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FAR EAST REALTY INVESTMENT INC. v.
CA
G.R. No. L-36549 October 5, 1988
Paras, J.
Doctrine:
• Where the instrument is not payable on
demand, presentment must be made on
the day it falls due. Where it is payable
on demand, presentment must be made
within a reasonable time after issue,
except that in the case of a bill of
exchange, presentment for payment will
be sufficient if made within a reasonable
time after the last negotiation thereof.
• Reasonable Time has been defined as
so much time as is necessary under the
circumstances for a reasonable prudent
and diligent man to do, conveniently,
what the contract or duty requires should
be done, having a regard for the rights,
and possibility of loss, if any, to the other
party.
• No hard and fast demarcation line can
be drawn between what may be
considered as a reasonable or an
unreasonable time, because “reasonable
time” depends upon the peculiar facts
and circumstances in each case.
Facts:
Private respondents asked the petitioner
to extend an accommodation loan in the
sum of P4,500.00. Respondents delivered
to the petitioner a check for P4,500.00,
drawn by Dy Hian Tat, and signed by
them at the back of said check, with the
assurance that after one month from
September 13, 1960, the said check
would be redeemed by them by paying
cash in the sum of P4,500.00, or the said
check can be presented for payment on
or immediately after one month. Petitioner
agreed and extended an accommodation
loan
The aforesaid check was presented for
payment to the China Banking
Corporation, but said check bounced and
was not cashed by said bank, for the
reason that the current account of the
drawer thereof had already been closed.
Petitioner demanded payment from the
private but the latter failed and refused to
pay notwithstanding repeated demands.
Both private respondents raised the
defense that both have been wholly
discharged by delay in presentment of
the check for payment.
The Lower Court ruled in favor of the
petitioner. However, this was reversed by
the CA upon appeal by the respondents,
ruling that the check was not given as
collateral to guarantee a loan secured
since the check passed through other
hands before reaching the petitioner and
the said check was not presented within
a reasonable time. Hence this petition.
Petitioner argues that presentment for
payment and notice of dishonor are not
necessary as when funds are insufficient
to meet a check, thus the drawer is liable,
whether such presentment and notice be
totally omitted or merely delayed.
Issues:
1. Whether or not presentment for
payment can be dispensed with
2. Whether or not presentment for
payment and notice of dishonor of the
questioned check were made within
reasonable time
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Held:
1. No. Where the instrument is not
payable on demand, presentment must
be made on the day it falls due. Where it
is payable on demand, presentment must
be made within a reasonable time after
issue, except that in the case of a bill of
exchange, presentment for payment will
be sufficient if made within a reasonable
time after the last negotiation thereof
(Section 71, Negotiable Instruments Law).
2. No. It is obvious in this case that
presentment and notice of dishonor were
not made within a reasonable time.
“Reasonable time” has been defined as
so much time as is necessary under the
circumstances for a reasonable prudent
and diligent man to do, conveniently,
what the contract or duty requires should
be done, having a regard for the rights,
and possibility of loss, if any, to the other
party (Citizens’ Bank Bldg. v. L & E.
Wertheirmer 189 S.W. 361, 362, 126 Ark,
38, Ann. Cas. 1917 E, 520).
Notice may be given as soon as the
instrument is dishonored; and unless
delay is excused must be given within the
time fixed by the law (Section 102,
Negotiable Instruments Law).
In the instant case, the check in question
was issued on September 13, 1960, but
was presented to the drawee bank only
on March 5, 1964, and dishonored on the
same date. After dishonor by the drawee
bank, a formal notice of dishonor was
made by the petitioner through a letter
dated April 27, 1968. Under these
circumstances, the petitioner undoubtedly
failed to exercise prudence and diligence
on what he ought to do al. required by
law. The petitioner likewise failed to show
any justification for the unreasonable
delay.
No hard and fast demarcation line can be
drawn between what may be considered
as a reasonable or an unreasonable time,
because “reasonable time” depends
upon the peculiar facts and
circumstances in each case (Tolentino,
Commentaries and Jurisprudence on
Commercial Laws of the Philippines, Vol.
I, Eighth Edition, p. 327).
Notice of Dishonor
Section 89, 114
GREAT ASIAN vs. CA
GR No. 105774 April 25, 2002
FACTS:
March 17, 1981: Great Asian BOD
approved a resolution authorizing its
Treasurer and General Manager, Arsenio
Lim Piat, Jr. (Arsenio) to secure a loan,
not exceeding 1M, from Bancasia
February 10, 1982: Great Asian BOD
approved a resolution authorizing Great
Asian to secure a discounting line with
Bancasia in an amount not exceeding
P2M
also designated Arsenio as the authorized
signatory to sign all instruments,
documents and checks necessary to
secure the discounting line
Tan Chong Lin signed 2 surety
agreements in favor of Bancasia
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Great Asian, through its Treasurer and
General Manager Arsenio, signed 4
Deeds of Assignment of Receivables
(Deeds of Assignment), assigning to
Bancasia 15 postdated checks:
9 checks were payable to Great Asian
3 were payable to "New Asian Emp."
3 were payable to cash
various customers of Great Asian issued
these postdated checks in payment for
appliances and other merchandise.
Deed of Assignments of assignment:
January 12, 1982: 4 post-dated checks
of P244,225.82 maturing March 17, 1982,
2 were dishonored
January 12, 1982: 4 post-dated checks
of P312,819 maturing April 1, 1982, all 4
were dishonored
February 11, 1982: 8 postdated checks
of P344,475 maturing April 30, 1982, all 8
checks were dishonored
March 5, 1982: 1 postdated checks of
P200K maturing March 18, 1982 also
dishonored
Great Asian assigned the postdated
checks to Bancasia at a discount rate of
less than 24% of the face value of the
checks
Arsenio endorsed all the 15 dishonored
checks by signing his name at the back
of the checks
8 dishonored checks bore the
endorsement of Arsenio below the
stamped name of "Great Asian Sales
Center"
7 dishonored checks just bore the
signature of Arsenio
The drawee banks dishonored the 15
checks on maturity when deposited for
collection by Bancasia, with any of the
following as reason for the dishonor:
"account closed"
"payment stopped"
"account under garnishment"
"insufficiency of funds
March 18, 1982: Bancasia's lawyer,Atty.
Eladia Reyes, sent by registered mail to
Tan Chong Lin a letter notifying him of
the dishonor and demanding payment
from him
June 16, 1982: Bancasia sent by
personal delivery a letter to Tan Chong
Lin
May 21, 1982: Great Asian filed a case
before the CFI for insolvency listing
Bancasia as one of the creditors of Great
Asian in the amount of P1,243,632.00
June 23, 1982: Bancasia filed a
complaint for collection of a sum of
money against Great Asian and Tan
Chong Lin
CFI: favored Bancasia ordering Great
Asian and Tan Chong Lin to pay jointly
and severally
CA: deleted atty. fees
ISSUE: W/N Bancasia and Tang Chon Lin
should be held liable under the Civil Code
because it was a separate and distinct
deed of assignment
HELD: YES. Affirmed with Modification
As plain as daylight, the two board
resolutions clearly authorize Great Asian
to secure a loan or discounting line from
Bancasia.
Clearly, the discounting arrangements
entered into by Arsenio under the Deeds
of Assignment were the very transactions
envisioned in the two board resolutions
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of Great Asian to raise funds for its
business.
There is nothing in the Negotiable
Instruments Law or in the Financing
Company Act (old or new), that prohibits
Great Asian and Bancasia parties from
adopting the with recourse stipulation
uniformly found in the Deeds of
Assignment. Instead of being negotiated,
a negotiable instrument may be assigned.
