1. Kauffman vs. PNB, 42 Phil 182, Sept.

29, 1921

Facts:
Kauffman as President and owner of the entire issue of capital stock of Philippine Fiber
and Produce Company, a domestic corporation engaged chiefly in the exportation of
hemp from the Philippine Islands, was entitled to dividends amounting to P 98,000.00 as
declared by the Board of Directors. Upon the advise of Wicks, the treasurer of the said
corporation, that the dividends had been placed to his credit in the New York agency of
the Philippine National Bank, Kauffman presented himself at the office of the PNB New
York City and demanded the money. However the payment was refused by the bank
upon the withholding of the PNB due to inadequacy of funds.
In view of these facts, the plaintiff Kauffman instituted the present action in the Court of
First Instance of the city of Manila to recover said sum, with interest and costs; and
judgment having been there entered favorably to the plaintiff, the defendant appealed.

Issue:
Whether or not the plaintiff had a cause of action with respect to the Negotiable
Instruments Law?

Held:
No, before the provisions of the Negotiable Instruments Law can come into operation
there must be a document in existence of the character described in section 1 of the
Law; and no rights properly speaking arise in respect to said instrument until it is
delivered. In the case before us there was an order, it is true, transmitted by the
defendant bank to its New York branch, for the payment of a specified sum of money to
George A. Kauffman. But this order was not made payable "to order or "to bearer," as
required in subsection (d) of that Act; and inasmuch as it never left the possession of
the bank, or its representative in New York City, there was no delivery in the sense
intended in section 16 of the same Law. In this connection it is unnecessary to point out
that the official receipt delivered by the bank to the purchaser of the telegraphic order,
and already set out above, cannot itself be viewed in the light of a negotiable
instrument, although it affords complete proof of the obligation actually assumed by the
bank.

The right of the plaintiff to maintain the present action though shall be based on a
stipulation pour autrui based on Article 127 paragraph 2 of the Civil Code.

2. PAL vs. CA, GR. 49188, Jan. 30, 1990

Facts:
Amelia Tan commenced a complaint for damages before the Court of First Instance
against Philippine Airlines, Inc. (PAL). The Court rendered a judgment in favor of the
plaintiff and on appeal, the appellate court affirmed the judgment of the lower court with
the modification that PAL is condemned to pay damages and attorney’s fees.
Judgment became final and executory and was remanded to the trial court for execution.
The trial court upon the motion of Amelia Tan issued an order of execution with the
corresponding writ in favor of the respondent. Said writ was duly referred to Deputy
Sheriff Reyes for enforcement. Later, Amelia Tan moved for the issuance of an alias writ
of execution, stating that the judgment rendered by the lower court, and affirmed with
modification by the CA, remained unsatisfied. PAL opposed the motion, stating that it
had already fully paid its obligation to the plaintiff through the issuance of checks
payable to the deputy sheriff who later did not appear with his return of the original writ
of execution and instead absconded.
Issue:
Whether or not the payment made to the absconding sheriff by check in his name
operates to satisfy the judgment debt.

Held:
No. Since a negotiable instrument is only a substitute for money and not money, the
delivery of such an instrument does not, by itself, operate as payment (See. 189, Act
2031 on Negs. Insts.; Art. 1249, Civil Code; Bryan Landon Co. v. American Bank, 7 Phil.
255; Tan Sunco v. Santos, 9 Phil. 44; 21 R.C.L. 60, 61). A check, whether a manager's
check or ordinary check, is not legal tender, and an offer of a check in payment of a
debt is not a valid tender of payment and may be refused receipt by the obligee or
creditor. Mere delivery of checks does not discharge the obligation under a judgment.
The obligation is not extinguished and remains suspended until the payment by
commercial document is actually realized (Art. 1249, Civil Code, par. 3).

Article 1249 of the Civil Code provides: “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”.

3. METROPOLITAN BANK & TRUST COMPANY vs. CA, G.R. No. 88866,

February 18, 1991

Facts:
A certain Eduardo Gomez opened an account with Golden Savings and Loan Association
and deposited over a period of two months 38 treasury warrants. They were all drawn by
the Philippine Fish Marketing Authority and purportedly signed by its General Manager
and counter-signed by its Auditor. All these warrants were subsequently indorsed by
Gloria Castillo as Cashier of Golden Savings and deposited to its Savings Account in
Metrobank. They were then sent for clearing by the branch office to the principal office of
Metrobank, which forwarded them to the Bureau of Treasury for special clearing.

"Exasperated" over Gloria Castillo’s repeated inquiries and also as an accommodation for
a "valued client," the petitioner finally decided to allow Golden Savings to withdraw from
the proceeds of the warrants. In turn, Golden Savings subsequently allowed Gomez to
make withdrawals from his own account.

However, 32 of the treasury warrants had been dishonored by the Bureau of Treasury
due to forged signatures. Metrobank then demanded Golden Savings to refund the
amount it had previously drawn to make up the deficit in its account but was rejected.
Metrobank then sued Golden Savings but its complaint was dismissed. On appeal, the
appellate court affirmed the decision.

Issue:
Whether or not treasury warrants are negotiable instruments.

Held:
No, the treasury warrants in question are not negotiable instruments. Clearly stamped
on their face is the word "non-negotiable." It is indicated that they are payable from a
particular fund. The following sections of the Negotiable Instruments Law, especially the
underscored parts, are pertinent:
SECTION 1. — Form of negotiable instruments. — An instrument to be negotiable must
conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty.

SEC. 3. When promise is unconditional. — An unqualified order or promise to pay is

unconditional within the meaning of this Act though coupled with —
(a) An indication of a particular fund out of which reimbursement is to be made or a
particular account to be debited with the amount; or
(b) A statement of the transaction which gives rise to the instrument.

But an order or promise to pay out of a particular fund is not unconditional. The
indication of a particular fund as the source of the payment to be made on the treasury
warrants makes the order or promise to pay "not unconditional" and the warrants
themselves non-negotiable. There should be no question that the exception on Section 3
of the Negotiable Instruments Law is applicable in the case at bar.

Metrobank cannot contend that by indorsing the warrants in general, Golden Savings
assumed that they were "genuine and in all respects what they purport to be," in
accordance with Section 66 of the Negotiable Instruments Law.

4. Consolidated Plywood, et. al. vs. IFC Leasing, G.R. No. 72593, April 30,
1987 (the promissory note is not negotiable because it is not payable to the order or
bearer.)

Facts:
Petitioner bought from Atlantic Gulf and Pacific Company, through its sister company
Industrial Products Marketing, two used tractors. Petitioner was issued a sales invoice
for the two used tractors. At the same time, the deed of sale with chattel
mortgage with promissory note was issued.

Simultaneously, the seller assigned the deed of sale with chattel mortgage and
promissory note to respondent. The used tractors were then delivered but barely 14
days after, the tractors broke down. The seller sent mechanics but the tractors
were not repaired accordingly as they were no longer serviceable. Petitioner would delay
the payments on the promissory notes until the seller completes its obligation under the
warranty.

Thereafter, a collection suit was filed against the petitioner for the payment of the
promissory note.
Issue:
Whether or not the promissory note in question is a negotiable instrument.

Held:
No. The pertinent portion of the note provides that “”FOR VALUE RECEIVED, I/we jointly
and severally promise to pay to the INDUSTRIAL PRODUCTS MARKETING, the sum of
P1,093,789.71, Philippine Currency, the said principal sum, to be payable in 24 monthly
installments starting July 15, 1978 and every 15th of the month thereafter until fully
paid.” Considering that paragraph (d), Section 1 of the Negotiable Instruments Law
requires that a promissory note “must be payable to order or bearer,” it cannot be
denied that the promissory note in question is not a negotiable instrument.
The instrument in order to be considered negotiable must contain the so called “words of
negotiability” — i.e., must be payable to “order” or “bearer.” These words serve as an
expression of consent that the instrument may be transferred. This consent is
indispensable since a maker assumes greater risk under a negotiable instrument than
under a non- negotiable one. Without the words “or order” or “to the order of,” the
instrument is payable only to the person designated therein and is therefore non-
negotiable. Any subsequent purchaser thereof will not enjoy the advantages of being a
holder of a negotiable instrument, but will merely “step into the shoes” of the person
designated in the instrument and will thus be open to all defenses available against the
latter.

Therefore, considering that the subject promissory note is not a negotiable instrument, it
follows that IFC Leasing can never be a holder in due course but remains a mere
assignee of the note in question. Thus, CPII may raise against IFC Leasing all defenses
available to it as against IPM. This being so, there was no need for CPII to implead IPM
when it was sued by IFC Leasing because CPII’s defenses apply to both or either of
them.

5. Metrobank vs. CA, 194 SCRA 169

Facts:
Gomez opened an account with Golden Savings bank and deposited 38 treasury
warrants. All these warrants were indorsed by the cashier of Golden Savings,
and deposited it to the savings account in a Metrobank branch. They were sent
later on for clearing by the branch office to the principal office of Metrobank,
which forwarded them to the Bureau of Treasury for special clearing. On
persistent inquiries on whether the warrants have been cleared, the branch manager
allowed withdrawal of the warrants, only to find out later on that the treasury
warrants have been dishonored.

Issue:
Whether or not the subject treasury warrants are negotiable instruments.

Held:
No. The treasury warrants were not negotiable instruments. Clearly, it is
indicated that it was non-negotiable and of equal significance is the indication
that they are payable from a particular fund, Fund 501. This indication as the
source of payment to be made on the treasury warrant makes the promise to
pay conditional and the warrants themselves non-negotiable.
Metrobank then cannot contend that by indorsing the warrants in general, Golden
Savings assumed that they were genuine and in all respects what they purport it to be,
in accordance to Section 66 of the NIL. The simple reason is that the law isn’t
applicable to the non-negotiable treasury warrants. The indorsement was made
for the purpose of merely depositing them with Metrobank for clearing. It was
in fact Metrobank which stamped on the back of the warrants: “All prior
indorsements and/or lack of endorsements guaranteed…”

6. Pay vs. Palanca, 57 SCRA 618

Facts:
George Pay is a creditor of the late Justo Palanca, who died on July 3, 1952 in Manila.
Before his death, he and Rosa Gonzales Vda. de Carlos Palanca promised to pay P
26,900,00, with interest thereon at the rate of 12%.
The promissory note read as follows:
"For value received from time to time since 1947, we [jointly and severally promise to]
pay to Mr. [George Pay] at this office at the China Banking Corporation the sum of
(P26,900.00), with interest thereon at the rate of 12% per annum upon receipt by either
of the undersigned of cash payment from the Estate of the late Don Carlos Palanca or
upon demand."

The promissory note was dated January 30, 1952.

On August 26, 1961, Pay petitioned to the Court with the intention of exercising his
claim on a residential property left by the late Palanca.

Issue:
Whether or not the phrase “upon demand” extinguishes the prescriptive period.

Held:
No.Article 1179 of the Civil Code provides: "Every obligation whose performance does
not depend upon a future or uncertain event, or upon a past event unknown to the
parties, is demandable at once."

The obligation being due and demandable, it would appear that the filing of the suit after
fifteen years was much too late. According to the Civil Code, which is based on Section
43 of Act No. 190, the prescriptive period for a written contract is that of ten years. This
is another instance where this Court has consistently adhered to the express language of
the applicable norm.

N.B. This case was decided in 1974 but for some reason the Supreme Court cited the
Civil Code provision on contracts when in fact the Negotiable Instruments Law was
already effective on June 12, 1911. Nevertheless, the ruling is consistent with Section
7(a) of the NIL, which states, “An instrument is payable on demand, where it is
expressed to be payable on demand, or at sight or on presentation…”

7. Ang Tek Lian vs. CA, 87 Phil. 383

Facts:
Ang Tek Lian knowing that he had no funds therefor, drew a check upon China Banking
Corporation payable to the order of “cash”. He delivered it to Lee Hua Hong in exchange
for money. The check was presented by Lee Hua Hong to the drawee bank for payment,
but it was dishonored for insufficiency of funds. With this, Ang Tek Lian was convicted of
estafa.

Issue:
Whether or not the check issued payable to the order or to “cash” was not indorsed by
Ang Tek Lian, making him not guilty for the crime of estafa.

Held:
No. Under Sec. 9 of the Negotiable Instruments Law a check drawn payable to the order
of “cash” is a check payable to bearer and the bank may pay it to the person presenting
it for payment without the drawer’s indorsement. However, if the bank is not sure of the
bearer’s identity or financial solvency, it has the right to demand identification or
assurance against possible complication, such as forgery of drawer’s signature, loss of
the check by the rightful owner, raising of the amount payable, etc. But where the bank
is satisfied with the identity or economic standing of the bearer who tenders the check
for collection, it will pay the instrument without further question; and it would incur no
liability to the drawer in thus acting.

8. Caltex vs. CA, 212 SCRA 448, Aug. 10, 1992

Facts:
Defendant bank issued 280 certificates of time deposits (CTDs) in favor of Angel dela
Cruz whom herein defendant acknowledges as a depositor of the aggregate amount of
P1,120,000.00.

Plaintiff alleged that the CTDs were delivered to them by Angel dela Cruz as security for
purchases of fuel products made with Caltex. Plaintiff also formally informed the
defendant bank of its possession of the CTDs and claimed payment of its value.

Defendant bank rejected the plaintiff’s demand and claim for payment of the value of the
CTDs after the latter failed to furnish the former a copy of the document evidencing the
guarantee agreement with Angel dela Cruz, as well as details of obligation of Angel dela
Cruz as requested.

