ANG VS ASSOCIATED BANK, ETAL (532 SCRA 

244)
Ang vs Associated Bank, etal
532 SCRA 244 [G.R. No. 146511 September 5, 2007]

Facts: On August 28, 1990, respondent Associated Bank (formerly Associated Banking
Corporation and now known as United Overseas Bank Philippines) filed a collection suit against
Antonio Ang Eng Liong and petitioner Tomas Ang for the two (2) promissory notes that they
executed as principal debtor and co-maker, respectively. In the Complaint, respondent Bank
alleged that on October 3 and 9, 1978, the defendants obtained a loan of P evidenced by a
promissory note bearing PN-No. DVO-78-382, and P 50,000, 30,000, evidenced by a promissory
note bearing PNNo. DVO-78-390. As agreed, the loan would be payable, jointly and severally,
on January 31, 1979 and December 8, 1978, respectively. In addition, subsequent amendments to
the promissory notes as well as the disclosure statements6 stipulated that the loan would earn
14% interest rate per annum, 2% service charge per annum, 1% penalty charge per month from
due date until fully paid, and attorney’s fees equivalent to 20% of the outstanding obligation.
Despite repeated demands for payment, the latest of which were on September 13, 1988 and
September 9, 1986, on Antonio Ang Eng Liong and Tomas Ang, respectively, respondent Bank
claimed that the defendants failed and refused to settle their obligation, resulting in a total
indebtedness of P 539,638.96 as of July 31, 1990. In his Answer, Antonio Ang Eng Liong only
admitted to have secured a loan amounting to P 80,000. He pleaded though that the bank “be
ordered to submit a more reasonable computation” considering that there had been “no correct
and reasonable statement of account” sent to him by the bank, which was allegedly collecting
excessive interest, penalty charges, and attorney’s fees despite knowledge that his business was
destroyed by fire, hence, he had no source of income for several years. For his part, petitioner
Tomas Ang filed an Answer with Counterclaim and Cross-claim. He interposed the affirmative
defenses that: the bank is not the real party in interest as it is not the holder of the promissory
notes, much less a holder for value or a holder in due course; the bank knew that he did not
receive any valuable consideration for affixing his signatures on the notes but merely lent his
name as an accommodation party; he accepted the promissory notes in blank, with only the
printed provisions and the signature of Antonio Ang Eng Liong appearing therein.

Issue: Whether or not Petitioner is liable to the obligation despite being a mere co-maker and
accommodation party.

Held: Yes. Notably, Section 29 of the NIL defines an accommodation party as a person “who
has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value
therefor, and for the purpose of lending his name to some other person.” As gleaned from the
text, an accommodation party is one who meets all the three requisites, viz: (1) he must be a
party to the instrument, signing as maker, drawer, acceptor, or indorser; (2) he must not receive
value therefor; and (3) he must sign for the purpose of lending his name or credit to some other
person. An accommodation party lends his name to enable the accommodated party to obtain
credit or to raise money; he receives no part of the consideration for the instrument but assumes
liability to the other party/ies thereto. The accommodation party is liable on the instrument to a
holder for value even though the holder, at the time of taking the instrument, knew him or her to
be merely an accommodation party, as if the contract was not for accommodation.

As petitioner acknowledged it to be, the relation between an accommodation party and the
accommodated party is one of principal and surety – the accommodation party being the surety.
from the beginning; As such, he is deemed an original promisor and debtor he is considered in
law as the same party as the debtor in relation to whatever is adjudged touching the obligation of
the latter since their liabilities are interwoven as to be inseparable. Although a contract of
suretyship is in essence accessory or collateral to a valid principal obligation, the surety’s
liability to the creditor is immediate, primary and absolute; he is directly and equally bound with
the principal. As an equivalent of a regular party to the undertaking, a surety becomes liable to
the debt and duty of the principal obligor even without possessing a direct or personal interest in
the obligations nor does he receive any benefit therefrom.

In the instant case, petitioner agreed to be “jointly and severally” liable under the two promissory
notes that he co-signed with Antonio Ang Eng Liong as the principal debtor. This being so, it is
completely immaterial if the bank would opt to proceed only against petitioner or Antonio Ang
Eng Liong or both of them since the law confers upon the creditor the prerogative to choose
whether to enforce the entire obligation against any one, some or all of the debtors. Nonetheless,
petitioner, as an accommodation party, may seek reimbursement from Antonio Ang Eng Liong,
being the party accommodated.

