ADDITIONAL CASES

----------------------------------------------------------------------------------------------------------

State Investment House vs CA (GR No. 101163, 11 Jan 1993)

Facts:
Nora Moulic issued to Corazon Victoriano, as security for pieces of jewellery to be sold on
commission, two postdated checks in the amount of fifty thousand each. Thereafter, Victoriano
negotiated the checks to State Investment House, Inc. When Moulic failed to sell the jewellry,
she returned it to Victoriano before the maturity of the checks. However, the checks cannot be
retrieved as they have been negotiated. Before the maturity date Moulic withdrew her funds
from the bank contesting that she incurred no obligation on the checks because the jewellery
was never sold and the checks are negotiated without her knowledge and consent. Upon
presentment of for payment, the checks were dishonoured for insufficiency of funds.

Issues: Whether Moulic can set up against the petitioner the defense that there was failure or
absence of consideration

Held:

No, Section 119 of NIL provides how an instruments be discharged. Moulic can only invoke
paragraphs c and d as possible grounds for the discharge of the instruments. Since Moulic failed
to get back the possession of the checks as provided by paragraph c, intentional cancellation of
instrument is impossible. As provided by paragraph d, the acts which will discharge a simple
contract of payment of money will discharge the instrument. Correlating Article 1231 of the
Civil Code which enumerates the modes of extinguishing obligation, none of those modes
outlined therein is applicable in the instant case. Thus, Moulic may not unilaterally discharge
herself from her liability by mere expediency of withdrawing her funds from the drawee bank.
She is thus liable as she has no legal basis to excuse herself from liability on her check to a
holder in due course. Moreover, the fact that the petitioner failed to give notice of dishonor is
of no moment. The need for such notice is not absolute; there are exceptions provided by Sec
114 of NIL.

Banco de Oro Savings vs Equitable Banking Corp (157 SCRA 188, 1988)
Banco de Oro v. Equitable Banking Corporation
157 SCRA 189 (1988)

FACTS:

Plaintiff drew six crossed Manager’s and payable to certain member establishments of Visa
Card. Subsequently, the Checks were deposited with the defendant to the credit of its
depositor, a certain Aida Trencio. Following normal procedures, and after stamping at the back
of the Checks the usual endorsements. All prior and/or lack of endorsement guaranteed the
defendant sent the checks for clearing through the Philippine Clearing House Corporation
(PCHC).

Accordingly, plaintiff paid the Checks; its clearing account was debited for the value of the
Checks and defendant’s clearing account was credited for the same amount, Thereafter,
plaintiff discovered that the endorsements appearing at the back of the Checks and purporting
to be that of the payees were forged and/or unauthorized or otherwise belong to persons other
than the payees. Pursuant to the PCHC Clearing Rules and Regulations, plaintiff presented the
Checks directly to the defendant for the purpose of claiming reimbursement from the latter.

However, defendant refused to accept such direct presentation and to reimburse the plaintiff
for the value of the Checks; hence, this case.

ISSUE:

Whether or not the petitioner can escape liability by reason of forgery.

RULING:

No. A commercial bank cannot escape the liability of an endorser of a check and which may
turn out to be a forged endorsement. Whenever any bank treats the signature at the back of
the checks as endorsements and thus logically guarantees the same as such there can be no
doubt said bank has considered the checks as negotiable.

Apropos the matter of forgery in endorsements, this Court has succinctly emphasized that the
collecting bank or last endorser generally suffers the loss because it has the duty to ascertain
the genuineness of all prior endorsements considering that the act of presenting the check for
payment to the drawee is an assertion that the party making the presentment has done its duty
to ascertain the genuineness of the endorsements.

Section 66 of the Negotiable Instruments ordains that:

Every indorser who indorse without qualification, warrants to all subsequent holders in due
course’ (a) that the instrument is genuine and in all respects what it purports to be; (b) that he
has good title to it; (c) that all prior parties have capacity to contract; and (d) that the
instrument is at the time of his indorsement valid and subsisting.

Thus we hold that while the drawer generally owes no duty of diligence to the collecting bank,
the law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it
for the purpose of determining their genuineness and regularity. The collecting bank being
primarily engaged in banking holds itself out to the public as the expert and the law holds it to a
high standard of conduct.
RP vs Philippine National Bank (GR No. L-16106, 30 Dec 1961)

Facts:

The Republic of the Philippines filed on September 25, 1957 before the Court of First Instance
of Manila a complaint for escheat of certain unclaimed bank deposits balances under the
provisions of Act No. 3936 against several banks, among them the First National City Bank of
New York.

It Is alleged that pursuant to Section 2 of said Act defendant banks forwarded to the Treasurer
of the Philippines a statement under oath of their respective managing officials of all the credits
and deposits held by them in favor of persons known to be dead or who... have not made
further deposits or withdrawals during the period of 10 years or more.