The respondent court dismissed the complaint for payment of the value of the CTDs on
the ground that the CTDs are non-negotiable instruments and that petitioner did not
become a holder in due course of the said certificates of deposit.

Issue:
1. Whether or not the subject CTD’s are negotiable instruments.
2. Whether or not petitioner can rightly recover the CTDs.
Held:
1. Yes. The CTDs in question are negotiable instruments for it meets the requirements of
the law for negotiability. Section 1 Act No. 2031 enumerates the requisites for an
instrument to become negotiable:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty.

The accepted rule is that the negotiability or non-negotiability of an instrument is

determined from the writing, that is, from the face of the instrument itself. In the
construction of a bill or note, the intention of the parties is to control, if it can be legally
ascertained.

The documents provide that the amounts deposited shall be repayable to the depositor –
the “bearer.” The documents do not say that the depositor is Angel de la Cruz and that
the amounts deposited are repayable specifically to him. Rather, the amounts are to be
repayable to the bearer of the documents or, for that matter, whosoever may be the
bearer at the time of presentment.

2. No. Under the Negotiable Instruments Law, an instrument is negotiated when it is

transferred from one person to another in such a manner as to constitute the transferee
the holder thereof, and a holder may be the payee or indorsee of a bill or note, who is in
possession of it, or the bearer thereof.

In the present case, however, there was no negotiation in the sense of a transfer of the
legal title to the CTDs in favor of petitioner in which situation, for obvious reasons, mere
delivery of the bearer CTDs would have sufficed. Here, the delivery thereof only as
security for the purchases of Angel de la Cruz could at the most constitute petitioner only
as a holder for value by reason of his lien.
Accordingly, a negotiation for such purpose cannot be effected by mere delivery of the
instrument since, necessarily, the terms thereof and the subsequent disposition of such
security, in the event of non-payment of the principal obligation, must be contractually
provided for.

9. PBC vs. Aruego, 102 SCRA 530

Facts:
To facilitate payment of the printing of a periodical called “World Current Events.”,
Aruego, its publisher, obtained a credit accommodation from the Philippine Bank of
Commerce. For every printing of the periodical, the printer collected the cost of printing
by drawing a draft against the bank, said draft being sent later to Aruego for acceptance.
As an added security for the payment of the amounts advanced to the printer, the bank
also required Aruego to execute a trust receipt in favor of the bank wherein Aruego
undertook to hold in trust for the bank the periodicals and to sell the same with the
promise to turn over to the bank the proceeds of the sale to answer for the payment of
all obligations arising from the draft. The bank instituted an action against Aruego to
recover the cost of printing of the latter’s periodical. Aruego however argues that he
signed the supposed bills of exchange only as an agent of the Philippine Education
Foundation Company where he is president.

Issue:
Whether Aruego can be held liable by the petitioner although he signed the supposed
bills of exchange only as an agent of Philippine Education Foundation Company.
Held:
Aruego did not disclose in any of the drafts that he accepted that he was signing as
representative of the Philippine Education Foundation Company. For failure to disclose
his principal, Aruego is personally liable for the drafts he accepted, pursuant to Section
20 of the NIL which provides that when a person adds to his signature words indicating
that he signs for or on behalf of a principal or in a representative capacity, he is not
liable on the instrument if he was duly authorized; but the mere addition of words
describing him as an agent or as filing a representative character, without disclosing his
principal, does not exempt him from personal liability.

10. Abubakar vs. Auditor General, 81 Phil. 359

Facts:
The Auditor General refused to authorize the payment of a Treasury Warrant which was
issued in favor of Placido S. Urbanes which is now in the hands of petitioner, Benjamin
Abubakar. The refusal of the respondent is based on two reasons: first, because the
money available for the redemption of said treasury warrant is appropriated by RA No.
80 and the warrant does not come within the purview of said appropriation and second,
because it wasn’t shown by the holder of the warrant that he received it in payment of a
definite government obligation.

The petitioner argues that he is a holder in good faith and for value of a negotiable
instrument and is entitled to the rights and privileges of a holder in due course, free of
defenses.

Issue:
Whether or not the petitioner is a holder in due course.

Held:
No. The subject treasury warrant is not within the scope of the Negotiable Instruments
Law. The document bears on its face the words “payable from the appropriation for food
administration” which is an order for payment out of a particular fund hence it is not
unconditional and does not fulfill one of the essential requirements of a negotiable
instrument. The petitioner therefore cannot argue that he is a holder in good faith and
for value of the instrument which is not a negotiable instrument.

11. Metropolitan Bank vs. CA,,

Facts:
Gomez opened an account with Golden Savings bank and deposited 38 treasury
warrants. All these warrants were indorsed by the cashier of Golden Savings,
and deposited it to the savings account in a Metrobank branch. They were sent
later on for clearing by the branch office to the principal office of Metrobank,
which forwarded them to the Bureau of Treasury for special clearing. On
persistent inquiries on whether the warrants have been cleared, the branch manager
allowed withdrawal of the warrants, only to find out later on that the treasury
warrants have been dishonored.

Issue:
Whether or not the subject treasury warrants are negotiable instruments.

Held:
No. The treasury warrants were not negotiable instruments. Clearly, it is
indicated that it was non-negotiable and of equal significance is the indication
that they are payable from a particular fund, Fund 501. This indication as the
source of payment to be made on the treasury warrant makes the promise to
pay conditional and the warrants themselves non-negotiable.
Metrobank then cannot contend that by indorsing the warrants in general, Golden
Savings assumed that they were genuine and in all respects what they purport it to be,
in accordance to Section 66 of the NIL. The simple reason is that the law isn’t
applicable to the non-negotiable treasury warrants. The indorsement was made
for the purpose of merely depositing them with Metrobank for clearing. It was
in fact Metrobank which stamped on the back of the warrants: “All prior
indorsements and/or lack of endorsements guaranteed…”

12. PECO vs. Soriano, GR No. L-22405, June 30, 1971

Facts:
Enrique Montinola sought to purchase from Manila Post Office ten money orders of
200php each payable to E. P. Montinola. Montinola offered to pay with the money orders
with a private check. Private check were not generally accepted in payment of money
orders, the teller advised him to see the Chief of the Money Order Division, but instead
of doing so, Montinola managed to leave the building without the knowledge of the teller.
Upon the disappearance of the unpaid money order, a message was sent to instruct all
banks that it must not pay for the money order stolen upon presentment. The Bank of
America received a copy of said notice.

However, The Bank of America received the money order and deposited it to the
appellant’s account upon clearance. Mauricio Soriano, Chief of the Money Order Division
notified the Bank of America that the money order deposited had been found to have
been irregularly issued and that, the amount it represented had been deducted from the
bank’s clearing account. The Bank of America debited appellant’s account with the same
account and give notice by mean of debit memo.
Issue:
Whether or not the postal money order in question is a negotiable instrument.

Held:
No. It is not disputed that the Philippine postal statutes were patterned after similar
statutes in force in the United States. The Weight of authority in the United States is that
postal money orders are not negotiable instruments, the reason being that in
establishing and operating a postal money order system, the government is not engaged
in commercial transactions but merely exercises governmental power for the public
benefit. Moreover, some of the restrictions imposed upon money orders by postal laws
and regulations are inconsistent with the character of negotiable instruments. For
instance, such laws and regulations usually provide for not more than one endorsement;
payment of money orders may be withheld under a variety of circumstances.

14. Sesbreno vs. CA, 222 SCRA 466, May 24, 1993

Facts:
Petitioner Raul Sesbreño made a money market placement in the amount of
P300,000.00 with the Philippine Underwriters Finance Corporation (“Philfinance”). The
latter issued a Certificate of Confirmation of Sale “without recourse” from Delta Motors
Corporation Promissory Note, a Certificate of securities indicating the sale to petitioner,
with the notation that the said security was in custodianship of Pilipinas Bank, andpost-
dated checks payable with petitioner as payee, Philfinance as drawer. Petitioner
approached private respondent Pilipinas Bank and handed her a demand letter informing
the bank that his placement with Philfinance had remained unpaid and outstanding, and
that he in effect was asking for the physical delivery of the underlying promissory note.
Pilipinas did not deliver the Note, nor any certificate of participation in respect thereof, to
petitioner.

Issues:
(a) Whether or not Pilipinas Bank is liable for its action.
(b)Whether or not non-negotiable instruments are transferrable.

Held:
(1) YES. Private respondent Pilipinas bank is liable for damages plus legal interest
thereon by arising out of its breach of duty. By failing to deliver the Note to the
petitioner as depositor-beneficiary of the thing deposited, Pilipinas effectively and
unlawfully deprived petitioner of the Note deposited with it. Whether or not Pilipinas
itself benefitted from such conversion or unlawful deprivation inflicted upon petitioner, is
of no moment for present purposes.In the case at bar, the custodian-depositary bank
Pilipinas refused to deliver the security deposited with it when petitioner first demanded
physical delivery thereof. Instead of complying with the demand of the petitioner,
Pilipinas purported to require and await the instructions of Philfinance, in obvious
contravention of its undertaking under the DCR to effect physical delivery of the Note
upon receipt of “written instructions” from petitioner Sesbreño.

(2) YES. A non-negotiable instrument may, obviously, not be negotiated; but it may be
assigned or transferred, absent an express prohibition against assignment or transfer
written in the face of the instrument. It is important to bear in mind that the negotiation
of a negotiable instrument must be distinguished from the assignment or transfer of an
instrument whether that be negotiable or non-negotiable. Only an instrument qualifying
as a negotiable instrument under the relevant statute may be negotiated either by
indorsement thereof coupled with delivery, or by delivery alone where the negotiable
instrument is in bearer form. A negotiable instrument may, however, instead of being
negotiated, also be assigned or transferred. The legal consequences of negotiation as
distinguished from assignment of a negotiable instrument are, of course, different.
15. Consolidated Plywood vs. IFC Leasing, 149 SCRA 448, April 30, 1987

Facts:
Petitioner bought from Atlantic Gulf and Pacific Company, through its sister company
Industrial Products Marketing, two used tractors. Petitioner was issued a sales invoice
for the two used tractors. At the same time, the deed of sale with chattel mortgage
with promissory note was issued.

Simultaneously, the seller assigned the deed of sale with chattel mortgage and
promissory note to respondent. The used tractors were then delivered but barely 14
days after, the tractors broke down. The seller sent mechanics but the tractors were
not repaired accordingly as they were no longer serviceable. Petitioner would delay the
payments on the promissory notes until the seller completes its obligation under the
warranty.

Thereafter, a collection suit was filed against petitioner for the payment of the
promissory note.

Issue:
Whether or not the seller is liable for breach in warranty.

Held:
Yes. This liability as a general rule extends to the corporation to whom it assigned
its rights and interests unless the assignee is a holder in due course of the promissory
note in question, assuming the note is negotiable, in which case, the latter’s
rights are based on a negotiable instrument and assuming further that the
petitioner’s defense may not prevail against it.

The promissory note in question is not a negotiable instrument. The promissory

note in question lacks the so-called words of negotiability. And as such, it follows that
the respondent can never be a holder in due course but remains merely an assignee
of the note in question. Thus, the petitioner may raise against the respondents
all defenses available to it against the seller.

16. Manuel Lim vs. CA, 251 SCRA 409, Dec. 19, 1995

Facts:
Spouses Lim were charged with estafa and violations of BP22 for allegedly purchasing
goods from Linton Commercial Corporation and issuing checks as payment thereof.
The checks when presented to the bank were dishonored for insufficiency of
funds or the payment for the checks has been stopped.

Issue:
Whether or not the checks are negotiated.

Held:
Under Section 191 of the Negotiable Instruments Law, issue means the first
delivery of the instrument complete in its form to a person who takes it as holder.
The term holder on the other hand refers to the payee or indorsee of a bill or note who
is in possession of it or the bearer thereof. The important place to consider in the
consummation of a negotiable instrument is the place of delivery. Delivery is the
final act essential to its consummation as an obligation.

17. Dela Victoria vs. Burgos, 245 SCRA 374, June 27, 1995

Facts:
Raul Sesbreno filed a complaint for damages against Assistant City Fiscal Bienvenido
Mabanto before the RTC of Cebu City. After trial, judgment was rendered ordering
Mabanto to pay Sesbreno P11,000. The decision having become final and executory, the
trial court ordered its execution upon Sesbreno’s motion. The writ of execution was
issued despite Mabanto’s objection. A notice of garnishment was served upon Loreto de
la Victoria as City Fiscal of Mandaue City where Mabanto was then detailed. De la
Victoria moved to quash the notice of garnishment claiming that he was not in
possession of any money, funds, etc. belonging to Mabanto until delivered to him, and as
such are still public funds which could not be subject to garnishment.

Issue:
Whether or not the checks subject to garnishment belong to Mabanto or whether they
still belong to the government.

Held:
Under Section 16 of the Negotiable Instruments Law, every contract on a negotiable
instrument is incomplete and revocable until delivery of the instrument for the purpose
of giving effect thereto. As ordinarily understood, delivery means the transfer of the
possession of the instrument by the maker or drawer with the intent to transfer title to
the payee and recognize him as the holder thereof. Herein, the salary check of a
government officer or employee does not belong to him before it is physically delivered
to him. Inasmuch as said checks had not yet been delivered to Mabanto, they did not
belong to him and still had the character of public funds. As a necessary consequence of
being public fund, the checks may not be garnished to satisfy the judgment.

