Case 2

Adolph Ramish Inc. vs.
Woodruff (1934)
J. Curtis
SUBJECT: Question on proper indorsement of P/N to Adolph Ramish

MAKER: Woodruff
PAYEE: Craig
INDORSEE/ TRANSFEREE: Adolph Ramish, Inc.
Facts:
 Woodruff issued a note payable to Craig who later indorsed the same to Adolph Ramish.
 Adolph Ramish held the promissory note of Craig for $13,000. Said note matured on Feb 1932. Craig and
Woodruff exchanged their own negotiable notes (each for $10,000) dated February 19 and due in 90 days.
 Craig indorsed the note from Woodruff but it was uncertain as to whether or not it was for collateral security for
Craig’s indebtedness to Adolph Ramish and was thus treated as an issue in the case.
 Transferee Adolph Ramish sued the maker.
 On the back of the note, there were 2 indorsement. The first one reads:
o Interest paid to May 19-1932. Time for payment of principal extended to July 19th, 1932. Gavin W. Craig
 Maker Woodruff interposed the defense of his right to offset against the original payee: Woodruff admitted the
note’s execution but denied title of Adolph Ramish, saying that the note was delivered for inspection and
investigation only. He also alleged that note served as collateral security for the $6,820 balance of the note and
that Adolph Ramish was not a holder in due course because it did not take the note by negotiation under proper
indorsement and thus was subject to the available defenses.
 Craig’s second indorsement at the back of the note reads
o “For value received I hereby waive presentation of the within note to the maker demand of payment,
protest and notice of non-payment, and to guarantee payment of the same, and all of the expenses of
collection thereof including attorney’s fees, incurred in enforcing this guaranty and do hereby without
notice, expressly consent to the delay or indulgence of enforcing payment and to express extension of the
time of payment of the same.”
(Sgd) Gavin W. Craig
 Defense of Woodruff as to second indorsement: Indorsement by Craig did not amount to a commercial
indorsement but was only a mere guaranty which does not operate as a transfer which cuts off the maker’s
defenses.
ISSUES + RULING
Was the note rendered nonnegotiable by the inclusion of the provision with regard to attorney's fees and that it had been
materially altered before its delivery to the plaintiff by the extension of time endorsed on the back? NO.
 The note contained a stipulation that the 'makers, sureties, guarantors and endorsers of this note hereby consent
to extensions of time at or after the maturity hereof', and that Craig testified that the extension was in his
handwriting and that he made it in the presence of Woodruff. So, if the extension did amount to a material
alteration, it was consented to and authorized by the defendant
 With respect to the provision for attorney's fees, the contention is made that it does not limit the payment of the
costs of collection and attorney's fees to the event that payment is not made at maturity, but provides for their
payment in any event, and, since such a provision is not authorized by the negotiable instruments law the note is
nonnegotiable. Court cited Hutson vs. Rankin: 'if a note is paid promptly at maturity no attorney fee or other costs
of collection could accrue, and if the c(l)ause here under consideration is to be given its natural and ordinary
construction, it means that if the note is collected by an attorney after maturity, the maker agrees to pay a
reasonable attorney fee
Was the indorsement an indorsement or just a mere guaranty? INDORSEMENT  ORDINARY COMMERCIAL
INDORSEMENT.
 There was an indorsement and the holder is not a mere assignee who is subject to the maker’s defenses.
 There is a wide difference between writing on a separate piece of paper and a payee's writing
something over his name on the back of a promissory note. If he should simply write his name on a
separate sheet of blank paper, it would bind him to nothing; but if he writes his name on the back of a
promissory note payable to his order, he becomes an endorser. So, if he should write an assignment, or
a guaranty, or some other agreement, on a separate sheet of paper, and sign it, that would be a
distinct contract; but when he writes his name upon the back of a note payable to his order, the
1
addition of words which either limit or enlarge the usual liability on his part which would arise from a
blank endorsement does not destroy the fact that the entry is an endorsement upon a negotiable
paper, or prevent its efficacy as a method of passing the legal title upon negotiation at least unless
there is something in the endorsement to show an intention to destroy the negotiable character of the
paper
 Court cited 2 views:
o Minority view: A guaranty placed on a bill or note does not constitute a commercial negotiation. The
guaranty is considered a separate contract.
 Guaranty placed on a bill or note does not constitute a commercial negotiation thereof,
that the guaranty is a separate contract and that there is either no transfer or it
operates as an assignment, the transferee taking subject to the equities of the maker,
and this upon the theory that a blank endorsement admits of the implications of its
terms only because of the fact that it is in blank and that where, as here, the contract is
express, no other terms may be implied
o Majority view: These are the better reasoned arguments and are in accordance with the policy of
free circulation of commercial paper as a substitute for money.
 A person placing his signature in the instrument, aside from doing so as maker, drawer or
acceptor is deemed to be an indorser unless there is a clear indication through the words
of being bound in another capacity.
 Tendency of the law, when the status of a party who places his name upon the back of
a negotiable instrument is under consideration, is to resolve all doubtful cases
towards holding the same to be a commercial endorsement in due course. This rule is
founded upon commercial necessity. The unshackled circulation of negotiable notes is
a matter of great importance. The different forms of commercial instruments take the
place of money. To require each assignee, before accepting them, to inquire into and
investigate every circumstance bearing upon the original execution and to take
cognizance of all the equities between the original parties, would utterly destroy their
commercial value and seriously impede business transactions.
 Test of general indorsement: Transferor’s intention to assume the obligations of a general indorsement.
 As applied to the facts: Words of guaranty being words of enlargement rather than words of limitation, it may fairly
be inferred that the transferor’s intent was to assume the burdens of indorsement, and in addition, the
unconditional liability of one who guarantees payment
 The evidence is conflicting with regard to Woodruff’s argument that the note was delivered for inspection and
investigation purposes, along with an allegation that there was no meeting of the minds and that there was no
authorization to deliver the note as collateral security.
DISPOSITIVE: Judgment reversed.
Bank of America, NT and SA vs. Associated

Citizens Bank G.R. No. 141001, May
21, 2009
MARCH 16, 2014LEAVE A COMMENT
The Bank is under strict liability, based on the contract between the bank and its customer (drawer), to pay the check only to the payee or the payee’s
order. The drawer’s instructions are reflected on the face and by the terms of the check. When the drawee bank pays a person other than the payee
named on 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.
Facts: BA-Finance Corporation (BA Finance) and Miller Offset Press, Inc. (Miller) entered into a credit line facility agreement whereby Miller can discount and
assign its trade receivables with the BA Finance. At the same time, Uy Kiat Chung, Ching Uy Seng, and Uy Chung Guan Seng, acting for Miller, executed a
Continuing Suretyship Agreement with BA-Finance. Under the agreement, they jointly and severally guaranteed the full and prompt payment of any and all
indebtedness which Miller may incur with BA-Finance.
Miller discounted and assigned several trade receivables to BA-Finance by executing Deeds of Assignment in favor of the latter. In consideration thereof, BA-
Finance issued four checks payable to the order of Miller with the notation “For Payee’s Account Only.” These checks were drawn against Bank of America. The
2
four checks were deposited by Ching Uy Seng in Associated Citizens Bank with his joint account with Uy Chung Seng. Associated Bank stamped the checks and
guaranteed all prior endorsements and/or lack of endorsements and sent them through clearing. Later, Bank of America as drawee bank honored the checks and
paid the proceeds to Associated Bank as the collecting bank. When Miller failed to deliver to BA-Finance the proceeds of the assigned trade receivables, BA-
Finance filed a collection suit against Miller and impleaded the three representative of the latter.
Bank of America filed a third party complaint against Associated Bank. In its answer to the third party complaint, Associated Bank admitted having received the
four checks for deposit in the joint account of Ching Uy Seng and Uy Chung Guan Seng, but alleged that Ching Uy Seng, being one of the corporate officers of
Miller, was duly authorized to act for and on behalf of Miller.
Issues: Whether or not Bank of America is liable to pay BA-Finance and whether or not Associated Bank should reimburse Bank of America the amount of the four
checks.
Held: The bank on which a check is drawn, known as the drawee bank, is under strict liability, based on the contract between the bank and its customer
(drawer), to pay the check only to the payee or the payee’s order. The drawer’s instructions are reflected on the face and by the terms of the check. When the
drawee bank pays a person other than the payee named on 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. On the part of Associated Bank, the law imposes a duty of diligence on the collecting bank to scrutinize checks deposited
with it for the purpose of determining their genuineness and regularity. The collecting bank being primarily engaged in banking holds itself out to the public as the
expert and the law holds it to a high standard of conduct. In presenting the checks for clearing and for payment, the defendant [collecting bank] made an express
guarantee on the validity of “all prior endorsements.” Thus, stamped at the back of the checks are the defendant’s clear warranty. As the warranty has proven to
be false and inaccurate, Associated Bank is liable for any damage arising out of the falsity of its representation.
Held: 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. This Court has recognized the unique public interest possessed by the banking industry and the need for the people to have full trust and confidence in
their banks. For this reason, banks are minded to treat their customer’s accounts with utmost care, confidence, and honesty. 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, i.e., to the
named payee in the check. It should charge to the drawer’s accounts only the payables authorized by the latter. Otherwise, the drawee will be violating the
instructions of the drawer and it shall be liable for the amount charged to the drawer’s account. Rodriguez checks are payable to order since the bank failed to
prove that the named payees therein are fictitious.
Hence, the fictitious-payee rule which will make the instrument payable to bearer does not apply. PNB 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.
G.R. No. 179952 December 4, 2009
METROPOLITAN BANK AND TRUST COMPANY (formerly ASIANBANK CORPORATION), Petitioner,

