1. PHILIPPINE NATIONAL BANK v.
BENITO SEETO
August 13, 1952 | Labrador, J | Sec. 186
SEGOVIA & MIRANDA
INSTRUMENT:​ Check
PAYEE: ​Order or Bearer
DRAWER: ​Gan Yek Kiao
DRAWEE: ​PBCom
HOLDER: ​Benito Seeto
GENERAL INDORSER: ​Benito Seeto
COLLECTING BANK: ​PNB Surigao Branch
SEQUENCE:
Gan Yek Kiao → Benito Seeto → presented for payment & indorsed →
PNB Surigao → PNB Cebu → PBCom → Dishonored
RECIT-READY:
Benito Seeto called PNB Surigao Branch and presented a check in the
amount of P5,000 dated at Cebu on March 10, 1948, payable to cash or
bearer, and drawn by one Gan Yek Kiao against the Cebu branch of
PBCom.
Seeto made a general and unqualified indorsement of the check and
PNB’s agency accepted it and paid Seeto the amount therefor.
On ​March 20, 1948, ​the check was mailed to PNB’s Cebu branch.
On ​April 9, 1948, ​the check was presented to PBCom for payment. It was
dishonored due to insufficient funds and was returned to PNB Surigao.
On the same date, PNB sent a letter to Seeto demanding the refund of the
check.
On ​April 26, 1948, ​a second communication of the same tenor was sent,
to which Setto asked the suit to be deferred while he was making inquiries
about the reasons for the dishonor of the check.
Seeto refused to make the refund alleging that at the time of negotiation,
the drawer had sufficient funds and that PNB delayed to forward the
check until the drawer’s funds were exhausted, the same would have not
been paid.
ISSUE:
● W/N CA erred in applying Secs. 143 and 144 of the NIL and
declaring Benito Seeto discharged of his liability as indorser of the
check - ​YES (Secs. 143 & 144 applies to bills of exchange, not
for checks; ​Secs. 84 & 186 apply​)
● W/N there was unreasonable delay in the presentment of the
check - ​YES
RULING:
In this case, ​Sec. 84 is applicable, but its application is subject to the
condition imposed by Sec. 186, ​to the effect that the check must be
presented for payment within a reasonable time after its issue.
The silence of Sec. 186 as to the indorser is due to the fact that his
discharge is already expressly covered by Sec. 84, the indorser
being a person secondarily liable on the instrument
The reason for the difference between the liability of the indorser and that
of the drawer in case of dishonor is that the drawer is not probably or
necessarily prejudiced thereby, while an indorser is, actually or by legal
presumption.
The fact that the checks of the drawer issued subsequent to March 13,
1948, drawn against the same bank and cashed at the same Surigao
agency, were not dishonored positively ​shows that the drawer had
enough funds when he issued the check in question, and had it not
been for the unreasonable delay in its presentation for payment,
PNB would have been able to receive payment therefor.
There was unreasonable delay in the presentation of the check for
payment at the drawee bank, and that as a consequence thereof, the
indorser, Seeto, was thereby discharged.
DOCTRINE:
Section 186 of the Negotiable Instruments Law expressly requires that a
check must be presented for payment within a reasonable time after
issue. Although it is a well-settled principle that a check need not be
presented for payment, it must be presented within a reasonable time.

The silence of ​Sec. 186 ​(presentment within a reasonable time) as to the
indorser is due to the fact that his discharge is already expressly covered
by the provisions of ​Sec. 84 (discharge of a person secondarily liable), the
indorser being secondarily liable on the instrument.
Sec. 186 - ​Within what time a check must be presented. — 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.
FACTS:
● Benito Seeto called PNB Surigao Branch and presented a check in
the amount of P5,000 dated at Cebu on March 10, 1948, payable to
cash or bearer, and drawn by one Gan Yek Kiao against the Cebu
branch of PBCom.
● Seeto made a general and unqualified indorsement of the check,
and PNB’s agency accepted it and paid Seeto P5000.
● The check was mailed to PNB Cebu Branch and was presented to
the drawee bank (PBCom) for payment, but the check was
dishonored for “insufficient funds”
● The check was returned to PNB Surigao and the branch sent a letter
to Seeto demanding immediate refund of the value of the check.
● Another demand letter was sent, to which Seeto answered asking
PNB’s suit to be deferred while he was making inquiries about the
reasons for the dishonor of the check.
● Seeto refused to make the refund demanded, claiming that at the
time of the negotiation of the check, the drawer had sufficient funds
in the drawee bank, and that had PNB’s Surigao agency not delayed
to forward the check until the drawer’s funds were exhausted, the
same would have been paid.
● PNB Surigao Branch presented a complaint in the CFI, alleging that
Benito Seeto gave assurances to PNB Surigao’s agency that the
drawer of the check had sufficient funds with the drawer bank, and
after the Seeto had made a general and unqualified indorsement
thereon.
● Seeto denied having made the alleged assurances.
● PNB submitted two witnesses at the time of the trial, who testified
that it was not the practice of PNB’s agency to cash out of town
checks, and that the check was cashed because of the assurances
given by the respondent that the drawer had sufficient funds, and
that Seetowould refund the amount paid by petitioner's agency in
case the check is dishonored.
● CFI Ruling​:
○ Seeto made an undertaking to refund the amount of the check
in the event of dishonor. In support of this finding, it found that
the drawee bank is not in Cebu, it was impossible for PNB’s
agency to make an immediate verification of the drawer’s
solvency and must have taken precautions to protect itself
against loss by requiring the nonpayment.
○ There was no unreasonable delay in the presentation of the
check.
● CA Ruling​:
○ Revered the judgment of the Trial Court and dismissed the
complaint.
○ PNB was guilty of unreasonably retaining and withholding the
check and that the delay in presentment for payment was
inexcusable. Seeto was discharged from liability.
○ Parol evidence is incompetent to show that one signing a check
as indorser is merely a surety or guarantor.
ISSUES:
● W/N CA erred in applying Secs. 143 and 144 of the NIL and
declaring Benito Seeto discharged of his liability as indorser of the
check - ​YES (Secs. 143 & 144 applies to bills of exchange, not
for checks) [SYLLABUS TOPIC]
● W/N there was unreasonable delay in the presentment of the check
- ​YES [SYLLABUS TOPIC]
● W/N parol evidence on obligations of indorser is admissible as
evidence - ​YES
RELEVANT ARGUMENTS (if any):
● Petitioner:
○ Inasmuch as a check need not be presented for
acceptance, unlike a bill of exchange as required by Sec.
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 143, Sec. 144 of the law is not applicable to the case but
Sec. 84, which provides:
○ Sec. 84. ​Liability of person secondarily liable, when
instrument dishonored. ​-- Subject to the provisions of this
Act, when the instrument is dishonored by nonpayment, an
immediate right of recourse to all parties secondarily liable
thereon accrues to the holder.
○ Inasmuch as sec. 186 expressly provides for the discharge
of the drawer from liability to the extent of the loss caused
by the delay, and, on the other hand, it is silent as to the
liability of the indorser, the latter may not be considered
discharged from liability by reason of the delay in the
presentment for payment under the general principle
inclusio unius est exclusio alterius.
● Respondent:
RATIO:
SECS. 143 & 144 ARE NOT APPLICABLE
● Sections 143 and 144 of the law are not applicable, because these
are provisions having to do with the presentation of a bill of
exchange for acceptance and are not applicable to a check, as to
which presentment for acceptance is not required.
● It is true that Sec. 84 is applicable, but its application is subject
to the condition imposed by Sec. 186, to the effect that the
check must be presented for payment within a reasonable time
after its issue.
○ Sec. 186 - ​Within what time a check must be presented. —
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.
○ PNB argues that inasmuch as Sec. 186 expressly provides
for the discharge of the drawer from liability to the extent of
loss caused by the delay, it is silent as to the liability of the
indorser.
○ The silence of Sec. 186 as to the indorser is due to the fact
that his discharge is already expressly covered by Sec. 84,
the indorser being a person secondarily liable on the
instrument
○ The reason for the difference between the liability of the indorser
and that of the drawer in case of dishonor is that the drawer is
not probably or necessarily prejudiced thereby, while an indorser
is, actually or by legal presumption.
○ Innumerable decisions have already been rendered in the state
courts of the United States to the effect that although the drawer
of a check is discharged only to the extent of loss caused by
unreasonable delay in presentment, an indorser is wholly
discharged thereby irrespective of any question of loss or injury.
○ The court has been unable to find any authority sustaining the
proposition that an indorser of a check is not discharged from
liability for an unreasonable delay in presentation for payment.
This is contrary to the essential nature and character of
negotiable instruments - their negotiability.
○ They are supposed to be passed on with promptness in the
ordinary course of business transactions; not to be retained or
kept for such time as the holder may want, otherwise the smooth
flow of commercial transactions would be hindered.
UNREASONABLE DELAY IN THE PRESENTMENT OF CHECKS
● PNB concedes the correctness of the conclusion of the CA that
there was unreasonable delay in the presentation of the check for
payment.
● The fact that the checks of the drawer issued subsequent to March
13, 1948, drawn against the same bank and cashed at the same
Surigao agency, were not dishonored positively ​shows that the
drawer had enough funds when he issued the check in
question, and had it not been for the unreasonable delay in its
presentation for payment, PNB would have been able to receive
payment therefor.
● The check is dated March 10 and was cashed by PNB on March 13,
1948. It was not mailed until 7 days after, or 10 days after issue.
● No excuse was given for the delay.
● Assuming that it took one week for the check to reach Cebu, neither
can there be any excuse for not presenting it for payment at the
drawee bank until Apr. 9, 1948 or 10 days after it reached Cebu.
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 ● There was unreasonable delay in the presentation of the check
for payment at the drawee bank, and that as a consequence
thereof, the indorser, Seeto, was thereby discharged.

PAROL EVIDENCE

● The supposed assurances of refund in case of dishonor of the check

are precisely the ordinary obligations of an indorser, and these
obligations are, under the law, considered discharged by an
unreasonable delay in the presentation of the check for payment.
○ SEC. 66. Liability of general indorser. —
And, in addition, he engages that on due presentment, it 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 indorser who may be compelled to pay
it.
● There was no express obligation assumed by Seeto that the drawer
would always have funds, or that he would refund the amount of the
check ​even if there was delay in its presentation.

WHEREFORE,

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 CRYSTAL vs. CA
Sec. 186. ​Within what time a check must be presented. - A check
June 18, 1976| BARREDO, ​J.​ | SEC. 186
must be presented for payment within a reasonable time after its
CARILLO, J.
issue or the drawer will be discharged from liability thereon to the
extent of the loss caused by the delay.
Petitioner:​RAYMUNDO A. CRYSTAL
Respondents: ​PELAGIA OCANG, PACITA, TEODULO, FELICISIMO, The dishonoring of a check upon presentment, and its being stale
PABLO, LYDIA, DIOSCORA and RODRIGO, all surnamed DE GRACIA for not being presented at all time, are incompatible developments
that naturally have variant legal consequences. Thus, if indeed the
DRAWER: ​Crystal check in question had been dishonored then there can be no doubt
PAYEE: ​De garcia that petitioner's redemption was null and void. On the other hand, if
it had only become stale, then it becomes imperative that the
RECIT-READY: ​The Supreme Court, in its decision of 25 February 1975, circumstances that caused its non-presentment be determined, for if
affirmed the decision of the Court of Appeals, holding that Raymundo this was not due to the fault of the petitioner, then it would be unfair
Crystal’s redemption of the property acquired by Pelagia Ocang, Pacita, to deprive him of the rights he had acquired as redemptioner,
Teodulo, Felicisimo, Pablo, Lydia, Dioscoro and Rodrigo, all surnamed de particularly, if, after all, the value of the check has otherwise been
Garcia, was invalid as the check which Crystal used in paying the received or realized by the party concerned.​|||
redemption price has been either dishonored or had become stale (Ergo,
the value of the check was never realized). Crystal filed a motion for
**So much procedural aspects on this case.
reconsideration.
FACTS:
ISSUE:
- The Supreme Court, in its decision of 25 February 1975, affirmed
Whether the conflicting circumstances of the check being dishonored and
the decision of the Court of Appeals, ​holding that petitioner,
becoming stale affect the validity of the redemption sale. ​(YES)
Raymundo Crystal’s ​redemption of the property acquired by
respondents, Pelagia Ocang, Pacita, Teodulo, Felicisimo, Pablo,
RULING:
Lydia, Dioscoro and Rodrigo, all surnamed ​de Garcia​, was invalid
For a check to be dishonored upon presentment and to be stale for not
as the check which Crystal used in paying the redemption price has
being presented at all in time are incompatible developments that have
been either dishonored or had become stale (Ergo, the value of the
variant legal consequences. If indeed the questioned check was
check was never realized).
dishonored, the redemption was null and void. If it had only become state,
- Crystal filed a motion for reconsideration.
it becomes imperative that the circumstances that caused its
- In his motion for reconsideration, petitioner insists that it
non-presentment be determined, for if it was not due to the fault of the
was an act in excess of jurisdiction on the part of the trial
drawer, it would be unfair to deprive him of the rights he had acquired as
court, to issue the writ of possession sought by private
redemptioner. Herein, it appears that there is a strong showing that the
respondents, thru Pelagia Ocang, in her motion,,
check was not dishonored, although it became stale, and that Pelagia
considering that court had previously pointedly observed in
Ocang had actually been paid the full value thereof. The Supreme Court,
its order that "the question as to whether or not the
thus, reconsidered its decision and remanded the case to the trial court for
redemption allegedly made by Mr. Crystal by paying the
further proceedings.
amount to Mrs. Pelagia Ocang without using the said
P11,200 deposited with the sheriff is legal and effective.
DOCTRINE:

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 - In this connection, it is to be noted that even after Crystal had filed
Civil Case, evidently in reliance of what he must have considered as
his right as redemptioner of the property sold in execution under a
judgment, petitioner regained possession of the four (4) parcels of
land in question without the aid of the court, taking the same from
Pelagia Ocang who had previously taken it away from him also
extrajudicially.
- Respondents Pelagia Ocang claimed that she had legally acquired
the same precisely in that same execution and that ​petitioner's
redemption was null and void because the check he used to pay the
redemption price had been dishonored for lack of sufficient funds.
ISSUES:
Whether the conflicting circumstances of the check being dishonored and
becoming stale affect the validity of the redemption sale. ​(YES)
RATIO:
- More importantly, what impresses us in the motion for
reconsideration is the possible injustice that might result from our
unqualified reliance in our decision on the finding of the CA that the
check for P11,200 paid by petitioner for the redemption in dispute
had been dishonoured, in the face of the other finding in the same
decision of the Court of Appeals indicating that instead of having
been dishonored, the said check had only become stale, albeit it
was being replaced with new ones from time to time.
- Court is convinced that it is but fair and just that the trial court should
be allowed to receive all relevant and competent evidence the
parties may wish to present relative to the issue of whether or not
respondent Pelagia Ocang has already received in one form or
another, directly or indirectly, the full amount of P11,200 as
redemption price of the four (4) parcels of land in dispute as well as
to all other facts which might affect the validity of the redemption
here in controversy.
- Withal, should it be found by the trial court that the redemption was
invalid, because the redemption price has not been fully paid, it
should further determine who made the improvements found on said
lands, in order that if it should turn out that they were introduced by
petitioner, possession may not be awarded to respondents unless
said improvements are first properly and fully reimbursed to
petitioner.
- The Supreme Court, thus, reconsidered its decision and remanded
the case to the trial court for further proceedings
WHEREFORE, the decision of this Court of February 25, 1975 is hereby
reconsidered and modified in line with the foregoing opinion and this
case is remanded to the trial court for further proceedings as therein
indicated.

- For a check to be dishonored upon presentment and to be stale for

not being presented at all in time are incompatible developments
that have variant legal consequences.

- If indeed the questioned check was dishonored, the redemption was

null and void. If it had only become state, it becomes imperative that
the circumstances that caused its non-presentment be determined,
for if it was not due to the fault of the drawer, it would be unfair to
deprive him of the rights he had acquired as redemptioner.

- Herein, it appears that there is a strong showing that the check was
not dishonored, although it became stale, ​and that Pelagia
Ocang had actually been paid the full value thereof.

ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​5


3. Pacheco v. CA
December 2, 1999 | Ynares- Santiago, J. | Section 186- Within what time
a check must be presented
Lex Reinoso
DRAWER: Pacheco
PAYEE: Vicencio
SEQUENCE: RCBC check
Spouses Pacheco >Spouses Vicencio > Bank (dishonored)
RECIT-READY: ​Spouses Pacheco obtained a loan of Php 10,000 from
Mrs. Vicencio because Spouses Pacheco were experiencing financial
difficulties due to delays in the payment of their receivables for the
construction projects with DPWH
1st Loan ​- ​Php 10,000 - Instead requiring a note of indebtedness, Mr.
Vicencio required Spouses Pacheco to issue an undated check as
evidence of the loan which allegedly will not be presented to the bank;
Petitioners informed Spouses Vicencio that their bank account no longer
had any funds; Mrs. Vicencio insisted that they issue the check for mere
formality. Spouses Pacheco then issued a check ​2nd ​ Loan ​- ​Php 50,000 –
Same set up with the first loan. Spouses Pacheco issued three undated
checks to cover the amount of Php 50,000 ​3rd ​ loan ​– ​Php 10,000 – Same
set up ​4th loan ​–​ Php 15,000 – Same set up
The 6 undated checks represent a total obligation of Php 85,000. Of the
Php 85,000, Spouses Pacheco were able to pay Spouses Vicencio Php
70,000 – leaving a balance of Php 15,000. When the Php 15,000 became
due and demandable - Spouses Pacheco were not able to pay. Spouses
Vicencio went to the residence of Spouses Pacheco to persuade Virginia
Pacheco to place a date (August 15, 1992) on the checks to serve as
additional guarantee. Despite being informed by Virginia Pacheco that
their account with RCBC had been closed as early as August 17, 1989,
Mrs. Vicencio and her daughter insisted that she place a date on the
checks allegedly so that it will become evidence of their indebtedness.
The former reluctantly wrote the date on the checks. Spouses Pacheco
were surprised to receive a demand letter from Mr. Vicencio informing
them that the checks when presented for payment on August 25, 1992
were dishonored due to Account Closed.
2 Informations for Estafa (against Spouses Pacheco) were filed - alleged
that Spouses Pacheco through fraud and false pretenses and in payment
of a diamond ring issued checks which when presented for payment were
dishonored due to account closed
ISSUE:
● Whether or not post-dating the undated checks constituted fraud,
making the Spouses Pacheco guilty of Estafa
RULING: ​No, it did not. Ernesto and Virginia Pacheco are NOT GUILTY
of Estafa
No deceit on the part of Spouses Pacheco:
Both parties agreed ​at time of the issuance and postdating of the checks
that the ​same shall not be encashed or presented to the banks.
Additionally, Spouses Pacheco disclosed to Spouses Vicencio that there
are no longer funds in their bank account - T​he checks became ​mere
evidence of indebtedness
Allegation that checks were payments for jewelry purchased:
Supreme Court said that there were six checks given by Spouses
Pacheco to Mrs. Vicencio but only two were presented for encashment​. ​If
all were issued in payment of the alleged jewelry, why were not all the
checks presented? - The two checks as the total amount reflected therein
is equivalent to the amount due under the unpaid obligation of (Php
15,000)
SC said that Spouses Vicencio (in fact) need not ask Spouses Pacheco to
place a date on the check, pursuant to:
Sec. 13 ​– Gave Spouses Vicencio the right to insert a date on the check
as holder of the check
Sec. 14 ​– Spouses Vicencio​, as the person in possession of the check,
has prima facie authority to complete it by filling up the blanks therein.
Sec. 12 ​- The instrument is not invalid for the reason only that it is
ante-dated or post-dated, provided this is not done for an illegal or
fraudulent purpose.
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Hence, Spouses Pacheco did not commit estafa by post-dating the
checks
But, Spouses Pacheco are not without liability:
SC ordered Spouses Pacheco to still pay Php15,000 with legal interest
until they fully pay the remaining balance
DOCTRINE:
Moreover, a check must be presented within a reasonable time from
issue. By current banking practice, a check becomes stale after more than
six (6) months. In fact a check long overdue for more than two and
one-half years is considered stale. In this case, the checks were issued
more than three years prior to their presentment. In his complaint,
Vicencio alleged that Pacheco bought jewelry from him and that he would
not have parted with his jewelry had not Pacheco issued the checks. The
evidence on record, however, does not support the theory of the crime.
Sec. 186. Within what time a check must be presented. - 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.
FACTS:
● The Pacheco spouses are engaged in the construction business.
● Romualdo Vicencio was a former Judge and his wife, Luz Vicencio,
owns a pawnshop in Samar.
● Due to financial difficulties arising from the repeated delays in the
payment of their receivables for the construction projects from the
DPWH, Sps. Pacheco were constrained to obtain a loan from Mrs.
Vicencio
● Loan 1: P10,000.00
○ Instead of merely requiring a note of indebtedness, however,
her husband Mr. Vicencio required petitioners to issue an
undated check as evidence of the loan which allegedly will not
be presented to the bank.
○ Despite being informed by petitioners that their bank account
no longer had any funds, Mrs. Vicencio insisted that issue the
check, which according to her was only a formality.
○ Thus, petitioner Virginia Pacheco issued an undated RCBC
check for P10,000.00.
○ However, she only received the amount of P9,000.00 as the
10% interest on the loan was already deducted.
○ Mrs. Vicencio also required Virginia's husband, herein petitioner
Ernesto Pacheco, to sign the check on the same understanding
that the check is not to be encashed but merely intended as an
evidence of indebtedness which cannot be negotiated.
● Loan 2: Virginia obtained another loan of P50,000.00 from Mrs.
Vicencio.
○ She received only P35,000.00 as the previous loan of
P10,000.00 as well as the 10% interest amounting to P5,000.00
on the new loan were deducted by the latter.
○ With the payment of the previous debt, Virginia asked for the
return of the first check (RCBC check no. 101756) but Mrs.
Vicencio told her that her filing clerk was absent.
○ Despite several demands for the return of the first check, Mrs.
Vicencio told Virginia that they can no longer locate the folder
containing that check.
● Loan 3: she also required Virginia to issue three (3) more checks in
various amounts — two checks for P20,000.00 each and the third
check for P10,000.00.
○ Sps. Pacheco were not amendable to these requirements, but
Mrs. Vicencio insisted that they issue the same assuring them
that the checks will not be presented to the banks but will
merely serve as guarantee for the loan since there was no
promissory note required of them.
○ Due to her dire financial needs, Virginia issued three undated
RCBC checks in the sum of P20,000.00 each and P10,000.00,
and again informed Mrs. Vicencio that the cheeks cannot be
encashed as the same were not funded. Petitioner Ernesto also
signed the three checks as required by Mrs. Vicencio on the
same conditions as the first check.
● Loan 4: Sps Pacheco issued two more RCBC checks for
P10,000.00 and P15,000.00 as required by Mrs. Vicencio with the
same assurance that the checks shall not be presented for payment
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​7
 but shall stand only as evidence of indebtedness in lieu of the usual
promissory note.
● All the checks were undated at the time Sps. Pacheco handed them
to Mrs. Vicencio.
● The six checks represent a total obligation of P85,000.00. However,
since the loan of P10,000.00 under the first check was already paid
when the amount thereof was deducted from the proceeds of the
second loan, the remaining account was only P75,000.00. Of this
amount, petitioners were able to settle and pay in cash P60,000.00
● When the remaining balance of P15,000.00 on the loans became
due and demandable, petitioners were not able to pay despite
demands to do so.
● Mrs. Vicencio together with her husband and their daughter Lucille,
went to petitioners' residence to persuade Virginia to place the date
"August 15, 1992" on checks although said checks were
respectively given undated to Mrs. Vicencio. Another check was
required by Mrs. Vicencio to be dated as additional guarantee for
the P15,000.00 unpaid balance
● Despite being informed by petitioner Virginia that their account with
RCBC had been closed as early as August 17, 1989, Mrs. Vicencio
and her daughter insisted that she place a date on the checks
allegedly so that it will become evidence of their indebtedness. The
former reluctantly wrote the date on the checks for fear that she
might not be able to obtain future loans from Mrs. Vicencio.
● Sps. Pacheco were surprised to receive a demand letter from Mrs.
Vicencio's spouse informing them that the checks when presented
for payment were dishonored due to "Account Closed".
● Consequently, upon the complaint of Mrs., Vicencio's husband with
whom petitioners never had any transaction, two informations for
estafa, defined in Article 315 (2) (d) of the Revised Penal Code,
were filed against them.
○ The informations which were amended on April 1, 1993 alleged
that petitioners "through fraud and false pretenses and in
payment of a diamond ring (gold necklace)" issued checks
which when presented for payment were dishonored due to
account closed.
● On appeal, the Court of Appeals (CA) affirmed the decision of the
court ​a quo.​
ISSUES:
● Whether or not post-dating the undated checks constituted fraud,
making the Spouses Pacheco guilty of Estafa
RATIO:
● Estafa may be committed in several ways. One of these is by
postdating a check or issuing a check in payment of an obligation,
as provided in Article 315, paragraph 2(d) of the RPC,
● The essential elements in order to sustain a conviction under the
above paragraph are:
○ that the offender postdated or issued a check in payment of an
payment obligation contracted at the time the check was issued;
○ that such postdating or issuing a check was done when the
offender had no funds in the bank, or his funds deposited therein
were not sufficient to cover the amount of the check;
○ deceit or damage to the payee thereof.
● The first and third elements are not present in this case.
● A check has the character of negotiability and at the same time it
constitutes an evidence of indebtedness.
● By mutual agreement of the parties, the negotiable character of a
check may be waived and the instrument may be treated simply as
proof of an obligation.
● There cannot be deceit on the part of the obligor, petitioners herein,
because they agreed with the obligee at the time of the issuance
and postdating of the checks that the same shall not be encashed or
presented to the banks.
● As per assurance of the lender, the checks are nothing but evidence
of the loan or security thereof in lieu of and for the same purpose as
a promissory note.
● By their own covenant, therefore, the checks became mere
evidence of indebtedness. It has been ruled that a drawer who
issues a check as security or evidence of investment is not liable for
estafa.
● Mrs. Vicencio could not have been deceived nor defrauded by
petitioners in order to obtain the loans because she was informed
that they no longer have funds in their RCBC accounts. In 1992,
when the Vicencio family asked Virginia to place a date on the
check, the latter again informed Mrs. Vicencio that their account with
RCBC was already closed as early as August 1989.
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​8
● With the assurance, however, that the check will only stand as a firm
evidence of indebtedness, Virginia placed a date on the check.
Under these circumstances, Mrs. Vicencio cannot claim that she
was deceived or defrauded by petitioners in obtaining the loan. In
the absence of the essential element of deceit, 8​ no estafa was
committed by petitioners.
● Both courts below relied so much on the fact that Mrs. Vicencio's
husband is a former Judge who knows the law.
○ He should have known, then, that he need not even ask the
petitioners to place a date on the check, because as holder of the
check, he could have inserted the date pursuant to Section 13 of
the Negotiable Instruments Law (NIL).
○ Section 14 thereof, complainant, as the person in possession of
the check, has prima facie a ​ uthority to complete it by filling up the
blanks therein.
○ Besides, pursuant to Section 12 of the same law, a negotiable
instrument is not rendered invalid by reason only that it is
antedated or postdated.
○ Thus, the allegation of Mrs. Vicencio that the date to be placed
by Virginia was necessary so as to make the check evidence of
indebtedness is nothing but a ploy. Petitioners openly disclosed
and never hid the fact that they no longer have funds in the bank
as their bank account was already closed.
○ Knowledge by the complainant that the drawer does not have
sufficient funds in the bank at the time it was issued to him does
not give rise to a case for estafa through bouncing checks.
● Moreover, a check must be presented within a reasonable time
from issue. By current banking practice, a check becomes
stale after more than six (6) months. In fact a check long
overdue for more than two and one-half years is considered
​ In this case, the checks were issued more than three
stale. 13
years prior to their presentment. In his complaint, complainant
alleged that petitioners bought jewelry from him and that he
would not have parted with his jewelry had not petitioners
issued the checks. The evidence on record, however, does not
support the theory of the crime.
● Sec. 186. Within what time a check must be presented. - 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.
● There were six checks given by petitioners to Mrs. Vicencio but only
two were presented for encashment.
○ If all were issued in payment of the alleged jewelry, why were not
all the checks presented? There was a deliberate choice of these
two checks as the total amount reflected therein is equivalent to
the amount due under the unpaid obligation.
○ The other checks, on the other hand, could not be used as the
amounts therein do not jibe with the amount of the unpaid
balance.
○ Following complainant's theory that he would not have sold the
jewelries had not petitioners issued "postdated" checks, still no
estafa can be imputed to petitioners. It is clear that the checks
were not intended for encashment with the bank, but were
delivered as mere security for the payment of the loan and under
an agreement that the checks would be redeemed with cash as
they fell due.
● Hence, the checks were not intended by the parties to be modes of
payment but only as promissory notes. Since complainant and his
wife were well aware of that fact, they cannot now complain there
was deception on the part of petitioners. Awareness by the
complainant of the fictitious nature of the pretense cannot give rise
to estafa by means of deceit. 14 ​ When the payee was informed by
the by the drawer that the checks are not covered by adequate
funds it does not give rise to bad faith or estafa.
● M​oreover, complainant's allegations that the two subject checks
were issued in 1992 as payment for the jewelry he allegedly sold to
petitioners is belied by the evidence on record.
○ First, complainant is not engaged in the sale of jewelry. Neither
are petitioners. If the pieces of jewelry were important to
complainant considering that they were with him for more than
twenty-five years already, he would not have easily parted with
them in consideration for unfunded personal checks in favor of
persons whose means of living or source of income were
unknown to him. Applicable here is the legal precept that
persons are presumed to have taken care of their business.
○ Second, petitioners' bank account with RCBC was opened on
March 26, 1987 and was closed on April 17, 1989, during the
span of which they were issued 10 check booklets with the last
booklet issued on April 6, 1984. This last booklet contains 50
checks consecutively numbered from 101751 to 101800. The two
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​9
 subject checks came from this booklet. All the checks in this
booklet were issued in the year 1989 including the two subject
checks, so that the complainants' theory that the jewelry were
sold in 1992 cannot be believed.