18. Development Bank of Rizal vs. Sima Wei, 217 SCRA 743

Facts:
Respondent Sima Wei executed and delivered to petitioner Bank a promissory note
engaging to pay the petitioner Bank or order the amount of P1,820,000.00. Sima Wei
subsequently issued two crossed checks payable to petitioner Bank drawn against China
Banking Corporation in full settlement of the drawer's account evidenced by the
promissory note. These two checks however were not delivered to the petitioner-payee
or to any of its authorized representatives but instead came into the possession of
respondent Lee Kian Huat, who deposited the checks without the petitioner-payee's
indorsement to the account of respondent Plastic Corporation with Producers Bank.

Inspite of the fact that the checks were crossed and payable to petitioner Bank and bore
no indorsement of the latter, the Branch Manager of Producers Bank authorized the
acceptance of the checks for deposit and credited them to the account of said Plastic
Corporation.

Issue:
Whether petitioner Bank has a cause of action against Sima Wei for the undelivered
checks.
Held:
No. A negotiable instrument must be delivered to the payee in order to evidence its
existence as a binding contract. Section 16 of the NIL provides that every contract on a
negotiable instrument is incomplete and revocable until delivery of the instrument for
the purpose of giving effect thereto. Thus, the payee of a negotiable instrument
acquires no interest with respect thereto until its delivery to him. Without the initial
delivery of the instrument from the drawer to the payee, there can be no liability on the
instrument. Petitioner however has a right of action against Sima Wei for the balance
due on the promissory note.

19. Enrique Montinola vs. PNB, 68 Phil 178

Facts:
In May 1942, Ubaldo Laya, as provincial treasurer of Misamis Oriental issued a
P100,000.00 Philippine National Bank (PNB) check to Mariano Ramos. The said check
was to be used by Ramos, as disbursing officer of the US forces at that time, for military
purposes.

On the back of the check, Ramos wrote:

“Pay to the order of Enrique P. Montinola P30,000 only. The balance to be
deposited in the Philippine National Bank to the credit of M. V. Ramos.”

Before Ramos can encash the check, he was made a prisoner of war by the invading
Japanese forces. When he got free in December 1944, he needed some cash for himself
and so he went to a certain Enrique Montinola and made arrangements. In consideration
thereof, Montinola promised to pay 85,000 in Japanese notes (that time peso notes are
valued higher). However, he was only able to pay 45k in Japanese notes to Ramos.

Later, Montinola sought to have the check encashed but PNB dishonored the check. It
appears that there was an insertion made. Under the signature of Laya, the words
“Agent, Philippine National Bank” was inserted, thus making it appear that Laya
disbursed the check as an agent of PNB and not as provincial treasurer of Misamis
Oriental.

Issue:
Whether or not the material alteration discharges the instrument.

Held:
Yes. First, the Court pointed out: “It was not negotiated according to the Negotiable
Instruments Law (NIL) hence it is not a negotiable instrument. There was only a partial
indorsement and not a negotiation contemplated under the NIL. Only P30k of the P100k
amount of the check was indorsed. This merely make Montinola a mere assignee – and
this is the clear intent of Ramos. Ramos was merely assigning P30k to Montinola.
Montinola may therefore not be regarded as an indorsee and PNB has all the right to
dishonor the check. As mere assignee, he is subject to all defenses available to the
drawer Provincial Treasurer of Misamis Oriental and against Ramos.
Anent the issue of alteration, the apparent purpose of which is to make the drawee
(PNB) the drawer against which Montinola can recover from directly. The insertion of the
words “Agent, Phil. National Bank” which converts the bank from a mere drawee to a
drawer and therefore changes its liability, constitutes a material alteration of the
instrument without the consent of the parties liable thereon, and so discharges the
instrument. (Section 124 of the Negotiable Instruments Law).
The check was not legally negotiated within the meaning of the Negotiable Instruments
Law. Section 32 of the same law provides that “the indorsement must be an indorsement
of the entire instrument. An indorsement which purports to transfer to the indorsee a
part only of the amount payable, . . . (as in this case) does not operate as a negotiation
of the instrument.” Montinola may therefore not be regarded as an indorsee. At most he
may be regarded as a mere assignee of the P30,000 sold to him by Ramos, in which
case, as such assignee, he is subject to all defenses available to the drawer Provincial
Treasurer of Misamis Oriental and against Ramos.

Neither can Montinola be considered as a holder in due course because section 52 of said
law defines a holder in due course as a holder who has taken the instrument under
certain conditions, one of which is that he became the holder before it was overdue.
When Montinola received the check, it was long overdue. And, Montinola is not even a
holder because section 191 of the same law defines holder as the payee or indorsee of a
bill or note and Montinola is not a payee. Neither is he an indorsee for as already stated,
at most he can be considered only as assignee. Neither could it be said that he took it in
good faith. As already stated, he has not paid the full amount of P90,000 for which
Ramos sold him P30,000 of the value of the check. In the second place, as was stated by
the trial court in its decision, Montinola speculated on the check and took a chance on its
being paid after the war.

At any rate, even assuming that there is proper negotiation, Montinola can no longer
encash said check because when he sought to have it encashed in January 1945, it was
already stale there being two and half years passing since its time of issuance.

20. Metropol (Bacolod) Financing vs. Sambok Motors, 120 SCRA 864

Facts:
Dr. Javier Villaruel executed a promissory note in favor of Ng Sambok Sons Motors Co.,
Ltd. Payable in 12 equal monthly installments with interest. It is further provided that in
case on non-payment of any of the installments, the total principal sum then remaining
unpaid shall become due and payable with an additional interest. Sambok Motors co., a
sister company of Ng Sambok Sons negotiated and indorsed the note in favor of
Metropol Financing & investment Corporation. Villaruel defaulted in the payment, upon
presentment of the promissory note he failed to pay the promissory note as demanded,
hence Ng Sambok Sons Motors Co., Ltd. notified Sambok as indorsee that the
promissory note has been dishonored and demanded payment. Sambok failed to pay. Ng
Sambok Sons filed a complaint for the collection of sum of money. During the pendency
of the case Villaruel died. Sambok argues that by adding the words “with recourse” in
the indorsement of the note, it becomes a qualified indorser, thus, it does not warrant
that in case that the maker failed to pay upon presentment it will pay the amount to the
holder.

Issue:
Whether or not Sambok Motors Co is a qualified indorser, thus it is not liable upon the
failure of payment of the maker.

Held:
No. A qualified indorsement constitutes the indorser a mere assignor of the title to the
instrument. It may be made by adding to the indorser’s signature the words “without
recourse” or any words of similar import. Such indorsement relieves the indorser of the
general obligation to pay if the instrument is dishonored but not of the liability arising
from warranties on the instrument as provided by section 65 of NIL. However, Sambok
indorsed the note “with recourse” and even waived the notice of demand, dishonor,
protest and presentment.
Recourse means resort to a person who is secondarily liable after the default of the
person who is primarily liable. Sambok by indorsing the note “with recourse” does not
make itself a qualified indorser but a general indorser who is secondarily liable, because
by such indorsement, it agreed that if Villaruel fails to pay the note the holder can go
after it. The effect of such indorsement is that the note was indorsed without
qualification. A person who indorses without qualification engages that on due
presentment, the note shall be accepted or paid, or both as the case maybe, and that if
it be dishonored, he will pay the amount thereof to the holder. The words added by
Sambok do not limit his liability, but rather confirm his obligation as general indorser.

21. Gempesaw vs. CA, 218 SCRA 628

Facts:
Gempesaw was the owner of many grocery stores. She paid her suppliers through the
issuance of checks drawn against her checking account with respondent bank. The
checks were prepared by her bookkeeper Galang. In the signing of the checks prepared
by Galang, Gempensaw didn't bother herself in verifying to whom the checks were being
paid and if the issuances were necessary. She didn't even verify the returned checks
of the bank when the latter notifies her of the same. During her two years in business,
there were incidents shown that the amounts paid for were in excess of what
should have been paid. It was also shown that even if the checks were crossed, the
intended payees didn't receive the amount of the checks. This prompted Gempesaw to
demand the bank to credit her account for the amount of the forged checks. The bank
refused to do so and this prompted her to file the case against the bank.

Issue:
Whether or not petitioner is entitled to refund.

Held:
No. Forgery is a real defense by the party whose signature was forged. A party whose
signature was forged was never a party and never gave his consent to the instrument.
Since his signature doesn’t appear in the instrument, the same cannot be enforced
against him even by a holder in due course. The drawee bank cannot charge the
account of the drawer whose signature was forged because he never gave the bank the
order to pay.

In the case at bar the checks were filled up by the petitioner's employee Galang
and were later given to her for signature. Her signing the checks made the negotiable
instruments complete. Prior to signing of the checks, there was no valid contract yet.
Petitioner completed the checks by signing them and thereafter authorized Galang to
deliver the same to their respective payees. The checks were then indorsed,
forged indorsement thereon.
As a rule, a drawee bank who has paid a check on which an indorsement has been
forged cannot debit the account of a drawer for the amount of said check. An
exception to this rule is when the drawer is guilty of negligence which causes the
bank to honor such checks. Petitioner in this case has relied solely on the honesty
and loyalty of her bookkeeper and never bothered to verify the accuracy of the
amounts of the checks she signed the invoices attached thereto. And though she
received her bank statements, she didn't carefully examine the same to double-
check her payments. Petitioner didn't exercise reasonable diligence which eventually
led to the fruition of her bookkeeper’s fraudulent schemes.

22. Bibiano Banas vs. CA, 325 SCRA 259,

Facts:
On February 20, 1976, petitioner, Bibiano V. Bañas Jr. sold to Ayala Investment
Corporation (AYALA), 128,265 square meters of land located at Bayanan, Muntinlupa, for
two million, three hundred eight thousand, seven hundred seventy (P2,308,770.00)
pesos. The Deed of Sale provided that upon the signing of the contract AYALA shall pay
four hundred sixty-one thousand, seven hundred fifty-four (P461,754.00) pesos. The
balance of one million, eight hundred forty-seven thousand and sixteen (P1,847,016.00)
pesos was to be paid in four equal consecutive annual installments, with twelve (12%)
percent interest per annum on the outstanding balance. AYALA issued one promissory
note covering four equal annual installments. Each periodic payment of P461,754.00
pesos shall be payable starting on February 20, 1977, and every year thereafter, or until
February 20, 1980.

The same day, petitioner discounted the promissory note with AYALA, for its face value
of P1,847,016.00, evidenced by a Deed of Assignment signed by the petitioner and
AYALA. AYALA issued nine (9) checks to petitioner, all dated February 20, 1976, drawn
against Bank of the Philippine Islands with the uniform amount of two hundred five
thousand, two hundred twenty-four (P205,224.00) pesos.

In his 1976 Income Tax Return, petitioner reported only the P461,754 initial payment as
income from disposition of capital asset.

Issue:
Whether or not the discounting of the promissory note was proper.

Held:
No. It will be recalled that the petitioner entered into a deed of sale purportedly on
installment. On the same day, he discounted the promissory note covering the future
installments. The discounting seems questionable because ordinarily, when a bill is
discounted, the lender (eg. banks, financial institution) charges or deducts a certain
percentage from the principal value as its compensation. Here the discounting was done
by the buyer.

23. Chan Wan vs. Tan Kim, 109 Phil 706,

Facts:
Checks payable to “cash or bearer” were drawn by defendant Tan Kim and were all
presented for payment by Chan Wan to the drawee bank, but they were all dishonored.
Defendant argued that plaintiff is a holder not in due course.
Issue:
Whether or not a holder not in due course is barred from collecting the value of checks
issued to him.

Held:
No. It does not that simply because he was not a holder in due course Chan Wan could
not recover on the checks. The Negotiable Instruments Law does not provide that a
holder who is not a holder in due course, may not in any case, recover on the
instrument. The only disadvantage of holder who is not a holder in due course is that the
negotiable instrument is subject to defense as if it were non- negotiable.

24. Atrium Management vs. CA, 144 SCAD 390,

Facts:
Hi-Cement Corporation through its corporate signatories, petitioner Lourdes M. de Leon,
treasurer, and the late Antonio de las Alas, Chairman, issued checks in favor of E.T.
Henry and Co. Inc., as payee. E.T. Henry and Co., Inc., in turn, endorsed the four checks
to Atrium for valuable consideration. Enrique Tan of E.T. Henry approached Atrium for
financial assistance, offering to discount four RCBC checks in the total amount of P2
million, issued by Hi-Cement in favor of E.T. Henry. Atrium agreed to discount the
checks, provided it be allowed to confirm with Hi-Cement the fact that the checks
represented payment for petroleum products which E.T. Henry delivered to Hi-Cement.

Upon presentment for payment, the drawee bank dishonored all four checks for the
common reason “payment stopped”. As a result thereof, Atrium filed an action for
collection of the proceeds of 4 PDC in the total amount of 2M with RTC Manila. Judgment
was rendered in favor of Atrium ordering Lourdes and Rafael de Leon, E.T. Henry and
Co., and Hi-Cement to pay Atrium the said amount plus interest and attorneys fees. CA
absolved Hi-cement Corporation from liability. It also ruled that since Lourdes was not
authorized to issue the subjects checks in favor of E.T. Henry Inc., the said act was ultra
vires.

Issue:
Whether the issuance of the questioned checks was an ultra vires act;

Held:
Yes. An ultra vires act is one committed outside the object for which a corporation is
created as defined by the law of its organization and therefore beyond the power
conferred upon it by law. The term “ultra vires” is “distinguished from an illegal act for
the former is merely voidable which may be enforced by performance, ratification, or
estoppel, while the latter is void and cannot be validated.