vs.
BA FINANCE CORPORATION and MALAYAN INSURANCE CO., INC., Respondents.
DECISION
CARPIO MORALES, J.:
Lamberto Bitanga (Bitanga) obtained from respondent BA Finance Corporation (BA Finance) a ₱329,280 1 loan to secure which, he mortgaged his car to
respondent BA Finance.2 The mortgage contained the following stipulation:
The MORTGAGOR covenants and agrees that he/it will cause the property(ies) hereinabove mortgaged to be insured against loss or damage by
accident, theft and fire for a period of one year from date hereof with an insurance company or companies acceptable to the MORTGAGEE in an amount
not less than the outstanding balance of mortgage obligations and that he/it will make all loss, if any, under such policy or policies, payable to the
MORTGAGEE or its assigns as its interest may appear x x x.3 (emphasis and underscoring supplied)
Bitanga thus had the mortgaged car insured by respondent Malayan Insurance Co., Inc. (Malayan Insurance) 4 which issued a policy stipulating that, inter
alia,
Loss, if any shall be payable to BA FINANCE CORP. as its interest may appear. It is hereby expressly understood that this policy or any renewal thereof,
shall not be cancelled without prior notification and conformity by BA FINANCE CORPORATION. 5 (emphasis and underscoring supplied)
The car was stolen. On Bitanga’s claim, Malayan Insurance issued a check payable to the order of "B.A. Finance Corporation and Lamberto Bitanga" for
₱224,500, drawn against China Banking Corporation (China Bank). The check was crossed with the notation "For Deposit Payees’ Account Only." 6
Without the indorsement or authority of his co-payee BA Finance, Bitanga deposited the check to his account with the Asianbank Corporation
(Asianbank), now merged with herein petitioner Metropolitan Bank and Trust Company (Metrobank). Bitanga subsequently withdrew the entire proceeds
of the check.
In the meantime, Bitanga’s loan became past due, but despite demands, he failed to settle it.
BA Finance eventually learned of the loss of the car and of Malayan Insurance’s issuance of a crossed check payable to it and Bitanga, and of Bitanga’s
depositing it in his account at Asianbank and withdrawing the entire proceeds thereof.
3
BA Finance thereupon demanded the payment of the value of the check from Asianbank 7 but to no avail, prompting it to file a complaint before the
Regional Trial Court (RTC) of Makati for sum of money and damages against Asianbank and Bitanga,8 alleging that, inter alia, it is entitled to the entire
proceeds of the check.
In its Answer with Counterclaim,9 Asianbank alleged that BA Finance "instituted [the] complaint in bad faith to coerce [it] into paying the whole amount of
the CHECK knowing fully well that its rightful claim, if any, is against Malayan [Insurance]." 10
Asianbank thereafter filed a cross-claim against Bitanga,11 alleging that he fraudulently induced its personnel to release to him the full amount of the
check; and that on being later informed that the entire amount of the check did not belong to Bitanga, it took steps to get in touch with him but he had
changed residence without leaving any forwarding address.12
And Asianbank filed a third-party complaint against Malayan Insurance,13 alleging that Malayan Insurance was grossly negligent in issuing the check
payable to both Bitanga and BA Finance and delivering it to Bitanga without the consent of BA Finance. 14
Bitanga was declared in default in Asianbank’s cross-claim.15
Branch 137 of the Makati RTC, finding that Malayan Insurance was not privy to the contract between BA Finance and Bitanga, and noting the claim of
Malayan Insurance that it is its policy to issue checks to both the insured and the financing company, held that Malayan Insurance cannot be faulted for
negligence for issuing the check payable to both BA Finance and Bitanga.
The trial court, holding that Asianbank was negligent in allowing Bitanga to deposit the check to his account and to withdraw the proceeds thereof,
without his co-payee BA Finance having either indorsed it or authorized him to indorse it in its behalf, 16 found Asianbank and Bitanga jointly and severally
liable to BA Finance following Section 41 of the Negotiable Instruments Law and Associated Bank v. Court of Appeals. 17
Thus the trial court disposed:
WHEREFORE, premises considered, judgment is hereby rendered ordering defendants Asian Bank Corporation and Lamberto Bitanga:
1) To pay plaintiff jointly and severally the sum of P224,500.00 with interest thereon at the rate of 12% from September 25, 1992 until fully paid;
2) To pay plaintiff the sum of P50,000.00 as exemplary damages; P20,000.00 as actual damages; P30,000.00 as attorney’s fee; and
3) To pay the costs of suit.
Asianbank’s and Bitanga’s [sic] counterclaims are dismissed.
The third party complaint of defendant/third party plaintiff against third-party defendant Malayan Insurance, Co., Inc. is hereby dismissed. Asianbank is
ordered to pay Malayan attorney’s fee of P50,000.00 and a per appearance fee of P500.00.
On the cross-claim of defendant Asianbank, co-defendant Lamberto Bitanga is ordered to pay the former the amounts the latter is ordered to
pay the plaintiff in Nos. 1, 2 and 3 above-mentioned.
SO ORDERED.18 (emphasis and underscoring supplied)
Before the Court of Appeals, Asianbank, in its Appellant’s Brief, submitted the following issues for consideration:
3.01.1.1 Whether BA Finance has a cause of action against Asianbank.
3.01.1.2 Assuming that BA Finance has a valid cause of action, may it claim from Asianbank more than one-half of the value of the
check considering that it is a mere co-payee or joint payee of the check?
3.01.1.3 Whether BA Finance is liable to Asianbank for actual and exemplary damages for wrongfully bringing the case to court.
3.01.1.4 Whether Malayan is liable to Asianbank for reimbursement of any sum of money which this Honorable Court may award to
BA Finance in this case.19 (underscoring supplied)
And it proffered the following arguments:
A. BA Finance has no cause of action against Asianbank as it has no legal right and title to the check considering that the check was not delivered to BA
Finance. Hence, BA Finance is not a holder thereof under the Negotiable Instruments Law.
B. Asianbank, as collecting bank, is not liable to BA Finance as there was no privity of contract between them.
4
C. Asianbank, as collecting bank, is not liable to BA Finance, considering that, as the intermediary between the payee and the drawee Chinabank,
it merely acted on the instructions of drawee Chinabank to pay the amount of the check to Bitanga, hence, the consequent damage to BA Finance was
due to the negligence of Chinabank.
D. Malayan’s act of issuing and delivering the check solely to Bitanga in violation of the "loss payee" clause in the Policy, is the proximate cause of the
alleged damage to BA Finance.
E. Assuming Asianbank is liable, BA Finance can claim only his proportionate interest on the check as it is a joint payee thereof.
F. Bitanga alone is liable for the amount to BA Finance on the ground of unjust enrichment or solutio indebiti.
G. BA Finance is liable to pay Asianbank actual and exemplary damages.20 (underscoring supplied)
The appellate court, "summarizing" the errors attributed to the trial court by Asianbank to be "whether…BA Finance has a cause of action against [it]
even if the subject check had not been delivered to…BA Finance by the issuer itself," held in the affirmative and accordingly affirmed the trial court’s
decision but deleted the award of ₱20,000 as actual damages.21
Hence, the present Petition for Review on Certiorari22 filed by Metrobank (hereafter petitioner) to which Asianbank was, as earlier stated, merged,
faulting the appellate court
I. x x x in applying the case of Associated Bank v. Court of Appeals, in the absence of factual similarity and of the legal relationships necessary for the
application of the desirable shortcut rule. x x x
II. x x x in not finding that x x x the general rule that the payee has no cause of action against the collecting bank absent delivery to him must be applied.
III. x x x in finding that all the elements of a cause of action by BA Finance Corporation against Asianbank Corporation are present.
IV. x x x in finding that Article 1208 of the Civil Code is not applicable.
V. x x x in awarding of exemplary damages even in the absence of moral, temperate, liquidated or compensatory damages and a finding of fact that
Asianbank acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.
xxxx
VII. x x x in dismissing Asianbank’s counterclaim and Third Party complaint [against Malayan Insurance].23 (italics in the original; underscoring supplied)
Petitioner proffers the following arguments against the application of Associated Bank v. CA to the case:
x x x [T]he rule established in the Associated Bank case has provided a speedier remedy for the payee to recover from erring collecting banks despite
the absence of delivery of the negotiable instrument. However, the application of the rule demands careful consideration of the factual settings and
issues raised in the case x x x.
One of the relevant circumstances raised in Associated Bank is the existence of forgery or unauthorized indorsement. x x x
xxxx
In the case at bar, Bitanga is authorized to indorse the check as the drawer names him as one of the payees. Moreover, his signature is not a forgery
nor has he or anyone forged the signature of the representative of BA Finance Corporation. No unauthorized indorsement appears on the check.
xxxx
Absent the indispensable fact of forgery or unauthorized indorsement, the desirable shortcut rule cannot be applied, 24 (underscoring supplied)
The petition fails.
Section 41 of the Negotiable Instruments Law provides:
Where an instrument is payable to the order of two or more payees or indorsees who are not partners, all must indorse unless the one indorsing has
authority to indorse for the others. (emphasis and underscoring supplied)
Bitanga alone endorsed the crossed check, and petitioner allowed the deposit and release of the proceeds thereof, despite the absence of authority of
Bitanga’s co-payee BA Finance to endorse it on its behalf.25
5
Denying any irregularity in accepting the check, petitioner maintains that it followed normal banking procedure. The testimony of Imelda Cruz,
Asianbank’s then accounting head, shows otherwise, however, viz:
Q Now, could you be familiar with a particular policy of the bank with respect to checks with joined (sic) payees?
A Yes, sir.
Q And what would be the particular policy of the bank regarding this transaction?
A The bank policy and procedure regarding the joint checks. Once it is deposited to a single account, we are not accepting joint checks for
single account, depositing to a single account (sic).
Q What happened to the bank employee who allowed this particular transaction to occur?
A Once the branch personnel, the bank personnel (sic) accepted it, he is liable.
Q What do you mean by the branch personnel being held liable?
A Because since (sic) the bank policy, we are not supposed to accept joint checks to a [single] account, so we mean that personnel would be
held liable in the sense that (sic) once it is withdrawn or encashed, it will not be allowed.
Q In your experience, have you encountered any bank employee who was subjected to disciplinary action by not following bank policies?
A The one that happened in that case, since I really don’t know who that personnel is, he is no longer connected with the bank.
Q What about in general, do you know of any disciplinary action, Madam witness?
A Since there’s a negligence on the part of the bank personnel, it will be a ground for his separation [from] the bank. 26 (emphasis, italics and
underscoring supplied)
Admittedly, petitioner dismissed the employee who allowed the deposit of the check in Bitanga’s account.
Petitioner’s argument that since there was neither forgery, nor unauthorized indorsement because Bitanga was a co-payee in the subject check, the
dictum in Associated Bank v. CA does not apply in the present case fails. The payment of an instrument over a missing indorsement is the equivalent of
payment on a forged indorsement27 or an unauthorized indorsement in itself in the case of joint payees.28
Clearly, petitioner, through its employee, was negligent when it allowed the deposit of the crossed check, despite the lone endorsement of Bitanga,
ostensibly ignoring the fact that the check did not, it bears repeating, carry the indorsement of BA Finance. 29
As has been repeatedly emphasized, the banking business is imbued with public interest such that the highest degree of diligence and highest
standards of integrity and performance are expected of banks in order to maintain the trust and confidence of the public in general in the banking
sector.30 Undoubtedly, BA Finance has a cause of action against petitioner.
Is petitioner liable to BA Finance for the full value of the check?
Petitioner, at all events, argue that its liability to BA Finance should only be one-half of the amount covered by the check as there is no indication in the
check that Bitanga and BA Finance are solidary creditors to thus make them presumptively joint creditors under Articles 1207 and 1208 of the Civil Code
which respectively provide:
Art. 1207. 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 prestations. There is a solidary liability only when the
obligation expressly so states, or when the law or the nature of the obligation requires solidarity.
Art. 1208. If from the law, or the nature or wording of the obligations to which the preceding article refers to the contrary does not appear, the credit or
debt shall be presumed to be divided into as many equal shares as there are creditors or debtors , the debts or credits being considered distinct from one
another, subject to the Rules of Court governing the multiplicity of suits.
Petitioner’s argument is flawed.
The provisions of the Negotiable Instruments Law and underlying jurisprudential teachings on the black-letter law provide definitive justification for
petitioner’s full liability on the value of the check.
To be sure, a collecting bank, Asianbank in this case, where a check is deposited and which indorses the check upon presentment with the drawee
bank, is an indorser.[31] This is because in indorsing a check to the drawee bank, a collecting bank stamps the back of the check with the phrase "all prior
endorsements and/or lack of endorsement guaranteed" 32 and, for all intents and purposes, treats the check as a negotiable instrument, hence, assumes
6
the warranty of an indorser. 33 Without Asianbank’s warranty, the drawee bank (China Bank in this case) would not have paid the value of the subject
check.
Petitioner, as the collecting bank or last indorser, generally suffers the loss because it has the duty to ascertain the genuineness of all prior indorsements
considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to
ascertain the genuineness of prior indorsements. 34
Accordingly, one who credits the proceeds of a check to the account of the indorsing payee is liable in conversion to the non-indorsing payee for the
entire amount of the check.35
It bears noting that in petitioner’s cross-claim against Bitanga, the trial court ordered Bitanga to return to petitioner the entire value of the check ─
₱224,500.00 ─ with interest as well as damages and cost of suit. Petitioner never questioned this aspect of the trial court’s disposition, yet it now prays
for the modification of its liability to BA Finance to only one-half of said amount. To pander to petitioner’s supplication would certainly amount to unjust
enrichment at BA Finance’s expense. Petitioner’s remedy—which is the reimbursement for the full amount of the check from the perpetrator of the
irregularity — lies with Bitanga.
Articles 1207 and 1208 of the Civil Code cannot be applied to the present case as these are completely irrelevant. The drawer, Malayan Insurance in
this case, issued the check to answer for an underlying contractual obligation (payment of insurance proceeds). The obligation is merely reflected in the
instrument and whether the payees would jointly share in the proceeds or not is beside the point.
Moreover, granting petitioner’s appeal for partial liability would run counter to the existing principles on the liabilities of parties on negotiable instruments,
particularly on Section 68 of the Negotiable Instruments Law which instructs that joint payees who indorse are deemed to indorse jointly and
severally.36 Recall that when the maker dishonors the instrument, the holder thereof can turn to those secondarily liable — the indorser — for
recovery.37 And since the law explicitly mandates a solidary liability on the part of the joint payees who indorse the instrument, the holder thereof
(assuming the check was further negotiated) can turn to either Bitanga or BA Finance for full recompense.
Respecting petitioner’s challenge to the award by the appellate court of exemplary damages to BA Finance, the same fails. Contrary to petitioner’s claim
that no moral, temperate, liquidated or compensatory damages were awarded by the trial court, 38 the RTC did in fact award compensatory or actual
damages of ₱224,500, the value of the check, plus interest thereon.
Petitioner argues, however, that assuming arguendo that compensatory damages had been awarded, the same contravened Article 2232 of the Civil
Code which provides that in contracts or quasi-contracts, the court may award exemplary damages only if the defendant acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner. Since, so petitioner concludes, there was no finding that it acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner, 39 it is not liable for exemplary damages.
The argument fails. To reiterate, petitioner’s liability is based not on contract or quasi-contract but on quasi-delict since there is no pre-existing
contractual relation between the parties. 40 Article 2231 of the Civil Code, which provides that in quasi-delict, exemplary damages may be granted if the
defendant acted with gross negligence, thus applies. For "gross negligence" implies a want or absence of or failure to exercise even slight care or
diligence, or the entire absence of care,41 evincing a thoughtless disregard of consequences without exerting any effort to avoid them. 42
x x x The law allows the grant of exemplary damages to set an example for the public good. The business of a bank is affected with public interest; thus
it makes a sworn profession of diligence and meticulousness in giving irreproachable service. For this reason, the bank should guard against in injury
attributable to negligence or bad faith on its part. The award of exemplary damages is proper as a warning to [the petitioner] and all concerned not to
recklessly disregard their obligation to exercise the highest and strictest diligence in serving their depositors.43 (Italics and underscoring supplied)
As for the dismissal by the appellate court of petitioner’s third-party complaint against Malayan Insurance, the same is well-taken. Petitioner based its
third-party complaint on Malayan Insurance’s alleged gross negligence in issuing the check payable to both BA Finance and Bitanga, despite the
stipulation in the mortgage and in the insurance policy that liability for loss shall be payable to BA Finance. 44 Malayan Insurance countered, however,
that it
x x x paid the amount of ₱224,500 to ‘BA Finance Corporation and Lamberto Bitanga’ in compliance with the decision in the case of "Lamberto Bitanga
versus Malayan Insurance Co., Inc., Civil Case No. 88-2802, RTC-Makati Br. 132, and affirmed on appeal by the Supreme Court [3rd Division], G.R. no.
101964, April 8, 1992 x x x.45 (underscoring supplied)
It is noted that Malayan Insurance, which stated that it was a matter of company policy to issue checks in the name of the insured and the financing
company, presented a witness to rebut its supposed negligence. 46 Perforce, it thus wrote a crossed check with joint payees so as to serve warning that
the check was issued for a definite purpose.47 Petitioner never ever disputed these assertions.
The Court takes exception, however, to the appellate court’s affirmance of the trial court’s grant of legal interest of 12% per annum on the value of the
check. For the obligation in this case did not arise out of a loan or forbearance of money, goods or credit. While Article 1980 of the Civil Code provides
that:
Fixed savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan,
said provision does not find application in this case since the nature of the relationship between BA Finance and petitioner is one of agency whereby
petitioner, as collecting bank, is to collect for BA Finance the corresponding proceeds from the check. 48 Not being a loan or forbearance of money, the
interest should be 6% per annum computed from the date of extrajudicial demand on September 25, 1992 until finality of judgment; and 12% per annum
from finality of judgment until payment, conformably with Eastern Shipping Lines, Inc. v. Court of Appeals. [49]
7
WHEREFORE, the Decision of the Court of Appeals dated May 18, 2007 is AFFIRMED with MODIFICATION in that the rate of interest on the judgment
obligation of ₱224,500 should be 6% per annum, computed from the time of extrajudicial demand on September 25, 1992 until its full payment before
finality of judgment; thereafter, if the amount adjudged remains unpaid, the interest rate shall be 12% per annum computed from the time the judgment
becomes final and executory until fully satisfied.
Costs against petitioner.
SO ORDERED.
Clark vs Sellner GR No. 16477, 22 Nov 1921
Fact:
Plaintiff, obtained a promissory note signed by W. H. Clark and the defendant. When the notes fell
due, no payment was remitted to the Plaintiff. The plaintiff filed an action against the defendant for
the collection of the said note. The defendant argued that he is only an accommodating party and not
liable to pay the amount due. He also argued that he did not received the said value, hence this case.
Issue:
Whether the Defendant was an accommodating party and is not liable to pay the Negotiable
Instrument.
Held:
No, the defendant is not an accommodating party and is liable to pay the said instrument. it should
be taken into account that by putting his signature to the note, he lent his name, not to the creditor,
but to those who signed with him placing himself with respect to the creditor in the same position
and with the same liability as the said signers. It should be noted that the phrase “without receiving
value therefor,” as used in section 29 of the aforesaid Act, means “without receiving value by virtue of
the instrument” and not, as it apparently is supposed to mean, “without receiving payment for lending
his name.” If, as in the instant case, a sum of money was received by virtue of the note, it is
immaterial, so far as the creditor is concerned, whether one of the singers has, or has not, received
anything in payment of the use of his name. In reality the legal situation of the defendant in this case
may properly be regarded as that of a joint surety rather than that of an accommodation party. The
defendant, as a joint surety, may, upon the maturity of the note, pay the debt, demand the collateral
security and dispose of it to his benefit; but there is no proof whatever that this was done. As to the
plaintiff, he is the “holder for value,” under the phrase of said section 29, for he had paid the money to
the signers at the time the note was executed and delivered to him.
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8
ACUNA V. VELOSO
50 PHIL 241

FACTS:
At the time of execution of the note, Xavier was the agent of Veloso in the management of the latter’s real property in Manila. Though lacking in capital,
Xavier was engaged in real estate trading, so far as his credit permitted, upon his own account. His attention was then attracted to a
piece of property, which was then on the market. Xavier communicated to his principal his desire to acquire the property and at the same time requested
that Veloso assist him in the matter. Veloso was later convinced to help out Xavier. Thereafter, Gonzales lent a helping hand by advancing the money needed by
Xavier, on the condition that a note should be issued jointly and severally by Xavier and Veloso; and that Xavier should agree to purchase ½ interest from
Gonzales which the latter possessed in a
mortgage credit.

MANILA, .................................................

On or before six months after date we will jointly and severally pay in
Manila to the order of ........................... the sum of twenty-five thousand
pesos (P25,000), Philippine currency, for value received of the same in
cash, for commercial operations, and with interest at 10 per cent per
annum, payable monthly.

Protest waived.

(Sgd.) N XAVIER

M. G. VELOSO.

Witness:

Sgd.) MODESTO ALBERTO

The sale of the property ensued. It was found out that the property has already been encumbered by a mortgage with Shanghai Life. And as the value of the
property was more than the property mortgaged by Xavier, Gonzales demanded another second mortgage.

A foreclosure proceeding took place and while the result of such was pending, the note was transferred to the hands of Acuna who filed an action
against Veloso and Xavier, both of which denied liability. Xavier posed the special defense that he had executed a second mortgage to
secure the note and that he already sold the mortgaged property and another has assumed the indebtedness.

The trial court decided that Veloso and Xavier were solidarily liable to Acuna/Gonzales. Nonetheless, Veloso was held to be an accommodation
party, who has a right to reimbursement from Xavier for whatever he may pay for the note.

HELD:
The case being cited by defendants is not applicable to the case at bar. The case of Rylee v. Wilkinson contemplates a situation wherein an
accommodation maker executes a note in favor of an accommodated party. In the case at bar, the accommodation party and accommodated party
execute a note jointly and severally to a person who advances the face value of the note to one of its makers at the very time of its creation. The
consideration for the note is the money advanced to Xavier. Value was given for the note and that is enough. In equity as between Veloso and
Xavier, Veloso is entitled to the rights as a surety and Xavier is the real debtor; but as to the creditor who gave value for the note at the time of its
creation, both of Veloso and Xavier are mere joint and several makers.
Negotiable Instruments Case Digest: Ang Tiong V. Ting (1968)

FACTS:
 August 15, 1960: Lorenzo Ting issued Philippine Bank of Communications check K-81618, w/ sum of
P4,000, payable to "cash or bearer"
 With Felipe Ang's signature (indorsement in blank) at the back thereof, the instrument was received by the
Ang Tiong who presented it to the drawee bank for payment but it was dishonored
 Ting made a written demand to both Ting and Ang to no avail
 March 6, 1962: Municipal Court of Manila favored Tiong against Ting and Ang
 CA: ordered Ang to pay with interest
 Ang contends that he is an accomodating indorser
ISSUE: W/N Ang is an accomodating indorser and not a general indorser a
HELD: NO. Affirmed
9
 Section 63 of the Negotiable Instruments Law: a person placing his signature upon an instrument otherwise
than as maker, drawer or acceptor = a general indorser, — unless he clearly indicates plaintiff appropriate
words his intention to be bound in some other capacity
 warrants:
 (a) that the instrument is genuine and in all respects what it purports to be;
 (b) that he has a good title to it;
 (c) that all prior parties have capacity to contract; and
 (d) that the instrument is at the time of his indorsement valid and subsisting
 Even on the assumption that the appellant is a mere accommodation party, as he professes to be, he is by the
clear mandate of section 29 of the Negotiable Instruments Law, "liable on the instrument to a holder for
value, notwithstanding that such holder at the time of taking the instrument knew him to be only an
accommodation party."
 It is not a valid defense that the accommodation party did not receive any valuable consideration when he
executed the instrument.
 Nor is it correct to say that the holder for value is not a holder in due course merely because at the time he
acquired the instrument, he knew that the indorser was only an accommodation party.
 assuming him to be an accommodation indorser, may obtain security from the maker to protect himself
against the danger of insolvency of the latter, cannot in any manner affect his liability to the Tiong, as the
said remedy is a matter of concern exclusively between accommodation indorser and accommodated party.
 The liability of the appellant remains primary and unconditional.
Negotiable Instruments Case Digest: Prudencio V. CA (1986)
FACTS:
 Oct 7 1954: Eulalio and Elisa Prudencios, registered owners of a parcel of land mortgaged to Philippine National Bank (PNB) to guarantee a loan of P1,000.00
extended to Domingo Prudencio
 1955: Concepcion & Tamayo Construction Company (Concepcion) had a pending contract with the Bureau of Public Works (Bureau) for the construction of the
municipal building in Puerto Princess, Palawan amounting to P36,800.00
 In need of funds, Jose Toribio, Concepcions' relative, and attorney-in-fact of the Company, approached PNB to mortgage their property to secure the loan of
P10,000.00 w/ PNB.
 The terms and conditions of the original mortgage for Pl,000.00 were made integral part of the new mortgage for P10,000.00 and both documents were registered
with the Register of Deeds
 Dec 23 1955:
 promissory note covering the loan of P10,000.00 dated Dec 29 1955, maturing on Apr 27 1956, was signed by Jose Toribio, as attorney-in-fact of the Company,
and by the Prudencios'
 Deed of Assignment assigning all payments to be made by the Bureau to the Co. on account of the contract for the construction in favor of the PNB.
 PNB approved the Bureau's release of 3 payments directly to Concepcion for material and labor instead of paying the same to the Bank on account of the contract
price totalling P11,234.40 without the knowledge of the Prudencios'
 PNB did not apply the initial and subsequent payments to the Prudencios' debt as provided for in the deed of assignment
 Jun 30 1956: Concepcion abandoned their work so Bureau rescinded the construction contract and assumed the work of completing
 Jun 27 1959: Concepcion filed to cancelled their mortgage

complaint was amended to exclude the Company as defendant, it having been shown that its life as a partnership had already expired and, in lieu thereof, Ramon
Concepcion and Manuel M. Tamayo, partners of the defunct Company, were impleaded in their private capacity as defendants.

 CA affirmed RTC: Denied
 no stipulation in the deed making it obligatory on the part of the PNB to notify the petitioners everytime it authorizes payment to the Company
 Prudencios' contend that as accommodation makers, the nature of their liability is only that of mere sureties instead of solidary co-debtors such that "a material
alteration in the principal contract, effected by the creditor without the knowledge and consent of the sureties, completely discharges the sureties from all liability
on the contract of suretyship.
ISSUE:
1. W/N the Prudencios' as accomodating party are liable as solidary debtors so real estate mortgage executed by them CANNOT be cancelled
2. W/N PNB was a holder in due course
HELD: Petition is Granted. CA reversed.
1. YES
 Section 29 of the Negotiable Instrument Law
10
 Liability of accommodation party. —An accommodation party is one 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. Such a person is liable on the instrument to a holder for value, notwithstanding such
holder at the time of taking the instrument knew him to be only an accommodation party.
 Philippine Bank of Commerce v. Aruego: liability of the accommodation party remains not only primary but also unconditional to a holder for value
 remedy is a matter of concern exclusively between accommodation indorser and accommodated party
2. NO
 payee PNB is an immediate party and, therefore, is NOT a holder in due course and stands on no better footing than a mere assignee
 holder in due course - payee either acquired the note from another holder or has not directly dealt with the maker thereof
 PNB, in effect, waived payments of the first three releases
 PNB can not be regarded as having acted in good faith which is also one of the requisites of a holder in due course under Section 52 of the Negotiable Instruments
Law

It was only when the deed of assignment was shown to the spouses that they consented to the mortgage and signed the promissory note in the Bank's favor.

