit the full
amount form GPJC. FEBTC demanded from GPJC the payment of the difference on the amount debited
from the latter’s account, but the latter refused. FEBTC sued GPJC.

The RTC held that on the basis of its warranties as a general indorser, GPJC was liable to FEBTC. On
appeal, the CA reversed the ruling and held the FEBTC failed to undergo the proceedings on protest to
notify GPJC of the drafts dishonor, thus, FEBTC could not charge GPJC on its secondary liability as an
indorser. Moreover, since LBP already cleared the check, its remedy should be against the party responsible
for the alteration.

ISSUE:
Whether or not a drawee bank may repudiate the payment erroneously made to a due course holder?

HELD:
NO, the NIL, explicitly provides that the acceptor, by accepting the instrument, engages that he will pay
it according to the tenor of his acceptance. This provision applies with equal force in case the drawee pays
a bill without having previously accepted it. His actual payment of the amount in the check implies not only
his assent to the order of the drawer and a recognition of his corresponding obligation to pay the
aforementioned sum, but also, his clear compliance with that obligation. Actual payment by the drawee is
greater than his acceptance, which is merely a promise in writing to pay. The payment of a check includes
its acceptance.

Unmistakable herein is the fact that the drawee bank cleared and paid the subject foreign draft and
forwarded the amount thereof to the collecting bank. The latter then credited to GPJC's account the payment
it received. Following the plain language of the law, the drawee, by the said payment, recognized and
complied with its obligation to pay in accordance with the tenor of his acceptance. The tenor of the
acceptance is determined by the terms of the bill as it is when the drawee accepts. Stated simply, LBP was
liable on its payment of the check according to the tenor of the check at the time of payment, which was
the raised amount.

Because of that engagement, LBP could no longer repudiate the payment it erroneously made to a due
course holder. We note at this point that GPJC was not a participant in the alteration of the draft, was not
negligent, and was a holder in due course.

30
Patrimonio v. Gutierrez
G.R. No. 187769, June 4, 2014
Brion, J.:

FACTS:
Petitioner Alvin Patrimonio (Patrimonio) and Nepoleon Gutierrez (Gutierrez) entered into a business
venture, where Patrimonio pre-signed several blank checks to answer for its expenses. The blank checks
were entrusted to Gutierrez with the specific instruction not to fill them out without previous notification
to and approval of Patrimonio. The arrangement was made so that he could verify the validity of the
payment and make the proper arrangements to fund the account.

However, Gutierrez went to Octavio Marasigan III (Marasigan) to secure a loan and delivered one of the
pre-signed checks without the knowledge and consent of Patrimonio. Marasigan deposited the check but it
was dishonored for the reason “account closed.” Marasigan sought recovery from Gutierrez and then to
Patrimonio, but to no avail. Patrimonio argued that there is no basis to hold him liable under the subject
check as the same was not filled up strictly on the basis of the authority he gave.

ISSUE:
Whether or not the drawer is liable on the instrument?

HELD:
NO, in order that one who is not a holder in due course can enforce the instrument against a party prior to
the instrument’s completion, two requisites must exist: (1) that the blank must be filled strictly in
accordance with the authority given; and (2) it must be filled up within a reasonable time. If it was proven
that the instrument had not been filled up strictly in accordance with the authority given and within a
reasonable time, the maker can set this up as a personal defense and avoid liability. However, if the holder
is a holder in due course, there is a conclusive presumption that authority to fill it up had been given and
that the same was not in excess of authority.

In the present case, Marasigan's knowledge that the petitioner is not a party or a privy to the contract of
loan, and correspondingly had no obligation or liability to him, renders him dishonest, hence, in bad faith.
And while Gutierrez had a prima facie authority to complete the check, such authority does not extend to
its use.

31
Salas v. Court of Appeals
G.R. No. 76788, January 22, 1990
Fernan, J.:

FACTS:
Petitioner Juanita Salas (Salas) bought a motor vehicle from the Violago Motor Sales Corporation (VMS)
for P58,138.20 as evidenced by a promissory note. The note was subsequently indorsed to private
respondent Filinvest Finance & Leasing Corp. (FFLC) which financed the purchase.

Salas defaulted in her installments, allegedly due to the discrepancy in the engine and chassis numbers on
the vehicle delivered to her, and those indicated in the sales invoice, certificate of registration and deed of
chattel mortgage, which fact she discovered when the vehicle figured in an accident on 9 May 1980.

FFLC initiated a civil case for a sum of money against Salas before the RTC. In its decision, the RTC
ordered Salas to pay FFLC. On appeal, the CA ordered Salas to pay, with modification as to the amount.
Thus, the petition before the SC.

ISSUE:
Whether or not due to the deception of VMS, Salas is released from liability to FFLC?

HELD:
NO, FFLC is a holder in due course having taken the instrument under the conditions provided by Sec. 52.
Accordingly, FFLC holds the instrument free from any defect of title of prior parties, and free from defenses
available to prior parties among themselves, and may enforce payment of the instrument for the full amount
thereof. This being so, Salas cannot set up against respondent the defense of nullity of the contract of sale
between her and VMS. Even assuming for the sake of argument that there was in fact deception made upon
her in that the vehicle she purchased was different from that actually delivered to her, this matter cannot be
passed upon in the present case, where the VMS was never impleaded as a party.

32
Philippine National Bank v. Court of Appeals
G.R. No. 107508, April 25, 1996
Kapunan, J.:

FACTS:
The Ministry of Education and Culture (DECS) issued a check payable to respondent F. Abante Marketing
(FAM). This check was drawn against petitioner Philippine National Bank (PNB). FAM deposited the
check in its savings account with Capitol City Development Bank (CCDB). In turn, deposited the same in
its account with the Philippine Bank of Communications (PBC), which sent the check to PNB for clearing.

PNB cleared the check as good and, thereafter, PBC credited CCDB's account for the amount stated in the
check. However, PNB returned the check to PBC and debited its account for the amount covered by the
check, the reason being that there was a "material alteration" of the check number. PBC debited CCDB’s
account, however, CCDB cannot debit the account of FAM as the amount on the check was withdrawn.

CCDB demanded from PBC the re-crediting of the amount, who in turn demanded the same from PNB.
The demands were unheeded, thus, CCDB filed suit before the RTC against PBC, who in turn filed a third-
party complaint against PNB.

ISSUE:
Whether or not an alteration of the serial number of a check is a material alteration under the NIL?

HELD:
NO, an alteration is said to be material if it alters the effect of the instrument. It means an unauthorized
change in an instrument that purports to modify in any respect the obligation of a party or an unauthorized
addition of words or numbers or other changes 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.

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.

What was altered is the serial number of the check in question, an item which, it can readily be observed,
is not an essential requisite for negotiability under Sec. 1 of the NIL. The aforementioned alteration did not
change the relations between the parties. The name of the drawer and the drawee were not altered. The
intended payee was the same. The sum of money due to the payee remained the same.

33
International Corporate Bank, Inc. v. Court of Appeals
G.R. No. 129910, September 5, 2006
Carpio, J.:

FACTS:
The Ministry of Education and Culture issued 15 checks drawn against respondent Philippine National
Bank (PNB), which petitioner International Corporate Bank, Inc. (ICB) accepted for deposit on various
dates.

After 24hrs from submission of the checks to PNB for clearing, ICB paid the value of the checks and
allowed the withdrawals of the deposits. However, PNB returned all the checks to ICB without clearing
them on the ground that the serial numbers were materially altered. Thus, ICB instituted an action before
the CFI for collection of sums of money against respondent to recover the value of the checks.

The CFI held that due to its own fault, ICB is not entitled to recover on the value of the checks from PNB.
On appeal to the CA, it held that even if there are material alterations PNB as drawee bank would not be
relieved of any liability and ordered the same to pay.

ISSUE:
Whether or not an alteration of the serial number of a check is a material alteration under the NIL?

HELD:
NO, alteration on the serial number of a check is not a material alteration. An alteration is said to be material
if it alters the effect of the instrument. It means an unauthorized change in an instrument that purports to
modify in any respect the obligation of a party or an unauthorized addition of words or numbers or other
change to an incomplete instrument relating to the obligation of a party. In other words, a material alteration
is one which changes the items which are required to be stated under Section 1 of the NIL.

Likewise, in the present case the alterations of the serial numbers do not constitute material alterations on
the checks. Incidentally, we agree with the PNB's observation that the check in the PNB case appears to
belong to the same batch of checks as in the present case. The check in the PNB case was also issued by
the Ministry of Education and Culture. It was also drawn against PNB, respondent in this case. The serial
number of the check in the PNB case is 7-3666-223-3 and it was issued on 7 August 1981.

34
Associated Bank v. Court of Appeals
G.R. No. 107382, January 31, 1996
Romero, J.:

FACTS:
The Province of Tarlac (Province) is allocates funds to the Concepcion Emergency Hospital (CEH), which
is deposited with Philippine National Bank (PNB) and the checks for CEH are drawn to the order of CEH
or its chief. The checks are released by the Provincial Treasurer (Treasurer) and received for the hospital
by its administrative officer and cashier.

Fausto Pangilinan (Pangilinan), the administrative officer and cashier of CEH, forged the Chief’s signature
to make it appear that 30 checks were paid to him for certain projects and deposited the same to his account
with the petitioner Associated Bank (AB).