In its answer-the-First National City Bank of New York claims that, while it admits that various
savings deposits, pre-war inactive accounts, and sundry accounts contained in its report
submitted to the Treasurer of the Philippines pursuant to Act No. 3936, totaling more... than
P100,000.00, which remained dormant for totaling more than 10 years or more, are subject to
escheat, however, it has inadvertently included in said report, certain items an which, properly
speaking, are not credits or deposits within the contemplation of Act No. 3936.

Hence, it prayed that said items be not included In the claim of plaintiff.

After hearing the court a quo rendered judgment holding that cashier's or manager's checks
and demand drafts as those which defendant wants excluded from the complaint come within
the purview of Act No. 3936, but not the telegraphic transfer payment orders which are... of
different category. Consequently, the complaint was dismissed with regard to the latter. But,
after a motion to reconsider was filed by defendant, the court a quo changed its view and held
that even said demand drafts do not come within the purview of said Act and so... amended its
decision accordingly.

Section 1. Act No. 3936, provides:

"SECTION 1. 'Unclaimed balances' within the meaning of this Act shall include credits or
deposits of moneys' bullion s security or other evidence of indebtedness of, any kind, and
interest thereon with banks, as hereinafter defined, in favor or any person unheard from for a...
period of ten years or more. Such unclaimed balances, together with the increase and proceeds
thereof, shall be deposited with the Insular Treasurer , to the credit of the Government of the
Philippine Islands to be used as the Philippine Legislature may direct."

Issues:

Do demand drafts and telegraphic orders come within the meaning of the term "credits" or
"deposits" employed in the law?
Can their import be considered as a sum credited on the books of the bank to a person who
appears to be entitled to it?... eate a creditor-debtor relationship between the drawee and the
payee?

Ruling:

To begin with, we may say that a demand draft is a bill of exchange payable on de... mand
(Arnd... vs. Aylesworth, 145 Iowa 185; Ward vs. City.Trust Company, 102 N.Y.S. 50; Bank of
Republic vs. Republic State Bank, 42 S.W. 2d, 27).

Considered as a bill of exchange, a draft is said to bes like the former, an open letter of request
from, and an order by, one person on another to pay a sum of money therein mentioned to a
third person, on demand or at a future time therein specified (13 Words and Phrases, 371) . As
a matter of fact, the term

"draft" is often used and is the common term, for all bills of exchange. And the words "draft"
and "bill of exchange" are used indiscriminately (Ennis vs. Coshoctan Nat. Bank, 108 S.E., 811;
Hinnemann. vs. Rosenback, 39 N.Y. 98, 100, 101; Wilson vs. Buchenau,... 43 Supp. 272, 275).

On the other hand, a bill of exchange within the meaning of our Negotiable Instrument Law (Act
No. 2031) does not operate as an assignment of funds in the hands of the drawee who is not
liable on the instrument until he accepts it. This is the clear import of Section 127. It... says: "A
bill of exchange of itself, does not operate as an assignment of the funds in the hands of the
drawee available for the payment thereon and the drawee is not liable, on the bill unless and
until he accepts the same."

In other words, in order that a drawee may be liable... op the draft and then become obligated
to the payee it is necessary that he first accepts the same.

In fact, our law requires that with regard to drafts or bills of exchange there is need that they be
presented either for acceptance or for payment within a reasonable time after... their issuance
or after their last negotiation thereof as the case maybe

(Section 71, Act 2031). Failure to make such presentment will discharge the drawer from
liability or to the extant of the loss caused by the delay (Section 186, Ibid.).

Since it is admitted that the demand drafts herein in- volved have not been presented either for
acceptance or for payment, the inevitable consequence is that the appellee bank never had any
chance of accepting :or rejecting them. Verily, appellee bank never became a debtor... of the
payee concerned and as such the aforesaid drafts cannot be considered as credits subject to
escheat within the meaning of the law.
But a demand draft Is very different from a cashier's or manager's check, contrary to appella...
held that the latter is a primary obligation of the bank which issues It and constitutes its written
promise to pay upon demand

The following definitions cited by appellant also confirm this view:

"A cashier's check is a check of the bank's cashier on his or another bank. It is in effect a bill of
exchange drawn by a bank on itself and accepted in advance by the act of its issuance" (10 C. J.
S. 409).

"A cashier's check issued a depositor is fche substantial on request of equivalent of a certified
check and the deposit represented by the check passes to the credit of the checkholder, who is
thereafter a depositor to that amount" (Lummus Cotton Gin Co. vs. Walker 70 So.715, 201Ala.
189).

"A cashier's check, being merely a bill of exchange drawn by a bank on itself, and accepted in
advance by the jact of its issuance, is not subject to countermanaby the payee after
indorsement, and has thessame legal effects as a certificate of deposit or a certified check"
(Walker vs. Sellers, 77 So. 715, 201 Ala. 189).