Anamer Salazar v. JY 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.
Ruling:
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:

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.
Moreover, under Article 1231 of the Civil Code, obligations are extinguished:
(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.
11
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.
Negotiable Instruments Case Digest: Insular Drugs V. PNB (1933)
G.R. No. L-38816 November 3, 1933

Lessons Applicable: Liabilities of person who did not sign and liability of an agent (Negotiable Instruments Law)
FACTS:
 Foerster
 formerly a salesman and collector of Insular Drug Co., Inc (Insular) for the Islands of Panay and Negros
 instructed to take the checks which came to his hands to the Iloilo branch of the Chartered Bank of India, Australia and China
and deposit the amounts to the credit of the Insular
 Instead, placed the checks in his personal account
 Some of the checks were drawn against the Bank of Philippine National Bank.
 After the indorsement on the checks was written "Received payment prior indorsement guaranteed by Philippine National bank,
Iloilo Branch, Angel Padilla, Manager."
 Insular Manila office discovered the anomalies and Foerster committed suicide
 Insular filed against the bank for total of 132 checks amounting to P18,285.92
ISSUE: W/N Insular can file against the bank
HELD: YES. bank will have to stand the loss occasioned by the negligence of its agent
 the bank permitted Foerster, Foerster's wife and clerk to indorse checks and then place them to his personal account
 The right of an agent to indorse commercial paper is a very responsible power and will not be lightly inferred.
 A salesman with authority to collect money belonging to his principal does not have the implied authority to indorse checks
received in payment
Negotiable Instruments Case Digest: Philippine Bank Of Commerce

V. Jose M. Aruego (1961)
FACTS:
 December 1, 1959: Philippine Bank of Commerce (PBC) instituted against Jose M. Aruego for the recovery of the total sum of
about P 35K with interest from November 17, 1959 and commission of 3/8% for every thirty 30 days plus attorney's fees of 10%
of the total amount due and costs
 represents the cost of the printing the periodical published by the Aruego "World Current Events"
 To facilitate the payment of the printing, Aruego obtained a credit accommodation from the PBC
12
 the printer, Encal Press and Photo Engraving, collected the cost of every printing by drawing a draft against the PBC, which PBC
later accepts
 As an added security for the payment of the amounts advanced to Encal Press and Photo-Engraving, PBC required Aruego to
execute a trust receipt (PBC hold in trust for Aruego the periodicals and to sell the same with the promise to turn over to the
Aruego the proceeds for the payment of all obligations arising from the draft)
 trial court: Aruego to pay to the PBC
 Aruego:
 signed the supposed bills of exchange as an agent of the Philippine Education Foundation Company where he is president
 Section 20 of the Negotiable Instruments Law
"Where the instrument contains or a person adds to his signature words indicating that he signs for or on behalf of a principal or in a
representative capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of words describing him
as an agent or as filing a representative character, without disclosing his principal, does not exempt him from personal liability."
 signed the drafts only as an accommodation party and as such, should be made liable only after a showing that the drawer is
incapable of paying
 not really bills of exchange but mere pieces of evidence of indebtedness because payments were made before acceptance
ISSUE: W/N Aruego should be personally liable
HELD: YES. CFI AFFIRMED.

 nowhere has he disclosed that he was signing as a representative of the Philippine Education Foundation Company
 For failure to disclose his principal, Aruego is personally liable for the drafts he accepted
 An accommodation party is one who has signed the instrument as maker, drawer, indorser, without receiving value therefor and
for the purpose of lending his name to some other person. Such person is liable on the instrument to a holder for value,
notwithstanding such holder, at the time of the taking of the instrument knew him to be only an accommodation party
 he signed as a drawee/acceptor
 Under the Negotiable Instrument Law, a drawee is primarily liable
 As long as a commercial paper conforms with the definition of a bill of exchange, that paper is considered a bill of exchange
 The nature of acceptance is important only in the determination of the kind of liabilities of the parties involved, but not in the
determination of whether a commercial paper is a bill of exchange or not
2. PNB VS. SEETO
[No. L-4388. August 13, 1952]
PHILIPPINE NATIONAL BANK, petitioner vs. BENITO SEETO respondent.
1. 1.NEGOTIABLE INSTRUMENTS; CHECKS; UNREASONABLE DELAY IN PRESENTMENT DISCHARGES THE INDORSER.—

Although the drawer of a check is discharged from liability only to the extent of the loss caused by unreasonable delay in presenting the
check for payment, an indorser is wholly discharged thereby irrespective of any question of loss or inquiry. (Negotiable Instruments Law,
sections 84 and 186.)
1. 2.ID.; ID.; TWENTY-SEVEN DAYS' DELAY IN PRESENTMENT Is UNREASONABLE.—Section 186 of the Negotiable Instruments

Law
757
VOL. 91, AUGUST 13, 1952 757
Philippine National Bank vs. Seeto
1. expressly requires that a check must be presented for payment within a reasonable time after issue. A delay of 27 days from the date of
indorsement to that of the presentation of the check for payment at the drawee bank, is unreasonable, and consequently, discharges
completely the indorser from liability.
13
1. 3.ID.; ID.; PAROL EVIDENCE ON OBLIGATIONS OF INDORSER ADMISSIBLE.—Assurances made by an indorser that the drawer
has funds, which assurances induced the bank to cash the check, are admissible issible in evidence but they are merely expressions of the
obligations of the indorser as prescribed in Section 66, Negotiable Instruments Law.
PETITION for review by certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Ramon B. de los Reyes for petitioner.
Montano A. Ortiz for respondent.
LABRADOR, J.:
On March 13, 1948, respondent Benito Seeto called at the branch of the Philippine National Bank, petitioner herein, at Surigao, Surigao, and
presented a check, No. A—21096, in the amount of P5,000 dated at Cebu on March 10, 1948, payable to cash or bearer, and drawn by one Gan Yek
Kiao against the Cebu branch of the Philippine Bank of Communications. After consultation with the employees of the branch, Seeto made a general
and unqualified indorsement of the check, and petitioner's agency accepted it and paid respondent the amount of P5,000 therefor. The check was
mailed to petitioner's Cebu branch on March 20, 1948, and was presented to the drawee bank f or payment on April 9, 1948, but the check was
dishonored for "insufficient funds." So the check was returned to petitioner's Surigao agency, and upon receipt thereof by it on April 14, 1948, said
branch immediately sent a letter to the respondent herein demanding immediate refund of the value of the check. A second communication of the
same tenor was sent on April 26, 1948, to which respondent answered asking that plaintiff's contemplated suit be de-
758
758 PHILIPPINE REPORTS ANNOTATED
ferred while he was making inquiries about the reasons for the dishonor of the check. Thereafter, respondent refused to make the refund demanded,
claiming that at the time of the negotiation of the check the drawer had sufficient funds in the drawee bank, and that had the petitioner's Surigao
agency not delayed to forward the check until the drawer's funds were exhausted, the same would have been paid.
Thereupon petitioner presented a complaint in the Court of First Instance of Surigao, alleging that respondent Benito Seeto gave assurances to
petitioner's agency in Surigao that the drawer of the check had sufficient funds with the drawee bank, and that upon these assurances petitioner's
agency delivered the P5,000 to the respondent after the latter had made a general and unqualified indorsement thereon. Respondent denied having
made the alleged assurances. Upon this issue petitioner submitted two witnesses at the time of the trial, who testified that it was not the practice of
petitioner's agency to cash out of town checks, and that the check was cashed because of the assurances given by the respondent that the drawer. had
sufficient funds, and that he (respondent) would refund the amount paid by petitioner's agency in case the check is dishonored. Respondent denied
having given the assurances. The trial court found, notwithstanding respondent's denial to the contrary, that the respondent made an undertaking to
refund the amount of the check in the event of dishonor. In support of this finding it found that as the drawee bank is not in Cebu, it was impossible
for petitioner's agency to make an immediate verification of the drawer's solvency, and must have taken precautions to protect itself against loss by
requiring the respondent to give assurances that he would return the amount of the check in case of nonpayment. It also found that there was no
unreasonable delay in the presentation of the check, and, therefore, rendered judgment sentencing respondent to refund the amount he had received
for the check.
759
VOL. 91, AUGUST 13, 1952 759
On appeal to the Court of Appeals, this court held that petitioner was guilty of unreasonably retaining and withholding the check, and that the delay
in the presentment for payment was inexcusable, so that respondent was thereby discharged from liability. It also held that parol evidence is
incompetent to show that one signing a check as indorser is merely a surety or guarantor, rejecting the evidence adduced at the trial court about the
respondent's assurances and promise to refund. It, therefore, reversed the judgment of the trial court and dismissed the complaint, with costs. Against
this judgment an appeal by certiorari has been brought to this Court, petitioner Philippine National Bank contending that the Court of Appeals erred
in applying sections 143 and 144 of the Negotiable Instruments Law and declaring respondent Benito Seeto discharged of his liability as indorser of
the check, and in not admitting parol evidence to show that respondent made oral assurances to refund the value of the check in case of dishonor.
In support of petitioner's first assignment of error, it is argued that inasmuch as a check need not be presented for acceptance, unlike a bill of
exchange as required by Section 143, Section 144 of the law is not applicable to the case at bar but Section 84, which provides:
SEC. 84. Liability of person secondarily liable, when instrument dishonored.—Subject to the provisions of this Act, when the instrument is
dishonored by nonpayment, an immediate right of recourse to all parties secondarily liable thereon accrues to the holder.
It is true that Section 143 and 144 of the law are not applicable, because these are provisions having to do with the presentation of a bill of exchange
for acceptance, and are not applicable to a check, as to which presentment for acceptance is not required.
It is also true that Section 84 is applicable, but its application is subject to the condition imposed by Section 186, to the effect that the check must
be presented for payment within a reasonable time after its issue.
760
SEC. 186.—Within what time a check must be presented.—A check must be presented for payment within a reasonable time after its issue or the
drawer will be discharged from liability thereon to the extent of the loss caused by the delay.
Counsel for petitioner, however, argues that inasmuch as the above section expressly provides for the discharge of the drawer from liability to the
extent of the loss caused by the delay, and, on the other hand, it is silent as to the liability of the indorser, the latter may not be considered discharged
from liability by reason of the delay in the presentment for payment under the general principle inclusio unius est exclusio alterius. We find no
reason nor merit in the argument. The silence of Section 186 as to the indorser is due to the fact that his discharge is already expressly covered by the
provision of Section 84, the indorser being a person secondarily liable on the instrument. The reason for the difference between the liability of the
indorser and that of the drawer in case of dishonor is that the drawer is not probably or necessarily prejudiced thereby, while an indorser is, actually
or by legal presumption.
Innumerable decisions have already been rendered in the state courts of the United States to the effect that although the drawer of a check is
discharged only to the extent of loss caused by unreasonable delay in presentment, an indorser is wholly discharged thereby irrespective of any
14
question of loss or injury. (Swift & Co. vs. Miller, 62 Ind. App. 312, 113 N. E. 447, cited in Brannan's Negotiable Instruments Law, p.
1134, Nuzum vs. Sheppard, 87 W. Va. 243, 104 S. E. 587, 11 A. L. R. 1024, Ibid.)
"The proposition maintained in the reported case (Nuzum v. Sheppard, ante. 1024) that the indorser of a check, unlike the drawer, is relieved of
liability thereon by an unreasonable delay in presenting the same for payment, whether or not he is injured by the delay, is supported by the great
weight of authority. (Cases cited.)
"The Court, in Gough v. Staats (N. Y.) supra, says: "Upon the question of due diligence to charge an indorser, whether he has
761
VOL. 91, AUGUST 13, 1952 761
been prejudiced or not by the delay is perfectly immaterial. It is not inquired into. The law presumes he has been prejudiced." According to the court
in Carroll v. Sweet (1891) 128 N. Y. 19, 13 L. R. A. 43, 27 N. E. 763, "presentment in due time as fixed by the law merchant was a condition upon
performance of which the liability of the defendant, as indorser, depended, and this delay was not excused, although the drawer of the check had no
funds, or was insolvent, or because presentment would have been unavailing as a means of procuring payment." Only when there is affirmative proof
that the indorser knew when he cashed the check that there would be no funds in the bank to meet it can the rule be avoided. Otherwise, the failure to
present the check in due course for payment will discharge the indorser, even though such presentment would have been
unavailing. Start v. Tupper (Vt.) supra." (11 A. L. R. Annotation, pp. 1028-1029.)
We have been unable to find any authority sustaining the proposition that an indorser of a check is not discharged from liability for an unreasonable
delay in presentation for payment. This is contrary to the essential nature and character of negotiable instruments—their negotiability. They are
supposed to be passed on with promptness in the ordinary course of business transactions; not to be retained or kept for such time as the holder may
want, otherwise the smooth flow of commercial transactions would be hindered.
There seems to be an intimation in the decision appealed from that inasmuch as the check was drawn payable elsewhere than at the place of
business of the drawer, it must be presented for acceptance or negotiation within a reasonable time, and upon failure to do so the drawer and all
indorsers thereof are discharged pursuant to Section 144 of the law. Against this insinuation the petitioner argues that the application of sections 143
and 144 is not proper, and that it may not be presumed that the check in question was not drawn and executed in Cebu, the residence or place of
business of the drawer. There is no evidence at all as to the place where the check was drawn. However, we have already pointed out above that
neither Section 143 nor Section 144 is applicable. But our ruling
762
that respondent was discharged upon the dishonor of the check is based on Sections 84 and 186, the latter expressly requiring that a check must be
presented for payment within a reasonable time after issue.
It is not claimed by the petitioner on this appeal that the conclusion of the Court of Appeals that there was unreasonable delay in the presentation
of the check for payment at the drawee bank is erroneous. The petitioner concedes the correctness of this conclusion, although for purposes of
argument merely. We find that the conclusion is correct. The fact, admitted by the witnesses for the petitioner, that checks of the drawer issued
subsequent to March 13, 1948, drawn against the same same bank and cashed at the same Surigao agency, were not dishonored positively shows that
the drawer had enough funds when he issued the check in question, and that had it not been for the unreasonable delay in its presentation for
payment, the petitioner herein would have been able to receive payment therefor. The check is dated March 10 and was cashed by the petitioner's
agency on March 13, 1948. It was not mailed until seven days thereafter, i.e., on March 20, 1948, or ten days after issue. No excuse was given for
this delay. Assuming that it took one week, or say ten days, or until March 30, for the check to reach Cebu, neither can there be any excuse for not
presenting it for payment at the drawee bank until April 9, 1948, or 10 days after it reached Cebu. We, therefore, find no reason for disturbing the
conclusion of the Court of Appeals that there was unreasonable delay in the presentation of the check for payment at the drawee bank, and that as a
consequence thereof, the indorser, respondent herein, was thereby discharged.
With respect to the second assignment of error, petitioner argues that the verbal assurances given by the respondent to the employees of the bank
that he was ready to refund the amount if the check should be dishonored by the drawee bank is a collateral agreement, separate
763
VOL. 91, AUGUST 13, 1952 763
and distinct from the indorsement, by virtue of which petitioner herein was induced to cash the check, and, therefore, admissible as an exception to
the parol evidence rule. Petitioner's contention in this respect is not entirely unfounded. In the case of Tan Machan vs. De La Trinidad, et al., 3 Phil.,
684, this court held that parol evidence is admissible to show that parties signing as principals merely did so as sureties. In the case
of Robles vs.Lizarraga Hermanos, 50 Phil., 387, it was also held by this court that parol evidence is admissable to prove "an independent or collateral
agreement which constituted an inducement to the making of the sale or part of the consideration therefor." (Ibid., p. 395.) In Philips vs.Preston, 5
How. (U. S.) 278, 12 L. ed. 152, the Supreme Court of the United States held that any prior or contemporaneous conversation in connection with a
note or its indorsement, may be proved by parol evidence. And Wigmore states that "an extrinsic agreement between indorser and indorsee which can
not be embodied in the instrument without impairing its credit is provable by parol." (9 Wigmore 148, section 2445 [3].) If, therefore, the supposed
assurances that the drawer had funds and that the respondent herein would refund the amount of the check if the drawer had no funds, were the
considerations or reasons that induced the branch agency of the petitioner to go out of its ordinary practice of not cashing out of town checks and
accept the check and to pay its face value, the same should be provable by parol, provided, of course, that the assurances or inducements offered
would not vary, alter, or destroy the obligations attached by law to the indorsement.
We find, however, that the supposed assurances of refund in case of dishonor of the check are precisely the ordinary obligations of an indorser,
and these obligations are, under the law, considered discharged by an unreasonable delay in the presentation of the check for payment.
764
Sta. Mesa Slipways & Engineering Co. Inc., vs. Court of Industrial Relations
SEC. 66. Liability of general indorser.—* * *
15
And, in addition, he engages that on due presentment, it shall be accepted or paid, or both, as the case may be, according to its tenor, and that if it
be dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser
who may be compelled to pay it. (Italics ours.)
There was no express obligation assumed by the respondent herein that the drawer would always have funds, or that he (the indorser) would refund
the amount of the check even if there was delay in its presentation, so that while the Court of Appeals may have committed an error in disregarding
the evidence submitted by petitioner at the trial of the assurances made by respondent herein at the time of the negotiation of the check, such error
was without prejudice, because the supposed assurances given were part of his obligations as an indorser, which were discharged by the unreasonable
delay in the presentation of the check for payment.
The judgment appealed from is, therefore, affirmed, with costs against the petitioner.
Parás, C. J., Feria, Bengzon, Padilla, Tuason, Montemayor, and Bautista Angelo, JJ., concur.
Judgment affirmed.
Dishonored Negotiable Instruments

Sec. 83. When instrument dishonored by non-payment. - The instrument is dishonored by non-payment when:
(a) It is duly presented for payment and payment is refused or cannot be obtained; or
(b) Presentment is excused and the instrument is overdue and unpaid.
WHEN PAYMENT REFUSED, ETC.

