1) PNB vs.

Rodriguez

G.R. No. 170325, September 26, 2008

Phillipine National Bank, petitioner, 
vs.
Erlando T. Rodriguez and Norma Rodriguez, respondents.
 
REYES, R.T., J.:

FACTS:
Respondents-Spouses Erlando and Norma Rodriguez were clients of petitioner PNB.
They maintained savings and demand/checking accounts. In line with their business, they had a
discounting arrangement with PEMSLA, an association of PNB employees. Naturally,
PEMSLA was likewise a client of the same PNB branch. PEMSLA regularly granted loans to its
members. Spouses Rodriguez would rediscount the postdated checks issued to members
whenever the association was short of funds. The spouses would replace the postdated checks
with their own checks issued in the name of the members. Some PEMSLA officers devised a
scheme to obtain additional loans despite their outstanding loan accounts. They took out loans in
the names of unknowing members, without the knowledge or consent of the latter. The
PEMSLA checks issued for these loans were then given to the spouses for rediscounting.
The officers carried this out by forging the endorsement of the named payees in the checks. In
return, the spouses issued their personal checks in the name of the members and delivered the
checks to an officer of PEMSLA. The PEMSLA checks, on the other hand, were deposited by
the spouses to their account. Meanwhile, the Rodriguez checks were deposited directly by
PEMSLA to its savings account without any indorsement from the named payees. This was an
irregular procedure made possible through the facilitation of Edmundo Palermo, Jr., treasurer of
PEMSLA and bank teller in the PNB Branch. For the period November 1998 to February
1999, the spouses issued 69 checks, worth P2,345,804.00 in total. These were payable to
47 individual payees who were all members of PEMSLA. Petitioner PNB eventually found out
about these fraudulent acts. To put a stop to this scheme, PNB closed the current account of
PEMSLA. As a result, the PEMSLA checks deposited by the spouses were returned or
dishonored. The corresponding Rodriguez checks, however, were deposited as usual to the
PEMSLA savings account. The amounts were duly debited from the Rodriguez account. The
spouses Rodriguez filed a civil complaint for damages against PEMSLA, MCP, and petitioner
PNB, seeking to recover the value of their checks worth P2,345,804.00. The spouses contended
that because PNB credited the checks to the PEMSLA account even without
indorsements, PNB violated its contractual obligation to them as depositors. PNB paid the
wrong payees, hence, it should bear the loss. PNB moved to dismiss the complaint. The RTC
denied PNB's motion. to dismiss. The bank contended that spouses Rodriguez, the makers,
actually did not intend for the named payees to receive the proceeds of the checks.
Consequently, the payees were considered as "fictitious payees.". Being checks made to
fictitious payees which are bearer instruments, the checks were negotiable by mere delivery. The
RTC rendered judgment in favor of spouses Rodriguez. The CA reversed and set aside the RTC
disposition. The CA found that the checks were bearer instruments, thus they do not require
indorsement for negotiation; and that spouses Rodriguez and PEMSLA conspired with each
other to accomplish this money-making scheme. The payees in the checks were "fictitious
payees" because they were not the intended payees at all. Subsequently, the CA reversed
itself. The CA ruled that the checks were payable to order. PNB is liable for the value
of the checks which it paid to PEMSLA without indorsements from the named payees.

ISSUE:
Whether or not the subject checks are payable to order or to bearer and who bears the
losses.