The endorsement does not operate to
make the finance company a holder in
due course. For its own protection,
therefore, the finance company usually
requires the assignor, in a separate and
distinct contract, to pay the finance
company in the event of dishonor of the
notes or checks. (only security)
Otherwise, consumers who purchase
appliances on installment, giving their
promissory notes or checks to the seller,
will have no defense against the finance
company should the appliances later turn
out to be defective.
As endorsee of Great Asian, Bancasia
had the option to proceed against Great
Asian under the Negotiable Instruments
Law. Had it so proceeded, the Negotiable
Instruments Law would have governed
Bancasia’s cause of action. Bancasia,
however, did not choose this route.
Instead, Bancasia decided to sue Great
Asian for breach of contract under the
Civil Code, a right that Bancasia had
under the express with recourse
stipulation in the Deeds of Assignment.
Great Asian, after paying Bancasia, is
subrogated back as creditor of the
receivables. Great Asian can then
proceed against the drawers who issued
the checks. Even if Bancasia failed to
give timely notice of dishonor, still there
would be no prejudice whatever to Great
Asian.
Under the Negotiable Instruments Law,
notice of dishonor is not required if the
drawer has no right to expect or require
the bank to honor the check, or if the
drawer has countermanded payment
In the instant case, all the checks were
dishonored for any of the following
reasons:
"account closed"
"account under garnishment"
"insufficiency of funds"
drawers had no right to expect or require
the bank to honor the checks
"payment stopped"
drawers had countermanded payment
Moreover, under common law, delay in
notice of dishonor, where such notice is
required, discharges the drawer only to
the extent of the loss caused by the
delay.
Again, we reiterate that this obligation of
Great Asian is separate and distinct from
its warranties as indorser under the
Negotiable Instruments Law.Civil Code
are applicable and not the Negotiable
Instruments Law.
separate Deeds of Assignment -
provisions of the Civil Code are
applicable (NOT Negotiable Instruments
Law)
Great Asian’s four contracts assigning its
fifteen postdated checks to Bancasia
expressly stipulate the suspensive
condition that in the event the drawers of
the checks fail to pay, Great Asian itself
will pay Bancasia
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The stipulations in the Surety Agreements 1306 of the Civil Code provides that:
undeniably mandate the solidary liability "The contracting parties may establish
of Tan Chong Lin with Great Asian such stipulations, clauses, terms and
conditions as they may deem
Moreover, the stipulations in the Surety convenient, provided they are not
Agreements are sufficiently broad, contrary to law, morals, good
expressly encompassing "all the notes, customs, public order, or public
drafts, bills of exchange, overdraft and policy." The explicit with recourse
other obligations of every kind which the stipulation against Great Asian
PRINCIPAL may now or may hereafter effectively enlarges, by agreement of
owe the Creditor". the parties, the liability of Great Asian
beyond that of a mere endorser of a
----notes negotiable instrument.
ISSUE: What is the nature of a deed
of assignment with recourse? Thus, whether or not Bancasia gives
notice of dishonor to Great Asian, the
HELD: By express provision in the latter remains liable to Bancasia
Deeds of Assignment, Great Asian because of the with recourse
unconditionally obligated itself to pay stipulation which is independent of the
Bancasia the full value of the warranties of an endorser under the
dishonored checks. In short, Great Negotiable Instruments Law. There is
Asian sold the postdated checks on nothing in the Negotiable Instruments
with recourse basis against itself. This Law or in the Financing Company Act
is an obligation that Great Asian is (old or new), that prohibits Great
bound to faithfully comply because it Asian and Bancasia parties from
has the force of law as between adopting the with recourse stipulation
Great Asian and Bancasia. Article uniformly found in the Deeds of
1159 of the Civil Code further Assignment. Instead of being
provides that - "Obligations arising negotiated, a negotiable instrument
from contracts have the force of law may be assigned. Assignment of a
between the contracting parties and negotiable instrument is actually the
should be complied with in good faith." principal mode of conveying accounts
Great Asian and Bancasia agreed on receivable under the Financing
this specific with recourse stipulation, Company Act. Since in discounting of
despite the fact that the receivables receivables the assignee is subrogated
were negotiable instruments with the as creditor of the receivable, the
endorsement of Arsenio. endorsement of the negotiable
instrument becomes necessary to
The contracting parties had the right enable the assignee to collect from
to adopt the with recourse stipulation the drawer. This is particularly true
which is separate and distinct from with checks because collecting banks
the warranties of an endorser under will not accept checks unless
the Negotiable Instruments Law. Article endorsed by the payee. The purpose
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of the endorsement is merely to
facilitate collection of the proceeds of
the checks.
ISSUE: In such case, what is the
purpose of an indorsement?
HELD: The purpose of the
endorsement is not to make the
assignee finance company a holder in
due course because policy
considerations militate against
according finance companies the rights
of a holder in due course. Otherwise,
consumers who purchase appliances
on installment, giving their promissory
notes or checks to the seller, will
have no defense against the finance
company should the appliances later
turn out to be defective. Thus, the
endorsement does not operate to
make the finance company a holder
in due course. For its own protection,
therefore, the finance company usually
requires the assignor, in a separate
and distinct contract, to pay the
finance company in the event of
dishonor of the notes or checks.
ISSUE: What is the effect of absence
of notice of dishonor?
HELD: When notice of dishonor need
not be given (Section 114)? Section
114. When notice need not be given
to drawer. – Notice of dishonor is not
required to be given to the drawer in
either of the following cases: (a)
Where the drawer and the drawee are
the same person. (b) When the
drawee is fictitious person or a
person not having capacity to
contract. (c) When the drawer is the
person to whom the instrument is
presented for payment. (d) Where the
drawer has no right to expect or
require that the drawee or acceptor
will honor the instrument. (e) Where
the drawer has countermanded
payment.
Here, The exercise by Bancasia of its
option to sue for breach of contract
under the Civil Code will not leave
Great Asian holding an empty bag.
Great Asian, after paying Bancasia, is
subrogated back as creditor of the
receivables. Great Asian can then
proceed against the drawers who
issued the checks. Even if Bancasia
failed to give timely notice of
dishonor, still there would be no
prejudice whatever to Great Asian.
Under the Negotiable Instruments Law,
notice of dishonor is not required if
the drawer has no right to expect or
require the bank to honor the check,
or if the drawer has countermanded
payment. In the instant case, all the
checks were dishonored for any of
the following reasons: "account
closed", "account under garnishment",
insufficiency of funds", or "payment
stopped". In the first three instances,
the drawers had no right to expect or
require the bank to honor the checks,
and in the last instance, the drawers
had countermanded payment.
ISSUE: What is the effect of delay in
giving notice of dishonor? What law
applies on matters not covered by
the NIL (Section 196)?
HELD: Delay in notice of dishonor,
where such notice is required,
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discharges the drawer only to the
extent of the loss caused by the
delay. This rule finds application in
this jurisdiction pursuant to Section
196 of the Negotiable Instruments Law
which states, "Any case not provided
for in this Act shall be governed by
the provisions of existing legislation,
or in default thereof, by the rules of
the Law Merchant."
ISSUE: What does delay in Section
186 of the NIL refer to?
HELD: Under Section 186 of the
Negotiable Instruments Law, delay in
the presentment of checks discharges
the drawer. However, Section 186
refers only to delay in presentment of
checks but is silent on delay in
giving notice of dishonor.
Consequently, the common law or
Law Merchant can supply this gap in
accordance with Section 196 of the
Negotiable Instruments Law.
ISSUE: What is the difference between
rediscounting and loan
accommodation?