WHEREFORE, ​the assailed Decision is REVERSED and SET ASIDE.

Petitioners are ACQUITTED of the charge of estafa but they are ORDERED
to pay Mrs. Vicencio the amount of P15,000.00 without interest. However,
from the time this judgment becomes final and executory, the amount due
shall earn legal interest of twelve percent (12%) per annum ​until full
payment.

ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​10

 4. THE INTERNATIONAL CORPORATE BANK v. SPS. GUECO
February 12, 2001 | KAPUNAN, J. | Section 186
F. QUIJANO & R. REALUBIN
INSTRUMENT: ​Manager’s Check
MAKER: ​Sps. Gueco
PAYEE: ​International Corporate Bank (Union Bank of the Philippines)
SEQUENCE:
Sps. Gueco​ > ​International Corporate Bank
RECIT-READY:
Gueco Spouses obtained a loan from International Corporate Bank (now
Union Bank of the Philippines) to purchase a car. In consideration
thereof, the Spouses executed promissory notes which were payable in
monthly installments and chattel mortgage over the car to serve as
security for the notes. Spouses defaulted in payment of installments.
Consequently, the Bank filed a civil action. The Bank demanded payment
of the amount of P184,000.00 which represents the unpaid balance for the
car loan. After some negotiations and computation, the amount was
lowered to P154,000.00, However, as a result of the non-payment of the
reduced amount on that date, the car was detained inside the bank's
compound. More negotiations resulted in the further reduction of the
outstanding loan to P150,000.00. ​Dr. Gueco delivered a manager's
check in amount of P150,000.00 but the car was not released
because of his refusal to sign the Joint Motion to Dismiss. ​Gueco
spouses initiated a civil action for damages. The MTC dismissed the
complaint for lack of merit. The RTC reversed and held that there was a
meeting of the minds between the parties as to the reduction of the
amount of indebtedness and the release of the car but said agreement did
not include the signing of the joint motion to dismiss as a condition sine
qua non for the effectivity of the compromise. The court further ordered
the bank to return immediately the subject car to the appellants in good
working condition; Appellee may deposit the Manager's check
ISSUE:
● Whether or not the CA erred in holding that the petitioner return
the subject car to the respondents, without making any provision
for the issuance of the new manager's/cashier's check by the
respondents in favor of the petitioner in lieu of the original
cashier's check that already became stale? ​YES
RULING:
● A check must be presented for payment within a reasonable time
after its issue, and in determining what is a "reasonable time,"
regard is to be had to the nature of the instrument, the usage of
trade or business with respect to such instruments, and the facts
of the particular case. ​In the case at bar, however, the check
involved is not an ordinary bill of exchange but a manager's
check. It is really the bank's own check and may be treated as a
promissory note with the bank as a maker. 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.
● 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 Gueco
spouses have not alleged, much less shown that they or the
bank which issued the manager's check has suffered
damage or loss caused by the delay or non-presentment.
Definitely, the original obligation to pay certainly has not
been erased.
● 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 petitioner bank held on the check and refused
to encash the same because of the controversy surrounding
the signing of the joint motion to dismiss.
DOCTRINE:
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 Gueco spouses
have not alleged, much less shown that they or the bank which
issued the manager's check has suffered damage or loss caused by
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​11

the delay or non-presentment. ​Definitely, the original obligation to pay
certainly has not been erased.
FACTS:
● Gueco Spouses obtained a loan from International Corporate Bank
(now Union Bank of the Philippines) to purchase a car - a Nissan
Sentra 1600 4DR, 1989 Model. In consideration thereof, the
Spouses executed promissory notes which were payable in monthly
installments and chattel mortgage over the car to serve as security
for the notes.
● Spouses defaulted in payment of installments. Consequently, the
Bank filed on August 7, 1995 a civil action before the Metropolitan
Trial Court of Pasay City. Desi Tomas, the Bank's Assistant Vice
President demanded payment of the amount of P184,000.00 which
represents the unpaid balance for the car loan. After some
negotiations and computation, the amount was lowered to
P154,000.00, However, as a result of the non-payment of the
reduced amount on that date, the car was detained inside the bank's
compound. Dr. Gueco went to the bank and talked with its
Administrative Support, Auto Loans/Credit Card Collection Head,
Jefferson Rivera. The negotiations resulted in the further reduction
of the outstanding loan to P150,000.00.
● Dr. Gueco delivered a manager's check in amount of
P150,000.00 but the car was not released because of his refusal
to sign the Joint Motion to Dismiss. It is the contention of the
Gueco spouses and their counsel that Dr. Gueco need not sign the
motion for joint dismissal considering that they had not yet filed their
Answer. The Bank however, insisted that the joint motion to dismiss
is 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 with bank
representatives, the Gueco spouses initiated a civil action for
damages before the Metropolitan Trial Court of Quezon City. The
Metropolitan Trial Court dismissed the complaint for lack of merit.
● On appeal to the Regional Trial Court of Quezon City, the decision
of the Metropolitan Trial Court was reversed. In its decision, the
RTC held that there was a meeting of the minds between the parties
as to the reduction of the amount of indebtedness and the release of
the car but said agreement did not include the signing of the joint
motion to dismiss as a condition sine qua non for the effectivity of
the compromise. The court further ordered the bank:
○ to return immediately the subject car to the appellants in
good working condition; Appellee may deposit the
Manager's check - the proceeds of which have long been
under the control of the issuing bank in favor of the appellee
since its issuance, whereas the funds have long been paid
by appellants to secure said Manager's Check, over which
appellants have no control
● CA denied the petition for review and reversed the finding of the
RTC
ISSUES:
● Whether or not the CA erred in holding that the petitioner return the
subject car to the respondents, without making any provision for the
issuance of the new manager's/cashier's check by the respondents
in favor of the petitioner in lieu of the original cashier's check that
already became stale? ​YES
RELEVANT ARGUMENTS (if any):
● Respondent: They would make us hold that petitioner should return
the car or its value and that the latter, because of its own
negligence, should suffer the loss 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,
petitioner was negligent in opting not to deposit or use said check.
RATIO:
● A stale check is one which has not been presented for payment
within a reasonable time after its issue. It is valueless and, therefore,
should not be paid. Under the negotiable instruments law, ​an
instrument not payable on demand must be presented for
payment on the day it falls due. When the instrument is payable
on demand, presentment must be made within a reasonable
time after its issue. In the case of a bill of exchange,
presentment is sufficient if made within a reasonable time after
the last negotiation thereof.
● A check must be presented for payment within a reasonable time
after its issue, and in determining what is a "reasonable time,"
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​12
 regard is to be had to the nature of the instrument, the usage of in the latter's possession, afterwhich, petitioner is to return the subject
trade or business with respect to such instruments, and the facts of motor vehicle in good working condition
the particular case. The test is whether the payee employed such
diligence as a prudent man exercises in his own affairs. This is
because the nature and theory behind the use of a check points to
its immediate use and payability.
● In the case at bar, however, the check involved is not an
ordinary bill of exchange but a manager's check. A manager's
check is one drawn by the bank's manager upon the bank itself. 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 Gueco spouses have
not alleged, much less shown that they or the bank which
issued the manager's check has suffered damage or loss
caused by the delay or non-presentment. Definitely, the original
obligation to pay certainly has not been erased.
● 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
petitioner bank 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 the Bank

WHEREFORE, premises considered, the petition for review is given

due course. The decision of the Court of Appeals affirming the
decision of the Regional Trial Court is SET ASIDE. Respondents are
further ordered to pay the original obligation amounting to P150,000.00
to the petitioner upon surrender or cancellation of the manager's check

ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​13

 5. WONG v. CA
Feb 2 2001 | Quisumbing | Art 186
CALDOZO
PETITIONER: ​Luis Wong
RESPONDENTS: ​Court of Appeals & People of the Philippines
DRAWER: ​Luis Wong
DRAWEE: ​Allied Banking Corporation
PAYEE: ​Limtong Press Inc.
COLLECTING BANK: ​RCBC
SEQUENCE:
Wong > Limtong > RCBC > ABC
RECIT-READY: ​Petitioner Wong was an agent of Limtong Press Inc.
(LPI), a manufacturer of calendars. He had a history of unremitted
collections, which he duly acknowledged in a confitmayion receipt he
co-signed with his wife for LPI. Hence, petitioner's costumers were
required to issue postdated checks before LPI would accept their
purchase orders. Wong issued 6 postdated checks drawn payable to the
order of LPI. The checks were initially intended to guarantee the calendar
FACTS:
orders of customers who failed to issue postdated 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 Wong’s unremitted collections for 1984. Before maturity of the
checks, Wong prevailed upon LPI not to deposit the checks and promised
to replace them within 30 days. He failed to honor his words and upon
deposit of LPI, the checks were returned for the reason of "account
closed." After being notified, petitioner still failed to make arrangement for
payments. He was charged with three counts of violation of B.P. Blg. 22
under three separate informations
Wong avers that since the complainant deposited the checks 157
days after the maturity date, ​the presumption of knowledge of lack of
funds under Section 2 of B.P. Blg. 22 should not apply to him.
ISSUE: ​whether the prosecution was able to establish beyond reasonable
doubt all the elements of the offense penalized under B.P. Blg. 22.? ​YES
RULING: ​As found by the trial court, Limton did not deposit the checks
because of the reassurance of Wong 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. There is, on record, sufficient evidence that petitioner had
knowledge of the insufficiency of his funds in or credit with the drawee
bank at the time of issuance of the checks. And despite petitioner's
insistent plea of innocence, we find no error in the respondent court's
affirmance of his conviction by the trial court for violations of the Bouncing
Checks Law.
DOCTRINE:
By current banking practice, a check becomes stale after more than six
(6) months, or 180 days. Limton 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.
● Petitioner Luis Wong was an agent of Limtong Press Inc. (LPI), a
manufacturer of calendars. LPI would print sample calendars, then
give them to agents to present to customers.
● The agents would get the purchase orders of customers and forward
them to LPI. After printing the calendars, LPI would ship the
calendars directly to the customers. Thereafter, the agents would
come around to collect the payments. Wong, however, had a history
of unremitted collections, which he duly acknowledged in a
confirmation receipt he co-signed with his wife. Hence, Wong's
customers were required to issue postdated checks before LPI
would accept their purchase orders.
● Wong issued six (6) postdated checks totaling P18,025.00, all dated
December 30, 1985 and drawn payable to the order of LPI. These
are all drawn against Allied Banking Corporation.
● Before the maturity of the checks, Wong 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,
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​14
 1986, LPI deposited the checks with Rizal Commercial Banking
Corporation (RCBC). The checks were returned for the reason
"account closed." The dishonor of the checks was evidenced by the
RCBC return slip.
● Manuel T. Limtong (General Manager of LPI) through counsel
notified the Wong of the dishonor. Wong failed to make
arrangements for payment within five (5) banking days.
● Wong was charged with three (3) counts of violation of B.P. Blg. 22
under three separate Informations for the three checks and another
2 were also filed. ​(Total 5, pero weird coz 6 checks)
● Limtong averred that he refused to accept the personal checks of
Wong since it was against company policy to accept personal
checks from agents. Hence, he and petitioner simply agreed to use
the checks to pay petitioner's unremitted collections to LPI.
According to Limtong, a few days before maturity of the checks,
Wong requested him to defer the deposit of said checks for lack of
funds. Wong promised to replace them within thirty days, but failed
to do so. Hence, upon advice of counsel, he deposited the checks
which were subsequently returned on the ground of "account
closed."
The version of the defense
● Wong issued the six (6) checks to guarantee the 1985 calendar
bookings of his customers.
● In fact, the face value of the six (6) postdated checks tallied with the
total amount of the calendar orders of the six (6) customers of the
accused
● Although these customers had already paid their respective orders,
Wong claimed LPI did not return the said checks to him.
● He contends that Limtong is not a "holder for value" considering that
the checks were deposited by private respondent after the
customers already paid their orders. Instead of depositing the
checks, private respondent should have returned the checks to him.
ISSUES:
● whether the prosecution was able to establish beyond reasonable
doubt all the elements of the offense penalized under B.P. Blg. 22.?
YES
RELEVANT ARGUMENTS (if any):
Petitioner:
● First Elemt: Petitioner contends that the first element does not exist
because the checks were not issued to apply for account or for
value. He attempts to distinguish his situation from the usual
"cut-and-dried" B.P. 22 case by claiming that the checks were
issued as guarantee and the obligations they were supposed to
guarantee were already paid.
● Second Element: Wong avers that since the complainant
deposited the checks 157 days after the maturity date, ​the
presumption of knowledge of lack of funds under Section 2 of
B.P. Blg. 22 should not apply to him. ​He further claims that he
should not be expected to keep his bank account active and funded
beyond the ninety- day period.
RATIO:
● The elements of B.P. Blg. 22 pertinent to the present case, are:
○ "(1) The making, drawing and issuance of any check to apply for
account or for value;
○ (2) The knowledge of the maker, drawer, or issuer that at the time
of issue he does not have su cient funds in or credit with the
drawee bank for the payment of such check in full upon its
presentment; ​and
○ (3) The subsequent dishonor of the check by the drawee bank for
insufficiency of funds or credit or dishonor for the same reason had not
the drawer, without any valid cause, ordered the bank to stop payment."
First Element
Petitioner contends that the first element does not exist because the checks
were not issued to apply for account or for value. He attempts to distinguish
his situation from the usual "cut-and-dried" B.P. 22 case by claiming that the
checks were issued as guarantee and the obligations they were supposed to
guarantee were already paid.
● This flawed argument has no factual basis, the RTC and CA having
both ruled that the checks were in payment for unremitted
collections, and not as guarantee. Likewise, the argument has no
legal basis, for what B.P. Blg. 22 punishes is the issuance of a
bouncing check and not the purpose for which it was issued nor the
terms and conditions relating to its issuance.
Second Element
● Section 2 of B.P. Blg. 22 provides:
○ Evidence of knowledge of insufficient funds. — The making,
drawing and issuance of a check payment of which is refused by
the drawee because of insufficient funds in or credit with such
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​15
 bank, when presented within ninety (90) days from the date of the insufficiency of funds was lost, but such knowledge could still
check, shall be ​prima facie evidence of knowledge of such be proven by direct or circumstantial evidence.
insufficiency of funds or credit unless such maker or drawer pays ● As found by the trial court, Limton did not deposit the checks
the holder thereof the amount due thereon, or makes
because of the reassurance of Wong that he would issue new
arrangements for payment in full by the drawee of such check
within five (5) banking days after receiving notice that such check checks. Upon his failure to do so, LPI was constrained to deposit the
has not been paid by the drawee. said checks. After the checks were dishonored, petitioner was duly
● An essential element of the offense is "knowledge" on the part of the notified of such fact but failed to make arrangements for full
maker or drawer of the check of the insufficiency of his funds in or payment within five (5) banking days thereof. There is, on record,
credit with the bank to cover the check upon its presentment. Since sufficient evidence that petitioner had knowledge of the insufficiency
this involves a state of mind di cult to establish, the statute itself of his funds in or credit with the drawee bank at the time of issuance
creates a prima facie presumption of such knowledge where of the checks. And despite petitioner's insistent plea of innocence,
payment of the check "is refused by the drawee because of we find no error in the respondent court's affirmance of his
insufficient funds in or credit with such bank when presented within conviction by the trial court for violations of the Bouncing Checks
ninety (90) days from the date of the check." To mitigate the Law.
harshness of the law in its application, the statute provides that such
presumption shall not arise if within five (5) banking days from ● However, pursuant to the policy guidelines in Administrative
receipt of the notice of dishonor, the maker or drawer makes Circular No. 12-2000, which took effect on November 21, 2000,
arrangements for payment of the check by the bank or pays the the penalty imposed on petitioner should now be modified to a
holder the amount of the check. fine of not less than but not more than double the amount of
● Contrary to petitioner's assertions, nowhere in said provision does the checks that were dishonored.
the law require a maker to maintain funds in his bank account for WHEREFORE, the petition is DENIED. Petitioner Luis S. Wong is found
only 90 days. Rather, the clear import of the law is to establish a liable for violation of Batas Pambansa Blg. 22 but the penalty imposed
prima facie presumption of knowledge of such insufficiency of funds on him is hereby MODIFIED so that the sentence of imprisonment is
under the following conditions (1) presentment within 90 days from deleted. xxxx
date of the check, and (2) the dishonor of the check and failure of
the maker to make arrangements for payment in full within 5
banking days after notice thereof. That the check must be deposited
within ninety (90) days is simply one of the conditions for the prima
facie presumption of knowledge of lack of funds to arise. It 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
thereof​. 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. ​Limton 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

ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​16

 6. NAGRAMPA v. PEOPLE
August 6, 2002 | DAVIDE, JR., J. | Sec. 186 (Within what time a check
must be presented)
MIRANDA & CHECKER
DRAWER: ​MANUEL NAGRAMPA,
MAKER:
DRAWEE: ​SECURITY BANK AND TRUST COMPANY
PAYEE: ​FEDCOR TRADING CORPORATION
HOLDER: ​FEDERICO A. SANTANDER
COLLECTING BANK:
SEQUENCE: ​Example​: Drawer > Payee > Indorser > Drawee Bank >
Collecting Bank
RECIT-READY: ​Manuel Nagrampa purchased a porcelain excavator
equipment from Fedcor Trading Corporation. He paid 50K downpayment,
then provided 2 postdated checks worth 75K each to cover the balance.
The checks were dishonored on the ground that the account was already
closed for more than 4 years. 2 criminal cases were filed - estafa and BP
22. In his defense he claimed that he is not guilty of estafa because no
damage was caused to FEDCOR and the back hoe being unserviceable
was returned to FEDCOR. He also argued that FEDCOR deposited the
checks 5 months after their due date. That FEDCOR, as payee, had the
duty or obligation to encash or deposit the checks issued in its favor within
ninety days from the date of issue, thus he was not liable Since FEDCOR
deposited the checks after this period, he cannot be faulted for their
subsequent dishonor.
The trial court found him guilty in both cases and was ordered to pay
FEDCOR the Court of Appeals affirmed the decision in toto.
FACTS:
ISSUE (nego):
● W/N checks presented beyond the 90-day period provided in
Section 2 of B.P. Blg. 22 relieve the drawer of liability if eventually
dishonored? ​NO
RULING: ​The fact that the checks were presented beyond the 90-day
period provided in Section 2 of B.P. Blg. 22 is of no moment. The 90-day
period is not an element of the offense but merely a condition for the
prima facie presumption of knowledge of the insufficiency of funds. Such
prima facie presumption is intended to facilitate proof of knowledge, and
not to foreclose admissibility of other evidence that may also prove such
knowledge; thus, the only consequence of the failure to present the check
for payment within the 90-day period is that there arises no prima facie
presumption of knowledge of insufficiency of funds. The prosecution may
still prove such knowledge through other evidence.
In this case, FEDCOR presented the checks for encashment on 22
February 1990, or within the six-month period from the date of issuance of
the checks, and would not therefore have been considered stale had
petitioner’s account been existing. ​Although the presumption of
knowledge of insufficiency of funds did not arise, such knowledge
was sufficiently proved by the unrebutted testimony of Mirano to the
effect that petitioner’s account with the Security Bank was closed as
early as May 1985, or more than four years prior to the issuance of
the two checks in question​.
DOCTRINE:
That the check must be deposited within ninety (90) days is simply one of
the conditions for the prima facie presumption of knowledge of lack of
funds to arise. It 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 thereof. 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.
● On 28 July 1989, Corseno Bote, FEDCOR’s Sales Manager,
brought to FEDCOR petitioner Manuel Nagrampa (hereafter
NAGRAMPA), General Manager of the Nagrampa Asphalt Plant in
Montalban, Rizal. NAGRAMPA purchased a Yutani Poclain
Backhoe Excavator Equipment for P200,000 from FEDCOR and
paid in cash the down payment of P50,000. To cover the balance of
P150,000, he issued Check No. 4734773 postdated 31 August 1989
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​17
 and Check No. 4734784 postdated 30 September 1989 in the
amount of P75,000 each. The checks were drawn against the
Security Bank and Trust Company. Upon the assurance of
FEDCOR’s salesman that the checks were good, FEDCOR
delivered to petitioner the equipment.
● FEDCOR presented the checks for payment on 22 February 1990;
however, they were dishonored on the ground that petitioner’s
account with the drawee bank, Security Bank, had already been
closed since May 1985. In a letter dated 19 March 1990, sent
through registered mail, FEDCOR demanded payment from
petitioner; but the latter failed to pay. Hence, the above cases were
filed against petitioner with the trial court. During his
cross-examination, Santander denied that the equipment was
returned to FEDCOR. Ronnie Bote, son of Corseno Bote, was not
an employee of FEDCOR but was merely its sales agent with no
authority to receive returned equipment
● Nagrampa version: On 28 July 1989, he bought from Corseno Bote
a backhoe and paid P50,000 cash, as evidenced by an
acknowledgment receipt signed by Corseno Bote. In addition, he
issued and handed to Corseno Bote two checks in the amount of
P75,000 each, dated 31 August 198911 and 30 September 1989.12
The agreement with Corseno Bote was that petitioner would replace
the two checks with cash if the backhoe would be in good running
condition. The backhoe was delivered at petitioner’s jobsite on 29
July 1989. After five to seven days of use, the backhoe broke down.
Such fact was reported to Ronnie Bote, and the backhoe was thus
repaired. After one day of using it, the backhoe broke down again.
Petitioner again reported the matter to Ronnie Bote, who told him
that the equipment should be brought to the latter’s office for repair.
As evidence of the return of the equipment, petitioner presented a
letter dated 3 October 198913 addressed to Electrobus
Consolidated, Inc., requesting the release of the backhoe to Ronnie
Bote for repair, with the alleged signature of Ronnie Bote appearing
at the bottom thereof to attest to his receipt of the equipment. After a
week, petitioner demanded from Ronnie Bote the return of the
backhoe, the P50,000 cash and the two postdated checks, but to no
avail. On cross-examination, he admitted that during the pendency
of the case he paid, upon the advice of his counsel, the amount of
P15,000, which he handed to FEDCOR’s counsel Atty. Orlando
Paray.
● Manuel was found guilty of both charges, CA confirmed, so he
appealed to SC.
ISSUE:
● W/N checks presented beyond the 90-day period provided in
Section 2 of B.P. Blg. 22 relieve the drawer of liability if eventually
dishonored? ​NO
RELEVANT ARGUMENTS (if any):
● Petitioner: ​He is not guilty of estafa because no damage was
caused to FEDCOR, considering that the backhoe became
unserviceable a few days after delivery and was eventually returned
to FEDCOR through the latter’s sales agent Ronnie Bote. He also
asserts that he did not violate B.P. Blg. 22 either. The two checks
issued by him were presented for payment only on 22 February
1990, or after more than five months from the date of the checks.
Under Sections 1 and 2 of B.P. Blg. 22 FEDCOR, as payee, had the
duty or obligation to encash or deposit the checks issued in its favor
within ninety days from the date of issue. Since FEDCOR deposited
the checks after this period, he cannot be faulted for their
subsequent dishonor.
● RESPONDENT: ​Petitioner’s account had been closed way back in
May 1985, or four years prior to the issuance of the subject checks
to FEDCOR. The date when the checks were encashed or
deposited is immaterial because there was no more existing bank
account against which they were drawn, and their dishonor was
therefore certain even if the checks were presented for payment
within the 90-day period from their issuance. With respect to
petitioner’s plea to impose on him the penalty of fine in the event
that his conviction is affirmed, the OSG maintains that the penalty of
imprisonment is appropriate considering petitioner’s act of issuing
worthless checks which showed his culpable violation of B.P. Blg.
22.
RATIO:
● The fact that the checks were presented beyond the 90-day period
provided in Section 2 of B.P. Blg. 22 is of no moment.The 90-day
period is not an element of the offense but merely a condition for the
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​18
 prima facie presumption of knowledge of the insufficiency of funds;
thus:
● That the check must be deposited within ninety (90) days is simply
one of the conditions for the prima facie presumption of knowledge
of lack of funds to arise. It 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 thereof. 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.
● Such prima facie presumption is intended to facilitate proof of
knowledge, and not to foreclose admissibility of other evidence that
may also prove such knowledge; thus, the only consequence of the
failure to present the check for payment within the 90-day period is
that there arises no prima facie presumption of knowledge of
insufficiency of funds.29 The prosecution may still prove such
knowledge through other evidence.
● In this case, FEDCOR presented the checks for encashment on 22
February 1990, or within the six-month period from the date of
issuance of the checks, and would not therefore have been
considered stale had petitioner’s account been existing. Although
the presumption of knowledge of insufficiency of funds did not arise,
such knowledge was sufficiently proved by the unrebutted testimony
of Mirano to the effect that petitioner’s account with the Security
Bank was closed as early as May 1985, or more than four years
prior to the issuance of the two checks in question.
● Thus, we find no error in the Court of Appeals’ affirmation of the trial
court’s decision convicting petitioner of violations of B.P. Blg. 22.
● Re Petitioner’s alternative prayer for the modification of penalty -
Administrative Circular No. 12-2000 establishes a rule of preference
in the application of the penal provisions of B.P. Blg. 22 such that
where the circumstances of both the offense and the offender
clearly indicate good faith or a clear mistake of fact without taint of
negligence, the imposition of a fine alone should be considered as
the more appropriate penalty. Needless to say, the determination of
whether the circumstances warrant the imposition of a fine alone
rests solely upon the Judge. Should the Judge decide that
imprisonment is the more appropriate penalty, Administrative
Circular No. 12-2000 ought not be deemed a hindrance
● In this case, when petitioner issued the subject postdated checks
even though he had no more account with the drawee bank, having
closed it more than four years before he drew and delivered the
checks, he manifested utter lack of good faith or wanton bad faith.
Hence, he cannot avail himself of the benefits under Administrative
Circular No. 12-2000.
● We likewise sustain petitioner’s conviction for the crime of estafa.
Settled is the rule that, to constitute estafa, the act of postdating or
issuing a check in payment of an obligation must be the efficient
cause of defraudation and, as such, it should be either prior to, or
simultaneous with, the act of fraud. The offender must be able to
obtain money or property from the offended party because of the
issuance of the check, or the person to whom the check was
delivered would not have parted with his money or property had
there been no check issued to him. Stated otherwise, the check
should have been issued as an inducement for the surrender by the
party deceived of his money or property, and not in payment of a
pre-existing obligation.
WHEREFORE, the instant petition is DENIED. The decision of the Court of
Appeals upholding the decisions of the Regional Trial Court of Quezon City,
Branch 80, in Criminal Cases Nos. Q-90-15797, Q-90-15798 and
Q-90-15799 is hereby AFFIRMED, with the modification that petitioner
Manuel Nagrampa is hereby sentenced to suffer (1) an imprisonment of one
year for each of the two counts of violation of B. P. Blg. 22, and (2) an
indeterminate penalty of eight years and one day of prision mayor as
minimum to twenty-eight years, four months and one day of reclusion
perpetua as maximum for the crime of estafa; and to pay private
complainant Fedcor Trading Corporation the amount of P135,000, plus legal
interest thereon from 9 October 1990 up to the time of full payment.
SO ORDERED
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​19
 7. DY v. PEOPLE
November 14, 2008 | J. Quisumbing | Sec. 186
SABBAN & ROY
Instrument/s: 2 FEBTC postdated checks
DRAWER: John Dy
DRAWEE: FEBTC
PAYEE: WL Food Products
SEQUENCE:
John Dy > WL Food Products > FEBTC
RECIT-READY:
John Dy is the distributor of WL Food Products in Naga. Dy would pay WL
in either cash or check upon pick up of stocks at the main branch.
Although at times, he would entrust the payment to his driver. ​In 2
instances, Dy’s driver went to WL foods to pick up the stocks of
snacks, and gave 2 postdated FEBTC checks as payment. In both
instances, the driver was issued an unsigned delivery receipt.
When WL Foods presented the checks for payment, FEBTC dishonored
the checks for insufficiency of funds. As such the manager of
FEBTC-Naga notified the counsel of WL Foods of the dishonor. Later on,
another letter was sent advising the counsel that one of the checks was
returned to the drawee bank for the reason of stop payment order and
drawn against uncollected deposit (DAUD), and not because it was drawn
against insufficient funds as stated in the first letter
Lim charged Dy with ​2 counts of BP 22 and estafa.
ISSUE:
● Whether Dy is liable for estafa and BP22? ​(Yes, but only as to
the 2nd check.)
RULING:
Dy is liable only as to the second check (Check No. 553615).
Prima facie evidence of deceit was established against Dy with regard to
FEBTC Check No. 553615 which was dishonored for insufficiency of
funds. Further, the letter of his counsel shows that petitioner received
notice of the dishonor, however, ​Dy failed to deposit the amounts
necessary to cover his check within 3 banking days from receipt of
the notice of dishonor. Hence, as provided for by law, the presence
of deceit was sufficiently proven
However. it does not hold true with respect to ​FEBTC Check No. 553602
for P106,579.60. This ​check was dishonored for the reason that it was
drawn against uncollected deposit. Since ​Dy had sufficient funds at
the time Check No. 553602 was presented for payment​, then the
second element (insufficiency of funds to cover the check) of the
crime is ​absent​. Also there is no prima facie evidence of deceit in this
instance because the check was not dishonored for lack or insufficiency of
funds.
Corollarily, the ​issuer of the check is not liable for estafa if the
remaining balance and the uncollected deposit, which was duly
collected, could satisfy the amount of the check when presented for
payment.
As to BP22:
Petitioner should be exonerated, however, for issuing FEBTC Check No.
553602, which was dishonored for the reason DAUD or drawn against
uncollected deposit. When the check was presented for payment, it was
dishonored by the bank because the check deposit made by petitioner,
which would make petitioner's bank account balance more than enough to
cover the face value of the subject check, had not been collected by the
bank.
DOCTRINE:
SECTION 186​. ​Within What Time A Check Must Be Presented — 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.
*​Uncollected deposits are not the same as insufficient funds. The
prima facie presumption of deceit arises only when a check has been
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​20

dishonored for lack or insufficiency of funds. Notably, the law speaks of
insufficiency of funds but not of uncollected deposits. Jurisprudence
teaches that criminal laws are strictly construed against the Government
and liberally in favor of the accused
FACTS:
● Since 1990, John Dy has been the distributor of W.L. Food Products
in Naga City under the business name Dyna Marketing.
● Dy would pay W.L. Foods in either cash or check upon pick up of
stocks of snack foods at the latter's branch or main office in Quezon
City. At times, he would entrust the payment to one of his drivers.
● In two instances, Dy’s driver went to the branch office of W.L. Foods
to pick up the stocks of snack food.
1. First Transaction​: Driver handed a blank FEBTC Check
No. 553602 postdated July 22, 1992. The check was
signed by Dy though it did not indicate a specific amount.
2. Second Transaction: The same driver obtained snack
foods from Maraca in the amount of P226,794.36 in
exchange for a blank FEBTC Check with Check No.
553615 postdated July 31, 1992.
● In both instances, the driver was issued an ​unsigned delivery
receipt​. The amounts for the purchases were filed in later by Evelyn
Ong, accountant of W.L. Foods, based on the value of the goods
delivered.
● When presented for payment, FEBTC dishonored the checks
for insufficiency of funds.
○ Gonzales, manager of FEBTC-Naga Branch, notified the
counsel of W.L. Foods, of the dishonor.
○ Apparently, Dy only had an available balance of P2,000 on the
due dates
○ Later, Gonzales sent WL Foods’ counsel another letter advising
her that FEBTC Check No. 553602 for P106,579.60 was
returned to the drawee bank for the reasons stop payment
order and drawn against uncollected deposit (DAUD), and ​NOT
because it was drawn against insufficient funds as stated in the
first letter. Dy's savings deposit account ledger reflected a
balance of P160,659.39 as of July 22, 1992.
○ This, however, included a regional clearing check for P55,000
which he deposited on July 20, 1992, and which took 5 banking
days to clear. Hence, the inward check was drawn against the
yet uncollected deposit.
● When William Lim, owner of W.L. Foods, phoned Dy about the
matter, the latter explained that he could not pay since he had no
funds yet. This prompted the former to send petitioner a demand
letter, which the latter ignored.
● Lim charged Dy with two counts estafa and BP22.
● RTC: Convicted.; CA: Affirmed with modification (modified the
sentence and deleted the payment of interests in this wise)
ISSUES:
● Whether Dy is guilty of Estafa and BP22? ​(YES, but only as to the
2nd check: FEBTC Check No. 553615 )
RELEVANT ARGUMENTS (if any):
● Petitioner: Dy contends that the ​checks were ineffectively issued
-- not only were the checks blank, but also that ​W.L. Foods'
accountant had no authority to fill the amounts​. Dy also claims
failure of consideration to negate any obligation to W.L. Foods. He
also denies deceiving Lim since only the two checks bounced over
the period he has been dealing with him. He also renounces
personal liability on the checks since he was absent when the goods
were delivered.
● Respondent: Delivery of the checks by Dy's driver to Maraca,
constituted valid issuance. Further, Ong has prima facie authority to
fill the checks based on the value of the goods taken. It observes
that nothing in the records showed that W.L. Foods' accountant
filled up the checks in violation of Dy's instructions or their previous
agreement.
RATIO:
● Elements of Estafa:
1. postdating or issuance of a check in payment of an
obligation contracted at the time the check was issued;
2. Insufficiency of funds to cover the check;
3. Damage to the payee thereof.
*​All the elements are present in this case.
Presence of deceit was sufficiently proven.
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​21
 ● Letter of petitioner’s counsel shows beyond reasonable doubt that
Dy received notice of dishonor of the said check for insufficiency of
funds. However, Dy failed to deposit the amounts necessary to
cover his check within three banking days from receipt of the notice
of dishonor. Hence, as provided for by law, the presence of deceit
was sufficiently
● Existence of prior transactions between Lim and Dy alone did not
rule out deceit because each transaction was separate, and had a
different consideration from the others.
● Even as petitioner was absent when the goods were delivered, by
the principle of agency, delivery of the checks by his driver was
deemed as his act as the employer.
Prima facie evidence of deceit was established against petitioner with regard
to ​FEBTC Check No. 553615 which was dishonored for insufficiency of
funds.
The letter of petitioner's counsel dated November 10, 1992 shows beyond
reasonable doubt that petitioner received notice of the dishonor of the said
check for insufficiency of funds. Petitioner, however, failed to deposit the
amounts necessary to cover his check within three banking days from
receipt of the notice of dishonor. Hence, as provided for by law, the
presence of deceit was sufficiently proven
However. it does not hold true with respect to ​FEBTC Check No. 553602 for
P106,579.60. This ​check was dishonored for the reason that it was
drawn against uncollected deposit.
Petitioner had P160,659.39 in his savings deposit account ledger as of July
22, 1992. We disagree with the conclusion of the RTC that since the balance
included a regional clearing check worth P55,000 deposited on July 20,
1992, which cleared only 5 days later, then petitioner had inadequate funds
in this instance.
Since Dy technically and retroactively had sufficient funds at the time Check
No. 553602 was presented for payment, then the second element
(insufficiency of funds to cover the check) of the crime is absent. Also there
is no prima facie evidence of deceit in this instance because the check was
not dishonored for lack or insufficiency of funds. Uncollected deposits are
not the same as insufficient funds. The prima facie presumption of deceit
arises only when a check has been dishonored for lack or insufficiency of
funds. Notably, the law speaks of insufficiency of funds but not of
uncollected deposits. Jurisprudence teaches that criminal laws are strictly
construed against the Government and liberally in favor of the accused
Corollarily, the issuer of the check is not liable for estafa if the remaining
balance and the uncollected deposit, which was duly collected, could satisfy
the amount of the check when presented for payment.
Elements of BP22 were satisfied.
1. the making, drawing and issuance of any check to apply to account
or for value;
2. the knowledge of the maker, drawer or issuer that at the time of
issue he does not have sufficient funds in or credit with the drawee
bank for the payment of such check in full upon its presentment; and
3. subsequent dishonor of the check by the drawee bank for
insufficiency of funds or credit or dishonor for the same reason had
not the drawer, without any valid cause, ordered the bank to stop
payment.
● Petitioner should be exonerated, however, for issuing ​FEBTC
Check No. 553602​, which was dishonored for the reason DAUD or
drawn against uncollected deposit. When the check was presented
for payment, it was dishonored by the bank because the check
deposit made by petitioner, which would make petitioner's bank
account balance more than enough to cover the face value of the
subject check, had not been collected by the bank.
WHEREFORE, the petition is PARTLY GRANTED. John Dy is hereby
ACQUITTED in Criminal Case No. Q-93-46711 for estafa and Criminal
Case No. Q-93-46712 for violation of B .P. B lg . 2 2, but he is
ORDERED to pay W.L. Foods the amount of P106,579.60 for goods
delivered to his company.
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​22
 7. DY v. PEOPLE
November 14, 2008 | J. Quisumbing | Sec. 186
SABBAN & ROY
Instrument/s: 2 FEBTC postdated checks
DRAWER: John Dy
DRAWEE: FEBTC
PAYEE: WL Food Products
SEQUENCE:
John Dy > WL Food Products > FEBTC
RECIT-READY:
John Dy is the distributor of WL Food Products in Naga. Dy would pay WL
in either cash or check upon pick up of stocks at the main branch.
Although at times, he would entrust the payment to his driver. ​In 2
instances, Dy’s driver went to WL foods to pick up the stocks of
snacks, and gave 2 postdated FEBTC checks as payment. In both
instances, the driver was issued an unsigned delivery receipt.
When WL Foods presented the checks for payment, FEBTC dishonored
the checks for insufficiency of funds. As such the manager of
FEBTC-Naga notified the counsel of WL Foods of the dishonor. Later on,
another letter was sent advising the counsel that one of the checks was
returned to the drawee bank for the reason of stop payment order and
drawn against uncollected deposit (DAUD), and not because it was drawn
against insufficient funds as stated in the first letter
Lim charged Dy with ​2 counts of BP 22 and estafa.
ISSUE:
● Whether Dy is liable for estafa and BP22? ​(Yes, but only as to
the 2nd check.)
RULING:
Dy is liable only as to the second check (Check No. 553615).
Prima facie evidence of deceit was established against Dy with regard to
FEBTC Check No. 553615 which was dishonored for insufficiency of
funds. Further, the letter of his counsel shows that petitioner received
notice of the dishonor, however, ​Dy failed to deposit the amounts
necessary to cover his check within 3 banking days from receipt of
the notice of dishonor. Hence, as provided for by law, the presence
of deceit was sufficiently proven
However. Dy is ​not liable for the first check, ​FEBTC Check No. 553602 .
This ​check was dishonored for the reason that it was drawn against
uncollected deposit.1 Since ​Dy had sufficient funds at the time Check
No. 553602 was presented for payment​, then the ​second element
(insufficiency of funds to cover the check) of the crime is ​absent​.
Also there is no prima facie evidence of deceit in this instance because
the check was not dishonored for lack or insufficiency of funds.
Corollarily, the ​issuer of the check is not liable for estafa if the
remaining balance and the uncollected deposit, which was duly
collected, could satisfy the amount of the check when presented for
payment.
As to BP22:
Dy should be exonerated, for issuing FEBTC Check No. 553602, which
was dishonored for the reason DAUD or drawn against uncollected
deposit. ​When the check was presented for payment, it was
dishonored by the bank because the check deposit made by
petitioner, which would make petitioner's bank account balance
more than enough to cover the face value of the subject check, had
not been collected by the bank.
DOCTRINE:
SECTION 186​. ​Within What Time A Check Must Be Presented — 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
1
​Uncollected deposits are not the same as insufficient funds.​ The
prima facie presumption of deceit arises only when a check has been
dishonored for lack or insufficiency of funds.
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​23