The Treasurer sought the restoration of the amounts from PNB, who in turn, demanded reimbursement from
the AB. As both banks resisted payment, the Province brought suit against PNB which, in turn, impleaded
AB. The RTC ordered PNB to pay the Province of Tarlac and for AB to reimburse PNB. On appeal, the
CA affirmed the decision in toto.

AB contends that PNB, the drawee bank, is estopped from asserting the defense of guarantee of prior
indorsements against AB, the collecting bank. In stamping the guarantee (for all prior indorsements), it
merely followed a mandatory requirement for clearing and had no choice but to place the stamp of
guarantee; otherwise, there would be no clearing. The bank will be in a "no-win" situation and will always
bear the loss as against the drawee bank.

ISSUE:
Whether or not a collecting bank may set up the defense of forgery against the drawee bank?

HELD:
NO, A collecting bank where a check is deposited and which indorses the check upon presentment with the
drawee bank, is such an indorser. So even if the indorsement on the check deposited by the bank's client is
forged, the collecting bank is bound by his warranties as an indorser and cannot set up the defense of forgery
as against the drawee bank.

In this case, the checks were indorsed by the collecting bank (Associated Bank) to the drawee bank (PNB).
The former will necessarily be liable to the latter for the checks bearing forged indorsements. If the forgery
is that of the payee's or holder's indorsement, the collecting bank is held liable, without prejudice to the
latter proceeding against the forger.

35
Jai-Alai Corporation of the Philippines v. Bank of the Philippine Islands
G.R. No. L-29432, August 6, 1975
Castro, J.:

FACTS:
Petitioner Jai-Alai Corporation of the Philippines (Jai-Alai) deposited with respondent Bank of the
Philippine Islands (BPI) ten checks acquired from Antonio J. Ramirez (Ramirez), a regular bettor at jai-alai
games and a sales agent of the Inter-Island Gas Service, Inc. (IIGS), the payee of the checks.

The deposits were temporarily credited to Jai-Alai. After the checks had been submitted to inter-bank
clearing, IIGS discovered that all the checks indorsements were forgeries. In due time, IIGS, advised Jai-
Alai, BPI, the drawers and the drawee-banks of the said checks about the forgeries, and filed a criminal
complaint against Ramirez.

BPI debited Jai-Alai's account and forwarded to the latter the checks containing the forged indorsements,
which it refused to accept. When Jai-Alai drew a check, it was dishonored by BPI for insufficiency of funds.
A complaint was filed by Jai-Alai with the CFI. After due trial, the CIF dismissed the complaint, as well as
by the Court of Appeals, on appeal. Hence, this petition for review.

ISSUE:
Whether or not BPI may validly debit the account of Jai-Alai?

HELD:
YES, BPI acted within legal bounds when it debited Jai-Alai’s account. When Jai-Alai deposited the checks
with BPI, the nature of the relationship created at that stage was one of agency, where the bank was to
collect from the drawees of the checks the corresponding proceeds. It is true that BPI had already collected
the proceeds of the checks when it debited Jai-Alai’s account. Thus, it can be argued that the relationship
then becomes, that of creditor and debtor as to preclude BPI from using said funds to make payments not
authorized by Jai-Alai.

However, as a forged signature in a negotiable instrument is wholly inoperative and no right to discharge it
or enforce its payment can be acquired through or under the forged signature except against a party who
cannot invoke the forgery, no such creditor-debtor relationship was created between the parties

Thus, BPI, as a collecting bank which indorsed the checks to the drawee-banks for clearing, should be liable
to the latter for reimbursement, for the indorsements on the checks had been forged prior to their delivery
to Jai-Alai. Therefore, the payments made by the drawee-banks to BPI on account of the said checks were
ineffective; and, such being the case, the relationship of creditor and debtor between Jai-Alai and BPI had
not been validly effected, the checks not having been properly and legitimately converted into cash.

36
Republic Bank v. Ebrada
G.R. No. L-40796, July 31, 1975
Martin, J.:

FACTS:
The Treasury of the Philippines (Treasury) issued a check payable to the order of one Lorenzo Martin
(Martin), in the sum of P1,246.08, and drawn on the petitioner Republic Bank (RB). Through a series of
indorsement, the check was acquired by respondent Mauricia Ebrada (Ebrada).

Ebrada encashed the check with RB, where she received the proceeds thereof. However, the Treasury
advised RB that the indorsement of Martin was a forgery as he was already dead for 11 years, and demanded
the refund of the amount.

RB sued Ebrada before the CFI. In answer, Ebrada alleged that she was a holder in due course of the check
in question, or at the very least, has acquired her rights from a holder in due course and therefore entitled
to the proceeds thereof. And that it is in estoppel, or so negligent as not to be entitled to recover anything
from her.

ISSUE:
Whether or not the drawee bank may recover from the one who encashed the check, on the basis that there
was a forged indorsement prior to said person?

HELD:
YES, Where a check is drawn payable to the order of one person and is presented to a bank by another and
purports upon its face to have been duly indorsed by the payee of the check, it is the duty of the bank to
know that the check was duly indorsed by the original payee, and where the Bank pays the amount of the
check to a third person, who has forged the signature of the payee, the loss falls upon the bank who cashed
the check, and its only remedy is against the person to whom it paid the money.

While RB should suffer the loss when it paid the amount of the check in question to Ebrada, it has the
remedy to recover from the latter the amount it paid to her. Although the Ebrada to whom RB paid the
check was not proven to be the author of the supposed forgery, yet as last indorser of the check, she has
warranted that she has good title to it.

37
Philippine National Bank v. Quimpo
G.R. No. 53194, March 14, 1988
Gancayco, J.:

FACTS:
Private respondent Francisco Gozon II (Gozon) was a depositor of petitioner Philippine National Bank
(PNB). Gozon went to PNB with his friend Ernesto Santos (Santos), whom he left in the car while he
transacted business with PNB. When Santos saw that Gozon left his checkbook, he took a check therefrom,
filled it up, forged the signature of Gozon, and encashed the same with PNB, thus, the account of Gozon
was debited.

Upon receipt of the statement of account from PNB, Gozon asked that the said amount should be returned
to his account as his signature on the check was forged but PNB refused. Gozon filed a complaint for
recovery before the CFI against PNB. After trial, the CFI ordered PNB to pay. Hence, the present petition
before the SC.

PNB contends that the act of Gozon in putting the checkbook into the hands of Santos was the proximate
cause of the loss, thus, he is precluded from setting up the defense of forgery or want of authority.

ISSUE:
Whether or not PNB is liable on the instrument with the forged check?

HELD:
YES, 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 prudence in accepting and cashing a
check presented to it.

PNB was negligent in encashing said forged check without carefully examining the signature which shows
marked variation from the genuine signature of Gozon.

Gozon trusted 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 Gozon cannot be considered negligent under
the circumstances of the case.

38
Gempesaw v. Court of Appeals
G.R. No. 92244, February 9, 1993
Campos, Jr., J.:

FACTS:
Petitioner Natividad Gempesaw (Gempesaw) owns grocery stores, and maintains a checking account with
respondent drawee bank Philippine Bank of Communications (PBC). As payment of debts to her suppliers,
she drew checks, which were prepared and filled up by her bookkeeper, and submitted to her for signature
with the corresponding invoice receipts indicating the obligations due and payable to her suppliers, and
then delivered by the bookkeeper to the payees.

For two years, Gempesaw issued 82 crossed checks. All the checks issued were honored by PBC and the
amounts thereof debited from the account of Gempesaw. However, Gempesaw found out about the
fraudulent manipulations of her bookkeeper.

Gempesaw sued PBC, as drawee bank, for the money value of 82 checks charged against her account with
PCIB on the ground that the payees' indorsements were forgeries. The RTC rendered a decision dismissing
the complaint. On appeal, the CA affirmed the ruling of the RTC on the ground that Gempesaw’s gross
negligence in issuing the checks was the proximate cause of the loss and 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, the present petition.

ISSUE:
Whether or not the banking rule that bans acceptance of checks with more than one indorsement unless
clear, invalidates the instrument?

HELD:
NO, as a rule, a drawee bank who has paid a check on which an indorsement has been forged cannot charge
the drawer's account for the amount of said check. An exception to this rule is where the drawer is guilty of
such negligence which causes the bank to honor such a check or checks.

Gempesaw failed to examine her records with reasonable diligence whether before she signed the checks
or after receiving her bank statements. Had she examined her records more carefully and had she compared
the sums written as amounts payable in the 82 checks with the pertinent sales invoices, she would have
easily discovered that in some checks, the amounts did not tally with those appearing in the sales invoices.

Gempesaw 's negligence was the proximate cause of her loss. And since it was her negligence which caused
PBC to honor the forged checks or prevented it from recovering the amount it had already paid on the
checks, Gempesaw cannot now complain should PBC 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.

39
Philippine Commercial International Bank v. Court of Appeals
G.R. No. 121413, 121479, 128604, January 29, 2001
Quisumbing, J.:

FACTS:
Ford Philippines, Inc. (Ford) drew and issued three crossed Citibank Checks on separate occasions all in
favor of the Commissioner of Internal Revenue (CIR) for payment of its percentage taxes. The checks were
deposited with Insular Bank of Asia and America (IBAA), now Philippine Commercial International Bank
(PCIB), the Bureau of Internal Revenue’s (BIR) authorized collecting bank.