The case, however, is different with regard to a telegraphic payment order. It is said that as the
transaction is for the establishment of a telegraphic or cable transfer, the agreement to remit
creates a contractual obligation and has been termed a purchase and sale... transaction (9 C. J.
S. 368).

The purchaser of a telegraphic transfer upon making payment completes the transaction
insofar as he is concerned, though insofar as the remitting bank is concerned the contract is
executory until the credit is established (Ibid)

Wherefore, the decision of the trial court is hereby modified in the sense that the items
specifically referred to and listed under paragraph 3 of appellee bank's answer representing
telegraphic transfer payment orders should be escheated in favor of the Republic of the
Philippines. No costs.

New Pacific Timber vs Hon. Seneris (19 December 1980)

Facts: In a complaint for a collection of sum of money, petitioner failed to comply with his
judgment obligation in an amicable settlement with the respondent. Hence, a writ of execution
was issued for the amount of P63, 140.00 pursuant to which, petitioner’s properties were
levied and was set for an auction sale. Prior to the set date for the auction sale, petitioner
deposited with the Clerk of Court, CFI, in his capacity as Ex-Officio Sheriff, the sum of P63,
130.00 for payment of the judgment obligation, consisting of P50, 000.00 Cashier’s Check and
P13,130.00 in cash.

Private respondent refused to accept the check as well as the cash deposit and requested the
scheduled auction sale. Respondent judge uphold private respondent’s claim that he has the
right to refuse payment by means of a check and cited Section 63 of the Central Bank Act:

“Sec 63. Legal Character – Checks representing deposit money do not have legal tender power
and their acceptance in payment of debts, both public and private, is at the option of the
creditor. Provided, however, 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.”

And Article 1249 of the New Civil Code which provides for payment of debts in money shall be
made in the currency stipulated or the currency that is legal tender in the Philippines.

Likewise, respondent judge sustained the contention of the private respondent that he has a
right to refuse payment of the amount of P13, 130 in cash because the said amount is less than
the judgment obligation, which is a partial payment as provided in Article 1248 of the New Civil
Code.

Petitioner filed an ex-parte motion for issuance of certificate of satisfaction of judgment after
his levied properties were all sold during the auction sale. Petitioner question the order of the
judge for denial of the said motion alleging that said judge capriciously and whimsically abused
his discretion on the ground that there was already a full satisfaction of the judgment before
the auction sale was conducted.

Issue: WON there was a valid refusal to accept the payment of the judgment obligation made
by the petitioner consisting of P50, 000.00 in Cashier’s Check and P13, 130.00 in cash.

Held: No. A cashier’s check of the Equitable Bank Corporation is not an ordinary check. It is a
well-known and accepted practice in the business sector that a Cashier’s Check is deemed as
cash.

Where a check is certified by the bank on which it is drawn, the certification is equivalent to
acceptance. By the certification of drawee bank, 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. 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, that they shall be so applied whenever the check is presented for
payment. The object of certifying a check, as regards to 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. Certification of a check is an exception to the
rule enunciated under Sec 63 of the CB Act.
Considering that the whole amount deposited by the petitioner consisting of Cashier’s Check of
P50, 000.00 and P13, 130.00 in cash covers the judgment obligation of P63,000.00 as
mentioned in the writ of execution, then, we see no valid reason for the private respondent to
have refused acceptance of the payment of the obligation in his favor.

PNB vs National City Bank of New York (63 Phil 711)

FACTS:
April 7 & 9, 1933: unknown person or persons purchased tires and paid Motor Service
Company, Inc.(MSCI) checks purporting to have been issued by the "Pangasinan Transportation
Co., Inc. (Pantranco) by J. L. Klar, Manager and Treasurer" against PNB and in favor of
International Auto Repair Shop.

MSCI indorsed for deposit at the National City Bank of New York and MSCI was accordingly
credited with the amounts thereof, or P144.50 and P215.75

April 8 & 10, 1933: Checks were cleared and PNB credited the National City Bank

PNB found out that the signatures of J. L. Klar, Manager and Treasurer were forged and
demanded from MSCI and National City Bank New York

PNB filed the case in the municipal court of Manila against National City Bank and MSCI.
Pantranco objected to have the proceeds of said check deducted from their deposit.

RTC: Favored PNB

MSCI appealed

ISSUES:
W/N acceptance = payment
W/N law or business practice prevents the presentation of checks for acceptance before they
are paid.
W/N MSCI was negligent and therefore PNB should recover
W/N the drawee bank should be allowed recovery, as MSCI's position would not become worse
than if the drawee had refused the payment of these checks upon their presentation.

HELD: Affirmed
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, according to section 185 of the Negotiable Instruments
Law
Acceptance is a step unnecessary for bills of exchange payable on demand (sec. 143)
Acceptance implies, subsequent negotiation of the instrument From the moment a check is
paid it is withdrawn from circulation.