• The instrument must be duly presented for payment and payment is either refused or cannot be obtained
WHEN PRESENTMENT IS EXCUSED

• Presentment for payment is excused
• Instrument is overdue
• It is unpaid
Sec. 84. Liability of person secondarily liable, when instrument dishonored. - Subject to the provisions of this Act,
when the instrument is dishonored by non-payment, an immediate right of recourse to all parties secondarily liable
thereon accrues to the holder.
AFTER DISHONOR, INDORSERS, ETC. ARE PRIMARILY LIABLE
• As to holder, after an instrument is dishonored by non-payment , the persons secondarily liable thereon ceases to be
secondarily liable
• They become principal debtors and their liability becomes the same as that of the principal obligors—provided a notice of
dishonor has been given to them
• If no notice is given, they are discharged
• If they are charged by dishonor and notice, while it is true that they become principal debtors as to the holder, yet as among
themselves, persons secondarily liable are presumed liable in the order that they
become parties to the instrument
CASE DIGEST:
PNB V. SEETO, 91 SCRA 757

FACTS:
Seeto called at a branch of bank and presented a check payable to cash or bearer, and drawn by Kiao against PBC. After
consultation with the employees, Seeto made a general and qualified indorsement of the check. He was then paid the
amount of the check by bank. The check was consequently dishonored, a letter was sent to Seeto and was asked
to refund the money given to him. A second letter was sent to him and he averred that case against him be deferred while he
inquired about why the
16
check was dishonored. Thereafter, he refused to pay, alleging that the account against the check was drawn had
sufficient funds when the check was drawn and if the bank didn’t delay in clearing the check, there would have been sufficient
funds.
The appellate court reversed the lower court in its decision. It ruled that the bank was guilty of unreasonably retaining and
withholding the check, and that the delay in the presentment was inexcusable, so that respondent thereby was discharged from
liability.
HELD:
Section 84 is applicable, nonetheless, it should be read in correlation with Section 186, which says that presentment should
be within reasonable time.
PHILIPPINE NATIONAL BANK, petitioner,

vs.
BENITO SEETO, respondent.
Ramon B. de los Reyes for petitioner.

Montano A. Ortiz for respondent.
LABRADOR, J.:
On March 13, 1948, respondent Benito Seeto called at the branch of the Philippine National Bank, petitioner herein, at Surigao, and presented a check,
No. A-21096, in the amount of P5,000 dated at Cebu on March 10, 1948, payable to cash or bearer, and drawn by one Gan Yek Kiao against the Cebu
branch of the Philippine National Bank of Communications. After consultation with the employees of the branch, Seeto made a general and unqualified
indorsement of the check, and petitioner's agency accepted it and paid respondent the amount of P5,000 therefor. The check was mailed to petitioner's
Cebu branch on March 20, 1948, and was presented to the drawee bank for payment on April 9, 1948, but the check was dishonored for "insufficient
funds." So the check was returned to petitioner's Surigao agency, and upon receipt thereof by it on April 14, 1948, said branch immediately sent a letter
to the respondent herein demanding immediate refund of in the value of the check. A second communication of the same tenor was sent on April 26,
1948, to which respondent answered asking that plaintiff's contemplated suit be deferred while he was making inquiries about the reasons for the
dishonor of the check. Thereafter, respondent refused to make the refund demanded, claiming that at the time of the negotiation o the check the drawer
had sufficient funds in the drawee bank, and that the petitioner's Surigao agency not delayed to forward the check until the drawer's funds were
exhausted, the same would have been paid.
Thereupon petitioner presented a complaint in the Court of First Instance of Surigao, alleging that respondent Benito Seeto gave assurance to
petitioner's agency in Surigao that the drawer of the check had sufficient funds with the drawee bank, and that upon these assurances petitioner's
agency delivered the P5,000 to the respondent after the latter had made a general and unqualified indorsement thereon. Respondent denied having
made the alleged assurances. Upon this issue petitioner submitted two witnesses at the time of the trial, who testified that it was not the practice of
petitioner's agency to cash out of town checks, and that the check was cashed because of the assurances given by the respondent that the drawer had
sufficient funds, and that he (respondent) would refund the amount paid by petitioner's agency in case the check is dishonored. Respondent denied
having given the assurances. The trial court found notwithstanding respondent's denial to the contrary, that the respondent made an undertaking to
refund the amount of the checks in the event of dishonor. In support of this finding it found that as the drawee bank is not in Cebu, it was impossible for
petitioner's agency to make an independent verification of the drawer's solvency, and must have taken precautions to protect itself against loss by
requiring the respondent to give assurances that he would return the amount of the check in the case of nonpayment. It also found that there was no
unreasonable delay in the presentation of the check, and, therefore, rendered judgment sentencing respondent to refund the amount he had received for
the check.
On appeal to the Court of Appeals, this court held that petitioner was guilty of unreasonably retaining and with-holding the check, and that the delay in
the presentment for payment was inexcusable, so that respondent was thereby discharged from liability. It also held that parol evidence is incompetent
to show that one signing of a check as indorser is merely a surety or guarantor, rejecting the evidence adduced at the trial court about the respondent's
assurance and promise to refund. It, therefore, reversed the judgment of the trial court and dismissed the complaint, with costs. Against this judgment an
appeal by certiorari has been brought to this Court, petitioner Philippine National Bank contending that the Court of Appeals erred in applying sections
143 and 144 of the Negotiable Instruments Law and declaring respondent Benito Seeto discharged of his liability as indorser of the check, and in not
admitting parol evidence to show that respondent made oral assurances to refund the value of the check in case of dishonor.
In support of petitioner's first assignment of error, it is argued that inasmuch as a check need not to be presented for acceptance, unlike a bill of
exchange as required by Section 143, Section 144 of the law is not applicable to the case at bar but Section 84, which provides:
SEC. 84. Liability of person secondarily liable, when instrument dishonored. — Subject to the provisions of this Act, when the instrument is dishonored
by nonpayment, as immediate right of recourse to all parties secondarily liable thereon accrues to the holder.
It is true that Section 143 and 144 of the law are not applicable, because these are provisions having to do with the presentation of a bill of exchange for
acceptance, and are not applicable to a check, as to which presentment for acceptance is not required.
17
It is also true that Section 84 is applicable, but its application is subject to the condition imposed by Section 186, to the effect that the check must be
presented for payment within a reasonable time after its issue.
SEC. 186. — Within what time a check must be presented. — A check must be presented for payment within a reasonable time after its issue or the
drawer will be discharged from liability thereon to the extent of the loss caused by the delay.
Counsel for the petitioner, however, argues that inasmuch as the above section expressly provides for the discharge of the drawer from liability to the
extent of the loss caused by the delay, and, on the other hand, it is silent as to the liability of the indorser, the latter may not be considered discharged
from liability by reason of the delay in the presentment of payment under the general principle inclusio unius est exclusion alterius. We find no reason
nor merit in the argument. The silence of Section 186 as to the indorser is due to the fact that his discharge is already expressly covered by the provision
of Section 84, the indorser being a person secondarily liable on the instrument. The reason for the difference between the liability of the indorser and
that of the drawer in case of dishonor is that the drawer is not probably or necessarily prejudiced thereby, while an indorser is, actually or by legal
presumption.
Innumerable decisions have already been rendered in the state courts of the United States to the effect that although the drawer of a check is
discharged only to the extent of loss caused by unreasonable delay in presentment, an indorser is wholly discharged thereby irrespective of any
question of loss or injury. ( Swift & Co. vs. Miller, 62 Ind. App. 312, 113 N.E. 447, cited in Brannan's Negotiable Instruments Law, p. 1134, Nuzum vs.
Sheppard, 87 W. Va. 243, 104 S.E. 587, 11 A.L.R. 1024, Ibid.)
The proposition maintained in the reported case (Nuzum vs. Sheppard., ante. 1024) that the indorser of a check, unlike the drawer, is relieved of liability
thereon by an unreasonable delay in presenting the same for payment, whether or not he is injured by the delay, is supported by the great weight of
authority, (Cases cited.)
The Court, in Gough v. Staats (N.Y.) supra, says: "Upon the question of due diligence to charge an indorser, whether he has been prejudiced or not by
the delay is perfectly immaterial. It is not inquired into. The law presumes he has been prejudiced." According to the Court in Caroll v. Sweet (1891) 128
N.Y. 19, 13 L.R.A. 43, 27 N.E. 763, "presentment to due time as fixed by the law merchant was a condition upon performance of which the liability of the
defendant, as indorser, depended, and this delay was not excused, although the drawer of the check had no funds, or was insolvent, or because
presentment would not been unavailing as a means of procuring payment." Only where there is affirmative proof that the indorser knew when he cashed
the check that there would be no funds in the bank to meet it can the rule be avoided. Otherwise, the failure to present the check in due course of
payment will discharge the indorser even though such presentment would have been unavailing. Start v. Tupper (Vt.) supra. (11 A.L.R. Annotation, pp.
1028-1029.)
We have been unable to find any authority sustaining the proposition that an indorser of a check is not discharged from liability for an unreasonable
delay in presentation for payment. This is contrary to the essential nature and character of negotiable instruments — their negotiability. They are
supposed to be passed on with promptness in the ordinary course of business transactions; not to be retained or kept for such time as the holder may
want, otherwise the smooth flow of commercial transactions would be hindered.
There seems to be an intimation in the decision appealed from that inasmuch as the check was drawn payable elsewhere than at the place of business
of the drawer, it must be presented for acceptance or negotiable within a reasonable time, and upon failure to do so the drawer and all indorsers thereof
are discharged pursuant to Section 144 of the law. Against this insinuation the petitioner argues that the application of sections 143 and 144 is not
proper, and that it may not be presumed that the check in question was not drawn and executed in Cebu, the residence or place of business of the
drawer. There is no evidence at all as to the place where the check was drawn. However, we have already pointed out above that neither Section 143
nor Section 144 is applicable. But our ruling that respondent was discharged upon the dishonor of the check is based on Sections 84 and 186, the latter
expressly requiring that a check must be presented for payment within a reasonable time after issue.
It is not claimed by the petitioner on this appeal that the conclusion of the Court of Appeals that there was unreasonable delay in the presentation of the
check for payment at the drawee bank is erroneous. The petitioner concedes the correctness of this conclusion, although for purposes of argument
merely. We find that the conclusion is correct. The fact, admitted by the witnesses for the petitioner, the checks for the drawer issued subsequent to
March 13, 1948, drawn against the same bank and cashed at the same Surigao agency, were not dishonored positively shows that the drawer had
enough funds when he issued the check in question, and that had it not been for the unreasonable delay in its presentation for payment, the petitioner
herein would have been able to receive payment therefor. The check is dated March 10, and was cashed by the petitioner's agency on March 13, 1948.
It was not mailed until seven days thereafter, i.e., on March 20, 1948, or ten days after issue. No excuse was given for this delay. Assuming that it took
one week, or say ten days, or until March 30, for the check to reach Cebu, neither can there be any excuse for not presenting it for payment at the
drawee bank until April 9, 1948, or 10 days after it reached Cebu. We, therefore, find no reason for disturbing the conclusion of the Court of Appeals that
there was unreasonable delay in the presentation of the check for payment at the drawee bank, and that is a consequence thereof, the indorser,
respondent herein, was thereby discharged.
With respect to the second assignment of error, petitioner argues that the verbal assurances given by the respondent to the employees of the bank that
he was ready to refund the amount if the check should be dishonored by the drawee bank is a collateral agreement, separate and distinct from the
indorsement, by virtue of which petitioner herein was induced to cash the check, and, therefore, admissible as an exception that the parol evidence rule.
Petitioners contention in this respect is not entirely unfounded. In the case of Tan Machan vs. De La Trinidad, et al., 4 Phil., 684, this court held that
parol evidence is admissible to show that parties signing as principals merely did so as sureties. In the case of Robles vs. Lizarraga Hermanos, 50 Phil.,
387, it was also held by this court that parol evidence is admissible to prove "an independent thereof." (Ibid., p. 395.) In Philips vs. Preston, 5 How.
(U.S.) 278, 12 L. ed, 152, the Supreme Court of the United States held that any prior or contemporaneous conversation in connection with a note or its
indorsement, may be proved by parol evidence. And Wigmore states that "an extrinsic agreement between indorser and indorsee which cannot be
embodied in the instrument without impairing its credit is provable by parol." (9 Wigmore 148, section 2445 [3].) If, therefore, the supposed assurances
that the drawer had funds and that the respondent herein would refund the amount of the check if the drawer had no funds, were the considerations or
reasons that induced the branch agency of the petitioners to go out of its ordinary practice of not cashing out of town checks and accept the check and
to pay its face value, the same would be provable by parol, provided, of course, that the assurances or inducements offered would not vary, alter, or
destroy the obligations attached by law to the indorsement.
18
We find, however, that the supposed assurances of refund in case of dishonor of the check are precisely the ordinary obligations of an indorser, and
these obligations are, under the law, considered discharged by an unreasonable delay in the presentation of the check for payment.
SEC. 66. Liability of general indorser. — . . . .
And, in addition, he engages that on due presentment, it shall be accepted or paid, or both, as the case may be, according to its tenor, and that if it be
dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who
may be compelled to pay it. (Emphasis ours.)
There was no express obligation assumed by the respondent herein that the drawer would always have funds, or that he (the indorser) would refund the
amount of the check even if there was delay in its presentation, so that while the Court of Appeals may have committed an error in disregarding the
evidence submitted by petitioner at the trial of the assurances made by respondent herein at the time of the negotiation of the check, such error was
without prejudice, because the supposed assurances given were part of his obligations as an indorser, which were discharged by the unreasonable
delay in the presentation of the check for payment.
The judgment appealed from is, therefore, affirmed, with costs against the petitioner.
Paras, C.J., Feria, Bengzon, Padilla, Tuason, Montemayor and Bautista Angelo, JJ., concur.
RAYMUNDO A. CRYSTAL vs. CA and PELAGIA OCANG DE GRACIA, et al

G.R. No. L-35767 June 18, 1976
The Supreme Court, in its decision of 25 February 1975, affirmed the decision of the Court of Appeals, holding that
Raymundo Crystal’s redemption of the property acquired by Pelagia Ocang, Pacita, Teodulo, Felicisimo, Pablo, Lydia,
Dioscoro and Rodrigo, all surnamed de Garcia, was invalid as the check which Crystal used in paying the redemption
price has been either dishonored or had become stale (Ergo, the value of the check was never realized). Crystal filed a
motion for reconsideration.
ISSUE: Whether or not the conflicting circumstances of the check being dishonored and becoming stale affect the validity
of the redemption sale.
HELD: For a check to be dishonored upon presentment and to be stale for not being presented at all in time are
incompatible developments that have variant legal consequences. If indeed the questioned check was
dishonored, the redemption was null and void. If it had only become state, it becomes imperative that the
circumstances that caused its non-presentment be determined, for if it was not due to the fault of the drawer, it would be
unfair to deprive him of the rights he had acquired as redemptioner. Herein, it appears that there is a strong showing that
the check was not dishonored, although it became stale, and that Pelagia Ocang had actually been paid the full value
thereof. The Supreme Court, thus, reconsidered its decision and remanded the case to the trial court for further
proceedings.
G.R. No. 107508 April 25, 1996

vs.
COURT OF APPEALS, CAPITOL CITY DEVELOPMENT BANK, PHILIPPINE BANK OF COMMUNICATIONS, and F. ABANTE
MARKETING, respondents.
KAPUNAN, J.:p
This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the decision dated April 29, 1992 of respondent Court of Appeals in CA-G.R.
CV No. 24776 and its resolution dated September 16, 1992, denying petitioner Philippine National Bank's motion for reconsideration of said decision.
The facts of the case are as follows.
A check with serial number 7-3666-223-3, dated August 7, 1981 in the amount of P97,650.00 was issued by the Ministry of Education and Culture (now
Department of Education, Culture and Sports [DECS]) payable to F. Abante Marketing. This check was drawn against Philippine National Bank (herein
petitioner).
19
On August 11, 1981, F. Abante Marketing, a client of Capitol City Development Bank (Capitol), deposited the questioned check in its savings account
with said bank. In turn, Capitol deposited the same in its account with the Philippine Bank of Communications (PBCom) which, in turn, sent the check to
petitioner for clearing.
Petitioner cleared the check as good and, thereafter, PBCom credited Capitol's account for the amount stated in the check. However, on October 19,
1981, petitioner returned the check to PBCom and debited PBCom's account for the amount covered by the check, the reason being that there was a
"material alteration" of the check number.
PBCom, as collecting agent of Capitol, then proceeded to debit the latter's account for the same amount, and subsequently, sent the check back to
petitioner. Petitioner, however, returned the check to PBCom.
On the other hand, Capitol could not, in turn, debit F. Abante Marketing's account since the latter had already withdrawn the amount of the check as of
October 15, 1981. Capitol sought clarification from PBCom and demanded the re-crediting of the amount. PBCom followed suit by requesting an
explanation and re-crediting from petitioner.
Since the demands of Capitol were not heeded, it filed a civil suit with the Regional Trial Court of Manila against PBCom which, in turn, filed a third-party
complaint against petitioner for reimbursement/indemnity with respect to the claims of Capitol. Petitioner, on its part, filed a fourth-party complaint
against F. Abante Marketing.
On October 3, 1989; the Regional Trial Court rendered its decision the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered as follows:
1.) On plaintiffs complaint, defendant Philippine Bank of Communications is ordered to re-credit or reimburse plaintiff Capitol City Development Bank the
amount of P97,650.00, plus interest of 12 percent thereto from October 19, 1981 until the amount is fully paid;
2.) On Philippine Bank of Communications third-party complaint third-party defendant PNB is ordered to reimburse and indemnify Philippine Bank of
Communications for whatever amount PBCom pays to plaintiff;
3.) On Philippine National Bank's fourth-party complaint, F. Abante Marketing is ordered to reimburse and indemnify PNB for whatever amount PNB
pays to PBCom;
4.) On attorney's fees, Philippine Bank of Communications is ordered to pay Capitol City Development Bank attorney's fees in the amount of Ten
Thousand (P10,000.00) Pesos; but PBCom is entitled to reimbursement/indemnity from PNB; and Philippine National Bank to be, in turn reimbursed or
indemnified by F. Abante Marketing for the same amount;
5.) The Counterclaims of PBCom and PNB are hereby dismissed;
6.) No pronouncement as to costs.
SO ORDERED. 1
An appeal was interposed before the respondent Court of Appeals which rendered its decision on April 29, 1992, the decretal portion of which reads:
WHEREFORE, the judgment appealed from is modified by exempting PBCom from liability to plaintiff-appellee for attorney's fees and ordering PNB to
honor the check for P97,650.00, with interest as declared by the trial court, and pay plaintiff-appellee attorney's fees of P10,000.00. After the check shall
have been honored by PNB, PBCom shall re-credit plaintiff-appellee's account with it with the amount. No pronouncement as to costs.
SO ORDERED. 2
A motion for reconsideration of the decision was denied by the respondent Court in its resolution dated September 16, 1992 for lack of merit. 3
Hence, petitioner filed the instant petition which raises the following issues:
WHETHER OR NOT AN ALTERATION OF THE SERIAL NUMBER OF A CHECK IS A MATERIAL ALTERATION UNDER THE NEGOTIABLE
INSTRUMENTS LAW.
II
WHETHER OR NOT A CERTIFICATION HEREIN ISSUED BY THE MINISTRY OF EDUCATION CAN BE GIVEN WEIGHT IN EVIDENCE.
III
20
WHETHER OR NOT A DRAWEE BANK WHO FAILED TO RETURN A. CHECK WITHIN THE TWENTY FOUR (24) HOUR CLEARING PERIOD MAY
RECOVER THE VALUE OF THE CHECK FROM THE COLLECTING BANK.
IV
WHETHER OR NOT IN THE ABSENCE OF MALICE OR ILL WILL PETITIONER PNB MAY BE HELD LIABLE FOR ATTORNEY'S FEES. 4
We find no merit in the petition.
We shall first deal with the effect of the alteration of the serial number on the negotiability of the check in question.
Petitioner anchors its position on Section 125 of the Negotiable Instruments Law (ACT No. 2031) which provides:
5
Sec. 225. What constitutes a material alteration. Any alteration which changes:
(a) The date;
(b) The sum payable, either for principal or interest;
(c) The time or place of payment;
(d) The number or the relations of the parties;
(e) The medium or currency in which payment is to be made;
(f) Or which adds a place of payment where no place of payment is specified, or any other change or addition which alters the effect of the instrument in
any respect, is a material alteration.
Petitioner alleges that there is no hard and fast rule in the interpretation of the aforequoted provision of the Negotiable Instruments Law. It maintains that
under Section 125(f), any change that alters the effect of the instrument is a material alteration. 6
We do not agree.
An alteration is said to be material if it alters the effect of the