The first check was cleared containing an indorsement that "all prior indorsements and/or lack of
indorsements guaranteed." The same, however, was replaced with two (2) IBAA's managers' checks as
requested by Godofredo Rivera, Ford's Accountant, on an alleged error in the computation of the tax due
without IBAA verifying the authority of Rivera. These manager's checks were later deposited in another
bank and misappropriated by the syndicate.

The last two checks were cleared by the Citibank but failed to discover that the clearing stamps do not bear
any initials. The proceeds of the checks were also illegally diverted or switched by officers of PCIB who
are members of the syndicate and who eventually encashed them. Compelled to pay anew the tax
percentages, thus, Ford sued PCIB and Citibank.

ISSUE:
Whether or not PCIB is solely liable for the amount of the check?

HELD:
YES, with respect to the first check, the mere fact that the forgery was committed by a drawer-payor's
confidential employee or agent, who by virtue of his position had unusual facilities for perpetrating the
fraud and imposing the forged paper upon the bank, does not entitle the bank to shift the loss to the drawer-
payor, in the absence of some circumstance raising estoppel against the drawer. This rule likewise applies
to the checks fraudulently negotiated or diverted by the confidential employees who hold them in their
possession.

NO, with respect to the last two checks, responsibility for negligence does not lie on PCIB's shoulders
alone. It is true a bank is liable for the fraudulent acts or representations of an officer or agent acting within
the course and apparent scope of his employment or authority. And if an officer or employee of a bank, in
his official capacity, receives money to satisfy an evidence of indebtedness lodged with his bank for
collection, the bank is liable for his misappropriation of such sum.

However, Citibank should have scrutinized Citibank Checks before paying the amount of the proceeds
thereof to PCIB. Citibank failed to notice and verify the absence of the clearing stamps. Had this been duly
examined, the switching of the worthless checks to the two Citibank Checks would have been discovered
in time. For this reason, Citibank had indeed failed to perform what was incumbent upon it, which is to
ensure that the amount of the checks should be paid only to its designated payee. The fact that the drawee
bank did not discover the irregularity seasonably, in our view, constitutes negligence in carrying out the
bank's duty to its depositors. The point is that as a business affected with public interest and because of the
nature of its functions, the bank is under obligation to treat the accounts of its depositors with meticulous
care, always having in mind the fiduciary nature of their relationship.

40
Metropolitan Waterworks and Sewerage System v. Court of Appeals
G.R. No. L-62943, July 14, 1986
Gutierrez, Jr., J.:

FACTS:
NWSA, now Metropolitan Waterworks and Sewerage System (MWSS), prepared, processed, issued and
released 23 checks, all of which were paid and cleared by respondent Philippine National Bank (PNB) and
debited against NWSA’s Account No. 6.

However, during the same time, 23 checks bearing the same numbers as the aforementioned NWSA checks
were likewise paid and cleared by PNB and debited against NWSA Account No. 6. NWSA requested PNB
the immediate restoration of the total amount of said checks to its Account No. 6, as the checks was claimed
by NWSA to be forged and/or spurious checks, but the latter refused.

MWSS filed a complaint against PNB before the CFI. PNB contended that the checks in question were
regular on its face in all respects, including the genuineness of the signatures and there was nothing on its
face that could have aroused any suspicion as to its genuineness and due execution and; that NWSA was
guilty of negligence which was the proximate cause of the loss.

ISSUE:
Whether or not MWSS may recover the amount of the checks on the basis of the forgery claimed?

HELD:
NO, MWSS is barred from setting up the defense of forgery under Section 23 of the NIL because it was
guilty of negligence not only before the questioned checks were negotiated but even after the same had
already been negotiated.

When the 23 checks were prepared, negotiated, and encashed, the NWSA was using its own personalized
checks, instead of the official PNB Commercial blank checks. In the exercise of this special privilege,
however, the NWSA failed to provide the needed security measures. That there was gross negligence in the
printing of its personalized checks is shown by the following facts:

(1) The petitioner failed to give its printer, Mesina Enterprises, specific instructions relative to the
safekeeping and disposition of excess forms, check vouchers, and safety papers; (2) NWSA failed to
retrieve from its printer all spoiled check forms; (3) NWSA failed to provide any control regarding the
paper used in the printing of said checks; (4) NWSA failed to furnish PNB with samples of typewriting,
check writing, and print used by its printer in the printing of its checks and of the inks and pens used in
signing the same; and (5) NWSA failed to send a representative to the printing office during the printing of
said checks.

41
Ilusorio v. Court of Appeals
G.R. No. 139130, November 27, 2002
Quisumbing, J.:

FACTS:
Petitioner Ramon K. Ilusorio (Ilusorio) is a prominent businessman, as he was running about 20
corporations, and was going out of the country a number of times, Ilusorio entrusted to his secretary,
Katherine E. Eugenio (Eugenio), his credit cards and his checkbook with blank checks, who also verified
and reconciled the statements of said checking account.

Eugenio encashed and deposited to her personal account about 17 checks drawn against the account of
Ilusorio at respondent Manila Banking Corporation (MBC). Ilusorio did not bother to check his statement
of account until a business partner apprised him that he saw Eugenio use his credit cards.

Ilusorio requested the MBC to credit back and restore to its account the value of the checks which were
wrongfully encashed but the latter refused. Hence, Ilusorio filed the instant case contending that under
Section 23 of the NIL a forged check is inoperative, and that MBC had no authority to pay the forged
checks. In answer, MBC points out that Section 23 of the NIL is inapplicable, considering that the fact of
forgery was never proven.

ISSUE:
Whether or not Ilusorio is precluded from setting up the defense of forgery?

HELD:
YES, negligence is the omission to do something which a reasonable man, guided by those considerations
which ordinarily regulate the conduct of human affairs, would do, or the doing of something which a
prudent and reasonable man would do.

In the present case, it appears that petitioner accorded his secretary unusual degree of trust and unrestricted
access to his credit cards, passbooks, check books, bank statements, including custody and possession of
cancelled checks and reconciliation of accounts.

While it is a rule that when a signature is forged or made without the authority of the person whose signature
it purports to be, the check is wholly inoperative. 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 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.

42
Samsung Construction Co. Phil. v. Far East Bank and Trust Company
G.R. No. 129015, August 13, 2004
Tinga, J.:

FACTS:
Petitioner Samsung Construction Company Philippines, Inc. maintained a current account with respondent
Far East Bank & Trust Company. The sole signatory to SCCP’s account was its Project Manager Jong Kyu
Lee, while the checks remained in the custody of the company’s accountant Kyu Yong Lee.

A certain Roberto Gonzaga presented to FEBTC a check payable to cash and drawn against SCCP’s current
account. During the counterchecking of Jong’s signature, the assistant accountant of SCCP Jose Sempio
III, who was then at the bank, vouched the genuineness of the signature. Thus, the check was then encashed.

Jong learned of the encashment of the check, and realized that his signature had been forged. SCCP
demanded that FEBTC credit back the amount on the check. In response, FEBTC said that it was still
conducting an investigation on the matter.

ISSUE:
Whether or not a bank who pays out on a forged check is liable to reimburse the drawer from whose account
the funds were paid out?

HELD:
YES, under sec. 23 of the NIL, forgery is a real or absolute defense by the party whose signature is
forged. On the premise that Jong’s signature was indeed forged, FEBTC is liable for the loss since it
authorized the discharge of the forged check. Such liability attaches even if the bank exerts due diligence
and care in preventing such faulty discharge. Forgeries often deceive the eye of the most cautious experts;
and when a bank has been so deceived, it is a harsh rule which compels it to suffer although no one has
suffered by its being deceived. The forgery may be so near like the genuine as to defy detection by the
depositor himself, and yet the bank is liable to the depositor if it pays the check.

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.

43
Metropolitan Bank and Trust Company v. Cabilzo
G.R. No. 154469, December 6, 2006
Chico-Nazario, J.:

FACTS:
Renato Cabilzo (Cabilzo) issued to a certain Mr. Marquez, a check payable to “cash” and postdated to
November 24, 1994 in the amount of P1,000. The check was presented to Westmont Bank for payment.
Westmont Bank, in turn, indorsed the check to respondent Metropolitan Bank and Trust Company
(Metrobank) for clearing. After the entries were examined, including the availability of funds and the
authenticity of the signature of the drawer, the check was cleared for encashment.

Cabilzo discovered that the amount of the check was altered to P91,000 and the date from “24” to ”14.”
Hence, Cabilzo repeatedly demanded that Metrobank re-credit the amount, but the latter failed to do so.
Cabilzo filed an action against Metrobank, where the latter argued that Cabilzo was negligent in leaving
spaces on the check, which, made the fraudulent insertion of the amount and figures thereon, possible.

ISSUE:
Whether or not Cabilzo may recover the amount on the materially altered check?

HELD:
YES, under sec. 124 of the NIL, 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,
and assented to the alterationand subsequent indorsers.

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. 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.