HELD: There is indeed a fine
distinction between a discounting line
and a loan accommodation. If the
accounts receivable, like postdated
checks, are sold for a consideration
less than their face value, the
transaction is one of discounting, and
is subject to the provisions of the
Financing Company Act. The assignee
is immediately subrogated as creditor
of the accounts receivable. However,
if the accounts receivable are merely
used as collateral for the loan, the
transaction is only a simple loan, and
the lender is not subrogated as
creditor until there is a default and the
collateral is foreclosed.
KING vs. PEOPLE
GR No. 131540 Dec. 2, 1999
FACTS:
On April 28, 1993, Second Assistant
Provincial Prosecutor Jaime A. Adoc filed
against petitioner eleven separate
Informations,[6] which are identically
worded, except for the check number,
the amount and the date, as follows:
That in or about the month of January,
1992 in the Municipality of Las Pias,
Metro Manila, Philippines and within the
jurisdiction of this Honorable Court, the
above-named accused, did, then and
there willfully, unlawfully and feloniously
make or draw and issue to EILEEN
FERNANDEZ herein represented by
________ to apply on account or for value
the check described below:
EQUITABLE BANK
Check No. 021711
In the amount of P50,000.00
Postdated July 24, 1992
said accused well knowing that at the
time of issue she/he did not have
sufficient funds in or credit with the
drawee bank for the payment in full of the
face amount of such check upon their
presentment, which check when
presented for payment within ninety (90)
days from the date thereof were
subsequently dishonored by the drawee
bank for the reason Account Closed and
despite receipt of notice of such dishonor
the accused failed to pay the face
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amount thereof or make arrangement for
the full payment thereof within five (5)
working days after receiving notice.[7]
When arraigned, petitioner, assisted by
counsel, pleaded not guilty. After the
prosecution presented its evidence and
rested its case, petitioner filed a
Demurrer to Evidence without leave of
court, on the ground that the prosecution
failed to prove her guilt beyond
reasonable doubt. The trial court denied
the Demurrer in its assailed Decision for
lack of merit.
Since accused has waived her right to
present evidence, judgment is hereby
rendered finding accused guilty beyond
reasonable doubt of Violation of Batas
Pambansa Bilang 22 in the eleven (11)
above-entitled cases.
Petitioner maintains that she merely
signed the questioned checks without
indicating therein the date and the
amount involved. She adds that they
were improperly filled up by Eileen
Fernandez.
Thus, she concludes, she did not
"issue" the dishonored checks in the
context of the Negotiable Instruments
Law, which defines "issue" as the
"first delivery of the instrument
complete in form to a person who
takes it as a holder."
Issue: whether she issued the dishonored
checks in the context of the Negotiable
Instruments Law. YES.
Issues:
I
Whether or not the trial court and the
Court of Appeals gravely erred in
admitting in evidence all the documentary
evidence of the prosecution though their
due execution and genuineness were not
duly established in evidence pursuant to
the provisions of the Rules of Court and
prevailing jurisprudence;
II
Whether or not the trial court and the
Court of Appeals gravely erred in
declaring that Rule 118, Section 4 of the
Rules of Court, as applied in the case of
Fule vs. Court of Appeals, 162 SCRA 446,
which states that no agreement or
admission made or entered during the
pre-trial conference shall be used in
evidence against the accused unless
reduced to writing and signed by him and
his counsel, is inapplicable in the case at
bar;
III
Whether or not the trial court and the
Court of Appeals gravely erred in ruling
that the burden of evidence has already
been shifted from the prosecution to the
defense despite the definite factual
issues in the pre-trial order; and
IV
Whether or not the trial court and the
Court of Appeals erred in ruling that the
prosecution has proven the guilt of the
accused beyond reasonable doubt albeit
the prosecution did not produce any
evidence.[14]
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In the main, the resolution of the Petition
hinges on (1) the admissibility and (2) the
sufficiency of the prosecution evidence.
This Courts Ruling
The Petition has merit insofar as it
contends that the elements of the crime
charged have not all been proven beyond
reasonable doubt.
First Issue:
Admissibility of Documentary Evidence
Because the first, the second and the
third issues raised by petitioner all refer
to the same matter, they will be
discussed together. She contends that
the pieces of documentary evidence
presented by the prosecution during
pretrial are inadmissible, because she did
not sign the pretrial agreement as
required under Section 4 of Rule 118 of
the Rules of Court.[15] Hence, she
argues that there is no basis for her
conviction.
True, a pretrial agreement not signed by
a party is inadmissible. However, the
conviction of petitioner was based not on
that agreement but on the documents
submitted during the trial, all of which
were admitted without any objection from
her counsel. During the hearing on
September 17, 1993, the prosecution
offered as evidence the dishonored
checks, the return check tickets
addressed to private complainant, the
notice from complainant addressed to
petitioner that the checks had been
dishonored, and the postmasters letter
that the notice had been returned to
sender. Petitioner's counsel did not
object to their admissibility. This is shown
by the transcript of stenographic notes
taken during the hearing on September
17, 1993:
COURT:
You have no objection to the
admissibility, not that the Court will
believe it.
ATTY. MANGERA
No, Your Honor.
COURT:
Exhibits A to A to K are admitted.
ATTY. MAKALINTAL:
We offer Exhibit L, the return-check ticket
dated July 27, 1992, relative to checks
No. 021745 and 021746 indicating that
these checks were returned DAIF, drawn
against insufficient funds; Exh. M,
returned check ticket dated July 28,
1992, relative to Check No. 021727,
021711 and 021720 likewise indicating
the said checks to have been drawn
against insufficient funds, Your Honor.
Exhibit N, returned check ticket dated
July 29, 1992, relative to Check Nos.
021749 and 021748, having the same
indications;
Exhibits O, returned check ticket dated
July 29, 1992 relative to Check Nos.
021750 and 021753, with the same
indications;
Exhibits P, returned check ticket dated
August 4, 1992 relative to Check No.
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021752, having the same indication as
being drawn against insufficient funds;
Exhibit Q, the demand letter sent to the
accused by Atty. Horacio Makalintal
dated August 3, 1992;
Exhibit R, the letter-request for
certification addressed to the Postmaster
General sent by the same law office
dated 17 September 1992, showing that
the said letter was dispatched properly by
the Central Post Office of Makati;
Exhibit S, 1st Indorsement of the Makati
Central Post Office dated 21 September
1992;
Exhibit T, the Philippine Postal
Corporation Central Post Office letter
dated 24 September 1992, addressed to
this representation showing that there
were 3 notices sent to the herein
accused who received the said letter.
COURT:
Lets go to the third check slip; any
objection to the third slip?
ATTY. MANGERA:
We have no objection as to the due
execution and authenticity.
COURT:
Admitted.
ATTY. MAKALINTAL:
We are offering Exhibits Q, R, S and T,
for the purpose of showing that there was
demand duly made on the accused and
that the same had been appropriately
served by the Central Post Office
Services of Manila.
ATTY. MANGERA:
We admit as to the due execution and
authenticity only as to that portion, Your
Honor.
COURT:
We are talking of admissibility now, so
admitted. In other words, at this point, he
makes an offer and the Court will either
grant admission, [admit] it in evidence or
deny it. It can deny admission if it is not
properly identified etcetera.
ATTY. MANGERA:
I think it is already provided.
COURT:
So, admitted.
ATTY. MAKALINTAL:
With the admission of our offer, Your
Honor, the prosecution rests.[16]
From the foregoing, it is clear that the
prosecution evidence consisted of
documents offered and admitted during
the trial. In view of this, the CA correctly
ruled that Fule v. Court of Appeals[17]
would not apply to the present
controversy. In that case, a hearing was
conducted during which the prosecution
presented three exhibits. However, Fule's
conviction was based solely on the
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stipulation of facts made during the
pre-trial on August 8, 1985, which was
not signed by the petitioner, nor by his
counsel. Because the stipulation was
inadmissible in evidence under Section 4
of Rule 118, the Court held that there was
no proof of his guilt.