instrument. It means an unauthorized change in an instrument that purports to modify in any respect the obligation of a party or an unauthorized addition
7
of words or numbers or other change to an incomplete instrument relating to the obligation of a party. In other words, a material alteration is one which
8
changes the items which are required to be stated under Section 1 of the Negotiable Instruments Law.
Section 1 of the Negotiable Instruments Law provides:
Sec. 1. — Form of negotiable instruments. An instrument to be negotiable must conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty.
In his book entitled "Pandect of Commercial Law and Jurisprudence," Justice Jose C. Vitug opines that "an innocent alteration (generally, changes on
items other than those required to be stated under Sec. 1, N.I.L.) and spoliation (alterations done by a stranger) will not avoid the instrument, but the
holder may enforce it only according to its original tenor."9
Reproduced hereunder are some examples of material and immaterial alterations:
A. Material Alterations:
(1) Substituting the words "or bearer" for "order."
21
(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. 10
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 co-maker. 11
The case at bench is unique in the sense that what was altered is the serial number of the check in question, an item which, it can readily be observed,
is not an essential requisite for negotiability under Section 1 of the Negotiable Instruments Law. The aforementioned alteration did not change the
relations between the parties. The name of the drawer and the drawee were not altered. The intended payee was the same. The sum of money due to
the payee remained the same. Despite these findings, however, petitioner insists, that:
xxx xxx xxx
It is an accepted concept, besides being a negotiable instrument itself, that a TCAA check by its very nature is the medium of exchange of governments
(sic) instrumentalities of agencies. And as (a) safety measure, every government office o(r) agency (is) assigned TCAA checks bearing different number
series.
A concrete example is that of the disbursements of the Ministry of Education and Culture. It is issued by the Bureau of Treasury sizeable bundles of
checks in booklet form with serial numbers different from other government office or agency. Now, for fictitious payee to succeed in its malicious
intentions to defraud the government, all it need do is to get hold of a TCAA Check and have the serial numbers of portion ( sic) thereof changed or
altered to make it appear that the same was issued by the MEG.
22
Otherwise, stated, it is through the serial numbers that (a) TCAA Check is determined to have been issued by a particular office or agency of the
government. 12
xxx xxx xxx
Petitioner's arguments fail to convince. The check's serial number is not the sole indication of its origin.. As succinctly found by the Court of Appeals, the
name of the government agency which issued the subject check was prominently printed therein. The check's issuer was therefore sufficiently identified,
rendering the referral to the serial number redundant and inconsequential. Thus, we quote with favor the findings of the respondent court:
xxx xxx xxx
If the purpose of the serial number is merely to identify the issuing government office or agency, its alteration in this case had no material effect
whatsoever on the integrity of the check. The identity of the issuing government office or agency was not changed thereby and the amount of the check
was not charged against the account of another government office or agency which had no liability under the check. The owner and issuer of the check
is boldly and clearly printed on its face, second line from the top: "MINISTRY OF EDUCATION AND CULTURE," and below the name of the payee are
the rubber-stamped words: "Ministry of Educ. & Culture." These words are not alleged to have been falsely or fraudulently intercalated into the
check. The ownership of the check is established without the necessity of recourse to the serial number . Neither there any proof that the amount of the
check was erroneously charged against the account of a government office or agency other than the Ministry of Education and Culture. Hence, the
alteration in the number of the check did not affect or change the liability of the Ministry of Education and Culture under the check and, therefore, is
immaterial. The genuineness of the amount and the signatures therein of then Deputy Minister of Education Hermenegildo C. Dumlao and of the
resident Auditor, Penomio C. Alvarez are not challenged. Neither is the authenticity of the different codes appearing therein questioned . . . (Emphasis
13
ours.)
Petitioner, thus cannot refuse to accept the check in question on the ground that the serial number was altered, the same being an immaterial or
innocent one.
We now go to the second issue. It is petitioner's submission that the certification issued by Minrado C. Batonghinog, Cashier III of the MEC clearly
shows that the check was altered. Said certification reads:
July 22, 1985
TO WHOM IT MAY CONCERN:
This is to certify that according to the records of this Office, TCAA PNB Check Mo. SN7-3666223-3 dated August 7, 1981 drawn in favor of F. Abante
Marketing in the amount of NINETY (S)EVEN THOUSAND SIX HUNDRED FIFTY PESOS ONLY (P97,650.00) was not issued by this Office nor
released to the payee concerned. The series number of said check was not included among those requisition by this Office from the Bureau of Treasury.
Very truly yours,
(SGD.) MINRADO C. BATONGHINOG
Cashier III 14
Petitioner claims that even if the author of the certification issued by the Ministry of Education and Culture (MEG) was not presented, still the best
evidence of the material alteration would be the disputed check itself and the serial number thereon. Petitioner thus assails the refusal of respondent
court to give weight to the certification because the author thereof was not presented to identify it and to be cross-examined thereon. 15
We agree with the respondent court.
The one who signed the certification was not presented before the trial court to prove that the said document was really the document he prepared and
that the signature below the said document is his own signature. Neither did petitioner present an eyewitness to the execution of the questioned
document who could possibly identify it. Absent this proof, we cannot rule on the authenticity of the contents of the certification. Moreover, as we
16
previously emphasized, there was no material alteration on the check, the change of its serial number not being substantial to its negotiability.
Anent the third issue — whether or not the drawee bank may still recover the value of the check from the collecting bank even if it failed to return the
check within the twenty-four (24) hour clearing period because the check was tampered — suffice it to state that since there is no material alteration in
the check, petitioner has no right to dishonor it and return it to PBCom, the same being in all respects negotiable.
However, the amount of P10,000.00 as attorney's fees is hereby deleted. In their respective decisions, the trial court and the Court of Appeals failed to
explicitly state the rationale for the said award. The trial court merely ruled as follows:
With respect to Capitol's claim for damages consisting of alleged loss of opportunity, this Court finds that Capitol failed to adequately substantiate its
claim. What Capitol had presented was a self-serving, unsubstantiated and speculative computation of what it allegedly could have earned or realized
were it not for the debit made by PBCom which was triggered by the return and debit made by PNB. However, this Court finds that it would be fair and
reasonable to impose interest at 12% per annum on the principal amount of the check computed from October 19, 1981 (the date PBCom debited
Capitol's account) until the amount is fully paid and reasonable attorney's fees. 7 (Emphasis ours.)
1
23
And contrary to the Court of Appeal's resolution, petitioner unambiguously questioned before it the award of attorney's fees, assigning the latter as one
of the errors committed by the trial court.
18
The foregoing is in conformity with the guiding principles laid down in a long line of cases and reiterated recently in Consolidated Bank & Trust
Corporation (Solidbank) v. Court of Appeals: 19
The award of attorney's fees lies within the discretion of the court and depends upon the circumstances of each case. However, the discretion of the
court to award attorney's fees under Article 2208 of the Civil Code of the Philippines demands factual, legal and equitable justification, without which the
award is a conclusion without a premise and improperly left to speculation and conjecture. It becomes a violation of the proscription against the
imposition of a penalty on the right to litigate (Universal Shipping Lines, Inc. v. Intermediate Appellate Court, 188 SCRA 170 [1990]). The reason for the
award must be stated in the text of the court's decision. If it is stated only in the dispositive portion of the decision, the same shall be disallowed. As to
the award of attorney's fees being an exception rather than the rule, it is necessary for the court to make findings of fact and law that would bring the
case within the exception and justify the grant of the award (Refractories Corporation of the Philippines v. Intermediate Appellate Court, 176 SCRA 539
[176 SCRA 539]).
WHEREFORE, premises considered, except for the deletion of the award of attorney's fees, the decision of the Court of Appeals is hereby AFFIRMED.
SO ORDERED.
G.R. No. 107382/G.R. No. 107612 January 31, 1996
ASSOCIATED BANK, petitioner,
vs.
HON. COURT OF APPEALS, PROVINCE OF TARLAC and PHILIPPINE NATIONAL BANK, respondents.
xxxxxxxxxxxxxxxxxxxxx
G.R. No. 107612 January 31, 1996