44
Bank of America NT & SA v. Philippine Racing Club
G.R. No. 150228, July 30, 2009
Leonardo-De Castro, J.:

FACTS:
The President and Vice President of respondent Philippine Racing Club, Inc. (PRCI) were scheduled to go
out of the country in connection with the corporation's business. In order not to disrupt operations in their
absence, they pre-signed several checks. The checks were entrusted to the accountant with instruction to
make use of the same as the need arose. The checks appeared to have come into the hands of Clarita Mesina,
an employee of PRCI, who eventually completed without authority the entries on the pre-signed checks.

A couple of the pre-signed checks which had similar entries with similar infirmities and irregularities was
presented to petitioner Bank of America NT & SA (BA). In the space where the name of the payee should
be indicated, the word “cash” was typewritten on the upper line, and the words “one hundred ten thousand
pesos only” was typewritten on the lower line. Despite the highly irregular entries on the face of the checks,
BA encashed said checks without verifying and/or confirming its legitimacy.

ISSUE:
Whether or not the failure of BA to verify the checks was the proximate cause of the wrongful encashment?

HELD:
YES, the presence of these irregularities in each check should have alerted the petitioner to be cautious
before proceeding to encash them which it did not do.

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.

Extraordinary diligence demands that BA should have ascertained from PRCI the authenticity of the subject
checks or the accuracy of the entries therein not only because of the presence of highly irregular entries on
the face of the checks but also of the decidedly unusual circumstances surrounding their encashment.

45
Far East Realty Investment, Inc. v. Court of Appeals
G.R. No. L-36549, October 5, 1988
Paras, J.:

FACTS:
Petitioner Far East Realty Investment, Inc. (FERII) filed a complaint for the collection and payment of
P4,500 representing the face value of an unpaid and dishonored check against private respondents Gaw Suy
An (Gaw), Dy Hian Tat (Dy) and Siy Chee (Siy). FERII alleged that it was approached by private
respondents who asked to be extended an accommodation loan, which they needed for their business, and
as in fact they delivered to FERII a check dated September 13, 1960. However, on March 5, 1964, when
the check was presented for payment, the check bounced and was not cashed by the bank.

In answer, private respondents argued that, in order to charge the persons secondarily liable, such as drawer
and indorsers, the instrument must be presented for payment on the date and period therein mentioned in
the instrument or within a reasonable time after issue, otherwise, they are discharged from liability. The
check was dated September 13, 1960. Granting it was agreed that it will only be deposited after one month
from its date, it should have been deposited for payment after one month and not only on March 5, 1964.
This delay in the presentment for payment of the check cannot be construed as a reasonable time.

ISSUE:
Whether or not presentment for payment and notice of dishonor were made within a reasonable time?

HELD:
NO, presentment and notice of dishonor were not made within a reasonable time.

Where the instrument is not payable on demand, presentment must be made on the day it falls due. Where
it is payable on demand, presentment must be made within a reasonable time after issue, except that in the
case of a bill of exchange, presentment for payment will be sufficient if made within a reasonable time after
the last negotiation thereof (Section 71, Negotiable Instruments Law).

Notice may be given as soon as the instrument is dishonored; and unless delay is excused must be given
within the time fixed by the law (Section 102, Negotiable Instruments Law).

No hard and fast demarcation line can be drawn between what may be considered as a reasonable or an
unreasonable time, because "reasonable time" depends upon the peculiar facts and circumstances in each
case.

In the instant case, the check in question was issued on September 13, 1960, but was presented to the drawee
bank only on March 5, 1964, and dishonored on the same date. After dishonor by the drawee bank, a formal
notice of dishonor was made by the petitioner through a letter dated April 27, 1968. Under these
circumstances, the petitioner undoubtedly failed to exercise prudence and diligence on what he ought to do
as required by law. The petitioner likewise failed to show any justification for the unreasonable delay.

46
Wong v. Court of Appeals
G.R. No. 117857, February 2, 2001
Quisumbing, J.:

FACTS:
Petitioner Luis S. Wong was an agent of Limtong Press Inc. (LPI), a manufacturer of calendars, who had a
history of unremitted collections, which he duly acknowledged in a confirmation receipt he co-signed with
his wife for LPI.

On December 30, 1985, Wong issued six (6) postdated checks and drawn payable to the order of LPI,
intended to guarantee the calendar orders of customers who failed to issue post-dated checks. However,
following company policy, LPI refused to accept the checks as guarantees. Instead, the parties agreed to
apply the checks to the payment of petitioner's unremitted collections for 1984.

Before the maturity of the checks, petitioner prevailed upon LPI not to deposit the checks and promised to
replace them within 30 days. However, petitioner reneged on his promise. Hence, on June 5, 1986, LPI
deposited the checks with Rizal Commercial Banking Corporation (RCBC). The checks were returned for
the reason "account closed."

ISSUE:
Whether or not the subject instruments was presented within a reasonable time?

HELD:
YES, Under Section 186 of the Negotiable Instruments Law, "a check must be presented for payment within
a reasonable time after its issue or the drawer will be discharged from liability thereon to the extent of the
loss caused by the delay." By current banking practice, a check becomes stale after more than six (6)
months, or 180 days. Private respondent herein deposited the checks 157 days after the date of the check.
Hence said checks cannot be considered stale.

Only the presumption of knowledge of insufficiency of funds was lost, but such knowledge could still be
proven by direct or circumstantial evidence. Private respondent did not deposit the checks because of the
reassurance of petitioner that he would issue new checks. Upon his failure to do so, LPI was constrained to
deposit the said checks. After the checks were dishonored, petitioner was duly notified of such fact but
failed to make arrangements for full payment within five (5) banking days thereof.

47
International Corporate Bank v. Sps. Gueco
G.R. No. 141968, February 12, 2001
Kapunan, J.:

FACTS:
The respondent-spouses Dr. Francis and Ma. Luz Gueco (Respondents) obtained a loan from petitioner
International Corporate Bank (ICB) to purchase a car. The respondents defaulted in payment. Thereafter,
ICB sought to collect from them and the car was made subject of a writ of replevin. Dr. Gueco went to the
bank and after the negotiation resulted in the reduction of the outstanding loan, Dr. Gueco delivered a
manager’s check, but the car was not released because of his refusal to sign the Joint Motion to Dismiss,
which was standard operating procedure in their bank to effect a compromise and to preclude future filing
of claims, counterclaims or suits for damages.

After several demand letters and meetings, respondents initiated an action for damages before the MTC,
but it was dismissed. On appeal the RTC held that the agreement only as to the reduction of the amount of
indebtedness and the release of the car but it did not include the signing of the joint motion to dismiss as a
condition sine qua non for the effectivity of the compromise. The CA affirmed the decision in toto. Thus,
the petition before the SC. The respondents pray that ICB should return the car or its value and that the
latter should suffer the loss because of its own negligence, occasioned by the fact that the check had become
stale. It is their position that delivery of the manager's check produced the effect of payment and, thus, it
was negligent in opting not to deposit or use said check.

ISSUE:
Whether or not respondents are still liable on the subject check despite becoming a stale check?

HELD:
YES, a manager's check is one drawn by the bank's manager upon the bank itself. It is similar to a cashier's
check both as to effect and use. A cashier's check is a check of the bank's cashier on his own or another
check. In effect, it is a bill of exchange drawn by the cashier of a bank upon the bank itself, and accepted in
advance by the act of its issuance. It is really the bank's own check and may be treated as a promissory note
with the bank as a maker. The check becomes the primary obligation of the bank which issues it and
constitutes its written promise to pay upon demand. The mere issuance of it is considered an acceptance
thereof. If treated as promissory note, the drawer would be the maker and in which case the holder need not
prove presentment for payment or present the bill to the drawee for acceptance.

Even assuming that presentment is needed, failure to present for payment within a reasonable time will
result to the discharge of the drawer only to the extent of the loss caused by the delay. Failure to present on
time, thus, does not totally wipe out all liability. In fact, the legal situation amounts to an acknowledgment
of liability in the sum stated in the check. In this case, the respondents have not alleged, much less shown
that they or the bank which issued the manager's check has suffered damage or loss caused by the delay or
non-presentment. Definitely, the original obligation to pay certainly has not been erased.

It has been held that, if the check had become stale, it becomes imperative that the circumstances that caused
its non-presentment be determined. In the case at bar, there is no doubt that the ICB held on the check and
refused to encash the same because of the controversy surrounding the signing of the joint motion to
dismiss. We see no bad faith or negligence in this position taken by ICB.

48
Far East Realty Investment, Inc. v. Court of Appeals
G.R. No. L-36549, October 5, 1988
Paras, J.:

FACTS:
Petitioner Far East Realty Investment, Inc. (FERII) filed a complaint for the collection and payment of
P4,500 representing the face value of an unpaid and dishonored check against private respondents Gaw Suy
An (Gaw), Dy Hian Tat (Dy) and Siy Chee (Siy). FERII alleged that it was approached by private
respondents who asked to be extended an accommodation loan, which they needed for their business, and
as in fact they delivered to FERII a check dated September 13, 1960. However, on March 5, 1964, when
the check was presented for payment, the check bounced and was not cashed by the bank.

In answer, private respondents argued that, in order to charge the persons secondarily liable, such as drawer
and indorsers, the instrument must be presented for payment on the date and period therein mentioned in
the instrument or within a reasonable time after issue, otherwise, they are discharged from liability. The
check was dated September 13, 1960. Granting it was agreed that it will only be deposited after one month
from its date, it should have been deposited for payment after one month and not only on March 5, 1964.
This delay in the presentment for payment of the check cannot be construed as a reasonable time.