Personal liability of a corporate director, trustee or officer along (although not

necessarily) with the corporation may so validly attach, as a rule, only when:

He assents
(a) to a patently unlawful act of the corporation, or
(b) for bad faith or gross negligence in directing its affairs, or
(c) for conflict of interest, resulting in damages to the corporation, its stockholders or
other persons;

He consents to the issuance of watered down stocks or who, having knowledge thereof,
does not forthwith file with the corporate secretary his written objection thereto;

He agrees to hold himself personally and solidarily liable with the corporation; or
He is made, by a specific provision of law, to personally answer for his corporate action.

In the case at bar, Lourdes M. de Leon and Antonio de las Alas as treasurer and
Chairman of Hi-Cement were authorized to issue the checks. However, Ms. de Leon was
negligent when she signed the confirmation letter requested by Mr. Yap of Atrium and
Mr. Henry of E.T. Henry for the rediscounting of the crossed checks issued in favor of
E.T. Henry. She was aware that the checks were strictly endorsed for deposit only to the
payee’s account and not to be further negotiated. What is more, the confirmation letter
contained a clause that was not true, that is, “that the checks issued to E.T. Henry were
in payment of Hydro oil bought by Hi-Cement from E.T. Henry”. Her negligence resulted
in damage to the corporation. Hence, Ms. de Leon may be held personally liable therefor.

25. Marcelo Mesina vs. CA, 145 SCRA 497

Facts:
Jose Go purchased from Associate Bank a Cashier’s Check, which he left on top of the
manager’s desk when left the bank. The bank manager then had it kept for
safekeeping by one of its employees. The employee was then in conference with
one Alexander Lim. He left the check in his desk and upon his return, Lim and the
check were gone. When Go inquired about his check, the same couldn't be found
and Go was advised to request for the stoppage of payment which he did. He executed
also an affidavit of loss as well as reported it to the police.

The bank then received the check twice for clearing. For these two times, they
dishonored the payment by saying that payment has been stopped. After the
second time, a lawyer contacted it demanding payment. He refused to disclose
the name of his client and threatened to sue. Later, the name of Mesina was
revealed. When asked by the police on how he possessed the check, he said it
was paid to him Lim. An information for theft was then filed against Lim.

A case of interpleader was filed by the bank and Go moved to participate as intervenor
in the complaint for damages. Mesina moved for the dismissal of the case but
was denied. The trial court ruled in the interpleader case ordering the bank to
replace the cashier’s check in favor of Go.

Held:
Petitioner cannot raise as arguments that a cashier’s check cannot be
countermanded from the hands of a holder in due course and that a cashier’s
check is a check drawn by the bank against itself. Petitioner failed to
substantiate that he was a holder in due course. Upon questioning, he admitted
that he got the check from Lim who stole the check. He refused to disclose how
and why it has passed to him. It simply means that he has notice of the defect of his
title over the check from the start. The holder of a cashier’s check who is not a
holder in due course cannot enforce payment against the issuing bank which
dishonors the same. If a payee of a cashier’s check obtained it from the issuing bank
by fraud, or if there is some other reason why the payee is not entitled to
collect the check, the bank would of course have the right to refuse payment of
the check when presented by payee, since the bank was aware of the facts surrounding
the loss of the check in question.

26. Equitable Banking vs. Special Steel, GR 175350, June 13, 2012

Facts:
SSPI, a private domestic corporation selling steel products. sold welding electrodes to
Interco, as evidenced by sales invoices. It is due on March 16 1991 (for the first sales
invoice and May 11 1991 for others). It also provided that Interco would pay interest at
the rate of 36% per annum in case of delay. As payment for the products, Interco issued
3 checks payable to the order of SSPI. Each check was crossed with the notation
“account payee only” and was drawn against Equitable.

The records do not identify the signatory for the checks, or explain how Uy came in
possession of these checks. He claimed that he had good title thereto. He demanded the
deposits in his personalaccounts in Equitable. The bank did so relying on Uy’s status as a
valued client and as son-inlaw of Interco’s majority stockholder.
SSPI reminded Interco of the unpaid welding electrodes, explaining that its immediate
need for payment as it was experiencing some financial crisis of its own. It replied that it
has already issued three (3) checks payable to SSPI and drawn against Equitable, which
was denied by SSPI. Later on it was discovered that it was Uy, not SSPI, who received
the proceeds of 3 checks. Interco finally paid the value of 3 checks to SSPI plus portion
of accrued interests. Interco refused to pay entire accrued interest on the ground that it
was not responsible for the delay. Hence, Pardo filed a complaint for damages against Uy
and Equitable Bank’ alleging that the 3 crossed checks, all payable to order of SSPI could
be deposited and encashed by SSPI only.

Issues:
Whether or not SSPI has a cause of action against Equitable.

Held:
Yes. The checks that Interco issued in favor of SSPI were all crossed, made payable to
SSPI’s order, and contained the notation "account payee only." This creates a reasonable
expectation that the payee alone would receive the proceeds of the checks and that
diversion of the checks would be averted. This expectation arises from the accepted
banking practice that crossed checks are intended for deposit in the named payee’s
account only and no other.

At the very least, the nature of crossed checks should place a bank on notice that it
should exercise more caution or expend more than a cursory inquiry, to ascertain
whether the payee on the check has authorized the holder to deposit the same in a
different account. It is well to remember that "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.” 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.

Equitable did not observe the required degree of diligence expected of a banking
institution under the existing factual circumstances.

27. Ocampo vs. Gatchalian, 3 SCRA 596, Nov. 30, 1961

Facts:
Sept 8 1953 evening: Anita C. Gatchalian was looking for a car for the use of her
husband and the family and Manuel Gonzales who was accompanied by Emil Fajardois
(personally known to Anita) offered her a car.

Manuel Gonzales represented to defendant Anita that he was duly authorized by Ocampo
Clinic, the owner of the car, to look for a buyer and negotiate for and accomplish the
sale, but which facts were not known to Ocampo.
September 9 1953: Anita requested Manuel to bring the car the day following together
with the certificate of registration of the car so that her husband would be able to see
same.
Manuel Gonzales told her that unless there is a showing that the party interested in the
purchase is ready he cannot bring the certificate of registration.

Anita gave him a check which will be shown to the owner as evidence of buyer's GF in
the intention to purchase, it being for safekeeping only of Manuel and to be returned.
For the hospitalization of the wife of Manuel, he paid the check to Ocampo clinic.
P441.75 - payment of said fees and expenses
P158.25 -given to Manual as balance
Next Day: Manual did not appear so Anita issued a stop payment order

Anita filed with the Office of the City Fiscal of Manila, a complaint for estafa against
Manuel.

Appeal Manuel contends that: the check is not a negotiable instrument, under the facts
and circumstances stated in the stipulation of facts - no delivery (Section 16, Negotiable
Instruments Law) because only for safekeeping (conditional delivery)

Issue:
Whether or not Ocampo is a holder in due course and whether or not Ocampo is a prima
facie holder in due course applies.

Held:
No. Sec. 191 provides that a holder is a payee or indorsee of a bill or note, who is in
possession of it, or the bearer. Sec. 52 states that a holder in due course is a holder who
has taken the instrument under the ff conditions:
● That it is complete and regular on its face
● That he became the holder of it before it was overdue, and without notice that it
had been previously dishonored, it such was the fact.
● That he took it in good faith and for value.
● That at the time it was negotiated to him he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it

In the present case, the amount of the check did not correspond exactly with the
obligation of Matilde Gonzales to Dr. V. R. de Ocampo. The check had two parallel lines
in the upper left hand corner, which practice means that the check could only be
deposited but may not be converted into cash.

It was payee's duty to ascertain from the holder Manuel what the nature of his title to
the check was or the nature of his possession. This failure makes the payee guilty of
gross neglect and legal absence of good faith.

In order to show that the defendant had 'knowledge of such facts that his action in
taking the instrument amounted to bad faith it is not necessary to prove that the
defendant knew the exact fraud. It is sufficient that the buyer of a note had notice or
knowledge that the note was in some way tainted with fraud.

Sec. 59 states that every holder is deemed prima facie to be a holder in due course. A
possessor of the instrument is prima facie a holder in due course does not apply because
there was a defect in the title of the holder (Manuel Gonzales) because the instrument is
not payable to him or to bearer.
28. Yang vs. CA, No. 138074, Aug. 15, 2003

Facts:
Cely Yang and Prem Chandiramani agreed to exchange the latter's manager's check to
two of Yang's checks both payable to the order of Fernando David. They also agreed that
Yang would secure a dollar draft in exchange for Chandiramani's dollar draft.
At the time of exchange, Yang gave the checks to Danilo Ranigo. Ranigo said that
Chandaramani did not appear the rendezvous and that he lost the checks and draft, but
in fact, the exchange transpired.

Yang requested the respective banks to stop payment on the instruments but was
subsequently denied. Yang filed a complaint for the return of the checks and for
damages against Chandaramani and David.
The lower court sided with David and was held as holder in due course. The checks were
complete in its face when they were negotiated and that he had no notice that the
checks were dishonored and took the checks in good faith. The lower courts also said
that David had taken the necessary precautions to verify the genuineness of the checks.

Issue:
Whether David was a holder in due course.

Held:
Every holder of a negotiable instrument is deemed prima facie a holder in due course.
However, this presumption arises only in favor of a person who is a holder as defined in
Section 191 of the Negotiable Instruments Law, meaning a “payee or indorsee of a bill or
note, who is in possession of it, or the bearer thereof.”

In the present case, it is not disputed that David was the payee of the checks in
question. The weight of authority sustains the view that a payee may be a holder in due
course. Hence, the presumption that he is a prima facie holder in due course applies in
his favor.

29. Bataan Cigar vs. CA, 230 SCRA 643 (1994)

Facts:
Petitioner, Bataan Cigar & Cigarette Factory, Inc. (BCCFI), a corporation involved in the
manufacturing of cigarettes, engaged one of its suppliers, King Tim Pua George (herein
after referred to as George King), to deliver 2,000 bales of tobacco leaf starting October
1978. In consideration thereof, BCCFI, on July 13, 1978 issued crossed checks post
dated sometime in March 1979 in the total amount of P820,000.00.
Relying on the supplier’s representation that he would complete delivery within three
months from December 5, 1978, petitioner agreed to purchase additional 2,500 bales of
tobacco leaves, despite the supplier’s failure to deliver in accordance with their earlier
agreement. Again petitioner issued post dated crossed checks in the total amount of
P1,100,000.00, payable sometime in September 1979.

During these times, George King was simultaneously dealing with private respondent
SIHI. On July 19, 1978, he sold at a discount check TCBT 5518265 bearing an amount of
P164,000.00, post dated March 31, 1979, drawn by petitioner, naming George King as
payee to SIHI. On December 19 and 26, 1978, he again sold to respondent checks TCBT
Nos. 608967 & 608968, both in the amount of P100,000.00, post dated September 15 &
30, 1979 respectively, drawn by petitioner in favor of George King.

In as much as George King failed to deliver the bales of tobacco leaf as agreed despite
petitioner’s demand, BCCFI issued on March 30, 1979, a stop payment order on all
checks payable to George King, including check TCBT 551826. Subsequently, stop
payment was also ordered on checks TCBT Nos. 608967 & 608968 on September 14 &
28, 1979, respectively, due to George King’s failure to deliver the tobacco leaves.

Efforts of SIHI to collect from BCCFI having failed, it instituted the present case, naming
only BCCFI as party defendant. The trial court pronounced SIHI as having a valid claim
being a holder in due course.

Issue:
Whether SIHI is a holder in due course.

Held:
No. SIHI is not a holder in due course. In order to preserve the credit worthiness of
checks, jurisprudence has pronounced that crossing of a check should have the
following effects: (a) the check may not be encashed but only deposited in the
bank; (b) the check may be negotiated only once — to one who has an account
with a bank; (c) and the act of crossing the check serves as warning to the
holder that the check has been issued for a definite purpose so that he must
inquire if he has received the check pursuant to that purpose, otherwise, he is
not a holder in due course.

30. Stelco Marketing vs. CA, 210 SCRA 51, June 17, 1992

FACTS:
Stelco Marketing Corporation sold structural steel bars to RYL Construction Inc. RYL
gave Stelco’s “sister corporation,” Armstrong Industries, a MetroBank check from
Steelweld Corporation. The check was issued by Steelweld’s President to Romeo Lim,
President of RYL, by way of accommodation, as a guaranty and not in payment of an
obligation. When Armstrong deposited the check at its bank, it was dishonored because
it was drawn against insufficient funds. When so deposited, the check bore two
indorsements, i.e. RYL and Armstrong. Subsequently, Stelco filed a civil case against
RYL and Steelweld to recover the value of the steel products.
Issue:
Whether Steelweld as an accommodating party can be held liable by Stelco for the
dishonored check.
Held:
Steelweld may be held liable but not by Stelco. Under Section 29 of the NIL, Steelweld
Corp. can be held liable for having issued the subject check for the accommodation of
Romeo Lim. An accommodation party is one who has singed the instrument as maker,
drawer, acceptor, or indorser, without receiving valued therefor, and for the purpose of
lending his name to some other person. Such a person is liable on the instrument to a
holder for value, notwithstanding such holder, at the time of taking the instrument, knew
him to be only an accommodation party. Stelco however, cannot be deemed a holder of
the check for value as it does not meet two essential requisites prescribed by statute,
i.e. that it did not become “the holder of it before it was overdue, and without notice that
it had been previously dishonored,” and that it did not take the check “in good faith and
for value.”

