FORM AND INTERPRETATION

I. Requisites of Negotiability;
II. Doctrine of Substantial Compliance;
III. When Negotiability is not affected;
IV. Construction where instrument is ambiguous.

Case #1

G.R. No. 212050, January 15, 2020

QUINTIN ARTACHO LLORENTE, petitioner, V. STAR CITY PTY LIMITED, respondent.

G.R. No. 212216, January 15, 2020

STAR CITY PTY LIMITED, petitioner, V. QUINTIN ARTACHO LLORENTE and
EQUITABLE PCI BANK (now BDO UNIBANK, INC.), respondents.

CAGUIOA, J.:

Facts: Llorente was a patron of the Star City Casino operated by Australian
corporation, Star City Pty Limited (SCPL). SCPL filed a collection suit with a
prayer for preliminary attachment against Llorente and respondent bank
EPCIB and further claimed that it was suing for an isolated transaction and
is not transacting business in the Philippines.

To play in the casino’s Premium Programme which offers patrons rebates at

the gambling table, Llorente negotiated two (EPCIB) bank drafts worth
150,000 USD each, amounting to a total of 300,000 USD. Before the upgrade
to the said programme, the status of the bank drafts was first confirmed to
be issued on clear funds and without any stop payment orders (SPOs).
Llorente was able to play in the programme.

Upon deposit of the drafts by SCPL, an SPO was received, urging SCPL to
demand payment from Llorente, who refused to pay. SCPL also demanded
from EPCIB for settlement, but the latter denied asserting that it was
Llorente who requested for the SPO. The RTC held Llorente and EPCIB
solidarily liable for the value of the drafts, being payee and indorser,
respectively.

Llorente appealed the decision with the CA only to have EPCIB discharged
from any responsibility as it had already paid Llorente.

Issue(s): Whether EPCIB should be held liable as drawer.

Ruling: YES, EPCIB should be held liable as drawer.

Pursuant to Section 61 of the NIL, the drawer, by drawing the instrument,

admits the existence of the payee and his then capacity to indorse, and
engages that, on due presentment, the instrument will be accepted or paid,
or both, 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.
 The liability of EPCIB as the drawer cannot be abrogated by virtue of the
Indemnity Agreement because its liability arose from the 2 bank drafts it
issued, which are negotiable instruments. EPCIB’s secondary liability
pursuant to Section 61 of the NIL became primary when the payment of the
bank drafts was stopped – produced the same effect of dishonored checks
and notice thereof was given to the drawer under Section 84 of the NIL.

Hence, given the very nature if the drawer’s liability for the negotiable
instrument, EPCIB’s contention that it is not liable to SCPL on the ground
of lack of privity to the contract is untenable.

Inputs/Comments:

 A bank draft is a bill of exchange payable on demand.

 Article 1311 of the Civil Code – Contracts take effect only between the parties, their
assigns and heirs, except in case where the rights and obligations arising from the
contract are not transmissible by their nature, or by stipulation or by provision of
law.

Hence, the liability of EPCIB as the drawer cannot be abrogate by virtue of the
Indemnity Agreement because it arises from the subject bank drafts – which are
negotiable instruments.

Case #2

G.R. No. 166018, June 04, 2014

THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED -
PHILIPPINE BRANCHES (HSBC), petitioner, V. COMMISSIONER OF INTERNAL
REVENUE, respondent.

G.R. NO. 167728

THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED-
PHILIPPINE BRANCHES, petitioner, v. COMMISSIONER OF INTERNAL
REVENUE, respondent.

LEONARDO-DE CASTRO, J.:

Facts: Petitioner HSBC performs, among others, custodial services on behalf of its
investor-clients, the accounts of which are managed by the petitioner
through instructions given through electronic messages. HSBC contends
that these electronic messages containing said instructions have become
standard practice, known as “Society for Worldwide Interbank Financial
Telecommunication” or “SWIFT”, in the banking industry.

In using SWIFT, the investor-clients, in purchasing shares of stock and

investment securities, would send electronic messages from abroad to
HSBC. The messages instructed HSBC to debit their local or foreign
currency accounts and pay the purchase price of said securities upon receipt
thereof.
HSBC did as the electronic messages instructed, hence it purchased and
paid the Documentary Stamp Tax therefor.
 The BIR in August 1999, however, issued a ruling stating that instructions or
advises from abroad pertaining to the management of funds located in the
Philippines not involving fund transfer are no longer subject to the
Documentary Stamp Tax. HSBC thereafter filed an administrative claim for
the refund of the amounts it erroneously paid as DST to the BIR.

No action on the part of the BIR was had, urging the HSBC to elevate the
matter to the Court of Tax Appeals, which ruled in the petitioner’s favor.
The ruling of the CTA, however, was reversed by the Court of Appeals.

Issue(s): Whether the electronic messages in the present case are negotiable
instruments.

Ruling: NO, the electronic messages are not negotiable instruments under the
purview of the NIL.

The electronic messages cannot be considered as negotiable instruments

because of the lack of the negotiability. For an instrument to be considered
negotiable, it must possess the feature of negotiability, or the ability of said
instrument to be transferred from one person to another.

The Court ruled that said electronic messages were mere memoranda of the
transaction of debiting the local or foreign currency account in the
Philippines which were entered as such in HSBC’s books of account.

Inputs/Comments:

 The electronic messages are NOT bills of exchange because:

o They are not signed by the investor-clients as supposed drawers of a bill of
exchange;
o They do not contain an unconditional order to pay a sum certain in money
as payment and is supposed to come from a specific fund or account of the
investor-clients; and
o They are not payable to order or bearer but to a specifically designated third
party.

Case #3

G.R. No. 97753, August 10, 1992

CALTEX (PHILIPPINES), INC., petitioner, V. COURT OF APPEALS and SECURITY
BANK AND TRUST COMPANY, respondents.

REGALADO, J.:

Facts: Angela dela Cruz received Certificates of Time Deposit from Security Bank.
Dela Cruz gave the identical items to Caltex in conjunction with the latter's
sale of petrol to him. Dela Cruz went to the bank manager at a later time,
informed him of the missing certificates, and asked for a reissue.

He received replacements after meeting some procedural conditions. After

that, he obtained a loan from the bank and put the certificates up as
 collateral. Here comes the petitioner, who claimed that the certificates had
been used as payment security for fuel transactions rather than actually
being lost.

The petitioner was ordered to provide the bank with proof of the
agreement, but they refused. When the loan reached its maturity date, the
time deposits were canceled and used to pay off the loan. Despite repeated
requests, the petitioner has not received money for the certifications.

Issue(s): Whether the certificates of time deposits (CTDs) are negotiable instruments?

Ruling: YES.  The Court ruled that the CTDs are negotiable instruments.

The CTDs in question unquestionably comply with the legal conditions for 
negotiability.

According to the NIL, an instrument is negotiable if it complies with the

requirements under Section 1 thereof, to wit:

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.

According to the documentation, the depositor will be entitled to receive

their money back. And who is the depositor, as stated in the document?
The documents do not specify that Angel de la Cruz is the depositor or that
the funds are payable only to him; they simply refer to the "carrier." Instead,
the sums must be repaid to the document's bearer, in other words, whoever
may be the bearer at the time of presentation.

Instead of having the word "BEARER" stamped on the place allocated for
the name of the depositor in each CTD, the respondent bank could have
easily conveyed that fact in the documents if it had truly been their desire
to pay the money to Angel de la Cruz alone. The funds deposited are
consequently repayable to the bearer of the documents in accordance with
their language.

Inputs/Comments:

 The NIL aims to prevent the need for extrinsic proof and calls for the application
of fundamental principle that the party create the ambiguity shall not be favored
in its interpretation.

Case #4

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

PHILIPPINE NATIONAL BANK, petitioner, V. ERLANDO T. RODRIGUEZ and
NORMA RODRIGUEZ, respondents.

REYES, R.T., J.:

Facts: Respondent spouses Rodriguez maintained an informal lending business

and entered a discounting arrangement with the petitioner-bank’
employees association “Philippine National Bank Employees Savings and
Loan Association (PEMSLA), which maintained a current and savings
account with said bank. PEMSLA regularly approved and granted loans to
its members and the spouses would have the postdated checks issued to the
members rediscounted when the association would encounter financial
problems.

The respondent spouses would replace the postdated checks with their own
checks issued in the name of the members as they have customarily
practiced. The PEMSLA officers, to sidestep the association’s policy of not
approving applications for loans of members with outstanding debts, some
of its officers devised a scheme and took out loans in the names of
unknowing members without their knowledge or consent. The officers
forged the indorsement of the named payees in the checks.

The checks issued by the respondent spouses were deposited directly by

PEMSLA to its savings account without any indorsement from the payees
named therein and was made possible through PEMSLA’s treasurer and
bank teller of the PNB. Such scheme eventually became usual practice; a
total of 69 checks amounting to PhP 2, 345, 804.00 payable to individual
members of the PEMSLA were issued.

The PNB eventually discovered the fraudulent acts and closed the current
account of the association. The PEMSLA checks later deposited bounced
due to the closure of the account, hence, the amounts were duly debited
from the spouses’ account.

Respondents filed for damages against PEMSLA and the PNB, among others
on the ground that PNB credited the checks to the association even without
indorsements hence it violated its contractual obligation to them as
depositors. The trial court favored the spouses, and the same decision was
affirmed, on appeal, by the CA, ruling that the checks were meant by the
spouses to be really paid to PEMSLA as “payable to order” checks.

PNB contends that when the respondents issued the disputed checks, they
did not intend for the named payees to receive the proceeds. Thus, they are
bearer instruments that could be validly negotiated by mere delivery.
Further, testimonial and documentary evidence presented during trial
amply proved that spouses Rodriguez and the officers of PEMSLA conspired
with each other to defraud the bank.

Issue(s): Whether the 69 checks are payable to order for not being issued to fictitious
persons thereby dismissing the PNB from liability.

Ruling: YES, the checks are deemed payable to order.

 The checks issued by the spouses were payable to specified payees as the 69
checks present. It was also uncontroverted that the payees named therein
were actual, existing persons who were members of PEMSLA.

For the defense of fictitious-payee rule to be available for the PNB, it must
prove that the makers did not intend for the named payees to be part of the
transaction involving the checks. PNB alleged that the named payees did
not know nor consent to their designations as such, but the Court ruled
that the same was not tantamount to the lack of intention of the spouses
that the payees would not receive the proceeds.