Consequently, in issuing the two promissory notes, petitioner as accommodating party warranted
to the holder in due course that he would pay the same according to its tenor. value therefore It is
no defense to state on his part that he did not receive any because the phrase “without receiving
value therefor” used in Sec. 29 of the NIL means “without receiving value by virtue of the
instrument” and not as it is apparently supposed to mean, “without receiving payment for lending
his name.” Stated differently, when a third person advances the face value of the note to the
accommodated party at the time of its creation, the consideration for the note as regards its
maker is the money advanced to the accommodated party. It is enough that value was given for
the note at the time of its creation. As in the instant case, a sum of money was received by virtue
of the notes, hence, it is immaterial so far as the bank is concerned whether one of the signers,
particularly petitioner, has or has not received anything in payment of the use of his name.

Furthermore, since the liability of an accommodation party remains not only primary but also
unconditional to a holder for value, even if the accommodated party receives an extension of the
period for payment without the consent of the accommodation party, the latter is still liable for
the whole obligation and such extension does not release him because as far as a holder for value
is concerned, he is a solidary co-debtor.
Far East Bank & Trust vs Gold
Palace Jewellery Co, G.R. No. 168274,
August 20, 2008
Full Text

Facts: In June 1998, a foreigner, identified as Samuel Tagoe, purchased from the
respondent Gold Palace Jewellery Co. several pieces of jewelry valued
at P258,000.00. In payment of the same, he offered Foreign Draft No. M-069670 issued
by the United Overseas Bank (Malaysia) addressed to the Land Bank of the Philippines,
Manila (LBP), and payable to the respondent company for P380,000.00.

Yang issued Cash Invoice, to the foreigner, informing him that the pieces of jewelry
would be released when the draft had already been cleared. Respondent Julie Yang-
Go, the manager of Gold Palace deposited the draft in the company’s Far East account.
LBP cleared the draft, and GoldPalace’s account with Far East was credited. The
foreigner was then able to get the goods, and because the amount in the draft was
more than the value of the goods purchased, she issued, as his change, Far East
Check No. 173088 for P122,000.00. This check was later presented for encashment
and was, in fact, paid by the said bank.

On June 1998, or after around three weeks, LBP informed Far East that the amount in
said Foreign Draft had been materially altered from P300.00 to P380,000.00 and that it
was returning the same. Intending to debit the amount from respondent’s account, Far
East subsequently refunded the P380,000.00 earlier paid by LBP. Meanwhile, Far
East was able to debit only P168,053.36 from the GoldPalace’s account as the
respondent has already utilized their funds. This was debited without their permission.
The bank informed the GoldPalace later thru a phone call.

On August 1998, petitioner demanded from respondents the payment

of P211,946. Because Gold Palace did not heed the demand, Far East consequently
instituted civil case for sum of money and damages before the RTC in Makati.

RTC ruled in favor of Far East, ordering Gold Palace to pay the former P211,946.64 as
actual damages and P50,000.00 as attorney’s fees. The trial court ruled that, on the
basis of its warranties as a general indorser, Gold Palace was liable to Far East.
 

On appeal, the CA, reversed the ruling of the trial court and awarded respondents’
counterclaim. It ruled in the main that Far East failed to undergo the proceedings on the
protest of the foreign draft or to notify Gold Palace of the draft’s dishonor; thus, Far
East could not charge Gold Palace on its secondary liability as an indorser.

 Issue: Whether or not GoldPalace can be held liable

 Held: No.  Act No. 2031, or the Negotiable Instruments Law (NIL), explicitly provides
that the acceptor, by accepting the instrument, engages that he will pay it according to
the tenor of his acceptance.  His actual payment of the amount in the check implies not
only his assent to the order of the drawer and a recognition of his corresponding
obligation to pay the aforementioned sum, but also, his clear compliance with that
obligation. In this case, the drawee bank cleared and paid the subject foreign draft and
forwarded the amount thereof to the collecting bank. The latter, Far East, then credited
to GoldPalace’s account the payment it received. Following the plain language of the
law, the drawee, by the said payment, recognized and complied with its obligation to
pay in accordance with the tenor of his acceptance. Stated simply, LBP was liable on its
payment of the check according to the tenor of the check at the time of payment, which was
the raised amount.