31. Go vs. Metropolitan Bank, GR No. 168842, Aug. 11, 2010

Facts:
Petitioner filed a case for a sum of money with damages against herein respondent
Metrobank and Chua. Petitioner alleged that he was doing business under the name
"Hope Pharmacy" which sells medicine and other pharmaceutical products in the City of
Cebu. Petitioner had in his employ Chua as his pharmacist and trustee or caretaker of
the business.
Petitioner claimed that there were unauthorized deposits and encashments made by
Chua. She averred that there were thirty-two (32) checks with Hope Pharmacy as payee,
that were not endorsed by him but were deposited under the personal account of Chua
with respondent bank. Petitioner claimed that the said checks were crossed checks
payable to Hope Pharmacy only; and that without the participation and connivance of
respondent bank, the checks could not have been accepted for deposit to any other
account, except petitioner’s account. RTC exonerated Chua, it however declared
respondent bank liable for being negligent in allowing the deposit of crossed checks
without the proper indorsement. CA absolved Metrobank.
Issue:
Whether or not the CA erred in not holding Metrobank liable for allowing the deposit of
crossed checks which were issued in favor of and payable to petitioner and without being
indorsed by the petitioner.
Held:
There is no dispute that the subject were crossed checks with petitioner as the named
payee. It is the submission of petitioner that respondent bank should be held
accountable for the entire amount of the checks because it accepted the checks for
deposit under Chua’s account despite the fact that the checks were crossed and that the
payee named therein was not Chua. Respondent bank should not be held liable for the
entire amount of the checks considering that, as found by the RTC and affirmed by the
CA, the checks were actually given to Chua as payments by petitioner for loans obtained
from the parents of Chua. Furthermore, petitioner’s non-inclusion of Chua and Tabañag
in the petition before this Court is, in effect, an admission by the petitioner that Chua, in
representation of her parents, had rightful claim to the proceeds of the checks, as
payments by petitioner for money he borrowed from the parents of Chua. Therefore,
petitioner suffered no pecuniary loss in the deposit of the checks to the account of Chua.
However, respondent bank was negligent in permitting the deposit and encashment of
the crossed checks without the proper indorsement. An indorsement is necessary for the
proper negotiation of checks specially if the payee named therein or holder thereof is not
the one depositing or encashing it. Knowing fully well that the subject checks were
crossed, that the payee was not the holder and that the checks contained no
indorsement, respondent bank should have taken reasonable steps in order to determine
the validity of the representations made by Chua. Respondent bank was amiss in its duty
as an agent of the payee. Prudence dictates that respondent bank should not have
merely relied on the assurances given by Chua.
Negligence was committed by respondent bank in accepting for deposit the crossed
checks without indorsement and in not verifying the authenticity of the negotiation of the
checks. The law imposes a duty of extraordinary diligence on the collecting bank to
scrutinize checks deposited with it, for the purpose of determining their genuineness and
regularity.

32. Salas vs. CA, 181 SCRA 296

Facts:
Petitioner bought a motor vehicle from the Violago Motor Sales Corporation evidenced by
a promissory note. The note was subsequently endorsed to Filinvest Finance & Leasing
Corporation which financed the purchase. Petitioner defaulted in her installments
because VMS delivered a different vehicle to her. Due to her failure to pay Filinvest filed
a collection suit.
The trial court ordered petitioner to pay the defendant. They both appealed the decision
to the Court of Appeals. In her appeal, she did not implead VMS as a party to the case
because she already sued VMS for “breach of contract with damages” in another case.
The Court of Appeals modified the decision and ordered the petitioner to pay the
defendant sum of P54,908.30 at 14% per annum. Her motion for reconsideration was
denied.
Issue:
Whether or not the promissory note is a negotiable instrument which will bar completely
all the available defenses of the petitioner against private respondent. Her defense is
that Filinvest should proceed against VMS because the alleged fraud, bad faith and
misrepresentation by VMS supposedly released her from any liability to Filinvest.
Held:
The questioned promissory note is a negotiable instrument because it complied with all
the requisites provided for by law:
[a] that it is in writing and signed by the maker Juanita Salas;
[b] that it contains an unconditional promise to pay the amount of P58,138.20;
[c] that it is payable at a fixed or determinable future time which is “P1,614.95 monthly
for 36 months due and payable on the 21 st day of each month starting March 21, 1980
thru and inclusive of Feb. 21, 1983;”
[d] that it is payable to Violago Motor Sales Corporation, or order and as such,
[e] that the drawee is named or indicated with certainty.
The note was negotiated by indorsement in writing on the instrument itself payable to
the Order of Filinvest Finance and Leasing Corporation. It is an indorsement of the entire
instrument.
Filinvest is a holder in due course because it has taken the instrument under the
following conditions:
[a] it is complete and regular upon its face;
[b] it became the holder thereof before it was overdue, and without notice that it had
previously been dishonored;
[c] it took the same in good faith and for value; and
[d] when it was negotiated to Filinvest, the latter had no notice of any infirmity in the
instrument or defect in the title of VMS Corporation.

As a holder in due course, Filinvest holds the instrument free from any defect of title of
prior parties, and free from defenses available to prior parties among themselves, and
may enforce payment of the instrument for the full amount thereof. This being so,
petitioner cannot set up against respondent the defense of nullity of the contract of sale
between her and VMS.

33. State Investment House vs. CA, 175 SCRA 311, July 13, 1989
Facts:
NSW received three post-‐dated and crossed checks issued on the condition that the
drawer on due date would make sufficient deposits to cover the checks. NSW did not
wait for the maturity and indorsed the check to State Investment House, which
deposited the same. The checks bounced.
Issue:
Whether or not the investment house is a holder in due course?
Held:
No, that the checks had been issued subject to the condition that the drawer on due date
would make the back up deposit for said check which condition was not made,
constitutes a good defense against the holder who is not a HIDC, particularly when the
check was crossed. The crossing of a check serves a warning to the holder that the
check had been issued for a definite purpose so that he must inquire if received the
check pursuant to that purpose, otherwise, he is not a holder in due course.
34. Prudencio vs. CA, 143 SCRA 7, July 14, 1986
Facts:
Appellants are the owners of a property, which they mortgaged to help secure a loan of
a certain Domingo Prudencio. On a later date, they were approached by their relative
who was the attorney-in-fact of a construction company, which was in dire need of funds
for the completion of a municipal building. After some persuasion, the appellants
amended the mortgage wherein the terms and conditions of the original mortgage
was made an integral part of the new mortgage. The promissory note covering the
“second loan” was signed by their relative. It was also signed by them, indicating the
request that the check be released by the bank.
After the amendment of the mortgage was executed, a deed of assignment was made
by Toribio, assigning all the payments to the Bureau to the construction company.
This notwithstanding, the Bureau with approval of the bank, conditioned however that
they should be for labor and materials, made three payments to the company. The last
request was denied by the bank, averring that the account was long overdue, the
remaining balance of the contract price should be applied to the loan.
The company abandoned the work and as consequence, the Bureau rescinded the
contract and assumed the work. Later on, the appellants wrote to the PNB that
since the latter has authorized payments to the company instead of on account
of the loan guaranteed by the mortgage, there was a change in the conditions of the
contract without the knowledge of appellants, which entitled the latter to cancel the
mortgage contract.
The trial court held them still liable together with their co-makers. In their appeal,
petitioners contend that as accommodation makers, the nature of their liability is
only that of mere sureties instead of solidary co-debtors.
Issue:
Whether or not petitioners as accommodation makers are liable for the promissory note.
HELD:
Yes. There is no question that as accommodation makers, petitioners would be primarily
and unconditionally liable on the promissory note to a holder for value, regardless of
whether they stand as sureties or solidary co-debtors since such distinction would be
entirely immaterial and inconsequential as far as a holder for value is concerned.
Consequently, the petitioners cannot claim to have been released from their obligation
simply because at the time of payment of such obligation was temporarily deferred
by thePNB without their knowledge and consent. There has to be another basis for
their claim of having been freed from their obligation. It has to be determined
if PNB was a holder for value.
In the case at bar, PNB may not be considered as a holder for value. Not only was PNB
an immediate party or privy to the promissory note, knowing fully well that petitioners
only signed as accommodation parties, but more importantly it was the Deed of
Assignment which moved the petitioners to sign the promissory note. The bank
approved the release of payments to the Company instead of the same to the bank.
This was in violation of the deed of assignment and prejudiced the rights of
petitioners. The bank was not in good faith—a requisite for a holder to be one in due
course.

35. Stelco Marketing vs. CA, GR No. 96160, June 17, 1992
Facts:
Stelco Marketing Corporation sold structural steel bars to RYL Construction Inc. RYL
gave Stelco’s “sister corporation,” Armstrong Industries, a MetroBank check from
Steelweld Corporation. The check was issued by Steelweld’s President to Romeo Lim,
President of RYL, by way of accommodation, as a guaranty and not in payment of an
obligation. When Armstrong deposited the check at its bank, it was dishonored because
it was drawn against insufficient funds. When so deposited, the check bore two
indorsements, i.e. RYL and Armstrong. Subsequently, Stelco filed a civil case against
RYL and Steelweld to recover the value of the steel products.
Issue:
Whether Steelweld as an accommodating party can be held liable by Stelco for the
dishonored check.
Held:
Steelweld may be held liable but not by Stelco.
Under Section 29 of the NIL, Steelweld Corp. can be held liable for having issued the
subject check for the accommodation of Romeo Lim. An accommodation party is one
who has singed the instrument as maker, drawer, acceptor, or indorser, without
receiving valued therefor, and for the purpose of lending his name to some other person.
Such a person is liable on the instrument to a holder for value, notwithstanding such
holder, at the time of taking the instrument, knew him to be only an accommodation
party. Stelco however, cannot be deemed a holder of the check for value as it does not
meet two essential requisites prescribed by statute, i.e. that it did not become “the
holder of it before it was overdue, and without notice that it had been previously
dishonored,” and that it did not take the check “in good faith and for value.”

36. Charles Fossum vs. Fernandez Hermanos, 44 Phil 713

Facts:
In 1919, the Fernandez Hermanos (FH) contracted with the American Iron Products
Company, Inc. (AIP), for the latter to build a shaft for one of the ships managed by FH.
In consideration thereof, a time draft with the Philippine National Bank (PNB), a
negotiable instrument, was executed by FH in the amount of $2,250.00 payable in 60
days. But later, FH dishonored the draft because AIP was not able to comply with the
specifications of the shaft ordered by FH.
Nevertheless, Charles Fossum, the agent of AIP here in the Philippines and the person
with whom FH was transacting with, was able to obtain the draft from the bank without
consideration (for free). Fossum then instituted an action against FH to recover the
amount covered by the draft.
Fossum maintains that he is a holder in due course; that he inherited that status from
the previous holder (PNB, named payee in the draft); that as such, he is entitled to
payment.
Issue:
Whether or not Fossum is a holder in due course.
HELD: No.
In the first place, Fossum, as an agent of AIP, is well aware that the draft is
unenforceable because it has no consideration, the shaft being substandard. AIP did not
comply with its obligation thus the draft was dishonored – and Fossum was well aware of
this as part of the original party.
Under Sec. 59 of the Negotiable Instruments Law, there is indeed a presumption
that every holder is a holder in due course, this covers a payee or an indorsee (for
bearer instruments, the bearer). This presumption does not apply to Fossum because he
was not a payee nor an indorsee. He’s not an indorsee because the bank merely
delivered the draft to him and the delivery was even without consideration.
But if the presumption previously applied to PNB, wasn’t that acquired by
Fossum? No. The presumption only covers the present holder, and not the previous
holder. When a holder delivers/indorses the instrument, he loses that presumption. It
will then become incumbent upon the person who received the instrument to prove that
the previous holder is a holder in due course especially in this case when the current
holder, Fossum, cannot be granted the presumption in Sec. 59, which is merely prima
facie by the way, because of the fact that he was an original party fully notified of the
failure of the consideration.
At any rate, PNB itself is not a holder in due course due to the timely dishonor of
the draft by FH.
Further even assuming PNB is a holder in due course, there is a well-known rule
of law that if the original payee of a note unenforceable for lack of consideration
repurchases (in this case, the draft was not even repurchased, it was merely delivered
back) the instrument after transferring it to a holder in due course, the paper again
becomes subject in the payee’s hands to the same defenses to which it would have been
subject if the paper had never passed through the hands of a holder in due course. The
same is true where the instrument is re-transferred to an agent of the payee.

37. PNB vs. Picornell, 46 Phil 716, Sept. 26, 1922

Facts:
Picornell, following instruction of Hyndman, Tavera & Ventura (HTV), bought in bales of
tobacco; that Picornell obtained from the branch of the National Bank in Cebu a sum of
of money to the value of the tobacco, together with his commission, drawn the following
bill of exchange. The invoice and bill of lading were delivered to the National Bank with
the understanding that the bank should not delivered them to HTV except upon payment
of the bill; The invoice and bill of lading was delivered and accepted by HTV who
proceeded to the examination of the tobacco. HTV wrote and cable to Picornell, notifying
him that of the tobacco received, there was a certain portion which was no use and was
damaged. After a number of communication between Picornell and HTV, HTV refuse to
pay the bill and instruct the bank to dispose and sell the tobacco. The Bank sold the
tobacco for the amount less of the bill it advanced. The bank demand payment for the
said balance which Picornell and HTV refused to pay, hence this case.