PNB, both in the lower courts, failed to prove that the maker of the check
intended for the payee to have no interest in the transaction, which was an
important prerequisite of the fictitious-payee rule. Hence, PNB is liable for
the checks as it was remiss in duty in requiring that checks be properly
indorsed before accepting them for deposit and payment.

Inputs/Comments:
 A check is a bill of exchange drawn on a bank payable on demand. It is either an
order or a bearer instrument.

 The distinction between an order and a bearer instrument lies in the manner of
negotiation:
o An order instrument requires an indorsement from the payee or holder
thereof; and
o A bearer instrument requires no such indorsement to be validly negotiated
because it is negotiated by mere delivery.

 General Rule: A check that is payable to a specified payee is an order instrument.

Exceptions: A check payable to a specified payee may nevertheless be considered 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 is so payable.

Case #5

G.R. No. 156903, November 24, 2006

SPOUSES CARLOS and TERESITA RUSTIA, petitioners, V. EMERITA
RIVERA, respondent.

SANDOVAL-GUTIERREZ, J.:

Facts: Respondent Rivera filed a complaint for sum of money against petitioner-
spouses Rustia. The respondent averred that the spouses obtained a loan
from her amounting to PhP 130,000.00 which was agreed to be payable
within 30 days without the need of a demand to be due.

To secure the loan, the spouses executed a promissory note, with Rosemarie
Rocha as co-maker. An interest of 5% per month was agreed upon which
the spouses paid from January 1991 to March 1994. The spouses, however,
 failed to pay any interest thereafter or any part of the principal obligation
thereafter, despite the written demands sent by the respondent.

The spouses filed a motion to dismiss the complaint against them but the
same was denied by the trial court. They filed their answer admitting the
existence of the loan worth PhP 130,000.00 but denied the agreement with
regards to the interest thereon. The spouses further alleged that the amount
they paid monthly was that of the principal obligation and not of the
interest, resulting to overpayment.

After offering the promissory note and letter with regards to the agreement
on the interest, Teresita denied having borrowed PhP 130,000.00 from the
respondent, alleging that said amount was an investment in the latter’s
business, the monthly payment of which was a share in surplus profits. The
trial court ruled in favor of the respondent and ordered the petitioners to
pay the loan, interest, and damages.

Issue(s): Whether the CA erred when it failed to apply Article 1956 of the Civil Code
which provided that no interest shall be due unless it has been expressly
stipulated in writing.

Ruling: NO, the appellate court did not err in failing to apply Article 1956 of the
Civil Code.

The finding by the trial court, which was upheld by the RTC and the CA,
regarding the letter sent by Teresita Rustia to the respondent begging the
latter’s indulgence regarding the spouses’ difficulty in paying off the
interest. The findings of fact by the lower courts are not to be disturbed
when affirmed by the CA, hence, the same are binding and conclusive upon
this Court.

Inputs/Comments:

 The letter sent to the respondent by Rustia, begging the former’s indulgence
regarding their difficulty in paying the 5% monthly interest on their PhP
130,000.00 loan, was indeed proof of their agreement to pay interest. Said letter is
not a mere scrap of paper.

Case #6

G.R. No. 114299, September 24, 1999

TRADERS ROYAL BANK, petitioner, V. HON. COURT OF APPEALS, PATRIA, RUBY
ANN, MARGARITA, ROSARIO, CYNTHIA, LINDA JOY, all surnamed CAPAY and
RAMON A. GONZALES, respondents.

G.R. No. 118862, September 24, 1999

PATRIA, RUBY ANN, MARGARITA, ROSARIO, CYNTHIA, LINDA JOY, all surnamed
CAPAY, and RAMON A. GONZALES, petitioners, V. SPS. HONORATO D. SANTOS
and MARIA CRISTINA S. SANTOS, SPS. CECILIO L. PE and JOSEFINA L. PE, FLORA
LARON WESCOMBE, SPS. TELESFORO P. ALFELOR II and LIZA R. ALFELOR, SPS.
DEAN RODERICK FERNANDO and LAARNI MAGDAMO FERNANDO, REMEDIOS
OCA, DEVELOPMENT BANK OF THE PHILIPPINES and TRADERS ROYAL
BANK, respondents.

KAPUNAN, J.:

Facts: By a Detachable Agreement, Filriters gave Philfinance ownership of a

Central Bank Certificate of Indebtedness. The sole method by which the
CBCI was communicated without permission from the corporation was
through one of its officers. Thereafter, the petitioner and Philfinance
entered into a repurchase arrangement, under which the petitioner
purchased the CBCI from Philfinance. The latter agreed to buy back the
CBCI, but they didn't do it. The CB refused to acknowledge the transfer
when the petitioner attempted to get it registered in its name there.

The transfer of CBCI No. by Philfinance is deemed invalid by the Court of

Appeals, according to petitioner Traders Royal Bank. D891 by means of an
assignment deed to the petitioner, which latter tried to register in its name
via Central Bank. Despite Filriters still being the registered owner of the
instrument, Philfinance asserted that it had the authority to do so. As a
result, it was stated in the former's repurchase agreement with Traders
Royal Bank that they would have the option to repurchase such an
instrument on or before April 27,198.

Due to a lack of funding, Philfinance was unable to complete the task by the
required date. The Central Bank declined to transfer the instrument and
register the petitioner as the owner due to Filriters' unfavorable assertion.

Issue(s): 1. Whether the CBCI No. D891 is a negotiable instrument;

2. Whether the petitioner may enforce payment of the instrument; and
3. Whether Philfinance is a holder in due course.

Ruling: With regards to the first issue, the CBCI No. D891 is NOT a negotiable
instrument because it is expressly stated thereon that the same is payable to
Filriters, the registered owner and because Alfredo Banaria executed the
document without the board's approval.

As a result, the assignment of such an instrument to Philfinance by Alfredo

Banaria's personal act renders it void pursuant to Article 1409 of the Civil
Code.

Anent the second issue, the petitioner may not enforce payment of the
instrument because there is sufficient evidence that the petitioner was not
defrauded despite knowing first glance that the instrument states that it is
registered in the name of Filriters, the petitioner may not enforce payment
of the instrument by relying on the doctrine of piercing the veil of corporate
entity.

Hence, the former ought to have asked Filriters about the validity of
Philfinance's rights to such an instrument.
 Lastly, Philfinance is NOT a holder in good in due course because the
certificate was fictitiously assigned to them after being simulated. The
instrument was merely “borrowed” from Filriters.

Inputs/Comments:

 Freedom of negotiability is the yardstick for measuring the protection provided to

holders in due course, and freedom of negotiability is the cornerstone of the
defense provided by the law to a holder in due course.
 Its freedom to circulate as a replacement for money is the definition of
negotiability that defines a negotiable paper as a credit instrument.
 A certificate of indebtedness only recognizes the obligation to pay a certain
amount of money to a specific person or entity for a specific amount of time; it has
no freedom in negotiability at all.

Case #7

G.R. No. 93073, December 21, 1992

REPUBLIC PLANTERS BANK, petitioner, V. COURT OF APPEALS and FERMIN
CANLAS, respondents.

CAMPOS, JR., J.:

Facts: The Global Garment Manufacturing, subsequently known as Pinch

Manufacturing, was led by Yamaguchi and Canlas as officials. They had
permission to apply for credit facilities with the petitioner bank. The
promissory notes that were issued to ensure that the obligations would be
paid were signed by the two executives. Afterwards, the bank launched a
collection effort and sued both executives in addition to the money owed.
The trial court also found the two officers personally responsible.

As President/Chief Operating Officer and Treasurer of Worldwide Garment

Manufacturing, Inc., respectively, Shozo Yamaguchi and Fermin Canlas, the
defendants in this case, were given the go-ahead by the board to apply for
credit facilities from the petitioner Republic Planters Bank in the form of
export advances and letters of credit/trust receipt accommodations.
Each of the nine promissory notes issued by the petitioner bank contained
the same language that read: "...I/we jointly and severally promise to pay to
the order of the Republic Planters Bank..."

The defendants' signatures were typewritten below their printed names on

the right bottom margin of the promissory notes, above the phrase "and (in)
his personal capacity."

Issue(s): Whether defendant Fermin Canlas is solidarily liable with Shozo Yamaguchi
on each of the nine (9) promissory notes.

Ruling: YES, Canlas is jointly and severally liable for all the promissory notes
bearing his signature. Being negotiable instruments, the promissory notes
in question are subject to the Negotiable Instruments Law.
 The Negotiable Instruments Law holds that anyone who signs their name
on an instrument is accountable as the instrument's manufacturer. The
maker of the note guarantees that they will pay the full amount of the
obligation to the payee or any other holder by signing the document. There
is no denying that Canlas is one of the co-authors of the promissory note
based on the legal provisions.

Those who sign their names on the promissory note's face are considered
makers under the NIL and are held accountable as such. By signing the
document, the creator makes a payment commitment to the payee or any
other holder of the document.

Inputs/Comments:

 When two or more people sign an instrument and the words "I pledge to pay"
appear thereon, they are regarded as being jointly and severally liable thereon.
 Anytime two or more people sign a document that starts with "I," "We," or "Any of
us," they are jointly and severally accountable.

Case #8

G.R. No. 89252, May 24, 1993

RAUL SESBREÑO, petitioner, V. HON. COURT OF APPEALS, DELTA MOTORS
CORPORATION AND PILIPINAS BANK, respondents.

FELICIANO, J.:

Facts: Petitioner made a market placement amounting to PhP 300,000.00 with

Philfinance for a term period of 32 days. The latter issued therefor a
Certificate of Confirmation of Sale of a Delta Motor Corporation Promissory
Note (DMC PN No. 2731), along with the Certificate of Securities Delivery
receipt which pertained to the sale of the Note with notation indicating that
the security was in the respondent-bank’s custody.

Postdated checks were issued and drawn against the Insular Bank of Asia
and America amounting to PhP 304,533.33 payable on March 13, 1981. The
checks were later dishonored for insufficient funds. A Denominated
Custodian Receipt (DCR) was delivered by Philfinance to the petitioner.

Petitioner approached Ms. Elizabeth de Villa of private respondent Pilipinas

and handed her a demand letter informing the bank that his placement
with Philfinance in the amount reflected in the DCR had remained unpaid
and outstanding, and that he in effect was asking for the physical delivery of
the underlying promissory note.