In the present case, petitioners
conviction was based on the evidence
presented during trial, and not on the
stipulations made during the pretrial.
Hence, petitioners admissions during the
trial are governed not by the Fule ruling or
by Section 4 of Rule 118, but by Section
4 of Rule 129 which reads:
SEC. 4. Judicial Admissions. --- An
admission, verbal or written, made by a
party in the course of the proceedings in
the same case, does not require proof.
The admission may be contradicted only
by showing that it was made through
palpable mistake or that no such
admission was made.
Hence, the trial court and the Court of
Appeals did not err in taking cognizance
of the said documentary evidence.
Second Issue:
Sufficiency of Prosecution Evidence
Petitioner argues that the prosecution
failed to prove beyond reasonable doubt
the elements of the offense. After a
careful consideration of the records of
this case, we believe and so rule that the
totality of the evidence presented does
not support petitioners conviction for
violation of BP 22.
Section 1 of BP 22 defines the offense as
follows:
Section 1. Checks without sufficient
funds. -- Any person who makes or
draws and issues any check to apply on
account or for value, knowing at the time
of issue that he does not have sufficient
funds in or credit with the drawee bank
for the payment of such check in full
upon its presentment, which check is
subsequently dishonored by the drawee
bank for insufficiency of funds or credit
or would have been dishonored for the
same reason had not the drawer, without
any valid reason, ordered the bank to
stop payment, shall be punished by
imprisonment of not less than thirty days
but not more than one (1) year or by a
fine of not less than but not more than
double the amount of the check which
fine shall in no case exceed Two hundred
thousand pesos, or both such fine and
imprisonment at the discretion of the
court.
The same penalty shall be imposed upon
any person who having sufficient funds in
or credit with the drawee bank when he
makes or draws and issues a check, shall
fail to keep sufficient funds or to maintain
a credit to cover the full amount of the
check if presented within a period of
ninety (90) days from the date appearing
thereon, for which reason it is dishonored
by the drawee bank.
Where the check is drawn by a
corporation, company or entity, the
person or persons who actually signed
the check in behalf of such drawer shall
be liable under this Act.
Accordingly, this Court has held that the
elements of the crime are as follows:[18]
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1. The accused makes, draws or issues
any check to apply to account or for
value.
2. The check is subsequently dishonored
by the drawee bank for insufficiency of
funds or credit; or it would have been
dishonored for the same reason had not
the drawer, without any valid reason,
ordered the bank to stop payment.
3. The accused knows at the time of the
issuance that he or she does not have
sufficient funds in, or credit with, drawee
bank for the payment of the check in full
upon its presentment.
We shall analyze the evidence,
purportedly establishing each of the
aforementioned elements which the trial
and the appellate courts relied upon.
Issuance of the Questioned Checks
Contending that the prosecution failed to
prove the first element, petitioner
maintains that she merely signed the
questioned checks without indicating
therein the date and the amount involved.
She adds that they were improperly filled
up by Eileen Fernandez. Thus, she
concludes, she did not issue the
dishonored checks in the context of the
Negotiable Instruments Law, which
defines issue as the first delivery of the
instrument complete in form to a person
who takes it as a holder.[19]
Petitioners contentions are not
meritorious. The questioned checks,
marked as Exhibits A to K, contained the
date of issue and the amount involved. In
fact, petitioner even admitted that she
signed those checks. On the other hand,
no proof was adduced to show that
petitioner merely signed them in blank, or
that complainant filled them up in
violation of the former's instructions or
their previous agreement. The evidence
on record is clear that petitioner issued
eleven checks, all of which were duly
filled up and signed by her.
Checks Dishonored
Neither are we persuaded by petitioners
argument that there appears no evidence
on record that the subject checks were
unpaid and dishonored.[20] Under
Section 3 of BP 22, the introduction in
evidence of any unpaid and dishonored
check, having the drawees refusal to pay
stamped or written thereon, or attached
thereto, with the reason therefor as
aforesaid, shall be prima facie evidence
of the making or issuance of said check,
and the due presentment to the drawee
for payment and the dishonor thereof,
and that the same was properly
dishonored for the reason written,
stamped, or attached by the drawee on
such dishonored check.
In the present case, the fact that the
checks were dishonored was sufficiently
shown by the checks themselves, which
were stamped with the words ACCOUNT
CLOSED. This was further supported by
the returned check tickets issued by PCI
Bank, the depository bank, stating that
the checks had been dishonored.
Clearly, these documents constitute
prima facie evidence that the drawee
bank dishonored the checks. Again, no
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evidence was presented to rebut the
prosecutions claim.
---notes
ISSUE: What is the meaning of the
term “issue”?
HELD: Petitioner's contentions are not
meritorious. The questioned checks
contained the date of issue and the
amount involved. In fact, petitioner
even admitted that she signed those
checks. On the other hand, no proof
was adduced to show that petitioner
merely signed them in blank, or that
complainant filled them up in violation
of the former's instructions or their
previous agreement. The evidence on
record is clear that petitioner issued
eleven checks, all of which were duly
filled up and signed by her.
ISSUE: What is the reason of the
need for notice of dishonor in BP 22?
HELD: The absence of a notice of
dishonor necessarily deprives an
accused an opportunity to preclude a
criminal prosecution. Accordingly,
procedural due process clearly enjoins
that a notice of dishonor be actually
served on petitioner.
SIA vs. PEOPLE
GR No. 149695 April 28, 2004
FACTS: Sia testified that, upon the
execution of the lease agreement in
1982, he drew and delivered to COLF
eighteen (18) postdated checks drawn
against his account with the RCBC, each
check in the amount of P44,980.00
corresponding to the rental for the leased
property.[22] Every month, as each
check fell due, he informed the COLF
whether to deposit or encash the checks,
or to apply the current deposit for the
payment of the rental due.[23] He made
good the first six postdated checks but
failed to fund the ensuing checks for
January, March, and April 1983. He
reasoned that his financial condition was
adversely affected by the implementation
of his project in Nueva Vizcaya and the
RCBC had since then refused to give him
credit.[24] To facilitate payment of the
checks, Sia then asked COLF, through its
assistant manager, Go Hong Ko, to apply
his guaranty deposit for the postdated
checks to cover the rentals from January
1983. Go Hong Ko told Sia that there
would be no problem as his guaranty
deposit of P216.250.00 was still intact
and more than enough to answer for the
said checks.[25] Thus, Sia no longer
funded his account with the drawee bank,
thinking that his guaranty deposit would
answer for the checks.
Sia alleged that he never received the
January 5, 1983, March 7, 1983 and April
6, 1983 letters of the COLF, and that the
latter never notified him that the checks
postdated January 4, 1983, March 3,
1983 and April 4, 1983, respectively,
were deposited with the drawee bank,
and that the same were subsequently
dishonored by the drawee bank. He was
surprised when he learned about the
charges against him for violation of B.P.
Blg. 22 when he received a subpoena
from the Office of the City Prosecutor of
Makati, requiring him to submit his
counter-affidavit to the criminal
complaint of the COLF.[26] Furthermore,
he was not informed why his guaranty
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deposit was not applied to the payment
of the three dishonored checks.[27]
Issue: Whether or not the petitioner was
notified of the dishonor. NO.