Issue:
Whether Picornell and HTV are liable to reimburse the bank on the bill it advanced to pay
for the Tobacco.

Held:
Yes, HTV cannot escape liability in view of section 28 of the Negotiable Instruments Law.
The drawee by acceptance becomes liable to the payee or his indorsee, and also to the
drawer himself. But the drawer and acceptor are the immediate parties to the
consideration, and if the acceptance be without consideration, the drawer cannot recover
of the acceptor. The payee holds a different relation; he is a stranger to the transaction
between the drawer and the acceptor, and is, therefore, in a legal sense a remote party.
In a suit by him against the acceptor, the question as to the consideration between the
drawer and the acceptor cannot be inquired into. The payee or holder gives value to the
drawer, and if he is ignorant of the equities between the drawer and the acceptor, he is
in the position on a bona fide indorsee. Hence, it is no defense to a suit against the
acceptor of a draft which has been discounted, and upon which money has been advance
by the plaintiff, that the draft was accepted or the accommodation of the drawer.

As to Bartolome Picornell, he warranted, as drawer of the bill, that it would be accepted

upon proper presentment and paid in due course, and as it was not paid, he became
liable to the payment of its value to the holder thereof, which is the plaintiff bank. The
fact that Picornell was a commission agent of HTV, in the purchase of the tobacco, does
not necessarily make him an agent of the company in its obligations arising from the
drawing of the bill by him. His acts in negotiating the bill constitute a different contract
from that made by his having purchased the tobacco on behalf of HTV. Furthermore, he
cannot exempt himself from responsibility by the fact of his having been a mere agent of
this company, because nothing to this effect was indicated or added to his signature on
signing the bill.

(Sec. 84, Negotiable Instruments Law)

38. PNB vs. CA, 25 SCRA 693, Oct. 29, 1968

Facts:
January 15, 1962, one Augusto Lim deposited in his current account with the PCIB
branch at Padre Faura, Manila, GSIS Check No. 645915- B, in the sum of P57,415.00,
drawn against the PNB; that, following an established banking practice in the Philippines,
the check was, on the same date, forwarded, for clearing, through the Central Bank, to
the PNB, which did not return said check the next day, or at any other time, but retained
it and paid its amount to the PCIB, as well as debited it against the account of the GSIS
in the PNB; that, subsequently, or on January 31, 1962, upon demand from the GSIS,
said sum of P57,415.00 was re-credited to the latter’s account, for the reason that the
signatures of its officers on the check were forged; and that, thereupon, or on February
2, 1962, the PNB demanded from the PCIB the refund of said sum, which the PCIB
refused to do. Hence, the present action against the PCIB, which was dismissed by the
Court of First Instance of Manila, whose decision was, in turn, affirmed by the Court of
Appeals, hence this case.

Issue:
Whether the lower court erred in not finding that the PCIB had been guilty of negligence
in not discovering that the check was forged.

Held:
No, Assuming that there had been such negligence on the part of the PCIB, it is
undeniable, however, that the PNB has, also, been negligent, with the particularity that
the PNB had been guilty of a greater degree of negligence, because it had a previous and
formal notice from the GSIS that the check had been lost, with the request that payment
thereof be stopped. Just as important, if not more important and decisive, is the fact
that the PNB’s negligence was the main or proximate cause for the corresponding loss.
It is a well-settled maxim of law and equity that when one of two (2) innocent persons
must suffer by the wrongful act of a third person, the loss must be borne by the one
whose negligence was the proximate cause of the loss or who put it into the power of
the third person to perpetrate the wrong.

39. Ang Tiong vs. Ting, 22 SCRA 713, Feb. 22, 1968
Facts:
On August 15, 1960 Lorenzo Ting issued Philippine Bank of Communications check K-
81618, for the sum of P4,000, payable to “cash or bearer”. With Felipe Ang’s signature
(indorsement in blank) at the back thereof, the instrument was received by the plaintiff
Ang Tiong who thereafter presented it to the drawee bank for payment. The bank
dishonored it. The plaintiff then made written demands on both Lorenzo Ting and Felipe
Ang that they make good the amount represented by the check. These demands went
unheeded; so he filed in the municipal court of Manila an action for collection of the sum
of P4,000, plus P500 attorney’s fees. On March 6, 1962 the municipal court adjudged for
the plaintiff against the two defendants. Only Felipe Ang appealed to the Court of First
Instance of Manila (civil case 50018), which rendered judgment on July 31, 1962,
amended by an order dated August 9, 1962, directing him to pay to the plaintiff “the
sum of P4,000, with interest at the legal rate from the date of the filing of the complaint,
a further sum of P400 as attorney’s fees, and costs.” Felipe Ang then elevated the case
to the Court of Appeals, which certified it to this Court because the issues raised are
purely of law.

Issue:
Whether the lower court err in adjudging FELIPE ANG as general indorser.

Held:
No, nothing in the check in question indicates that the appellant is not a general indorser
within the purview of section 63 of the Negotiable Instruments Law which makes “a
person placing his signature upon an instrument otherwise than as maker, drawer or
acceptor” a general indorser, — “unless he clearly indicates plaintiff appropriate words
his intention to be bound in some other capacity,” which he did not do. And section 66
ordains that “every indorser who indorses without qualification, warrants to all
subsequent holders in due course” (a) that the instrument is genuine and in all respects
what it purports to be; (b) that he has a good title to it; (c) that all prior parties have
capacity to contract; and (d) that the instrument is at the time of his indorsement valid
and subsisting. In addition, “he engages that on due presentment, it shall be accepted or
paid, or both, as the case may be, and that if it be dishonored, he will pay the amount
thereof to the holder.”

40. People vs. Maniego, 148 SCRA 30, Feb. 27, 1987

Facts:
Defendant, was acquitted on the crime of malversation of public fund due to reasonable
doubt. The judgement however still found the defendant civilly liable for the amount
malversed. Defendant appealed the said judgement, contending that she was just a
mere indorser of the said checks issued against the funds of the government. The CA
certified the this said case to the sc as it was purely a question of law.

Issue:
Whether the Petitioner is civilly liable for being a mere indorser on account of the
dishonor of the checks indorsed by her

Held:
Yes, the holder or last indorsee of a negotiable instrument has the right to “enforce
payment of the instrument for the full amount thereof against all parties liable thereon.”
Among the “parties liable thereon” is an indorser of the instrument i.e., “a person placing
his signature upon an instrument otherwise than as maker, drawer, or acceptor **
unless he clearly indicates by appropriate words his intention to be bound in some other
capacity. “Such an indorser “who indorses without qualification,” inter alia “engages that
on due presentment, ** (the instrument) shall be accepted or paid, or both, as the case
may be, according to its tenor, and that if it be dishonored, and the necessary
proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or
to any subsequent indorser who may be compelled to pay it.” Maniego may also be
deemed an “accommodation party” in the light of the facts, i.e., a person “who has
signed the instrument as maker, drawer, acceptor, or indorser, without receiving value
therefor, and for the purpose of lending his name to some other person.”

41. Clark vs. Sellner, GR 16477, Nov. 22, 1921

Fact:
Plaintiff, obtained a promissory note signed by W. H. Clark and the defendant. When the notes fell
due, no payment was remitted to the Plaintiff. The plaintiff filed an action against the defendant for
the collection of the said note. The defendant argued that he is only an accommodating party and
not liable to pay the amount due. He also argued that he did not received the said value, hence this
case.

Issue:
Whether the Defendant was an accommodating party and is not liable to pay the Negotiable
Instrument.

Held:
No, the defendant is not an accommodating party and is liable to pay the said instrument. it should
be taken into account that by putting his signature to the note, he lent his name, not to the creditor,
but to those who signed with him placing himself with respect to the creditor in the same position
and with the same liability as the said signers. It should be noted that the phrase “without receiving
value therefor,” as used in section 29 of the aforesaid Act, means “without receiving value by virtue
of the instrument” and not, as it apparently is supposed to mean, “without receiving payment for
lending his name.” If, as in the instant case, a sum of money was received by virtue of the note, it is
immaterial, so far as the creditor is concerned, whether one of the singers has, or has not, received
anything in payment of the use of his name. In reality the legal situation of the defendant in this case
may properly be regarded as that of a joint surety rather than that of an accommodation party. The
defendant, as a joint surety, may, upon the maturity of the note, pay the debt, demand the collateral
security and dispose of it to his benefit; but there is no proof whatever that this was done. As to the
plaintiff, he is the “holder for value,” under the phrase of said section 29, for he had paid the money
to the signers at the time the note was executed and delivered to him

42. Atrium Management Corp. vs. CA, GR 109491, Feb. 28, 2001

Fact:
Atrium Management Corporation filed with the RTC an action for collection of the proceeds checks.
Hi-Cement Corporation through its corporate signatories, De Leon, issued the checks in favor of E.T.
Henry and Co. Inc., which in turn, endorsed the checks to petitioner Atrium Management
Corporation for valuable consideration. Upon presentment for payment, the drawee bank
dishonored all four checks for the common reason “payment stopped”. The trial court rendered a
decision ordering De Leon, E.T. Henry and Co., Inc and Hi-Cement Corporation to pay Atrium, jointly
and severally, hence this case.

Issue:
1. Whether De Leon’s valid corporate action absolves her liability in the dishonour check.

2. Whether Atrium is a holder in due course.

Held:
1. No, De Leon was authorized to issue the checks. However, Ms. de Leon was negligent when she
signed the confirmation letter requested by Mr. Yap of Atrium and Mr. Henry of E.T. Henry for the
rediscounting of the crossed checks issued in favor of E.T. Henry. She was aware that the checks
were strictly endorsed for deposit only to the payee’s account and not to be further negotiated.
What is more, the confirmation letter contained a clause that was not true, that is, “that the checks
issued to E.T. Henry were in payment of Hydro oil bought by Hi-Cement from E.T. Henry”. Her
negligence resulted in damage to the corporation. Hence, Ms. de Leon may be held personally liable
therefor.

2. No, A holder in due course is a holder who has taken the instrument under the following
conditions: (a) That it is complete and regular upon its face; (b) That he became the holder of it
before it was overdue, and without notice that it had been previously dishonored, if such was the
fact; (c) That he took it in good faith and for value; (d) That at the time it was negotiated to him he
had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.” In
the instant case, the checks were crossed checks and specifically indorsed for deposit to payee’s
account only. From the beginning, Atrium was aware of the fact that the checks were all for deposit
only to payee’s account, meaning E.T. Henry. Clearly, then, Atrium could not be considered a holder
in due course. However, it does not follow as a legal proposition that simply because petitioner
Atrium was not a holder in due course for having taken the instruments in question with notice that
the same was for deposit only to the account of payee E.T. Henry that it was altogether precluded
from recovering on the instrument. The Negotiable Instruments Law does not provide that a holder
not in due course cannot recover on the instrument. The disadvantage of Atrium in not being a
holder in due course is that the negotiable instrument is subject to defenses as if it were non-
negotiable. One such defense is absence or failure of consideration.

43. Crisologo-Jose vs. CA, GR. 80599, Sept. 1989P

Fact:
respondent was the vice-president of Mover Enterprises, Inc. in-charge of marketing and sales; and
the president of the said corporation was Atty. Oscar Z. Benares. Atty. Benares, in accommodation of
his clients, issued Check payable to petitioner. Since the check was under the account of Mover
Enterprises, Inc., the same was to be signed by its president, Atty. Oscar Z. Benares, and the
treasurer of the said corporation. However, since at that time, the treasurer of Mover Enterprises
was not available, Atty. Benares prevailed upon the plaintiff, Ricardo S. Santos, Jr., to sign the
aforesaid check as an alternate signatory. When petitioner deposited this check it was dishonored
for insufficiency of funds. Hence, petitioner filed a criminal complaint against Respondent.
Respondent tendered cashier’s check to the petitioner who refused to receive the cashier’s check in
payment of the dishonoured. Hence, plaintiff deposited said amount with the Clerk of Court. After
trial, the court a quo, holding that it was “not persuaded to believe that consignation referred to in
Article 1256 of the Civil Code is applicable to this case,” rendered judgment dismissing respondent
complaint and petitioner’s counterclaim. CA reversed and set aside said judgment of dismissal and
revived the complaint for consignation, directing the trial court to give due course thereto. Hence,
the instant petition.

Issue:
Whether the corporation is liable to the petitioner as an accommodation party when the corporate
officer issued a corporation’s check in their personal capacity.

Held:
No, The provision of the Negotiable Instruments Law which holds an accommodation party liable on
the instrument to a holder for value, although such holder at the time of taking the instrument knew
him to be only an accommodation party, does not include nor apply to corporations which are
accommodation parties. This is because the issue or indorsement of negotiable paper by a
corporation without consideration and for the accommodation of another is ultra vires. Hence, one
who has taken the instrument with knowledge of the accommodation nature thereof cannot recover
against a corporation where it is only an accommodation party. If the form of the instrument, or the
nature of the transaction, is such as to charge the indorsee with knowledge that the issue or
indorsement of the instrument by the corporation is for the accommodation of another, he cannot
recover against the corporation thereon.

44. Salas vs. CA, GR 76788, January 22, 1990

Facts: Juanita Salas (Petitioner) bought a motor vehicle from the Violago Motor Sales Corporation
(VMS) for as evidenced by a promissory note. This note was subsequently endorsed to Filinvest
Finance & Leasing Corporation (private respondent) which financed the purchase.

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

This failure to pay prompted private respondent to initiate an action for a sum of money against
petitioner before the Regional Trial Court.