Petitioner then examined the original of the DMC PN No. 2731 and found
that the security was issued on April 10, 1980, and that it would mature on
April 6, 1981; that its face value was PhP 2,300,833.33c with the Philfinance
designated as payee and private respondent Delta Motors Corporation as
the maker; and on its face stamped “NON-NEGOTIABLE”. Pilipinas did not
delivery said Note nor any certificate of participation in respect thereof to
the petitioner.
 Demand letters were sent by the petitioner again asking the private
respondent Pilipinas to deliver the original DMC PN No. 2731, including a
written demand upon Delta Motors for the partial satisfaction of the DMC
PN No. 2731. In the demand letters, the petitioner explained that
Philfinance, as payee of the said note, has assigned to him PhP 307,933.33,
which Delta denied any liability therefor.

Issue(s): Whether the DMC PN No. 2731 marked as non-negotiable may be assigned.

Ruling: YES, the said Note may be assigned.

A negotiable instrument may either be negotiated by indorsement coupled

with delivery or by delivery alone if said instrument is payable to bearer; or
it may be assigned or transferred.

A non-negotiable instrument may not be negotiated, but it may be assigned

or transferred if there is no express prohibition against the assignment as
written on the face of the instrument.

DMC PC No. 2731, while it was marked “non-negotiable” was not at the
same time stamped “non-transferable” or “non-assignable”. There was no
express prohibition against such transfer or assignment on the Note.

Inputs/Comments:

 The words “not negotiable” stamped on the face of the bill of lading does not make
it unassignable. The sole effect was to merely exempt the bill from the statutory
provisions relative thereto, and a bill, though not negotiable, may be transferred by
assignment.

Case #9

G.R. No. 200250, August 06, 2014

UPSI PROPERTY HOLDINGS, INC., petitioner, V. DIESEL CONSTRUCTION CO.,
INC., respondent.

MENDOZA, J.:

Facts: In the current case, Diesel Construction Co., Inc. filed a complaint against
UPSI before the Construction Industry Arbitration Commission (CIAC) for
the recovery of the unpaid balance of the contact price and retention
money specified in their construction agreement, along with damages,
interest, and attorney's fees. The UPSI responded by filing a response.
Diesel was favored in the Arbitral Award, which is currently being
challenged before the CA. The appellate court upheld the petitioner's
arguments and modified the original ruling to include, among other things:
that Diesel substantially complied with the terms of the construction
contract and was entitled to 100% payment; and that UPSI is entitled to
liquidated damages totaling PhP 1,309,500.00 for the 45-day delay.
 This petition for review on certiorari, filed by UPSI (UPSI), challenges the
CA's decision to refuse its petition for certiorari in accordance with Rule 45
of the Rules of Court.

The current dispute started when respondent Diesel filed a complaint

against UPSI with the Construction Industry Arbitration Commission
(CIAC), requesting the recovery of an unpaid balance of the contract price
and retention money under their construction agreement, damages for an
unjustified denial of a time extension, legal costs, interest, and other fees.

Diesel was given a favorable arbitral decision by the CIAC. The CIAC ruling
was the subject of a petition for review, which the CA accepted with
modifications. Each party made a move for reconsideration, and although
Diesel's was partially granted, UPSI's was partially denied.

Still not pleased with the outcome, both parties submitted their individual
petitions for review to the Court.

Diesel ultimately submitted a Motion for Issuance of Writ of Execution to

the CIAC. The CIAC approved the execution despite many petitions from
UPSI opposing it. Still not satisfied, UPSI filed a certiorari to challenge the
CIAC's execution decision before the CA.

Diesel's motion was partially allowed by CIAC, taking Diesel's claimed

interest into account, despite UPSI's opposition. However, the CIAC
rejected the request for recovery of half of the arbitration costs. In a petition
for certiorari filed with the CA, UPSI contested the CIAC's ruling, claiming
that by determining that Diesel was entitled to legal interest, the CIAC had
seriously abused its discretion and had considerably amended the writ of
execution. However, the CA rejected the petition on the grounds that the
petitioner never disputed or raised the issue of legal interest, making the
CA's decision final and binding regardless of the outcome of the major
award.

Issue(s): Whether the inclusion of the legal interest in the writ of execution was proper
despite the silence of the Court in the dispositive portion of its judgement.

Ruling: YES, the inclusion was proper.

The rule is that in case of ambiguity or doubt in the dispositive element of a

decision, the body of the decision may be read for direction in construing
the judgment.

When the subject decision was closely examined, there was no evidence
found which implies that the Court meant to remove the legal interest
award, especially given that, as Diesel claims, the issue was never
mentioned. The major sum awarded as well as the liquidated damages were
in fact thoroughly examined by the Court because they were particularly
contested.

Remember that the CA changed the rewards given out by the CIAC but left
the lawful interest alone. The Court ultimately decided in favor of Diesel
and confirmed the amount of the remaining unpaid contract price, but
specifically removed the award of liquidated damages. The Court no longer
 felt it necessary to challenge the imposition of such because there was no
longer a dispute over the legal interest.

It should be emphasized that the Supreme Court upheld the Arbitral

Tribunal's award that the Respondent pay the Claimant's P298.406.03 in
arbitration fees, and that this ruling has now become final and irrevocable.
So, it is far too late to make the necessary corrections even if there had been
an error in the case (which this Arbitral Tribunal does not concede).

In addition, the CIAC would not have granted the writ if the legal interest
had violated the norm on the immutability of judgment.

Inputs/Comments:

 The manner of the execution of a final judgment is not a matter of "choice." As to

how a judgment should be satisfied does not revolve upon the pleasure or
discretion of a party unless the judgment itself expressly provides for such
discretion.

Case #10

G.R. No. 184458, January 14, 2015

RODRIGO RIVERA, petitioner, V. SPOUSES SALVADOR CHUA AND VIOLETA S.
CHUA, respondents.

G.R. No. 184472

SPS. SALVADOR CHUA and VIOLETA S. CHUA, petitioners, V. RODRIGO
RIVERA, respondent.

PEREZ, J.:

Facts: Since time immemorial, the parties have been friends and kumpadres.
Through a Promissory Note, Rivera received a loan from the Chua spouses
with the following stipulations:

a. In exchange for the value received, I, RODRIGO RIVERA, agree

to pay the spouses of SALVADOR C. CHUA and VIOLETA SY
CHUA the sum of One Hundred Twenty Thousand Philippine
Currency (_120,000.00) on December 31, 1995.
b. It is agreed and understood that failure on my part to pay the
amount of (_120,000.00) One Hundred Twenty Thousand Pesos
on December 31, 1995. I agree to pay the sum equivalent to
FIVEPERCENT (5%) interest monthly from the date of default
until the entire obligation is fully paid for.

Rivera issued and delivered to Spouses Chua two (2) checks drawn on his
account at Philippine Commercial International Bank (PCIB) three (3) years
after the date of payment specified in the promissory note. However, upon
presentation for payment, the two (2) checks were dishonored because the
account was closed.
 As of May 31, 1999, the sum owed to the Spouses Chua was pegged at
P366,000.00, covering the principal of P120,000.00 plus five percent (5%)
interest per month from January 1.

The Chua spouses claimed that Rivera ignored their numerous requests for
money. Rivera's unreasonable reluctance to pay forced the Chua spouses to
file a lawsuit before the MeTC, Branch 30, Manila.

The RTC of Manila upheld the lower court’s decision against Rivera, which
required him to pay the Chuas' spouses P120,000.00 plus stipulated interest
at a rate of 5% per month from 1 January 1996 and legal interest at a rate of
12% per annum from June 11, 1999.

The Court of Appeals further upheld the ruling after the two lower courts
appealed, but with the condition that the imposed interest rate be reduced
to 12% annually. Hence, this instant petition was filed before the high
tribunal.

Issue(s): 1. Whether said Promissory Note executed as evidence of loan falls under
the Negotiable Instruments Law;

2. Whether a demand from spouses Chua is needed to make Rivera liable;

3. Whether the stipulated interest is unconscionable and should really be

lowered.

Ruling: Respecting the first issue, the Promissory Note signed as proof of the loan
does NOT fall within the provisions of the Negotiable Instruments Law.
Regarding the interpretation of their obligations, it is the New Civil Code
which continues to control such instrument.

The Supreme Court ruled that because the instrument was made out to
specific individuals—in this case, the respondents, the Spouses Chua—
rather than to order or to bearer or to the order of the Spouses Chua as
payees, it could not satisfy the requirements of Section 1 of the NIL.

On the second issue, such demand in NOT NECESSARY to make Rivera

liable. According to Article 1169 of the Civil Code, a creditor's demand is not
essential for a delay to occur where the duty or the law expressly states as
much.

The Promissory Note's interest provision (letter B in the facts above)

specifically demands that the debtor (Rivera) pay 5% interest each month
starting on the "date of default" until the whole amount owed has been
paid. Evidently, the parties agreed that the obligation to pay interest would
become due when the obligation reached maturity at a specific date—
December 31, 1995.

Finally, on the final point, it is true that the required interest is outrageous
and ought to be reduced. The Supreme Court ruled that, as Rivera had
noted, the stipulated interest rate of 5% per month, or 60% annually, in
addition to legal interests and attorney's fees is, in fact, extremely unjust
and unreasonable. If the court determines that the rate is illegal or
unconscionable, it has the authority to reduce it.
 The parties are deemed to have made no agreements about the interest rate
because the rate agreed upon is null, so the rate of interest shall be 12% per
year calculated from the date of the judicial or extrajudicial demand.

Inputs/Comments:

 The 12% annual rate of legal interest, however, is only valid up until June 30, 2013,
when Bangko Sentral ng Philippines (BSP) Circular No. 799, Series of 2013, which
reduces the rate of legal interest to 6% per annum, becomes effective. 30 BSP
Circular No. 799 is prospectively applied as of 1 July 2013 in accordance with our
decision in Nacar v. Gallery Frames.

Case #11

G.R. No. 189871, August 13, 2013

DARIO NACAR, petitioner, V. GALLERY FRAMES AND/OR FELIPE BORDEY,
JR., respondents.

PERALTA, J.:

Facts: Petitioner Nacar filed a complaint for constructive dismissal before the
NLRC against respondents Gallery Frames (GF). The Labor Arbiter (LA) of
the Arbitration Branch of the NLRC rendered an award in favor of the
petitioner, finding that he was indeed dismissed from employment without
valid or just cause. Nacar was awarded backwages and separation pay
therefor in lieu of reinstatement.

The respondents appealed to the NLRC but the same was dismissed. They
elevated the case for Petition for Review with the CA and was likewise
dismissed. GF sough relief from the Supreme Court but the same was
thereafter denied. The Entry of Judgment thereafter became final and
executory, obliging Nacar to file a Motion for Correct Computation, praying
that the computation of his backwages be computed from his dismissal.