That the payment of a check does not include or imply its acceptance in the sense that this
word is used in section 62 of the Negotiable Instruments Law

Payment (in checks) - final act which extinguishes a bill.

Acceptance (in certified checks) - a promise to pay in the future and continues the life of the
bill.

2. NO
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
That if a drawee bank pays a forged check which was previously accepted or certified by the
said bank it cannot recover from a holder who did not participate in the forgery and did not
have actual notice thereof

3. YES.
Circumstances:
check number 637023-D was dated April 6, 1933, whereas check number 637020-D and is
dated April 7, 1933. (later check had prior number)
accepted the 2 checks from unknown persons
check 637023-D was indorsed by a subagent of the agent of the payee, International Auto
Repair Shop and cross generally
Section 23 of the Negotiable Instruments Act provides that "when a signature is forged or made
without the authority of the person whose signature it purports to be, it is wholly inoperative,
and no right to retain the instrument, or to give a discharge therefor, or to enforce payment
thereof against any party thereto, can be acquired through or under such signature, unless the
party against whom it is sought to enforce such right is precluded from setting up the forgery or
want of authority.
PNB did not warrant to MCSI the genuineness of the checks in question, by its acceptance
thereof, nor did it perform any act which would have induced MSCI to believe in the
genuineness
PNB is NOT precluded from setting up the forgery
4. NO.
A drawee of a check, who is deceived by a forgery of the drawer's signature may recover the
payment back, unless his mistake has placed an innocent holder of the paper in a worse
position than he would have been in if the discover of the forgery had been made on
presentation.
MSCI has lost nothing by anything which the drawee has done. It had in its hands some forged
worthless papers. It did not purchase or acquire these papers because of any representation
made to it by the drawee
Court concluded:

1. That where a check is accepted or certified by the bank on which it is drawn, the bank is
estopped to deny the genuineness of the drawer's signature and his capacity to issue the
instrument;
2. That if a drawee bank pays a forged check which was previously accepted or certified by the
said bank it cannot recover from a holder who did not participate in the forgery and did not
have actual notice thereof;
3. That the payment of a check does not include or imply its acceptance in the sense that this
word is used in section 62 of the Negotiable Instruments Law;
4. That in the case of the payment of a forged check, even without former acceptance, the
drawee can not recover from a holder in due course not chargeable with any act of negligence
or disregard of duty;
5. That to entitle the holder of a forged check to retain the money obtained thereon, there
must be a showing that the duty to ascertain the genuineness of the signature rested entirely
upon the drawee, and that the constructive negligence of such drawee in failing to detect the
forgery was not affected by any disregard of duty on the part of the holder, or by failure of any
precaution which, from his implied assertion in presenting the check as a sufficient voucher, the
drawee had the right to believe he had taken;
6. That in the absence of actual fault on the part of the drawee, his constructive fault in not
knowing the signature of the drawer and detecting the forgery will nor preclude his recovery
from one who took the check under circumstances of suspicion and without proper precaution,
or whose conduct has been such as to mislead the drawee or induce him to pay the check
without the usual scrutiny or other precautions against mistake or fraud;
7. That on who purchases a check or draft is bound to satisfy himself that the paper is genuine,
and that by indorsing it or presenting it for payment or putting it into circulation before
presentation he impliedly asserts that he performed his duty;
8. That while the foregoing rule, chosen from a welter of decisions on the issue as the correct
one, will not hinder the circulation of two recognized mediums of exchange by which the great
bulk of business is carried on, namely, drafts and checks, on the other hand, it will encourage
and demand prudent business methods on the part of those receiving such mediums of
exchange;
9. That it being a matter of record in the present case, that the appellee bank in no more
chargeable with the knowledge of the drawer's signature than the appellant is, as the drawer
was as much the customer of the appellant as of the appellee, the presumption that a drawee
bank is bound to know more than any indorser the signature of its depositor does not hold;
10. That according to the undisputed facts of the case the appellant in purchasing the papers in
question from unknown persons without making any inquiry as to the identity and authority of
the said persons negotiating and indorsing them, acted negligently and contributed to the
appellee's constructive negligence in failing to detect the forgery;
11. That under the circumstances of the case, if the appellee bank is allowed to recover, there
will be no change of position as to the injury or prejudice of the appellant.
Associated Bank vs CA (208 SCRA 468, 1992)
FACTS:
Merle Reyes is the owner of "Melissa's RTW" ready-to-wear garments
She deals with customers such as Robinson's Department Store, Payless Department Store,
Rempson Department Store, and the Corona Bazaar.
These companies issued in payment of their respective accounts crossed checks payable to
Melissa's RTW in the amounts and on the dates indicated below:

PAYOR BANK AMOUNT DATE

Payless Solid Bank P3,960.00 January 19, 1982
Robinson's FEBTC 4,140.00 December 18, 1981
Robinson's FEBTC 1,650.00 December 24, 1981
Robinson's FEBTC 1,980.00 January 12, 1982
Rempson TRB 1,575.00 January 9, 1982
Corona RCBC 2,500.00 December 22, 1981

Reyes was unaware of the issuance of the checks until she went to the companies for collection
and was informed thereof.