HELD:
When the payee is fictitious or not intended to be the true recipient of the proceeds, the
check is considered as a bearer instrument.
The distinction between bearer and order instruments lies in their manner of
negotiation. Under Section 30 of the NIL, an order instrument requires an indorsement
from the payee or holder before it may be validly negotiated. A bearer instrument, on the other
hand, does not require an indorsement to be validly negotiated. It is negotiable by mere delivery.
A check that is payable to a specified payee is an order instrument. However, under
Section 9(c) of the NIL, a check payable to a specified payee may nevertheless be considered as
a bearer instrument if it is payable to the order of a fictitious or non-existing person, and such
fact is known to the person making it so payable.
US jurisprudence yields that an actual, existing, and living payee may also be "fictitious"
if the maker of the check did not intend for the payee to in fact receive the proceeds of the check.
A check made expressly payable to a non-fictitious and existing person is not necessarily an
order instrument. If the payee is not the intended recipient of the proceeds of the check, the
payee is considered a "fictitious" payee and the check is a bearer instrument.
In a fictitious-payee situation, the drawee bank is absolved from liability and the
drawer bears the loss. When faced with a check payable to fictitious payee, it is treated as
a bearer instrument that can be negotiated by delivery. The underlying theory is that one cannot
expect a fictitious payee to negotiate the check by placing his indorsement thereon.
However, there is a commercial bad faith exception to the fictitious-payee rule. A
showing of commercial bad faith on the part of the drawee bank, or any transferee of the check
for that matter, will work to strip it of this defense. Commercial bad faith is present if the
transferee of the check acts dishonestly, and is a party to the fraudulent scheme.
In the case at bar, the Rodriguez checks were payable to specified payees. It is unrefuted
that the 69 checks were payable to specific persons. Likewise, it is uncontroverted that the
payees were actual, existing, and living persons who were members of PEMSLA that had a
rediscounting arrangement with spouses Rodriguez.
 For the fictitious-payee rule to be available as a defense, PNB must show that the makers
did not intend for the named payees to be part of the transaction involving the checks. At most,
the bank's thesis shows that the payees did not have knowledge of the existence of the checks.
This lack of knowledge on the part of the payees, however, was not tantamount to a lack
of intention on the part of respondents-spouses that the payees would not receive the
checks' proceeds. Considering that respondents-spouses were transacting with PEMSLA
and not the individual payees, it is understandable that they relied on the information given
by the officers of PEMSLA that the payees would be receiving the checks.
Verily, the subject checks are presumed order instruments because PNB failed to present
sufficient evidence to defeat the claim of respondents-spouses that the named payees were the
intended recipients of the checks' proceeds. The fictitious-payee rule does not apply. The drawee
bank bears the loss.
PNB was remiss in its duty as the drawee bank. It does not dispute the fact that
its teller or tellers accepted the 69 checks for deposit to the PEMSLA account even
without any indorsement from the named payees. It bears stressing that order instruments can
only be negotiated with a valid indorsement.
A bank that regularly processes checks that are neither payable to the customer
nor duly indorsed by the payee is apparently grossly negligent in its operations. In a
checking transaction, the drawee bank has the duty to verify the genuineness of the signature of
the drawer and to pay the check strictly in accordance with the drawer's instructions.
PNB had the responsibility to ascertain the regularity of the endorsements, and the
genuineness of the signatures on the checks before accepting them for deposit. Lastly, PNB was
obligated to pay the checks in strict accordance with the instructions of the drawers. Petitioner
miserably failed to discharge this burden. The facts clearly show that the bank did not pay
the checks in strict accordance with the instructions of the drawers, respondents-spouses.
Instead, it paid the values of the checks not to the named payees or their order, but to PEMSLA,
a third party to the transaction between the drawers and the payees.
Moreover, PNB was negligent in the selection and supervision of its employees.
PNB's tellers and officers, in violation of banking rules of procedure, permitted the invalid
deposits of checks to the PEMSLA account. When it is the gross negligence of the bank
employees that caused the loss, the bank should be held liable.
PNB should be held liable for the amounts of the checks.

2) PATRIMONIO vs. Gutierez and Marasigan III

G.R. No. 187769, June 4, 2014

Alvin Patrimonio, petitioner, 
vs.
Napoleon Gutierrez and Octavio Marasigan III, respondents.
 
BRION, J.:

FACTS:
The petitioner, Alvin Patrimonio and the respondent Napoleon Gutierrez
(Gutierrez)entered into a business venture under the name of Slam Dunk Corporation (Slum
Dunk), a production outfit that produced mini-concerts and shows related to basketball.
Patrimonio pre-signed several checks to answer for the expenses of Slam Dunk. Although
signed, these checks had no payee’s name, date or amount. The blank checks were entrusted to
Gutierrez with the specific instruction not to fill them out without previous notification
to and approval by the petitioner. In the middle of 1993, without the petitioner’s knowledge
and consent, Gutierrez went to Marasigan (the petitioner’s former teammate), to secure a loan in
the amount of P200,000.00on the excuse that the petitioner needed the money for the
construction of his house. In addition to the payment of the principal, Gutierrez assured
Marasigan that he would be paid an interest of 5% per month from March to May 1994. In
February 1994, Marasigan agreed to Guiterrez' request. Gutierrez simultaneously delivered to
Marasigan one of the blank checks the petitioner pre-signed with Pilipinas Bank, Greenhills
Branch, Check No. 21001764 with the blank portions filled out with the words "Cash" "Two
Hundred Thousand Pesos Only", and the amount of"P200,000.00". The upper right portion of
the check corresponding to the date was also filled out with the words "May 23, 1994". On May
24, 1994, Marasigan deposited the check but it was dishonored for the reason "ACCOUNT
CLOSED." It was later revealed that the petitioner’s account with the bank had been closed
since May 28, 1993. Marasigan sought recovery from Gutierrez, to no avail. He thereafter sent
several demand letters to the petitioner asking for the payment of P200,000.00, but his demands
likewise went unheeded. Consequently, he filed a criminal case for violation of B.P. 22 against
the petitioner, docketed as Criminal Case No.42816.

