A.

Forms and Interpretation

1. Requisites of negotiability

1.)Caltex (Phils.), Inc. vs. Court of Appeals and Security Bank and Trust Co.
G.R. No. 97753, Aug. 10, 1992

FACTS:

Security bank issued Certificates of Time Deposits to Angel dela Cruz. The same were
given by Dela Cruz to Caltex in connection to his purchase of fuel products of the latter.
On a later date, Dela Cruz approached the bank manager, communicated the loss of
the certificates and requested for a reissuance.

Upon compliance with some formal requirements, he was issued replacements.

Thereafter, he secured a loan from the bank where he assigned the certificates as
security. Here comes the petitioner, averred that the certificates were not
actually lost but were given as security for payment for fuel purchases.

The bank demanded some proof of the agreement but the petitioner failed to comply.
The loan matured and the time deposits were terminated and then applied to the
payment of the loan.

Petitioner demands the payment of the certificates but to no avail.

ISSUE:

Whether or not the certificates of time deposits (CTDs) are negotiable instruments?

HELD:

Yes. The Court held that the CTDs are negotiable instruments. The CTDs in question
undoubtedly meet the requirements of the law for negotiability.

The Negotiable Instruments Law provides, an instrument to be negotiable must conform

to certain requirements, hence,

1. It must be in writing and signed by the maker or drawer;

2. Must contain an unconditional promise or order to pay a sum certain in money;
3. Must be payable on demand, or at a fixed or determinable future time;
 4. Must be payable to order or to bearer; and
5. Where the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty.

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

If it was really the intention of respondent bank to pay the amount to Angel de la
Cruz only, it could have with facility so expressed that fact in clear and categorical terms
in the documents, instead of having the word “BEARER” stamped on the space
provided for the name of the depositor in each CTD. On the wordings of the
documents, therefore, the amounts deposited are repayable to whoever may be
the bearer thereof.

Thus, petitioner’s aforesaid witness merely declared that Angel de la Cruz is the
depositor “insofar as the bank is concerned,” but obviously other parties not privy
to the transaction between them would not be in a position to know that the
depositor is not the bearer stated in the CTDs. Hence, the situation would require any
party dealing with the CTDs to go behind the plain import of what is written thereon
to unravel the agreement of the parties thereto through facts aliunde. This need
for resort to extrinsic evidence is what is sought to be avoided by the Negotiable
Instruments Law and calls for the application of the elementary rule that the
interpretation of obscure words or stipulations in a contract shall not favor the party who
caused the obscurity.

2.) Consolidated Plywood Industries Inc., et. al. vs. IFC Leasing and Acceptance
Corporation G.R. No.72593, April 30 1997

FACTS: Petitioner, Consolidated Plywood Industries, Inc. was offered by Industrial

Products Marketing (the seller-assignor) two “used” tractors to be used in the logging
activities of petitioner with the assurance that the two tractors were fit to cover the
extent of work needed and the warranty of ninety (90) days performance of the
machines and availability of parts. Petitioner purchased on installment said used
tractors and paid the down payment. The parties executed a deed of sale with chattel
mortgage with promissory note which reads:

FOR VALUE RECEIVED, I/we jointly and severally promise to pay to the INDUSTRIAL
PRODUCTS MARKETING, the sum of ONE MILLION NINETY THREE THOUSAND
SEVEN HUNDRED EIGHTY NINE PESOS & 71/100 only (P1,093 789.71) Philippine
Currency the said principal sum to be payable in 24 monthly installments starting July
15, 1978....

Simultaneously, with the execution of the deed, the seller – assignor assigned its rights
and interest in the chattel mortgage in favor of respondent IFC Leasing and Acceptance
Corporation by means of a deed of assignment. However, 14 days after delivery the first
tractor broke down and nine days thereafter the second tractor became inoperable.

ISSUE: Is the promissory note in question a negotiable instrument?

RULING No, an instrument in order to be considered negotiable, it must contain the

so-called ” words of negotiability” must be payable to order or bearer. Those words
serve as an expression of consent that the instrument may be transferred.

An instrument, to be made payable to order, there must always be a specified person

named in the instrument. It means that the bill or note is to be paid to the person
designated in the instrument or to any person to whom he has endorsed and delivered
the same without the words or on order or to the order of, the instrument is payable only
to the person designated therein and is therefore non-negotiable. Any subsequent
purchaser thereof will not enjoy the advantages of being a holder of a negotiable
instrument but will merely step into the shoes of the person designated in the instrument
and will be thus open to all defenses available against the latter.
3.) Traders Royal Bank vs. Court of Appeals, G.R. No. 93397, March 3, 1997 • PNB
vs. Eriando and Norma Rodriguez, G.R. No. 170325, September 26, 2008

Lessons Applicable: Requisites of negotiability to antedated and postdated instruments

(Negotiable Instrument Law)

FACTS: Filriters (assigned) > Philfinance (still under the name of Filriters assigned) >
Traders Royal Bank = ? (valid or not)

■ November 27, 1979: Filriters Guaranty Assurance Corporation (Filriters)

executed a "Detached Assignment whereby Filriters, as registered owner,
sold, transferred, assigned and delivered unto Philippine Underwriters
Finance Corporation (Philfinance) all its rights and title to Central Bank
Certificates of Indebtedness (CBCI) of P500k and having an aggregate value
of P3.5M

■ The Detached Assignment contains an express authorization executed

by the transferor intended to complete the assignment through the
registration of the transfer in the name of PhilFinance
■ February 4, 1981: Traders Royal Bank (Traders) entered into a Repurchase
Agreement w/ PhilFinance whereby in consideration of the sum of P500,000.00,
PhilFinance sold, transferred and delivered a CBCI w/ a face value of P500K
which CBCI was among those previously acquired by PhilFinance from Filriters
■
PhilFinance failed to repurchase on the agreed date of maturity, April 27, 1981,
when the checks it issued in favor of petitioner were dishonored for insufficient
funds
■
Philfinance transferred and assigned all, its rights and title in the CBCI to Traders
■
Respondent failed and refused to register the transfer as requested, and
continues to do so notwithstanding petitioner's valid and just title over the same
and despite repeated demands in writing
■
Traders prayed for the registration by the Central Bank of the subject CBCI in its
name.
 ■
CA affirmed RTC: subsequent assignment in favor of Traders Royal Bank null
and void and of no force and effect.
■

■ Philfinance acquired no title or rights under CBCI which it could assign or

transfer to Traders and which it can register with the Central Bank
■
instrument is payable only to Filriters, the registered owner
ISSUE: W/N the CBCI is a negotiable instrument

HELD: NO. Petition is dismissed. CA affirmed.

■ CBCI is not a negotiable instrument in the absence of words of negotiability

within the meaning of the negotiable instruments law (Act 2031)

■ certificate of indebtedness = certificates for the creation and maintenance of a

permanent improvement revolving fund similar to a "bond" properly
understood as acknowledgment of an obligation to pay a fixed sum of money
usually used for the purpose of long term loans.

■ Phil Finance merely borrowed the CBCI from Filriters, a sister corporation.

■ lack of any consideration = assignment is a complete nullity

■ Filriters to Philfinance did not conform to the "Rules and Regulations

Governing Central Bank Certificates of Indebtedness" (Central Bank Circular
No. 769, series of 1980) under which the note was issued.

■ Published in the Official Gazette on November 19, 1980, Section 3

thereof provides that any assignment of registered certificates shall not
be valid unless made . . . by the registered owner thereof in person or
by his representative duly authorized in writing
■
 ■ Alfredo O. Banaria, who signed the deed of assignment
purportedly for and on behalf of Filriters, did not have the
necessary written authorization from the BOD

■ Traders, being a commercial bank, cannot feign ignorance of Central

Bank Circular 769, and its requirements.

■ The fact that Filfinance owns majority shares in Filriters is not by itself a
ground to disregard the independent corporate status of Filriters.

■
Traders knew that Philfinance is not registered owner of the CBCI.

■ The fact that a non-owner was disposing of the registered CBCI owned
by another entity was a good reason for petitioner to verify of inquire
as to the title Philfinance to dispose to the CBCI.

■ Nemo potest nisi quod de jure potest — no man can do anything except what
he can do lawfully.

4.) PNB vs. Eriando and Norma Rodriguez, G.R. No. 170325, September 26, 2008

Facts: Spouses Rodriguez maintained a savings and demand/checking accounts

with petitioners Philippines National Bank (PNB). They were engaged in the informal
lending business and had a discounting arrangement with the Philnabank Employees
Savings and Loan Association (PEMSLA), an association of PNB employees, which
likewise maintained current and savings accounts with petitioner bank. PEMSLA
regularly granted loans to its members. Spouses Rodriguez would rediscount the
postdated checks issued to members whenever the association was short of funds. As
was customary, the spouses would replace the postdated checks with their own checks
issued in the name of the members.