Held: In this case, the prosecution failed
to prove that the COLF or the drawee
bank ever sent any written notice of
dishonor of the subject checks to the
petitioner and that the latter received the
same. The only witness presented by the
prosecution to prove its case against the
petitioner was Eduardo R. Alvarez, who
was in charge of the COLF collection
department. He testified that he signed
the letters dated January 5, 1983[51] and
July 7, 1983,[52] addressed to the
petitioner notifying the latter of the
dishonor of the subject checks.
However, Alvarez admitted that, after
signing the said letters, he had the same
transmitted to the collection department
and had no personal knowledge whether
the said letters were sent to and actually
received by the petitioner. The collection
department merely told him that the
letters were sent to the petitioner.
There is no evidence on record how the
letters were, in fact, sent to the
petitioner, whether by personal delivery or
by registered mail. The COLF did not
adduce in evidence the complaint for
replevin and damages in Civil Case No.
3958 against the petitioner. Furthermore,
the trial court did not declare in its
decision that the COLF sent notices of
dishonor of the subject checks to the
petitioner, and that the latter received
such notices of dishonor.
The trial court convicted the petitioner of
the crime of violating Section 1, B.P. Blg.
22, relying principally on the petitioners
admission that, when Check No. 233533
became due, his funds in the drawee
bank were insufficient to pay for the
amount of the check; that his account
with the drawee bank had already been
closed when COLF deposited Check No.
233534; and, that he no longer funded
his account to pay for the amounts of the
ensuing checks. The trial court concluded
that on the basis of the said admission,
there was no longer a need for the
prosecution to prove that the petitioner
received notices or letters notifying him
of the dishonor of the subject checks
after the dishonor thereof. The appellate
court agreed with the trial court.
We do not agree.
Indeed, the petitioner admitted when he
testified in his defense, that, on the due
date of Check No. 233533, he was aware
that he did not have funds in the drawee
bank for the payment of the said check,
and that when Check No. 233534 fell due
on March 4, 1983, the bank had already
closed the said account. This, however,
did not amount to an admission that,
when he issued the said checks in June
1982, he had known that he had no funds
in the drawee bank sufficient to pay for
the amounts of the checks. In fact, the
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petitioner testified that in 1983, he was
granted credit facilities by the drawee
bank and that the postdated checks he
issued to the COLF for the rentals due
from June to December, 1982 had been
duly honored. The drawee bank
subsequently closed the petitioners
account only because the latter had
suffered financial reverses.
Assuming that the petitioner had
knowledge that he had insufficient funds
in the drawee bank when he issued the
questioned checks, he could still have
paid the checks or made arrangements
with the drawee bank for the payment of
the said checks if he had been duly
notified of their dishonor. In not sending
a notice or letter of dishonor to the
petitioner as required by law, the COLF
deprived the petitioner of his right to
avoid prosecution for violation of B.P.
Blg. 22.
IN LIGHT OF THE FOREGOING, the
petition is GRANTED. The Decision of the
Court of Appeals affirming with
modifications the Decision of the
Regional Trial Court in Criminal Cases
Nos. 11865 and 11866 are REVERSED
and SET ASIDE. The petitioner is
ACQUITTED of the crimes charged in said
cases for insufficiency of evidence.
ISSUE: What is the prima facie
presumption of “knowledge” of
insufficiency of funds?
HELD: Section 2 of B.P. Blg. 22
created a prima facie presumption of
knowledge on the part of the drawer
or maker of the check of the
insufficiency of his fund in the drawee
bank, thus: SEC. 2. Evidence of
knowledge of insufficient funds.The
making, drawing and issuance of a
check payment of which is refused by
the drawee because of insufficient
funds in or credit with such bank,
when presented within ninety (90)
days from the date of the check,
shall be prima facie evidence of
knowledge of such insufficiency of
funds or credit unless such maker or
drawer pays the holder thereof the
amount due thereon, or makes
arrangements for payment in full by
the drawee of such check within five
(5) banking days after receiving notice
that such check has not been paid
by the drawee. However, for the
presumption to arise, the prosecution
must adduce evidence to prove the
factual basis for its onset, namely, (a)
the check is presented within ninety
(90) days from the date of the check;
(b) the drawer or maker of the check
receives notice that such check has
not been paid by the drawer; and, (c)
the drawer or maker of the check
fails to pay the holder of the check
the amount due thereon, or makes
arrangements for payment in full
within five (5) banking days after
receiving notice that such check has
not been paid by the drawer. With
the onset of the presumption, the
burden of evidence is shifted on the
drawer/maker of the check to prove
that, when he issued the subject
check, he had no knowledge that he
had insufficient funds in the drawee
bank to answer for the amount due.
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The notice of dishonor may be sent
to the drawer or maker by the drawee
bank, the holder of the check, or the
offended party, either by personal
delivery or by registered mail. The
drawer or maker of a check has a
right, under the law, to demand that
a written notice of dishonor be sent
to and received by him to enable
him to avoid indictment for violation of
B.P. Blg. 22.
ISSUE: Must the notice of dishonor be
in writing?
HELD: The notice of dishonor of a
check to the maker must be in
writing. A mere oral notice to the
drawer or maker of the dishonor of
his check is not enough.
ISSUE: What is the need that such
notice to be in writing?
RULING: Unless and until the drawer
or maker of the check receives a
written notice of dishonor of the
check, or where there is no proof as
to when such notice of dishonor was
received by the drawer or maker, the
five-day period within which the
drawer or maker has to pay the
amount due or made arrangements
with the drawee bank for the payment
of the check, cannot be determined.
In such case, the prima facie
presumption cannot arise.
ISSUE: What is the effect of payment?
HELD: If the maker or drawer pays,
or makes arrangements with the
drawee bank for the payment of the
amount due within the five-day period
from notice of the dishonor given to
the drawer, it is a complete defense;
the accused may no longer be
indicted for violation of Section 1,
B.P. Blg. 22. If he is so indicted, he
may set up the payment of the
amount due as a complete defense.
LIM LAO vs. CA
GR No. 119178 June 20, 1997
FACTS: Father Artelijo Palijo was
investing with Premiere Investment House
through the latter’s trader, Rosemarie
Lachenal. Through the course of his
business with Premiere Investment, he
was issued three Traders Royal Bank
checks in the amounts of P150k, P150k,
and P26k, respectively. These checks
were eventually dishonored.
The checks, before they were issued to
Palijo went through the normal procedure
within Premiere investment, to wit; First,
the checks are required to be co-signed
by Lina Lim Lao, a junior officer of
Premiere Investment. Second, the checks
are then forwarded to her head office to
be co-signed by one Teodulo Asprec.
Third, Asprec would then decide to whom
the checks were to be ultimately issued
and delivered, in this case to Palijo.
Since the checks were dishonored, Palijo
sent notices of dishonor to Premiere
Investment but he sent the same to the
latter’s main office in Cubao (note that
Lao and Asprec were holding office in the
Binondo Branch of Premiere Investment).
Premiere Investment was only able to pay
P5k and no further payment was made.
Apparently, Premiere Investment was
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going insolvent and was subsequently
placed under receivership.
Palijo filed a criminal case against Lao
and Asprec for violation of Batas
Pambansa Blg. 22.
ISSUE: Whether or not Lao is guilty of the
crime charged.
ISSUE: wether there was notice of
dishonor? No.
HELD: No. The elements of violations
against BP 22 are as follows:
1. That a person makes or draws and
issues any check.
2. That the check is made or drawn and
issued to apply on account or for value.
3. That the person who makes or draws
and issues the check knows at the time
of issue that he does not have sufficient
funds in or credit with the drawee bank
for the payment of such check in full
upon its presentment.
4. That the check is subsequently
dishonored by the drawee bank for
insufficiency of funds or credit, or would
have been dishonored for the same
reason had not the drawer, without any
valid reason, ordered the bank to stop
payment.