The LA issued a Writ of Execution ordering respondent GF to pay PhP

471,320.31 to Nacar to which the respondent contested, on appeal. The LA
held that the decision finding them guilty of constructive dismissal must be
the one to be enforced as it was the one which became final and executory.

Issue(s): Whether the computation of the Labor Arbiter on the assailed decision be
applied on the petitioner’s backwages.

Ruling: NO, said computation cannot be applied on Nacar’s computation of

backwages.

Since the finality of the decision was on May 27, 2002, backwages computed
from the time Nacar was illegally dismissed (January 24, 1997, until May 27,
2002), when the Resolution of this Court became final and executory shall
be applied.

The Court also found that there was no express stipulation with regards to
the rate of interest which would govern the parties, hence the legal rate of
6% per annum as cited in the case of Eastern Shipping Lines.
Inputs/Comments:

 Effective July 1, 2013, the rate of interest for the loan or forbearance of any money,
goods, or credits, and the rate allowed in judgments, in the absence of an express
contract as to such rate of interest, shall be six percent (6%) per annum. (Monetary
Board Resolution No. 796, amending Sec. 2 of Circular No.905, s. 1982)

DEFECTIVE NEGOTIABLE INSTRUMENTS

I. Section 14 – Incomplete but Delivered;

II. Section 15 – Incomplete and Undelivered;
III. Section 16 – Complete but Undelivered;
IV. Section 23 - Forgery; Cases;
V. Section 124 and other pertinent sections – Material Alterations.

Case #12

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

ALVIN PATRIMONIO, Petitioner, vs. NAPOLEON GUTIERREZ and OCTAVIO
MARASIGAN III, Respondents.

BRION, J.:

Facts: Under the name Slam Dunk Corporation, the petitioner and respondent
Gutierrez started a production company that created basketball-related
mini-concerts and shows.

Patrimonio pre-signed multiple checks to cover Slam Dunk's expenses.

These checks were signed, but they lacked the payee's name, date, or
amount. The blank checks were given to Gutierrez with the explicit
directive not to fill them up without first informing and receiving
permission from the petitioner.

Without the petitioner's knowledge or permission, Gutierrez traveled to

Marasigan to apply for a P200,000.00 loan under the pretense that the
petitioner required the money to build a house. Gutierrez promised
Marasigan that 5% interest would be paid on top of the original payment
every month.

In response to Gutierrez's request, Marasigan paid him P200,000.00. A

blank check that the petitioner had pre-signed with Pilipinas Bank and had
the words "Cash," "Two Hundred Thousand Pesos Only," and the amount of
"P200,000.00" put in on the blank areas was also sent to Marasigan by
Gutierrez.
 It was later discovered that the petitioner's bank account had been closed
when Marasigan attempted to deposit the check, which was dishonored for
the reason "ACCOUNT CLOSED".

Marasigan unsuccessfully pleaded with Gutierrez for help. Following then,

he wrote the petitioner multiple demand letters requesting the payment of
P200,000.00, but his requests were also ignored. He then filed a criminal
complaint for violating B.P. 22 in opposition to the petitioner.

The RTC ruled in Marasigan's favor. It was determined that the petitioner
intended to issue a negotiable instrument when it issued the pre-signed
blank checks, despite giving express instructions to Gutierrez not to
negotiate or issue the check without his consent. Marasigan was recognized
by RTC as a holder in good standing, and as a result, the petitioner's
complaint asking for the loan to be declared void was rejected. It required
the petitioner to pay Marasigan the check's face amount with the option of
suing Gutierrez for reimbursement. The CA upheld the trial court’s
decision.

Issue(s): Whether or not Marasigan is a holder in due course thus may hold
Patrimonio liable.

Ruling: No. The Negotiable Instruments Law's Section 14 specifies when blank
spaces may be filled. This clause is applicable to a delivered but unfinished
instrument.

According to this rule, if the maker or drawer gives a pre-signed blank piece
of paper to another individual with the intention of turning it into a
negotiable instrument, that individual is regarded as having the legal right
to fill it out in its entirety. The law presumes agency to fill in the blanks
because the instrument is in the custody of someone other than the drawer
or maker as well as the fact that the instrument is deficient in a material
way.

However, two requirements must be met in order for someone who is not a
holder in due course to be able to enforce the instrument against a party
before it is finished:

1. The blank must be filled up strictly in accordance with the authority

given; and
2. It must be filled up within a reasonable amount of time. The maker of
the instrument may assert this as a personal defense and escape
culpability if it is established that it was not strictly filled out in line with
the power granted and within a reasonable amount of time.

According to Section 52(c) of the NIL, a holder in due course is someone

who accepts the instrument "in good faith and for value," and Section 52(d)
of the NIL stipulates that for someone to be a holder in due course, they
must have been unaware of any defects in the instrument or the negotiating
party's title at the time the instrument was negotiated to them.

It is sufficient to demonstrate that the defendant had notice that something

was wrong with his assignor's acquisition of title, even if he was not aware
of the specific wrong that was committed, to establish that the defendant
had "knowledge of such facts that his action in taking the instrument
 amounted to bad faith." This does not require demonstrating that the
defendant knew the specific fraud practiced upon the plaintiff by the
defendant's assignor. Marasigan is acting dishonestly and in bad faith in the
current instance since he knew that the petitioner was not a party or privy
to the loan arrangement and, as a result, had no obligation or liability to
him.

But this does not imply that Marasigan is completely banned from recovery
only because he is not a holder in due course.

Significantly, Gutierrez was only permitted to use the check for business
expenses; as a result, he overstepped his bounds when he used it to cover
the loan he allegedly secured for the construction of the petitioner's home.
This clearly contravenes the petitioner's directive to utilize the checks for
Slam Dunk's costs. So, it cannot be legitimately stated that the check was
carried out strictly in conformity with the power granted by the petitioner.

Inputs/Comments:

 When you acquire anything in good faith, you do so without being aware of any
potential liabilities you might have to a previous owner of the instrument. It
implies that he lacks any awareness of the facts that would make accepting a
negotiable document dishonest. The key component of good faith is the absence of
the defense at the time the instrument was taken.

Case #13

G.R. No. 215910, February 06, 2017

MANUEL C. UBAS, SR., petitioner, VS. WILSON CHAN, respondent.

PERLAS-BERNABE, J.:

Facts: Petitioner claimed that respondent, "doing business under the name and
style of UNIMASTER," owed him $1,500,000.00 in payment for boulders,
sand, gravel, and other building supplies that respondent allegedly bought
from him for the construction of the Macagtas Dam in Macagtas, Catarman,
Northern Samar. Furthermore, he claimed that the respondent had written
three (3) bank checks for the sum of $500,000.00, payable to "CASH," but
when the petitioner attempted to cash the checks, they were returned as
dishonored due to a stop payment order.

The respondent submitted an answer along with a motion to dismiss the

case, among other reasons, on the grounds that the complaint has a legal
basis and that the checks belong to Unimasters Conglomeration, Inc., not
him (Unimasters).

According to the Regional Trial Court (RTC), the petitioner has a claim
against the respondent. It was noted right away that respondent had not
challenged the information in the petitioner's demand letter, which had
stated the serial numbers of the checks in addition to their dates and
amounts.
 The CA reversed the RTC's decision, dismissing the petitioner's claim for
lack of a cause of action. Since that Unimasters, a corporate entity with a
separate and different personality from respondent, was the drawer of the
subject checks, it was decided that respondent was not the proper party
defendant in the case.

Issue(s): Whether the CA erred in dismissing petitioner’s complaint for lack of cause of
action.

Ruling: YES, the CA erred in dismissing petitioner’s complaint for lack of cause of
action.

It should be underlined that even while the checks were written on

Unimasters' behalf, the method of payment has no bearing on the
obligation's nature. According to the petitioner in this case, his contract
with the respondent is where the obligation originated. The contract
between them was finalized when they decided to buy the construction
supplies on credit for $1,500,000.00.

The legal connection between the two (2) parties was thus already
established during the contract's perfection stage and does not prevent the
creditor from taking legal action against the debtor during the contract's
consummation stage, even if corporate checks were issued for the payment
of the obligation.

The averments and evidence in this instance amply support the conclusion
that there is a privity of contract between the petitioner and respondent.
The Court first notes that the petitioner was consistent in his description
that he dealt with the respondent directly in his own capacity and not just
as his representative.

Furthermore, the demand letter was addressed to respondent directly

rather than Unimasters as claimed by the latter, as was acknowledged by
respondent. Additionally, the petitioner explained why he trusted the
respondent enough to deliver the building supplies without a written
contract.

Inputs/Comments:
 Where the plaintiff-creditor possesses and submits in evidence instrument
showing the indebtedness, a presumption that the credit has not been satisfied
arises in his favor. The defendant is then required to overcome the said
presumption and present evidence to prove the fact of payment so that no
judgment will be entered against him (Section 24 NIL).

Case #14

G.R. No. 229450, June 17, 2020

PHILIPPINE SAVINGS BANK, petitioner, V. MARIA CECILIA SAKATA, respondent.
LEONEN, J.:

Facts: Maria Cecilia Sakata (Sakata) opened a savings account at the Philippine
Savings Bank (PS Bank), Dasmarinas, Cavite Branch. Subsequently, Sakata
opened a current account at the same bank and was given a passbook and
checkbook.

Her savings account's Deposit Account Details and Specimen Signature

Card bore the inscription, "With Direction to Transfer Funds from Savings
Account to Current Account".

Sakata departed for employment in Osaka, Japan. She sent money to her PS
Bank savings account while she was in Japan and wrote checks for her
children's support as well as the repayment of a house and lot she bought.
In 2006, Sakata returned to the Philippines.

Sakata visited PS Bank to cancel her checking account and turn in any
unused checks. Sakata noted that the deposit and withdrawal entries from
May 1, 2003 to September 16, 2005 were "lumped in one entry" rather than
having a "per transaction entry" after having her passbook updated.

Because she was having problems confirming the bank transactions, Sakata
asked for a copy of the itemized transaction records from October 1, 2004,
to September 16, 2005. But PS Bank turned down her demands.

Sakata was shocked to discover that, after refreshing her savings account,
she now only had a balance of P391.00 left. She also found out that on
September 16, 2005, there had been a P4,488,197.01 deposit and a
P4,751.112.42 withdrawal. Sakata explained to the teller that because she was
in Japan at the time, she was unable to have carried out those transactions,
but she was only told to visit the bank again.