It was PEMSLA’s policy not to approve applications for loans of members with
outstanding debts. To subvert this policy, some PEMSLA officers devised a scheme to
obtain additional loans despite their outstanding loan accounts. They took out loans in
the names of unknowing members, without the knowledge or consent of the latter. The
PEMSLA checks issued for these loans were then given to the spouses for
rediscounting. The officers carried this out by forging the indorsement of the named
payees in the checks. In return, the spouses issued their personal checks (Rodriguez
checks) in the name of the members and delivered the checks to an officer of PEMSLA.
The PEMSLA checks, on the other hand, were deposited by the spouses to their
account. Meanwhile, the Rodriguez checks were deposited directly by PEMSLA to its
savings account without any indorsement from the named payees. This usual irregular
procedure is made possible through the facilitation of Edmundo Palermo, Jr., treasurer
of PEMSLA and bank teller in the PNB Branch.

The spouses issued 69 checks, in the total amount of P2,345,804.00, payable to 47

members of PEMSLA. After finding out such fraudulent act, PNB closed the current
account of PEMSLA. As a result, the PEMSLA checks deposited by the spouses were
returned or dishonored for the reason “Account Closed.” The corresponding Rodriguez
checks, however, were deposited as usual to the PEMSLA savings account. The
amounts were duly debited from the Rodriguez account. Thus, because the PEMSLA
checks given as payment were returned, spouses Rodriguez incurred losses from the
rediscounting transactions. Spouses Rodriguez sued PEMSLA and PNB. They
contended that because PNB credited the checks to the PEMSLA account even without
indorsements, PNB violated its contractual obligation to them as depositors. PNB paid
the wrong payees, hence, it should bear the loss. Trial court ruled in favor of spouses
and ordered PNB to pay. CA affirmed the decision. Hence this petition

Whether the subject checks are payable to order or to bearer and who bears the loss?

HELD:

As a rule, when the payee is fictitious or not intended to be the true recipient of the
proceeds, the check is considered as a bearer instrument. A check is a bill of exchange
drawn on a bank payable on demand.[11] It is either an order or a bearer instrument.
Sections 8 and 9 of the NIL states:

SEC. 8. When payable to order. The instrument is payable to order where it is drawn
payable to the order of a specified person or to him or his order. It may be drawn
payable to the order of

(a) A payee who is not maker, drawer, or drawee; or

(b) The drawer or maker; or

(c) The drawee; or

(d) Two or more payees jointly; or

(e) One or some of several payees; or

(f) The holder of an office for the time being.

Where the instrument is payable to order, the payee must be named or otherwise
indicated therein with reasonable certainty.

SEC. 9. When payable to bearer. The instrument is payable to bearer

(a) When it is expressed to be so payable; or

(b) When it is payable to a person named therein or bearer; or

(c) When it is payable to the order of a fictitious or non-existing person, and such
fact is known to the person making it so payable; or

(d) When the name of the payee does not purport to be the name of any person; or

(e) Where the only or last indorsement is an indorsement in blank.[12] (Underscoring

supplied)

PNB was remiss in its duty as the drawee bank. It does not dispute the fact that its teller
or tellers accepted the 69 checks for deposit to the PEMSLA account even without any
indorsement from the named payees. It bears stressing that order instruments can only
be negotiated with a valid indorsement.

A check that is payable to a specified payee is an order instrument. However, under

Section 9(c) of the NIL, a check payable to a specified payee may nevertheless be
considered as a bearer instrument if it is payable to the order of a fictitious or
non-existing person, and such fact is known to the person making it so payable.
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 customers 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 drawers instructions, i.e., to the named payee in the check. It
should charge to the drawers 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 drawers account.

In the case at bar, respondents-spouses were the bank’s depositors. The checks were
drawn against respondents-spouses’ accounts. PNB, as the drawee bank, had the
responsibility to ascertain the regularity of the indorsements, and the genuineness of
the signatures on the checks before accepting them for deposit. Lastly, PNB was
obligated to pay the checks in strict accordance with the instructions of the drawers.
Petitioner miserably failed to discharge this burden.

The checks were presented to PNB for deposit by a representative of PEMSLA absent
any type of indorsement, forged or otherwise. The facts clearly show that the bank did
not pay the checks in strict accordance with the instructions of the drawers,
respondents-spouses. Instead, it paid the values of the checks not to the named
payees or their order, but to PEMSLA, a third party to the transaction between the
drawers and the payees.

Moreover, PNB was negligent in the selection and supervision of its employees. The
trustworthiness of bank employees is indispensable to maintain the stability of the
banking industry. Thus, banks are enjoined to be extra vigilant in the management and
supervision of their employees.
2. Kinds of negotiable instruments

B. Completion and delivery Cases:

• 5.) Ting Ting Pua vs. Sps. Benito Lo Bun Tiong, et al., G.R. No. 198660, October
23, 2013

Facts: The controversy arose from a Complaint for a Sum of Money filed by petitioner
Pua against respondent-spouses Benito Lo Bun Tiong Benito) and Caroline Siok Ching
Teng Caroline). During trial, petitioner Pua clarified that the PhP 8,500,000 check was
given by respondents to pay the loans they obtained from her under a compounded
interest agreement on various dates in 1988. In all, respondents issued 17 checks for a
total amount of PhP 1,975,000. These checks were dishonored upon presentment to
the drawee bank.

As a result of the dishonor, petitioner demanded payment. Respondents, however,

pleaded for more time because of their financial difficulties. Petitioner Pua obliged and
simply reminded the respondents of their indebtedness from time to time. Sometime in
September 1996, when their financial situation turned better, respondents called and
asked petitioner Pua for the computation of their loan obligations. Hence, petitioner
handed them a computation dated which showed that, at the agreed 2% compounded
interest rate per month, the amount of the loan payable to petitioner rose to PhP
13,218,544.20. On receiving the computation, the respondents asked petitioner to
reduce their indebtedness to PhP 8,500,000.13 Wanting to get paid the soonest
possible time, petitioner Pua agreed to the lowered amount.

Respondents then delivered to petitioner Asiatrust Check bearing the reduced amount
of PhP 8,500,000. In turn, respondents demanded the return of the previously
dishonored checks. Petitioner, however, refused to return the bad checks and advised
respondents that she will do so only after the encashment.

Like the 17 checks, however, it was also dishonored when it was presented by petitioner
to the drawee bank. Hence, as claimed by petitioner, she decided to file a complaint to
collect the money owed her by respondents.

For the defense, both respondents Caroline and Benito testified along with Rosa Dela
Cruz Tuazon (Tuazon), who was the OIC-Manager of Asiatrust-Binondo Branch in 1997.
Respondents categorically denied obtaining a loan from petitioner. Respondent
Caroline, in particular, narrated that, in August 1995, she and petitioner’s sister, Lilian,
forged a partnership that operated a mahjong business.

In March 1996, however, respondent Caroline and Lilian had a serious disagreement
that resulted in the dissolution of their partnership and the cessation of their business. In
the haste of the dissolution and as a result of their bitter separation, respondent
Caroline alleged that she forgot about the five (5) pre-signed checks she left with Lilian.

After trial, the RTC issued its Decision dated January 31, 2006 in favor of petitioner. In
holding thus, the RTC stated that the possession by petitioner of the checks signed by
Caroline, under the Negotiable Instruments Law, raises the presumption that they were
issued and delivered for a valuable consideration. On the other hand, the court a quo
discounted the testimony for the defense completely denying respondents’ loan
obligation to Pua.

Issue:

WON Respondents should be held liable

WON the said checks are covered by the Negotiable Instruments Law

Held:

Yes. In Pacheco v. Court of Appeals, this Court has expressly recognized that a check
“constitutes an evidence of indebtedness”and is a veritable “proof of an obligation.”
Hence, it can be used “in lieu of and for the same purpose as a promissory note.”In fact,
in the seminal case of Lozano v. Martinez, We pointed out that a check functions more
than a promissory note since it not only contains an undertaking to pay an amount of
money but is an “order addressed to a bank and partakes of a representation that the
drawer has funds on deposit against which the check is drawn, sufficient to ensure
payment upon its presentation to the bank.”This Court reiterated this rule in the
relatively recent Lim v. Mindanao Wines and Liquour Galleria stating that “a check, the
entries of which are in writing, could prove a loan transaction.”This very same principle
underpins Section 24 of the Negotiable Instruments Law (NIL):
Section 24. Presumption of consideration. – Every negotiable instrument is deemed
prima facie to have been issued for a valuable consideration; and every person whose
signature appears thereon to have become a party for value.

The 17 original checks, completed and delivered to petitioner, are sufficient by

themselves to prove the existence of the loan obligation of the respondents to petitioner.
Sec. 16 of the NIL provides that when an instrument is no longer in the possession of
the person who signed it and it is complete in its terms “a valid and intentional delivery
by him is presumed until the contrary is proved.