She soon found out that it was deposited with Associated Bank and subsequently paid to one of
the bank's trusted depositors,Rafael Sayson, the check being indorsed by Eddie Reyes
Reyes sued in the RTC for the recovery of the checks plus damages.

CA affirmed RTC: favored Reyes

ISSUE: W/N Reyes has the right for recovery of the cross checks

HELD: YES. petition DENIED.

Under accepted banking practice, crossing a check is done by writing two parallel lines
diagonally on the left top portion of the checks. The crossing is special where the name of a
bank or a business institution is written between the two parallel lines, which means that the
drawee should pay only with the intervention of that company.

The crossing is general where the words written between the two parallel lines are "and Co." or
"for payee's account only," as in the case at bar. This means that the drawee bank should not
encash the check but merely accept it for deposit.
The effects therefore of crossing a check relate to the mode of its presentment for payment
Under Sec. 72 of the Negotiable Instruments Law, presentment for payment, to be sufficient,
must be made by the holder or by some person authorized to receive payment on his behalf.
Who the holder or authorized person is depends on the instruction stated on the face of the
check.
The 6 checks had been crossed and issued "for payee's account only.
signify that the drawers had intended the same for deposit only by the person indicated, to wit,
Melissa's RTW.

The position of the bank taking the check on the forged or unauthorized indorsement is the
same as if it had taken the check and collected without indorsement at all. The act of the bank
amounts to conversion of the check.

The Bank should have first verified his right to endorse the crossed checks, of which he was not
the payee, and to deposit the proceeds of the checks to his own account.

Its failure to inquire into Sayson's authority was a breach of a duty it owed to Reyes
There is no substantial difference between an actual forging of a name to a check as an
endorsement by a person not authorized to make the signature and the affixing of a name to a
check as an endorsement by a person not authorized to endorse it.

Assuming that Eddie Reyes did endorse the crossed checks, we hold that the Bank would still be
liable to the private respondent because he was not authorized to make the endorsements.
Before presenting the checks for clearing and for payment, the Bank had stamped on the back
thereof the words: "All prior endorsements and/or lack of endorsements guaranteed," and thus
made the assurance that it had ascertained the genuineness of all prior endorsements.

The Bank stamped thereon its guarantee that "all prior endorsements and/or lack of
endorsements (were) guaranteed."

Bataan Cigar vs CA (230 SCRA 648, 3 March 1994)

FACTS:
Bataan Cigar & Cigarette Factory, Inc. (BCCFI), a corporation involved in the manufacturing of
cigarettes purchased from King Tim Pua George (George King) 2,000 bales of tobacco leaf to be
delivered starting October 1978.
July 13, 1978: it issued crossed checks post dated sometime in March 1979 in the total amount
of P820K
George represented that he would complete delivery w/in 3 months from Dec 5 1978 so BCCFI
agreed to purchase additional 2,500 bales of tobacco leaves, despite the previous failure in
delivery
It issued post dated crossed checks in the total amount of P1.1M payable sometime in
September 1979.
July 19, 1978: George sold to SIHI at a discount check amounting to P164K, post dated March
31, 1979, drawn by BCCFI w/ George as payee.
December 19 and 26, 1978: George sold 2 checks both in the amount of P100K, post dated
September 15 & 30, 1979 respectively, drawn by BCCFI w/ George as payee
Upon failure to deliver, BCCFI issued on March 30, 1979 and September 14 & 28, 1979 a stop
payment order for all checks
SIHI failing to claim, filed a claim against BCCFI
RTC: SIHI = holder in due course. Non-inclusion of Gearoge as party is immaterial to the case

ISSUE: W/N SIHI is a holder in due course beign a second indorser and a holder of crossed
checks

HELD: YES. GRANTED. RTC reversed.

Sec. 52
That it is complete and regular upon its face
That he became the holder of it before it was overdue, and without notice that it had been
previously dishonored, if such was the fact
That he took it in good faith and for value
That at the time it was negotiated to him he had no notice of any infirmity in the instrument or
defect in the title of the person negotiating it

Sec. 59
every holder is deemed prima facie a holder in due course
However, when it is shown that the title of any person who has negotiated the instrument was
defective, the burden is on the holder to prove that he or some person under whom he claims,
acquired the title as holder in due course.
effect of crossing of a check

1. check may not be encashed but only deposited in the bank

2. check may be negotiated only once — to one who has an account with a bank
3. act of crossing the check serves as warning to the holder that the check has been issued
for a definite purpose - he must inquire if he has received the check pursuant to that
purpose, otherwise, he is not a holder in due course