Sakata received two original checks, copies of her current account

statement, and a few cheques from PS Bank on April 30, 2007. Sakata
examined the paperwork and discovered that 25 checks that were debited
from her account but that she neither issued nor signed had been written.
The entries and signatures on the 25 checks, according to her, were all
fabricated, and she never had a checkbook with the serial numbers on
them. In response to Sakata's request, PS Bank declined to provide the
original copies of the 25 checks.

On the same day, a demand letter was submitted to PS Bank requesting

that they re-credit Sakata's account with P1,087,500.000, which would equal
the sum withdrawn through the forgeries plus interest.

Sakata filed a Civil Action for Amount of Money and Damages before the
RTC after PS Bank failed to re-credit the money.

Sakata's mother, Gemma Bartolome, was required to seek and obtain two
more checkbooks, and PS Bank insisted that Sakata provide her permission.
They asserted that the 25 checks were legitimately cashed because their
bank staff had confirmed them. Sakata refuted the claim that she gave her
mother permission to ask for and get extra checkbooks and monthly
financial statements from PS Bank.
 Seeing that Sakata could not have signed anything relevant to it because she
was in Japan at the time, the trial court upheld Sakata's allegation of forgery
and ordered PS Bank to pay her P1,087,500.00 plus attorney's costs. This
decision lent greater weight to Sakata's claim of forgery.

On appeal, the CA upheld the decision that PS Bank should cover the loss
because Sakata's involvement in the counterfeit was not demonstrated, and
PS Bank was careless in its efforts to identify it. Because Sakata did not
receive the allegedly delivered account statements from PS Bank, the court
also determined that she was not careless in managing her finances and was
not prevented from challenging the bank's error.

Issue(s): Whether the Court of Appeals erred in ruling that there was forgery of
respondent's signature in the questioned checks; and

Whether or not respondent was negligent, which demands the application of

the doctrine of shared responsibility between the drawee bank and the
negligent drawer.

Ruling: With respect to the first issue, the Court found no reason to depart from the
findings of the trial court, as affirmed by the CA, that respondent was able
to establish the forgery of her signature on the questioned checks. These
factual findings are binding and conclusive upon the Court.

Given that Sakata was in Osaka, Japan, at the time the claimed issuance of
the checks, she could not have issued them. According to an assessment of
Sakata's passport, she departed the Philippines on May 4, 2003, and didn't
come back until July 27, 2006. She had no further entries in her passport
indicating that she had traveled internationally between May 4, 2003, and
July 27, 2006. Sakata could not have physically issued the 25 disputed
checks dated December 15, 2004, and July 8, 2006.

As for the second issue, Banking institutions are imbued with public
interest, and the trust and confidence of the public to them are of
paramount importance. As such, they are expected to exercise the highest
degree of diligence, and high standards of integrity and performance. "By
the nature of its functions, a bank is under obligation to treat the accounts of
its depositors with meticulous care, always having in mind the fiduciary
nature of their relationship." Thus, the prime duty of a bank is to ascertain
the genuineness of the signature of the drawer or the depositor on the
check being encashed, with reasonable business prudence.

Since the petitioner relied on the dubious Updated Specimen Signature

Card to examine the respondent's signature, it was obviously careless to
cash the forged checks. According to the lower courts, the Updated
Specimen Signature Card is questionable because it omitted crucial
characteristics like its execution date, Sakata's full account number, her
accurate passport information, and her most recent photograph.

Even if the respondent's mother did present the disputed checks in this
instance while she was abroad in Japan, she cannot be blamed for being
careless in giving them to her.
 The forged signatures of the respondent have been proven, and the checks
are completely useless due to the incompetence of the petitioner in failing
to spot the forged signatures. So, only the petitioner is responsible for
paying back the money from the fake checks.

Inputs/Comments:

 "A bank is bound to know the signatures of its customers; and if it pays a forged
check, it must be considered as making the payment out of its own funds and cannot
ordinarily charge the amount so paid to the account of the depositor whose name
was forged."
 The act of signing anything with someone else's name with the purpose to defraud
is called forgery. As forgery is not presumed, the party making the accusation must
prove it with convincing, unequivocal, and positive proof. The lower courts should
be given the opportunity to reevaluate the evidence before deciding if there is
forgery on the checks.
 A forged signature is a real or absolute defense, and a person whose signature on a
negotiable instrument is forged is deemed to have never become a party thereto
and to have never consented to the contract that allegedly gave rise to it.

Case #15

G.R. No. 232044, August 27, 2020

METROPOLITAN BANK & TRUST CO., Petitioner, v. JUNNEL'S MARKETING
CORPORATION, ET AL., Respondents.

G.R. NO. 232057

ASIA UNITED BANK CORPORATION, Petitioner, v. JUNNEL'S MARKETING

CORPORATION, METROBANK & TRUST CO., PURIFICATION C. DELIZO, &
ZENAIDA CASQUERO, Respondents.

REYES, J. JR., J.:

Facts: Respondent Junnel's Marketing Corporation (JMC) is a domestic company

that sells wines and alcoholic beverages. It draws checks from a current
account at Metrobank to pay its various suppliers. Premiere Wines
(Premiere) and Jardine Wines (Jardine) are two of JMC's suppliers.

JMC uncovered a problem involving eleven (11) checks (subject checks) it

had written to the orders of Jardine and Premiere on various dates that
were charged to JMC's current account but were, for some reason, not
accompanied by any official receipt from Jardine or Premiere. The subject
checkboxes are all crossed off. To Jardine was seven checks. Premiere has
received four checks. Every check was deposited at the Bankcom branch in
Dau. Such Bankcom Account is not owned by Jardine or Premiere.

Former JMC accountant, Purificacion Delizo (Delizo), the respondent,

admitted to stealing various business checks written on JMC's current
account while working for the company. She claimed that the checks were
 never delivered to the designated payees but rather were forwarded to one
Lita Bituin by her (Bituin).

Delizo further acknowledged that she, Bituin, and an unidentified bank

manager conspired to cause the deposit and encashment of the stolen
checks, and that they shared in the profits from doing so. The subject
checks, according to JMC, are allegedly among the checks that Delizo stole.

Before the RTC, JMC filed a claim for money in collection against Delizo,
Bankcom, and Metrobank. Based on a 2/3-1/3 ratio, the RTC determined
that Bankcom and Metrobank are responsible. CA agreed but stated that
Metrobank's liability is based on its failure to confirm that only four (4) out
of the 11 subject checks were stamped by Bankcom with the express
guarantees "ALL PRIOR ENDORSEMENTS AND/OR LACK OF
ENDORSEMENT GUARANTEED" and "NON-NEGOTIABLE," as required
by Section 17 of the PCHC Rules and Regulations.

Issue(s): Whether Metrobank is liable to JMC as drawee bank; and

Whether Bankcom liable to Metrobank as collecting bank.

Ruling: For the first issue, the Court held Metrobank liable to return to JMC the
entire amount of the subject checks plus interest and Bankcom liable to
reimburse Metrobank the same amount plus interest.

The drawee bank becomes accountable to the drawer for checks that are
improperly cashed, but the drawee bank may also demand compensation
from the collecting bank in these situations. The premise and type of the
liability of a drawee bank and a collecting bank in said situations serve as
the foundation for this rule on recovery order. Based on its agreement with
the drawer and its obligation to charge to those accounts only those
payables permitted by him, the drawee bank's liability is established.

A drawee bank is bound by the obligation to pay the check exclusively to

the payee or in accordance with the payee's instructions. The drawee bank
violates its obligation to charge the drawer's account only for legitimately
payable things when it pays someone other than the payee listed on the
check, which is against the terms of the check.

Secondly, the Court held that Bankcom, as collecting bank, is liable to

Metrobank. The bank that receives a check for deposit and presents it to
the drawee bank for payment is known as a collecting or presenting bank,
and it is this bank that indorses the check. When a collecting bank presents
a check to the drawee bank for payment, the former thereby assumes the
same warranties that an indorser of a negotiable instrument does in
accordance with Section 66 of the NIL. These warranties are:
1. That the instrument is genuine and in all respects what it purports to
be;
2. That the indorser has good title to it;
3. That all prior parties had capacity to contract; and
4. That the instrument is, at the time of the indorsement, valid and
subsisting.
 If any of the foregoing warranties turns out to be false, a collecting hank
becomes liable to the drawee bank for payments made under such false
warranty.

The subject checks were sent to PCHC to be presented to Metrobank, and it

is obvious that Bankcom assumed the warranties of an indorser at that
point. By making such a presentation, Bankcom effectively gave Metrobank
a guarantee that the subject checks had been deposited in a valid account.
The subject checks were really placed into an account that neither belongs
to the subject checks' payees nor their indorsees, rendering this guarantee a
total fraud. Because of this, Bankcom, as the collecting bank, is obligated to
reimburse Metrobank for the amount of the subject checks because they
were paid under the fraudulent guaranty of Bankcom.

Inputs/Comments:

 The collecting bank 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.
If any of the warranties made by the collecting bank turns out to be false, then the
drawee bank may recover from it up to the amount of the check.

Case #16

G.R. NO. 129015, August 13, 2004

SAMSUNG CONSTRUCTION COMPANY PHILIPPINES, INC., Petitioner, v. FAR EAST
BANK AND TRUST COMPANY AND COURT OF APPEALS, Respondents.

TINGA, J.:

Facts: The respondent bank's Makati branch was where the petitioner kept a
current account (FEBTC). While the checks were in the company's
accountant, Kyu Yong Lee, Jong Kyu Lee, the project manager, was the only
signatory to the account.

A certain Roberto Gonzaga delivered a FEBTC check to the branch for

payment. The check was issued in the amount of PhP 999,500 and was
drawn on Samsung's current account. The bank teller verified that
Samsung's account had enough funds to cover the check before comparing
the signatures and determining that they were real. Gonzaga produced
three cards when the cashier asked for his identification.

Even the bank employees were satisfied with the signature's authenticity

and genuineness. Using Samsung's assistant accountant, Gonzaga's
identification was verified. Ultimately, the check's encashment was
approved.

Kyu discovered that the specified sum had been cashed when he checked
the bank account's balance the following day. Inquiring about why he
hadn't written a check for Jong’s signature, Kyu looked through the
checkbook and noticed that the most recent bank check was absent. Jong,
 who spoke with the responding bank, was informed of the occurrence by
him. Jong discovered that the check had been cashed and that his signature
had been altered.