the loss caused by the delay.
*​Uncollected deposits are not the same as insufficient funds. The
prima facie presumption of deceit arises only when a check has been
dishonored for lack or insufficiency of funds. Notably, the law speaks of
insufficiency of funds but not of uncollected deposits. Jurisprudence
teaches that criminal laws are strictly construed against the Government
and liberally in favor of the accused
FACTS:
● Since 1990, John Dy has been the distributor of W.L. Food Products
in Naga City under the business name Dyna Marketing.
● Dy would pay W.L. Foods in either cash or check upon pick up of
stocks of snack foods at the latter's branch or main office in Quezon
City. At times, he would entrust the payment to one of his drivers.
● In two instances, Dy’s driver went to the branch office of W.L. Foods
to pick up the stocks of snack food.
1. First Transaction​: Driver handed a blank FEBTC Check
No. 553602 postdated July 22, 1992. The check was
signed by Dy though it did not indicate a specific amount.
2. Second Transaction: The same driver obtained snack
foods from Maraca in the amount of P226,794.36 in
exchange for a blank FEBTC Check with Check No.
553615 postdated July 31, 1992.
● In both instances, the driver was issued an ​unsigned delivery
receipt​. The amounts for the purchases were filed in later by Evelyn
Ong, accountant of W.L. Foods, based on the value of the goods
delivered.
● When presented for payment, FEBTC dishonored the checks
for insufficiency of funds.
○ Gonzales, manager of FEBTC-Naga Branch, notified the
counsel of W.L. Foods, of the dishonor.
○ Apparently, Dy only had an available balance of P2,000 on the
due dates
○ Later, Gonzales sent WL Foods’ counsel another letter advising
her that FEBTC Check No. 553602 for P106,579.60 was
returned to the drawee bank for the reasons stop payment
order and drawn against uncollected deposit (DAUD), and ​NOT
because it was drawn against insufficient funds as stated in the
first letter. Dy's savings deposit account ledger reflected a
balance of P160,659.39 as of July 22, 1992.
○ This, however, included a regional clearing check for P55,000
which he deposited on July 20, 1992, and which took 5 banking
days to clear. Hence, the inward check was drawn against the
yet uncollected deposit.
● When William Lim, owner of W.L. Foods, phoned Dy about the
matter, the latter explained that he could not pay since he had no
funds yet. This prompted the former to send petitioner a demand
letter, which the latter ignored.
● Lim charged Dy with two counts estafa and BP22.
● RTC: Convicted.; CA: Affirmed with modification (modified the
sentence and deleted the payment of interests in this wise)
ISSUES:
● Whether Dy is guilty of Estafa and BP22? ​(YES, but only as to the
2nd check: FEBTC Check No. 553615 )
RELEVANT ARGUMENTS (if any):
● Petitioner: Dy contends that the ​checks were ineffectively issued
-- not only were the checks blank, but also that ​W.L. Foods'
accountant had no authority to fill the amounts​. Dy also claims
failure of consideration to negate any obligation to W.L. Foods. He
also denies deceiving Lim since only the two checks bounced over
the period he has been dealing with him. He also renounces
personal liability on the checks since he was absent when the goods
were delivered.
● Respondent: Delivery of the checks by Dy's driver to Maraca,
constituted valid issuance. Further, Ong has prima facie authority to
fill the checks based on the value of the goods taken. It observes
that nothing in the records showed that W.L. Foods' accountant
filled up the checks in violation of Dy's instructions or their previous
agreement.
RATIO:
● Elements of Estafa:
1. postdating or issuance of a check in payment of an
obligation contracted at the time the check was issued;
2. Insufficiency of funds to cover the check;
3. Damage to the payee thereof.
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​24
 Elements of BP22 were satisfied as to the 2nd check.
Presence of deceit was sufficiently proven in issuance of the 2nd 1. the making, drawing and issuance of any check to apply to account
check. or for value;
● Prima facie evidence of deceit was established against petitioner 2. the knowledge of the maker, drawer or issuer that at the time of
with regard to ​FEBTC Check No. 553615 which was dishonored for issue he does not have sufficient funds in or credit with the drawee
insufficiency of funds. bank for the payment of such check in full upon its presentment; and
● Letter of petitioner’s counsel shows beyond reasonable doubt that 3. subsequent dishonor of the check by the drawee bank for
Dy received notice of dishonor of the said check for insufficiency of insufficiency of funds or credit or dishonor for the same reason had
funds. However, Dy failed to deposit the amounts necessary to not the drawer, without any valid cause, ordered the bank to stop
cover his check within three banking days from receipt of the notice payment.
of dishonor. Hence, as provided for by law, the presence of deceit
was sufficiently ● Dy should be exonerated, for issuing ​FEBTC Check No. 553602​,
● However. it does not hold true with respect to ​FEBTC Check No. which was dishonored for the reason DAUD or drawn against
553602 for P106,579.60. This ​check was dishonored for the uncollected deposit. When the check was presented for payment, it
reason that it was drawn against uncollected deposit. was dishonored by the bank because the check deposit made by
● Petitioner had P160,659.39 in his savings deposit account ledger as petitioner, which would make petitioner's bank account balance
of July 22, 1992. We disagree with the conclusion of the RTC that more than enough to cover the face value of the subject check, had
since the balance included a regional clearing check worth P55,000 not been collected by the bank.
deposited on July 20, 1992, which cleared only 5 days later, then
petitioner had inadequate funds in this instance. WHEREFORE, the petition is PARTLY GRANTED. John Dy is hereby
● Since Dy technically and retroactively had sufficient funds at ACQUITTED in Criminal Case No. Q-93-46711 for estafa and Criminal
the time Check No. 553602 was presented for payment, then the Case No. Q-93-46712 for violation of B .P. B lg . 2 2, but he is
second element (insufficiency of funds to cover the check) of ORDERED to pay W.L. Foods the amount of P106,579.60 for goods
the crime is absent​. delivered to his company.
● Also there is ​no prima facie evidence of deceit in this instance
because the check was not dishonored for lack or insufficiency
of funds.
● Uncollected deposits are not the same as insufficient funds. The
prima facie presumption of deceit arises only when a check has
been dishonored for lack or insufficiency of funds. Notably, the law
speaks of insufficiency of funds but not of uncollected deposits.
Jurisprudence teaches that criminal laws are strictly construed
against the Government and liberally in favor of the accused
● Corollarily, the issuer of the check is not liable for estafa if the
remaining balance and the uncollected deposit, which was duly
collected, could satisfy the amount of the check when presented for
payment.

ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​25

8. GREAT ASIAN SALES CENTER CORPORATION v. CA
April 25, 2002 | Carpio, J. | Section 186
J. SALAMAT
Repeated Case
DRAWER: ​Various customers of Great Asian
MAKER: ​Not mentioned in the case
DRAWEE: ​Bancasia
PAYEE: ​Nine of the checks were payable to Great Asian, three were
payable to “New Asian Emp.,” and the last three were payable to cash
SEQUENCE:
Customers of Great Asian > Various > Arsenio > Drawee Bank >
Collecting Bank
RECIT-READY: ​Great Asian is in the business of buying & selling
household appliances. Their board of directors approved 2 resolutions
authorizing their GM Arsenio to secure loans from Bancasia. They also
authorized Arsenio to sign all documents necessary to secure the loans.
Then, Tan Chong Lin (Pres of Great Asian) signed 2 surety agreements in
favor of Bancasia, to guarantee solidarily the debts of Great Asia to
Bancasia. Great Asian, through Arsenio signed 4 deeds of assignment of
receivables assigning to Bancasia 15 postdated checks (payable to
various payees). When Bancasia tried to deposit the checks, all were
dishonored. Bancasia then sent demand letters to Great Asian and Tan
Chong Lin, but to no avail. Great Asian then filed with the CFI of Manila a
petition for insolvency. Bancasia, on the other hand, filed a collection
complaint against Great Asian and Tan Chong Lin. Both the RTC and CA
ruled in favor of Great Asian.
ISSUE:
● Whether great asian is liable to bancasia under the deeds of
assignment for breach of contract pursuant to the civil code,
independent of the negotiable instruments law - Y ​ ES civ
code
RULING/DOCTRINE:
Bancasia’s complaint against Great Asian is founded on the latter’s
breach of contract under the Deeds of Assignment. ​There is one vital
suspensive condition in the Deeds of Assignment. That is, in case
the drawers fail to pay the checks on maturity, Great Asian obligated
itself to pay Bancasia the full face value of the dishonored checks,
including penalty and attorney’s fees. The failure of the drawers to pay
the checks is a suspensive condition, the happening of which gives rise to
Bancasia’s right to demand payment from Great Asian. This conditional
obligation of Great Asian arises from its written contracts with Bancasia as
embodied in the Deeds of Assignment…… ​As endorsee of Great Asian,
Bancasia had the option to proceed against Great Asian under the
Negotiable Instruments Law. Had it so proceeded, the Negotiable
Instruments Law would have governed Bancasia’s cause of action.
Bancasia, however, did not choose this route. Instead, Bancasia
decided to sue Great Asian for breach of contract under the Civil
Code​, a right that Bancasia had under the express with recourse
stipulation in the Deeds of Assignment.
The exercise by Bancasia of its option to sue for breach of contract
under the Civil Code will not leave Great Asian holding an empty
bag. Great Asian, after paying Bancasia, is subrogated back as
creditor of the receivables. ​Great Asian can then proceed against the
drawers who issued the checks.​ ​Even if Bancasia failed to give
timely notice of dishonor, still there would be no prejudice whatever
to Great Asian. Notice of dishonor is not required if the drawer has
no right to expect or require the bank to honor the check, or if the
drawer has countermanded payment​. In the instant case, all the checks
were dishonored for any of the following reasons: “account closed,”
“account under garnishment,” “insufciency of funds,” or “payment
stopped.” In the rst three instances, the drawers had no right to expect or
require the bank to honor the checks, and in the last instance, the drawers
had countermanded payment.
Under common law, delay in notice of dishonor, where such notice is
required, discharges the drawer only to the extent of the loss caused by
the delay. This rule nds application in this jurisdiction pursuant to Section
196 of the Negotiable Instruments Law which states, “Any case not
provided for in this Act shall be governed by the provisions of existing
legislation, or in default thereof, by the rules of the Law Merchant.” Under
Section 186 of the Negotiable Instruments Law, delay in the presentment
of checks discharges the drawer. However, Section 186 refers only to
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​26

delay in presentment of checks but is silent on delay in giving notice of
dishonor. Consequently, the common law or Law Merchant can supply
this gap in accordance with Section 196 of the Negotiable Instruments
Law.
FACTS:
● Great Asian is engaged in the business of buying and selling
household appliances. ​The board of directors approved a
resolution authorizing its Treasurer and General Manager,
Arsenio Lim Piat, Jr. (“Arsenio) to secure a loan from Bancasia
in an amount not to exceed P1.0 million​. It also authorized
Arsenio to sign all papers, documents or promissory notes
necessary to secure the loan. ​They also approved a second
resolution authorizing Great Asian to secure a discounting line
with Bancasia in an amount not exceeding P2.0 million. ​This
also designated Arsenio as the authorized signatory to sign all
instruments, documents and checks necessary to secure the
discounting line.
● Then, ​Tan Chong Lin (Pres of Great Asian) signed a Surety
Agreement in favor of Bancasia to guarantee, solidarily, the
debts of Great Asian to Bancasia.​ He also signed a
Comprehensive and Continuing Surety Agreement in favor of
Bancasia to guarantee, solidarily, the debts of Great Asian to
Bancasia.
● Great Asian, through Arsenio, signed four (4) Deeds of
Assignment of Receivables (“Deeds of Assignment”),
assigning to Bancasia fteen (15) postdated checks​. Nine of the
checks were payable to Great Asian, three were payable to “New
Asian Emp.,” and the last three were payable to cash. ​Various
customers of Great Asian issued these postdated checks in
payment for appliances and other merchandise.
● Great Asian and Bancasia signed a total of 4 Deed of
Assignments covering the post-dated checks.​ Arsenio endorsed
all the fteen dishonored checks by signing his name at the back of
the checks. Eight of the dishonored checks bore the endorsement of
Arsenio below the stamped name of “Great Asian Sales Center,”
while the rest of the dishonored checks just bore the signature of
Arsenio. The drawee banks dishonored the fteen checks on
maturity when deposited for collection by Bancasia, with any of the
following as reason for the dishonor: “account closed,” “payment
stopped,” “account under garnishment,” and “insufciency of funds.”
The total amount of the fteen dishonored checks is P1,042,005.00.
● After the drawee bank dishonored Check No. 097480 dated
March 16, 1982, who sent by registered mail to Tan Chong Lin a
letter dated ​March 18, 1982​, ​notifying him of the dishonor and
demanding payment from him.
● Bancasia sent demand letters to Tan Chong Lin demanding
payment. Neither Great Asian nor Tan Chong Lin paid Bancasia
● Great Asian led with the then Court of First Instance of Manila a
petition for insolvency. Attached to the veried petition was a
“Schedule and Inventory of Liabilities and Creditors of Great Asian
Sales Center Corporation,” listing Bancasia as one of the creditors
of Great Asian in the amount of P1,243,632.00.
● Bancasia led a complaint for collection of a sum of money against
Great Asian and Tan Chong Lin. Bancasia impleaded Tan Chong
Lin because of the Surety Agreements he signed in favor of
Bancasia
● Great Asian denied the material allegations of the complaint
claiming it was unfounded, malicious, baseless, and unlawfully
instituted since there was already a pending insolvency
proceedings, although Great Asian subsequently withdrew its
petition for voluntary insolvency. Great Asian further raised the
alleged lack of authority of Arsenio to sign the Deeds of Assignment
as well as the absence of consideration and consent of all the
parties to the Surety Agreements signed by Tan Chong Lin.
● RTC and CA ruled in favor of Bacansia
ISSUES:
● Whether arsenio had authority to execute the deeds of
assignment and thus bind great asian - Y ​ ES
● Whether the Deeds of Assignment are indeed the transactions
the board of directors of Great Asian authorized Arsenio to
​ ES
sign under the two board resolutions - Y
● Whether great asian is liable to bancasia under the deeds of
assignment for breach of contract pursuant to the civil code,
​ ES civ code
independent of the negotiable instruments law - Y
● Whether the assignment of the checks is not a loan
accommodation but a sale of the checks – It is a sale
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​27

RATIO:
Whether arsenio had authority to execute the deeds of assignment and
thus bind great asian - Y​ ES
● Great Asian asserts that Arsenio signed the Deeds of
Assignment and indorsed the checks in his personal capacity.
If Great Asian authorized Arsenio, then Great Asian is bound by the
Deeds of Assignment and must honor its terms.
● The Corporation Code of the Philippines vests in the board of
directors the exercise of the corporate powers of the corporation,
save in those instances where the Code requires stockholders’
approval for certain specic acts. In the ordinary course of business,
a corporation can borrow funds or dispose of assets of the
corporation only on authority of the board of directors. The board of
directors normally designates one or more corporate ofcers to sign
loan documents or deeds of assignment for the corporation. To
secure a credit accommodation from Bancasia, the board of
directors of Great Asian adopted two board resolutions on different
dates, as certied under oath by Great Asian’s Corporate Secretary
Mario K. Tan
● The rst board resolution expressly authorizes Arsenio, as
Treasurer of Great Asian, to apply for a “loan accommodation or
credit line” with Bancasia for not more than P1.0 million. It also
explicitly authorizes Arsenio to sign any document, paper or
promissory note, including mortgage deeds over properties of Great
Asian, to secure the loan or credit line from Bancasia.
● The second board resolution expressly authorizes Great Asian to
secure a “discounting line” from Bancasia for not more than P2.0
million. The second board resolution also expressly empowers
Arsenio, as the authorized signatory of Great Asian, “to sign,
execute and deliver any and all documents, checks xxx necessary
or incidental to secure” the discounting line. The second board
resolution specically authorizes Arsenio to secure the discounting
line “under such terms and conditions as (he) xxx may deem t and
proper.”
● The two board resolutions clearly authorize Great Asian to
secure a loan or discounting line from Bancasia. They also
categorically designate Arsenio as the authorized signatory to sign
and deliver all the implementing documents, including checks, for
Great Asian.
● The second board resolution even gave Arsenio full authority to
agree with Bancasia on the terms and conditions of the discounting
line. Great Asian adopted the correct and proper board resolutions
to secure a loan or discounting line from Bancasia, and Bancasia
had a right to rely on the two board resolutions of Great Asian.
Signicantly, the two board resolutions specically refer to Bancasia
as the nancing institution from whom Great Asian will secure the
loan accommodation or discounting line.
● Armed with the two board resolutions, Arsenio signed the Deeds of
Assignment selling, and endorsing, the fteen checks of Great Asian
to Bancasia. On the face of the Deeds of Assignment, ​the
contracting parties are indisputably Great Asian and Bancasia
as the names of these entities are expressly mentioned therein
as the assignor and assignee, respectively.
● Great Asian claims that Arsenio signed the Deeds of Assignment in
his personal capacity because Arsenio signed above his printed
name, below which was the word “Assignor,” thereby making
Arsenio the assignor. Great Asian conveniently omits to state that
the rst paragraph of the Deeds expressly contains the following
words: “the ASSIGNOR, Great Asian Sales Center, a domestic
corporation x x x herein represented by its Treasurer Arsenio Lim
Piat, Jr.” The assignor is undoubtedly Great Asian, represented by
its Treasurer, Arsenio
Whether the Deeds of Assignment are indeed the transactions the
board of directors of Great Asian authorized Arsenio to sign under the
two board resolutions - Y​ ES
● Under the Deeds of Assignment, Great Asian sold fteen postdated
checks at a discount, over three months, to Bancasia. The Deeds of
Assignment uniformly state that Great Asian:
● for valuable consideration received, does hereby SELL,
TRANSFER, CONVEY, and ASSIGN, unto the ASSIGNEE,
BANCASIA FINANCE & INVESTMENT CORP., a domestic
corporation x x x, the following ACCOUNTS RECEIVABLES due
and payable to it, having an aggregate face value of
● The Deeds of Assignment enabled Great Asian to generate instant
cash from its fteen checks, which were still not due and
demandable then. In short, instead of waiting for the maturity dates
of the fteen postdated checks, Great Asian sold the checks to
Bancasia at less than the total face value of the checks. In
exchange for receiving an amount less than the face value of the
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​28
 checks, Great Asian obtained immediately much needed cash. Over
three months, Great Asian entered into four transactions of this
nature with Bancasia, showing that Great Asian availed of a
discounting line with Bancasia.
● The discounting arrangements entered into by Arsenio under the
Deeds of Assignment were the very transactions envisioned in the
two board resolutions of Great Asian to raise funds for its business.
Arsenio acted completely within the limits of his authority under the
two board resolutions. Arsenio did exactly what the board of
directors of Great Asian directed and authorized him to do.
● Arsenio had all the proper and necessary authority from the board of
directors of Great Asian to sign the Deeds of Assignment and to
endorse the fteen postdated checks. Arsenio signed the Deeds of
Assignment as agent and authorized signatory of Great Asian under
an authority expressly granted by its board of directors. The
signature of Arsenio on the Deeds of Assignment is effectively also
the signature of the board of directors of Great Asian, binding on the
board of directors and on Great Asian itself. Evidently, Great Asian
shows its bad faith in disowning the Deeds of Assignment signed by
its own Treasurer, after receiving valuable consideration for the
checks assigned under the Deeds
DEFINITION OF DISCOUNTING: ​In the nancing industry, the term
“discounting line” means a credit facility with a nancing company or bank,
which allows a business entity to sell, on a continuing basis, its accounts
receivable at a discount. The term “discount” means the sale of a receivable
at less than its face value. The purpose of a discounting line is to enable a
business entity to generate instant cash out of its receivables which are still
to mature at future dates. The nancing company or bank which buys the
receivables makes its prot out of the difference between the face value of
the receivable and the discounted price.
Whether great asian is liable to bancasia under the deeds of
assignment for breach of contract pursuant to the civil code,
​ ES civ code
independent of the negotiable instruments law - Y
● Bancasia’s complaint against Great Asian is founded on the latter’s
breach of contract under the Deeds of Assignment. ​There is one
vital suspensive condition in the Deeds of Assignment. That is,
in case the drawers fail to pay the checks on maturity, Great
Asian obligated itself to pay Bancasia the full face value of the
dishonored checks, including penalty and attorney’s fees. The
failure of the drawers to pay the checks is a suspensive condition,
the happening of which gives rise to Bancasia’s right to demand
payment from Great Asian. This conditional obligation of Great
Asian arises from its written contracts with Bancasia as embodied in
the Deeds of Assignment.
● By express provision in the Deeds of Assignment, Great Asian
unconditionally obligated itself to pay Bancasia the full value of the
dishonored checks. In short, Great Asian sold the postdated checks
on with recourse basis against itself. This is an obligation that Great
Asian is bound to faithfully comply because it has the force of law as
between Great Asian and Bancasia
● Great Asian and Bancasia agreed on this specic with recourse
stipulation, despite the fact that the receivables were negotiable
instruments with the endorsement of Arsenio. The contracting
parties had the right to adopt the with recourse stipulation which is
separate and distinct from the warranties of an endorser under the
Negotiable Instruments Law.
● The explicit with recourse stipulation against Great Asian effectively
enlarges, by agreement of the parties, the liability of Great Asian
beyond that of a mere endorser of a negotiable instrument. Thus,
whether or not Bancasia gives notice of dishonor to Great
Asian, the latter remains liable to Bancasia because of the with
recourse stipulation which is independent of the warranties of
an endorser under the Negotiable Instruments Law.
● There is nothing in the Negotiable Instruments Law or in the
Financing Company Act (old or new), that prohibits Great Asian and
Bancasia parties from adopting the with recourse stipulation
uniformly found in the Deeds of Assignment. Assignment of a
negotiable instrument is actually the principal mode of conveying
accounts receivable under the Financing Company Act. Since in
discounting of receivables the assignee is subrogated as creditor of
the receivable, the endorsement of the negotiable instrument
becomes necessary to enable the assignee to collect from the
drawer. This is particularly true with checks because collecting
banks will not accept checks unless endorsed by the payee. The
purpose of the endorsement is merely to facilitate collection of the
proceeds of the checks.
● The purpose of the endorsement is not to make the assignee
nance company a holder in due course because policy
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​29
 considerations militate against according nance companies the
rights of a holder in due course. Otherwise, consumers who
purchase appliances on installment, giving their promissory notes or
checks to the seller, will have no defense against the nance
company should the appliances later turn out to be defective
● As endorsee of Great Asian, Bancasia had the option to
proceed against Great Asian under the Negotiable Instruments
Law. Had it so proceeded, the Negotiable Instruments Law
would have governed Bancasia’s cause of action. Bancasia,
however, did not choose this route. Instead, Bancasia decided
to sue Great Asian for breach of contract under the Civil Code​,
a right that Bancasia had under the express with recourse
stipulation in the Deeds of Assignment.
● The exercise by Bancasia of its option to sue for breach of
contract under the Civil Code will not leave Great Asian holding
an empty bag. Great Asian, after paying Bancasia, is
subrogated back as creditor of the receivables. Great Asian can
then proceed against the drawers who issued the checks. ​Even if
Bancasia failed to give timely notice of dishonor, still there
would be no prejudice whatever to Great Asian. Notice of
dishonor is not required if the drawer has no right to expect or
require the bank to honor the check, or if the drawer has
1countermanded payment​. In the instant case, all the checks were
dishonored for any of the following reasons: “account closed,”
“account under garnishment,” “insufciency of funds,” or “payment
stopped.” In the rst three instances, the drawers had no right to
expect or require the bank to honor the checks, and in the last
instance, the drawers had countermanded payment.
[SYLLABUS ISSUE]
● Under common law, delay in notice of dishonor, where such notice
is required, discharges the drawer only to the extent of the loss
caused by the delay. This rule nds application in this jurisdiction
pursuant to Section 196 of the Negotiable Instruments Law which
states, “Any case not provided for in this Act shall be governed by
the provisions of existing legislation, or in default thereof, by the
rules of the Law Merchant.” Under Section 186 of the Negotiable
Instruments Law, delay in the presentment of checks discharges the
drawer. However, Section 186 refers only to delay in presentment of
checks but is silent on delay in giving notice of dishonor.
Consequently, the common law or Law Merchant can supply this
gap in accordance with Section 196 of the Negotiable Instruments
Law.
Lack of Consideration Argument
● The Deeds of Assignment uniformly provide that the fteen
post-dated checks were assigned to Bancasia “for valuable
consideration.” Moreover, Article 1354 of the Civil Code states that,
“Although the cause is not stated in the contract, it is presumed that
it exists and is lawful, unless the debtor proves the contrary.”
Bancasia’s Loan Section Manager, Cynthia Maclan, testied that
Bancasia paid Great Asian a consideration at the discount rate of
less than 24% of the face value of the postdated checks. Moreover,
in its veried petition for voluntary insolvency, Great Asian admitted
its debt to Bancasia when it listed Bancasia as one of its creditors,
an extrajudicial admission that Bancasia proved when it formally
offered in evidence the veried petition for insolvency, Great Asian
cannot now claim that the listing of Bancasia as a creditor was not
an admission of its debt to Bancasia but merely an acknowledgment
that Bancasia had sent a demand letter to Great Asian.
Whether the assignment of the checks is not a loan accommodation
but a sale of the checks – It is a sale
● With the sale, ownership of the checks passed to Bancasia, which
must now, according to Great Asian, sue the drawers and indorser
of the check who are the parties primarily liable on the checks.
Great Asian forgets that under the Deeds of Assignment, Great
Asian expressly undertook to pay the full value of the checks in case
of dishonor. Again, we reiterate that this obligation of Great Asian is
separate and distinct from its warranties as indorser under the
Negotiable Instruments Law.
● It is precisely because the transaction is a sale or a discounting of
receivables, embodied in separate Deeds of Assignment, that the
relevant provisions of the Civil Code are applicable and not the
Negotiable Instruments Law. If the accounts receivable, like
postdated checks, are sold for a consideration less than their face
value, the transaction is one of discounting, and is subject to the
provisions of the Financing Company Act. The assignee is
immediately subrogated as creditor of the accounts receivable.
However, if the accounts receivable are merely used as collateral for
the loan, the transaction is only a simple loan, and the lender is not
subrogated as creditor until there is a default and the collateral is
foreclosed.
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​30
 ● Great Asian’s four contracts assigning its fteen postdated checks to
Bancasia expressly stipulate the suspensive condition that in the
event the drawers of the checks fail to pay, Great Asian itself will
pay Bancasia. Since the common condition in the contracts had
transpired, an obligation on the part of Great Asian arose from the
four contracts, and that obligation is to pay Bancasia the full value of
the checks, including the stipulated penalty and attorney’s fees.
Whether Tan Chong Lin is liable to great asian under the surety
​ ES
agreements - Y
● Acc to the Surety Agreements Tan Chong Lin explicitly and
unconditionally bound himself to pay Bancasia, solidarily with Great
Asian, if the drawers of the checks fail to pay on due date. The
condition on which Tan Chong Lin’s obligation hinged had
happened. As surety, TanChong Lin automatically became liable for
the entire obligation tothe same extent as Great Asian. Tan Chong
Lin, however, contends that the following warranties in the Deeds of
Assignment enlarge or increase his risks under the Surety
Agreements: 1. the soundness of the receivables herein assigned;
2. that said receivables are duly noted in its books and are
supported by appropriate documents; 3. that said receivables are
genuine, valid and subsisting; 4. that said receivables represent
bona de sale of goods, merchandise, and/or services rendered in
the ordinary course of its business transactions; 5. that the obligors
of the receivables herein assigned are solvent; 6. that it has valid
and genuine title to and indefeasible right to dispose of said
accounts; 7. that said receivables are free from all liens and
encumbrances; 8. that the said receivables are freely and legally
transferable, and that the obligor/s therein will not interpose any
objection to this assignment, and has in fact given his/their consent
hereto
● Tan Chong Lin maintains that these warranties in the Deeds of
Assignment materially altered his obligations and therefore he is
released from any liability to Bancasia. Under Article 1215 of the
Civil Code, what releases a solidary debtor is a “novation,
compensation, confusion or remission of the debt” made by the
creditor with any of the solidary debtors. These warranties, however,
are the usual warranties made by one who discounts receivables
with a nancing company or bank. The Surety Agreements, written
on the letter head of “Bancasia Finance & Investment Corporation,”
uniformly state that “Great Asian Sales Center x x x has obtained
and/or desires to obtain loans, overdrafts, discounts and/or other
forms of credits from” Bancasia. Tan Chong Lin was clearly on
notice that he was holding himself as surety of Great Asian which
was discounting postdated checks issued by its buyers of goods and
merchandise. Moreover, Tan Chong Lin, as President of Great
Asian, cannot feign ignorance of Great Asian’s business activities or
discounting transactions with Bancasia. Thus, the warranties do not
increase or enlarge the risks of Tan Chong Lin under the Surety
Agreements. There is, moreover, no novation of the debt of Great
Asian that would warrant release of the surety. In any event, the
provisions of the Surety Agreements are broad enough to include
the obligations of Great Asian to Bancasia under the warranties
● Article 1207 of the Civil Code provides, “x x x There is a solidary
liability only when the obligation expressly so states, or when the
law or nature of the obligation requires solidarity.” The stipulations in
the Surety Agreements undeniably mandate the solidary liability of
Tan Chong Lin with Great Asian. Moreover, the stipulations in the
Surety Agreements are sufciently broad, expressly encompassing
“all the notes, drafts, bills of exchange, overdraft and other
obligations of every kind which the PRINCIPAL may now or may
hereafter owe the Creditor.” Consequently, Tan Chong Lin must be
held solidarily liable with Great Asian for the nonpayment of the
fteen dishonored checks, including penalty and attorney’s fees in
accordance with the Deeds of Assignment.
WHEREFORE, the assailed Decision of the Court of Appeals in
CA-G.R.CV No. 20167 is AFFIRMED with MODIFICATION. Petitioners
are ordered to pay, solidarily, private respondent the following
amounts: (a) P1,042,005.00 plus 3% penalty thereon, (b) interest on the
total outstanding amount in item (a) at the legal rate of 12% per annum
from the ling of the complaint until the same is fully paid, (c)
attorney’s fees equivalent to 25% of the total amount in item (a),
including interest at 12% per annum on the outstanding amount of the
attorney’s fees from the nality of this judgment until the same is fully
paid, and (c) costs of suit. SO ORDERED.
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​31