ISSUE:

Whether or not Marasigan is a holder in due course.

HELD:

Marasigan is not a holder in due course.

1. Under Sec. 52(c) of the Negotiable Instruments Law, a holder in due course is a
holder that takes the instrument in “good faith and for value.” Marasigan’s
knowledge that the petitioner is not a party or a privy to the contract of loan, and
correspondingly had no obligation or liability to him, renders him dishonest,
hence, in bad faith. Moreover, his inaction and failure to verify, despite
knowledge of that the petitioner was not a party to the loan, may be construed as
gross negligence amounting to bad faith.
 A holder in due course is a holder who took the instrument under the
conditions enumerated under Sec. 52 of the Negotiable Instruments Law. And every holder is
deemed prima facie a holder in due course. In the case of Marasigan, he failed to qualify as a
holder in due course because he did not meet the requirements of Sec. 52, hence, he is subject to
both personal and real defenses as if the instrument is non-negotiable. However, Marasigan still
has the right to recover his money.
Since Marasigan is not a holder in due course, the petitioner can set up a personal defense
that he did not authorize the filling of the blank check, thus, he is not compelled to pay
Marasigan the face value of the check. Moreover, Gutierrez is authorized by the petitioner to use
the check for business expenses only, hence, he exceeded the authority given to him when he
used the check to pay for the loan which can also be used as a personal defense under Sec.14. To
avoid this kind of incident in the future when I’m dealing with negotiable instruments, I should
not exceed the authority given to me by the maker of the instrument so that I can be a holder in
due course subject only to real defenses.

3) REPUBLIC BANK vs. CA

G.R. No. 42725, April 22, 1991

REPUBLIC BANK, Petitioners,

vs.
COURT OF APPEALS and FIRST NATIONAL CITY BANK, Respondent.

GRIÑO-AQUINO, J.:

FACTS:

San Miguel Corporation (SMC) drew a dividend Check for P240 on its account in the
respondent First National City Bank (FNCB) in favor Delgado. After the check had been
delivered to Delgado, the amounton its face was fraudulently and without authority of the
drawer, SMC, altered by increasing it to P9,240. The check was indorsed and deposited by
Delgado in his account with the petitioner Republic Bank. Republic accepted the check for
deposit without ascertaining its genuineness and regularity. Later, Republic endorsed the check
to FNCB by stamping on the back of the check "all prior and/or lack of indorsement guaranteed"
and presented it to FNCB for payment through the Central Bank Clearing House. Believing the
check was genuine, and relying on the guaranty and endorsement of Republic appearing on the
back of the check, FNCB paid P9,240 to Republic through the Central Bank Clearing House.
 SMC notified FNCB of the material alteration in the amount of the check in question.
FNCB lost no time in recrediting P9,240 to SMC. FNCB informed Republic in writing of the
alteration and the forgery of theendorsement of Delgado. By then, Delgado had already
withdrawn his account from Republic. FNCB demanded that Republic refund the P9,240 on the
basis of the latter’s endorsement and guaranty. Republicrefused, claiming there was delay in
giving it notice of the alteration; that it was not guilty of negligence; that it was the drawer’s fault
in drawing the check in such a way as to permit the insertion of numerals increasing the amount;
that FNCB, as drawee, was absolved of any liability to the drawer, thus, FNCB had no right of
recourse against Republic. The trial court rendered judgment ordering Republic to pay FNCB.
The CA affirmed the decision.

ISSUE:

Whether Republic, as the collecting bank, is protected by the 24-hour clearing house rule
from liability to refund the amount paid by FNCB, as drawee of the SMC dividend check.

HELD:

The 24-hour clearing house rule provides that: Items which should be returned for any
reason whatsoever shall be returned directly to the bank, institution or entity from which the item
was received. At the following clearing, the original of the Receipt for Returned Checks shall be
presented through the Clearing Office as a demand against the bank, institution or entity whose
item has been returned. Nothing in this section shall prevent the returned items from being
settled by direct reimbursement to the bank, institution or entity returning the items. All items
cleared at 11:00 o’clock A.M. shall be returned not later than 2:00 o’clock P.M. on the same day
and all items cleared at 3:00 o’clock P.M. shall be returned not later than 8:30 A.M. of the
following business day except for items cleared on Saturday which may be returned not later
than 8:30 A.M. of the following day.
It is true that when an endorsement is forged, the collecting bank or last endorser, as a
general rule, bears the loss. But the unqualified endorsement of the collecting bank on the check
should be read together with the 24-hour regulation on clearing house operation. Thus, when the
drawee bank fails to return a forged or altered check to the collecting bank within the 24-hour
clearing period, the collecting bank is absolved from liability.
It is a settled rule that a person who presents for payment checks, guarantees the
genuineness of the
check, and the drawee bank need concern itself with nothing but the genuineness of the
signature, and the state of the account with it of the drawee. Every bank that issues checks for the
use of its customers should know whether or not the drawer’s signature thereon is genuine,
whether there are sufficient funds in the drawers account to cover checks issued, and it should be
able to detect alterations, erasures, superimpositions or intercalations thereon, for these
instruments are prepared, printed and issued by itself, it has control of the drawer’s account, and
it is supposed to be familiar with the drawer’s signature. It should possess appropriate detecting
devices for uncovering forgeries and/or alterations on these instruments. Unless an alteration is
attributable to the fault or negligence of the drawer himself, such as when he leaves spaces on the
check which would allow the fraudulent insertion of additional numerals in the amount
appearing thereon, the remedy of the drawee bank that negligently clears a forged and/or altered
check for payment is against the party responsible for the forgery or alteration, otherwise, it
bears the loss. It may not charge the amount so paid to the account of the drawer, if the latter was
free from blame, nor recover it from the collecting bank if the latter made payment after proper
clearance from the drawee.
There is nothing inequitable in such a rule for if in the regular course of business, the
check comes to the drawee bank which, having the opportunity to ascertain its character,
pronounces it to be valid and pays it, it is not only a question of payment under mistake, but
payment in neglect of duty which the commercial law places upon it, and the result of its
negligence must rest upon it.
The decision of the CA is reversed and set aside, and another is entered absolving
Republic Bank from liability to refund to the FNCB.

4) YANG vs. CA

G.R. No. 138074, February 29, 1988

CELY YANG, Petitioner,
vs.
HON. COURT OF APPEALS, PHILIPPINE COMMERCIAL INTERNATIONAL BANK,
FAR EAST BANK & TRUST CO., EQUITABLE BANKING CORPORATION, PREM
CHANDIRAMANI and FERNANDO DAVID, Respondents. 

QUISUMBING, J.:

FACTS:

Petitioner Cely Yang agreed with private respondent Prem Chandiramani to procure
from Equitable Banking Corp. and Far East Bank and Trust Company (FEBTC) two cashier’s
checks in the amount of P2.087 million each, payable to Fernando David and FEBTC dollar draft
in the amount of US$200,000.00 payable to PCIB FCDU account No. 4195-01165-2. Yang gave
the checks and the draft to Danilo Ranigo to be delivered to Chandiramani. Ranigo was to meet
Chandiramani to turn over the checks and the dollar draft, and the latter would in turn deliver to
the former Phil. Commercial International Bank (PCIB) manager’s check in the sum of P4.2
million and the dollar draft in the same amount to be issued by Hang Seng Bank Ltd. of
HongKong. But Chandiramani did not appear at the rendezvous and Ranigo allegedly lost the
two cashier’s checks and the dollar draft.
The loss was then reported to the police. It transpired, however that the checks and the
dollar draft were never lost, for Chandiramani was able to get hold of them without delivering
the exchange consideration consisting of PCIB Manager’s checks. Two hours after
Chandiramani was able to meet Ranigo, the former delivered to David the two cashier’s checks
of Yang and, in exchange, got US $360,000 from David, who in turn deposited them.
Chandiramani also deposited the dollar draft in PCIG FCDU No. 4194-0165-2.
Meanwhile, Yang requested FEBTC and Equitable to stop payment on the instruments
she believed
to be lost. Both Banks complied with her request, but upon the representation of PCIB, FEBTC
subsequently lifted the stop payment order on FEBTC Dollar Draft No. 4771, thus, enabling the
holder PCIB FCDU Account No. 4194-0165-2 to receive the amount of US $ 200, 000.

ISSUE:

Whether or not David may be considered a holder in due course?

HELD:

Yes, 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. However, said presumption may be rebutted. Hence, what is vital to
the resolution of this issue is whether David took possession of the checks under the conditions
provided for in Section 52 of the Negotiable Instruments Law. All the requisites provided for in
Section 52 must concur in David’s case; otherwise he cannot be deemed a holder in due course.
With respect to consideration, Section 24 of the Negotiable Instruments Law creates a
presumption that every party to an instrument acquired the same for a consideration or for value.
Thus, the law itself creates a presumption in David’s favor that he gave valuable consideration
for the checks in
question. In alleging otherwise, the petitioner has the onus to prove that David got hold of the
checks absent said consideration. In other words, the petitioner must present convincing evidence
to overthrow the presumption. Our scrutiny of the records, however, shows that the petitioner
failed to discharge her burden of proof. The petitioner’s averment that David did not give
valuable consideration when he took possession of the checks is unsupported, devoid of any
concrete proof to sustain it.