vs.
HONORABLE COURT OF APPEALS, PROVINCE OF TARLAC, and ASSOCIATED BANK, respondents.
DECISION
ROMERO, J.:
Where thirty checks bearing forged endorsements are paid, who bears the loss, the drawer, the drawee bank or the collecting bank?
This is the main issue in these consolidated petitions for review assailing the decision of the Court of Appeals in "Province of Tarlac v. Philippine
National Bank v. Associated Bank v. Fausto Pangilinan, et. al." (CA-G.R. No. CV No. 17962). 1
The facts of the case are as follows:
The Province of Tarlac maintains a current account with the Philippine National Bank (PNB) Tarlac Branch where the provincial funds are deposited.
Checks issued by the Province are signed by the Provincial Treasurer and countersigned by the Provincial Auditor or the Secretary of the Sangguniang
Bayan.
A portion of the funds of the province is allocated to the Concepcion Emergency Hospital. The allotment checks for said government hospital are drawn
2
to the order of "Concepcion Emergency Hospital, Concepcion, Tarlac" or "The Chief, Concepcion Emergency Hospital, Concepcion, Tarlac." The checks
are released by the Office of the Provincial Treasurer and received for the hospital by its administrative officer and cashier.
In January 1981, the books of account of the Provincial Treasurer were post-audited by the Provincial Auditor. It was then discovered that the hospital
did not receive several allotment checks drawn by the Province.
On February 19, 1981, the Provincial Treasurer requested the manager of the PNB to return all of its cleared checks which were issued from 1977 to
1980 in order to verify the regularity of their encashment. After the checks were examined, the Provincial Treasurer learned that 30 checks amounting to
P203,300.00 were encashed by one Fausto Pangilinan, with the Associated Bank acting as collecting bank.
It turned out that Fausto Pangilinan, who was the administrative officer and cashier of payee hospital until his retirement on February 28, 1978, collected
the questioned checks from the office of the Provincial Treasurer. He claimed to be assisting or helping the hospital follow up the release of the checks
and had official receipts. Pangilinan sought to encash the first check with Associated Bank. However, the manager of Associated Bank refused and
3 4
suggested that Pangilinan deposit the check in his personal savings account with the same bank. Pangilinan was able to withdraw the money when the
check was cleared and paid by the drawee bank, PNB.
24
After forging the signature of Dr. Adena Canlas who was chief of the payee hospital, Pangilinan followed the same procedure for the second check, in
the amount of P5,000.00 and dated April 20, 1978, as well as for twenty-eight other checks of various amounts and on various dates. The last check
5
negotiated by Pangilinan was for f8,000.00 and dated February 10, 1981. All the checks bore the stamp of Associated Bank which reads "All prior
6
endorsements guaranteed ASSOCIATED BANK."
Jesus David, the manager of Associated Bank testified that Pangilinan made it appear that the checks were paid to him for certain projects with the
hospital. He did not find as irregular the fact that the checks were not payable to Pangilinan but to the Concepcion Emergency Hospital. While he
7
admitted that his wife and Pangilinan's wife are first cousins, the manager denied having given Pangilinan preferential treatment on this account. 8
On February 26, 1981, the Provincial Treasurer wrote the manager of the PNB seeking the restoration of the various amounts debited from the current
account of the Province. 9
In turn, the PNB manager demanded reimbursement from the Associated Bank on May 15, 1981. 10
As both banks resisted payment, the Province of Tarlac brought suit against PNB which, in turn, impleaded Associated Bank as third-party defendant.
The latter then filed a fourth-party complaint against Adena Canlas and Fausto Pangilinan. 11
After trial on the merits, the lower court rendered its decision on March 21, 1988, disposing as follows:
WHEREFORE, in view of the foregoing, judgment is hereby rendered:
1. On the basic complaint, in favor of plaintiff Province of Tarlac and against defendant Philippine National Bank (PNB), ordering the latter to pay to the
former, the sum of Two Hundred Three Thousand Three Hundred (P203,300.00) Pesos with legal interest thereon from March 20, 1981 until fully paid;
2. On the third-party complaint, in favor of defendant/third-party plaintiff Philippine National Bank (PNB) and against third-party defendant/fourth-party
plaintiff Associated Bank ordering the latter to reimburse to the former the amount of Two Hundred Three Thousand Three Hundred (P203,300.00)
Pesos with legal interests thereon from March 20, 1981 until fully paid;.
3. On the fourth-party complaint, the same is hereby ordered dismissed for lack of cause of action as against fourth-party defendant Adena Canlas and
lack of jurisdiction over the person of fourth-party defendant Fausto Pangilinan as against the latter.
4. On the counterclaims on the complaint, third-party complaint and fourth-party complaint, the same are hereby ordered dismissed for lack of merit.
SO ORDERED. 12
PNB and Associated Bank appealed to the Court of Appeals. Respondent court affirmed the trial court's decision in toto on September 30, 1992.
13
Hence these consolidated petitions which seek a reversal of respondent appellate court's decision.
PNB assigned two errors. First, the bank contends that respondent court erred in exempting the Province of Tarlac from liability when, in fact, the latter
was negligent because it delivered and released the questioned checks to Fausto Pangilinan who was then already retired as the hospital's cashier and
administrative officer. PNB also maintains its innocence and alleges that as between two innocent persons, the one whose act was the cause of the loss,
in this case the Province of Tarlac, bears the loss.
Next, PNB asserts that it was error for the court to order it to pay the province and then seek reimbursement from Associated Bank. According to
petitioner bank, respondent appellate Court should have directed Associated Bank to pay the adjudged liability directly to the Province of Tarlac to avoid
circuity.
14
Associated Bank, on the other hand, argues that the order of liability should be totally reversed, with the drawee bank (PNB) solely and ultimately
bearing the loss.
Respondent court allegedly erred in applying Section 23 of the Philippine Clearing House Rules instead of Central Bank Circular No. 580, which, being
an administrative regulation issued pursuant to law, has the force and effect of law. The PCHC Rules are merely contractual stipulations among and
15
between member-banks. As such, they cannot prevail over the aforesaid CB Circular.
It likewise contends that PNB, the drawee bank, is estopped from asserting the defense of guarantee of prior indorsements against Associated Bank, the
collecting bank. In stamping the guarantee (for all prior indorsements), it merely followed a mandatory requirement for clearing and had no choice but to
place the stamp of guarantee; otherwise, there would be no clearing. The bank will be in a "no-win" situation and will always bear the loss as against the
drawee bank. 16
Associated Bank also claims that since PNB already cleared and paid the value of the forged checks in question, it is now estopped from asserting the
defense that Associated Bank guaranteed prior indorsements. The drawee bank allegedly has the primary duty to verify the genuineness of payee's
indorsement before paying the check. 17
While both banks are innocent of the forgery, Associated Bank claims that PNB was at fault and should solely bear the loss because it cleared and paid
the forged checks.
25
xxx xxx xxx
The case at bench concerns checks payable to the order of Concepcion Emergency Hospital or its Chief. They were properly issued and bear the
genuine signatures of the drawer, the Province of Tarlac. The infirmity in the questioned checks lies in the payee's (Concepcion Emergency Hospital)
indorsements which are forgeries. At the time of their indorsement, the checks were order instruments.
Checks having forged indorsements should be differentiated from forged checks or checks bearing the forged signature of the drawer.
Section 23 of the Negotiable Instruments Law (NIL) provides:
Sec. 23. FORGED SIGNATURE, EFFECT OF. — When a signature is forged or made without authority of the person whose signature it purports to be,
it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can
be acquired through or under such signature unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or
want of authority.
A forged signature, whether it be that of the drawer or the payee, is wholly inoperative and no one can gain title to the instrument through it. A person
whose signature to an instrument was forged was never a party and never consented to the contract which allegedly gave rise to such instrument. 18
Section 23 does not avoid the instrument but only the forged signature. Thus, a forged indorsement does not operate as the payee's indorsement.
19
The exception to the general rule in Section 23 is where "a party against whom it is sought to enforce a right is precluded from setting up the forgery or
want of authority." Parties who warrant or admit the genuineness of the signature in question and those who, by their acts, silence or negligence are
estopped from setting up the defense of forgery, are precluded from using this defense. Indorsers, persons negotiating by delivery and acceptors are
warrantors of the genuineness of the signatures on the instrument. 20
In bearer instruments, the signature of the payee or holder is unnecessary to pass title to the instrument. Hence, when the indorsement is a forgery, only
the person whose signature is forged can raise the defense of forgery against a holder in due course. 21
The checks involved in this case are order instruments, hence, the following discussion is made with reference to the effects of a forged indorsement on
an instrument payable to order.
Where the instrument is payable to order at the time of the forgery, such as the checks in this case, the signature of its rightful holder (here, the payee
hospital) is essential to transfer title to the same instrument. When the holder's indorsement is forged, all parties prior to the forgery may raise the real
defense of forgery against all parties subsequent thereto. 22
An indorser of an order instrument warrants "that the instrument is genuine and in all respects what it purports to be; that he has a good title to it; that all
prior parties had capacity to contract; and that the instrument is at the time of his indorsement valid and subsisting." He cannot interpose the defense
23
that signatures prior to him are forged.
A collecting bank where a check is deposited and which indorses the check upon presentment with the drawee bank, is such an indorser. So even if the
indorsement on the check deposited by the banks's client is forged, the collecting bank is bound by his warranties as an indorser and cannot set up the
defense of forgery as against the drawee bank.
The bank on which a check is drawn, known as the drawee bank, is under strict liability to pay the check to the order of the payee. The drawer's
instructions are reflected on the face and by the terms of the check. Payment under a forged indorsement is not to the drawer's order. When the drawee
bank pays a person other than the payee, it does not comply with the terms of the check and violates its duty to charge its customer's (the drawer)
account only for properly payable items. Since the drawee bank did not pay a holder or other person entitled to receive payment, it has no right to
reimbursement from the drawer. The general rule then is that the drawee bank may not debit the drawer's account and is not entitled to indemnification
24
from the drawer. The risk of loss must perforce fall on the drawee bank.
25
However, if the drawee bank can prove a failure by the customer/drawer to exercise ordinary care that substantially contributed to the making of the
forged signature, the drawer is precluded from asserting the forgery.
If at the same time the drawee bank was also negligent to the point of substantially contributing to the loss, then such loss from the forgery can be
apportioned between the negligent drawer and the negligent bank. 26
In cases involving a forged check, where the drawer's signature is forged, the drawer can recover from the drawee bank. No drawee bank has a right to
pay a forged check. If it does, it shall have to recredit the amount of the check to the account of the drawer. The liability chain ends with the drawee bank
whose responsibility it is to know the drawer's signature since the latter is its customer. 27
In cases involving checks with forged indorsements, such as the present petition, the chain of liability does not end with the drawee bank. The drawee
bank may not debit the account of the drawer but may generally pass liability back through the collection chain to the party who took from the forger and,
of course, to the forger himself, if available. In other words, the drawee bank canseek reimbursement or a return of the amount it paid from the
28
presentor bank or person. Theoretically, the latter can demand reimbursement from the person who indorsed the check to it and so on. The loss falls
29
on the party who took the check from the forger, or on the forger himself.
In this case, the checks were indorsed by the collecting bank (Associated Bank) to the drawee bank (PNB). The former will necessarily be liable to the
latter for the checks bearing forged indorsements. If the forgery is that of the payee's or holder's indorsement, the collecting bank is held liable, without
prejudice to the latter proceeding against the forger.
26
Since a forged indorsement is inoperative, the collecting bank had no right to be paid by the drawee bank. The former must necessarily return the money
paid by the latter because it was paid wrongfully. 30
More importantly, by reason of the statutory warranty of a general indorser in section 66 of the Negotiable Instruments Law, a collecting bank which
indorses a check bearing a forged indorsement and presents it to the drawee bank guarantees all prior indorsements, including the forged indorsement.
It warrants that the instrument is genuine, and that it is valid and subsisting at the time of his indorsement. Because the indorsement is a forgery, the
collecting bank commits a breach of this warranty and will be accountable to the drawee bank. This liability scheme operates without regard to fault on
the part of the collecting/presenting bank. Even if the latter bank was not negligent, it would still be liable to the drawee bank because of its indorsement.
The Court has consistently ruled that "the collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the genuineness
of all prior endorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the
presentment has done its duty to ascertain the genuineness of the endorsements." 31
The drawee bank is not similarly situated as the collecting bank because the former makes no warranty as to the genuineness. of any indorsement. 32
The drawee bank's duty is but to verify the genuineness of the drawer's signature and not of the indorsement because the drawer is its client.
Moreover, the collecting bank is made liable because it is privy to the depositor who negotiated the check. The bank knows him, his address and history
because he is a client. It has taken a risk on his deposit. The bank is also in a better position to detect forgery, fraud or irregularity in the indorsement.
Hence, the drawee bank can recover the amount paid on the check bearing a forged indorsement from the collecting bank. However, a drawee bank has
the duty to promptly inform the presentor of the forgery upon discovery. If the drawee bank delays in informing the presentor of the forgery, thereby
depriving said presentor of the right to recover from the forger, the former is deemed negligent and can no longer recover from the presentor. 33
Applying these rules to the case at bench, PNB, the drawee bank, cannot debit the current account of the Province of Tarlac because it paid checks
which bore forged indorsements. However, if the Province of Tarlac as drawer was negligent to the point of substantially contributing to the loss, then the
drawee bank PNB can charge its account. If both drawee bank-PNB and drawer-Province of Tarlac were negligent, the loss should be properly
apportioned between them.
The loss incurred by drawee bank-PNB can be passed on to the collecting bank-Associated Bank which presented and indorsed the checks to it.
Associated Bank can, in turn, hold the forger, Fausto Pangilinan, liable.
If PNB negligently delayed in informing Associated Bank of the forgery, thus depriving the latter of the opportunity to recover from the forger, it forfeits its
right to reimbursement and will be made to bear the loss.
After careful examination of the records, the Court finds that the Province of Tarlac was equally negligent and should, therefore, share the burden of loss
from the checks bearing a forged indorsement.
The Province of Tarlac permitted Fausto Pangilinan to collect the checks when the latter, having already retired from government service, was no longer
connected with the hospital. With the exception of the first check (dated January 17, 1978), all the checks were issued and released after Pangilinan's
retirement on February 28, 1978. After nearly three years, the Treasurer's office was still releasing the checks to the retired cashier. In addition, some of
the aid allotment checks were released to Pangilinan and the others to Elizabeth Juco, the new cashier. The fact that there were now two persons
collecting the checks for the hospital is an unmistakable sign of an irregularity which should have alerted employees in the Treasurer's office of the fraud
being committed. There is also evidence indicating that the provincial employees were aware of Pangilinan's retirement and consequent dissociation
from the hospital. Jose Meru, the Provincial Treasurer, testified:.
ATTY. MORGA:
Q Now, is it true that for a given month there were two releases of checks, one went to Mr. Pangilinan and one went to Miss Juco?
JOSE MERU:
A Yes, sir.
Q Will you please tell us how at the time (sic) when the authorized representative of Concepcion Emergency Hospital is and was supposed to be Miss
Juco?
A Well, as far as my investigation show (sic) the assistant cashier told me that Pangilinan represented himself as also authorized to help in the release of
these checks and we were apparently misled because they accepted the representation of Pangilinan that he was helping them in the release of the
checks and besides according to them they were, Pangilinan, like the rest, was able to present an official receipt to acknowledge these receipts and
according to them since this is a government check and believed that it will eventually go to the hospital following the standard procedure of negotiating
government checks, they released the checks to Pangilinan aside from Miss Juco. 34
The failure of the Province of Tarlac to exercise due care contributed to a significant degree to the loss tantamount to negligence. Hence, the Province of
Tarlac should be liable for part of the total amount paid on the questioned checks.
The drawee bank PNB also breached its duty to pay only according to the terms of the check. Hence, it cannot escape liability and should also bear part
of the loss.
27
As earlier stated, PNB can recover from the collecting bank.
In the case of Associated Bank v. CA, six crossed checks with forged indorsements were deposited in the forger's account with the collecting bank and
35
were later paid by four different drawee banks. The Court found the collecting bank (Associated) to be negligent and held:
The Bank should have first verified his right to endorse the crossed checks, of which he was not the payee, and to deposit the proceeds of the checks to
his own account. The Bank was by reason of the nature of the checks put upon notice that they were issued for deposit only to the private respondent's
account. . . .
The situation in the case at bench is analogous to the above case, for it was not the payee who deposited the checks with the collecting bank. Here, the
checks were all payable to Concepcion Emergency Hospital but it was Fausto Pangilinan who deposited the checks in his personal savings account.
Although Associated Bank claims that the guarantee stamped on the checks (All prior and/or lack of endorsements guaranteed) is merely a requirement
forced upon it by clearing house rules, it cannot but remain liable. The stamp guaranteeing prior indorsements is not an empty rubric which a bank must
fulfill for the sake of convenience. A bank is not required to accept all the checks negotiated to it. It is within the bank's discretion to receive a check for
no banking institution would consciously or deliberately accept a check bearing a forged indorsement. When a check is deposited with the collecting
bank, it takes a risk on its depositor. It is only logical that this bank be held accountable for checks deposited by its customers.
A delay in informing the collecting bank (Associated Bank) of the forgery, which deprives it of the opportunity to go after the forger, signifies negligence
on the part of the drawee bank (PNB) and will preclude it from claiming reimbursement.
It is here that Associated Bank's assignment of error concerning C.B. Circular No. 580 and Section 23 of the Philippine Clearing House Corporation
Rules comes to fore. Under Section 4(c) of CB Circular No. 580, items bearing a forged endorsement shall be returned within twenty-Sour (24) hours
after discovery of the forgery but in no event beyond the period fixed or provided by law for filing of a legal action by the returning bank. Section 23 of the
PCHC Rules deleted the requirement that items bearing a forged endorsement should be returned within twenty-four hours. Associated Bank now
argues that the aforementioned Central Bank Circular is applicable. Since PNB did not return the questioned checks within twenty-four hours, but
several days later, Associated Bank alleges that PNB should be considered negligent and not entitled to reimbursement of the amount it paid on the
checks.
The Court deems it unnecessary to discuss Associated Bank's assertions that CB Circular No. 580 is an administrative regulation issued pursuant to law
and as such, must prevail over the PCHC rule. The Central Bank circular was in force for all banks until June 1980 when the Philippine Clearing House
Corporation (PCHC) was set up and commenced operations. Banks in Metro Manila were covered by the PCHC while banks located elsewhere still had
to go through Central Bank Clearing. In any event, the twenty-four-hour return rule was adopted by the PCHC until it was changed in 1982. The
contending banks herein, which are both branches in Tarlac province, are therefore not covered by PCHC Rules but by CB Circular No. 580. Clearly
then, the CB circular was applicable when the forgery of the checks was discovered in 1981.
The rule mandates that the checks be returned within twenty-four hours after discovery of the forgery but in no event beyond the period fixed by law for
filing a legal action. The rationale of the rule is to give the collecting bank (which indorsed the check) adequate opportunity to proceed against the forger.
If prompt notice is not given, the collecting bank maybe prejudiced and lose the opportunity to go after its depositor.
The Court finds that even if PNB did not return the questioned checks to Associated Bank within twenty-four hours, as mandated by the rule, PNB did
not commit negligent delay. Under the circumstances, PNB gave prompt notice to Associated Bank and the latter bank was not prejudiced in going after
Fausto Pangilinan. After the Province of Tarlac informed PNB of the forgeries, PNB necessarily had to inspect the checks and conduct its own
investigation. Thereafter, it requested the Provincial Treasurer's office on March 31, 1981 to return the checks for verification. The Province of Tarlac
returned the checks only on April 22, 1981. Two days later, Associated Bank received the checks from PNB. 36
Associated Bank was also furnished a copy of the Province's letter of demand to PNB dated March 20, 1981, thus giving it notice of the forgeries. At this
time, however, Pangilinan's account with Associated had only P24.63 in it. Had Associated Bank decided to debit Pangilinan's account, it could not
37
have recovered the amounts paid on the questioned checks. In addition, while Associated Bank filed a fourth-party complaint against Fausto Pangilinan,
it did not present evidence against Pangilinan and even presented him as its rebuttal witness. Hence, Associated Bank was not prejudiced by PNB's
38
failure to comply with the twenty-four-hour return rule.
Next, Associated Bank contends that PNB is estopped from requiring reimbursement because the latter paid and cleared the checks. The Court finds
this contention unmeritorious. Even if PNB cleared and paid the checks, it can still recover from Associated Bank. This is true even if the payee's Chief
Officer who was supposed to have indorsed the checks is also a customer of the drawee bank. PNB's duty was to verify the genuineness of the
39
drawer's signature and not the genuineness of payee's indorsement. Associated Bank, as the collecting bank, is the entity with the duty to verify the
genuineness of the payee's indorsement.
PNB also avers that respondent court erred in adjudging circuitous liability by directing PNB to return to the Province of Tarlac the amount of the checks
and then directing Associated Bank to reimburse PNB. The Court finds nothing wrong with the mode of the award. The drawer, Province of Tarlac, is a
clientor customer of the PNB, not of Associated Bank. There is no privity of contract between the drawer and the collecting bank.
The trial court made PNB and Associated Bank liable with legal interest from March 20, 1981, the date of extrajudicial demand made by the Province of
Tarlac on PNB. The payments to be made in this case stem from the deposits of the Province of Tarlac in its current account with the PNB. Bank
deposits are considered under the law as loans. Central Bank Circular No. 416 prescribes a twelve percent (12%) interest per annum for loans,
40
forebearance of money, goods or credits in the absence of express stipulation. Normally, current accounts are likewise interest-bearing, by express
contract, thus excluding them from the coverage of CB Circular No. 416. In this case, however, the actual interest rate, if any, for the current account
opened by the Province of Tarlac with PNB was not given in evidence. Hence, the Court deems it wise to affirm the trial court's use of the legal interest
rate, or six percent (6%) per annum. The interest rate shall be computed from the date of default, or the date of judicial or extrajudicial demand. The 41
trial court did not err in granting legal interest from March 20, 1981, the date of extrajudicial demand.
28
The Court finds as reasonable, the proportionate sharing of fifty percent - fifty percent (50%-50%). Due to the negligence of the Province of Tarlac in
releasing the checks to an unauthorized person (Fausto Pangilinan), in allowing the retired hospital cashier to receive the checks for the payee hospital
for a period close to three years and in not properly ascertaining why the retired hospital cashier was collecting checks for the payee hospital in addition
to the hospital's real cashier, respondent Province contributed to the loss amounting to P203,300.00 and shall be liable to the PNB for fifty (50%) percent
thereof. In effect, the Province of Tarlac can only recover fifty percent (50%) of P203,300.00 from PNB.
The collecting bank, Associated Bank, shall be liable to PNB for fifty (50%) percent of P203,300.00. It is liable on its warranties as indorser of the checks
which were deposited by Fausto Pangilinan, having guaranteed the genuineness of all prior indorsements, including that of the chief of the payee
hospital, Dr. Adena Canlas. Associated Bank was also remiss in its duty to ascertain the genuineness of the payee's indorsement.
IN VIEW OF THE FOREGOING, the petition for review filed by the Philippine National Bank (G.R. No. 107612) is hereby PARTIALLY GRANTED. The
petition for review filed by the Associated Bank (G.R. No. 107382) is hereby DENIED. The decision of the trial court is MODIFIED. The Philippine
National Bank shall pay fifty percent (50%) of P203,300.00 to the Province of Tarlac, with legal interest from March 20, 1981 until the payment thereof.
Associated Bank shall pay fifty percent (50%) of P203,300.00 to the Philippine National Bank, likewise, with legal interest from March 20, 1981 until
payment is made.
SO ORDERED.
EQUITABLE BANKING CORPORATION, PETITIONER, VS. SPECIAL STEEL PRODUCTS, INC.

AND AUGUSTO L. PARDO, RESPONDENTS
G.R. No. 175350
FACTS:
In payment for the purchase of welding electrodes, Interco issued 3 checks payable to the order of SSPI. Each check was crossed
with the notation "account payee only" and was drawn against Equitable.
Uy, Interco’s purchasing officer, presented each crossed check to Equitable on the day of its issuance and claimed that he had
good title thereto. He demanded the deposit of the checks in his personal accounts in Equitable.
Equitable acceded to Uy's demands on the assumption that Uy, as the son-in-law of Interco's majority stockholder, was acting
pursuant to Interco's orders. The bank also relied on Uy's status as a valued client.
In October 1991, SSPI reminded Interco of the unpaid welding electrodes, amounting to P985,234.98. Interco replied that it had
already issued three checks payable to SSPI and drawn against Equitable. SSPI denied receipt of these checks.
On August 6, 1992, SSPI requested information from Equitable regarding the three checks. The bank refused to give any
information invoking the confidentiality of deposits.
It was later determined that Uy, not SSPI, received the proceeds of the three checks that were payable to SSPI. Thus, 23 months
after the issuance of the three checks, Interco finally paid the value of the three checks to SSPI, plus a portion of the accrued
interests. Interco refused to pay the entire accrued interest of P767,345.64 on the ground that it was not responsible for the
delay. Thus, SSPI was unable to collect P437,040.35 in interest income.
SSPI and its president, Pardo, filed a complaint for damages with application for a writ of preliminary attachment against Uy and
Equitable Bank.
In support of their application for preliminary attachment, the plaintiffs alleged that the defendants are guilty of fraud in
incurring the obligation upon which the action was brought and that there is no sufficient security for the claim sought to be
enforced in this action.
The trial court granted plaintiffs' application. It issued the writ of preliminary attachment on September 20, 1993, upon the filing
of plaintiffs' bond.
Upon Equitable's motion and filing of a counter-bond, however, the trial court eventually discharged the attachment against it.
The trial court ruled in favour of SSPI and Pardo. Equitable’s counter-claim for wrongful attachment, however, was dismissed by
the trial court for lack of factual and legal basis.
ISSUE:
29
Whether the attachment of Equitable’s personal properties were wrongful
RULING:
WHEREFORE, premises considered, the Petition is PARTIALLY GRANTED. The assailed October 13, 2006 Decision of the
Court of Appeals in CA-G.R. CV No. 62425 is MODIFIED by:
1. REDUCING the award of actual damages to respondents to the rate of 6% per annum of the value of the three checks from July
1991 to June 1993 or a period of twenty-three months;
2. REDUCING the award of moral damages in favor of Augusto L. Pardo from P3,000,000.00 to P 50,000.00; and
3. REVERSING the dismissal of Equitable Banking Corporation's cross-claim against Jose Isidoro Uy, alias Jolly Uy. Jolly Uy is
hereby ORDERED to REIMBURSE Equitable Banking Corporation the amounts that the latter will pay to respondents.
Additionally, the Court hereby REVERSES the dismissal of Equitable Banking Corporation's counterclaim for damages against
Special Steel Products, Inc. This Court ORDERS Special Steel Products, Inc. to PAY Equitable Banking Corporation actual
damages in the total amount of P30,204.36, for the wrongful preliminary attachment of its properties.
The rest of the assailed Decision is AFFIRMED.
RATIO:
The affidavit submitted by SSPI in support of its application for a writ of preliminary attachment and the allegations of the
complaint are bereft of specific and definite allegations of fraud against Equitable that would justify the attachment of its
properties. In fact, SSPI admits its uncertainty whether Equitable's participation in the transactions involved fraud or was a
result of its negligence. Despite such uncertainty with respect to Equitable's participation, SSPI applied for and obtained a
preliminary attachment of Equitable's properties on the ground of fraud. Such preliminary attachment was wrongful. "[A] writ
of preliminary attachment is too harsh a provisional remedy to be issued based on mere abstractions of fraud. Rather, the rules
require that for the writ to issue, there must be a recitation of clear and concrete factual circumstances manifesting that the
debtor practiced fraud upon the creditor at the time of the execution of their agreement in that said debtor had a preconceived
plan or intention not to pay the creditor." No proof was adduced tending to show that Equitable had a preconceived plan not to
pay SSPI or had knowingly participated in Uy's scheme.
That the plaintiffs eventually obtained a judgment in their favor does not detract from the wrongfulness of the preliminary
attachment. While "the evidence warrants [a] judgment in favor of [the] applicant, the proofs may nevertheless also establish
that said applicant's proffered ground for attachment was inexistent or specious, and hence, the writ should not have issued at
all.
EQUITABLE BANKING VS SSP (G.R. NO. 175350 JUNE 13, 2012)