Issue(s): Whether the bank is liable for reimbursement of the PhP 999,5000.00.

Ruling: YES, the respondent bank is liable to pay the petitioner.

Forgery is a real or complete defense under Section 23 of the NIL by the

party whose signature is forged. Often, the drawee who made the payment
using the fake signature is the one who loses.

The only time an exemption applies is when the drawer, whose signature
was forged, acted negligently. To decide who would be responsible for the
loss, the relative negligence of the drawer and the drawee must be
considered.

The Court found no evidence to support a claim that Samsung was

negligent in maintaining its checks, especially since it immediately reported
the occurrence after learning about it. By exercising extraordinary vigilance,
FEBTC should have asked Jong directly if the faked signature on the check
was indeed his own.

The drawer whose signature was forged may nevertheless recover from the
former even though the bank used all reasonable diligence, provided he is
not prohibited from raising forgery as a defense.

Inputs/Comments:

 The drawer whose signature was forged may still recover from the bank as long as
he is not precluded from setting up the defense of forgery. Consequently, if a bank
pays a forged check, it must be considered as paying out of its funds and cannot
charge the amount so paid to the account of the depositor. A bank is liable,
irrespective of its good faith, in paying a forged check.

Case #17

G.R. No. 138510, October 10, 2002

TRADERS ROYAL BANK, Petitioner, v. RADIO PHILIPPINES NETWORK, INC.,
INTERCONTINENTAL BROADCASTING CORPORATION and BANAHAW
BROADCASTING CORPORATION, through the BOARD OF ADMINISTRATORS,
and SECURITY BANK AND TRUST COMPANY, Respondents.

CORONA, J.:

Facts: Radio Philippines Network (RPN), Intercontinental Broadcasting

Corporation (IBC), and Banahaw Broadcasting Corporation (BBC) were
assessed by the Bureau of Internal Revenue (BIR) for unpaid taxes for the
taxable years 1978 to 1983. In a letter to the BIR, Mrs. Lourdes C. Vera, RPN,
 IBC, and BBC comptroller requested settlement of their tax liabilities, which
was approved.

RPN, IBC, and BBC bought 3 manager's checks from Traders to cover their
tax obligations. Traders handed the checks to Mrs. Vera through Aida Nuez,
who oversaw delivering them to the BIR as payment.

Plaintiffs received a new tax assessment from BIR for the years 1979–1982. It
was found that Mrs. Vera never delivered or paid the three managers'
cheques to the BIR. Unknown individuals delivered the checks to Security
Bank and Trust Company for payment (SBTC). They were the targets of
levy, distraint, and garnishment warrants from BIR.

They were forced to reach a compromise and make a settlement payment of

P18,962,225.25 to BIR. The sums covered by the checks must be returned to
traders or credited to their accounts, they demanded in letters to RPN and
SBTC.

Issue(s): W/N Traders should solely bare the loss for its negligence.

Ruling: YES, Traders should bear the entire burden of the loss. If a bank pays a
counterfeit check, it must be seen as doing so out of its own money and is
not permitted to charge the amount thus paid to the depositor's account.

The three checks totaling P9,790,716.87 were cashed by Traders

notwithstanding the deception. The major responsibility of traders is to
ensure that the check was properly indorsed by the original payee;
otherwise, if they send the check's value to a third party who has faked the
payee's signature, they are responsible for any losses incurred. It should be
noted further that one of the subject checks was crossed. The crossing of
one of the subject checks should have put petitioner on guard.

 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 itself, and ultimately should be held liable
therefor.  However, it is doubtful if the subject checks were ever presented to
and accepted by SBTC to hold it liable as a collecting bank, as held by the
Court of Appeals.

Inputs/Comments:
 Effects of a crossed check: 
o (a) the check may not be encashed but only deposited in the bank;
o (b) the check may be negotiated only once to one who has an account with
a bank; and 
o (c) 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.

Case #18

G.R. No. 107612, January 31, 1996

PHILIPPINE NATIONAL BANK, petitioner, vs. HONORABLE COURT OF APPEALS,
PROVINCE OF TARLAC, and ASSOCIATED BANK, respondents.

ROMERO, J.:

Facts: The Philippine National Bank (PNB) Tarlac Branch holds a current account
for the Province of Tarlac, where the provincial monies are deposited. The
Provincial Treasurer and the Provincial Auditor or the Secretary of the
Sangguniang Bayan both sign and countersign checks that are issued by the
province.

The provincial treasurer's office released thirty checks, which the hospital's
administrative officer and cashier accepted for the institution. The hospital
had not received any allotment checks, it was later discovered. Examining
further, it was discovered that Fausto Pangilinan, the payee's administrative
officer and cashier, cashed the check with the Associated Bank serving as
the collecting bank.

With Associated Bank, Pangilinan attempted to cash the first cheque. The
management of Associated Bank disagreed and advised Pangilinan to
deposit the check in his personal savings account with the same institution.
The check was cleared and paid by the drawee bank, PNB, allowing
Pangilinan to withdraw the funds.

The Associated Bank stamp that says "All prior endorsements guaranteed
ASSOCIATED BANK" was on each check.

In a letter to the PNB manager, the provincial treasurer requested the

return of the various sums that had been debited from the province's
current account. On May 15, 1981, the PNB management in turn requested
payment from the Associated Bank. The Province of Tarlac sued PNB
because both banks refused to pay the debt, and PNB then added
Associated Bank as a defendant.

The RTC decided in the Plaintiff Province's favor. The ruling of the trial
court was upheld by the CA.

Issue(s): Whether the drawee bank is liable.

Ruling: YES, the drawee bank is liable.

Authentic checks and checks with the forged signature of the drawer should
be distinguished from checks with forged indorsements. A faked signature,
whether it be the drawer's or the payee's, renders the instrument
completely ineffective and prevents anyone from acquiring title to it. A
person whose signature was faked on a document was never a party to it
and did not provide their agreement to the supposed contract that gave rise
to it. The instrument is not disregarded by Section 23, only the fake
signature.

Hence, a forgery does not function as the payee's endorsement.

An endorser is a bank that collects checks that are deposited and signs
them after they are presented to the bank that will cash them. The
collecting bank is therefore obligated by his warranties as an indorser and
 cannot raise the forgery defense against the drawee bank, even if the
indorsement on the check deposited by the bank's client is faked.

The line of responsibility does not end with the drawee bank in situations
involving checks with fraudulent indorsements, such as the current
petition. The drawee bank normally passes liability back through the
collection chain to the party who took from the forger and, of course, to the
forger himself, if accessible. However, the drawee bank may not debit the
account of the drawer. In other words, the drawee bank has the right to ask
the presentor bank or individual for a refund of the money it paid.

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.

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.

Inputs/Comments:

 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 drawee bank is not similarly situated as the collecting bank because the
former makes no warranty as to the genuineness. of any indorsement. 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.

Case #19

G.R. No. 139130, November 27, 2002

RAMON K. ILUSORIO, petitioner, vs. HON. COURT OF APPEALS, and THE MANILA
BANKING CORPORATION, respondents.

QUISUMBING, J.:

Facts: Ramon Ilusorio, the petitioner, was a businessman. When he left the
country, he gave his secretary Katherine Eugenio control of the situation.
He gave Katherine his checkbook with blank checks, his credit cards, and
 other items. About 17 checks totaling PhP 119,634.34 were made against
Ramon's account at the respondent bank, The Manila Banking Corporation,
which Katherine was able to cash and deposit to her personal account.

One of Ramon's business associates informed him that he witnessed

Katherine use his credit card. As soon as possible, Ramon fired Katherine
and reported her to the police for Estafa through falsification of documents.
Ramon asked the responding bank to credit his account with the money
that had been improperly cashed, but it refused on the grounds that it had
followed ordinary operating practice. The respondent bank also requested
the NBI's advice in assessing the veracity of the signatures.

The petitioner asserts that the respondent bank is responsible for damages
because of its carelessness in identifying irregular checks. Additionally,
Ramon claimed that the respondent bank lacked the right to pay the checks
and that they were invalid under Section 23 of the NIL because they were
forgeries.

The appellate court determined that Ramon's own negligence was the loss's
proximate cause.

Issue(s): Whether Petitioner Ramon is precluded from setting up forgery.

Ruling: Yes, Ramon cannot put up forgery as an argument for the return of the
amount encashed.

It is true that a check is completely inoperative when a signature is faked or

made without the consent of the person whose signature it purports to be,
as stated in Section 23 of the NIL. Yet the rule is not immutable. "Unless the
party against whom it is sought to assert such right is prohibited from
putting up the forgery or lack of power," the exception reads.

In the current case, the petitioner's irresponsibility in giving his secretary

access to his credit cards, checkbook, and the verification of his account
statements prevented him from setting up the counterfeit.

Inputs/Comments:

 The case at bench gives the exception to the general rule under Section 23 of the
NIL which provides that when a signature is forged or made without the 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.

The Court ruled that the proximate cause of the damage done was the petitioner’s
failure to examine his bank statements. Ilusorio is therefore precluded from setting
up forgery as a defense.
 Case #20

G.R. No. 92244; February 9, 1993

NATIVIDAD GEMPESAW, Petitioner, v. THE HONORABLE COURT OF APPEALS and
PHILIPPINE BANK OF COMMUNICATIONS, Respondents.

CAMPOS, JR., J.:

Facts: Gempensaw ran many supermarkets. She issued checks drawn on her
checking account with the bank in question to pay her suppliers. The
checks were created by Galang, her bookkeeper. Gempensaw didn't bother
to sign the checks Galang had written herself in determining who was being
paid with the checks and whether the issuances were required.

Even when the bank informed her that several checks had been returned,
she didn't check them. There were incidences over her two years in business
that demonstrated that the amounts paid were more than what should have
been paid. Additionally, it was demonstrated that even when the checks
were crossed, the intended payees did not receive the whole amount.

This prompted Gempensaw  to  demand  the  bank  to  credit  her account
for the amount of the forged checks.  The bank refused to do so, and this
prompted her to file the case against the respondents.

Issue(s): Whether the bank should refund the money lost by reason of the forged
instruments.

Ruling: NO, the bank should not refund the money lost by reason of the forged
instruments.

In the contested case, the petitioner's employee Galang filled up the checks
before delivering them to her for signature. The negotiable instruments
were complete after her signature on the checks. There was no signed check
until there was a signed contract. The checks were signed by the petitioner,
who then gave Galang permission to send them to the intended recipients.
The checks were then indorsed with fake endorsements.