9. EVANGELISTA v. SCREENEX
Nov. 20, 2017 | Sereno, CJ. | 186
BARLONGAY & SANCHEZ
DRAWER: ​Evangelista
DRAWEE: ​UCPB
PAYEE: ​Screenex
HOLDER: ​Screenex
RECIT-READY: ​Evangelista obtained a loan from Screenex which issued
2 checks to the former. There were also vouchers of Screenex that were
signed by the accused evidencing that he received the 2 checks in
acceptance of the loan granted to him. As security for the payment,
Evangelista gave 2 open-dated checks, both pay to order of Screenex.
From the time it was issued, they were held in safekeeping together with
the other documents and papers of the company by Philip Gotuaco, Sr.,
father-in-law of respondent Alexander Yu, until the former’s death. Before
the checks were deposited, there was a personal demand from the family
for Evangelista to settle the loan and a demand letter was sent by the
family lawyer.
Evangelista was charged with violation of BP 22. He was acquitted
criminally but was held civilly liable. He appealed the civil aspect.
Evangelista argued that the action is already barred by prescription
pursuant to Art. 1144.
The check was issued undated. It was allegedly issued in 1991. It was
dated 2004. Case was filed in 2005.
ISSUE:
● Whether the action of Yu is already barred by prescription.​ (YES)
RULING:
Date will be reckoned from the issuance of the check: 1991. The case
was filed only in 2005. While it is true that the delivery of a check
produces the effect of payment only when it is cashed, pursuant to Art.
1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced by
the creditor's unreasonable delay in presentment.
The acceptance of a check implies an undertaking of due diligence
in presenting it for payment, and if he from whom it is received
sustains loss by want of such diligence, it will be held to operate as
actual payment of the debt or obligation for which it was given. It
has, likewise, been held that if no presentment is made at all, the drawer
cannot be held liable irrespective of loss or injury unless presentment is
otherwise excused.
This is in harmony with Article 1249 of the Civil Code under which
payment by way of check or other negotiable instrument is conditioned on
its being cashed, except when through the fault of the creditor, the
instrument is impaired. The payee of a check would be a creditor under
this provision and if its no-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.
FACTS:
● Sometime in 1991, [Evangelista] obtained a loan from respondent
Screenex, Inc. which issued two (2) checks to [Evangelista]. The
first check was UCPB Check No. 275345 for P1,000,000 and the
other one is China Banking Corporation Check No. BDO 8159110
for P500,000. There were also vouchers of Screenex that were
signed by the accused evidencing that he received the 2 checks in
acceptance of the loan granted to him.
● As security for the payment of the loan, [Evangelista] gave two (2)
open dated checks: UCPB Check Nos. 616656 and 616657, both
pay to the order of Screenex, Inc. From the time the checks were
issued by [Evangelista], they were held in safe keeping together with
the other documents and papers of the company by Philip Gotuaco,
Sr., father-in​-law of respondent Alexander Yu, representative of
Screenex, until the former's death on 19 November 2004.
● Before the checks were deposited, there was a personal demand
from the family for [Evangelista] to settle the loan and likewise a
demand letter sent by the family lawyer.
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​32
 ● On 25 August 2005, petitioner was charged with violation of Batas
Pambansa (BP) Blg. 22. Reason: "ACCOUNT CLOSED"
● MeTC acquitted him. No evidence of demand letter received by
Evangelista. Yu failed to prove that the letter had actually been
received by addressee. Because there was no way to determine
when the five-day period should start to toll, there was a failure to
establish prima facie evidence of knowledge of the insufficiency of
funds on the part of Evangelista.
● Ruling on the civil aspect of the cases, the court held that while
Evangelista admitted to having issued and delivered the checks to
Gotuaco and to having fully paid the amounts indicated therein, no
evidence of payment was presented. It further held that the
creditor's possession of the instrument of credit was sufficient
evidence that the debt claimed had not yet been paid. In the end,
Evangelista was declared liable for the corresponding civil
obligation.
● Evangelista appealed in the RTC. RTC ruled that the checks should
be taken as evidence of Evangelista's indebtedness to Gotuaco,
such that even if the criminal aspect of the charge had not been
established, the obligation subsisted.
● Case went to CA.
● Evangelista argued that the action of Yu is barred by 10 year
prescription period. Loan was allegedly contracted in 1991. Case
was brought only in 2005,
● Yu argued that date of prescription was reckoned from the date of
the check, 22 December 2004. So when the complaint was filed on
25 August 2005, it was supposedly well within the prescriptive
period of ten (10) years under Article 1144 of the New Civil Code.
ISSUES:
● Whether the action of Yu is already barred by prescription. (​YES​)
RATIO:
● Article 1144 of the Civil Code provides:
Article 1144. The following actions must be brought within ten years
from the time the right of action accrues:
1) Upon a written contract;
2) Upon an obligation created by law;
3) Upon a judgment.
● Barring any extrajudicial or judicial demand that may toll the 10-year
prescription period and any evidence which may indicate any other
time when the obligation to pay is due, the cause of action based on
a check is reckoned from the date indicated on the check.
● If the check is undated, however, as in the present petition, the
cause of action is reckoned from the date of the issuance of the
check. This is so because regardless of the omission of the date
indicated on the check, Section 17 of the Negotiable Instruments
Law instructs that an undated check is presumed dated as of the
time of its issuance.
● While the space for the date on a check may also be filled, it must,
however, be filled up strictly in accordance with the authority given
and within a reasonable time. ​Assuming that Yu had authority to
insert the dates in the checks, the fact that he did so after a lapse of
more than 10 years from their issuance certainly cannot qualify as
changes made within a reasonable time.
● The cause of action on the checks has become stale, hence,
time-barred. No written extrajudicial or judicial demand was shown
to have been made within 10 years which could have tolled the
period. Prescription has indeed set in.
The delivery of the check produces the effect of payment when
through the fault of the creditor they have been impaired.
● It is a settled rule that the creditor's possession of the evidence of
debt is proof that the debt has not been discharged by payment. It is
likewise an established tenet that a negotiable instrument is only a
substitute for money and not money, and the delivery of such an
instrument does not, by itself, operate as payment. Thus, in ​BPI v.
Spouses Royeca,​ we ruled that despite the lapse of three years
from the time the checks were issued, the obligation still subsisted
and was merely suspended until the payment by commercial
document could actually be realized.
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​33
● However, payment is deemed effected and the obligation for which
the check was given as conditional payment is treated discharged, if
a period of 10 years or more has elapsed from the date indicated on
the check until the date of encashment or presentment for payment.
The failure to encash the checks within a reasonable time after
issue, or more than 10 years in this instance, not only results in the
checks becoming stale but also in the obligation to pay being
deemed fulfilled by operation of law.
● Art. 1249 of the Civil Code specifically provides that checks should
be presented for payment within a reasonable period after their
issuance, to wit:
Art. 1249. The payment of debts in money shall be
made in the currency stipulated, and if it is not possible to
deliver such currency, then in the currency which is legal
tender in the Philippines.
The delivery of promissory notes payable to order,
or bills of exchange or other mercantile documents shall
produce the effect of payment only when they have been
cashed, or when through the fault of the creditor they have
been impaired.
In the meantime, the action derived from the original
obligation shall be held in the abeyance.
● This rule is similarly stated in the Negotiable Instruments Law as
follows:
Sec. 186. ​Within what time a check must be
presented.​ — 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.
● While it is true that the delivery of a check produces the effect of
payment only when it is cashed, pursuant to Art. 1249 of the Civil
Code, the rule is otherwise if the debtor is prejudiced by the
creditor's unreasonable delay in presentment. ​The acceptance of a
check implies an undertaking of due diligence in presenting it
for payment, and if he from whom it is received sustains loss
by want of such diligence, it will be held to operate as actual
payment of the debt or obligation for which it was given. It has,
likewise, been held that if no presentment is made at all, the drawer
cannot be held liable irrespective of loss or injury unless
presentment is otherwise excused. This is in harmony with Article
1249 of the Civil Code under which payment by way of check or
other negotiable instrument is conditioned on its being cashed,
except when through the fault of the creditor, the instrument is
impaired. The payee of a check would be a creditor under this
provision and if its no-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.
● Similarly in this case, we find that the delivery of the checks, despite
the subsequent failure to encash them within a period of 10 years or
more, had the effect of payment. Petitioner is considered discharged
from his obligation to pay and can no longer be pronounced civilly
liable for the amounts indicated thereon.
WHEREFORE, the instant Petition is GRANTED. The Decision dated 1
October 2013 and Resolution dated 27 February 2014 in CA-G.R. SP
No. 110680 are SET ASIDE. The Complaint against petitioner is hereby
DISMISSED.
SO ORDERED.
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​34

10. NEW PACIFIC TIMBER v. SENERIS
December 19, 1980 | Concepcion, Jr. J. | Sec 187
C. SO & G. SALUD
DRAWER: EQUITABLE BANKING CORPORATION
PAYEE: JUDGE SENERIS AS EX OFFICIO SHERIFF
SEQUENCE:
Equitable Banking Corporation issued cashier’s checks > New Pacific
Timber deposited checks in payment of obligation to Judge Seneris as ex
officio Sheriff > Judge refused to accept and set auction for sale of New
Pacific Timber’s personal properties.
RECIT-READY:
Herein petitioner is the defendant in a complaint for collection of a sum of
money filed by the private respondent. On July 19, 1974, a compromise
judgment was rendered by the respondent Judge in accordance with an
amicable settlement entered into by the parties.
For failure of the petitioner to comply with his judgment obligation, the
respondent Judge, upon motion of the private respondent, issued an order
for the issuance of a writ of execution on December 21, 1974.
Accordingly, writ of execution was issued for the amount of P63,130.00
pursuant to which, the ​Ex-Officio Sheriff levied upon the following
personal properties of the petitioner.
The Sheriff set the auction sale thereof on January 15, 1975. However,
prior to January 15, 1975, petitioner deposited with the Clerk of Court,
Court of First Instance, Zamboanga City, in his capacity as ​Ex-Officio
Sheriff of Zamboanga City, the sum of P63,130.00 for the payment of the
judgment obligation, consisting of the following:
1. P50.000.00 in Cashier's Check No. S-314361 dated
January 3, 1975 of the Equitable Banking Corporation; and
2. P13,130.00 incash.
In a letter dated January 14, 1975, to the ​Ex-Officio Sheriff, private
respondent through counsel, refused to accept the check as well as the
cash deposit.
Deputy Sheriff Castro sold the levied properties item by item to the private
respondent as the highest bidder in the amount of P50,000.00. As a result
thereof, the Ex-Officio Sheriff declared a deficiency of P13,130.00.
Thereafter, on January 16, 1975, the ​Ex-Officio Sheriff issued a "Sheriff's
Certificate of Sale" in favor of the private respondent, Ricardo Tong,
married to Pascuala Tong for the total amount of P50,000.00 only.
Subsequently, on January 17, 1975, petitioner filed an ​ex-parte motion for
issuance of certificate of satisfaction of judgment. This motion was denied
by the respondent Judge in his order dated August 28, 1975.
In view thereof, petitioner now questions said order by way of the present
petition alleging in the main that said respondent Judge capriciously and
whimsically abused his discretion in not granting the motion for issuance
of certificate of satisfaction of judgment for the following reasons: (1) that
there was already a full satisfaction of the judgment before the auction
sale was conducted with the deposit made to the ​Ex-Officio Sheriff in the
amount of P63,000.00 consisting of P50,000.00 in Cashier's Check and
P13,130.00 in cash; and (2) that the auction sale was invalid for lack of
proper notice to the petitioner and its counsel when the ​Ex-Officio Sheriff
postponed the sale from June 15, 1975 to January 16, 1976 contrary to
Section 24, Rule 39 of the Rules of Court.
ISSUE:
● Whether or not the private respondent can validly refuse
acceptance of 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 which it deposited with the ​Ex-Officio Sheriff
before the date of the scheduled auction sale. ​NO
RULING:
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​35

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.​ " 1​​ When the holder procures the check
to be certified, "the check operates as an assignment of a part of the
funds to the creditors."
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. The auction sale,
therefore, was uncalled for.
Furthermore, it appears that on January 17, 1975, the Cashier's Check
was even withdrawn by the petitioner and replaced with cash in the
corresponding amount of P50,000.00 on January 27, 1975 pursuant to an
agreement entered into by the parties at the instance of the respondent
Judge. However, the private respondent still refused to receive the same.
Obviously, the private respondent is more interested in the levied
properties than in the mere satisfaction of the judgment obligation. Thus,
petitioner's motion for the issuance of a certificate of satisfaction of
judgment is clearly meritorious and the respondent Judge gravely abused
his discretion in not granting the same under the circumstances.
DOCTRINE: ​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.​ " 1​​ When the holder procures the check
to be certified, "the check operates as an assignment of a part of the
funds to the creditors.
FACTS:
● Herein petitioner is the defendant in a complaint for collection of a
sum of money filed by the private respondent. On July 19, 1974, a
compromise judgment was rendered by the respondent Judge in
accordance with an amicable settlement entered into by the parties
the terms and conditions of which, are as follows:
○ (1) That defendant will pay to the plaintiff the amount of Fifty
Four Thousand Five Hundred Pesos (P54,500.00) at 6%
interest per annum to be reckoned from August 25, 1972;
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​36
 ○ (2) That defendant will pay to the plaintiff the amount of Six
Thousand Pesos (P6,000.00) as attorney's fees for which
P5,000.00 had been acknowledged received by the plaintiff
under Consolidated Bank and Trust Corporation Check No.
16-135022 amounting to P5,000.00 leaving a balance of One
Thousand Pesos (P1,000.00);
○ (3) That the entire amount of P54,500.00 plus interest, plus the
balance of P1,000.00 for attorney's fees will be paid by
defendant to the plaintiff within five months from today, July 19,
1974; and
○ (4) Failure one the part of the defendant to comply with any of
the above-conditions, a writ of execution may be issued by this
Court for the satisfaction of the obligation.
● For failure of the petitioner to comply with his judgment obligation,
the respondent Judge, upon motion of the private respondent,
issued an order for the issuance of a writ of execution on December
21, 1974. Accordingly, writ of execution was issued for the amount
of P63,130.00 pursuant to which, the ​Ex-Officio Sheriff levied upon
the following personal properties of the petitioner, to wit:
(1) Unit American Lathe 24
(1) Unit American Lathe 18 Cracker Wheeler
(1) Unit Rockford Shaper 24
● The Sheriff set the auction sale thereof on January 15, 1975.
However, prior to January 15, 1975, petitioner deposited with the
Clerk of Court, Court of First Instance, Zamboanga City, in his
capacity as ​Ex-Officio Sheriff of Zamboanga City, the sum of
P63,130.00 for the payment of the judgment obligation, consisting of
the following:
1. ​P50.000.00 in Cashier's Check No. S-314361 dated
January 3, 1975 of the Equitable Banking Corporation; ​and
2. P13,130.00 incash.
● In a letter dated January 14, 1975, to the ​Ex-Officio Sheriff, private
respondent through counsel, refused to accept the check as well as
the cash deposit. In the same letter, private respondent requested
the scheduled auction sale on January 15, 1975 to proceed if the
petitioner cannot produce the cash. However, the scheduled auction
sale at 10:00 a.m. on January 15, 1975 was postponed to 3:00
o'clock p.m. of the same day due to further attempts to settle the
case. Again, the scheduled auction sale that afternoon did not push
through because of a last ditch attempt to convince the private
respondent to accept the check. The auction sale was then
postponed on the following day, January 16, 1975 at 10:00 o'clock
a.m.
● In the course of the proceedings, Deputy Sheriff Castro sold the
levied properties item by item to the private respondent as the
highest bidder in the amount of P50,000.00. As a result thereof, the
Ex-Officio Sheriff declared a deficiency of P13,130.00.
● Thereafter, on January 16, 1975, the ​Ex-Officio Sheriff issued a
"Sheriff's Certificate of Sale" in favor of the private respondent,
Ricardo Tong, married to Pascuala Tong for the total amount of
P50,000.00 only.
● Subsequently, on January 17, 1975, petitioner filed an ​ex-parte
motion for issuance of certificate of satisfaction of judgment. This
motion was denied by the respondent Judge in his order dated
August 28, 1975.
● In view thereof, petitioner now questions said order by way of the
present petition alleging in the main that said respondent Judge
capriciously and whimsically abused his discretion in not granting
the motion for issuance of certificate of satisfaction of judgment for
the following reasons: (1) that there was already a full satisfaction of
the judgment before the auction sale was conducted with the
deposit made to the ​Ex-Officio Sheriff in the amount of P63,000.00
consisting of P50,000.00 in Cashier's Check and P13,130.00 in
cash; and (2) that the auction sale was invalid for lack of proper
notice to the petitioner and its counsel when the ​Ex-Officio Sheriff
postponed the sale from June 15, 1975 to January 16, 1976
contrary to Section 24, Rule 39 of the Rules of Court.
● In November 10, 1975, the Court issued a temporary restraining
order enjoining the respondent ​Ex-Officio Sheriff from delivering the
personal properties subject of the petition to Ricardo A. Tong in view
of the issuance of the "Sheriff Certificate of Sale."
ISSUES:
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​37