Equitable Banking Corporation, Inc vs Special Steel Products
G.R. No. 175350 June 13, 2012
Facts: Augusto L. Pardo (Pardo) is SSPI’s President and majority stockholder. International Copra Export Corporation (Interco) is its regular customer. Jose Isidoro Uy, alias Jolly
Uy (Uy), is an Interco employee, in charge of the purchasing department, and the son-in-law of its majority stockholder. Petitioner Equitable Banking Corporation (Equitable or
bank) is a private domestic corporation engaged in banking and is the depository bank of Interco and of Uy. In 1991, SSPI sold welding electrodes to Interco, as evidenced by the
following sales invoices: Sales Invoice No. 65042 dated February 14, 1991 for P 325,976.34 Sales Invoice No. 65842 dated April 11, 1991 for P 345,412.80 Sales Invoice No.
65843 dated April 11, 1991 for P 313,845.84 The due dates for these invoices were March 16, 1991 (for the first sales invoice) and May 11, 1991 (for the others). The invoices
provided that Interco would pay interest at the rate of 36% per annum in case of delay. and July 29, 1991. In payment for the above welding electrodes, Interco issued three checks
payable to the order of SSPI on July 10, 1991, July 16, 1991, Each check was crossed with the notation “account payee only” and was drawn against Equitable. The records do not
identify the signatory for these three checks, or explain how Uy, Interco’s purchasing officer, came into possession of these checks. The records only disclose that Uy presented
each crossed check to Equitable on the day of its issuance and claimed that he had good title thereto. He demanded the deposit of the checks in his personal accounts in Equitable,
Account No. 188412 and Account No. 03474-0.
Issue: Whether or not the payment made by Equitable is proper.
Held: No. The checks that Interco issued in favor of SSPI were all crossed, made payable to SSPI’s order, and contained the notation “account payee only.” This creates a
reasonable expectation that the payee alone would receive the proceeds of the checks and that diversion of the checks would be averted. This expectation arises from the accepted
30
banking practice that crossed checks are intended for deposit in the named payee’s account only and no other. At the very least, the nature of crossed checks should place a bank on
notice that it should exercise more caution or expend more than a cursory inquiry, to ascertain whether the payee on the check has authorized the holder to deposit the same in a
different account. It is well to remember that “[t]he banking system has become an indispensable institution in the modern world and plays a vital role in the economic life of every
civilized society. Whether as mere passive entities for the safe-keeping and saving of money or as active instruments of business and commerce, banks have attained an [sic]
ubiquitous presence among the people, who have come to regard them with respect and even gratitude and, above all, trust and confidence. In this connection, it is important that
banks should guard against injury attributable to negligence or bad faith on its part. As repeatedly emphasized, since the banking business is impressed with public interest, the
trust and confidence of the public in it is of paramount importance. Consequently, the highest degree of diligence is expected, and high standards of integrity and performance are
required of it.”
Equitable did not observe the required degree of diligence expected of a banking institution under the existing factual circumstances.
Equitable’s pretension that there is nothing under the circumstances that rendered Uy’s title to the checks questionable is outrageous. These are crossed checks, whose manner of
discharge, in banking practice, is restrictive and specific. Uy’s name does not appear anywhere on the crossed checks. Equitable, not knowing the named payee on the check, had
no way of verifying for itself the alleged genuineness of the indorsement to Uy. The checks bear nothing on their face that supports the belief that the drawer gave the checks to
Uy. Uy’s relationship to Interco’s majority stockholder will not justify disregarding what is clearly ordered on the checks.
Luis Wong vs CA
LUIS S. WONG, petitioner, vs. COURT OF APPEALS and PEOPLE OF THE

PHILIPPINES, respondents, G.R. No. 117857, February 2, 2001
Facts: Petitioner Wong was an agent of Limtong Press. Inc. (LPI), a manufacturer of calendars. After printing
the calendars, LPI would ship the calendars directly to the customers. Thereafter, the agents would come
around to collect the payments. Petitioner, however, had a history of unremitted collections.. Hence,
petitioner’s customers were required to issue post-dated checks before LPI would accept their purchase
orders.
In early December 1985, Wong issued six (6) postdated checks totaling P18,025.00, intended to guarantee the
calendar orders of customers who failed to issue post-dated checks. However, following company policy, LPI
refused to accept the checks as guarantees. Instead, the parties agreed to apply the checks to the payment of
petitioner’s unremitted collections.
Before the maturity of the checks, petitioner prevailed upon LPI not to deposit the checks and promised to
replace them within 30 days. However, petitioner reneged on his promise. Hence, on June 5, 1986, LPI
deposited the checks with Rizal Commercial Banking Corporation (RCBC). The checks were returned for the
reason "account closed." Petitioner failed to make arrangements for payment within five (5) banking days.
Petitioner was charged with three (3) counts of violation of B.P. Blg. 22 and was found guilty by the trial
court, to which the CA affirmed.
Issue: Whether or not LPI deposited the checks within a reasonable time.
Held: Yes. Petitioner avers that since the complainant deposited the checks on June 5, 1986, or 157
days after the December 30, 1985 maturity date, the presumption of knowledge of lack of funds under
Section 2 of B.P. Blg. 22 should not apply to him. He further claims that he should not be expected to keep
his bank account active and funded beyond the ninety-day period.
Under Section 186 of the Negotiable Instruments Law, "a check must be presented for payment within a
reasonable time after its issue or the drawer will be discharged from liability thereon to the extent of the
loss caused by the delay." By current banking practice, a check becomes stale after more than six (6)
months, or 180 days. Private respondent herein deposited the checks 157 days after the date of the
check. Hence said checks cannot be considered stale. Only the presumption of knowledge of insufficiency
of funds was lost, but such knowledge could still be proven by direct or circumstantial evidence. As found by
the trial court, private respondent did not deposit the checks because of the reassurance of petitioner that he
would issue new checks. Upon his failure to do so, LPI was constrained to deposit the said checks. After the
checks were dishonored, petitioner was duly notified of such fact but failed to make arrangements for full
31
payment within five (5) banking days thereof. There is, on record, sufficient evidence that petitioner had
knowledge of the insufficiency of his funds in or credit with the drawee bank at the time of issuance of the
checks.
Negotiable Instruments Case Digest: Gullas V. PNB (1935)

FACTS:
 August 2, 1933: Treasurer of the US for the United States Veterans Bureau issued a Warrant in the amount
of $361, payable to the order of Francisco Sabectoria Bacos
 Atty. Paulino Gullas and Pedro Lopez signed as endorsers of this check
 cashed by the Philippine National Bank
 dishonored by Insular Treasurer
 outstanding balance of Attorney Gullas on the books of the bank was P509
 August 20, 1933: Attorney Gullas left his residence for Manila so the notices of dishonor informing him that the amount of $366 was applied to
his outstanding balance were not received by him
 August 31, 1933: Upon his return to Cebu, he received the notice of dishonor and paid the balance
 Inconveniences to Atty. Gullas:
1. insurance unpaid due to lack of credit

2. periodicals in the vicinity gave prominence to the news to the great mortification of Gullas
ISSUE: W/N the bank had the right to automatically credit Gullas account and it was not prejudicial to him
HELD: NO. Pay Gullas nominal damage of P250

 it has been held a long line of authorities that notice of dishonor is in order to charge all indorser and that the
right of action against him does not accrue until the notice is given
 GR: a bank has a right of set off of the deposits in its hands for the payment of any indebtedness to it on the
part of a depositor

However this may be, as to an indorser the situation is different, and notice should actually have been given him
in order that he might protect his interests.

Labels: 1935, Case Digest, G.R. No. L-43191, Gullas v. PNB, Juris Doctor, Negotiable Instruments Case Digest, Negotiable Instruments Law, Notice of
Dishonor
Paulino Gullas v. PNB (G.R. No. L-43191)

Facts:
Petitioner Gullas maintains a current account with herein respondent PNB. He together with one
Pedro Lopez signed as endorsers of a Warrant issued by the US Veterans Bureau payable to the order
of one Francisco Bacos. PNB cashed the check but was subsequently dishonored by the Insular
Treasurer. PNB then sent notices to petitioner which could not be delivered to him at the time because
he was in Manila. PNB in the letter informed the petitioner the outstanding balance on his account was
32
applied to the part payment of the dishonored check. Upon petitioner’s return, he received the notice of
dishonor and immediately paid the unpaid balance of the warrant. As a consequence of these,
petitioner was inconvenienced when his insurance was not paid due to lack of funds and was publicized
widely at his area to his mortification.
Issue:
Whether or not PNB has the right to apply petitioner’s deposit to his debt to the bank.
Ruling: NO.
As a general rule, a bank has a right of set off of the deposits in its hands for the payment of any
indebtedness to it on the part of a depositor. The Civil Code contains provisions regarding
compensation (set off) and deposit. The portions of Philippine law provide that compensation shall take
place when two persons are reciprocally creditor and debtor of each other. In this connection, it has
been held that the relation existing between a depositor and a bank is that of creditor and debtor.
[General Rule]
Starting, therefore, from the premise that the Philippine National Bank had with respect to the deposit
of Gullas a right of set off, we next consider if that remedy was enforced properly. The fact we believe
is undeniable that prior to the mailing of notice of dishonor, and without waiting for any action by
Gullas, the bank made use of the money standing in his account to make good for the treasury warrant.
Gullas was merely an indorser and had issued in good faith. As to an indorser, the situation is different
and notice should actually have been given him in order that he might protect his interests. We
accordingly are of the opinion that the action of the bank was prejudicial to Gullas.
State Investment House Inc. vs. CA
GR No. 101163 January 11, 1993
Bellosillo, J.:
Facts:
Nora Moulic issued to Corazon Victoriano, as security for pieces of jewellery to be sold on commission,
two postdated checks in the amount of fifty thousand each. Thereafter, Victoriano negotiated the checks to State
Investment House, Inc. When Moulic failed to sell the jewellry, she returned it to Victoriano before the maturity
of the checks. However, the checks cannot be retrieved as they have been negotiated. Before the maturity date
Moulic withdrew her funds from the bank contesting that she incurred no obligation on the checks because the
jewellery was never sold and the checks are negotiated without her knowledge and consent. Upon presentment
of for payment, the checks were dishonoured for insufficiency of funds.
Issues:
1. Whether or not State Investment House inc. was a holder of the check in due course
2. Whether or not Moulic can set up against the petitioner the defense that there was failure or absence of
consideration
Held:
33
Yes, Section 52 of the NIL provides what constitutes a holder in due course. The evidence shows that: on the
faces of the post dated checks were complete and regular; that State Investment House Inc. bought the checks
from Victoriano before the due dates; that it was taken in good faith and for value; and there was no knowledge
with regard that the checks were issued as security and not for value. A prima facie presumption exists that a
holder of a negotiable instrument is a holder in due course. Moulic failed to prove the contrary.
No, Moulic can only invoke this defense against the petitioner if it was a privy to the purpose for which they
were issued and therefore is not a holder in due course.
No, Section 119 of NIL provides how an instruments be discharged. Moulic can only invoke paragraphs c and d
as possible grounds for the discharge of the instruments. Since Moulic failed to get back the possession of the
checks as provided by paragraph c, intentional cancellation of instrument is impossible. As provided by
paragraph d, the acts which will discharge a simple contract of payment of money will discharge the instrument.
Correlating Article 1231 of the Civil Code which enumerates the modes of extinguishing obligation, none of
those modes outlined therein is applicable in the instant case. Thus, Moulic may not unilaterally discharge
herself from her liability by mere expediency of withdrawing her funds from the drawee bank. She is thus liable
as she has no legal basis to excuse herself from liability on her check to a holder in due course. Moreover, the
fact that the petitioner failed to give notice of dishonor is of no moment. The need for such notice is not
absolute; there are exceptions provided by Sec 114 of NIL.
Tan Leonco v. Go Inqui
8 Phil 531 1907 Johnson, J.
petitioners Tan Leonco
respondents Go Inqui
summary Drawee refused to pay cheque because of drawer’s order (not to pay). Drawer
alleged that Tan Leonco (holder) never duly protested after presentment, therefore,
he (drawer) cannot be held liable.
CH: In as much as the defendant had himself ordered the drawee not to pay the
said bill of exchange, protest and notice of nonpayment under these conditions,
was unnecessary in order to render the drawer, or defendant in this case, liable.
34
facts of the case
Instrument: Cheque - Bill of Exchange
Drawer: J.C. Mercantile Company (represented by Go Inqui)
Drawee: Lim Uyco
Executed and delivered to Tan Leonco (Plaintiff)
Plaintiff left for China in 1987, before leaving, he turned over the management of
his abaca (hemp) plantation to Tan Tonguan. Tan Tonguan obtained P800 worth of
fiber that he delivered to Respondent’s warehouse in exchange for a cheque.
Upon returning from China, Tan Leonco duly presented the Cheque to Lim
Uyco, who refused payment because he had received instructions to that effect
from the company.
Respondent’s argument: Bill of exchange was not protested after presentment,
and that there is some question of the right of the plaintiff to recover upon said bill
without the same having been duly protested.
issue
WON protest is needed in this case in order to hold respondent/drawer liable? NO
(exception to the rule on protest).
ratio
In as much as the defendant had himself ordered the drawee not to pay the said
bill of exchange, protest and notice of nonpayment under these conditions, was
unnecessary in order to render the drawer, or defendant in this case, liable.
EQUITABLE BANKING V. IAC

161 SCRA 518

FACTS:
Nell Company issued a check to help Casals and Casville Enterprises obtain a letter of credit
from Equitable Banking in connection with equipment, a garrett skidder, which Casals and
Casville were buying from Nell. Nell indicated the payee as follows “EQUITABLE
BANKING CORPORATION A/C
CASVILLE ENTERPRISES INC.”

Casals deposited the check with the bank and the bank teller accepted the same and in
accordance with customary bank practice, stamped in the check the words “non-
negotiable”. The amount was withdrawn after the deposit.

This prompted Nell to file a case against the bank, Casals and Casville. While the instant
case was being tried, Casals and Casville assigned the garrett skidder to plaintiff which
credited in favor of defendants the amount of P450,000, as partial satisfaction of its claim against
them.

HELD:
35
Equitable is not liable to Nell. Nell should bear the loss as it was through its own acts, which put it
into the power of Casals and Casville Enterprises to perpetuate the fraud against it.

The check wasn’t initially non-negotiable. Neither was it cross-checked. The rubber-
stamping transversally on the face of the check was only made the bank teller in accordance with
customary bank practice, and not by Nell as the drawer of the check, and simply meant that
thereafter the same
check could no longer be negotiated.

The payee was not indicated with reasonable certainty in contravention of Section 8. As worded, it
could be accepted as deposit to the account of the party named therein after the symbols of A/C,
or payable to the bank as trustee, or as an agent, for Casville with the latter being the
ultimate beneficiary.
G.R. No. 74451 May 25, 1988
EQUITABLE BANKING CORPORATION, petitioner,

vs.
THE HONORABLE INTERMEDIATE APPELLATE COURT and THE EDWARD J. NELL CO., respondents.
William R. Veto for petitioner.
Pelaez, Adriano & Gregorio for respondents.
MELENCIO-HERRERA, J.:
In this Petition for Review on certiorari petitioner, Equitable Banking Corporation, prays that the adverse judgment against it
rendered by respondent Appellate Court, dated 4 October 1985, and its majority Resolution, dated 28 April 1986, denying
1
petitioner's Motion for Reconsideration, be annulled and set aside.