In this case, the petitioner never bothered to examine the correctness of the
numbers on the checks she signed or the invoices they were attached to,
relying instead only on the honesty and devotion of her bookkeeper.

She also received her bank statements, but instead of carefully reviewing
them to double-check her payments. Due to the petitioner's lack of due
diligence, her bookkeeper's fraudulent schemes eventually succeeded.

Inputs/Comments:
 In general, a drawee bank that has paid a check with a forged endorsement is not
permitted to debit the drawer's account for the check. An exception to  this  rule 
is  when  the  drawer  is  guilty  of negligence which causes the bank to honor such
checks. 

Case #21
G.R. No. L-26001, October 29, 1968

PHILIPPINE NATIONAL BANK, petitioner, vs. THE COURT OF APPEALS and

PHILIPPINE COMMERCIAL AND INDUSTRIAL BANK, respondents.

CONCEPCION, C.J.:

Facts: A check with a specified serial number written against PNB was issued by
Department of Education, Culture, and Sports (DECS) in the name of F.
Abante Marketing. The check was placed by Abante in its account with
Capitol; Capitol then transferred the funds to its account with PBCOM,
which later sent the funds to the petitioner for clearing.

After then, the check was cleared. On a pertinent date, however, petitioner
PNB returned the cheque because there had been a major modification to
it. There were more debits made, but Capitol was unable to debit Abante's
account any longer because Abante had already withdrew all the funds from
the account. As a result, Capitol requested clarification from PBCOM and
demanded that its account be recredited. In a same manner, PBCOM acted
against PNB.

Issue(s): Whether alteration of the serial number is a material alteration.

Ruling: NO, the alteration is a not a material one.

The changing of the serial number of the check in question, which is not an
essential component of a negotiable instrument as defined by Section 1 of
the Uniform Commercial Code, was the alleged major alteration in this
case. PNB asserts that the change was significant since it is common
knowledge that a TCAA check, by its very nature. The medium of exchange
for governments, tools, and organizations is nature. Every government
office or agency is given checks with unique serial numbers as a safety
precaution.

This claim must fall short, nevertheless. The serial number is not the only
clue as to where the check was written. The cheque clearly identifies the
government organization that issuing it. As a result, the drawer of the check
can be appropriately identified, making the serial number's mention
unnecessary.

PNB was unable to return the cheque to PBCOM because there had not
been any major changes made to it. The pay should be constant.

Inputs/Comments:

 If an alteration changes the way the instrument works, it is material. It refers to an

unauthorized addition of words or numbers or other changes to an unfinished
instrument relating to the responsibility of a party, as well as an unauthorized
alteration in the instrument that purports to modify the obligation of a party in
any way.

 In other words, a material amendment is one that modifies the things that must be
specified in accordance with Section 1 of the NIL.
 Case #22

G.R. No. L-53194, March 14, 1988

PHILIPPINE NATIONAL BANK, petitioner, vs. HON. ROMULO S. QUIMPO,
Presiding Judge, Court of First Instance of Rizal, Branch XIV, and FRANCISCO S.
GOZON II, respondents.

GANCAYCO, J.:

Facts: On July 3, 1973, Gozon, a depositor at the PNB branch in Caloocan City,
drove to the bank with his buddy Ernesto Santos, whom he left behind
while he conducted business inside the bank.

As soon as Santos noticed that Gozon had abandoned his checkbook, he

grabbed a check out of it, filled it with PhP 5,000.00, faked Gozon's
signature, and then cashed the check that very day. Gozon's account was
debited for the sum.

Gozon requested that the PhP 5,000.00 be refunded to his account when he
received the bank's statement of accounts because his signature was fake,
but the bank refused. During the police inquiry, Santos, who had been
detained, revealed that he had stolen Gozon's cheque, faked the latter's
signature, and then cashed it.

Gozon filed a complaint against CFI Rizal seeking restitution of the money
plus interest, damages, and legal fees and costs. The trial court ruled in
Gozon's favor and mandated that the bank pay back the PHP 5,000.00 that
had been wrongfully withheld, plus interest up until final payment, to
Gozon. Through review in certiorari, the bank is now contesting the ruling.

Issue(s): Whether Gozon may recover from the drawee bank.

Ruling: YES. Gozon’s act in leaving his checkbook in the car while he went out for a
short while cannot be considered negligence sufficient to excuse the
defendant bank from its own negligence.

His trustee, a longtime classmate and friend, remained the same. Gozon
could hardly have been expected to be aware that the trustee would take a
check from his checkbook. Gozon trusted his classmate and pal. Hence, he
is allowed to use forgery as a defense.

The incompetence of the bank staff would be evident right away if the
signature on the forged cheque were compared to Gozon's model signatures
located on PNB Form 35-A.

Inputs/Comments:
 
 A bank is required to be aware of each customer's signature. The market's use of
drafts and checks depends on this regulation. If the drawee receives the paper in
the normal course of business and, after having the chance to evaluate its validity,
declares it to be so and pays it, it is not only a case of payment under mistake but
 also of payment in neglect of duty, which the commercial law imposes upon him
and for which he must also bear responsibility.

Case #23

G.R. No. L-62943, July 14, 1986

METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM, petitioner, vs. COURT
OF APPEALS (Now INTERMEDIATE APPELLATE COURT) and THE PHILIPPINE
NATIONAL BANK, respondents.

GUTIERREZ, JR., J.:

Facts: Under Republic Act No. 6234, Metropolitan Waterworks and Sewerage
System (hereafter referred to as MWSS) was established as the successor-in-
interest of the former NWSA. On the other hand, the depository bank for
MWSS and its predecessor-in-interest NWSA is the Philippine National
Bank (abbreviated PNB). The NWSA Account No. 6, also known as Account
No. 381-777 and currently assigned No. 010-500281 is one of the numerous
accounts of NWSA with PNB.

The MWSS auditor Pedro Aguilar, acting general manager Victor L. Recio,
and treasurer Jose Sanchez were all allowed to sign on behalf of stated
Account No. 6. The MWSS provided the PNB with their individual
specimen signatures, which are also on file with the PNB. The MWSS drew
from this account using individualized checks thanks to a unique
arrangement with the PNB. The MWSS printer, F, produced these checks.
Mesina Enterprises, located in Caloocan City at 1775 Rizal Extension.

During the months of March, April, and May 1969, 23 checks were written,
processed, issued, and disbursed by NWSA. All of the checks were paid and
cleared by PNB, which also debited NWSA Account No. 6 in the process.

The payees Raul Dizon, Arturo Sison, and Antonio Mendoza deposited the
checks into their corresponding current accounts at Philippine Commercial
and Industrial Bank (PCIB) and Philippine Bank of Commerce (PBC).

But further NBI inquiry revealed that Raul Dizon, Arturo Sison, and
Antonio Mendoza were all made-up characters. Raul Dizon had a balance of
P3,455.00 as of April 30, 1969; Antonio Mendoza had a balance of P18,182.00
as of May 23, 1969; and Arturo Sison had a balance of P3,398.92 as of June
30, 1969.

PNB argued, among other things, that the checks in question were accurate
on their face in every way, including the veracity of the signatures of
authorized NWSA signing officers, and that nothing about them could have
raised any doubts about their veracity and proper execution. PNB also
claimed that NWSA was negligent, which was the direct cause of the loss.

Additionally, PNB filed a third-party complaint against the negotiating

banks PCIB and PBC on the grounds that they failed to confirm the payees'
 identities and the ownership of the cheques that were placed in their
respective new accounts.

The RTC rendered judgment in favor of the MWSS. The CA applied Section
24 of the Negotiable Instruments Law which provides: Every negotiable
instrument is deemed prima facie to have been issued for valuable
consideration and every person whose signature appears thereon to have
become a party thereto for value.

The SC affirmed the CA ruling.

Issue(s): Whether the drawee bank is liable for the loss under Section 23 of the NIL.

Ruling: NO, the drawee bank cannot be held liable because the petitioner is
precluded from setting up the defense of forgery.

No clear or definitive conclusion that the 23 questioned checks were signed

by someone other than the designated MWSS signatories is made in these
documents. The records reveal that the petitioner used its own customized
checks rather than the official PNB Commercial blank checks at the time
the twenty-three (23) checks were prepared, negotiated, and cashed.

However the petitioner did not take the necessary security precautions
when using this particular authority. The following uncontested facts
demonstrate that its personalized checks were printed with gross
negligence, to wit:

1. The petitioner failed to give its printer, Mesina Enterprises, specific

instructions relative to the safekeeping and disposition of excess forms,
check vouchers, and safety papers;
2. The petitioner failed to retrieve from its printer all spoiled check forms;
3. The petitioner failed to provide any control regarding the paper used in
the printing of said checks;
4. The petitioner failed to furnish the respondent drawee bank with
samples of typewriting, cheek writing, and print used by its printer in
the printing of its checks and of the inks and pens used in signing the
same; and
5. The petitioner failed to send a representative to the printing office
during the printing of said checks.

This gross negligence of the petitioner is very evident from the sworn statement dated
June 19, 1969, of Faustino Mesina, Jr., the owner of the printing press which printed the
petitioner's personalized checks.

Inputs/Comments:

 A bank is bound to know the signatures of its customers; and if it pays a forged
check, it must be considered as making the payment out of its obligation funds,
and cannot ordinarily charge the amount so paid to the account of the depositor
whose name was forged. But in this case all signatures are original and authorized
by MWSS.
  Forgery cannot be presumed. It must be established by clear, positive, and
convincing evidence. This was not done in the present case.

Case #24

G.R. No. 37467, December 11, 1933

SAN CARLOS MILLING CO., LTD., Plaintiff-Appellant, v. BANK OF THE PHILIPPINES
ISLANDS and CHINA BANKING CORPORATION, Defendants-Appellees.

HULL, J.:

Facts: San Carlos Milling Company, Ltd has a Hawaii-based headquarters. Alfred
Cooper, who had been granted general substitution authority, ran the
office. The authority granted to Cooper and Joseph L. Wilson, the main
employee in Manila, was eventually revoked. Cooper named Newland
Baldwin, gave him the general power of command, and left on vacation.

Respondent banks BPI and Chinabank impleaded San Carlos Milling for a
certain amount of money for the payment of phony forged checks bearing
Baldwin's forged signature that Chinabank issued to a particular Alfredo
Dolores, who was allegedly working with Wilson to forge the checks. The
checks were issued by Chinabank.