● Whether or not the private respondent can validly refuse acceptance
of 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 which it deposited with the ​Ex-Officio Sheriff before the date of
the scheduled auction sale. ​NO
RATIO:
● It is to be emphasized in this connection that the check deposited by
the petitioner in the amount of P50,000.00 is not an ordinary check
but a Cashier's Check of the Equitable Banking Corporation, a bank
of good standing and reputation. As testified to by the ​Ex-Officio
Sheriff with whom it has been deposited, it is a certified crossed
check.
● 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​." 1​​ 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 w​hole 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. The auction sale, therefore, was uncalled for​.
● Furthermore, it appears that on January 17, 1975, the Cashier's
Check was even withdrawn by the petitioner and replaced with cash
in the corresponding amount of P50,000.00 on January 27, 1975
pursuant to an agreement entered into by the parties at the instance
of the respondent Judge. However, the private respondent still
refused to receive the same. ​Obviously, the private respondent is
more interested in the levied properties than in the mere satisfaction
of the judgment obligation. Thus, petitioner's motion for the issuance
of a certificate of satisfaction of judgment is clearly meritorious and
the respondent Judge gravely abused his discretion in not granting
the same under the circumstances.
WHEREFORE, in view of all the foregoing, judgment is hereby
rendered:
1. Declaring as null and void the order of the respondent Judge dated
August 28, 1975;
2. Declaring as null and void the auction sale conducted on January
16, 1975 and the certificate of sale issued pursuant thereto;
3. Ordering the private respondent to accept the sum of P63,130.00
under deposit as payment of the judgment obligation in his favor;
4. Ordering the respondent Judge and respondent Ex-Officio Sheriff to
release the levied properties to the herein petitioner.
The temporary restraining order issued is hereby made permanent.
Costs against the private respondent.
SO ORDERED.
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​38
 11. PNB v. NATIONAL CITY BANK OF NY
October 31, 1936 | Recto, J. | Sec 187
G. SALUD & CALDOZO
DRAWER: J.L Klar as Manager and Treasurer of Pangasinan
Transportation Co ​(forged)
DRAWEE: ​PNB
PAYEE: ​International Auto Repair Shop
INDORSER: ​Unknown persons
HOLDER: ​MSC
COLLECTING BANK: ​National City Bank of NY
SEQUENCE:
PTC > Int’l Auto Repair Shop > Unknown Persons ​negotiated the checks
> MSC ​deposited ​> National City Bank of NY > PNB
RECIT-READY: ​Unknown person/s negotiated with MSC 2 checks in
payment for automobile tires purchased from its stores, purporting to be
issued by PTC by J.L Klar, Manager and Treasurer against PNB and in
favor of Int’l Auto Repair Shop. The said checks were then indorsed ​for
deposit b ​ y the MSC at the Nat’l City Bank of NY. The said checks were
cleared at the clearing house and the PNB credited the Nat’l Bank of NY
for such amounts, believing that the signatures of J.L. Klar were genuine,
that the payee is an existing entity and the endorsements at the bank
thereof regular and genuine. PNB then found out that the purported
signatures of J.L. Klar were forged, and it demanded from MSC the
reimbursement of the amounts for which it credited the National City Bank
of NY at the clearing house and for which the latter credited MSC, but the
latter refused, and continue to refuse, to make such reimbursements.
MSC claims that the payment of the checks in question made by the PNB
constitutes an "acceptance", and, consequently, the case should be
FACTS:
governed by the provisions of Section 62 of the NIL.
ISSUE:
● W/N the PNB has the right to recover from the MSC the value of
the checks on which the signatures of the drawer were forged —
YES
○ W/N PNB’s payment of the check amounted to its
acceptance/certification​ - NO
RULING: ​There is nothing in the law or in business practice against the
presentation of checks for acceptance, before they are paid, 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.
There is nothing in the nature of the check which precludes its
acceptance. The bank may accept if it chooses. The most ordinary form
which such an act assumes is the ​certifying of the check​. No doubt a bank
may by an unequivocal promise in writing make itself liable in any event to
pay the check upon demand, BUT this is not an "acceptance" of the
check in the true sense of that term​.
The theory of MSC is vitiated by the fact that they take the word
"acceptance" ​in its ordinary meaning and not in the technical sense in
which it is used in NIL. MSC says that when payment is made, such
payment amounts to an acceptance, because he who pays accepts. This
is true in common parlance, ​but it is NOT "acceptance" in legal
contemplation​. The word "acceptance" has a peculiar meaning in the
NIL, and, in the instant case ​there was payment ​but ​no acceptance​, or
what is equivalent to acceptance, ​certification​.
DOCTRINE:
(Sec 187 of NIL) 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. ​(but there is
no certification in this case; bc payment does not amount to acceptance)
● PNB is a banking corporation organized and existing under and by
virtue of a special act of the Philippine Legislature, with office as
principal place of business at Escolta, Manila, P.I.;
● National City Bank of New York is a foreign banking corporation with
a branch office duly authorized and licensed to carry and engage in
banking business in the PH, with branch office and place of
business in the National City Bank Bldg., City of Manila, P.I.,
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​39
 ● Motor Service Company, Inc., (MSC) is a corporation organized and
existing under and by virtue of the general corporation law of the
PH, with office and principal place of business at Rizal Avenue, City
of Manila, P.I., engaged in the purchase and sale of automobile
spare parts and accessories.
● An unknown person or persons negotiated with MSC, 2 checks,
which are made parts of the stipulation, ​in payment for automobile
tires purchased from MSC’s stores, purporting to have been issued
by the 'Pangasinan Transportation Co., Inc. (PTC) by J.L. Klar,
Manager and Treasurer', against the PNB and in favor of the
International Auto Repair Shop, for P144.50 and P215.75;
○ and said checks were indorsed by said unknown persons in
the manner indicated at the back thereof, the MSC,
believing at the time that the signatures of J.L. Klar,
Manager and Treasurer of the Pangasinan Transportation
Co., Inc., on both checks were genuine.
● The checks were then indorsed for deposit by the MSC at the
National City Bank of NY and the former was accordingly credited
with the amounts thereof
● The said checks were cleared at the clearing house and the PNB
credited the National City Bank of NY for the amounts thereof,
believing at the time that the signatures of the drawer were genuine,
that the payee is an existing entity and the endorsements at the
bank thereof regular and genuine.
● The Philippine National Bank then found out that the purported
signatures of J.L. Klar, as Manager and Treasurer of PTC, were
forged,
○ and it accordingly demanded from MSC the reimbursement
of the amounts for which it credited the National City Bank
of NY at the clearing house and for which the latter credited
MSC, but the latter refused, and continue to refuse, to make
such reimbursements.
ISSUES:
● W/N the PNB has the right to recover from the MSC the value of the
checks on which the signatures of the drawer were forged — ​YES
RELEVANT ARGUMENTS (if any):
● MSC maintains that the question should be answered in the
negative.
○ It is contended, first of all, that the payment of the checks in
question made by the drawee bank (PNB) constitutes an
"acceptance", and, consequently, the case should be
governed by the provisions of Section 62 of the NIL
RATIO:
SEC. 62. Liability of acceptor. — The acceptor by accepting the instrument
engages that he will pay it according to the tenor of his acceptance; and
admits:
1. The existence of the drawer, the genuineness of his signature, and
his capacity and authority to draw the instrument; and
2. The existence of the payee and his then capacity to indorse.
(Concept of “acceptance” under NIL: absent in checks)
● MSC’s contention is without merit. 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 NIL.
● In view of the fact that 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 section 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 section
62 against the drawee.
○ Moreover, according to section 191, "acceptance" means
"an acceptance completed by delivery or notification"
and this concept is ​entirely incompatible with payment​,
because ​when payment is made the ​check is retained by
the bank​, and there is NO such thing as delivery or
notification to the party receiving the payment.
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​40
 ● There can be no such thing as "acceptance" in the ordinary sense of
the term. A check being payable immediately and on demand, the
bank can fulfill its duty to the depositor only by paying the amount
demanded.
● The holder has no right to demand from the bank anything ​but
payment of the check​, and the bank has no right, as against the
drawer, to do anything ​but​ ​pay it​.
● A check is not an instrument which in the ordinary course of
business calls for acceptance. ​The holder can never claim
acceptance as his legal right​. He can present for payment, and
only for payment.
TOPIC!!!​ ​(Concept of certification)
● There is, however, nothing in the law or in business practice against
the presentation of checks for acceptance, before they are paid, 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.
● This certification or acceptance consists in the signification by the
drawee of his assent to the order of the drawer, which must not
express that the drawee will perform his promise by any other
means than the payment of money.
● When the holder of a check procures it to be accepted or certified,
the drawer will perform his promise by any other means than the
payment of money.
○ When the holder of a check procures it to be accepted or
certified, the drawer and all indorsers are discharged from
liability thereon, and then the check operates as an
assignment of a part of the funds to the credit of the
drawer with the bank​.
● There is nothing in the nature of the check which intrinsically
precludes its acceptance, in like manner and with like effect as a bill
of exchange or draft may be accepted.
○ The bank may accept if it chooses. The act by which the
bank places itself under obligation to pay to the holder the
sum called for by a check must be the ​expressed promise
or undertaking of the bank ​signifying its intent to assume
the obligation, or some act from which the law will
imperatively imply such valid promise or undertaking.
○ The most ordinary form which such an act assumes is the
acceptance by the bank of the check, or, as it is perhaps
more often called, ​the certifying of the check​.
● No doubt a bank may by an unequivocal promise in writing make
itself liable in any event to pay the check upon demand, BUT this is
not an "acceptance" of the check in the true sense of that term​.
● A certified check has a distinctive character as a species of
commercial paper, and performs important functions in banking and
commercial business.
○ 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.
● All the authorities hold that ​a check may be accepted​, ​though
acceptance is not usual​. The certificate of the bank that a check is
good is equivalent to acceptance.
○ It 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 undertaking that the check is good then, and shall
continue good, and this agreement is as binding on the
bank as its notes of circulation, a certificate of deposit
payable to the order of the depositor, or any other obligation
it can assume.
● Ordinarily the acceptance or certified of a check is performed and
evidenced by some word or mark, usually the words "good",
"certified" or "accepted" written upon the check by the banker or
bank officer.
○ The bank virtually says, that check is good; we have the
money of the drawer here ready to pay it. We will pay it now
if you will receive it.
○ The holder says, No, I will not take the money; you may
certify the check and retain the money for me until this
check is presented.
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​41
 ● The theory of MSC and of the decisions on which it relies to support
its view is vitiated by the fact that they take the word "​acceptance​" in
its ordinary meaning and ​not in the technical sense in which it is
used in NIL.
● MSC says that when payment is made, such payment amounts to
an acceptance, because he who pays accepts.
○ This is true in common parlance​, but it is NOT
"acceptance" in legal contemplation​. The word
"acceptance" has a peculiar meaning in the NIL, and, in the
instant case ​there was payment but no acceptance​, or
what is equivalent to acceptance, certification.
(Rule: Payment neither includes nor implies acceptance)
● Payment of a check on a forged or unauthorized indorsement of the
payee's name, and charging the same to the drawer's account, do
not amount to an acceptance so as to make the bank liable to the
payee
● Merely stamping a check "Paid" upon its payment on a forged or
unauthorized indorsement is not an acceptance thereof so as to
render the drawee bank liable to the true payee.
● Before drawee's acceptance of check ​there is no privity of
contract between drawee and payee. Drawee's payment of check
on unauthorized indorsement does not constitute "acceptance" of
check.
(On the negligence of the drawee/holder)
● MSC accepted the 2 checks from unknown persons. And not only
this; check Exhibit A is indorsed by a subagent of the agent of the
payee, International Auto Repair Shop. MSC made no inquiry
whatsoever as to the extent of the authority of these unknown
persons.
● If the failure of the MSC to detect the forgery of the drawer's
signature in the 2 checks, may be considered as an omission in
good faith, then the same consideration applies to the PNB, for ​PTC
is a customer of ​both​ the MSC and the PNB​.
● In case of payment without a prior acceptance or certification, the
holder takes the paper upon the credit of the prior indorsers and the
credit of the drawer, and ​not​ upon the credit of the drawee;
○ The drawee, in making payment, has a right to rely upon the
assumption that the payee used due diligence, especially
where such payee negotiated the bill or check to a holder,
thus representing that it had so fully satisfied itself as to the
identity and signature of the maker than it was willing to
warrant as relates thereto to all subsequent holders.
○ Such correct rule denies the drawee the right to recover
when the holder was without fault or when there has been
some change of position calling for equitable relief.
(Drawee’s right to recover)
● It has been held by many courts that 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.
● Should the PNB be allowed recovery, MSC’s position would not
become worse than if PNB had refused the payment of these
checks upon their presentation.
● MSC 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
PNB.
● It purchased them from unknown persons and under suspicious
circumstances. It had no valid title to them, because the persons
from whom it received them did not have such title.
● MSC could not have compelled the drawee to pay them, and the
drawee could have refused payment had it been able to detect the
forgery. By making a refund, the appellant would only be returning
what it had received without any title or right.
In the light of the foregoing discussion, we conclude:
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;​
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​42
3. That the payment of a check does not include or imply its making any inquiry as to the identity and authority of the said
acceptance in the sense that this word is used in section 62 of the persons negotiating and indorsing them, acted negligently and
NIL; contributed to the appellee's constructive negligence in failing to
4. That in the case of the payment of a forged check, even without detect the forgery;
former acceptance, the drawee cannot recover from a holder in due 11. That under the circumstances of the case, if the appellee bank is
course not chargeable with any act of negligence or disregard of allowed to recover, there will be no change of position as to the
duty; injury or prejudice of the appellant.
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 WHEREFORE, t​he assignments of error are overruled, and the
ascertain the genuineness of the signature rested entirely upon judgment appealed from must be, as it is hereby, affirmed, with
the drawee​, and that the constructive negligence of such drawee in costs against the appellant. So ordered.
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 not 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 one 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 2
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 PNB is
no more chargeable with the knowledge of the drawer's signature
than MSC is, as the drawer was as much the customer of the MSC
as of PNB, ​the presumption that a drawee bank is bound to
know more than any indorser the signature nature 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

ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​43

 12. EQUITABLE PCI BANK v. ONG
Sept. 15, 2006 |Chico-Nazario, J. | Sec. 187
NOEL & BARRALES
DRAWER: ​Sarande
DRAWEE: ​EQUITABLE PCI
PAYEE: ​Ong
COLLECTING BANK:
INSTRUMENT: ​Check, converted into a manager’s check
SEQUENCE:
Example​: ​Sarande >Ong >Equitable Bank >PCI Bank (Note: Equitable
and PCI eventually merged)
RECIT-READY:
Sarande deposited in her PCI bank account a certain check. Relying on
the fact that it had been cleared, she issued further 2 checks drawn
against the proceeds of that first check. One of these checks was given to
Ong as payment for a business transaction. Ong went to PCI to convert
the check into a manager’s check. PCI obliged and issued the same. Ong
then deposited the manager’s check in her account at Equitable Bank.
She then received a check return-slip informing her that PCI had stopped
payment of the check because it was drawn against an already closed
account. Ong is suing to recover the proceeds. PCI Bank refuses to
surrender any because the account is closed, and therefore resulting in a
failure or want of consideration.
ISSUE:
● W/N Ong is a holder in due course - YES
● W/N PCI bank is liable to pay the amount of the check - YES
RULING: ​On whether or not there is a failure or want of considersation,
that is a personal defense and cannot be invoked against Ong, who is a
holder in due course. PCI bank’s act of accepting the check and
converting the same into a manager’s check is equivalent to accepting the
check. By accepting the same PCI Bank assumes the liablities of an
acceptor.
DOCTRINE:
A manager's check stands on the same footing as a certified check.
The mere issuance of it is considered an acceptance thereof.
The effect of certification is found in Section 187, Negotiable Instruments
Law- Where a check is certified by the bank on which it is drawn, the
certification is equivalent to an acceptance.
FACTS:
● Warliza Sarande deposited in her account at Philippine Commercial
International (PCI) Bank (in General Santos) a PCI TCBT Check
No. 0249188 in the amount of ​P2
​ 25,000
● Upon inquiry by Sarande at PCI Bank on 5 December 1991 on
whether TCBT Check No. 0249188 had been cleared, she received
an affirmative answer. Relying on this assurance, ​she issued two
checks drawn against the proceeds of the said check​.
● One of these was a check for ​P​132,000 ​which Sarande issued to
Rowena Ong (respondent) owing to a business transaction. On the
same day, Ong presented it to another PCI Bank branch
(Magsaysay Ave.), ​and instead of encashing it, requested PCI Bank
to convert the proceeds thereof into a manager's check​, ​which the
PCI Bank obliged​. Ong was issued PCI Bank Manager's Check No.
10983 dated 5 December 1991 for the sum of ​P​132,000.
● The next day, 6 December 1991, Ong deposited PCI Bank
Manager's Check No. 10983 in her account with Equitable Banking
Corporation Davao City Branch​. On 9 December 1991, ​she
received a check return-slip informing her that PCI Bank had
stopped the payment of the said check on the ground of
irregular issuance. ​Despite several demands made by her to PCI
Bank for the payment of the amount in the Manager's Check , she
was refused. Ong then filed a case against PCI Bank. (Note:
Equitable and PCI Bank merged into Equitable PCI Bank)
● From PCI Bank claims the TCBT-General Santos City Check No.
0249188 was returned on 5 December 1991 at 5:00 pm ​on the
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​44
 ground that the account against which it was drawn was
already closed. According to PCI Bank, it immediately gave notice
to Sarande and Ong about the return of the TCBT check and
requested Ong to return the Manager's Check ​on the ground that
the account from which it was drawn had already been closed
resulted in a failure or want of consideration for the issuance of
the manager’s check.
● The RTC ruled in favor of Ong, and ordered PCI Bank to pay
P132,000 to Ong, equivalent to the amount of the manager’s check,
as well as damages and fees. The CA affirmed.
ISSUES:
● Whether or not Ong is a holder in due course - (YES)
● Whether or not PCI Bank is liable to pay the amount on the check
(YES)
RELEVANT ARGUMENTS (if any):
● Petitioner: Ong is not a holder in due course because the manager's
check was drawn against a closed account; therefore, the same was
issued without consideration. Also, paying the same would thus
result in unjust enrichment on the part of Ong.
RATIO
● It may be true that plaintiff's PCIB Check No. 073661 for
P​132,000.00 which was paid to her by Warliza Sarande was actually
not funded but since plaintiff became a holder in due course, PCI
bank cannot interpose a defense of want or lack of
consideration because that defense is equitable or personal
and cannot prosper against a holder in due course pursuant to
Section 28 of the Negotiable Instruments Law. Therefore, when
the check was indorsed and presented by Ong and certified to and
accepted by PCI Bank in the purchase of the Manager's Check in
the amount of ​P​132,000.00, t​here was a valid consideration.
● The fundamental doctrine of unjust enrichment is the transfer of
value without just cause or consideration. It is well to stress that the
check of Sarande had been cleared by the PCI Bank for which
reason the former issued the check to Ong. A check which has been
cleared and credited to the account of the creditor shall be
equivalent to a delivery to the creditor of cash in an amount equal to
the amount credited to his account.
● Having cleared the check earlier, PCI Bank, therefore, became
liable to Ong and it cannot allege want or failure of consideration
between it and Sarande. Under settled jurisprudence, Ong is a
stranger as regards the transaction between PCI Bank and
Sarande.
● 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. 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. The effect of certification is found in Section 187,
Negotiable Instruments Law​.
● 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.
● By accepting the PCI Bank Check 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 Section 62 of the
Negotiable Instruments Law:
(a) The existence of the drawer, the genuineness of his signature, and his
capacity and authority to draw the instrument; and
(b) The existence of the payee and his then capacity to indorse.
WHEREFORE, premises considered, the Petition is DENIED and the Decision
of the Court of Appeals dated 29 October 2002 in CA-G.R. CV No. 65000
affirming the Decision dated 3 may 1999, of the Regional Trial Court of Davao
City, Branch 14, in Civil Case No. 21458-92, are AFFIRMED.
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​45