2
The facts pertinent to this Petition, as summarized by the Trial Court and adopted by reference by Respondent
Appellate Court, emanated from the case entitled "Edward J. Nell Co. vs. Liberato V. Casals, Casville Enterprises,
Inc., and Equitable Banking Corporation" of the Court of First Instance of Rizal (Civil Case No. 25112), and read:
From the evidence submitted by the parties, the Court finds that sometime in 1975 defendant Liberato Casals went to
plaintiff Edward J. Nell Company and told its senior sales engineer, Amado Claustro that he was interested in buying
one of the plaintiff's garrett skidders. Plaintiff was a dealer of machineries, equipment and supplies. Defendant
Casals represented himself as the majority stockholder, president and general manager of Casville Enterprises, Inc.,
a firm engaged in the large scale production, procurement and processing of logs and lumber products, which had a
plywood plant in Sta. Ana, Metro Manila.
After defendant Casals talked with plaintiff's sales engineer, he was referred to plaintiffs executive vice-president,
Apolonio Javier, for negotiation in connection with the manner of payment. When Javier asked for cash payment for
the skidders, defendant Casals informed him that his corporation, defendant Casville Enterprises, Inc., had a credit
line with defendant Equitable Banking Corporation. Apparently, impressed with this assertion, Javier agreed to have
the skidders paid by way of a domestic letter of credit which defendant Casals promised to open in plaintiffs favor, in
lieu of cash payment. Accordingly, on December 22, 1975, defendant Casville, through its president, defendant
Casals, ordered from plaintiff two units of garrett skidders ...
The purchase order for the garrett skidders bearing No. 0051 and dated December 22, 1975 (Exhibit "A") contained
the following terms and conditions:
Two (2) units GARRETT Skidders Model 30A complete as basically described in the bulletin
PRICE: F.O.B. dock
Manila P485,000.00/unit
36
For two (2) units P970,000.00
SHIPMENT: We will inform you the date and name of the vessel as soon as arranged.
TERMS: By irrevocable domestic letter of credit to be issued in favor of THE EDWARD J. NELL CO. or ORDER
payable in thirty six (36) months and will be opened within ninety (90) days after date of shipment. at first installment
will be due one hundred eighty (180) days after date of shipment. Interest-14% per annum (Exhibit A)
xxx xxx xxx
... in a letter dated April 21, 1976, defendants Casals and Casville requested from plaintiff the delivery of one (1) unit
of the bidders, complete with tools and cables, to Cagayan de Oro, on or before Saturday, April 24,1976, on board a
Lorenzo shipping vessel, with the information that an irrevocable Domestic Letter of Credit would be opened in
plaintiff's favor on or before June 30, 1976 under the terms and conditions agreed upon (Exhibit "B")
On May 3, 1976, in compliance with defendant Casvile's recognition request, plaintiff shipped to Cagayan de Oro City
a Garrett skidder. Plaintiff paid the shipping cost in the amount of P10,640.00 because of the verbal assurance of
defendant Casville that it would be covered by the letter of credit soon to be opened.
xxx xxx xxx
On July 15, 1976, defendant Casals handed to plaintiff a check in the amount of P300,000.00 postdated August 4,
1976, which was followed by another check of same date. Plaintiff considered these checks either as partial payment
for the skidder that was already delivered to Cagayan de Oro or as reimbursement for the marginal deposit that
plaintiff was supposed to pay.
In a letter dated August 3, 1976 (Exhibit "C"), defendants Casville informed the plaintiff that their application for a
letter of credit for the payment of the Garrett skidders had been approved by the Equitable Banking Corporation.
However, the defendants said that they would need the sum of P300,000.00 to stand as collateral or marginal deposit
in favor of Equitable Banking Corporation and an additional amount of P100,000.00, also in favor of Equitable
Banking Corporation, to clear the title of the Estrada property belonging to defendant Casals which had been
approved as security for the trust receipts to be issued by the bank, covering the above-mentioned equipment.
Although the marginal deposit was supposed to be produced by defendant Casville Enterprises, plaintiff agreed to
advance the necessary amount in order to facilitate the transaction. Accordingly, on August 5,1976, plaintiff issued a
check in the amount of P400,000.00 (Exhibit "2") drawn against the First National City Bank and made payable to the
order of Equitable Banking Corporation and with the following notation or memorandum:
a/c of Casville Enterprises Inc. for Marginal deposit and payment of balance on Estrada Property to be used as
security for trust receipt for opening L/C of Garrett Skidders in favor of the Edward J. Nell Co." Said check together
with the cash disbursement voucher (Exhibit "2-A") containing the explanation:
Payment for marginal deposit and other expenses re opening of L/C for account of Casville Ent..
A covering letter (Exhibit "3") was also sent and when the three documents were presented to Severino Santos,
executive vice president of defendant bank, Santos did not accept them because the terms and conditions required
by the bank for the opening of the letter of credit had not yet been agreed on.
On August 9, 1976, defendant Casville wrote the bank applying for two letters of credit to cover its purchase from
plaintiff of two Garrett skidders, under the following terms and conditions:
a) On sight Letter of Credit for P485,000.00; b) One 36 months Letter of Credit for P606,000.00; c) P300,000.00
CASH marginal deposit1 d) Real Estate Collateral to secure the Trust Receipts; e) We shall chattel mortgage the
equipments purchased even after payment of the first L/C as additional security for the balance of the second L/C
and f) Other conditions you deem necessary to protect the interest of the bank."
In a letter dated August 11, 1976 (Exhibit "D-l"), defendant bank replied stating that it was ready to open the letters of
credit upon defendant's compliance of the following terms and conditions:
c) 30% cash margin deposit; d) Acceptable Real Estate Collateral to secure the Trust Receipts; e) Chattel Mortgage
on the equipment; and Ashville f) Other terms and conditions that our bank may impose.
Defendant Casville sent a copy of the foregoing letter to the plaintiff enclosing three postdated checks. In said letter,
plaintiff was informed of the requirements imposed by the defendant bank pointing out that the "cash marginal
required under paragraph (c) is 30% of Pl,091,000.00 or P327,300.00 plus another P100,000.00 to clean up the
Estrada property or a total of P427,300.00" and that the check covering said amount should be made payable "to the
37
Order of EQUITABLE BANKING CORPORATION for the account of Casville Enterprises Inc." Defendant Casville
also stated that the three (3) enclosed postdated checks were intended as replacement of the checks that were
previously issued to plaintiff to secure the sum of P427,300.00 that plaintiff would advance to defendant bank for the
account of defendant Casville. All the new checks were postdated November 19, 1976 and drawn in the sum of
Pl45,500.00 (Exhibit "F"), P181,800.00 (Exhibit "G") and P100,000.00 (Exhibit "H").
On the same occasion, defendant Casals delivered to plaintiff TCT No. 11891 of the Register of Deeds of Quezon
City and TCT No. 50851 of the Register of Deeds of Rizal covering two pieces of real estate properties.
Subsequently, Cesar Umali, plaintiffs credit and collection manager, accompanied by a representative of defendant
Casville, went to see Severino Santos to find out the status of the credit line being sought by defendant Casville.
Santos assured Umali that the letters of credit would be opened as soon as the requirements imposed by defendant
bank in its letter dated August 11, 1976 had been complied with by defendant Casville.
On August 16, 1976, plaintiff issued a check for P427,300.00, payable to the "order of EQUITABLE BANKING
CORPORATION A/C CASVILLE ENTERPRISES, INC." and drawn against the first National City Bank (Exhibit "E-l").
The check did not contain the notation found in the previous check issued by the plaintiff (Exhibit "2") but the
substance of said notation was reproduced in a covering letter dated August 16,1976 that went with the check
(Exhibit "E"). Both the check and the covering letter were sent to defendant bank through defendant Casals. Plaintiff
<äre||anº•1àw>
entrusted the delivery of the check and the latter to defendant Casals because it believed that no one, including
defendant Casals, could encash the same as it was made payable to the defendant bank alone. Besides, defendant
Casals was known to the bank as the one following up the application for the letters of credit.
Upon receiving the check for P427,300.00 entrusted to him by plaintiff defendant Casals immediately deposited it
with the defendant bank and the bank teller accepted the same for deposit in defendant Casville's checking account.
After depositing said check, defendant Casville, acting through defendant Casals, then withdrew all the amount
deposited.
Meanwhile, upon their presentation for encashment, plaintiff discovered that the three checks (Exhibits "F, "G" and
"H") in the total amount of P427,300.00, that were issued by defendant Casville as collateral were all dishonored for
having been drawn against a closed account.
As defendant Casville failed to pay its obligation to defendant bank, the latter foreclosed the mortgage executed by
defendant Casville on the Estrada property which was sold in a public auction sale to a third party.
Plaintiff allowed some time before following up the application for the letters of credit knowing that it took time to
process the same. However, when the three checks issued to it by defendant Casville were dishonored, plaintiff
became apprehensive and sent Umali on November 29, 1976, to inquire about the status of the application for the
letters of credit. When plaintiff was informed that no letters of credit were opened by the defendant bank in its favor
and then discovered that defendant Casville had in the meanwhile withdrawn the entire amount of P427,300.00,
without paying its obligation to the bank plaintiff filed the instant action.
While the the instant case was being tried, defendants Casals and Casville assigned the garrett skidder to plaintiff
which credited in favor of defendants the amount of P450,000.00, as partial satisfaction of plaintiff's claim against
them.
Defendants Casals and Casville hardly disputed their liability to plaintiff. Not only did they show lack of interest in
disputing plaintiff's claim by not appearing in most of the hearings, but they also assigned to plaintiff the garrett
skidder which is an action of clear recognition of their liability.
What is left for the Court to determine, therefore, is only the liability of defendant bank to plaintiff.
xxx xxx xxx
Resolving that issue, the Trial Court rendered judgment, affirmed by Respondent Court in toto, the pertinent portion
of which reads:
xxx xxx xxx
Defendants Casals and Casville Enterprises and Equitable Banking Corporation are ordered to pay plaintiff, jointly
and severally, the sum of P427,300.00, representing the amount of plaintiff's check which defendant bank
erroneously credited to the account of defendant Casville and which defendants Casal and Casville misappropriated,
with 12% interest thereon from April 5, 1977, until the said sum is fully paid.
Defendant Equitable Banking Corporation is ordered to pay plaintiff attorney's fees in the sum of P25,000.00 .
Proportionate cost against all the defendants.
38
SO ORDERED.
The crucial issue to resolve is whether or not petitioner Equitable Banking Corporation (briefly, the Bank) is liable to
private respondent Edward J. Nell Co. (NELL, for short) for the value of the second check issued by NELL, Exhibit
"E-l," which was made payable
to the order of EQUITABLE Ashville BANIUNG CORPORATION A/C OF CASVILLE ENTERPRISES INC.
and which the Bank teller credited to the account of Casville.
The Trial Court found that the amount of the second check had been erroneously credited to the Casville account;
held the Bank liable for the mistake of its employees; and ordered the Bank to pay NELL the value of the check in the
sum of P427,300.00, with legal interest. Explained the Trial Court:
The Court finds that the check in question was payable only to the defendant bank and to no one else. Although the
words "A/C OF CASVILLE ENTERPRISES INC. "appear on the face of the check after or under the name of
defendant bank, the payee was still the latter. The addition of said words did not in any way make Casville
Enterprises, Inc. the Payee of the instrument for the words merely indicated for whose account or in connection with
what account the check was issued by the plaintiff.
Indeed, the bank teller who received it was fully aware that the check was not negotiable since he stamped thereon
the words "NON-NEGOTIABLE For Payee's Account Only" and "NON-NEGOTIABLE TELLER NO. 4, August
17,1976 EQUITABLE BANKING CORPORATION.
But said teller should have exercised more prudence in the handling of Id check because it was not made out in the
usual manner. The addition of the words A/C OF CASVILLE ENTERPRISES INC." should have placed the teller on
guard and he should have clarified the matter with his superiors. Instead of doing so, however, the teller decided to
rely on his own judgment and at the risk of making a wrong decision, credited the entire amount in the name of
defendant Casville although the latter was not the payee named in the check. Such mistake was crucial and was,
without doubt, the proximate cause of plaintiffs defraudation.
xxx xxx xxx
Respondent Appellate Court upheld the above conclusions stating in addition:
1) The appellee made the subject check payable to appellant's order, for the account of Casville Enterprises, Inc. In
the light of the other facts, the directive was for the appellant bank to apply the value of the check as payment for the
letter of credit which Casville Enterprises, Inc. had previously applied for in favor of the appellee (Exhibit D-1, p. 5).
The issuance of the subject check was precisely to meet the bank's prior requirement of payment before issuing the
letter of credit previously applied for by Casville Enterprises in favor of the appellee;
xxx xxx xxx
We disagree.
1) The subject check was equivocal and patently ambiguous. By making the check read:
Pay to the EQUITABLE BANKING CORPORATION Order of A/C OF CASVILLE ENTERPRISES, INC.
the payee ceased to be indicated with reasonable certainty in contravention of Section 8 of the Negotiable
Instruments Law. As worded, it could be accepted as deposit to the account of the party named after the symbols
3
"A/C," or payable to the Bank as trustee, or as an agent, for Casville Enterprises, Inc., with the latter being the
ultimate beneficiary. That ambiguity is to be taken contra proferentem that is, construed against NELL who caused
the ambiguity and could have also avoided it by the exercise of a little more care. Thus, Article 1377 of the Civil
Code, provides:
Art. 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the
obscurity.
2) Contrary to the finding of respondent Appellate Court, the subject check was, initially, not non-negotiable. Neither
was it a crossed check. The rubber-stamping transversall on the face of the subject check of the words "Non-
negotiable for Payee's Account Only" between two (2) parallel lines, and "Non-negotiable, Teller- No. 4, August 17,
1976," separately boxed, was made only by the Bank teller in accordance with customary bank practice, and not by
NELL as the drawer of the check, and simply meant that thereafter the same check could no longer be negotiated.
39
3) NELL's own acts and omissions in connection with the drawing, issuance and delivery of the 16 August 1976
check, Exhibit "E-l," and its implicit trust in Casals, were the proximate cause of its own defraudation: (a) The original
check of 5 August 1976, Exhibit "2," was payable to the order solely of "Equitable Banking Corporation." NELL
changed the payee in the subject check, Exhibit "E", however, to "Equitable Banking Corporation, A/C of Casville
Enterprises Inc.," upon Casals request. NELL also eliminated both the cash disbursement voucher accompanying the
check which read:
Payment for marginal deposit and other expense re opening of L/C for account of Casville Enterprises.
and the memorandum:
a/c of Casville Enterprises Inc. for Marginal deposit and payment of balance on Estrada Property to be used as
security for trust receipt for opening L/C of Garrett Skidders in favor of the Edward Ashville J Nell Co.
Evidencing the real nature of the transaction was merely a separate covering letter, dated 16 August 1976, which
Casals, sinisterly enough, suppressed from the Bank officials and teller.
(b) NELL entrusted the subject check and its covering letter, Exhibit "E," to Casals who, obviously, had his own
antagonistic interests to promote. Thus it was that Casals did not purposely present the subject check to the
Executive Vice-President of the Bank, who was aware of the negotiations regarding the Letter of Credit, and who had
rejected the previous check, Exhibit "2," including its three documents because the terms and conditions required by
the Bank for the opening of the Letter of Credit had not yet been agreed on.
(c) NELL was extremely accommodating to Casals. Thus, to facilitate the sales transaction, NELL even advanced the
marginal deposit for the garrett skidder. It is, indeed, abnormal for the seller of goods, the price of which is to be
covered by a letter of credit, to advance the marginal deposit for the same.
(d) NELL had received three (3) postdated checks all dated 16 November, 1976 from Casvine to secure the subject
check and had accepted the deposit with it of two (2) titles of real properties as collateral for said postdated checks.
Thus, NELL was erroneously confident that its interests were sufficiently protected. Never had it suspected that those
postdated checks would be dishonored, nor that the subject check would be utilized by Casals for a purpose other
than for opening the letter of credit.
In the last analysis, it was NELL's own acts, which put it into the power of Casals and Casville Enterprises to
perpetuate the fraud against it and, consequently, it must bear the loss (Blondeau, et al., vs. Nano, et al., 61 Phil. 625
[1935]; Sta. Maria vs. Hongkong and Shanghai Banking Corporation, 89 Phil. 780 [1951]; Republic of the Philippines
vs. Equitable Banking Corporation, L-15895, January 30,1964, 10 SCRA 8).
... As between two innocent persons, one of whom must suffer the consequence of a breach of trust, the one who
made it possible by his act of confidence must bear the loss.
WHEREFORE, the Petition is granted and the Decision of respondent Appellate Court, dated 4 October 1985, and its
majority Resolution, dated 28 April 1986, denying petitioner's Motion for Reconsideration, are hereby SET ASIDE.
The Decision of the then Court of First Instance of Rizal, Branch XI. is modified in that petitioner Equitable Banking
Corporation is absolved from any and all liabilities to the private respondent, Edward J. Nell Company, and the
Amended Complaint against petitioner bank is hereby ordered dismissed. No costs.
SO ORDERED.
Yap, C.J., Paras and Sarmiento, J.J., concur.
Padilla, J., took no part.
40

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Adolph Ramish Inc. vs.

SUBJECT: Question on proper indorsement of P/N to Adolph Ramish

DISPOSITIVE: Judgment reversed.

Bank of America, NT and SA vs. Associated

G.R. No. 179952 December 4, 2009

METROPOLITAN BANK AND TRUST COMPANY (formerly ASIANBANK CORPORATION), Petitioner,

Bitanga was declared in default in Asianbank’s cross-claim.15

Thus the trial court disposed:

3) To pay the costs of suit.

Asianbank’s and Bitanga’s [sic] counterclaims are dismissed.

SO ORDERED.18 (emphasis and underscoring supplied)

3.01.1.1 Whether BA Finance has a cause of action against Asianbank.

And it proffered the following arguments:

The petition fails.

Section 41 of the Negotiable Instruments Law provides:

Q What do you mean by the branch personnel being held liable?

Is petitioner liable to BA Finance for the full value of the check?

Petitioner’s argument is flawed.

Costs against petitioner.

Clark vs Sellner GR No. 16477, 22 Nov 1921

Negotiable Instruments Case Digest: Ang Tiong V. Ting (1968)

HELD: NO. Affirmed

HELD: Petition is Granted. CA reversed.

Section 119 of the Negotiable Instrument Law provides:

G.R. No. L-38816 November 3, 1933

 Instead, placed the checks in his personal account

ISSUE: W/N Insular can file against the bank

Negotiable Instruments Case Digest: Philippine Bank Of Commerce

 trial court: Aruego to pay to the PBC

 Section 20 of the Negotiable Instruments Law

ISSUE: W/N Aruego should be personally liable

HELD: YES. CFI AFFIRMED.

 Under the Negotiable Instrument Law, a drawee is primarily liable

1. 1.NEGOTIABLE INSTRUMENTS; CHECKS; UNREASONABLE DELAY IN PRESENTMENT DISCHARGES THE INDORSER.—

1. 2.ID.; ID.; TWENTY-SEVEN DAYS' DELAY IN PRESENTMENT Is UNREASONABLE.—Section 186 of the Negotiable Instruments

Dishonored Negotiable Instruments

(b) Presentment is excused and the instrument is overdue and unpaid.

WHEN PAYMENT REFUSED, ETC.

WHEN PRESENTMENT IS EXCUSED

AFTER DISHONOR, INDORSERS, ETC. ARE PRIMARILY LIABLE

PNB V. SEETO, 91 SCRA 757

PHILIPPINE NATIONAL BANK, petitioner,

Ramon B. de los Reyes for petitioner.

SEC. 66. Liability of general indorser. — . . . .

RAYMUNDO A. CRYSTAL vs. CA and PELAGIA OCANG DE GRACIA, et al

G.R. No. 107508 April 25, 1996

PHILIPPINE NATIONAL BANK, petitioner,

The facts of the case are as follows.

WHEREFORE, judgment is hereby rendered as follows:

5.) The Counterclaims of PBCom and PNB are hereby dismissed;

6.) No pronouncement as to costs.

We find no merit in the petition.

(a) The date;

(b) The sum payable, either for principal or interest;

(c) The time or place of payment;

(d) The number or the relations of the parties;

(e) The medium or currency in which payment is to be made;

An alteration is said to be material if it alters the effect of the

Section 1 of the Negotiable Instruments Law provides:

(a) It must be in writing and signed by the maker or drawer;

(c) Must be payable on demand, or at a fixed or determinable future time;

(d) Must be payable to order or to bearer; and