• 6.) San Miguel Corp. vs. Puzon, Jr., G.R. No. 167567, September 22, 2010

Related law: Sec. 16; Sec. 12; NIL; Delivery for the purpose of giving effect to an
instrument (i.e.for payment)

FACTS:

Puzon was a dealer of San Miguel Corporation (SMC). Puzon purchased SMC products
on credit.

SMC requires him to issue postdated checks equivalent to the value of the products
purchased to ensure payment. The checks are to be return to Puzon once he settles his
credit.

In one instance, Puzon went to SMC Sales Office and allegedly requested to see
particular checks that he gave to SMC. When he got hold of them, he allegedly
immediately left the office with the checks.
SMC demanded for the return of the checks which Puzon ignored. As such, SMC filed a
complaint against him for theft. The prosecutor however found no probable cause for
theft because of SMC and Puzon’s relationship as one of creditor-debtor and
recommended dismissal. Hence, this petition.

ISSUE/S:

1.
Was there probable cause for theft?

HELD:

1.
None. One of the essential elements of theft is the taking of a personal property
belonging to another. A such, it is necessary to ascertain whether the ownership of the
checks were transferred to SMC. If SMC owns the checks, then there is probable cause
for theft, otherwise, there is none.

According to the Sec. 12 of the NIL, the person to whom an instrument is Delivered
acquires the title to it. The delivery mentioned in Sec. 12 must be read in conjunction
with Sec. 16 of the NIL which says that the delivery must be for the purpose of giving
effect to the instrument.

Since the checks were given merely as security and not as payment for the credit, then
the checks were not delivered so as to give effect to them. As such, ownership was not
transferred to SMC.
Hence, the checks that Puzon allegedly took were not properties belonging to
another.Consequently, there is no probable cause for theft.

C. Signature

1. Signing in Trade Name

2. Signature of Agent

3. Indorsement by Minor or Corporation

4. Forgery Cases:

• Associated Bank vs. Court of Appeals, G.R. No. 107382, January 31, 1996

Facts: 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.

Thirty checks were released by the Office of the Provincial Treasurer and received for
the hospital by its administrative officer and cashier. Later, it was found that the hospital
did not received any allotment checks. Upon examination, it was found that Fausto
Pangilinan, who was the administrative officer and cashier of payee encashed such,
with the Associated Bank acting as collecting bank.

Pangilinan sought to encash the first check 4 with Associated Bank. However, the
manager of Associated Bank refused and 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.

All the checks bore the stamp of Associated Bank which reads “All prior endorsements
guaranteed ASSOCIATED BANK.”

Provincial Treasurer wrote the manager of the PNB seeking the restoration of the
various amounts debited from the current account of the Province. In turn, the PNB
manager demanded reimbursement from the Associated Bank on May 15, 1981. As
both banks resisted payment, the Province of Tarlac brought suit against PNB which, in
turn, impleaded Associated Bank as third-party defendant.
RTC: In favor of Plaintiff Province CA affirmed

Issue: Who should be held liable

Held: The indorsee/ drawee: Associated Bank

Checks having forged indorsements should be differentiated from forged checks or

checks bearing the forged signature of the drawer. 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.
19 Thus, a forged indorsement does not operate as the payee’s indorsement.

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.

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 can seek reimbursement or a return of the amount it paid
from the presentor bank or person.

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.
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.

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.

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.

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.

• Allied Banking Corp. vs. Lim Sio Wan, Metrobank and Producer’s Bank, G.R. No.
133179, March 27, 2008

FACTS:
Lim Sio Wan (deposited 1st money market) > Allied Bank > (pre-terminated and
withdrawn) Santos > (through forged indorsement of Lim Sio Wan deposited in FCC
account) Metrobank > (release in exchange of undertaking of reimbursement) FCC >
(through Santos, as officer of Producers bank, deposited money market) Producers
Bank
■ September 21, 1983: FCC had deposited a money market placement for P
2M with Producers Bank
■

■ Santos was the money market trader assigned to handle FCC’s

account
■
Such deposit is evidenced by Official Receipt and a Letter
■
When the placement matured, FCC demanded the payment of the
proceeds of the placement
■ November 14, 1983: Lim Sio Wan deposited with Allied Banking Corporation
(Allied) a money market placement of P 1,152,597.35 for a term of 31 days
■
December 5, 1983: a person claiming to be Lim Sio Wan called up Cristina
So, an officer of Allied, and instructed the latter to pre-terminate Lim Sio
Wan’s money market placement, to issue a manager’s check representing the
proceeds of the placement, and to give the check to Deborah Dee Santos
who would pick up the check. Lim Sio Wan described the appearance of
Santos
■

■ Santos arrived at the bank and signed the application form for a
manager’s check to be issued
■

■ The bank issued Manager’s Check representing the proceeds of

Lim Sio Wan’s money market placement in the name of Lim Sio
 Wan, as payee, cross-checked "For Payee’s Account Only" and
given to Santos
■ Allied manager’s check was deposited in the account of Filipinas Cement
Corporation (FCC) at Metropolitan Bank and Trust Co. (Metrobank), with the
forged signature of Lim Sio Wan as indorser
■

■ Metrobank stamped a guaranty on the check, which reads: "All prior

endorsements and/or lack of endorsement guaranteed."
■
Upon the presentment of the check, Allied funded the check even
without checking the authenticity of Lim Sio Wan’s purported
indorsement.
■

■ amount on the face of the check was credited to the account of

FCC
■ December 9, 1983: Lim Sio Wan deposited with Allied a second money
market placement to mature on January 9, 1984
■
December 14, 1983: upon the maturity date of the first money market
placement, Lim Sio Wan went to Allied to withdraw it. She was then informed
that the placement had been pre-terminated upon her instructions which she
denied
■
Lim Sio Wan filed with the RTC against Allied to recover the proceeds of her
first money market placement
■

■ Allied filed a third party complaint against Metrobank and Santos

■
Metrobank filed a fourth party complainagainst FCC
■
FCC for its part filed a fifth party complaint against Producers Bank.
■
Summonses were duly served upon all the parties except for Santos,
who was no longer connected with Producers Bank
■ May 15, 1984: Allied informed Metrobank that the signature on the check was
forged
 ■

■ Metrobank withheld the amount represented by the check from FCC.

■
Metrobank agreed to release the amount to FCC after the FCC
executed an undertaking, promising to indemnify Metrobank in case it
was made to reimburse the amount
■
Lim Sio Wan thereafter filed an amended complaint to include
Metrobank as a party-defendant, along with Allied.
■ RTC : Allied Bank to pay Lim Sio Wan plus damages and atty. fees
■

■ Allied Bank’s cross-claim against Metrobank is DISMISSED.

■
Metrobank’s third-party complaint as against Filipinas Cement
Corporation is DISMISSED
■
Filipinas Cement Corporation’s fourth-party complaint against
Producer’s Bank is DISMISSED
■ CA: Modified. Allied Banking Corporation to pay 60% and Metropolitan Bank
and Trust Company 40%

ISSUE: W/N Allied should be solely liable to Lim Sio Wan.

HELD: YES. CA affirmed. Modified Porudcers Bank to reimburse Allied and Metrobank.

■ Articles 1953 and 1980 of the Civil Code

Art. 1953. A person who receives a loan of money or any other fungible thing acquires
the ownership thereof, and is bound to pay to the creditor an equal amount of the same
kind and quality.

Art. 1980. Fixed, savings, and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple loan.

■ bank deposit is in the nature of a simple loan or mutuum

■
money market is a market dealing in standardized short-term credit
instruments (involving large amounts) where lenders and borrowers do not
 deal directly with each other but through a middle man or dealer in open
market. In a money market transaction, the investor is a lender who loans his
money to a borrower through a middleman or dealer.
■

■ Lim Sio Wan, as creditor of the bank for her money market placement,
is entitled to payment upon her request, or upon maturity of the
placement, or until the bank is released from its obligation as debtor
■ GR: 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 itself, and ultimately should be held liable
therefor
■
EX: when the issuance of the check itself was attended with negligence.
■
Allied negligent in issuing the manager’s check and in transmitting it to
Santos without even a written authorization

■ Allied did not even ask for the certificate evidencing the money market
placement or call up Lim Sio Wan at her residence or office to confirm
her instructions.
■
Allied’s negligence must be considered as the proximate cause of the
resulting loss.
■ When Metrobank indorsed the check without verifying the authenticity of Lim
Sio Wan’s indorsement and when it accepted the check despite the fact that it
was cross-checked payable to payee’s account only contributed to the easier
release of Lim Sio Wan’s money and perpetuation of the fraud

■ Given the relative participation of Allied and Metrobank to the instant case,
both banks cannot be adjudged as equally liable. Hence, the 60:40 ratio of
the liabilities of Allied and Metrobank, as ruled by the CA, must be upheld.
■
FCC, having no participation in the negotiation of the check and in the forgery
of Lim Sio Wan’s indorsement, can raise the real defense of forgery as
against both banks

■ Producers Bank was unjustly enriched at the expense of Lim Sio Wan
 ■ Producers Bank should reimburse Allied and Metrobank for the
amounts ordered to pay Lim Sio Wan
■

• Samsung Construction Co. Phils. vs. Far East Bank, G.R. No. 129015, August
13, 2004

The general rule is to the effect that a forged signature is wholly inoperative, and
payment made through or under such
signature is ineffectual or does not discharge the instrument. If payment is made, the
drawee cannot charge it to the
drawer’s account.