In the present case, the fact alone that
petitioner was a signatory to the checks
that were subsequently dishonored
merely engenders the prima facie
presumption that she knew of the
insufficiency of funds, but it does not
render her automatically guilty under B.P.
22. After a thorough review of the case at
bar, the SC finds that Petitioner Lao did
not have actual knowledge of the
insufficiency of funds in the corporate
accounts at the time she affixed her
signature to the checks involved in this
case, at the time the same were issued,
and even at the time the checks were
subsequently dishonored by the drawee
bank. The scope of Lao’s duties and
responsibilities did not encompass the
funding of the corporation’s checks; her
duties were limited to the marketing
department of the Binondo branch.
Further, there can be no prima facie
evidence of knowledge of insufficiency of
funds in the instant case because no
notice of dishonor was actually sent to or
received by Lao. Pariljo sent the notices
of dishonor to Premiere Investment’s
main branch. The main branch did not
send the notices to the Binondo branch
because it deemed it futile because at
that time it knows that it does not have
sufficient funds to cover the debt
anyway. Notice to the main branch does
not serve as constructive notice to Lao.
BP 22 is a personal crime hence notice
should have been sent to her personally if
she were to be made liable.
ISSUE: What are the elements of BP 22?
HELD: This Court listed the elements
of the offense penalized under B.P.
22, as follows: "(1) the making,
drawing and issuance of any check
to apply to account or for value; (2)
the knowledge of the maker, drawer
or issuer that at the time of issue he
does not have sufficient funds in or
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credit with the drawee bank for the subsequently refused for insufficiency
payment of such check in full upon of funds. It is important to stress,
its presentment; and (3) subsequent however, that this is not a conclusive
dishonor of the check by the drawee presumption that forecloses or
bank for insufficiency of funds or precludes the presentation of evidence
credit or dishonor for the same to the contrary. In the present case,
reason had not the drawer, without the fact alone that petitioner was a
any valid cause, ordered the bank to signatory to the checks that were
stop payment." Justice Luis B. subsequently dishonored merely
Reyes, an eminent authority in engenders the prima facie
criminal law, also enumerated the presumption that she knew of the
elements of the offense defined in the insufficiency of funds, but it does not
first paragraph of Section 1 of B.P. 22, render her automatically guilty under
thus: 1. 2. 3. That a person makes B.P. 22. The prosecution has a duty
or draws and issues any check. That to prove all the elements of the
the check is made or drawn and crime, including the acts that give rise
issued to apply on account or for to the prima facie presumption;
value. That the person who makes or petitioner, on the other hand, has a
draws and issues the check knows right to rebut the prima facie
at the time of issue that he does presumption. Therefore, if such
not have sufficient funds in or credit knowledge of insufficiency of funds is
with the drawee bank for the payment proven to be actually absent or
of such check in full upon its non-existent, the accused should not
presentment. 4. That the check is be held liable for the offense defined
subsequently dishonored by the drawee under the first paragraph of Section 1
bank for insufficiency of funds or of B.P. 22. Although the offense
credit, or would have been dishonored charged is a malum prohibitum, the
for the same reason had not the prosecution is not thereby excused
drawer, without any valid reason, from its responsibility of proving
ordered the bank to stop payment. beyond reasonable doubt all the
---notes elements of the offense, one of
ISSUE: funds? which is knowledge of the
insufficiency of funds. Petitioner Lina
HELD: What constitutes knowledge of Lim Lao did not have actual
insufficiency of Knowledge of knowledge of the insufficiency of
insufficiency of funds or credit in the funds in the corporate accounts at the
drawee bank for the payment of a time she affixed her signature to the
check upon its presentment is an checks involved in this case, at the
essential element of the offense. time the same were issued, and even
There is a prima facie presumption of at the time the checks were
the existence of this element from the subsequently dishonored by the drawee
fact of drawing, issuing or making a bank.
check, the payment of which was
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ISSUE: What is the need for notice
of dishonor? To whom must notice
be given?
HELD: There can be no prima facie
evidence of knowledge of insufficiency
of funds in the instant case because
no notice of dishonor was actually
sent to or received by the petitioner.
The notice of dishonor may be sent
by the offended party or the drawee
bank. The trial court itself found
absent a personal notice of dishonor
to Petitioner Lina Lim Lao by the
drawee bank based on the unrebutted
testimony of Ocampo "(t)hat the
checks bounced when presented with
the drawee bank but she did not
inform anymore the Binondo branch
and Lina Lim Lao as there was no
need to inform them as the
corporation was in distress." The
Court of Appeals affirmed this factual
finding.
Pursuant to prevailing jurisprudence,
this finding is binding on this Court.
The records show that the notice of
dishonor was addressed to Premiere
Financing Corporation and sent to its
main office in Cubao, Quezon City.
Furthermore, the same had not been
transmitted to Premiere's Binondo
Office where petitioner had been
holding office.
Likewise no notice of dishonor from
the offended party was actually sent to
or received by Petitioner Lao.
Because no notice of dishonor was
actually sent to and received by the
petitioner, the prima facie presumption
that she knew about the insufficiency
of funds cannot apply. Section 2 of
B.P. 22 clearly provides that this
presumption arises not from the mere
fact of drawing, making and issuing a
bum check; there must also be a
showing that, within five banking days
from receipt of the notice of dishonor,
such maker or drawer failed to pay
the holder of the check the amount
due thereon or to make arrangement
for its payment in full by the drawee
of such check. The absence of a
notice of dishonor necessarily deprives
an accused an opportunity to
preclude a criminal prosecution.
Accordingly, procedural due process
clearly enjoins that a notice of
dishonor be actually served on
petitioner. Petitioner has a right to
demand and the basic postulates of
fairness require that the notice of
dishonor be actually sent to and
received by her to afford her the
opportunity to avert prosecution under
B.P. 22. Premiere has no obligation to
forward the notice addressed to it to
the employee concerned, especially
because the corporation itself incurs
no criminal liability under B.P. 22 for
the issuance of a bouncing check.
Responsibility under B.P. 22 is
personal to the accused; hence,
personal knowledge of the notice of
dishonor is necessary. Consequently,
constructive notice to the corporation
is not enough to satisfy due process.
Moreover, it is petitioner, as an officer
of the corporation, who is the latter's
agent for purposes of receiving
notices and other documents, and not
the other way around. It is but
axiomatic that notice to the
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corporation, which has a personality where no place of payment is

distinct and separate from the specified, or any other change or
petitioner, does not constitute notice to addition which alters the effect of the
the latter. instrument in any respect, is a
material alteration.
The check's serial number is not the
sole indication of its origin. The name ISSUE: What is the meaning of
of the government agency which Section 125 (f)? What is the relation
issued the subject check was of Section 125 to Section 1?
prominently printed therein. The
check's issuer was therefore HELD: Section 125 does not refer to
sufficiently identified, rendering the any change that alters the effect of
referral to the serial number redundant the instrument is a material alteration.
and inconsequential. Petitioner, thus An alteration is said to be material if
cannot refuse to accept the check in it alters the effect of the instrument.
question on the ground that the serial It means an unauthorized change in
number was altered, the same being an instrument that purports to modify
an immaterial or innocent one. in any respect the obligation of a
party or an unauthorized addition of
Material Alteration (Sections 124 and words or numbers or other change to
125) an incomplete instrument relating to
the obligation of a party. In other
PNB vs. CA GR No. 107508 April 25, words, a material alteration is one
1996 which changes the items which are
required to be stated under Section 1
FACTS: The serial number in the of the Negotiable Instruments Law.
check was altered. The check was
returned the reason being that there
was a "material alteration" of the check Sec. 1. Form of negotiable
number. instruments. An instrument to be
negotiable must conform to the
ISSUE:What is an alteration under following requirements: (a) It must be
Section 125? in writing and signed by the maker
or drawer; (b) Must contain an
HELD: Sec. 125. What constitutes a unconditional promise or order to pay
material alteration. Any alteration which a sum certain in money; (c) Must be
changes: (a) The date; (b) The sum payable on demand, or at a fixed or
payable, either for principal or interest; determinable future time; (d) Must be
(c) The time or place of payment; (d) payable to order or to bearer; and (e)
The number or the relations of the Where the instrument is addressed to
parties; (e) The medium or currency in a drawee, he must be named or
which payment is to be made; (f) Or otherwise indicated therein with
which adds a place of payment reasonable certainty.