 SC also notes that Respondent Gold Palace was not a participant in the alteration of
the draft, was not negligent, and was a holder in due course—it received the draft
complete and regular on its face. Gold Palace relied on the drawee bank’s clearance
and payment of the draft. Respondent is also protected by the said Section 62.
Commercial policy favors the protection of any one who, in due course, changes his
position on the faith of the drawee bank’s clearance and payment of a check or draft.

 The fault is in LBP; having the most convenient means to correspond with UOB, did not
first verify the amount of the draft before it cleared and paid the same. Gold Palace, on
the other hand, had no facility to ascertain with the drawer, UOB Malaysia, the true
amount in the draft. Thus, the collecting agent, Far East, should not have debited the
money paid by the drawee bank from respondent company’s account.

When Gold Palace deposited the check with Far East, the latter, under the terms of the
deposit and the provisions of the NIL, became an agent of the former for the collection
of the amount in the draft. Far East then was able to collect from LBP. As the
transaction in this case had been closed and the principal-agent relationship between
the payee (GoldPalace) and the collecting bank (Far East) had already ceased, the
latter in returning the amount to the drawee bank (LBP) was already acting on its own
and should now be responsible for its own actions. The drawee bank had no right to
recover what it paid.

 Likewise, Far East cannot invoke the warranty of the payee/depositor who indorsed the
instrument for collection to shift the burden it brought upon itself. This is precisely
because the said indorsement is only for purposes of collection which, under Section 36
of the NIL, is a restrictive indorsement.[47] It did not in any way transfer the title of the
instrument to the collecting bank. Far East did not own the draft, it merely presented it
for payment. Considering that the warranties of a general indorser as provided in
Section 66 of the NIL are based upon a transfer of title and are available only to holders
in due course. Without any legal right to do so, the collecting bank, therefore, could not
debit respondent’s account for the amount it refunded to the drawee bank.

 SC ruled that, for doing so, Far East must return what it had erroneously taken. The
remedy under the law is not against Gold Palace but against the drawee-bank or the
person responsible for the alteration.

BDO UNIBANK, INC v. LAO

BDO UNIBANK, INC vs. ENGR. SELWYN LAO, doing business under the name and style "SELWYN F.
LAO CONSTRUCTION" AND "WING AN CONSTRUCTION AND DEVELOPMENT CORPORATION" and
INTERNATIONAL EXCHANGE BANK 

G.R. No. 227005

June 19, 2017

Facts:

On March 9, 1999, respondent Engineer Selwyn S. Lao (Lao) filed before the RTC a complaint for
collection of sum of money against Equitable Banking Corporation, now petitioner Banco de Oro Unibank
(BDO), Everlink Pacific Ventures, Inc. (Ever/ink), and Wu Hsieh a.k.a.George Wu (Wu). Lao alleged that
he was doing business under the name and style of "Selwyn Lao Construction"; that he was a majority
stockholder of Wing An Construction and Development Corporation that he entered into a transaction with
Ever link, through its authorizedrepresentative Wu, under which, Everlink would supply him with "HCG
sanitary wares".

Lao further averred that when the checks were encashed, he contacted Everlink for the immediate
delivery of the sanitary wares, but the latter failed to perform its obligation. Later, Lao learned that the
checks were deposited in two different bank accounts at respondent International Exchange Bank, now
respondent Union Bank of the Philippines (UnionBank). He was later informed that the two bank accounts
belonged to Wuand a company named New Wave Plastic (New Wave), represented by a certain Willy
Antiporda (Antiporda). Consequently, Lao was prompted to file a complaint against Everlink and Wu for
their failure to comply with their obligation and against BDO for allowing the encashment of the two (2)
checks. He later withdrew his complaint against Everlink as the corporation had ceased existing.

BDO asserted that it had no obligation to ascertain the owner of the account/s to which the checks were
deposited because the instruction to deposit the said checks to the payee's account only was directed to
the payee and the collecting bank, which in this case was Union Bank; that as the drawee bank, its
obligations consist in examining the genuineness of the signatures appearing on the checks, and paying
the same if there were sufficient funds in the account under which the checks were drawn; and that the
subject checks were properly negotiated and paid in accordance with the instruction of Lao in crossing
them as they were deposited to the account of the payee Ever link with Union Bank, which then presented
them for payment with BDO.

On August 24, 2001, Lao filed an Amended Complaint, wherein he impleaded Union Bank as additional
defendant for allowing the deposit of the crossed checks in two bank accounts other than the payee's, in
violation of its obligation to deposit the same only to the payee's account.