FACTS:

Plaintiff Samsung Construction maintained a current account with defendant Far East
Bank and Trust Company (FEBTC) at Bel-Air Makati branch. Jong Kyu Lee, Project
Manager, is the sole signatory to Samsung Constructions account while Kyu Yong Lee,
the company ’s accountant, has the custody of all the checks.

On March 19, 1992, a certain Robert Gonzaga presented for payment FEBTC check,
payable to cash and drawn against Samsung Construction’s current account, amounting
to P999, 500.

After ascertaining that there were enough funds to cover the check, the bank teller
compared the signature on check with the specimen signature of Jong as contained in
the specimen signature card with the bank. The bank teller, justified with the authenticity
of the signature, asked for Gonzaga’ s proof of identity and provided with 3 identification
cards.

The teller forwarded the check to the branch Senior Asst. Cashier and another bank
officer who both concluded the check was signed by Jong and approved of the cash
encashment. This was further bolstered by Sempio, who was at the bank during that
time and vouched for the genuineness of the check.

Immediately after discovery, Jong proceeded to the police station and filed a criminal
case against Sempio and demanded that FEBTC credit to it the amount encashed plus
interest. FEBTC claimed that it was still conducting an investigation.

Jong filed a complaint against FEBTC in the RTC for the violation of Sec. 23 of the
Negotiable Instruments Law. Both parties presented their expert witness to testify on
Jong’s claim that his signature on check was forged. RTC ruled in favor of Samsung
Corporation and chose to believe the findings of the NBI expert. FEBTC filed an appeal
to the Court of Appeals where it reversed the ruling of the RTC. Aggrieved, Samsung
Corporation elevated the case to the Supreme Court

ISSUES ARTICLES/LAWS/STATCON MAXIM INVOLVED:

1.

Whether or not the check was forged

2.

Whether or not Samsung Construction was

precluded from setting up the defense of forgery
under Section 23 of the Negotiable Instruments Law

HELD / RATIO / RULING:

1.

Yes.
The Supreme Court held that forgery cannot be presumed but must be proved by clear,
positive, and
convincing evidence. In the case at bar, the Court held that the Court of Appeals is
remiss in reversing the RTC’ s decision without thoroughly evaluating the evidence and
relying on presumptions haphazardly drawn.

RTC subjected the evidence of both parties to a crucible of analysis and arrived at the
conclusion that the testimony of the NBI expert is more credible than the testimony of
the PNP expert because it presented apparent and glaring differences such as
handwriting strokes that the PNP expert chose to downplay.

2.

No. Sec. 23 of the Negotiable Instruments Law

states that a forged makes the instrument “ 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.
The Court held that Samsung Corporation was not guilty of negligence hence, was not
barred from setting up the defense of forgery. It contended
that the bare fact that the forgery was committed by a drawer-payor ’s confidential
employee or agent, who by virtue of his position had unusual facilities for perpetrating
the fraud and imposing the forged paper upon the bank,does not entitle the bank to shift
the loss to the drawer-payor.
• Philippine Commercial InternationaI Bank vs. Balmaceda, G.R No. 158143,
September 21, 2011

FACTS:

PCIB filed an action for recovery of sum of money with damages before the RTC
against Antonio Balmaceda, the Branch Manager of their Sta. Cruz, Manila Branch.
Allegedly, Balmaceda took advantage of his position as Branch Manager to fraudulently
obtain and encash 31 Manager’s checks amounting to a total of P10,782,150.00. Said
complaint was later on amended where certain Rolando Ramos was impleaded as one
of the recipients of a portion of the proceeds from Balmaceda’s alleged fraud. Checks
encashed were increased to 34 and their total amount to P11,937,150.00. RTC granted
the motion but Balmaceda did not file an answer.

On the other hand, Ramos has a say in the case at bar; In his defense, accordingly,
Ramos is a reputable businessman engaged in buy and sell of fighting cock. Balmaceda
was one of his clients. He admitted he sold fighting cock to the latter and received
payment in return but without knowledge of the source of Balmaceda’s money. RTC
ruled in favor of PCIB ordering Ramos to pay the misappropriated amount and its legal
interest, plus moral damages.

Upon appeal filed by Ramos before the CA, PCIB’s negligence was raised as an issue.
It could have been impossible for Balmacelda to perpetrate his fraudulent act if not for
the following circumstances:

1.

Taking advantage of his position as Branch Manager of the bank

2.

Acting in said capacity, by instructing the bank staff to prepare the application form for
the purchase of Manager’s checks passable to several

persons

3.

Forging of the signature of the client’s authorized representative on their forms and sign
the forms as PCIB’s approving officer

4.Having an authorized office of PCIB to issue the Manager’s Check. CA found no

sufficient evidence existed to prove that Ramos colluded with Balmaceda in the latter’s
fraudulent manipulations. The mere fact that Balmaceda made Ramos the payee in
some of the Manager’s checks does not suffice to prove that Ramos was complicit in
Balmaceda’s fraudulent scheme. CA observed that other persons were also named as
payees in the checks that Balmaceda acquired and encashed, and PCIB only chose to
go after Ramos. Appeal was granted in CA and PCIB was ordered to pay Ramos Moral
and Exemplary Damages including Attorney’s fees. Hence this petition;

ISSUE:

Whether Ramos, who received a portion of the money that Balmaceda took from PCIB
should also be held liable for the return of this money.

HELD:
NO. PCIB was proven to be negligent from the fact that it allowed Balmaceda to encash
the Manager’s checks that were plainly crossed checks. Under the Negotiable
Instruments Law; A crossed check is one where two parallel lines are drawn across its
face or across its corner. Based on jurisprudence, the crossing of checks has the
following effects; (a) the check may not be encashed but only deposited in the bank;

(b) the check may be negotiated only once — to the one who has an account with the
bank; and

(c) the act of crossing the check serves as a warning to the holder that the check has
been issued for a definite purpose and he must inquire if he received the check
pursuant to this purpose; otherwise, he is not a holder in due course.

The crossing of a check is a warning that the check should be deposited only in the
account of the payee. When a check is crossed, it is the duty of the collecting bank to
ascertain that the check is only deposited to the payee’s account. In complete disregard
of this duty, PCIB’s systems allowed Balmaceda to encash 26 Manager’s checks which
were all crossed checks, or checks payable to the "payee’s account only."

Petition was Partially Granted in favor of Ramos. On the part of PCIB, awards for
damages and Attorney’s fees was modified and deleted pursuant to the provisions of
Article 22 of the New Civil Code.

D. Consideration

E. Accommodation Party Cases:

• Ang Tiong vs. Lorenzo Ting (doing business under Prunes Preserves) & Felipe
Ang, G.R. 26767, February 22, 1968

Facts: Lorenzo Ting issued a check payable to “cash or bearer.” With Felipe Ang’s
signature

(indorsement in blank) at the back thereof, the instrument was received by Ang Tiong
who thereafter presented it to the bank for payment. The drawee bank dishonored it.
Ang Tiong made written demands on both Ting and Ang to make good the amount
represented by the check. These demands unheeded. Ang Tiong then filed suit for
collection. The trial court adjudged for herein petitioner. Only Felipe Ang appealed,
maintaining that he is only an accommodation party.

Issue: WON Felipe Ang is an accommodation party? What is the liability of an

accommodation indorser?

Held: NO. Felipe Ang is a general indorser (Section 63, Negotiable Instruments Law), in
the absence of any indication by appropriate words his intention to be bound in some
other capacity. Even on the assumption that Ang is a mere accommodation party as he
professes to be, he is nevertheless by the clear mandate of section 29 of the Negotiable
Instruments Law, yet “ 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”. To paraphrase, the accommodation party is liable to a holder for value as if the
contract was not for accommodation. 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.

That the appellant, again 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 appellee, as the said remedy is a matter
of concern exclusively between accommodation indorser and accommodated party. So
that the fact that the appellant stands only as a surety in relation to the maker, granting
this to be true for the sake of argument, is immaterial to the claim of the appellee, and
does not a whit diminish nor defeat the rights of the latter who is a holder for value. The
liability of the appellant remains primary and unconditional. To sanction the appellant’s
theory is to give unwarranted legal recognition to the patent absurdity of a situation
where an indorser, when sued on an instrument by a holder in due course and for value,
can escape liability on his indorsement by the convenient expedient of interposing the
defense that he is a mere accomodation indorser.