ISSUE:
Whether or not presentment for payment and notice of dishonor were made within a reasonable time?

HELD:
NO, presentment and notice of dishonor were not made within a reasonable time.

Where the instrument is not payable on demand, presentment must be made on the day it falls due. Where
it is payable on demand, presentment must be made within a reasonable time after issue, except that in the
case of a bill of exchange, presentment for payment will be sufficient if made within a reasonable time after
the last negotiation thereof (Section 71, Negotiable Instruments Law).

Notice may be given as soon as the instrument is dishonored; and unless delay is excused must be given
within the time fixed by the law (Section 102, Negotiable Instruments Law).

No hard and fast demarcation line can be drawn between what may be considered as a reasonable or an
unreasonable time, because "reasonable time" depends upon the peculiar facts and circumstances in each
case.

In the instant case, the check in question was issued on September 13, 1960, but was presented to the drawee
bank only on March 5, 1964, and dishonored on the same date. After dishonor by the drawee bank, a formal
notice of dishonor was made by the petitioner through a letter dated April 27, 1968. Under these
circumstances, the petitioner undoubtedly failed to exercise prudence and diligence on what he ought to do
as required by law. The petitioner likewise failed to show any justification for the unreasonable delay.

49
State Investment House Inc. vs. Court of Appeals
G.R. No. 101163, January 11, 1993
Bellosillo, J.:

FACTS:
As security for pieces of jewelry to be sold on commission, private respondent Nora B. Moulic (Moulic)
issued two post-dated checks in the amount of P50,000 each to Corazon Victoriano (Victoriano). Moulic
failed to sell the pieces of jewelry and returned them to the payee before maturity of the checks. However,
the checks could no longer be retrieved as they had already been negotiated to petitioner State Investment
House Inc. (SIHI). Consequently, before their maturity dates, Moulic withdrew her funds from the drawee
bank.

Upon presentment for payment, the checks were dishonored for insufficiency of funds. SIHI allegedly
notified Moulic of the dishonor of the checks and requested that it be paid in cash instead, although Moulic
avers that no such notice was given her. SIHI sued to recover the value of the checks plus attorney's fees
and expenses of litigation.

The trial court dismissed the Complaint. SIHI elevated the order of dismissal to the CA, but it affirmed the
decision on the ground among others that SIHI did serve a Notice of Dishonor on Moulic within the
reglementary period.

ISSUE:
Whether or not a notice of dishonor is required when the drawer intentionally withdraws the funds from the
drawee bank?

HELD:
NO, a notice of dishonor is not required. Under sec. 114 of the NIL, a notice of dishonor is not required to
be given to the drawer in the following cases: (a) Where the drawer and the drawee are the same person;
(b) When the drawee is a fictitious person or a person not having capacity to contract; (c) When the drawer
is the person to whom the instrument is presented for payment: (d) Where the drawer has no right to expect
or require that the drawee or acceptor will honor the instrument; (e) Where the drawer had countermanded
payment.

After withdrawing her funds, she could not have expected her checks to be honored. In other words, she
was responsible for the dishonor of her checks, hence, there was no need to serve her Notice of Dishonor,
which is simply bringing to the knowledge of the drawer or indorser of the instrument, either verbally or
by writing, the fact that a specified instrument, upon proper proceedings taken, has not been accepted or
has not been paid, and that the party notified is expected to pay it.

The drawing and negotiation of a check have certain effects aside from the transfer of title or the incurring
of liability in regard to the instrument by the transferor. The holder who takes the negotiated paper makes
a contract with the parties on the face of the instrument. There is an implied representation that funds or
credit are available for the payment of the instrument in the bank upon which it is drawn. Consequently,
the withdrawal of the money from the drawee bank to avoid liability on the checks cannot prejudice the
rights of holders in due course. In the instant case, such withdrawal renders the drawer, Moulic, liable to
SIHI, a holder in due course of the checks.

Under the facts of this case, SIHI could not expect payment as Moulic left no funds with the drawee bank
to meet her obligation on the checks, so that Notice of Dishonor would be futile.

50
Asia Banking Corporation vs. Javier
G.R. No. L-19051, April 4, 1923
Avanceña, J.:

FACTS:
On two separate occasions, Salvador B. Chaves (Chaves) drew a check on the Philippine National Bank
(PNB) in favor of La Insular, a concern doing business in this city. Both checks were indorsed by respondent
Juan Javier, limited co-partnership (Javier), the limited partners of La Insular, and then deposited by Chaves
in his current account with the petitioner Asia Banking Corporation (ABC).

The amount represented by both checks was used by Chaves after they were deposited in the ABC bank,
by drawing checks on the latter. Subsequently these checks were presented by the ABC to PNB for payment,
but the latter refused to pay on the ground that Chaves, the drawer, had no funds therein.

The ABC now brings this action against Javier, as indorser, for the payment of the value of both checks.
The lower court sentenced Javier to pay the ABC for the amount of the checks plus interests. From this
judgment, the Javier appealed. One of the contentions of Javier in support of this appeal is, that at all events
its liability as indorser of the checks in question was extinguished.

ISSUE:
Whether or not the indorser is liable, in the absence of a notice of dishonor?

HELD:
NO, the liability of the indorser does not arise. Under sec. 89 of the NIL, when a negotiable instrument is
dishonored for non-acceptance or non-payment, notice thereof must be given to the drawer and each of the
indorsers, and those who are not notified shall be discharged from liability, except where this act provides
otherwise.

According to this, the indorsers are not liable unless they are notified that the document was dishonored.
Then, under the general principle of the law of procedure, it will be incumbent upon the plaintiff, who seeks
to enforce the defendant's liability upon these checks as indorser, to establish said liability by proving that
notice was given to the defendant within the time, and in the manner, required by the law that the checks in
question had been dishonored. If these facts are not proven, the plaintiff has not sufficiently established the
defendant's liability. There is no proof in the record tending to show that plaintiff gave any notice
whatsoever to the defendant that the checks in question had been dishonored, and there it has not established
its cause of action.

51
Nyco Sales Corporation v. BA Finance Corporation
G.R. No. 71694, August 16, 1991
Paras, J.:

FACTS:
Petitioner Nyco Sales Corporation (NSC) and the brothers Santiago and Renato Fernandez (Fernandezes),
in behalf of Sanshell Corporation, had an agreement for credit accommodation whereby, NSC would grant
Sanshell discounting privileges which it had with respondent BA Finance Corporation (BAF).

The Fernandezes went to NSC for the purpose of discounting it's post-dated check (Sanshell check) payable
to NSC. Following the discounting process agreed upon, NSC, endorsed the Sanshell check in favor of
BAF. Thereafter, BAF issued a check payable to NSC (BAF check) which endorsed it in favor of Sanshell.
Accompanying the exchange of checks was a Deed of Assignment executed by NSC in favor of BAF with
the conformity of Sanshell. The check, however, was dishonored by the drawee bank upon presentment for
payment. BAF reported the matter to the Fernandezes who then issued a substitute check. however, it was
again dishonored when it was presented for payment.

Despite repeated demands, NSC and the Fernandezes failed to settle the obligation with BAF, thus
prompting the latter to institute an action before the RTC. The RTC ruled in favor of BAF ordering them
to pay the former jointly and severally. On appeal, the CA also upheld BAF but modified the date on which
the interest should be counted from. NSC's subsequent motion for reconsideration was denied. Hence, the
present recourse. For its defense, Nyco anchors its arguments on the ground among others that it was
actually discharged of its liability over the 2nd check when BAF failed to give it a notice of dishonor;

ISSUE:
Whether or not the assignor is liable to its assignee for its dishonored checks even if not notified of the
dishonor?

HELD:
YES, NSC's pretension that it had not been notified of the fact of dishonor is belied not only by the formal
demand letter but also by the findings of the trial court that Yao of NSC and the Fernandezes of Sanshell
had frequent contacts before, during and after the dishonor. More importantly, it fails to realize that for as
long as the credit remains outstanding, it shall continue to be liable to BAF as its assignor. The dishonor of
an assigned check simply stresses its liability and the failure to give a notice of dishonor will not discharge
it from such liability. This is because the cause of action stems from the breach of the warranties embodied
in the Deed of Assignment, and not from the dishonoring of the check alone (See Art. 1628, NCC).

52
Arceo, Jr. v. People
G.R. No. 142641, July 17, 2006
Corona, J.:

FACTS:
Petitioner Pacifico Arceo, Jr. (Arceo), obtained a loan from private complainant Josefino Cenizal (Cenizal).
Arceo then issued a postdated check in favor of Cenizal. When the maturity date came, Cenizal did not
deposit the check immediately because Arceo promised that he would replace the check with cash. Such
promise was made verbally 7 times.

When his patience ran out, Cenizal brought the check to the bank for encashment. Cenizal was informed
that the check bounced because of insufficient funds. Cenizal tried to inform Arceo of the dishonor at the
latter’s house, but Arceo had left the place. Arceo was then given a letter, through counsel, giving him three
days to from receipt to pay the amount of the check, but he still failed to do so. As a consequence, Arceo
was charged before the RTC and was found guilty for violation of BP 22. On appeal, the CA affirmed the
RTC’s decision in toto. Arceo sought reconsideration but it was denied.