The RTC observed that there was nothing irregular with the transaction of Check No. 0127-242249
because the same was deposited in Everlink's account with Union Bank. It, however, found that Check
No. 0127-242250 was irregularly deposited and encashed because it was not issued for the account of
Everlink, the payee, but for the account of New Wave. The trial court noted further that Check No. 0127-
242250 was not even endorsed by Everlink to New Wave. Thus, it opined that Union Bank was negligent
in allowing the deposit and encashment of the said check without proper endorsement. The R TC wrote
that considering that the subject check was a crossed check, Union Bank failed to take reasonable steps
in order to determine the validity of the representations made by Antiporda. In the end, it adjudged that
BDO could not be held liable because of Union Bank's warranty when it stamped on the check that "all
prior endorsement and/or lack of endorsement guaranteed." The CA affirmed, with modification, the ruling
of the R TC.

Issue:

Whether or not petitioner BDO Unibank, Inc. Is liable to pay Selwyn Lao the amount of Check No. 0127-
242250.

Ruling:

The petition is meritorious.

The Court agrees with the appellate court that in cases of unauthorized payment of checks to a person
other than the payee named therein, the drawee bank may be held liable to the drawer. The drawee bank,
in turn, may seek reimbursement from the collecting bank for the amount of the check. This rule on the
sequence of recovery in case of unauthorized check transactions had already been deeply embedded in
jurisprudence.

The liability of the drawee bank is based on its contract with the drawer and its duty to charge to the
latter's accounts only those payables authorized by him. A drawee bank is under strict liability to pay the
check only to the payee or to the payee's order. When the drawee bank pays a person other than the
payee named in the check, it does not comply with the terms of the check and violates its duty to charge
the drawer's account only for properly payable items.

Nevertheless, even with such clear violation by BDO of its duty, the loss would have ultimately pertained
to Union Bank. By stamping at the back of the subject check the phrase "all prior endorsements and/or
lack of it guaranteed," Union Bank had, for all intents and purposes treated the check as a negotiable
instrument and, accordingly, assumed the warranty of an endorser. Without such warranty, BDO would
not have paid the proceeds of the check. Thus, Union Bank cannot now deny liability after the aforesaid
warranty turned out to be false.

Union Bank was clearly negligent when it allowed the check to be presented by, and deposited in the
account of New Wave, despite knowledge that it was not the payee named therein.

WHEREFORE, the petition is GRANTED. The October 14, 2015 Decision and the September 5, 2016
Resolution of the Court of Appeals in CA-G.R. CV No. 100351 are hereby REVERSED and SET ASIDE
insofar as it ordered petitioner BDO Unibank, Inc. to pay Selwyn Lao the amount of Check No. 0127-
242250. The rest of the decision is AFFIRMED.

QUINTIN LLORENTE vs. STAR CITY PTY. LIMITED 

G.R. No. 212050, 15 January 2020 

FACTS: 

-action for collection of sum of money against Llorente and EPCI bank instituted by Star City Limited

because of Stop Payment Order by Llorente of Bank demand draft due to alleged cheating at the casino.

Star City Pty. Limited (SCPL) is an Australian corporation which operates the Star City Casino

in Sydney, Australia. Claiming that it is not doing business in the Philippines and is suing for an

isolated transaction, it filed on November 25, 2002 through its attorney-in-fact, Jimeno Jalandoni

and Cope Law Offices, a complaint for collection of sum of money with prayer for preliminary

attachment against Quintin Llorente, who was a patron of its Star City Casino and Equitable PCI

Bank (EPCIB). 
SCPL alleged that Llorente is one of the numerous patrons of its casino in Sydney, Australia. As

such, he maintained therein Patron Account Number 471741. On July 12, 2000, he negotiated

two EPCIB bank drafts with check numbers 034967 and 034968 worth US $150,000.00 each or

for the total amount of US $300,000.00 in order to play in the Premium Programme of the

casino. This Premium Programme offers the patron a 1% commission rebate on his turnover at

the gambling table and a .10% rebate for complimentary expenses. Before upgrading Llorente to

this programme, SCPL contacted first EPCIB to check the status of the subject drafts. The latter

confirmed that the same were issued on clear funds without any stop payment orders. Thus,

Llorente was allowed to buy in on a Premium Programme and his front money account in the

casino was credited with US $300,000.00. 