• GSIS vs. Court of Appeals, 170 SCRA 533 (1989)

Fact:
Private respondents, together with the spouses Lagasca, executed a deed of mortgage,
in favor of petitioner GSIS of deed of mortgage. A parcel of land co-owned by said
mortgagor spouses Lagasca and Private respondents was given as security under the
aforesaid deed. Lagasca executed an instrument denominated “Assumption of
Mortgage” under which they obligated themselves to assume the aforesaid obligation to
the GSIS and to secure the release of the mortgage covering that portion of the land
belonging to herein private respondents and which was mortgaged to the GSIS. This
undertaking was not fulfilled, GSIS extrajudicially foreclosed the mortgage and caused
the mortgaged property to be sold at public auction. Private respondents filed a
complaint against the petitioner and the Lagasca spouses in the CFI praying to declared
the extrajudicially foreclosed of GSIS of their property is null and void. The trial court
dismissed the complaint for failure to establish a cause of action. Said decision was
reversed by the respondent Court of Appeals, Hence this case.

Issue:
Whether the transaction of the parties was covered by the Negotiable Instruments Law?

Held:
No, the promissory note hereinbefore quoted, as well as the mortgage deeds subject of
this case, are clearly not negotiable instruments. These documents do not comply with
the fourth requisite to be considered as such under Section 1 of Act No. 2031 because
they are neither payable to order nor to bearer. The note is payable to a specified party,
the GSIS. Absent the aforesaid requisite, the provisions of Act No. 2031 would not
apply; governance shall be afforded, instead, by the provisions of the Civil Code and
special laws on mortgages

G. Rights of the Holder

1. Holder in Due Course Cases:
• Vicente Ocampo vs. Anita Gatchalian, et al., G.R. No. 15126, November 30, 1961

FACTS:

Plaintiff Dr. Vicente de Ocampo authorized Manuel Gonzales to look for a buyer of his
car and to accomplish the sale.

Gonzales offered the car to defendant Anita Gatchalian, who was then looking for a car.
Satisfied with the quoted price, Gatchalian requested that the car be brought together
with its certificate of registration.

Gonzales advised Gatchalian that the owner, de Ocampo, would only be willing to give
the certificate unless the party interested is ready and willing to make the purchase.
With this, Gonzales advised Gatchalian to issue a check which will be shown to de
Ocampo as proof of her intention to buy the car.

Gatchalian drew and issued a check with value of P600 to Manuel Gonzales to be
returned when Gonzales would bring the car and its certificate of registration. However,
the following day,
Gonzales failed to bring the promised items which caused Gatchalian to issue a “Stop
Payment Order”
on the check with the drawee bank.

The said Order was issued without prior notice on de Ocampo who then held the check,
not being known by Gatchalian that Gonzales gave it to de Ocampo.

Gonzales delivered the check to Ocampo Clinic, owned by de Ocampo, as payment of

the hospitalization fees of his wife. De Ocampo accepted the check and applied
P441.75 to it as payment, giving P158.25 to Gonzales representing the balance of the
check.
De Ocampo sued Gatchalian before the CFI-Manila, seeking recovery of the value of
the check for P600. The trial court decided in favour of de Ocampo.

On appeal, Gatchalian contended, among others, that de Ocampo was not a holder in
due course of the check because (1) de Ocampo acquired it with notice of defect in the
title of the holder Gonzales--- that the instrument is not payable to Gonzales or to
bearer; and because (2) there exist
suspicious circumstances against Gonzales’ possession of the check

--- that the drawer was not Gonzales himself, that the drawer Gatchalian had no
obligation or liability to Ocampo Clinic nor to Gonzales, that the amount of the check did
not correspond exactly with the obligation of Gonzales to the clinic, and that the check
had two parallel lines in the upper left hand corner signifying that the check could only
be deposited and not be converted to cash

ISSUE: Whether de Ocampo was a holder in due course.

RULING: No. Under Section 52 of the Negotiable Instruments Law, a holder in due
course is one who took the negotiable instrument in good faith and for value (Sec
52(c)), and at the time the instrument was negotiated to him, he had no notice of any
infirmity in it or any defect in the title of the person negotiation it (Sec 52(d)).

In the present case,the Court agreed with defendant’s contentions.

As holder’s (Gonzales) title

was defective or suspicious, it cannot be stated that the payee (de Ocampo) acquired
the check without knowledge of said defect
in holder’s title, and for this reason the presumption that it
is a holder in due course or that it acquired the instrument in good faith does not exist.
And having presented no evidence that it acquired the check in good faith, it (payee)
cannot be considered as a holder in due course. In other words, under the
circumstances of the case, instead of the presumption that payee was a holder in good
faith, the fact is that it acquired possession of the instrument under circumstances that
should have put it to inquiry as to the title of the holder who negotiated the check to it.
The burden was, therefore, placed upon it to show that notwithstanding the suspicious
circumstances, it acquired the check in actual good faith.
The trial court’s decision was reversed and absolved defendant from the complaint
 • Juanita Salas vs. CA and First Finance and Leasing Corp., G.R. No. 76788, January
22, 1990

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

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

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

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

Held: YES. The PN was negotiated by indorsement in writing on the instrument itself
payable to the Order of Filinvest Finance and Leasing Corporation and it is an
indorsement of the entire instrument.

Under the circumstances, there appears to be no question that Filinvest is a holder in

due course, having taken the instrument under the following conditions: [a] it is
complete and regular upon its face; [b] it became the holder thereof before it was
overdue, and without notice that it had previously been dishonored; [c] it took the same
in good faith and for value; and [d] when it was negotiated to Filinvest, the latter had no
notice of any infirmity in the instrument or defect in the title of VMS Corporation.

Accordingly, respondent corporation holds the instrument free from any defect of title of
prior parties, and free from defenses available to prior parties among themselves, and
may enforce payment of the instrument for the full amount thereof. This being so,
petitioner cannot set up against respondent the defense of nullity of the contract of sale
between her and VMS.
• Stelco Marketing Corp. vs. Court of Appeals and Steelweld Corporation of the
Philippines, G.R. No. 96160, June 17, 1992

FACTS: Stelco Marketing Corporation sold and delivered bars and wires on
seven occasions to RYL Construction, Inc. The Aggregate price for the purchases
wasP126,859.61. They agreed that RYL would pay Cash on Delivery but the latter
made no payments for the construction materials. RYL gave to Armstrong
Industries, a sister company and manufacturing arm of Stelco, a check in the
amount ofP126,859.61. That check was a companycheck of another corporation,
Steelweld Corporation of the Philippines, signed by its President, Limson, and its
Vice-President, Torres.

The check was issued by Limson at the behest of his friend, Lim,President of RYL.
Romeo Lim had askedLimson for financial assistance, and the latter had agreed to give
Lim a check only by way of accommodation, “only as guaranty but not to pay for
anything.”When Armstrong deposited the check atits bank, it was dishonored
because“drawn against insufficient funds.” Whenso deposited, the check bore
2indorsements, that of “RYL Construction,”followed by that of
“ArmstrongIndustries.”

On account of the dishonored check,Armstrong filed a case against Limson

andTorres for violation of BP 22. They were acquitted on the ground that the check in
question was not issued by the drawer 'to apply on account for value,’ it being
merely for accommodation purposes.

That Judgment however conditioned the acquittal with the following

pronouncement : “This is not however to release Steelweld Corporation from its
liability under Sec. 29 of the NegotiableInstruments Law for having issued it for the
accommodation of Romeo Lim.”STELCO filed with the RTC a civil complaint
against both RYL and STEELWELD for the recovery of the value of the steel bars.

ISSUE:

WON STELCO ever became a holder in due course because it had actual
possession of the dishonored check

HELD
Trial Court’s pronouncement containing reference to said Section 29 did not
specify to whom STEELWELD, as accommodation party, is supposed to be liable;
and certain it is that neither said pronouncement nor any other part of the judgment of
acquittal declared it liable to STELCO.

A holder in due course is a holder who has taken the instrument under the following
conditions:
(a) That it is complete and regular upon its face;

(b) That he became the holder of it before it was overdue, and without notice that it had
been previously dishonored, if such was the fact;

(c) That he took it in good faith and for value;

(d) That at the time it was negotiated to him, he had no notice of any infirmity in the
instrument or defect in the title of the persons negotiating it.‰

As regards an accommodation party (such as STEELWELD), the fourth condition has

no application. This is because Section 29 preserves the right of recourse of a
“holder for value” against the accommodation party notwithstanding that “such
holder, at the time of taking the instrument, knew him to be only an accommodation
party.”

There is no evidence that STELCO’ possession of the check ever dated back to
any time before the instruments presentment and dishonor. There is no
evidence whatsoever that the check was ever given to it, or indorsed to it in any manner
or form in payment of an obligation or as security for an obligation, or for any
other purpose before it was presented for payment.
The record does show that after the check had been deposited and dishonored,
STELCO came into possession of it in some way, and was able, several years
after the dishonor of the check, to give itin evidence at the trial of the civil case it had
instituted against the drawers of the check (Limson and Torres) and RYL.