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Reproduced hereunder are some
examples of material and immaterial
alterations:
A. Material Alterations:
(1) Substituting the words "or bearer"
for "order."
(2) Writing "protest waived" above
blank indorsements.
(3) A change in the date from which
interest is to run.
(4) A check was originally drawn as
follows: "Iron County Bank, Crystal
Falls, Mich. Aug. 5, 1901. Pay to
G.L. or order $9 fifty cents CTR" The
insertion of the figure 5 before the
figure 9, the instrument being
otherwise unchanged.
(5) Adding the words "with interest"
with or without a fixed rate.
(6) An alteration in the maturity of a
note, whether the time for payment is
thereby curtailed or extended.
(7) An instrument was payable "First
Nat'l Bank" the plaintiff added the word
"Marion."
(8) Plaintiff, without consent of the
defendant, struck out the name of the
defendant as payee and inserted the
name of the maker of the original
note.
(9) Striking out the name of the
payee and substituting that of the
person who actually discounted the
note.
(10) Substituting the address of the
maker for the name of a co-maker.
B. Immaterial Alterations:
(1) Changing "I promise to pay" to
"We promise to pay", where there are
two makers.
(2) Adding the word "annual" after the
interest clause.
(3) Adding the date of maturity as a
marginal notation.
(4) Filling in the date of actual
delivery where the makers of a note
gave it with the date in blank, "July
____."
(5) An alteration of the marginal
figures of a note where the sum stated
in words in the body remained
unchanged.
(6) The insertion of the legal rate of
interest where the note had a provision
for "interest at _______ per cent."
(7) A printed form of promissory note
had on the margin the printed words,
"Extended to ________." The holder on
or after maturity wrote in the blank
space the words "May 1, 1913," as a
reference memorandum of a promise
made by him to the principal maker
at the time the words were written to
extend the time of payment.
(8) Where there was a blank for the
place of payment, filling in the blank
with the place desired.
(9) Adding to an indorsee's name
the abbreviation "Cash" when it had
been agreed that the draft should be
discounted by the trust company of
which the indorsee was cashier.
(10) The indorsement of a note by a
stranger after its delivery to the payee
at the time the note was negotiated
to the plaintiff.
(11) An extension of time given by
the holder of a note to the principal
maker, without the consent of a
surety comaker.
ISSUE:What is spoliation?
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HELD: Spoliation is an alterationsdone FACTS: The Ministry of Education and

by a stranger and will not avoid the Culture issued 15 checks drawn
instrument, but the holder may against respondent which petitioner
enforce it only according to its original accepted for deposit on various
tenor. dates. After 24 hours from
submission of the checks to
ISSUE: Is the change in the serial respondent for clearing, petitioner paid
number material alteration? the value of the checks and allowed
the withdrawals of the deposits.
HELD: NO, it is not a material However, on 14 October 1981,
alteration. The case at bench is respondent returned all the checks to
unique in the sense that what was petitioner without clearing them on the
altered is the serial number of the ground that they were materially
check in question, an item which, it altered. Thus, petitioner instituted an
can readily be observed, is not an action for collection of sums of
essential requisite for negotiability money against respondent to recover
under Section 1 of the Negotiable the value of the checks. The
Instruments Law. The aforementioned alterations in the checks were made
alteration did not change the relations on their serial numbers.
between the parties. The name of the
drawer and the drawee were not ISSUE: What is material alteration and
altered. The intended payee was the whether or not the checks were
same. The sum of money due to the materially altered? No.
payee remained the same.
HELD: An alteration is said to be
The check's serial number is not the material if it alters the effect of the
sole indication of its origin. The name instrument. It means an unauthorized
of the government agency which change in an instrument that purports
issued the subject check was to modify in any respect the
prominently printed therein. The obligation of a party or an
check's issuer was therefore unauthorized addition of words or
sufficiently identified, rendering the numbers or other change to an
referral to the serial number redundant incomplete instrument relating to the
and inconsequential. Petitioner, thus obligation of a party. In other
cannot refuse to accept the check in words, a material alteration is one
question on the ground that the serial which changes the items which are
number was altered, the same being required to be stated under Section 1
an immaterial or innocent one. of the Negotiable Instrument[s] Law.
Petitioner, thus cannot refuse to
INT’L CORP BANK vs. CA GR No. accept the check in question on the
1229910 Sept. 5, 2006 ground that the serial number was
altered, the same being an immaterial
or innocent one. In the present case
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the alterations of the serial numbers action for damages against Metrobank.
do not constitute material alterations RTC rendered a Decision in favor of
on the checks. Cabilzo. The Court of Appeals
affirmed with modification the Decision
METROBANK vs. CABILZO GR No. of the court a quo.
154469 Dec. 6, 2006 ISSUE : Was there materia
Alteration? YES?
FACTS : Respondent Renato Cabilzo
issued a Metrobank Check payable to What is material alteration?
“CASH” and postdated on 24
November 1994 in the amount of One RULING : An alteration is said to be
Thousand Pesos (P 1,000.00). The material if it changes the effect of the
check was drawn against Cabilzo’s instrument. It means that an
Account with Metrobank and was paid unauthorized change in an instrument
by Cabilzo to a certain Mr. Marquez, that purports to modify in any respect
as his sales commission. the obligation of a party or an
Subsequently, the check was unauthorized addition of words or
presented to Westmont Bank for numbers or other change to an
payment. Westmont Bank, in turn, incomplete instrument relating to the
indorsed the check to Metrobank for obligation of a party. In other words,
appropriate clearing. After the entries a material alteration is one which
thereon were examined, including the changes the items which are required
availability of funds and the to be stated under Section 1 of the
authenticity of the signature of the Negotiable Instruments Law. In the
drawer, Metrobank cleared the check case at bar, the check was altered
for encashment in accordance with the so that the amount was increased
Philippine Clearing House Corporation from P 1,000.00 to P 91,000.00 and
(PCHC) Rules. Upon receipt of the the date was changed from 24
check, Cabilzo discovered that November 1994 to 14 November 1994.
Metrobank Check which he issued on Apparently, since the entries altered
12 November 1994 in the amount of were among those enumerated under
P 1,000.00 was altered to P 91,000.00 Section 1 and 125, namely, the sum
and the date 24 November 1994 was of money payable and the date of
changed to 14 November 1994. the check, the instant controversy
Cabilzo, thru counsel, sent a therefore squarely falls within the
letter-demand to Metrobank for the purview of material alteration.
payment of P 90,000.00, after
deducting the original value of the ISSUE : What is the effect of
check in the amount of P 1,000.00. payment made under a material altered
Such written demand notwithstanding, instrument?