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 - failure = guilty of
gross negligence amounting to legal absence of good faith, contrary to Sec. 52(c) of the
Negotiable Instruments Law
SIHI is not a holder in due course. Consequently, BCCFI cannot be obliged to pay the checks.
However, that SIHI could not recover from the checks. The only disadvantage of a holder who is
not a holder in due course is that the instrument is subject to defenses as if it were non-
negotiable. Hence, SIHI can collect from the immediate indorser, George

NATIVIDAD GEMPESAW vs. CA and PHILIPPINE BANK OF COMMUNICATIONS

G.R. No. 92244 February 9, 1993

Natividad Gempesaw issued checks, prepared by her bookkeeper, a total of 82 checks in favor
of several supplies. Most of the checks for amounts in excess of actual obligations as shown in
their corresponding invoices. It was only after the lapse of more than 2 years did she discovered
the fraudulent manipulations of her bookkeeper. It was also learned that the indorsements of
the payee were forged, and the checks were brought to the chief accountant of Philippine Bank
of Commerce (the Drawee Bank, Buendia Branch) who deposited them in the accounts of
Alfredo Romero and Benito Lam. Gempesaw made demand upon the bank to credit the amount
charged due the checks. The bank refused. Hence, the present action.

Issue: Who shall bear the loss resulting from the forged indorsements.

Held: 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 the rule is
where the drawer is guilty of such negligence which causes the bank to honor such checks.
Gempesaw did not exercise prudence in taking steps that a careful and prudent businessman
would take in circumstances to discover discrepancies in her account. Her negligence was the
proximate cause of her loss, and under Section 23 of the Negotiable Instruments Law, is
precluded from using forgery as a defense. On the other hand, 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 said checks. The only kind of indorsement which stops the further
negotiation of an instrument is a restrictive indorsement which prohibits the further
negotiation thereof, pursuant to Section 36 of the Negotiable Instruments Law. In light of any
case not provided for in the Act that is to be governed by the provisions of existing legislation,
pursuant to Section 196 of the Negotiable Instruments Law, the bank may be held liable for
damages in accordance with Article 1170 of the Civil Code. The drawee bank, in its failure to
discover the fraud committed by its employee and in contravention banking rules in allowing a
chief accountant to deposit the checks bearing second indorsements, was adjudged liable to
share the loss with Gempesaw on a 50:50 ratio.

State Investment House v. Intermediate Appellate Court [G.R. No. 72764. July 13, 1989]

FACTS

New Sikatuna Wood Industries, Inc. (NSWI) secured a loan from respondent Anita Chua in the
form of crossed checks. NWSI negotiated the checks to petitioner. The checks were dishonored.

ISSUE
Whether or not petitioner may be considered a holder in due course.

RULING

NO. Petitioner’s failure to inquire from the holder, party defendant NWSI, the purpose for
which the three checks were cross despite the warning of the crossing, prevents him from being
considered in good faith and thus he is not a holder in due course. Being not a holder in due
course, plaintiff is subject to personal defenses, such as lack of consideration between
appellants and New Sikatuna Wood Industries.

People vs Nitafan (GR No. 75954, 22 October 1992)

Facts:

Private respondent K.T. Lim was charged with violation of B.P. 22. He moved to quash the
Information of the ground that the facts charged did not constitute a felony as B.P. 22 was
unconstitutional and that the check he issued was a memorandum check which was in the
nature of a promissory note, perforce, civil in nature. Judge Nitafan, ruling that B.P. 22 on which
the Information was based was unconstitutional, issued the questioned Order quashing the
Information. Hence, the appeal.

Issue:

Is a memorandum check within the coverage of B.P. 22?

Held:

A memorandum check is in the form of an ordinary check, with the word "memorandum",
"memo" or "mem" written across its face, signifying that the maker or drawer engages to pay
the bona fide holder absolutely, without any condition concerning its presentment. Such a
check is an evidence of debt against the drawer, and although may not be intended to be
presented, has the same effect as an ordinary check, and if passed to the third person, will be
valid in his hands like any other check.

A memorandum check comes within the meaning of Sec. 185 of the Negotiable Instruments
Law which defines a check as "a bill of exchange drawn on a bank payable on demand. A
memorandum check, upon presentment, is generally accepted by the bank. Hence it does not
matter whether the check issued is in the nature of a memorandum as evidence of
indebtedness or whether it was issued is partial fulfillment of a pre-existing obligation, for what
the law punishes is the issuance itself of a bouncing check and not the purpose for which it was
issuance. The mere act of issuing a worthless check, whether as a deposit, as a guarantee, or
even as an evidence of a pre-existing debt, is malum prohibitum.
A memorandum check may carry with it the understanding that it is not be presented at the
bank but will be redeemed by the maker himself when the loan fall due. However, with the
promulgation of B.P. 22, such understanding or private arrangement may no longer prevail to
exempt it from penal sanction imposed by the law. To require that the agreement surrounding
the issuance of check be first looked into and thereafter exempt such issuance from the
punitive provision of B.P. 22 on the basis of such agreement or understanding would frustrate
the very purpose for which the law was enacted — to stem the proliferation of unfunded
checks. After having effectively reduced the incidence of worthless checks changing hands, the
country will once again experience the limitless circulation of bouncing checks in the guise of
memorandum checks if such checks will be considered exempt from the operation of B.P. 22.