But Possession of a negotiable instrument after presentment and dishonor,

orpayment, is utterly inconsequential; it does not make the possessor a holder for
value within the meaning of the law; it gives rise to no liability on the part of the maker or
drawer and indorsers.STELCO cannot be deemed a holder of the check for value. It
does not meet two of the essential requisites prescribed by the statute.
It did not become “the holder of it before it was overdue, and without notice that
it had been previously dishonored” and it did not take the check“in good faith and
for value.”Neither is there any evidence whatever that Armstrong Industries, to whom
R.Y.Lim negotiated the check, accepted the instrument and attempted to encash it in
behalf, and as agent of STELCO.

• Bataan Cigar and Cigarette Factory vs. Court of Appeals and State Investment House,
G.R. No. 93048, March 3, 1994

FACTS:

Bataan Cigar & Cigarette Factory, Inc. (BCCFI), engaged with King Tim Pua George, to
deliver 2,000 bales of tobacco leaf. BCCFI issued post dated crossed checks in
exchange. Trusting King's words, BCCFI issued another post-dated cross check for
another purchase of tobacco leaves.

During these time, King was dealing with State Investment House Inc.. On two separate
occasions King sold the post-dated cross checks to SIHI, that was drawn by BCCFI in
favor of King.

Because King failed to deliver the leaves, BCFI issued a stop payment to all the checks,
including those sold to SIHI.

The RTC held that SIHI had a valid claim of being a holder in due course and to collect
the
checks issued by BCCFI.

ISSUE: Whether SIHI is a holder in due course.

RULING:

The SC held that SIHI is not a holder in due course thus granting the petition of BCCFI.
The purpose of cross checks is to avoid those bouncing or encashing of forged checks.
Cross checks have the following effects: it cannot be encashed but only deposited in a
bank; it can only be negotiated on its respective bank once; it serves as a warning to the
hiolder that it has been issued for a defienite purpose thus making SIHI not a holder in
due course.

Still, SIHI can collect from the immediate indorser, in this case, George King.
 • Atrium Management Corp. vs. Court of Appeals, et al., G.R. No. 109491, February 28,
2001

Facts: Hi-Cement Corporation through its corporate signatories, petitioner Lourdes M.

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

Upon presentment for payment, the drawee bank dishonored all four checks for the
common reason “payment stopped”. As a result thereof, Atrium filed an action for
collection of the proceeds of 4 PDC in the total amount of 2M with RTC Manila.
Judgment was rendered in favor of Atrium ordering Lourdes and Rafael de Leon, E.T.
Henry and Co., and Hi-Cement to pay Atrium the said amount plus interest and
attorneys fees. CA absolved Hi-cement Corporation from liability.

Issue:Whether or not Atrium Management is a holder in due course.

RULING

From the beginning, Atrium was aware of the fact that the checks were all for deposit
only to payee’s account, meaning E.T. Henry. Clearly, then, Atrium could not be
considered a holder in due course. However, it does not follow as a legal proposition
that simply because petitioner Atrium was not a holder in due course for having taken
the instruments in question with notice that the same was for deposit only to the account
of payee E.T. Henry that it was altogether precluded from recovering on the instrument.

• Cely Yang vs. Court of Appeals, Philippine Commercial International Bank, Far East
Bank, Equitable Bank, et al., G.R. No. 138074, August 15, 2003
Facts:

Petitioner Cely Yang agreed with private respondent Prem Chandiramani to procure
from Equitable Banking Corp. and Far east Bank and Trust Company (FEBTC) two
cashier’s checks in the amount of P2.087 million each, payable to Fernando david and
FEBTC dollar draft in the amount of US$200,000.00 payable to PCIB FCDU account
No. 4195-01165-2. Yang gave the checks and the draft to Danilo Ranigo to be delivered
to Chandiramani. Ranigo was to meet Chandiramani to turn over the checks and the
dollar draft, and the latter would in turn deliver to the former Phil.

Commercial International Bank (PCIB) manager’s check in the sum of P4.2 million and
the dollar draft in the same amount to be issued by Hang Seng Bank Ltd. of HongKong.
But Chandiramani did not appear at the rendezvous and Ranigo allegedly lost the two
cashier’s checks and the dollar draft.

The loss was then reported to the police. It transpired, however that the checks and the
dollar draft were never lost, for Chandiramani was able to get hold of them without
delivering the exchange consideration consisting of PCIB Manager’s checks. Two hours
after Chandiramani was able to meet Ranigo, the former delivered to David the two
cashier’s checks of Yang and, in exchange, got US $360,000 from David, who in turn
deposited them. Chandiramani also deposited the dollar draft in
PCIG FCDU No. 4194-0165-2.

Meanwhile, Yang requested FEBTC and Equitable to stop payment on the instruments
she believed to be lost. Both Banks complied with her request, but upon the
representation of PCIB, FEBTC subsequently lifted the stop payment order on FEBTC
Dollar Draft No. 4771, thus, enabling the holder PCIB FCDU Account No. 4194-0165-2
to received the amount of US $ 200, 000.

Issue:

(1) Whether or not David may be considered a holder in due course.

(2) Whether or not the presumption that every party to an instrument acquired the same
for a consideration is applicable in this case.

Held:

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

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

(2) The presumption is that every party to an instrument acquired the same for a
consideration. However, said presumption may be rebutted. Hence, what is vital to the
resolution of this issue is whether David took possession of the checks under the
conditions provided for in Section 52 of the Negotiable Instruments Law. All the
requisites provided for in Section 52 must concur in David’s case, otherwise he cannot
be deemed a holder in due course.

Section 24 of the Negotiable Instruments Law creates a presumption that every party to
an instrument acquired the same for a consideration or for value. Thus, the law itself
creates a presumption in David’s favor that he gave valuable consideration for the
checks in question. In alleging otherwise, the petitioner has the onus to prove that David
got hold of the checks absent said consideration. However, petitioner failed to discharge
her burden of proof. The petitioner’s averment that David did not give valuable
consideration when he took possession of the checks is unsupported, devoid of any
concrete proof to sustain it. Note that both the trial court and the appellate court found
that David did not receive the checks gratis, but instead gave Chandiramani US$
360,000 as consideration for the said instruments.

P. Checks
1. Definition Cases:

• BPI Card Corporation vs. Court of Appeals, 296 SCRA 260 (1998)

Facts: BPI Express Card Corporation (BECC) issued in favor of Attorney Ricardo J.
Marasigan a credit card with a credit limit of P5, 000.00 subject to the terms and
conditions under a contract. Subsequently, his statement of account for the month of
October in the amount of P8, 987.00 was not paid in due time. Hence, BECC demanded
its immediate payment of his outstanding account, and required him to issue a check for
P15, 000.00 which would include his future bills, otherwise his credit card will be
suspended.
 Consequently, Marasigan issued a post-dated check in the amount of P15, 000.00
which was received by BECC. Thereafter, BECC sent a letter by ordinary mail to
Marasigan informing him of the temporary suspension of the privileges of his credit card
until his outstanding account is settled within five (5) days upon receipt of the letter.
There was no showing whether Marasigan received the said letter.

Meanwhile, Marasigan treat his friends over Café Adriatico. When he presented his
credit card for payment of the bill, it was dishonored. Feeling embarrassed, Marasigan
obtained a stop-payment order from Far East Bank check by virtue of which, he sent a
letter to BEC requesting for the withholding of deposit of the postdated check on the
ground that BEC violated their agreement of not suspending the privileges of the credit
card if he will issue the required check. Consequently, Marasigan filed a complaint for
damages against BEC with the RTC which ruled in its favor on the ground that there
was an assurance given by BEC that the credit card will be honored as long as
Marasigan pays the obligation. On appeal, the CA affirmed the RTC decision with
modification. Hence, this petition was filed.

ISSUE
Whether the receipt of the postdated check constitutes vaild payment.