Issue: WON private respondent is a holder in due course?

Held: YES. The PN was negotiated by indorsement in writing on the instrument itself payable to the
Order of Filinvest Finance and Leasing Corporation and it is an indorsement of the entire instrument.
Under the circumstances, there appears to be no question that Filinvest is a holder in due course,
having taken the instrument under the following conditions: [a] it is complete and regular upon its
face; [b] it became the holder thereof before it was overdue, and without notice that it had
previously been dishonored; [c] it took the same in good faith and for value; and [d] when it was
negotiated to Filinvest, the latter had no notice of any infirmity in the instrument or defect in the
title of VMS Corporation.

Accordingly, respondent corporation holds the instrument free from any defect of title of prior
parties, and free from defenses available to prior parties among themselves, and may enforce
payment of the instrument for the full amount thereof. This being so, petitioner cannot set up
against respondent the defense of nullity of the contract of sale between her and VMS.

45. Prudencio vs. CA, 143 SCRA 7, July 14, 1986

FACTS:
Appellants are the owners of a property, which they mortgaged to help secure a loan of a
certain Domingo Prudencio. On a later date, they were approached by their relative who was the
attorney-in-fact of a construction company, which was in dire need of funds for the completion of a
municipal building. After some persuasion, the appellants amended the mortgage wherein the
terms and conditions of the original mortgage was made an integral part of the new
mortgage. The promissory note covering the “second loan” was signed by their relative. It
was also signed by them, indicating the request that the check be released by the bank.

After the amendment of the mortgage was executed, a deed of assignment was made by Toribio,
assigning all the payments to the Bureau to the construction company. This notwithstanding,
the Bureau with approval of the bank, conditioned however that they should be for labor and
materials,
made three payments to the company. The last request was denied by the bank, averring that the
account was long overdue, the remaining balance of the contract price should be applied to the
loan.

The company abandoned the work and as consequence, the Bureau rescinded the contract
and assumed the work. Later on, the appellants wrote to the PNB that since the latter has
authorized payments to the company instead of on account of the loan guaranteed by the
mortgage, there was a change in the conditions of the contract without the knowledge of appellants,
which entitled the latter to cancel the mortgage contract.

The trial court held them still liable together with their co-makers. It has also been held that if the
judgment is not satisfied within a period of time, the mortgaged properties would be foreclosed and
sold in public auction.

In their appeal, petitioners contend that as accommodation makers, the nature of their liability
is only that of mere sureties instead of solidary co-debtors such that a material alteration in the
principal contract, effected by the creditor without the knowledge and consent of the sureties,
completely discharges the sureties from all liabilities on the contract of suretyship.

HELD:
There is no question that as accommodation makers, petitioners would be primarily and
unconditionally liable on the promissory note to a holder for value, regardless of whether they stand
as sureties or solidary co-debtors since such distinction would be entirely immaterial and
inconsequential as far as a holder for value is concerned. Consequently, the petitioners
cannot claim to have been released from their obligation simply because at the time of payment
of such obligation was temporarily deferred by the
PNB without their knowledge and consent. There has to be another basis for their claim of having
been freed from their obligation. It has to be determined if PNB was a holder for value.

A holder for value is one who meets the requirement of being a holder in due course except the
notice for want of consideration. In the case at bar, PNB may not be considered as a holder for
value. Not only was PNB an immediate party or privy to the promissory note, knowing fully
well that petitioners only signed as accommodation parties, but more importantly it was the Deed
of Assignment which moved the petitioners to sign the promissory note. Petitioners also relied
on the belief that there will be no
alterations to the terms of the agreement. The deed provided that there will no further conditions
which could possibly alter the agreement without the consent of the petitioner such as the
grant of greater priority to obligations other than the payment of the loan. This notwithstanding,
the bank approved the release of payments to the Company instead of the same to the bank.
This was in violation of the deed of assignment and prejudiced the rights of petitioners. The
bank was not in good faith—a requisite for a holder to be one in due course.

46. Associated Bank vs. CA, GR 107382, Jan. 31, 1996

(doctrine of comparative negligence)
FACTS

Respondent Province of Tarlac allowed a retired hospital cashier to receive checks for the payee
hospital for a period three years and in not properly ascertaining why the retired hospital cashier
was collecting checks for the payee hospital in addition to the hospital’s real cashier. Associated
Bank, as collecting bank, received and indorsed the said checks.

ISSUE

Whether or not the “doctrine of comparative negligence” apply.

RULING

YES. The Court finds as reasonable, the proportionate sharing of fifty percent – fifty percent (50%-
50%). Respondent Province contributed to the loss and shall be liable to the PNB for fifty (50%),
Province of Tarlac can only recover fifty percent (50%) from PNB. Associated Bank, shall be liable to
PNB for fifty (50%). It is liable on its warranties as indorser of the checks which were deposited to it.

47. Gempesaw vs. CA, 218 SCRA 682, Feb. 9, 1993

FACTS:
Gempensaw was the owner of many grocery stores. She paid her suppliers through the issuance of
checks drawn against her checking account with respondent bank. The checks were prepared
by her bookkeeper Galang. In the signing of the checks prepared by Galang, Gempensaw didn't
bother
herself in verifying to whom the checks were being paid and if the issuances were necessary.
She didn't even verify the returned checks of the bank when the latter notifies her of the same.
During her two years in business, there were incidents shown that the amounts paid for were
in excess of what should have been paid. It was also shown that even if the checks were crossed,
the intended payees didn't receive the amount of the checks. This prompted Gempensaw to
demand the bank to credit her account for the amount of the forged checks. The bank refused to
do so and this prompted her to file the case against the bank.

HELD:
Forgery is a real defense by the party whose signature was forged. A party whose signature was
forged was never a party and never gave his consent to the instrument. Since his signature
doesn’t appear in the instrument, the same cannot be enforced against him even by a holder in
due course. The drawee bank cannot charge the account of the drawer whose signature was forged
because he never gave the bank the order to pay.

In the case at bar the checks were filled up by petitioner’s employee Galang and were later
given to her for signature. Her signing the checks made the negotiable instruments complete. Prior
to signing of the checks, there was no valid contract yet. Petitioner completed the checks by
signing them and thereafter authorized Galang to deliver the same to their respective payees. The
checks were then indorsed, forged indorsements thereon.

As a rule, a drawee bank who has paid a check on which an indorsement has been forged cannot
debit the account of a drawer for the amount of said check. An exception to this rule is
when the drawer is guilty of negligence which causes the bank to honor such checks. Petitioner in
this case has relied solely on the honesty and loyalty of her bookkeeper and never bothered
to verify the accuracy of the amounts of the checks she signed the invoices attached thereto.
And though she received her bank statements, she didn't carefully examine the same to
double-check her
payments. Petitioner didn't exercise reasonable diligence which eventually led to the fruition of her
bookkeeper’s fraudulent schemes.

48. Republic vs. Ebrada, GR L-40769, July 31, 1975

FACTS:
Ebrada encashed a “Back Pay Check” issued by the Bureau of Treasury at the Republic Bank in
Escolta Manila. The Bureau of Treasury advised the Republic Bank that the instrument was
forged. It informed the bank that the original payee of the check died 11 years before the check
was issued. Therefore, there was a forgery of his signature.

This is the sequence:

Martin Lorenzo
The deceased person, original
“payee”, where the forgery
happened
Ramon Lorenzo
Delia Dominguez

Mauricia Ebrada
Defendant-appelant

Ebrada refuses to return the proceeds of the check claiming that she already gave it to Delia
Dominguez. She also claims that she is a HDC (holder in due course) and that the bank is
already estopped.

HELD:

Ebrada should return the proceeds of the check to Republic Bank. As an indorser of the check,
she was supposed to have warranted that she has good title to said check. See Section 65.

Section 23: When the signature is forged or made without the authority of the person whose
signature it purports to be, it is wholly inoperative, and no right to retain the instruments, or to give
a discharge thereof against any party thereto, can be acquired through or under such signature
unless the party against whom it is sought to enforce such right is PRECLUDED from setting up
the forgery or want of authority.

It is only the negotiation based on the forged or unauthorized signature

which is inoperative. Therefore:

Martin Lorenzo
Signature inoperative
Ramon Lorenzo
To Dominguez: operative
Delia Dominguez
To Ebrada: operative
Mauricia Ebrada

Drawee bank can collect from the one who encashed the check. If Ebrada performed the duty of
ascertaining the genuiness of the check, in all probability, the forgery wouyld have been
detected and the fraud defeated.

49. MWSS vs. CA, GR L-62943, July 14, 1986

Facts:
By special arrangement with PNB, MWSS used personalized checks in drawing from its account. The
checks were printed by its printer, F. Mesina Enterprises. 23 checks were paid and cleared by PNB,
and debited against MWSS’ account from March to May 1969. The checks were deposited by payees
Raul Dizon, Arturo Sison, and Antonio Mendoza in their account with PCIBank. Said persons were
later found to be fictitious. MWSS requested PNB to restore the amount debited due to the 23
checks, allegedly forged, to its account. The bank refused. Hence, the present action.

Issue:
Whether or not the bank shall bear the loss resulting from the alleged forged checks.

Held:
No. There was no express and categorical finding that the 23 checks were forged or signed by
persons other than the authorized MWSS signatories. Forgery is not presumed but should be
established by clear, positive and convincing evidence. MWSS is barred from setting up defense of
forgery under Section 23 of the Negotiable Instruments Law as MWSS committed gross negligence in
the printing of its personalized checks, failed to reconcile its bank statements with its own records,
and failed to provide appropriate security measures over its own record. PNB, the drawee bank, had
taken necessary measures in the detection of forged checks and the prevention of their fraudulent
encashment through constant reminders to all its current account bookkeepers informing them of
the activities of forgery syndicates. MWSS’ gross negligence was the proximate cause of the loss (P3
million), and should bear the loss.

50. Metropolitan Bank vs. CA, 194 SCRA 169 (1991)

FACTS:
Gomez opened an account with Golden Savings bank and deposited 38 treasury warrants. All
these warrants were indorsed by the cashier of Golden Savings, and deposited it to the
savings account in a Metrobank branch. They were sent later on for clearing by the branch
office to the principal office of Metrobank, which forwarded them to the Bureau of Treasury
for special clearing. On persistent inquiries on whether the warrants have been cleared, the
branch manager allowed withdrawal of the warrants, only to find out later on that the treasury
warrants have been
dishonored.

HELD:
The treasury warrants were not negotiable instruments. Clearly, it is indicated that it was
non-negotiable and of equal significance is the indication that they are payable from a
particular fund, Fund 501. This indication as the source of payment to be made on the
treasury warrant
makes the promise to pay conditional and the warrants themselves non-negotiable.

Metrobank then cannot contend that by indorsing the warrants in general, GS assumed that they
were genuine and in all respects what they purport it to be, in accordance to Section 66 of the NIL.
The simple reason is that the law isn’t applicable to the non-negotiable treasury warrants. The
indorsement was made for the purpose of merely depositing them with Metrobank for
clearing. It was in fact Metrobank which stamped on the back of the warrants: “All prior
indorsements and/or lack of endorsements guaranteed…”

51. Samsung Construction vs. Far East Bank, GR 129015, Aug. 15, 2003
FACTS

A check with forged signature payable to cash was drawn against petitioner’s account. Petitioner
demands credit of the amount debited by encashment.

ISSUE

Whether or not petitioner may recover from the drawee bank.

RULING

YES. The drawer whose signature was forged may still recover from the bank as long as he or she is
not precluded from setting up the defense of forgery. Here, the drawer, Samsung Construction, is
not precluded by negligence from setting up the forgery. The general rule should apply.
Consequently, if a bank pays a forged check, it must be considered as paying out of its funds and
cannot charge the amount so paid to the account of the depositor. A bank is liable, irrespective of its
good faith, in paying a forged check.

52. PNB vs Quimpo, 158 SCRA 582, March 14, 1988

Francisco Gozon was a depositor of the Philippine National Bank (PNB Caloocan City branch). Ernesto
Santos, Gozon’s friend, took a check from the latter’s checkbook which was left in the car, filled it up
for the amount of P5,000, forged Gozon’s signature, and encashed it. Gozon learned about the
transaction upon receipt of the bank’s statement of account, and requested the bank to recredit the
amount to his account. The bank refused. Hence, the present action.

Issue: Whether or not the bank shall bear the loss resulting from the forged check.

Held: Yes. The prime duty of a bank is to ascertain the genuineness of the signature of the drawer or
the depositor on the check being encashed. It is expected to use reasonable business prudence in
accepting and cashing a check being encashed or presented to it. Payment in neglect of duty places
upon him the result of such negligence. Still, Gozon’s act in leaving his checkbook in the car, where
his trusted friend remained in, cannot be considered negligence sufficient to excuse the bank from
its own negligence. The bank bears the loss.

53. Banco de Oro vs. Equitable Banking, GR 74917, Jan. 20, 1988

FACTS

Equitable Bank drew six crossed manager’s check payable to certain member establishments of Visa
Card. Subsequently, the checks were deposited with Banco De Oro (BDO) to the credit of its
depositor. Following normal procedures and after stamping at the back of the checks the usual
endorsements,BDOsent the checks for clearing through the Philippine Clearing House Corporation
(PCHC). Accordingly, Equitable Banking paid the checks; its clearing account was debited for the
value of the checks and BDO’s clearing account was credited for the same amount. Thereafter,
Equitable Banking discovered that the endorsements appearing at the back of the checks and
purporting to be that of the payees were forged and/or unauthorized or otherwise belong to
persons other than the payees.Equitable Banking presented the checks directly to BDO for the
purpose of claiming reimbursement from the latter. However, BDO refused to accept such direct
presentation and to reimburse Equitable Banking for the value of the checks.