Hence, this petition. Arceo claims among others, that he should not be held liable for the dishonor of the
check because it was presented beyond the 90-day period provided under the law. Moreover, the notice
requirement was not complied with and he was given only three days to pay, not five banking days as
required by law.

ISSUE:
Whether or not presentment of the check beyond the 90-day period exempts the drawer from liability in the
case of violation of BP 22?

HELD:
the 90-day period provided in the law is not an element of the offense. Neither does it discharge petitioner
from his duty to maintain sufficient funds in the account within a reasonable time from the date indicated
in the check. According to current banking practice, the reasonable period within which to present a check
to the drawee bank is six months. Thereafter, the check becomes stale and the drawer is discharged from
liability thereon to the extent of the loss caused by the delay.

Thus, Cenizal's presentment of the check to the drawee bank 120 days (four months) after its issue was still
within the allowable period. Petitioner was freed neither from the obligation to keep sufficient funds in his
account nor from liability resulting from the dishonor of the check.

The RTC found that, contrary to Arceo's claim, Cenizal's counsel had informed petitioner in writing of the
check's dishonor and demanded payment of the value of the check. Despite receipt of the notice of dishonor
and demand for payment, petitioner still failed to pay the amount of the check.

Petitioner cannot claim that he was deprived of the period of five banking days from receipt of notice of
dishonor within which to pay the amount of the check. While petitioner may have been given only three
days to pay the value of the check, the trial court found that the amount due thereon remained unpaid even
after five banking days from his receipt of the notice of dishonor.

53
Allied Banking Corp. v. Court of Appeals and G.G. Sportswear Manufacturing Corp.
G.R. No. 125851, July 11, 2006
Quisumbing, J.:

FACTS:
Petitioner Allied Banking Corporation (ABC) purchased Export Bill No. BDO-81-002 in the amount of US
$20,085.00 from respondent G.G. Sportswear Mfg. Corporation (GGS). The bill, drawn under a letter of
credit, covered Men's Valvoline Training Suit that was in transit to West Germany. The export bill was
issued by Chekiang First Bank Ltd. (CFBL). With the purchase of the bill, ABC credited GGS the peso
equivalent of the bill.

Respondents Nari Gidwani (Gidwani) and Alcron International Ltd. (Alcron) executed their respective
Letters of Guaranty, holding themselves liable on the export bill if it should be dishonored or retired by the
drawee for any reason. Respondent-spouses Leon and Leticia de Villa and Nari Gidwani also executed a
Continuing Guaranty/Comprehensive Surety (Surety), guaranteeing payment of any and all such credit
accommodations which ABC may extend to GGS.

When ABC negotiated the export bill to CFBL, payment was refused due to some material discrepancies
in the documents submitted by GGS relative to the exportation covered by the letter of credit. Consequently,
ABC demanded payment from all the respondents based on the Letters of Guaranty and Surety executed in
favor of ABC. However, respondents refused to pay, prompting ABC to file an action for a sum of money
before the RTC.

Respondents claim that the petitioner did not protest upon dishonor of the export bill by Chekiang First
Bank, Ltd. According to respondents, since there was no protest made upon dishonor of the export bill, all
of them, as indorsers were discharged under Sec. 152 of the NIL.

ISSUE:
Whether or not the guarantors and sureties of an export bill are discharged from liability in the absence of
a protest?

HELD:
NO, Sec. 152 of the NIL pertaining to indorsers, relied on by respondents, is not pertinent to this case. There
are well-defined distinctions between the contract of an indorser and that of a guarantor/surety of a
commercial paper, which is what is involved in this case. The contract of indorsement is primarily that of
transfer, while the contract of guaranty is that of personal security. The liability of a guarantor/surety is
broader than that of an indorser. Unless the bill is promptly presented for payment at maturity and due
notice of dishonor given to the indorser within a reasonable time, he will be discharged from liability
thereon. On the other hand, except where required by the provisions of the contract of suretyship, a demand
or notice of default is not required to fix the surety's liability. He cannot complain that the creditor has not
notified him in the absence of a special agreement to that effect in the contract of suretyship. Therefore, no
protest on the export bill is necessary to charge all the respondents jointly and severally liable with G.G.
Sportswear since the respondents held themselves liable upon demand in case the instrument was
dishonored and on the surety, they even waived notice of dishonor as stipulated in their Letters of
Guarantee.

54
Areza v. Express Savings Bank, Inc.
G.R. No. 176697, September 10, 2014
Perez, J.:

FACTS:
Petitioners Cesar V. Areza and Lolita B. Areza (Petitioners) were engaged in the business of "buy and sell"
of brand new and second-hand motor vehicles and maintained two bank deposits with respondent Express
Savings Bank Inc. (ESB).

A certain Gerry Mambuhay (Mambuhay) ordered from petitioners a second-hand and a brand-new car, and
used 9 Philippine Veterans Affairs Offic (PVAO) checks, payable to different payees and drawn against
the Philippine Veterans Bank (PVB), as payment. Petitioners deposited the checks with ESB. ESB, in turn,
deposited the checks with, Equitable-PCI Bank (EPCIB). EPCIB presented the checks to PVB, which
honored the checks. Thus, the entire amount of the check was credited to petitioners' savings account. And
petitioners released the two cars to the buyer.

Thereafter, the checks were returned by PVAO to PVB on the ground that the amount have been altered.
PVB returned the checks to EPCIB, who in turn, debited the account of ESB. Thus, when petitioners issued
a check, the same was dishonored by ESB for the reason “Deposit Under Hold.”

Petitioners demanded that ESB honor their check, but instead of doing so, it closed the account of
petitioners, transferred the balance thereof to their savings account and withdrew the amount of equivalent
on the checks.

Acting on the alleged arbitrary and groundless dishonoring of their checks and the unlawful and unilateral
withdrawal from their savings account, petitioners filed a complaint against ESB. The RTC and the CA
were one in declaring that petitioners should bear the loss.

ISSUE:
Whether or not ESB had the right to debit petitioners account?

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

55
New Pacific Timber & Supply Co., Inc. v. Seneris
G.R. No. L-41764, December 19, 1980
Concepcion, Jr., J.:

FACTS:
Petitioner New Pacific Timber & Supply Co., Inc. (NPTS) was the defendant in a complaint for collection
of a sum of money filed by privae respondent Ricardo A. Tong (Tong). A compromise judgment in
accordance with an amicable settlement entered into by the parties was rendered by respondent judge
Alberto V. Seneris (Hon. Seneris) where NPTS would pay Tong a sum of P54,500 plus interest. NPTS
failed to comply with the order, and a writ of execution was issued by the Hon. Seneris for the amount of
P63,130. As a result, personal properties of NPTS was levied by the sheriff.

Prior to the date of the auction sale, NPTS deposited with the CFI the sum of P63,130 for payment of the
judgment obligation consisting of partly in cashier’s check and in cash, however, Tong refused to accept
both and requested that the auction sale proceed as scheduled. The properties were sold for P50,000 only.
Subsequently, NPTS sought to have a certification of satisfaction of judgment, but the motion was denied
by the Hon. Seneris. Hence, this petition.

ISSUE:
Whether or not Tong can validly refuse acceptance of the payment of the judgment obligation consisting
of partly in cash and partly in check?

HELD:
it is a well-known and accepted practice in the business sector that a Cashier's Check is deemed as cash.
Moreover, since the said check had been certified by the drawee bank, by the certification, the funds
represented by the check are transferred from the credit of the maker to that of the payee or holder, and for
all intents and purposes, the latter becomes the depositor of the drawee bank, with rights and duties of one
in such situation.

Where a check is certified by the bank on which it is drawn, the certification is equivalent to acceptance.
Said certification "implies that the check is drawn upon sufficient funds in the hands of the drawee, that
they have been set apart for its satisfaction, and that they shall be so applied whenever the check is presented
for payment. It is an understanding that the check is good then, and shall continue good, and this agreement
is as binding on the bank as its notes in circulation, a certificate of deposit payable to the order of the
depositor, or any other obligation it can assume.

The object of certifying a check, as regards both parties, is to enable the holder to use it as money." When
the holder procures the check to be certified, "the check operates as an assignment of a part of the funds to
the creditors".

Hence, the exception to the rule enunciated under Section 63 of the Central Bank Act to the effect "that a
check which has been cleared and credited to the account of the creditor shall be equivalent to a delivery to
the creditor in cash in an amount equal to the amount credited to his account" shall apply in this case.
Considering that the whole amount deposited by the petitioner consisting of Cashier's Check and in cash
covers the judgment obligation, the SC saw no valid reason for Tong to have refused acceptance of the
payment of the obligation in his favor. The auction sale, therefore, was uncalled for.

56
Philippine National Bank v. The National City Bank of New York
G.R. No. L-43596, October 31, 1936
Recto, J.:

FACTS:
As part of the payment for some tire purchases, unknown person or persons negotiated checks with
respondent Motor Service Company, Inc. (MSCI). The checks were purported to have been issued by the
Pangasinan Transportation Co., Inc. (PTCI) by the Manager and Treasurer J.L. Klar against PNB and in
favor of International Aurto Repair Shop (IASR). The checks were then indorsed for deposit by MSCI at
the respondent National City Bank of New York (NCBNY) and the former was credited with the amount
of the checks.