RULING
NO. The court agrees with the findings of the respondent court, that there was an
arrangement between the parties, wherein BECC required Marasigan to issue a check
worth P15, 000.00 as payment for the latter's billings. However, the Court finds that the
Marasigan was not able to comply with his obligation.
Clearly, the purpose of the arrangement between the parties on November 22, 1989,
was for the immediate payment of the Marasigan’s outstanding account, in order that
his credit card would not be suspended.
As agreed upon by the parties, on the following day, Marasigan did issue a check for
P15, 000.00. However, the check was postdated 15 December 1989. Settled is the
doctrine that a check is only a substitute for money and not money, the delivery of such
an instrument does not, by itself operate as payment. This is especially true in the case
of a postdated check. Thus, the issuance by Marasigan of the postdated check was not
effective payment. It did not comply with his obligation under the arrangement with
BECC. The latter was therefore justified in suspending his credit card.
 • Associated Bank and Conrado Cruz vs. Court of Appeals and Merle Reves, doing
business under the name and style "Melissa's RTW", G.R. No. 89802, May 7, 1992

FACTS:
■ Merle Reyes is the owner of "Melissa's RTW" ready-to-wear garments
■ She deals with customers such as Robinson's Department Store, Payless
Department Store, Rempson Department Store, and the Corona Bazaar.
■ These companies issued in payment of their respective accounts crossed
checks payable to Melissa's RTW in the amounts and on the dates indicated
below:
PAYOR BANK AMOUNT DATE
Payless Solid Bank P3,960.00 January 19, 1982
Robinson's FEBTC 4,140.00 December 18, 1981
Robinson's FEBTC 1,650.00 December 24, 1981
Robinson's FEBTC 1,980.00 January 12, 1982
Rempson TRB 1,575.00 January 9, 1982
Corona RCBC 2,500.00 December 22, 1981
■ Reyes was unaware of the issuance of the checks until she went to the
companies for collection and was informed thereof.
■ She soon found out that it was deposited with Associated Bank and
subsequently paid to one of the bank's trusted depositors,Rafael Sayson, the
check being indorsed by Eddie Reyes
■ Reyes sued in the RTC for the recovery of the checks plus damages.
■ CA affirmed RTC: favored Reyes
ISSUE: W/N Reyes has the right for recovery of the cross checks

HELD: YES. petition DENIED.

■ Under accepted banking practice, crossing a check is done by writing two
parallel lines diagonally on the left top portion of the checks. The crossing is
special where the name of a bank or a business institution is written between
the two parallel lines, which means that the drawee should pay only with the
intervention of that company.
■ The crossing is general where the words written between the two parallel
lines are "and Co." or "for payee's account only," as in the case at bar. This
means that the drawee bank should not encash the check but merely accept
it for deposit.
■ The effects therefore of crossing a check relate to the mode of its
presentment for payment
■ Under Sec. 72 of the Negotiable Instruments Law, presentment for payment,
to be sufficient, must be made by the holder or by some person authorized to
receive payment on his behalf. Who the holder or authorized person is
depends on the instruction stated on the face of the check.
■ The 6 checks had been crossed and issued "for payee's account only.
■ signify that the drawers had intended the same for deposit only
by the person indicated, to wit, Melissa's RTW.
■ The position of the bank taking the check on the forged or unauthorized
indorsement is the same as if it had taken the check and collected without
indorsement at all. The act of the bank amounts to conversion of the check.
■ 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.
■ Its failure to inquire into Sayson's authority was a breach of a duty it
owed to Reyes
■ There is no substantial difference between an actual forging of a name to a
check as an endorsement by a person not authorized to make the signature
and the affixing of a name to a check as an endorsement by a person not
authorized to endorse it.
■ Assuming that Eddie Reyes did endorse the crossed checks, we hold
that the Bank would still be liable to the private respondent because he
was not authorized to make the endorsements.
■ Before presenting the checks for clearing and for payment, the Bank had
stamped on the back thereof the words: "All prior endorsements and/or lack
of endorsements guaranteed," and thus made the assurance that it had
ascertained the genuineness of all prior endorsements.
■ The Bank stamped thereon its guarantee that "all prior endorsements
and/or lack of endorsements (were) guaranteed."
• State Investment House vs. Intermediate Appellate Court, 175 SCRA 310 (1989)
Facts:
New Sikatuna Wood Industries, Inc. requested for a loan from private respondent Harris
Chua. The latter agreed to grant the same subject to the condition that the former
should wait until
December 1980 when he would have the money. In view of this agreement, private
respondent-wife, Anita Peña Chua issued three (3) crossed checks payable to New
Sikatuna Wood Industries, Inc. all postdated December 22, 1980
Subsequently, New Sikatuna Wood Industries, Inc. entered into an agreement with
herein petitioner State Investment House, Inc. whereby for and in consideration of the
sum of P1,047,402.91 under a deed of sale, the former assigned and discounted with
petitioner... eleven (11) postdated checks including the aforementioned three (3)
postdated checks issued by herein private respondent-wife Anita Peña Chua to New
Sikatuna Wood Industries, Inc.
When the three checks issued by private respondent Anita Peña Chua were allegedly
deposited by petitioner, these checks were dishonored by reason of "insufficient funds",
"stop payment" and "account closed", respectively.
Petitioner claims that... despite demands on private respondent Anita Peña to make
good said checks, the latter failed to pay the same necessitating the former to file an
action for collection against the latter and her husband Harris Chua
Private respondents-defendants filed a third party complaint against New Sikatuna
Wood Industries, Inc. for reimbursement and indemnification in the event that they be
held liable to petitioner-plaintiff.
the lower court[1] rendered judgment against herein private respondents-spouses,...
Court of Appeals) reversed the lower court's judgment
Issues:
whether or not petitioner is a holder in due course as to entitle it to proceed against
private respondents for the amount stated in the dishonored checks.
Ruling:
Section 52(c) of the Negotiable Instruments Law defines a holder in due course as one
who takes the instrument "in good faith and for value". On the other hand, Section
52(d) provides that in order that one may be a holder in due course, it is necessary...
that "at the time the instrument was negotiated to him he had no notice of any x x x
defect in the title of the person negotiating it." However, under Section 59 every holder
is deemed prima facie to be a holder in due course.
the Negotiable Instruments Law regulating the issuance of negotiable checks as well as
the rights and liabilities arising therefrom, does not mention "crossed checks".
But this Court has taken cognizance of the practice that a check... with two parallel lines
in the upper left hand corner means that it could only be deposited and may not be
converted into cash. Consequently, such circumstance should put the payee on inquiry
and upon him devolves the duty to ascertain the holder's title to... the check or the
nature of his possession. Failing in this respect, the payee is declared guilty of gross
negligence amounting to legal absence of good faith and as such the consensus of
authority is to the effect that the holder of the check is not a holder... in good faith.
the Intermediate Appellate Court (new Court of Appeals), correctly elucidated that the
effects of crossing a check are: the check may not be encashed but... only deposited in
the bank; the check may be negotiated only once -- to one who has an account with a
bank; and the act of crossing the check serves as a warning to the holder that the check
has been issued for a definite purpose so that he must inquire if he has received the...
check pursuant to that purpose, otherwise he is not a holder in due course.
Further, the appellate court said:
"It results therefore that when appellee rediscounted the check knowing that it was a
crossed check he was knowingly violating the avowed intention of crossing the check.
Furthermore, his failure to inquire from the holder, party... defendant New Sikatuna
Wood Industries, Inc., the purpose for which the three checks were crossed, despite the
warning of the crossing, prevents him from being considered in good faith and thus he is
not a holder in due course. Being not a... holder in due course, plaintiff is subject to
personal defenses, such as lack of consideration between appellants and New Sikatuna
Wood Industries. Note that under the facts the checks were postdated and issued only
as a loan to New
Sikatuna Wood Industries, Inc. if and when deposits were made to back up the checks.
Such deposits were not made, hence no loan was made, hence the three checks are
without consideration (Sec. 28, Negotiable Instruments Law).
"Likewise New Sikatuna Wood Industries negotiated the three checks in breach of faith
in violation of Article (sic) 55, Negotiable Instruments Law, which is a personal defense
available to the drawer of the check."
Under usual practice, crossing a check is done by placing two parallel lines diagonally
on the left top portion of the check. The crossing may be special wherein between the
two parallel lines is written the name of a bank or a business institution, in... which case
the drawee should pay only with the intervention of that bank or company, or crossing
may be general wherein between two parallel diagonal lines are written the words "and
Co." or none at all as in the case at bar, in which case the drawee... should not encash
the same but merely accept the same for deposit.
The effect therefore of crossing a check relates to the mode of its presentment for
payment. Under Section 72 of the Negotiable Instruments Law, presentment for
payment to be sufficient must be made (a) by the holder, or by some person authorized
to receive payment on his... behalf x x x. As to who the holder or authorized person will
be depends on the instructions stated on the face of the check.
The three subject checks in the case at bar had been crossed generally and issued
payable to New Sikatuna Wood Industries, Inc. which could only mean that the drawer
had intended the same for deposit only by the rightful person, i.e., the payee named...
therein. Apparently, it was not the payee who presented the same for payment and
therefore, there was no proper presentment, and the liability did not attach to the
drawer. Thus, in the absence of due presentment, the drawer did not become...
liable.[7] Consequently, no right of recourse is available to petitioner against the drawer
of the subject checks, private respondent wife, considering that petitioner is not the
proper party authorized to make presentment of the... checks in question.
Yet it does not follow as a legal proposition that simply because petitioner was not a
holder in due course as found by the appellate court for having taken the instruments in
question with notice that the same is for deposit only to the account of payee named in
the subject... checks, petitioner could not recover on the checks. The Negotiable
Instruments Law does not provide that a holder who is not a holder in due course may
not in any case recover on the instrument for in the case at bar, petitioner may recover
from the New
Sikatuna Wood Industries, Inc. if the latter has no valid excuse for refusing payment.
The only disadvantage of a holder who is not in due course is that the negotiable
instrument is subject to defenses as if it were... non-negotiable.
That the subject checks had been issued subject to the condition that private
respondents on due date would make the back up deposit for said checks but which
condition apparently was not made, thus resulting in the non-consummation of the loan
intended to be granted by... private respondents to New Sikatuna Wood Industries, Inc.,
constitutes a good defense against petitioner who is not a holder in due course.
• People vs. Nitafan, G.R. No. 75954, October 22, 1992
Facts:

Private respondent K.T. Lim was charged with violation of B.P. 22. He moved to quash
the Information of the ground that the facts charged did not constitute a felony as B.P.
22 was unconstitutional and that the check he issued was a memorandum check which
was in the nature of a promissory note, perforce, civil in nature. Judge Nitafan, ruling
that B.P. 22 on which the Information was based was unconstitutional, issued the
questioned Order quashing the Information. Hence, the appeal.