ISSUES

(a) Whether or not BDO is estopped from claiming that checks under consideration are non-
negotiable instruments.

(b) Whether or not BDO can escape liability by reasons of forgery.

(c) Whether or not only negotiable checks are within the jurisdiction of PCHC.

RULING

(a) YES. BDO having stamped its guarantee of “all prior endorsements and/or lack of endorsements”
is now estopped from claiming that the checks under consideration are not negotiable instruments.
The checks were accepted for deposit by the petitioner stamping thereon its guarantee, in order that
it can clear the said checks with the respondent bank. By such deliberate and positive attitude of the
petitioner it has for all legal intents and purposes treated the said cheeks as negotiable instruments
and accordingly assumed the warranty of the endorser when it stamped its guarantee of prior
endorsements at the back of the checks. It led the said respondent to believe that it was acting as
endorser of the checks and on the strength of this guarantee said respondent cleared the checks in
question and credited the account of the petitioner. Petitioner is now barred from taking an
opposite posture by claiming that the disputed checks are not negotiable instrument.

(b) NO. A commercial bank cannot escape the liability of an endorser of a check and which may turn
out to be a forged endorsement. Whenever any bank treats the signature at the back of the checks
as endorsements and thus logically guarantees the same as such there can be no doubt said bank
has considered the checks as negotiable.The collecting bank or last endorser generally suffers the
loss because it has the duty to ascertain the genuineness of all prior endorsements considering that
the act of presenting the check for payment to the drawee is an assertion that the party making the
presentment has done its duty to ascertain the genuineness of the endorsements.

(c) NO. PCHC’s jurisdiction is not limited to negotiable checks only. The term check as used in the
said Articles of Incorporation of PCHC can only connote checks in general use in commercial and
business activities. Thus, no distinction. Ubi lex non distinguit, nec nos distinguere debemus. Checks
are used between banks and bankers and their customers, and are designed to facilitate banking
operations. It is of the essence to be payable on demand, because the contract between the banker
and the customer is that the money is needed on demand.

54. Westmont Bank vs. Eugene Ong, GR 132250, Jan. 30, 2002

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WESTMONT BANK V. ONG 373 SCRA 212 - DOCTRINE OF DESIRABLE SHORT CUT
Category: Mercantile Law Jurisprudence

WESTMONT BANK V. ONG

373 SCRA 212

FACTS:
Ong was supposed to be the payee of the checks issued by Island Securities. Ong has a
current account with petitioner bank. He opted to sell his shares of stock through Island
Securities. The company in turn issued checks in favor of Ong but unfortunately, the latter wasn't
able to receive any. His signatures were forged by Tamlinco and the checks were deposited in his
own account with petitioner. Ong then sought to collect the money from the family of
Tamlinco first before filing a complaint with the Central Bank. As his efforts were futile to recover
his money, he filed an action against the petitioner. The trial and appellate court decided in
favor of Ong.

HELD:
Since the signature of the payee was forged, such signature should be deemed inoperative
and ineffectual. Petitioner, as the collecting bank, grossly erred in making payment by virtue of
said forged signature. The payee, herein respondent, should therefore be allowed to collect from
the collecting bank.

It should be liable for the loss because it is its legal duty to ascertain that the payee’s endorsement
was genuine before cashing the check. As a general rule, a bank or corporation who has
obtained possession of a check with an unauthorized or forged indorsement of the payee’s signature
and who collects the amount of the check other from the drawee, is liable for the proceeds thereof
to the payee or the other owner, notwithstanding that the amount has been paid to the person
from whom the check was obtained.

DOCTRINE OF DESIRABLE SHORT CUT—plaintiff uses one action to reach, by desirable short cut,
the person who ought to be ultimately liable as among the innocent persons involved in the
transaction. In other words, the payee ought to be allowed to recover directly from the collecting
bank, regardless of whether the check was delivered to the payee or not.

On the issue of laches, Ong didn't sit on his rights. He immediately sought the intervention of
Tamlinco’s family to collect the sum of money, and later the Central Bank. Only after exhausting
all the measures to settle the issue amicably did he file the action.

55. Ilusorio vs. CA, GR 139130, Nov. 27, 2002

FACTS:

Petitioner a businessman was going out of the country, and entrusted to his secretary, Katherine2 E.
Eugenio, his credit cards and his checkbook with blank checks. Eugenio was able to encash and
deposit to her personal account about seventeen (17) checks drawn against the account of the
petitioner at the respondent bank, with an aggregate amount of P119,634.34.

One of his business partner apprised him that he saw Eugenio use his credit cards. Petitioner fired
Eugenio immediately, and instituted a criminal action against her for estafa thru falsification

Petitioner then requested the Manila Banking Corporation to credit back and restore to its account
the value of the checks which were wrongfully encashed but respondent bank refused.

The Bank contended that they had performed standard operating procedure.

Manila Bank also sought the expertise of the National Bureau of Investigation (NBI) in determining
the genuineness of the signatures appearing on the checks.

Petitioner claims that Manila Bank is liable for damages for its negligence in failing to detect the
discrepant checks. Petitioner further contends that under Section 23 of the Negotiable Instruments
Law a forged check is inoperative, and that Manila Bank had no authority to pay the forged checks

CA disposed the case held that petitioner’s own negligence was the proximate cause of his loss
ISSUE

1) whether or not Manila Bank had no authority to pay the forged checks because under Sec. 23 of
NIL

HELD

Under Sec 23 True, it is a rule that when a signature is forged or made without the authority of the
person whose signature it purports to be, the check is wholly inoperative. However, the rule does
provide for an exception, namely: “unless the party against whom it is sought to enforce such right is
precluded from setting up the forgery or want of authority.” In the instant case, it is the exception
that applies. In our view, petitioner is precluded from setting up the forgery, assuming there is
forgery, due to his own negligence in entrusting to his secretary his credit cards and checkbook
including the verification of his statements of account.

56. Traders Royal Bank vs. RPN, GR 138510, Oct. 10, 2002
FACTS:
RPN, IBC and BBC were all assessed for tax by the BIR. To pay the assessed taxes, they
bought manager’s checks from petitioner bank. None of these checks were paid to the BIR.
They were found to have been deposited in the account of a third person in Security Bank. As the
taxes remained unpaid, the BIR issued a levy, distraint and garnishment against the three networks.
An action was filed wherein it was decided that the networks should be reimbursed for the
amounts of the checks by petitioner bank and the latter in turn, must be reimbursed by Security
Bank. In the appellate court, it was held that Traders Bank should be the only bank liable.

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

It should be further noted that one of the checks was a crossed check. The crossing of the check
should have put petitioner on guard; it was duty-bound to ascertain the indorser’s title to
the check or the nature of his possession.

57. BPI vs. CA

FACTS

Petitioner’s checks were drawn and deposited to respondent CBC. It was discovered that the
signature of payee was forged.

ISSUE

Whether or not a drawee bank could claim reimbursement from collecting bank in case of forgery.
RULING

YES. Both banks were negligent in the selection and supervision of their employees resulting in the
encashment of the forged checks by an impostor. Both banks were not able to overcome the
presumption of negligence in the selection and supervision of their employees. Considering the
comparative negligence of the two (2) banks, court ruled that the demands of substantial justice are
satisfied by allocating the loss and the costs of the arbitration proceeding and the cost of litigation
on a 60-40 ratio.
Material alteration (partial defense)

58. PNB vs. CA 256 SCRA 491

FACTS: A check with serial number 7-3666-223-3, dated August 7, 1981 in the amount
of P97,650.00 was issued by the Ministry of Education and Culture payable to F. Abante
Marketing. This check was drawn against Philippine National Bank (herein petitioner).

F. Abante Marketing, a client of Capitol City Development Bank (Capitol), deposited the
questioned check in its savings account with said bank. In turn, Capitol deposited the
same in its account with the Philippine Bank of Communications (PBCom) which, in turn,
sent the check to petitioner for clearing.

Petitioner cleared the check as good and, thereafter, PBCom credited Capitol’s account
for the amount stated in the check. However, petitioner PNB returned the check to
PBCom and debited PBCom’s account for the amount covered by the check, the reason
being that there was a “material alteration” of the check number.

PBCom, as collecting agent of Capitol, then proceeded to debit the latter’s account for
the same amount. On the other hand, Capitol could not, in turn, debit F. Abante
Marketing’s account since the latter had already withdrawn the amount of the check.

ISSUE: WHETHER OR NOT AN ALTERATION OF THE SERIAL NUMBER OF A CHECK IS A

MATERIAL ALTERATION UNDER THE NEGOTIABLE INSTRUMENTS LAW.

HELD: No. An alteration is said to be material if it alters the effect of the instrument. It
means an unauthorized change in an instrument that purports to modify in any respect
the obligation of a party or an unauthorized addition of words or numbers or other
change to an incomplete instrument relating to the obligation of a party.In other words,
a material alteration is one which changes the items which are required to be stated
under Section 1 of the Negotiable Instrument Law

The case at the bench is unique in the sense that what was altered is the serial number
of the check in question, an item which, it can readily be observed, is not an essential
requisite for negotiability under Section 1 of the Negotiable Instruments Law. The
aforementioned alteration did not change the relations between the parties. The name
of the drawer and the drawee were not altered. The intended payee was the same. The
sum of money due to the payee remained the same.

If the purpose of the serial number is merely to identify the issuing government office or
agency, its alteration in this case had no material effect whatsoever on the integrity of
the check. The identity of the issuing government office or agency was not changed
thereby and the amount of the check was not charged against the account of another
government office or agency which had no liability under the check.
Petitioner, thus cannot refuse to accept the check in question on the ground that the
serial number was altered, the same being an immaterial or innocent one.

59.

Facts: In May 1942, Ubaldo Laya, as provincial treasurer of Misamis Oriental issued a
P100,000.00 Philippine National Bank (PNB) check to Mariano Ramos. The said check
was to be used by Ramos, as disbursing officer of the US forces at that time, for military
purposes.

On the back of the check, Ramos wrote:

Pay to the order of Enrique P. Montinola P30,000 only. The balance to be deposited in
the Philippine National Bank to the credit of M. V. Ramos.

Before Ramos can encash the check, he was made a prisoner of war by the invading
Japanese forces. When he got free in December 1944, he needed some cash for himself
and so he went to a certain Enrique Montinola and made arrangements. In consideration
thereof, Montinola promised to pay 85,000 in Japanese notes (that time peso notes are
valued higher). However, he was only able to pay 45k in Japanese notes to Ramos.

Later, Montinola sought to have the check encashed but PNB dishonored the check. It
appears that there was an insertion made. Under the signature of Laya, the words
“Agent, Philippine National Bank” was inserted, thus making it appear that Laya
disbursed the check as an agent of PNB and not as provincial treasurer of Misamis
Oriental

ISSUE:

Whether or not the material alteration discharges the instrument?

HELD:

Yes.

First, the Court pointed out: “It was not negotiated according to the Negotiable
Instruments Law (NIL) hence it is not a negotiable instrument. There was only a partial
indorsement and not a negotiation contemplated under the NIL. Only P30k of the P100k
amount of the check was indorsed. This merely make Montinola a mere assignee – and
this is the clear intent of Ramos. Ramos was merely assigning P30k to Montinola.
Montinola may therefore not be regarded as an indorsee and PNB has all the right to
dishonor the check. As mere assignee, he is subject to all defenses available to the
drawer Provincial Treasurer of Misamis Oriental and against Ramos.
Anent the issue of alteration, the apparent purpose of which is to make the drawee
(PNB) the drawer against which Montinola can recover from directly. The insertion of the
words “Agent, Phil. National Bank” which converts the bank from a mere drawee to a
drawer and therefore changes its liability, constitutes a material alteration of the
instrument without the consent of the parties liable thereon, and so discharges the
instrument. (Section 124 of the Negotiable Instruments Law).

The check was not legally negotiated within the meaning of the Negotiable Instruments
Law. Section 32 of the same law provides that “the indorsement must be an indorsement
of the entire instrument. An indorsement which purports to transfer to the indorsee a
part only of the amount payable, . . . (as in this case) does not operate as a negotiation
of the instrument.” Montinola may therefore not be regarded as an indorsee. At most he
may be regarded as a mere assignee of the P30,000 sold to him by Ramos, in which
case, as such assignee, he is subject to all defenses available to the drawer Provincial
Treasurer of Misamis Oriental and against Ramos. Neither can Montinola be considered
as a holder in due course because section 52 of said law defines a holder in due course
as a holder who has taken the instrument under certain conditions, one of which is that
he became the holder before it was overdue. When Montinola received the check, it was
long overdue. And, Montinola is not even a holder because section 191 of the same law
defines holder as the payee or indorsee of a bill or note and Montinola is not a payee.
Neither is he an indorsee for as already stated, at most he can be considered only as
assignee. Neither could it be said that he took it in good faith. As already stated, he has
not paid the full amount of P90,000 for which Ramos sold him P30,000 of the value of
the check. In the second place, as was stated by the trial court in its decision, Montinola
speculated on the check and took a chance on its being paid after the war.

At any rate, even assuming that there is proper negotiation, Montinola can no longer
encash said check because when he sought to have it encashed in January 1945, it is
already stale there being two and half years passing since its time of issuance.