The checks were cleared and PNB, believing the signatures were genuine, credited to NCBNY the amounts
thereof. When PNB was informed by PTCI that the signatures were forged, it demanded reimbursement
from NCBNY and MSCI. However, after repeated demands, respondents refused to make such
reimbursements.

Upon PNB's motion, the case was dismissed before trial as to NCBNY. A decision was thereafter rendered
giving PNB judgment for the total amount of P360.25, with interest and costs. From the decision, the instant
appeal was taken. It was contended that the payment of the checks in question made by the drawee bank
constitutes an "acceptance", and, consequently, the case should be governed by the provisions of section 62
of the NIL.

ISSUE:
Whether or not payment of a check made by a drawee bank constitutes an acceptance?

HELD:
NO, A check is a bill of exchange payable on demand and only the rules governing bills of exchange
payable on demand are applicable to it. Since acceptance is a step unnecessary, in so far as bills of exchange
payable on demand are concerned, it follows that the provisions relative to "acceptance" are without
application to checks. Acceptance implies, in effect, subsequent negotiation of the instrument, which is not
true in case of the payment of a check because from the moment a check is paid it is withdrawn from
circulation. The warranty established by Sec. 62, is in favor of holders of the instrument after its acceptance.
When the drawee bank cashes or pays a check, the cycle of negotiation is terminated, and it is illogical
thereafter to speak of subsequent holders who can invoke the warranty provided in Sec. 62 against the
drawee.

In law or business practice, nothing is against the presentation of checks for acceptance, before payment,
in which case we have a "certification" equivalent to "acceptance" according to section 187, which provides
that "where a check is certified by the bank on which it is drawn, the certification is equivalent to an
acceptance", and it is then that the warranty under section 62 exists. When a check is certified, it ceases to
possess the character, or to perform the functions, of a check, and represents so much money on deposit,
payable to the holder on demand. The check becomes a basis of credit — an easy mode of passing money
from hand to hand, and answers the purposes of money.

Therefore, since PNB did not warrant to the MSCI the genuineness of the checks in question, by its
acceptance thereof, nor did it perform any act which would have induced the MSCI to believe in the
genuineness of said instruments before MSCI purchased them for value, it cannot be said that the PNB is
precluded from setting up the forgery and, therefore, the MSCI is not entitled to retain the amount of the
forged check paid to it by the PNB.

57
Bataan Cigar and Cigarette Factory, Inc. v. Court of Appeals
G.R. No. 93048, March 3, 1994
Nocon, J.:

FACTS:
Petitioner, Bataan Cigar & Cigarette Factory, Inc. (BCCFI), a corporation involved in the manufacturing
of cigarettes. King Tim Pua George (King), was a tobacco supplier of BCCFI. BCCFI engaged King twice
to deliver a total of 4,500 bales of tobacco leaf, and issued several post-dated crossed-checks in
consideration thereof, relying on King’s representation that he would complete delivery. During these
times, King was simultaneously dealing with private respondent State Investment House Inc. (SIHI), to
whom he sold three of BCCFI’s crossed-checks at a discount.

King failed to deliver the bales of tobacco leaf despite BCCFI’s demands, thus, the latter issued a stop
payment order on all checks payable to King. Efforts of SIHI to collect from BCCFI having failed, it
instituted the present case against BCCFI. The trial court pronounced SIHI as having a valid claim being a
holder in due course.

ISSUE:
Whether or not SIHI is a holder in due course as would entitle it to collect from BCCFI?

HELD:
NO, a crossed check is one where two parallel lines are drawn across its face or across a corner thereof. It
may be crossed generally or specially. A check is crossed specially when the name of a particular banker
or a company is written between the parallel lines drawn. It is crossed generally when only the words "and
company" are written or nothing is written at all between the parallel lines. It may be issued so that
presentment can be made only by a bank.

The negotiability of a check is not affected by its being crossed, whether specially or generally. It may
legally be negotiated from one person to another as long as the one who encashes the check with the drawee
bank is another bank, or if it is specially crossed, by the bank mentioned between the parallel lines.
Jurisprudence has pronounced that crossing of a check should have the following effects: (a) the check
may not be encashed but only deposited in the bank; (b) the check may be negotiated only once — to one
who has an account with a bank; (c) and the act of crossing the check serves as warning to the holder that
the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant
to that purpose, otherwise, he is not a holder in due course.

The crossing of checks should put the holder on inquiry and upon him devolves the duty to ascertain the
indorser's title to the check or the nature of his possession. Failing in this respect, the holder is declared
guilty of gross negligence amounting to legal absence of good faith, contrary to Sec. 52(c) of the NIL, and
as such the consensus of authority is to the effect that the holder of the check is not a holder in due course.

In the present case, BCCFI's defense in stopping payment is as good to SIHI as it is to George King.
Because, really, the checks were issued with the intention that George King would supply BCCFI with the
bales of tobacco leaf. There being failure of consideration, SIHI is not a holder in due course. Consequently,
BCCFI cannot be obliged to pay the checks.

58
Stelco Marketing Corp. v. Court of Appeals
G.R. No. 96160, June 17, 1992
Narvasa, C.J.:

FACTS:
Petitioner Stelco Marketing Corporation (Stelco), on seven different occasions, sold to RYL Construction,
Inc. (RYL) quantities of steel bars and rolls of G.I. wire with an aggregate price of P126,859. However,
despite insistent demands by Stelco, RYL made no payments.

Romeo Y. Lim (Lim), President of RYL, asked his friend Peter Rafael Limson (Limson), President of
Steelweld Corp. of the Phils. (Steelweld), for financial assistance. The latter agreed to give him a check
only by way of accommodation, "only as guaranty but not to pay for anything." However, in breach of the
agreement, Lim indorsed the check to Armstrong Industries (AI), described by Stelco as its sister
corporation and manufacturing arm. When AI deposited the check at its bank, it was dishonored because
"drawn against insufficient funds." When so deposited, the check bore two indorsements, that of RYL,
followed by that of AI.

On account of the dishonor, Limson and Torres was charged before the RTC with a violation of BP22. They
were acquitted by the RTC of the offense charged, however, it held that Steelweld is not released from its
liability under Sec. 29 of the NIL. Eleven months or so later, and some four years after issuance of the
check, Stelco filed with the RTC a civil complaint against RYL and Steelweld for recovery of the value of
the steel bars and wires.

Based on the Liability of an accommodation party, the RTC ordered Steelweld to pay Stelco. On appeal,
the CA reversed the judgment ordering the dismissal of the complaint.

ISSUE:
Whether or not Stelco can claim the amount on the insturment?

HELD:
NO, Sec. 29 of the NIL preserves the right of recourse of a "holder for value" against the accommodation
party notwithstanding that "such holder, at the time of taking the instrument, knew him to be only an
accommodation party." The record does not show any intervention or participation by Stelco in any manner
or form whatsoever in these transactions, or any communication of any sort between Steelweld and Stelco,
or between either of them and Armstrong Industries, at any time before the dishonor of the check.

The record does show that after the check had been deposited and dishonored, Stelco came into possession
of it in some way, and was able, several years after the dishonor of the check, to give it in evidence at the
trial of the civil case it had instituted against the drawers of the check and RYL. The possession of a
negotiable instrument after presentment and dishonor, or payment, is utterly inconsequential; it does not
make the possessor a holder for value within the meaning of the law; it gives rise to no liability on the part
of the maker or drawer and indorsers.

It is clear from the relevant circumstances that Stelco cannot be deemed a holder of the check for value. It
does not meet two of the essential requisites prescribed by the statute. It did not become "the holder of it
before it was overdue, and without notice that it had been previously dishonored," and it did not take the
check "in good faith and for value."

59
State Investment House v. Intermediate Appellate Court
G.R. No. 72764, July 13, 1989
Fernan, J.:

FACTS:
Private respondent Harris Chua (Harris) granted a loan to New Sikatuna Wood Industries, Inc. (NSWI)
subject to a condition that the latter should wait until December 1980 when he would have the money. To
that effect, private respondent Anita Peña Chua (Anita) issued three crossed-checks payable to NSWI all
postdated December 22, 1980.

Subsequently, NSWI entered into an agreement with petitioner State Investment House Inc. (SIHI) whereby
for and in consideration of a sum of money, the former assigned and discounted with the latter eleven
checks, including the three issued by Anita.

SIHI deposited the three checks, these checks were dishonored by reason of "insufficient funds", "stop
payment" and "account closed", respectively. SIHI claims that despite demands on Anita to make good said
checks, the latter failed to pay the same necessitating the former to file an action for collection against the
private respondents before the RTC.

The RTC ordered the private respondents to pay SIHI. On appeal, the IAC reversed the judgment and
dismissed the complaint. Hence this petition. SIHI argues that that at the time of the negotiation and
endorsement of the checks in question by New Sikatuna Wood Industries, it had no knowledge of the
transaction and/or arrangement between NSWI and the private respondents.

ISSUE:
Whether or not SIH is a holder in due course as to entitle it to proceed against private respondents for the
amount stated in the dishonored checks?