Issue:

Whether a memorandum check is within the coverage of B.P. 22

Held:

A memorandum check is in the form of an ordinary check, with the word

"memorandum", "memo" or "mem" written across its face, signifying that the maker or
drawer engages to pay the bona fide holder absolutely, without any condition
concerning its presentment. Such a check is an evidence of debt against the drawer,
and although may not be intended to be presented, has the same effect as an ordinary
check, and if passed to the third person, will be valid in his hands like any other check.

A memorandum check comes within the meaning of Sec. 185 of the Negotiable
Instruments Law which defines a check as "a bill of exchange drawn on a bank payable
on demand. A memorandum check, upon presentment, is generally accepted by the
bank. Hence it does not matter whether the check issued is in the nature of a
memorandum as evidence of indebtedness or whether it was issued is partial fulfillment
of a pre-existing obligation, for what the law punishes is the issuance itself of a
bouncing check and not the purpose for which it was issued. The mere act of issuing a
worthless check, whether as a deposit, as a guarantee, or even as an evidence of a
pre-existing debt, is malum prohibitum.
A memorandum check may carry with it the understanding that it is not be presented at
the bank but will be redeemed by the maker himself when the loan fall due. However,
with the promulgation of B.P. 22, such understanding or private arrangement may no
longer prevail to exempt it from penal sanction imposed by the law. To require that the
agreement surrounding the issuance of check be first looked into and thereafter exempt
such issuance from the punitive provision of B.P. 22 on the basis of such agreement or
understanding would frustrate the very purpose for which the law was enacted — to
stem the proliferation of unfunded checks. After having effectively reduced the incidence
of worthless checks changing hands, the country will once again experience the
limitless circulation of bouncing checks in the guise of memorandum checks if such
checks will be considered exempt from the operation of B.P. 22. It is common practice in
commercial transactions to require debtors to issue checks on which creditors must rely
as guarantee of payment. To determine the reasons for which checks are issued, or the
terms and conditions for their issuance, will greatly erode the faith the public responses
in the stability and commercial value of checks as currency substitutes, and bring about
havoc in trade and in banking communities.

• Tan vs. Court of Appeals, G.R. No. 108555, December 20, 1994

Facts:
Ramon Tan, a businessman from Puerto Princesa, secured a Cashier’s Check
from Philippine Commercial Industrial Bank (PCIBank) to P30,000 payable to his
order to avoid carrying cash while enroute to Manila. He deposited the check in
his account in Rizal Commercial Banking Corporation(RCBC) in its Binondo Branch.
RCBC sent the check for clearing to the Central Bank which was returned for having
been “missent” or “misrouted.” RCBC debited Tan’s account without informing him.

Relying on Common knowledge that a cashier’s check was as good as cash, and a
month after depositing the check, he issued two personal checks in the name of Go Lak
and MS Development Trading Corporation. Both checks bounced due to “insufficiency
of funds.” Tan filed a suit for damages against RCBC.

Issue:
Whether a cashier’s check is as good as cash, so as to have funded the two
checks subsequently drawn.

Held: An ordinary check is not a mere undertaking to pay an amount of money.

There is an element of certainty or assurance that it will be paid upon
presentation; that is why it is perceived as a convenient substitute for currency in
commercial and financial transactions.

Herein, what is involved is more than an ordinary check, but a cashier’s check. A
cashier’s check is a primary obligation of the issuing bank and accepted in
advance by its mere issuance. By its very nature, a cashier’s check is a bank’s
order to pay what is drawn upon itself, committing in effect its total resources, integrity
and honor beyond the check.

Herein, PCIB by issuing the check created an unconditional credit in favor of any
collecting bank. Reliance on the layman’s perception that a cashier’s check is as good
as cash is not entirely misplaced, as it is rooted in practice, tradition and principle.

• Teddy Pabugais vs. Dave Sahijiwani, G.R. No. 156846, February 23, 2004

Facts

In a "Agreement and Undertaking" signed on December 3, 1993, petitioner Teddy G.

Pabugais agreed to sell respondent Dave P. Sahijwani a 1,239-square-meter lot on
Jacaranda Street in North Forbes Park, Makati, Metro Manila, for the amount of
P15,487,500.00. Respondent paid petitioner P600,000.00 as option/reservation fee and
the balance of P14,887,500.00 to be paid within 60 days from the signing of the
contract, along with delivery of the owner's duplicate Transfer Certificate of Title in
respondent's name, Deed of Absolute Sale, Certificate of Non-Tax Delinquency on Real
Estate Taxes, and Clearance on Payment of Association Dues. The parties also agreed
that if the respondent does not pay the rest of the purchase price, the petitioner can
keep the P600,000.00 option/reservation fee.

If the petitioner doesn't deliver the necessary documents, he has to give the
option/reservation fee back to the respondent with 18 percent interest per year.
Petitioner did not send in the necessary papers. In accordance with their agreement, he
gave respondent his P600,000.00 option/reservation fee back in the form of a Far East
Bank & Trust Company check, but the check was not cashed.

Petitioner said that he gave respondent, through his lawyer, a Far East Bank & Trust
Company Manager's Check No. 088498, dated August 3, 1994, for the amount of
P672,900.00, which was the P600,000.00 option/reservation fee plus 18 percent
interest per annum from December 3, 1993 to August 3, 1994. However, respondent's
lawyer refused take the check. Petitioner sent respondent a letter on August 11, 1994,
saying that he was giving the amount offered to the Regional Trial Court of Makati City.
Petitioner filed a claim for consignation on August 15, 1994.

On the other hand, the lawyer for the respondent said that his office had received the
petitioner's letter from August 5, 1994, but that no check was attached to it. He said that
there was no valid tender of payment because no check was given and the calculation
of the amount to be given was not enough because the petitioner had verbally promised
to pay 3 percent monthly interest and 25 percent attorney's fees as a penalty for default,
on top of the 18 percent per annum interest on the P600,000 option/reservation fee.

On November 29, 1996, the trial court ruled that the consignment was invalid because
there wasn't enough evidence to show that petitioner offered payment to respondent
and that respondent turned it down. Petitioner went to the Court of Appeals to try to
change the decision. The Court of Appeals turned down the petitioner's request to take
back the amount that had been pledged, and it upheld the trial court's decision.

In an Amended Decision from January 16, 2003, the Court of Appeals said that the
consignation was legal after getting a request to look at the case again. It said that
because
the consignment was legal, petitioner was no longer required to give the
option/reservation fee back to respondent. So, the petitioner can no longer take it back.
Unfazed, the petitioner filed this petition for review, saying that he has the right to
withdraw the amount he deposited with the trial court because the Court of Appeals had
not yet decided on the validity of the consignment and the respondent had not yet
accepted it.

Issue:
Whether or not the amount of P672,900.00 cannot be given to Atty. De Guzman.

Ruling:
The amount that the petitioner put in trust with the trial court can no longer be taken
back. This is because respondent's request in his answer that the amount in trust be
given to him is the same as accepting the trust, which ends petitioner's obligation. Also,
petitioner didn't show that he was going to follow the "Agreement and Undertaking" by
giving respondent the necessary documents and the lot for sale in exchange for the
money he had put down. If the money was withdrawn, it would help the petitioner and
hurt the respondent in an unfair way. Article 1491 of the Civil Code says that lawyers
can't buy property or rights that are the subject of a lawsuit in which they may be
involved as part of their job. When the petitioner's lawyer, Atty. De Guzman, Jr., was
paid attorney's fees from the money deposited, this was against the law. Rule 10 of the
Canons of Professional Ethics says that a lawyer should not buy any interest in the case
he is working on. The challenged transaction is against the law because the Deed that
gave Atty. De Guzman, Jr. P672,900.00 as part of his attorney's fees was signed while
this case was still being heard by the Court of Appeals.
In his Motion to Intervene, Attorney De Guzman, Jr. not only claimed to own the amount
in question, but also asked for it to be given to him. Even though the petitioner
knowingly and willingly gave the amount in question to his lawyer, that did not take their
agreement out of the scope of the prohibitive provisions. To let them back out would be
to agree to a contract that is no longer valid.

The request for a second look was turned down.