On July 18, 2000, SCPL deposited the subject drafts with Thomas Cook Ltd. On August 1, 2000,

it received the advice of Bank of New York about the “Stop Payment Order” prompting it to

make several demands, the final being on August 22, 2002, upon Llorente to make good his

obligation. However, the latter refused to pay. It likewise asked EPCIB on August 30, 2002 for a

settlement which the latter denied on the ground that it was Llorente who requested the Stop

Payment Order and no notice of dishonor was given. 

Llorente alleged he caused SPO because of SPCL’s commission fraud and unfair gaming

practices.
The RTC Decision ordered Llorente and EPCIB to pay SCPL, jointly and severally, the amount

of US $300,000.00, 5% of the said amount of US $15,000.00 by way of attorney’s fees, and

costs of suit. 

The CA partially modified the RTC’s Decision and absolved EPCIB from any liability. 

ISSUES: 

3) Whether EPCIB is liable for the amount of the subject drafts as a drawer. YES

4) Whether Llorente and EPCIB should be held solidarily liable. 

RULING: 

3) Yes. 

The liability of EPCIB as the drawer cannot be revoked by virtue of the indemnity agreement

because it arises from the subject demand/bank drafts, which are negotiable instruments, that it

issued. Its secondary liability under Section 61 of the Negotiable Instruments Law (NIL) became

primary when the payment of the subject demand/bank drafts had been stopped which had the

same effect as if the instruments had been dishonored and notice thereof was given to the drawer

pursuant to Section 84 of the NIL. Given the nature of the liability of the drawer of a negotiable

instrument, EPCIB’s argument that it is not liable to SCPL because they have no privity of

contract is utterly without merit. 

4) No. 
According to Article 1207 of the Civil Code, there is solidary liability only when the obligation

expressly so states, or when the law or the nature of the obligation requires solidarity. In this

case, there is no contract or agreement wherein the solidary liability of EPCIB is expressly

provided. Under the NIL and the nature of the liability of the drawer, solidary obligation is also

not provided. Thus, EPCIB’s liability is not solidary but primary due to the Stop Payment Order

that Llorente issued against the subject demand/bank drafts.

SHARE
Labels

Civil LawMercantile LawRemedial Law

ISSUE: Whether Llorente and EPCIB are solidarily liable as endorser and drawer of the subject
demand/bank drafts?

RULING While EPCIB is liable as the drawer of the subject draft, there is no legal basis to make
it solidarily liable with Llorente.

RATIO: According to Article 1207 of the Civil Code, there is solidary liability only when the
obligation expressly so states, or when the law or the nature of the obligation requires solidarity.
In this case, there is no contract agreement wherein the solidary liability of EPCIB is expressly
provided. Under the NIL, and the nature of the liability of the drawer, solidary obligation is also
not provided. Thus, EPCIB’s liability is not solidary but primary due to the Stop Payment Order
that Llorente issued against the subject drafts. Consequently, both Llorente and EPCIB are
individually and primarily liable as endorser and drawer of the subject drafts, respectively. SCPL
may proceed to collect the damages hereinafter awarded simultaneously against both Llorente
and EPCIB or alternatively against either Llorente or EPCIB, provided that in no event can
SCPL recover from both more than the damages awarded.

COMMENTS: The case intertwines the Negotiable Instruments Law (NIL) and the provisions
under Solidary Liability, to be specific, the provision under Article 1207 of the Civil Code. The
SC discussed
Section 61 and Section 84 of the NIL, the liability of the drawer and the liability of person
secondarily liable when the instrument is dishonored. In this case, SC held the liability of EPCIB
as the drawer cannot be abrogated by virtue of the Indemnity Agreement because it arises from
the subject drafts, which are negotiable instruments, that it issued. Article 1207 provides, “The
concurrence of two or more creditors or of two or more debtors in one and the same obligation
does not imply that each one of the former has a right to demand, or that each one of the latter is
bound to render, entire compliance with the prestation. There is a solidary liability only when the
obligation expressly so states, or when the law or the nature of the obligation requires solidarity.”
According to Article 1207 of the Civil Code, there is solidary liability only when the obligation
expressly so states, or when the law or the nature of the obligation requires solidarity. The SC
held that the is no contract agreement where EPCIB makes it solidarily liable to Llorente. The
SC pointed that EPCIB’s liability is not solidary but primary due to the Stop Payment Order that
Llorente issued against the subject drafts. The SC gave recourse for SCPL. It may proceed to
collect the damages awarded simultaneously against both Llorente and EPCIB or alternatively
against either Lorente or EPCIB, provided that in no event can SCPL recover from both more
than the damages awarded.