HELD:
NO, the effects of crossing a check are: the check may not be encashed but only deposited in the bank; the
check may be negotiated only once — to one who has an account with a bank; and the act of crossing the
check serves as a warning to the holder that the check has been issued for a definite purpose so that he must
inquire if he has received the check pursuant to that purpose, otherwise he is not a holder in due course.

The three subject checks in the case at bar had been crossed generally and issued payable to NSWI. which
could only mean that the drawer had intended the same for deposit only by the rightful person, i.e., the
payee named therein. Apparently, it was not the payee who presented the same for payment and therefore,
there was no proper presentment, and the liability did not attach to the drawer. Thus, in the absence of due
presentment, the drawer did not become liable. Consequently, no right of recourse is available to SIHI
against the drawer of the subject checks, private respondent wife, considering that SIHI is not the proper
party authorized to make presentment of the checks in question.

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Papa v. A.U. Valencia and Co. Inc.
G.R. No. 105188, January 23, 1998
Kapunan, J.:

FACTS:
Angela Butte (Butte) mortgaged to the Associated Banking Corp. (ABC) several parcels of land owned by
her. On June 15, 1973, petitioner Myron Papa (Papa), as attorney-in-fact of Butte, sold to respondent Felix
Peñarroyo (Peñarroyo), through respondent A.U. Valencia and Co., Inc. (Valencia), one of the parcel of
land included in the mortgaged properties. Respondents gave Papa the amounts of P5,000.00 in cash on
May 24, 1973, and P40,000.00 in check on June 15, 1973, in payment of the purchase price of the subject
lot.

However, even after ABC released the title of the property, Papa refused and failed to deliver the title to
the property. Thus, on June 1982, respondents Valencia and Peñarroyo filed a complaint for specific
performance against Papa. In answer, the latter claimed that he did not encash the aforesaid check, and
therefore, the sale was not consummated.

ISSUE:
Whether or not the payment made in check in the case at bar produce the effect of payment?

HELD:
YES, while it is true that the delivery of a check produces the effect of payment only when it is cashed,
pursuant to Art. 1249 of the NCC, the rule is otherwise if the debtor is prejudiced by the creditor's
unreasonable delay in presentment.

The acceptance of a check implies an undertaking of due diligence in presenting it for payment, and if he
from whom it is received sustains loss by want of such diligence, it will be held to operate as actual payment
of the debt or obligation for which it was given. It has, likewise, been held that if no presentment is made
at all, the drawer cannot be held liable irrespective of loss or injury, unless presentment is otherwise
excused. This is in harmony with Art. 1249 of the NCC under which payment by way of check or other
negotiable instrument is conditioned on its being cashed, except when through the fault of the creditor, the
instrument is impaired. The payee of a check would be a creditor under this provision and if its non-payment
is caused by his negligence, payment will be deemed effected and the obligation for which the check was
given as conditional payment will be discharged.

After more than ten years from the payment in part by cash and in part by check, the presumption is that
the check had been encashed. Granting that petitioner had never encashed the check, his failure to do so for
more than ten years undoubtedly resulted in the impairment of the check through his unreasonable and
unexplained delay.

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Villanueva v. Nite
G.R. No. 148211, July 25, 2006
Corona, J.:

FACTS:
Respondent Marlyn Nite (Nite) allegedly took out a loan from petitioner Sincere Villanueva (petitioner)
secured by an Asia Bank Corp. (ABC) check dated February 8, 1994, which was later changed to June 8,
1994 with the consent and concurrence of Villanueva. However, on due date, the check was dishonored due
to a material alteration. Nite then remitted a partial payment of the loan to Villanueva with balance due on
or before December 8, 1994.

Villanueva filed an action before the RTC against ABC for the full amount of the dishonored check. The
RTC ruled in his favor. When Nite went to ABC to withdraw the money from her account, she was not able
to do so because the RTC had ordered ABC to pay Villanueva the value of Nite's ABC check. Nite then
filed a petition in the CA seeking to annul and set aside the RTC’s decision. The appellate court ruled in
favor of Nite. Thus, this petition.

ISSUE:
Whether or not a payee-holder can, as a general rule, sue the drawee?

HELD:
NO, if the bank refuses to pay a check, notwithstanding the sufficiency of funds, the payee-holder cannot
sue the bank. The payee should instead sue the drawer who might in turn sue the bank. Sec. 189 is sound
law based on logic and established legal principles: no privity of contract exists between the drawee-bank
and the payee. Indeed, in this case, there was no such privity of contract between ABC and petitioner.

Petitioner should not have sued ABC. Contracts take effect only between the parties, their assigns and heirs,
except in cases where the rights and obligations arising from the contract are not transmissible by their
nature, or by stipulation or by provision of law. None of the foregoing exceptions to the relativity of
contracts applies in this case.

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Equitable PCI Bank v. Ong
G.R. No. 156207, September 15, 2006
Chico-Nazario, J.:

FACTS:
Warliza Sarande (Sarande) deposited at Philippine Commercial International Bank (PCIB) a TCBT check.
Upon relying on the assurance of PCIB that the check has been cleared, she issued two checks drawn against
the proceeds of the TCBT check, one was issued to respondent Rowena Ong (Ong) owing to a business
transaction. Ong presented the check to PCIB and requested that it be converted into a manager’s check,
which the latter obliged and issued a manager’s check. When Ong deposited the manager’s check in her
account, she received a check return-slip informing her that PCIB had stopped the payment of the said
check on the ground of irregular issuance.

Despite several demands to PCIB for the payment of the amount in the manager’s check, the same was met
with refusal. Thus, Ong was constrained to file a complaint against PCIB. The RTC, as affirmed by the CA,
held that Ong is a holder in due course and ordered PCIB to pay Ong. Hence, the present petition. PCIB
argued that the account on which the TCBT check, the proceeds on which the check issued to Ong was
drawn against, was already closed and resulted in a failure or want of consideration for the issuance of it.

ISSUE:
Whether or not a drawee is liable on a manager’s check despite failure or want of the consideration?

HELD:
YES, what Ong obtained from PCI Bank was not just any ordinary check but a manager's check. A
manager's check is an order of the bank to pay, drawn upon itself, committing in effect its total resources,
integrity and honor behind its issuance. 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.

A manager's check stands on the same footing as a certified check. By accepting PCIB-MA issued by
Sarande to Ong and issuing in turn a manager's check in exchange thereof, PCI Bank assumed the liabilities
of an acceptor under Sec. 62 of the NIL. Thus, the issues on Ong being not a holder in due course and
failure or want of consideration for PCI Bank's issuance of the manager's check is out of sync.

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Security Bank and Trust Co. v. RCBC
G.R. Nos. 170984, 170987, January 30, 2009
Quisumbing, Acting C.J.:

FACTS:
Petitioner Security Bank and Trust Company (SBTC) issued a manager's check for P8M, payable to
"CASH", as proceeds of the loan granted to Guidon Construction and Development Corp. (GCDC).
However, the check was deposited by Continental Manufacturing Corporation (CMC) in its account with
Rizal Commercial Banking Corporation (RCBC), which the latter honored immediately and allowed CMC
to withdraw the same.

Subsequently, GCDC issued a "Stop Payment Order" to SBTC, claiming the check was released to a third
party by mistake. Thus, SBTC dishonored and returned the manager's check to RCBC. Thereafter, the check
was returned back and forth between the two banks, resulting in automatic debits and credits in each bank's
clearing balance.

RCBC filed a complaint against SBTC with the CFI, which later transferred to the RTC. Meanwhile,
following the rules of the Philippine Clearing House, RCBC and SBTC stopped returning the checks to
each other. By way of a temporary arrangement pending resolution of the case, the P8M check was equally
divided between, and credited to, RCBC and SBTC.

The RTC rendered a decision ordering SBTC to pay RCBC. On appeal, the CA affirmed the decision of the
RTC with respect to the liability of SBTC. Hence, this petition. RCBC avers that the manager's check issued
by SBTC is substantially as good as the money it represents because by its peculiar character, its issuance
has the effect of an advance acceptance. RCBC claims that it is a holder in due course when it credited the
P8-million manager's check to CMC's account. SBTC cannot escape liability by invoking Monetary Board
Resolution No. 2202 dated December 21, 1979, prohibiting drawings against uncollected deposits.

ISSUE:
Whether or not RCBR is liable on the manager’s check payable to “cash”?

HELD:
NO, RCBC, in immediately crediting the amount of P8M to CMC's account, relied on the integrity and
honor of the check as it is regarded in commercial transactions. Where the questioned check, which was
payable to "Cash", appeared regular on its face, and the bank found nothing unusual in the transaction, as
the drawer usually issued checks in big amounts made payable to cash, RCBC cannot be faulted in paying
the value of the questioned check.

In our considered view, SBTC cannot escape liability by invoking Monetary Board Resolution No. 2202
dated December 21, 1979, it is clear from the Memorandum that banks were given the discretion to allow
immediate drawings on uncollected deposits of manager's checks, among others. Consequently, RCBC, in
allowing the immediate withdrawal against the subject manager's check, only exercised a prerogative
expressly granted to it by the Monetary Board.

SBTC's liability as drawer remains the same, by drawing the instrument, it admits the existence of the payee
and his then capacity to indorse; and engages that on due presentment, the instrument will be accepted, or
paid, or both, according to its tenor.

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