13. ​SECURITY BANK AND TRUST COMPANY ​v.​ RIZAL COMMERCIAL
BANKING CORPORATION
June 30, 2009| Quisumbing | Sec 187
SANCHEZ
DRAWER:​Security Bank and Trust Company (SBTC)
DRAWEE:​Security Bank and Trust Company (SBTC)
PAYEE: ​“CASH”
HOLDER: ​Continental Manufacturing Corporation ​(​CMC)
COLLECTING BANK: ​Rizal Commercial Banking Corporation (RCBC).
SEQUENCE:
SBTC > GCDC > CMC > RCBC
RECIT-READY:
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 Corporation (GCDC).
The check was deposited by Continental Manufacturing Corporation
(CMC) in its Current Account with Rizal Commercial Banking Corporation
(RCBC). Immediately, RCBC honored the P8M check and allowed CMC
to withdraw. On January 12, 1981, GCDC issued a "Stop Payment Order"
to SBTC claiming that the P 8M check was released to a 3rd party by
mistake. SBTC dishonored and returned the manager’s check to RCBC.
On February 13, 1981, RCBC filed a complaint for damages against
SBTC with CFI then transferred to RTC. 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 P 8 M check was equally divided between
RCBC and SBTC.
RTC ruled in favor of RCBC.
CA affirmed with modification RTC decision by adding interest.
ISSUE: Whether on not SBTC should be held liable for its manager's
FACTS:
check.
HELD:
At the outset, it must be noted that the questioned check issued by SBTC
is not just an ordinary check but a manager’s check. A manager’s check is
one drawn by a bank’s manager upon the bank itself. It has the same
footing as a certified check which is deemed to have been accepted by
the bank that certified it. As the bank’s own check, a manager’s check
becomes the primary obligation of the bank and is accepted in advance by
the act of its issuance.
SBTC should be held liable for its manager’s check.
RCBC, in immediately crediting the amount of P8 million to CMC’s
account, relied on the integrity and honor of the check as it is regarded in
commercial transactions
In the July 9, 1980 Memorandum, banks were given the discretion to allow
immediate drawings on uncollected deposits of manager’s checks, among
others. It is important that banks should guard against injury attributable to
negligence or bad faith on its part. The banking business is impressed
with public interest, the trust and confidence of the public in it is of
paramount importance. Highest degree of diligence is expected, and high
standards of integrity and performance are required of it.
DOCTRINE:
Sec. 187. Certification of check; effect of. - Where a check is certified
by the bank on which it is drawn, the certification is equivalent to an
acceptance.
A manager's check is one drawn by a bank's manager upon the bank
itself. It stands on the same footing as a certified check, which is deemed
to have been accepted by the bank that certified it.
As the bank's own check, a manager's check becomes the primary
obligation of the bank and is accepted in advance by the act of its
issuance.
- January 1981, ​Security Bank and Trust Company (SBTC) issued
a manager's check for P8 million, payable to "CASH", as proceeds
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​46
 of the loan granted to ​Guidon Construction and Development
Corporation (GCDC)​.
- On the same day, the P8-million check, along with other checks,
was deposited by ​Continental Manufacturing Corporation (CMC)
in its Current Account with ​Rizal Commercial Banking
Corporation (RCBC).
- Immediately, RCBC honored the P8-million check and allowed CMC
to withdraw the same.
- On the next banking day, GCDC issued a "Stop Payment Order" to
SBTC, claiming that the P8-million check was released to a third
party by mistake.
- Consequently, 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 for damages against SBTC with CFI of
Makati.
- 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
P8-million check was equally divided between, and credited to,
RCBC and SBTC.
RTC of Makati City, rendered a Decision in favor of RCBC.
On appeal, the Court of Appeals affirmed with modification the and the
appellant Security Bank and Trust Co. shall pay appellee Rizal Commercial
Banking Corporation not only the principal amount of P4,000,000.00 but also
interest thereon at (6%) per annum covering appellee's unearned income on
interest computed from the time of filing of the complaint.
Issue:
WHETHER OR NOT SBTC IS LIABLE FOR THE MANAGER'S CHECK IT
ISSUED ​(YES)
Claims of RCBC
- 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.
Claims of RCBC
- RCBC violated Monetary Board Resolution No. 2202 of the Central
Bank of the Philippines mandating all banks to verify the
genuineness and validity of all checks before allowing drawings of
the same.
- SBTC insists that RCBC should bear the consequences of allowing
CMC to withdraw the amount of the check before it was cleared.
HELD:
- A manager's check is one drawn by a bank's manager upon the
bank itself. It stands on the same footing as a certified check,
which is deemed to have been accepted by the bank that
certified it.
- As the bank's own check, a manager's check becomes the
primary obligation of the bank and is accepted in advance
by the act of its issuance.
- In this case, RCBC, in immediately crediting the amount of P8
million 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.
- SBTC cannot escape liability by invoking Monetary Board
Resolution No. 2202 dated December 21, 1979, prohibiting
drawings against uncollected deposits.
- For we must point out that the Central Bank at that time
issued a Memorandum dated July 9, 1980, which
interpreted said Monetary Board Resolution No. 2202. In its
pertinent portion, said Memorandum reads:
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​47
"MEMORANDUM TO ALL BANKS
July 9, 1980
For the guidance of all concerned, Monetary Board Resolution No. 2202
dated December 31, 1979 prohibiting, as a matter of policy, drawing against
uncollected deposit effective July 1, 1980, uncollected deposits representing
manager's/cashier's/treasurer's checks, treasury warrants, postal money
orders and duly funded "on us" checks which may be permitted at the
discretion of each bank, covers drawings against demand deposits as well
as withdrawals from savings deposits."
- Thus, it is clear from the July 9, 1980 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.
- Moreover, neither Monetary Board Resolution No. 2202 nor the July
9, 1980 Memorandum alters the extraordinary nature of the
manager's check and the relative rights of the parties thereto.
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.
- The banking system has become an indispensable institution in the
modern world and plays a vital role in the economic life of every
civilized society.
- Whether as mere passive entities for the safe-keeping and saving of
money or as active instruments of business and commerce, banks
have attained an ubiquitous presence among the people, who have
come to regard them with respect and even gratitude and, above all,
trust and confidence. In this connection, it is important that banks
should guard against injury attributable to negligence or bad faith on
its part.
- As repeatedly emphasized, since the banking business is impressed
with public interest, the trust and confidence of the public in it is of
paramount importance.
- Consequently, the highest degree of diligence is expected, and high
standards of integrity and performance are required of it. SBTC
having failed in this respect, the award of exemplary damages to
RCBC in the amount of P50,000.00 is warranted.
- Pursuant to current jurisprudence, with the finding of liability for
exemplary damages, attorney's fees in the amount of P25,000.00
must also be awarded against SBTC and in favor of RCBC.
WHEREFORE, the assailed Decision dated March 29, 2005 and
Resolution dated December 12, 2005 of the Court of Appeals in
CA-G.R. CV No. 67387 is hereby AFFIRMED with MODIFICATION.
Security Bank and Trust Company is ordered to pay Rizal Commercial
Banking Corporation: (1) the remaining P4,000,000.00, with legal
interest thereon at six percent (6%) per annum from the time of filing of
the complaint on February 13, 1981 to the date of finality of this
Decision; (2) exemplary damages of P50,000.00; and (3) attorney's fees
of P25,000.00.
No pronouncement as to costs.
SO ORDERED​.
|
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​48
 14. ​PANLILIO v. DAVID
payment of its amount cured the defect complained of and that,
Mar 14, 1927 | OSTRAND, J. | Sec. 187 - Certification of check
consequently, the award to David was valid.
R. BARRALES & CHECKER
DOCTRINE:
PETITIONER: ​Adriano Panlilio Sec. 187. Certification of check; effect of. - Where a check is certified by
RESPONDENT: ​Teodoro David the bank on which it is drawn, the ​certification is equivalent to an
acceptance​.
RECIT-READY: ​David filed an application in the Bureau of Lands for a
lease of land in Bataan property of PH Gov’t. David submitted a bid for a In this case the Court held that though the original bid of David was not
rent of P720 per annum and Panlilio, offered to pay a rent of P2,600 per made in the manner and form prescribed by the regulations, the
annum.The bid of ​David was accompanied by an ​uncertified check for acceptance of it together with the payment of its amount cured the defect
P360, drawn on the Philippine National Bank to cover the rent for six complained of and that, consequently, the award to David was valid.
months; While Panlilio's bid was accompanied by a check on the same
Bank for the sum of P1,300, bearing on its face the letters "O. K. S. M."
FACTS:
David raised his bid to equal that of Panlilio and immediately
● On April 9, 1924, the defendant Teodoro David filed an application
tendered the sum of P940 in actual cash, which, with his check for
in the Bureau of Lands for a lease of a tract of land, the property of
P360, made a total of P1,300. Then both the money and the check
the Government of the Philippine Islands, situated in the municipality
were ACCEPTED by the Bureau of Lands and the check was later on
of Hermosa, Province of Bataan, and embracing an area of 229
cashed and the proceeds deposited in the Insular Treasury. ​Panlilio
hectares.
filed a written protest contesting the validity of the bid of David on the
ground that the check enclosed with the bid was not certified or accepted
● The applicant, Teodoro David, submitted a bid for a rent of P720 per
by the bank against whom it was drawn. ​The court below rendered
annum and the only other bidder the plaintiff, Adriano Panlilio,
judgment holding that both of the bids in question were invalid
offered to pay a rent of P2,600 per annum.
inasmuch as none of the checks accompanying them was certified or
accepted in accordance with law. Ruling that the requirements of the
● The bid of David was accompanied by an ​uncertified check for
regulations of the Bureau of Lands that such ​checks must be accepted
P360, drawn on the Philippine National Bank to cover the rent for six
or certified​, could not be waived by the Director of Lands, and that both
months; While Panlilio's bid was accompanied by a check on the
bids being invalid​, there could be no valid award to either of the parties.
same Bank for the sum of P1,300, bearing on its face the letters "O.
From this judgment both parties appealed.
K. S. M." (Important to ah)
ISSUE: ​W/N The uncertified check was cured, when it was accepted and
● Taking advantage of the privilege accorded the applicants for leases
cashed making the award to David valid? - ​YES
to taking over the bid of the highest competitive bidder, ​David
raised his bid to equal that of Panlilio and immediately
RULING: When David's bid was accepted and the amount of the bid was
tendered the sum of P940 in actual cash, which, with his check
paid and covered into the Insular Treasury, the Government could hardly
for P360, made a total of P1,300.
be heard to say that the award was invalid because the amount paid was
originally represented in part by an uncertified check. The Court held that
● Both the money and the check were ACCEPTED by the Bureau
though the original bid of David was not made in the manner and form
of Lands and the check was later on cashed and the proceeds
prescribed by the regulations, the acceptance of it together with the
deposited in the Insular Treasury.​ ​[IMPT]

ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​49


● Panlilio filed a written protest contesting the validity of the bid of
David on the ground that the check enclosed with the bid was not
certified or accepted by the bank against whom it was drawn.
● The matter was referred to the Attorney-General for an opinion and,
under the mistaken impression that the check accompanying
Panlilio's bid was certified​,
○ the Attorney-General ruled that his bid should have been
accepted and that the bid of David was invalid, it being
accompanied by an uncertified check.
● Following this ruling, the Director of Lands cancelled the award
to David and awarded the lease to Panlilio.
● A petition to set aside this award was filed by David on the ground
that Panlilio's check was also uncertified.
● The Director of Lands thereupon set aside the award to Panlilio and
held "that the land be again considered subject to lease or sale as if
no bid or auction has therefor been held." Both of the bidders
appealed from this ruling to the Secretary of Agriculture and Natural
Resources, who affirmed the ruling.
● David, thereupon appealed to the Governor-General, who referred
the matter back to the Secretary of Agriculture and Natural
Resources ​with the statement that ​the acceptance of David's
check, the act of cashing it in the bank and the deposit of its
amount in the Insular Treasury cured its defects. [Statement of
Gov-Gen] ​(IMPORTANT)
● However, the court below rendered judgment holding that both
of the bids in question were invalid inasmuch as none of the
checks accompanying them was certified or accepted in accordance
with law.
● Ruling that the requirements of the regulations of the Bureau of
Lands that such ​checks must be accepted or certified​, could not
be waived by the Director of Lands, and that both bids being invalid,
there could be no valid award to either of the parties. From this
judgment both parties appealed.
ISSUES: ​W/N The uncertified check was cured, when it was accepted and
cashed making the award to David valid? - ​YES
RATIO:
● The decision of the court below rests on the following provision of
paragraph 10 of Administrative Order No. 3,, as follows:
"No bid for any land advertised for sale or lease shall be
considered as duly submitted ​unless it is accompanied
by cash, certified check ​or postal money order payable
to the Director of Lands for the minimum amount stated
in the advertisement. * * *"
● The provision is in the nature of an office rule. Its purpose is
evidently to prevent the presentation of frivolous bids and to avoid
difficulties in the collection of the amount of an accepted bid.
● The administrative order in which it occurs is authorized by the
Public Land Act and, within its scope, it is equivalent to a statutory
provision to the same effect.
● The Director of Lands had, therefore, an undoubted right to reject
both of the bids in question on the ground that they were not
accompanied by cash or by post-office money orders or ​by certified
checks​.
● We may say in passing that the contention of Panlilio that the
letters "O. K.," with the initials of the cashier of the bank written
on the face of his check was a sufficient certification is without
merit; certifications of checks are not made in that manner in
modern banking practice.
● But, while the Director of Lands had the right to reject the bids, it
does not necessarily follow that, if he accepted one of them, a
merely formal defect in the accepted bid would vitiate the award.
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​50
 ● Regulations as well as statutes must be given a reasonable
construction and it seems clear that the provision here in question is
merely directory and not mandatory.

● When David's bid was accepted and the amount of the bid was
paid and covered into the Insular Treasury, the Government
could hardly be heard to say that the award was invalid
because the amount paid was originally represented in part by
an uncertified check.

● The Court held that though the original bid of David was not
made in the manner and form prescribed by the regulations,
the acceptance of it together with the payment of its amount
cured the defect complained of and that, consequently, the
award to David was valid.

WHEREFORE, the judgment appealed from is reversed, except as to

the revocation of the preliminary injunction, and it is hereby declared
that the award of the lease in question to the defendant Teodoro David
is valid and that it takes priority over the award subsequently made to
the plaintiff Adriano Panlilio. The cross-complaint for damages
presented by the defendant Teodoro David is dismissed. The plaintiff
will pay the costs of both instances. So ordered.

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 15. RIZAL COMMERCIAL BANKING CORPORATION v HI-TRI
DEVELOPMENT CORPORATION and LUZ R. BAKUNAWA
192413 | June 13, 2012 | SERENO | Sec. 189
DELA ROSA
Petitioner​: RCBC
Respondent​: HI-TRI Development Corporation & Luz Bakunawa
Manager’s check
PURCHASER​: Hi-Tri
DRAWER​: RCBC
PAYEE​: Rosmil c/o Teresita Milan
FACTS: ​RCBC declared the amount of the manager’s check
(P1,019,514.29) as part of their unclaimed balances. (quick story but read
the facts under ​background​: the manager’s check was purchased by
Hi-Tri from RCBC in favor of Rosmil so that they could buy back the
copies of the TCTs that Rosmil had given a downpayment for). Escheat
proceedings were filed by the state and the said amount was included.
When Hi-Tri (Sps. Bakunawa) and Rosmil settled their dispute and Hi-Tri
asked about the availability of the check, RCBC informed them that they
were already subject of the escheat proceedings. Hi-Tri assailed this since
there was no order to debit from their account the amount yet. The RTC
ruled in favor of the State for the escheat proceedings but the CA
reversed the decision.
ISSUE: W/N the allocated funds may be escheated in favor of the
Republic - NO
RATIO: ​RCBC acknowledges that the Manager's Check was procured by
Hi-Tri, and that the amount to be paid for the check would be sourced
from the deposit account of Hi-Tri. When Rosmil did not accept the
Manager's Check offered by respondents, the latter retained custody of
the instrument instead of cancelling it. As the Manager's Check neither
went to the hands of Rosmil nor was it further negotiated to other persons,
the instrument remained undelivered. As a result, the assigned fund is
deemed to remain part of the account of Hi-Tri, which procured the
Manager's Check. The doctrine that the deposit represented by a
manager's check automatically passes to the payee is inapplicable,
because the instrument — although accepted in advance — remains
undelivered.
DOCTRINE:​.
Not in the case but:
SECTION 189.When Check Operates as an Assignment. — A check of
itself does not operate as an assignment of any part of the funds to the
credit of the drawer with the bank, and the bank is not liable to the holder,
unless and until it accepts or certifies the check.
FACTS:
Background​ first because then main issue here is the escheat proceeding:
● Luz and Manuel Bakunawa (Sps. Bakunawa - now deceased) were
registered owners of six (6) parcels of land. These lots were
sequestered by the PCGG.
● In 1990 Teresita Millan through her representative, Jerry
Montemayor, offered to buy said lots for "P6,724,085.71", with the
promise that she will take care of clearing whatever preliminary
obstacles there may be to effect a "completion of the sale".
● Sps. Bakunawa gave her the owner’s copies of the TCTS and in
turn, Millan made a downpayent of P1,019,514.29.
● Millan wasn’t able to clear said obstances so Sps. Bakunawa
rescinded the sale and offered to return to Millan her downpayment
of P1,019,514.29. However, Millan refused to accept it back.
● Consequently, Sps. Bakunawa, through their company Hi-Tri, took
out a manager’s check on Oct 28, 1991 from RCBC-Ermita worth
P1,019,514.29, payable to Millan’s company Rosmil Realty and
Development Corporation ℅ Teresita Milan
○ They used this as their basis for a complaint against Millan
and Montemayor filed before the RTC of QC
● In their RTC case, they prayed that defendants Teresita Millan and
Jerry Montemayor may be ordered to return to plaintiffs spouses the
Owners' Copies of TCTs and that Millan be correspondingly ordered
to receive the amount
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​52
 ● Spouses Bakunawa, upon advice of their counsel, retained custody
of RCBC Manager's Check No. ER 034469 and refrained from
canceling or negotiating it.
● All throughout the proceedings, Millan was informed that the
Manager's Check was available for her withdrawal, she being the
payee.
● On April 2008, Sps. Bakunawa and Millan amicably settled their
dispute. Instead of only the amount of P1,019,514.29, they agreed
to pay Millan P3 million, inclusive of the former amount.
● When Manuel Bakunawa inquired from RCBC the availability of the
manager’s check, they were informed that the amount was already
subject of escheat proceedings
FACTS OF THE CASE RELATED TO THE ESCHEAT PROCEEDING
● While the above mentioned case was pending, RCBC reported the
"P1,019,514.29-credit existing in favor of Rosmil" to the Bureau of
Treasury as among its "unclaimed balances" as of January 31,
2003. This was in a sworn statement executed by their Manager and
Head of RCBC’s Asset Management, Disbursement and Sundry
Department.
● On Dec 14, 2006, the Republic (through the OSG) filed with the
RTC an action for escheat.
● Manuel assailed the inclusion of the money in the escheat
proceedings
○ He argued that “it was our impression that the deposit would
be taken from [Hi-Tri's] RCBC bank account once an order
to debit is issued upon the payee's presentation of the
Manager's Check. Since the payee rejected the negotiated
Manager's Check, presentation of the Manager's Check was
never made.”
○ “We hereby demand your confirmation that the amount of
Php1,019,514.29 continues to form part of the funds in the
Corporation's RCBC bank account, since pay-out of said
amount was never ordered”
● RCBC said however that “funds covered by the Manager's Check
No. ER034469 does not form part of the Bank's own account. By
simple operation of law, the funds covered by the manager's check
in issue became a deposit/credit susceptible for inclusion in the
escheat case initiated by the OSG and/or Bureau of Treasury.” They
also said that they informed Hi-Tri of the check’s inclusion in the
escheat proceedings.
● The RTC declared the deposits, credits, and unclaimed
balances subject of Civil Case No. 06-244 escheated to the
Republic. Among those included in the order of forfeiture was
the amount of P1,019,514.29 held by RCBC as allocated funds
intended for the payment of the Manager's Check issued in
favor of Rosmil.
○ They ordered the deposit of the escheated balances with
the Treasurer and credited in favor of the republic.
● The CA reversed the RTC decision.
○ It held that RCBC failed to prove that the latter had
communicated with the purchaser of the Manager's Check
or the designated payee (Rosmil) immediately before the
bank filed its Sworn Statement on the dormant accounts
held therein
ISSUE:
W/N petitioner had the obligation to notify respondents immediately before it
filed its Sworn Statement with the Treasurer - YES
(nego) W/N the allocated funds may be escheated in favor of the
Republic - NO
RULING: (sorry the part for escheat is long baka lang tanungin)
● Escheat proceedings refer to the judicial process in which the state,
by virtue of its sovereignty, steps in and claims abandoned, left
vacant, or unclaimed property, without there being an interested
person having a legal claim thereto
● In the case of dormant accounts, the state inquires into the status,
custody, and ownership of the unclaimed balance to determine
whether the inactivity was brought about by the fact of death or
absence of or abandonment by the depositor
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​53
● If interested parties have come forward and lain claim to the
property, the courts shall determine whether the credit or deposit
should pass to the claimants or be forfeited in favor of the state.
● Act No. 3936 outlines the procedure to be followed by banks and
other similar institutions in filing a sworn statement with the
Treasurer regarding dormant accounts
○ Sec. 2. Immediately after the taking effect of this Act and
within the month of January of every odd year, all banks,
building and loan associations, and trust corporations shall
forward to the Treasurer of the Philippines a statement,
under oath, of their respective managing officers, of all
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 preceding ten years or more,
arranged in alphabetical order according to the names of
creditors and depositors, and showing:
■ The names and last known place of residence or
post o ce addresses of the persons in whose favor
such unclaimed balances stand;
■ The amount and the date of the outstanding
unclaimed balance and whether the same is in
money or in security, and if the latter, the nature of
the same;
■ The date when the person in whose favor the
unclaimed balance stands died, if known, or the
date when he made his last deposit or withdrawal;
and
■ The interest due on such unclaimed balance, if any,
and the amount thereof.
○ A copy of the above sworn statement shall be posted in a
conspicuous place in the premises of the bank, building and
loan association, or trust corporation concerned for at least
sixty days from the date of ling thereof: Provided, That
immediately before ling the above sworn statement, the
bank, building and loan association, and trust corporation
shall communicate with the person in whose favor the
unclaimed balance stands at his last known place of
residence or post office address.
○ It shall be the duty of the Treasurer of the Philippines to
inform the Solicitor General from time to time the existence
of unclaimed balances held by banks, building and loan
associations, and trust corporations.
● As shown above, the law sets a detailed system for notifying
depositors of unclaimed balances. This notification is meant to
inform them that their deposit could be escheated if left unclaimed.
Accordingly, before ling a sworn statement, banks and other similar
institutions are under obligation to communicate with owners of
dormant accounts.
● The purpose of this initial notice is for a bank to determine whether
an inactive account has indeed been unclaimed, abandoned,
forgotten, or left without an owner. If the depositor simply does not
wish to touch the funds in the meantime, but still asserts ownership
and dominion over the dormant account, then the bank is no longer
obligated to include the account in its sworn statement
● In case the bank complies with the provisions of the law and the
unclaimed balances are eventually escheated to the Republic, the
bank "shall not thereafter be liable to any person for the same and
any action which may be brought by any person against in any bank
. . . for unclaimed balances so deposited . . . shall be defended by
the Solicitor General without cost to such bank."
○ Otherwise, it may not raise the defense provided under Act
No. 3936 as a defense.
More nego related discussions by the Court
● In contrast, respondents Hi-Tri and Bakunawa allege that they have
a legal interest in the fund allocated for the payment of the
Manager's Check. They reason that, since the funds were part of
the Compromise Agreement between respondents and Rosmil in a
separate civil case, the approval and eventual execution of the
agreement effectively reverted the fund to the credit of respondents.
Respondents further posit that their ownership of the funds was
evidenced by their continued custody of the Manager's Check
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​54
● Manager's or cashier's checks. These are bills of exchange drawn instrument incomplete. In addition, we have already settled that
by the bank's manager or cashier, in the name of the bank, against respondents retained ownership of the funds. As it is obvious from
the bank itself their foregoing actions that they have not abandoned their claim
○ it is procured from the bank by allocating a particular over the fund, we rule that the allocated deposit, subject of the
amount of funds to be debited from the depositor's account Manager's Check, should be excluded from the escheat
or by directly paying or depositing to the bank the value of proceedings
the check to be drawn. Since the bank issues the check in
its name, with itself as the drawee, the check is deemed WHEREFORE the Petition is DENIED. The 26 November 2009 Decision and 27
accepted in advance May 2010 Resolution of the Court of Appeals in CA-G.R. SP No. 107261 are
● Nevertheless, the mere issuance of a manager's check does not hereby AFFIRMED.
ipso facto work as an automatic transfer of funds to the account of
the payee. In case the procurer of the manager's or cashier's check
retains custody of the instrument, does not tender it to the intended
payee, or fails to make an effective delivery
● RCBC acknowledges that the Manager's Check was procured by
Hi-Tri, and that the amount to be paid for the check would be
sourced from the deposit account of Hi-Tri. When Rosmil did not
accept the Manager's Check offered by respondents, the latter
retained custody of the instrument instead of cancelling it. As the
Manager's Check neither went to the hands of Rosmil nor was it
further negotiated to other persons, the instrument remained
undelivered.
● Since there was no delivery, presentment of the check to the bank
for payment did not occur. An order to debit the account of
respondents was never made
● As a result, the assigned fund is deemed to remain part of the
account of Hi-Tri, which procured the Manager's Check. The
doctrine that the deposit represented by a manager's check
automatically passes to the payee is inapplicable, because the
instrument — although accepted in advance — remains
undelivered.
● After a careful review of the RTC records, we find that it is no longer
necessary to remand the case for hearing to determine whether the
claim of respondents was valid. There was no contention that they
were the procurers of the Manager's Check. It is undisputed that
there was no effective delivery of the check, rendering the

ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​55

 16. TAN v. COURT OF APPEALS
moment this was presented to her. Neither should everyone else down
20 Dec 1994 | J Kapunan | Sec 189
the line who processed the same check for clearing have allowed the
R. REALUBIN
check to be sent to Central Bank. Depositors do not pretend to be past
master of banking technicalities, much more of clearing procedures. As
DRAWER ​PCIB soon as their deposits are accepted by the bank teller, they wholly repose
DRAWEE: ​PCIB trust in the bank personnel's mastery of banking, their and the bank's
PAYEE: ​order of Ramon Tan sworn profession of diligence and meticulousness in giving irreproachable
HOLDER: ​Ramon Tan service. SC reduced the award for damages for being excessive.
COLLECTING BANK: ​RCBC
DOCTRINE:
SEQUENCE: Sec. 189. ​When check operates as an assignment. - A check of itself
Manager’s check does not operate as an assignment of any part of the funds to the credit of
PCIB > order of Ramon Tan > RCBC > PCIB the drawer with the bank, and the bank is not liable to the holder unless
and until it accepts or certifies the check.
RECIT-READY: Ramon Tan is a businessman. To avoid carrying cash,
he availed of manager’s check in PCIB Puerto Princesa amounting Php.
FACTS:
30,000. He deposited it at RCBC Binondo branch. RCBC erroneously sent
the same cashier's check for clearing to the Central Bank which was
● Ramon Tan, a trader-businessman and community leader in Puerto
returned for having been "missent" or "misrouted." RCBC then debited the
Princesa, maintains a checking/current account in RCBC Binondo
amount which resulted to the dishonor of the checks issued by the
branch.
petitioner. Tan filed a complaint for damages against RCBC. RCBC
● On March 11, 1988, to avoid carrying cash while enroute to Manila,
argued that the misrouting of the check was due to the fault of Tan for
he secured a Cashier's Check from the Philippine Commercial
using the wrong deposit slip. RTC granted Php. 700,000 as moral
Industrial Bank (PCIB), Puerto Princesa branch, in the amount of
damages. CA reversed the RTC ruling.
P30,000.00, payable to his order. He deposited the check in his
account with RCBC Binondo on March 15. On the same day, RCBC
ISSUE:
erroneously sent the same cashier's check for clearing to the
Whether or not RCBC is negligent and liable for damages for debiting the
Central Bank which was returned for having been "missent" or
amount of the cashier’s check? - ​YES
"misrouted." The next day, March 16, RCBC debited the amount
covered by the same cashier's check. RCBC failed to inform him.
RULING: ​A cashier's check is a primary obligation of the issuing bank and
● Tan issued several checks which bounced: 2 checks payable to Go
accepted in advance by its mere issuance. ​By its very nature, a cashier's
Lac for Php. 5,500 and a check payable to MS Devt Trading Corp
check is the bank's order to pay drawn upon itself, committing in effect its
amounting Php. 6,053.7.
total resources, integrity and honor behind the check. A cashier's check
● Tan, alleging to have suffered humiliation and loss of face in the
by its peculiar character and general use in the commercial world is
business sector due to the bounced checks, filed a complaint
regarded substantially to be as good as the money which it represents.
against RCBC for damages in the Regional Trial Court of Palawan.
PCIB by issuing the check created an unconditional credit in favor of any
● RTC granted Php. 700,000 as moral damages, Php. 200,000 as
collecting bank. the RCBC teller should not have accepted the local
exemplary and Php. 135,000 for attorney’s fees.
deposit slip with the cashier's check that on its face was clearly a regional
● CA reversed the RTC ruling. CA said that as a customer of the
check without calling the depositor's attention to the mistake at the very
bank, Tan is under obligation to inform the defendant of any

ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​56

 changes in the telephone numbers to be contacted in the event of
any exigency.
● Emma E. Herrero was erroneous and would be rejected by the
ISSUES:
● Whether or not RCBC is negligent and liable for damages for
debiting the amount of the cashier’s check? - ​YES
RELEVANT ARGUMENTS (if any):
● Petitioner Tan: it was RCBC's responsibility to call his attention
there and then that he had erroneously filled the wrong deposit slip.
RCBC had been remiss in the performance of its obligation to the
petitioner when it "missent" the cashier's check to the Central Bank
knowing, as it should, that the source of the check, PCIB, Puerto
Princesa Branch, is not included in the areas required to be cleared
by the Central Bank. RCBC upon knowing of its error in
"missending" the cashier's check to the Central Bank did not attempt
to rectify its "misclearing" error.
● Respondent RCBC: RCBC disowning any negligence, put the blame
for the "misrouting" on the petitioner for using the wrong check
deposit slip. RCBC alleged that it complied strictly with accepted
banking practice when it debited the amount of P30,000.00 against
petitioner's account since under Resolution No. 2202 dated
December 21, 1979 of the Monetary Board, it is a matter of policy to
prohibit the drawing against uncollected deposits (DAUDS). RCBC
further asseverated it was merely acting as petitioner's collecting
agent and it assumed no responsibility beyond care in selecting
correspondents. The Assistant Branch Accountant of RCBC
Binondo Branch testified that the first telephone number in the card
had been deleted from the phone company's list and that when
RCBC tried to contact petitioner's daughter Evelyn Tan-Banzon thru
a certain telephone number and when they asked for Evelyn Tan,
they were told there was no such person.
RATIO:
● Citing the case of ​City Trust Corporation v. The Intermediate
Appellate Court:​ bank was held liable even if the client mistakenly
entered the wrong account number, it is a fact that her name, Emma
E. Herrero, is clearly written on said deposit slip. This, indeed, could
have been avoided at the first instance had the teller of defendant
bank performed her duties efficiently and well. For then she could
have readily detected that the account number in the name of
computer. That is, or should be, part of the training and standard
operating procedure of the bank's employees. On the other hand,
the depositors are not concerned with banking procedure. That is
the responsibility of the bank and its employees. Depositors are only
concerned with the facility of depositing their money, earning
interest thereon, if any, and withdrawing therefrom, particularly
businessmen, like plaintiff, who are supposed to be always
on-the-go.
● In the instant case, the RCBC teller should not have accepted the
local deposit slip with the cashier's check that on its face was clearly
a regional check without calling the depositor's attention to the
mistake at the very moment this was presented to her. Neither
should everyone else down the line who processed the same check
for clearing have allowed the check to be sent to Central Bank.
Depositors do not pretend to be past master of banking
technicalities, much more of clearing procedures. As soon as their
deposits are accepted by the bank teller, they wholly repose trust in
the bank personnel's mastery of banking, their and the bank's sworn
profession of diligence and meticulousness in giving irreproachable
service.
● We draw attention to the fact that the two dishonored checks issued
by petitioner were presented for payment more than 45 days from
the day the cashier's check was deposited. This gave RCBC more
than ample time to have cleared the cashier's check had it corrected
its "missending" the same upon return from Central Bank using the
correct slip this time so it can be cleared properly. Instead, RCBC
promptly debited the amount of P30,000.00 against petitioner's
account and left it at that.
● Syllabus: ​An ordinary check is not a mere undertaking to pay an
amount of money. There is an element of certainty or assurance that
it will be paid upon presentation that is why it is perceived as a
convenient substitute for currency in commercial and financial
transactions. The basis of the perception being confidence. Any
practice that destroys that confidence will impair the usefulness of
the check as a currency substitute and create havoc in trade circles
and the banking community. ​Now, what was presented for
deposit in the instant cases was not just an ordinary check but
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​57
 a cashier's check payable to the account of the depositor
himself. A cashier's check is a primary obligation of the issuing
bank and accepted in advance by its mere issuance. ​By its very
nature, a cashier's check is the bank's order to pay drawn upon
itself, committing in effect its total resources, integrity and
honor behind the check. A cashier's check by its peculiar
character and general use in the commercial world is regarded
substantially to be as good as the money which it represents.
In this case, therefore, PCIB by issuing the check created an
unconditional credit in favor of any collecting bank. [​my notes,
SC did not say that RCBC should credit it outright, it just implied that
they should have taken more care in handling the cashier’s check as
it is guaranteed as good as cash by the other bank - PCIB]​LLphil
● Supreme Court reduced the amount for damages for being
excessive.

IN VIEW WHEREOF, we REVERSE the decision of respondent Court of

Appeals and hereby order private respondent RCBC, Binondo Branch,
to pay petitioner the amount of one hundred thousand (P100,000.00)
pesos as moral damages and the sum of fifty thousand (P50,000.00)
pesos as attorney's fees, plus costs.​LexL

ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​58

 17. VILLANUEVA v. NITE
July 25, 2006 | Corona, ​J.​| Section 189
K. LOPEZ DE LEON & J. SALAMAT
PETITIONER: ​Sincere Villanueva
RESPONDENT: ​Marlyn Nite
DRAWER: ​Marlyn Nite
DRAWEE: ​Asian Bank Corporation (ABC)
PAYEE: ​Sincere Villanueva
SEQUENCE:
Nite​ > ​Villanueva​ > ​ABC
RECIT-READY: ​Respondent ​Nite allegedly obtained a loan of P409,000
FACTS:
from petitioner Villanueva and issued an ABC check in the amount of
P325,000 dated Feb. 8, 1994 which was later changed to June 8, 1994
with the consent and concurrence of petitioner. It was however
dishonored by ABC due to a material alteration. On Aug. 24, 1994, Nite,
through her representative Abojada remitted 235,000 to petitioner as
partial payment of the loan, while the balance is due on Dec. 8, 1994. But
before such date, petitioner filed for collection against ABC for the full
amount of the dishonored check. RTC ruled in favor of petitioner. When
respondent went to ABC to withdraw from her account, she was unable to
do so because of the order of RTC for the bank to pay Villanueva the
value of the dishonored check. A manager’s check amounting to 325,000
was remitted by ABC to the sheriff (from the RTC decision); it was duly
received by petitioner Villanueva. When Nite appealed, the CA ruled in
her favor.
ISSUE:
● W/N the petitioner may sue the bank (ABC) responsible for the
dishonor of the check ​(NO)
RULING: ​SEC. 189. ​When check operates as an assignment​. — A check
of itself does not operate as an assignment of any part of the funds to the
credit of the drawer with the bank, and the bank is not liable to the holder,
unless and until it accepts or certifies the check.​If a bank refuses to pay a
check (notwithstanding the insufficiency of funds), the payee-holder
cannot, in view of the cited section, sue the bank. ​The payee should
instead sue the drawer who might in turn sue the bank.
Section 189 is sound law based on logic and established legal principles:
no privity of contract exists between the drawee-bank and the payee.
I​ndeed, in this case, there was no such privity of contract between
ABC and petitioner. Petitioner should not have sued ABC.
DOCTRINE: ​If a bank refuses to pay a check (notwithstanding the
insufficiency of funds), the payee-holder cannot, in view of the cited
sections 189 sue the bank. ​The payee should instead sue the drawer who
might in turn sue the bank. ​Section 189 is sound law based on logic
and established legal principles: no privity of contract exists
between the drawee-bank and the payee.
● Respondent Nite obtained a loan of P409,000 from Petitioner
Villanueva.
● To secure the loan, respondent Nite issued an Asian Bank
Corporation (ABC) check in the amount of P325,500 dated Feb. 8,
1994.
● The date was later changed to June 8, 1994 with the consent and
concurrence of petitioner.
● The check was, however, ​dishonored by ABC due to a ​material
alteration​ when petitioner deposited the check on due date.
● On Aug. 24, 1994, Nite, while abroad and through her
representative Emily Abojada, remitted P235,000 to petitioner as
partial payment of the loan.
● The balance of P174,000 was due on or before Dec. 8, 1994.
● On Aug. 24, 1994, however, ​petitioner filed an action for a sum
of money and damages against ABC for the full amount of the
dishonored check.
● In a decision dated May 23, 1997, the QC RTC ruled in Villanueva’s
favor.
● When respondent Nite went to ABC Salcedo Village Branch on June
30, 1997 to withdraw money from her account, she was unable to do
so because the RTC ordered ABC to pay Villanueva the value of
Nite’s ABC check.
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​59
 ● On Aug. 25, 1997, ABC remitted to the sheriff a manager's check
amounting to P325,500 drawn on Nite’s account. The check was
duly received by petitioner on the same date.
● Nite then filed a petition in the CA seeking to annul and set aside the
RTC’s decision which ordered ABC to pay petitioner the value of the
ABC check.
● The CA granted the petition of Nite, and ordered Villanueva to pay
Nite.
● Thus, this petition.
ISSUES:
● W/N petitioner may sue the bank (ABC) responsible for the dishonor
of the check - ​(NO! ​No privity of contract between ABC and
Villanueva)
RATIO:
● The RTC decision may be annulled for lack of jurisdiction over the
person of respondent, Nite. ​(because she was not impleaded in that
case)
● The pertinent provisions of the Negotiable Instruments Law are
enlightening:
○ SEC. 185. ​Check, defined.​ — A check is a bill of exchange drawn
on a bank payable on demand. Except as herein otherwise
provided, the provisions of this Act applicable to a bill of
exchange payable on demand apply to a check.
○ SEC. 189. ​When check operates as an assignment​. — A check
of itself does not operate as an assignment of any part of the
funds to the credit of the drawer with the bank, and the bank is
not liable to the holder, unless and until it accepts or certifies the
check.
● If a bank refuses to pay a check (notwithstanding the insufficiency of
funds), the payee-holder cannot, in view of the cited sections, sue
the bank.
● The payee should instead sue the drawer who might in turn sue the
bank.
● Section 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. The contract of loan was between petitioner and
respondent.
● No collection suit could prosper without respondent Nite who
was an indispensable party​.
● Rule 3, Sec. 7 of the Rules of Court states that an indispensable
party is one whose interest in the controversy is such that a final
decree will necessarily affect his rights. The court cannot proceed
without his presence.
● If an indispensable party is not impleaded, any judgment is
ineffective. As such, they must be joined either as plaintiffs or as
defendants. The general rule with reference to the making of parties
in a civil action requires, of course, the joinder of all necessary
parties where possible, and the joinder of all indispensable parties
under any and all conditions, their presence being sine qua non for
the exercise of judicial power.
● It is precisely "when an indispensable party is not before the court
(that) the action should be dismissed." The absence of an
indispensable party renders all subsequent actions of the court null
and void for want of authority to act, not only as to the absent parties
but even as to those present.
WHEREFORE, the petition is hereby DENIED. The decision of the Court
of Appeals in CA-G.R. SP No. 44971 is AFFIRMED in toto
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 18. MIRANDA v. PDIC, BSP, and Prime
Date | Ponente | Section 189
SALAZAR & BARLONGAY
PETITIONER: ​LETICIA G. MIRANDA
RESPONDENT: ​PHILIPPINE DEPOSIT INSURANCE CORPORATION.
BANGKO SENTRAL NG PILIPINAS, and PRIME SAVINGS BANK
MAKER: Prime Savings Bank (two cashier’s check)
DRAWEE: Prime Savings Bank
PAYEE: Leticia Miranda
COLLECTING BANK: ​Miranda’s another bank
SEQUENCE: PSB > Miranda > ​another bank
RECIT-READY: ​Leticia Miranda was a depositor of Prime Savings Bank.
On June 3, 1999, she withdrew substantial amounts from her account, but
instead of cash she opted to be issued a crossed cashier's check. She
was thus issued cashier's check no. 518 in the sum of P2,500,000.00 and
cashier's check no. 514 in the amount of P3,002,000.00.
Petitioner deposited the two checks into her account in another bank on
the same day, however, BSP suspended the clearing privileges of Prime
Savings Bank effective 2:00 p.m. of June 3, 1999. ​The two checks of
petitioner were returned to her unpaid.
On January 7, 2000, the BSP placed Prime Savings Bank under the
receivership of the Philippine Deposit Insurance Corporation (PDIC).
Miranda filed a suit for sum of money in the RTC of Santiago City, Isabela
FACTS:
to recover the funds from her unpaid checks against Prime Savings Bank,
PDIC and the BSP. Judgment was rendered against defendants namely:
PDIC, BSP, and Prime Bank, to pay jointly and solidarily the amount of
P5,502,000.00 to the plaintiff.
On appeal, the CA reversed the trial court and ruled in favor of the PDIC
and BSP, dismissing the case against them, without prejudice to the right
of petitioner to file her claim before the court designated to adjudicate on
claims against Prime Savings Bank.
ISSUE: ​!!! ​W/N the respondents are solidarily liable to the petitioner –
NO, it is only Prime Savings Bank that is liable to pay for the amount
of the two cashier's checks. Solidary liability cannot attach to the
BSP, in its capacity as government regulator of banks, and the PDIC
as statutory receiver under R.A. No. 7653
RULING: ​Prime Savings as a bank did not collapse overnight but was
hemorrhaging and in financial extremis for some time, a fact which could
not have gone unnoticed by the bank officers. They could not have issued
in good faith checks for the total sum of P5,502,000.00 knowing that the
bank's coffers could not meet this.
Clearly, there was fraud or the intent to deceive when the two cashier's
checks dated June 3, 1999 were issued by Prime Savings Bank to the
petitioner.
DOCTRINE: ​In the absence of fraud, the purchase of a cashier's check,
like the purchase of a draft on a correspondent bank, creates the relation
of creditor and debtor, not that of principal and agent, with the result that
the purchaser or holder thereof is not entitled to a preference over general
creditors in the assets of the bank issuing the check, when it fails before
payment of the check​. However, in a situation involving the element of
fraud, where a cashier's check is purchased from a bank at a time
when it is insolvent as its officers know or are bound to know by the
exercise of reasonable diligence, it has been held that the purchase
is entitled to a preference in the assets of the bank on its liquidation
before the check is paid.
● Petitioner Leticia G. Miranda was a depositor of Prime Savings
Bank, Santiago City Branch.
● June 3, 1999 - She withdrew substantial amounts from her account,
but instead of cash she opted to be issued a crossed cashier's
check. She was thus issued cashier's check no. 518 in the sum of
P2,500,000.00 and cashier's check no. 514 in the amount of
P3,002,000.00.
● Petitioner deposited the two checks into her account in another bank
on the same day, however, Bangko Sentral ng Pilipinas (BSP)
suspended the clearing privileges of Prime Savings Bank effective
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​61
 2:00 p.m. of June 3, 1999. ​The two checks of petitioner were
returned to her unpaid.
● The following day, Prime Savings Bank declared a bank holiday. On
January 7, 2000, the BSP placed Prime Savings Bank under the
receivership of the Philippine Deposit Insurance Corporation (PDIC).
● Miranda filed a civil action for sum of money in the RTC of Santiago
City, Isabela to recover the funds from her unpaid checks against
Prime Savings Bank, PDIC and the BSP. Judgment on the
pleadings was rendered against defendants namely: PDIC, BSP,
and Prime Bank, to pay jointly and solidarily the amount of
P5,502,000.00 to the plaintiff.
● On appeal, the CA reversed the trial court and ruled in favor of the
PDIC and BSP, dismissing the case against them, without prejudice
to the right of petitioner to file her claim before the court designated
to adjudicate on claims against Prime Savings Bank.
● Petitioner's motion for reconsideration was denied. Hence, this
petition.
ISSUES:
● W/N the two cashier's checks operate as an assignment of funds in
the hands of the petitioner – ​NO.
● W/N the claim lodged by the petitioner is a disputed claim under
Section 30 of R.A. No. 7653, otherwise known as the New Central
Bank Act, and therefore, under the jurisdiction of the liquidation
court – ​YES.
● !!! ​W/N the respondents are solidarily liable to the petitioner – ​NO,
it is only Prime Savings Bank that is liable to pay for the
amount of the two cashier's checks. Solidary liability cannot
attach to the BSP, in its capacity as government regulator of
banks, and the PDIC as statutory receiver under R.A. No. 7653
RELEVANT ARGUMENTS (if any):
Petitioner: ​contends that she ceased to be a depositor upon withdrawal of
her deposit and the issuance of the two cashier's checks to her. As a holder
in due course of the cashier's checks as defined under Sections 52 and 191
of the NIL, she is an assignee of the funds of Prime Savings Bank as drawer
thereof and entitled to its immediate payment.
That by the mere issuance of the cashier's check, the funds represented by
the check are transferred from the credit of the maker to that of the payee or
holder. Hence, petitioner alleges that she cannot be placed on the same
footing with the ordinary creditors of the bank because Section 30 of R.A.
No. 7653 is for equality among creditors. ​She avers that she is not a
creditor thus is entitled to the immediate payment of her claim,
pursuant to Section 189 of the Negotiable Instruments Law and
existing jurisprudence. ​She argues that putting her on equal footing with
ordinary creditors, would contravene the provisions of the NIL and would
greatly diminish her rights as a holder in due course of said two cashier's
checks.
Respondent: ​There can be no assignment of funds when there is no
funds to speak of in the first place.
Respondents argue that the instant case involves a disputed claim of sum of
money against a closed financial institution. Since the relationship between
petitioner and Prime Savings Bank is one of creditor and debtor, petitioner
should file her claim with the liquidation court constituted precisely for
purposes of adjudicating claims against the bank in accordance with the
rules on concurrence and preference of credits.
Respondent BSP also insists that not being a party to the said checks nor
for imposing sanctions on co-respondent Prime Savings Bank, is not liable
on the said crossed cashier's checks.
RATIO:
● Anent the first issue, ​the two cashier's checks issued by Prime
Savings Bank do not constitute an assignment of funds in the
hands of the petitioner as there were no funds to speak of in
the first place. ​The bank was financially insolvent for sometime,
even before the issuance of the checks on June 3, 1999.
● As regards the second issue, ​the claim lodged by the petitioner
qualifies as a disputed claim subject to the jurisdiction of the
liquidation court.​Regular courts do not have jurisdiction over
actions filed by claimants against an insolvent bank, unless there is
a clear showing that the action taken by the BSP, through the
Monetary Board in the closure of financial institutions was in excess
of jurisdiction, or with grave abuse of discretion.
ALS NEGOTIABLE INSTRUMENTS LAW 2E 2022 ​62
 ○ The issuance of the cashier's checks by Prime Savings ● As held by the CA: ​Prime Savings as a bank did not collapse
Bank to the petitioner created a debtor/creditor relationship overnight but was hemorrhaging and in financial extremis for some
between them. This disputed claim should therefore be time, a fact which could not have gone unnoticed by the bank
lodged in the liquidation proceedings by the petitioner as officers. They could not have issued in good faith checks for the
creditor, since the closure of Prime Savings Bank has total sum of P5,502,000.00 knowing that the bank's coffers could not
rendered all claims subsisting at that time moot which can meet this.
best be threshed out by the liquidation court and not the ● Clearly, there was fraud or the intent to deceive when the two
regular courts. cashier's checks dated June 3, 1999 were issued by Prime Savings
● Regarding the third issue, it is only Prime Savings Bank that is Bank to the petitioner.
liable to pay for the amount of the two cashier's ● In the distribution of assets of Prime Savings Bank, Section 31 of
checks.​Solidary liability cannot attach to the BSP, in its the New Central Bank Act which provides that ​"[i]n case of
capacity as government regulator of banks, and the PDIC as liquidation of a bank or quasi-bank, after payment of the cost of
statutory receiver under R.A. No. 7653, because they are the proceedings, including reasonable expenses and fees of the
principal government agencies mandated by law to determine receiver to be allowed by the court, the receiver shall pay the debts
the financial viability of banks and quasi-banks, and facilitate of such institution, under order of the court, in accordance with the
receivership and liquidation of closed financial institutions, rules on concurrence and preference of credit as provided in the
upon a factual determination of the latter's insolvency. Civil Code,"​should apply.
● As correctly pointed out by the CA, the BSP should not be held
liable on the crossed cashier's checks for it was not a party to the WHEREFORE, the petition is DENIED.
issuance of the same; nor can it be held liable for imposing the
sanctions on Prime Savings Bank which indirectly affected Miranda,
since it is mandated under Sec. 37 of R.A. No. 7653 to act
accordingly.
● In addition, co-respondent PDIC was impleaded as a party-litigant
only in its representative capacity as the receiver/liquidator of Prime
Savings Bank. ​Both BSP and PDIC cannot therefore be held
directly and solidarily liable for the payment of the two
cashier's checks. ​Sole liability rests with Prime Savings Bank.
● In the absence of fraud, the purchase of a cashier's check, like the
purchase of a draft on a correspondent bank, creates the relation of
creditor and debtor, not that of principal and agent, with the result
that the purchaser or holder thereof is not entitled to a preference
over general creditors in the assets of the bank issuing the check,
when it fails before payment of the check​. However, in a situation
involving the element of fraud, where a cashier's check is
purchased from a bank at a time when it is insolvent as its
officers know or are bound to know by the exercise of
reasonable diligence, it has been held that the purchase is
entitled to a preference in the assets of the bank on its
liquidation before the check is paid.

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