Metrobank still failed or refused to
comply with its obligation. RULING : Section 124. Alteration of
Consequently, Cabilzo instituted a civil instrument; effect of. – Where a
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negotiable instrument is materially negligent and is therefore prevented

altered without the assent of all from asserting his rights under the
parties liable thereon, it is avoided, doctrine of equitable estoppel when
except as against a party who has the facts on record are bare of
himself made, authorized, and evidence to support such conclusion.
assented to the alteration and The doctrine of equitable estoppel
subsequent indorsers. But when the states that when one of the two
instrument has been materially altered innocent persons, each guiltless of
and is in the hands of a holder in any intentional or moral wrong, must
due course not a party to the suffer a loss, it must be borne by
alteration, he may enforce the the one whose erroneous conduct,
payment thereof according to its either by omission or commission, was
original tenor. The bank on which the cause of injury. Metrobank’s
the check is drawn, known as the reliance on this dictum, is misplaced.
drawee bank, is under strict liability
to pay to the order of the payee in For one, Metrobank’s representation
accordance with the drawer’s that it is an innocent party is flimsy
instructions as reflected on the face and evidently, misleading. At the
and by the terms of the check. same time, Metrobank cannot
Payment made under materially altered asseverate that Cabilzo was negligent
instrument is not payment done in and this negligence was the proximate
accordance with the instruction of the cause of the loss in the absence of
drawer. When the drawee bank pays even a scintilla proof to buttress such
a materially altered check, it violates claim. Negligence is not presumed
the terms of the check, as well as but must be proven by the one who
its duty to charge its client’s account alleges it. ISSUE : What is the degree
only for bona fide disbursements he of diligence required of a bank?
had made. Since the drawee bank, RULING : The point is that as a
in the instant case, did not pay business affected with public interest
according to the original tenor of the and because of the nature of its
instrument, as directed by the drawer, functions, the bank is under obligation
then it has no right to claim to treat the accounts of its depositors
reimbursement from the drawer, much with meticulous care, always having in
less, the right to deduct the mind the fiduciary nature of their
erroneous payment it made from the relationship. The appropriate degree
drawer’s account which it was of diligence required of a bank must
expected to treat with utmost fidelity. be a high degree of diligence, if not
the utmost diligence. The reliance
ISSUE : What is the doctrine of made by Metrobank on Westmont
equitable estoppel? Bank’s indorsement is clearly
inconsistent, if not totally offensive to
RULING : Verily, Metrobank cannot the dictum that being impressed with
lightly impute that Cabilzo was public interest, banks should exercise
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the highest degree of diligence, if not
utmost diligence in dealing with the
accounts of its own clients. It owes
the highest degree fidelity to its
clients and should not therefore lightly
rely on the judgment of other banks
on occasions where its clients money
were involve, no matter how small or
substantial the amount at stake.
SALAZAR VS J.Y BROTHERS (G.R. NO.
171998 OCTOBER 20, 2010)
Salazar vs J.Y Brothers Marketing
Corporation
G.R. No. 171998 October 20, 2010
Facts: J.Y. Brothers Marketing (J.Y.
Bros., for short) is a corporation engaged
in the business of selling sugar, rice and
other commodities. On October 15, 1996,
Anamer Salazar, a freelance sales agent,
was approached by Isagani Calleja and
Jess Kallos, if she knew a supplier of
rice. Answering in the positive, Salazar
accompanied the two to J.Y. Bros. As a
consequence, Salazar with Calleja and
Kallos procured from J. Y. Bros. 300
cavans of rice worth P214,000.00. As
payment, Salazar negotiated and
indorsed to J.Y. Bros. Prudential Bank
Check No. 067481 dated October 15,
1996 issued by Nena Jaucian Timario in
the amount of P214,000.00 with the
assurance that the check is good as
cash. On that assurance, J.Y. Bros.
parted with 300 cavans of rice to Salazar.
However, upon presentment, the check
was dishonored due to closed account.
Informed of the dishonor of the check,
Calleja, Kallos and Salazar delivered to
J.Y. Bros. a replacement cross Solid
Bank Check No. PA365704 dated October
29, 1996 again issued by Nena Jaucian
Timario in the amount of P214,000.00 but
which, just the same, bounced due to
insufficient funds. When despite the
demand letter dated February 27, 1997,
Salazar failed to settle the amount due
J.Y. Bros., the latter charged Salazar and
Timario with the crime of estafa before
the Regional Trial Court of Legaspi City,
docketed as Criminal Case No. 7474.
Issue: Whether or not the issuance of the
Solidbank crossed check discharged
petitioner from liability.
Held: No. The obligation to pay a sum of
money is not novated by an instrument
that expressly recognizes the old,
changes only the terms of payment, adds
other obligations not incompatible with
the old ones or the new contract merely
supplements the old one.
Section 119 of the Negotiable Instrument
Law provides, thus:
SECTION 119. Instrument; how
discharged. A negotiable instrument is
discharged:
(a) By payment in due course by or on
behalf of the principal debtor;
(b) By payment in due course by the
party accommodated, where the
instrument is made or accepted for his
accommodation;
(c) By the intentional cancellation
thereof by the holder;
(d) By any other act which will
discharge a simple contract for the
payment of money;
(e) When the principal debtor becomes
the holder of the instrument at or after
maturity in his own right.
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And, under Article 1231 of the Civil Code,
obligations are extinguished:
xxxx
(6) By novation.
Petitioner’s claim that respondent’s
acceptance of the Solid Bank check
which replaced the dishonored Prudential
bank check resulted to novation which
discharged the latter check is
unmeritorious.
In this case, respondents acceptance of
the Solid Bank check, which replaced the
dishonored Prudential Bank check, did
not result to novation as there was no
express agreement to establish that
petitioner was already discharged from
his liability to pay respondent the amount
of P 214,000.00 as payment for the 300
bags of rice. As we said, novation is
never presumed, there must be an
express intention to novate. In fact, when
the Solid Bank check was delivered to
respondent, the same was also indorsed
by petitioner which shows petitioners
recognition of the existing obligation to
respondent to pay P 214,000.00 subject
of the replaced Prudential Bank check.
Protest (Section 152)
ALLIED vs. CA GR No. 125851 July
11, 2006
FACTS : Petitioner Allied Bank, Manila
(ALLIED) purchased Export Bill from
respondent G.G. Sportswear Mfg.
Corporation (GGS). The bill, drawn
under a letter of credit covered Men’s
Valvoline Training Suit that was in
transit to West Germany (Uniger via
Rotterdam). The export bill was issued
by Chekiang First Bank Ltd.,
Hongkong Respondents Nari Gidwani
and Alcron International Ltd. (Alcron)
executed their respective Letters of
Guaranty, holding themselves liable on
the export bill if it should be
dishonored or retired by the drawee for
any reason.
Subsequently, the spouses Leon and
Leticia de Villa and Nari Gidwani also
executed a Continuing
Guaranty/Comprehensive Surety (surety,
for brevity), guaranteeing payment of
any and all such credit
accommodations which ALLIED may
extend to GGS. When ALLIED
negotiated the export bill to Chekiang,
payment was refused due to some
material discrepancies in the
documents submitted by GGS relative
to the exportation covered by the
letter of credit. Consequently, ALLIED
demanded payment from all the
respondents based on the Letters of
Guaranty and Surety executed in favor
of ALLIED. However, respondents
refused to pay, prompting ALLIED to
file an action for a sum of money. The
trial court dismissed the complaint.
On appeal, the Court of Appeals
modified the ruling of the trial court
holding respondent GGS liable to
reimburse petitioner ALLIED the peso
equivalent of the export bill, but it
exonerated the guarantors from their
liabilities under the Letters of
Guaranty. ISSUE : Can respondents,
in their capacity as guarantors and
surety, be held jointly and severally
liable under the Letters of Guaranty
and Surety, in the absence of protest
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on the bill in accordance with Section

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