It is common practice in commercial transactions to require debtors to issue checks on which

creditors must rely as guarantee of payment. To determine the reasons for which checks are
issued, or the terms and conditions for their issuance, will greatly erode the faith the public
responses in the stability and commercial value of checks as currency substitutes, and bring
about havoc in trade and in banking communities.

Spouses Moran vs CA (GR No. 105836, 7 March 1994)

FACTS:
Spouses George and Librada Moran are the owners of the Wack-Wack Petron gasoline station
located at Shaw Boulevard, corner Old Wack-Wack Road, Mandaluyong, Metro Manila.

They regularly purchased bulk fuel and other related products from Petrophil Corporation on
cash on delivery (COD) basis. Orders for bulk fuel and other related products were made by
telephone and payments were effected by personal checks upon delivery.

Petitioners maintained 3 joint accounts, namely 1 current account and 2 savings accounts with
the Shaw Boulevard branch of Citytrust Banking Corporation.

As a special privilege to the Morans, whom it considered as valued clients, the bank allowed
them to maintain a zero balance in their current account.

Transfers from Saving Account to their current account could be made only with their prior
authorization but they gave written authority to Citytrust to automatically transfer funds from
their Savings Account to their Current Account at any time whenever the funds in their current
account were insufficient to meet withdrawals from said current account = pre-authorized
transfer (PAT) agreement

December 12, 1983: Librada Moran drew a check for P50,576.00 payable to Petrophil
Corporation
December 13, 1983: Librada Moran, issued another check in the amount of P56,090.00 in favor
of the same corporation

December 14, 1983: Petrophil Corporation deposited the 2 checks to its account with the
Pandacan branch of the Philippine National Bank (PNB), the collecting bank.

PNB presented them for clearing with the Philippine Clearing House Corporation in the
afternoon of the same day

Records shows:
Current Account had a zero balance
Savings Account had an available balance of P26,104.30 and Savings Account had an available
balance of P43,268.39

December 15, 1983 10 a.m.: George Moran went to the bank, as was his regular practice, to
personally oversee their daily transactions with the bank
deposited in their Savings Account the amounts of P10,874.58 and P6,754.25
deposited in their Savings Account No. 1037001372 the amounts of P5,900.00, P35,100.00 and
30.00

P40,000.00 was then transferred by him from Saving Account No. 1037002387 to their current
account by means of a pro forma withdrawal form (a debit memorandum), which was provided
by the bank, authorizing the latter to make the necessary transfer.

P66,666.00 was transferred from Savings Account No. 1037001372 to the same current account
through the pre-authorized transfer (PAT) agreement.

December 15 or 16, 1983: George Moran was informed by his wife Librada, that Petrophil
refused to deliver their orders on a credit basis because the 2 checks they had previously issued
were dishonored upon presentment for payment due to "insufficiency of funds."

The non-delivery of gasoline forced them to temporarily stop business operations, allegedly
causing them to suffer loss of earnings.
In addition, Petrophil cancelled their credit accommodation, forcing them to pay for their
purchases in cash.

George Moran, furious and upset, demanded an explanation from Raul Diaz, the branch
manager. Failing to get a sufficient explanation, he talked to a certain Villareal, a bank officer,
who allegedly told him that Amy Belen Ragodo, the customer service officer, had committed a
"grave error".
December 16 or 17, 1983: Diaz went to the Moran residence to get the signatures of the
petitioners on an application for a manager's check so that the dishonored checks could be
redeemed.
Diaz then went to Petrophil to personally present the checks in payment for the 2 dishonored
checks.

May or June, 1984: George Moran learned from Constancio Magno, credit manager of
Petrophil, that the he received on January 4, 1984 from Citytrust, through Diaz, a letter dated
December 16, 1983, notifying them that the 2 checks were "inadvertently dishonored . . . due
to operational error."

July 24, 1984: Moran, through counsel, wrote Citytrust claiming that the bank's dishonor of the
checks caused them besmirched business and personal reputation, shame and anxiety, hence
they were contemplating the filing of the necessary legal actions unless the bank issued a
certification clearing their name and paid them P1,000,000.00 as moral damages

CA affirmed RTC's dismissal

ISSUE: W/N: Spouses Moran can sue Citytrust for damages for negligence

HELD: NO. Affirmed

Spouses Moran had no reason to complain, for they alone were at fault.

A drawer must remember his responsibilities every time he issues a check. He must personally
keep track of his available balance in the bank and not rely on the bank to notify him of the
necessity to fund certain check she previously issued

A bank is under no obligation to make part payment on a check

actions taken by the bank after the incident clearly show that there was neither malice nor bad
faith, but rather a clear intent to mollify an obviously agitated client
letter was sent by respondent bank to Petrophil explaining that the dishonor of the checks was
due to "operational error." - NOT an admission of guilt

bank may not be held responsible for such damages in the absence of fraud, bad faith, malice,
or wanton attitude

Gempesaw vs CA {SUPRA SAME}

Hongkong and Shanghai Bank vs Catalan (18 October 2004)

FACTS:

Frederick Arthur Thomson drew 5 checks payable to defendant Cecilia. Catalan presented these
checks to Hongkong and Shanghai Banking Corporation Limited (HSBANK). The checks were
dishonored for having insufficient funds. Thomson demanded that the checks be made good
because he, in fact, had sufficient funds. Still, HSBANK did not accept the checks.

Subsequently, Thomson died but Catalan was not paid yet. The account was transferred to
HSBC International Trustee Limited (TRUSTEE). Catalan then requested TRUSTEE to pay her but
still refused and even asked her to submit back to them the original checks for verification.

Catalan and her lawyer went to Hong Kong on their own expense to personally submit the
checks. They still were not honored, leading Catalan to file a suit against HSBC to collect the
money.

ISSUE: Whether the check can be encashed.

RULING:

The SC held that the HSBC was being sued becasue of their evident failure to heed the
instructions of Thomson. HSBANK cited Sec. 189 of the NIL but the SC said that what is being
sued is how they acted in relation to Catalan's claim for payment despite repeated requests and
not of the check's value.

The reason was likewise the same towards TRUSTEE as Catalan even went to Hong Kong to
personally deliver the checks.

Mesina vs IAC

FACTS:
Jose Go purchased from Associated Bank a cashier's check for P800,000.00. Unfortunately, he
left said check on the top of the desk of the bank manager when he left the bank. The bank
manager entrusted the check for safekeeping to a bank official, a certain Albert Uy. While Uy
went to the men's room, the check was stolen by his visitor in the person of Alexander Lim.
Upon discovering that the check was lost, Jose Go accomplished a "STOP PAYMENT" order.
Two days later, Associated Bank received the lost check for clearing from Prudential Bank. After
dishonoring the same check twice, Associated Bank received summons and copy of a complaint
for damages of Marcelo Mesina who was in possession of the lost check and is demanding
payment. Petitioner claims that a cashier's check cannot be countermanded in the hands of a
holder in due course.

ISSUE:
Whether or not petitioner can collect on the stolen check on the ground that he is a holder in
due course.

RULING:
No. Petitioner failed to substantiate his claim that he is a holder in due course and for
consideration or value as shown by the established facts of the case. Admittedly, petitioner
became the holder of the cashier's check as endorsed by Alexander 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.

Domagsang vs CA (347 SCRA 75, 2000)

FACTS:

Ignacio Garcia gave petitioner a loan. Petitioner issued and delivered 18 postdated checks.
When the checks were drawn, all were dishonored due the account being closed. Garcia
supposedly wrote a letter to demand.

Petitioner contends that he did not receive a demand letter and the checks were not issued as
payment but as evidence of indebtedness. The lower court convicted petitioner.

ISSUE: Whether verbal notice is enough for conviction of petitioner.

RULING:

The SC said that verbal notice is not enough as written notice of dishonor should be received by
petitioner to convict him. A mere oral notice or demand to pay would appear to be insufficient
for conviction under the law. The spirit of the law is not only for the person to be punished but
also to be duly notified of the checks dishonor. The supposed letter of demand was not given
weight because prosecution failed to formally offer it as evidence.

The SC acquitted petitioner but ordered her to pay the amount plus interest.

Ramos vs CA (203 SCRA 657)

FACTS

Petitioner, as acting bank manager, allowed withdrawals on uncleared checks deposited into
the accounts of her co-accused. Petitioner repeatedly granted accommodations in at least
fourteen (14) instances and despite her knowledge that prior checks deposited by her co-
accused turned out to be unfunded.

ISSUE

Whether or not petitioner is engaged in “check kiting” which amounts to estafa with
unfaithfulness or abuse of confidence.
RULING

YES. The act of utilizing the float status of uncleared checks constitutes “check kiting”. The
crime committed by the accused was estafa with unfaithfulness or abuse of confidence under
Article 315 subparagraph 1 (b) of the Revised Penal Code. In this case, petitioner acted
maliciously or in bad faith by assuming to dispose the money of the bank as if it were her own,
thereby committing conversion and a clear breach of trust. She performed an indispensable act
necessary to enable her and her co-accused to accomplish the criminal purpose they had in
mind.