Baldwin didn't sign the checks, and it was found that the manager's checks
were fakes. Chinabank asserted that it delivered its check to San Carlos
Milling's designated agent after drawing a check made out to the company's
order.
Issue(s): Whether BPI is liable for because of its negligence in the encashed forged
check without exercising due diligence.

Ruling: YES, BPI is liable.

The obvious forgery of the signatures is irrelevant because it is a

fundamental rule that banks that cash out checks must be aware of who
they are paying. In this instance, Chinabank was not required to review and
verify all of the indorsements on the cashier's check because BPI was
significantly burdened with its examination.

The Court determined that San Carlos Milling did nothing to deceive BPI.
The bank disbursed its funds because of relying on the "genuineness" of
Baldwin's signature, which was never called into doubt. The BPI's
carelessness in honoring and cashing the fake cheques was the direct cause
of the loss.

Inputs/Comments:

 A bank is bound to know the signatures of its customers; should it pay a forged
check; it is considered as paying put of its own funds and thus cannot ordinarily be
charged against the depositor’s account whose name was forged.
 Case #25

G.R. No. 129910, September 5, 2006

THE INTERNATIONAL CORPORATE BANK, INC., petitioner, vs. COURT OF
APPEALS and PHILIPPINE NATIONAL BANK, respondents.

CARPIO, J.:

Facts: The Ministry of Education and Culture sent a total of fifteen (15) cheques to
PNB, which the International Corporate Bank accepted for deposit on
various dates. The Petitioner ICB paid the value of the checks and permitted
the withdrawals of the deposits about 24 hours after the checks were
submitted to the PNB for clearing.

But, due to their material alteration, PNB sent all 15 checks back to ICB.
Thereafter, ICB submitted a collection request to the RTC against PNB. The
trial court found in PNB's favor on the grounds that the petitioner's loss was
caused by its personnel's negligence, which prevented it from recovering
the value of the loss from the respondent.

The decision of the trial court was thereafter reversed on appeal to the CA
and ruled that checks having been materially altered shall be returned
within 24 hours after the discovery of such alteration.

Issue(s): Whether the alteration of the serial number of a check is considered a

material alteration under the Negotiable Instruments Law.

Ruling: NO, the alteration of the serial number is not a material alteration.
According to the court's citation of the decision in Philippine National Bank
v. CA, an adjustment is deemed substantial if it impacts the NIL's Section 1
requirements or the instrument's overall effect. A modification is deemed
significant if it alters the duties of the parties listed in the document
without authorization.

PNB is obligated to pay ICB for the value of the disputed checks plus lawful
interest because they were not fundamentally altered.

Inputs/Comments:

 The alterations in the checks were made on their serial numbers.

Sections 124 and 125 of Act No. 2031, otherwise known as the Negotiable
Instruments Law, provide:

SEC. 124. Alteration of instrument; effect of. ― Where a negotiable

instrument is materially altered without the assent of all parties liable
thereon, it is avoided, except as against a party who has himself made,
authorized, or assented to the alteration and subsequent indorsers.

But when an instrument has been materially altered and is in the hands of a holder
in due course, not a party to the alteration, he may enforce payment thereof
according to its original tenor.
 SEC. 125. 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;

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.

 In Philippine National Bank v. Court of Appeals, this Court ruled that the alteration
on the serial number of a check is not a material alteration. Thus:

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 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
changes the items which are required to be stated under Section 1 of the
Negotiable Instruments Law.

Case #26

G.R. NO. 150228, July 30, 2009

BANK OF AMERICA NT & SA, Petitioner, v. PHILIPPINE RACING CLUB, Respondent.

LEONARDO-DE CASTRO, J.:

Facts: A domestic corporation, Plaintiff PRCI maintains a current account with

Petitioner Bank of America. The company's vice president and president are
its authorized signatories. Because of their international travel, these
officers pre-signed cheques to cover any expenses that might arise while
they were away on work. The accounting officer for PRC left the pre-signed
checks in a secure location.

The following two 2-line entries were instead typewritten on the spot where
the name of the payee should be provided (Pay To The Order Of): on the
upper line was the word CASH and on the lower line were the following
typewritten words, namely: ONE HUNDRED TEN THOUSAND PESOS
ONLY.

The blank checks displayed identical flaws and abnormalities, indicating

that there was clearly a problem with way they were filled out. Despite this,
the petitioner bank did not attempt to confirm the situation with the
corporation and instead went ahead and cashed the checks.
 PRC filed a lawsuit against the bank seeking damages. Actual and
exemplary damages were given by the lower court. The CA upheld the lower
court's ruling and concluded that the bank was negligent after hearing an
appeal. Therefore, the appeal. As the cheques' signatures are real, the
petitioner argues that by cashing them, it was just fulfilling its legal and
contractual obligations.

Issues: Whether the checks should be characterized as incomplete and undelivered

instruments.

Held: YES, the Court saw no reason to depart from the finding in the assailed CA
Decision that the subject checks are properly characterized as incomplete
and undelivered instruments thus making Section 15 of the NIL applicable
in this case.

The typewritten entries for the payee and the amount were positioned
incorrectly on the same blank, and the amount was repeated using a check
writer, which were both evident abnormalities on the face of the checks. All
these situations should have led the bank to believe that the person seeking
to cash the checks didn't have the proper authority.

Inputs/Comments:

 Sec. 15. Incomplete instrument not delivered. - Where an incomplete

instrument has not been delivered, it will not, if completed and negotiated without
authority, be a valid contract in the hands of any holder, as against any person
whose signature was placed thereon before delivery. Sec. 16. Delivery; when
effectual; when presumed.

Case #27

G.R. No. 107508 April 25, 1996

PHILIPPINE NATIONAL BANK, petitioner, vs. COURT OF APPEALS, CAPITOL CITY
DEVELOPMENT BANK, PHILIPPINE BANK OF COMMUNICATIONS, and F.
ABANTE MARKETING, respondents.

KAPUNAN, J.:

Facts: Ministry of Education Culture issued a check payable to Abante Marketing

and drawn against Philippine National Bank (PNB). Abante Marketing
deposited the questioned check in its savings account with Capitol City
Development Bank (CAPITOL). In turn, Capitol deposited the same in its
account with the Philippine Bank of Communications (PBCom) which, in
turn, sent the check to PNB for clearing. PNB cleared the check as good and
thereafter, PBCom credited Capitol’s account for the amount stated in the
check. However, PNB 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. PNB,
however, returned the check to PBCom. On the other hand, Capitol could
not in turn, debit Abante Marketing’s account since the latter had already
 withdrawn the amount of the check. Capitol sought clarification from
PBCom and demanded the re-crediting of the amount. PBCom followed suit
by requesting an explanation and re-crediting from PNB. Since the
demands of Capitol were not heeded, it filed a civil suit against PBCom
which in turn, filed a third-party complaint against PNB for
reimbursement/indemnity with respect to the claims of Capitol. PNB, on its
part, filed a fourth-party complaint against Abante Marketing.

The Trial Court rendered its decision, ordering PBCom to re-credit or

reimburse; PNB to reimburse and indemnify PBCom for whatever amount
PBCom pays to Capitol; Abante Marketing to reimburse and indemnify PNB
for whatever amount PNB pays to PBCom. The court dismissed the
counterclaims of PBCom and PNB. The appellate court modified the
appealed judgment by ordering PNB to honor the check. After the check
shall have been honored by PNB, the court ordered PBCom to re-credit
Capitol’s account with it the amount. PNB filed the petition for review on
certiorari averring that under Section 125 of the NIL, any change that alters
the effect of the instrument is a material alteration.

Issue(s): Whether an alteration of the serial number of a check is a material alteration

under the NIL.

Ruling: NO, the alteration of a serial number of a check is not a material alteration.

If a modification changes the way the instrument works, it is material. It

refers to an unauthorized addition of words or numbers or other changes to
an unfinished instrument relating to the responsibility of a party. It also
refers to an unauthorized alteration in an instrument that purports to
modify in any way the obligation of a party. To put it another way, a major
amendment is one that modifies the items that must be mentioned in
accordance with Section 1 of the Negotiable Instruments Law.

Section 1 of the Negotiable Instruments Law does not require a check

number for an instrument to be negotiable. The parties' relationships were
unaffected by this modification. Both the drawee and the drawer's names
remained the same. The payee was the same as expected. The amount owed
to the payee remained constant. The origin of the check is not just
identified by its serial number.

The said check was clearly printed with the name of the government body
that issued it. The reference to the serial number was therefore unnecessary
and irrelevant because the check's issuer had been appropriately
recognized. As the altered serial number is irrelevant or harmless, the
petitioner cannot refuse to accept the disputed check on that basis.

Inputs/Comments:

 The alteration in the present case 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. The check’s
serial number is not the sole indication of its origin. The name of the government
agency which issued the subject check was prominently printed therein. The
 check’s issuer was therefore insufficiently identified, rendering the referral to the
serial number redundant and inconsequential.

Case #28

G.R. No. 154469, December 6, 2006

METROPOLITAN BANK AND TRUST COMPANY, petitioners, vs. RENATO D.
CABILZO, respondent.

CHICO-NAZARIO, J.:

Facts: A Metrobank customer named Cabilzo issued a postdated Metrobank

Check for PhP 1,000.00 made out to CASH. The check was made out to a
specific Marquez as payment for his sales commission and was drawn on
Cabilzo's Current Account with the relevant bank.

After being presented to Westmont Bank for payment, the check was
endorsed to Metrobank for the necessary clearance. According to PCHC
regulations, the check was approved for encashment.

A bank employee questioned the Cabilzo official about whether Cabilzo had
really issued the check for PhP 91,000.00. The salesperson refuted the same.
The check was returned to Cabilzo for verification after he called
Metrobank to ensure that he had not written a check for the specified
amount. He got his wish, and Metrobank granted it.

When Cabilzo received it, he saw that the check's amount had been
changed to PhP 91,000.00 and that the date had been shifted to an earlier
date.

After sending repeated requests to re-credit the specified sum, Cabilzo sued

Metrobank in the RTC for damages.

As the drawee bank, Metrobank argued that it acted with the utmost care
and did not violate its obligations when it cleared the check. Additionally,
the Metrobank claimed that Cabilzo shared some of the blame for the
check's missing spaces.

The CA upheld the RTC's decision, which held Metrobank accountable for
the check's value and was in favor of Cabilzo.

Issue(s): Whether Metrobank is liable for the alterations on the check.

Ruling: The amount on the check was dramatically increased, and the dates were
changed to an earlier maturity date, according to the court, which
determined that the check had been fundamentally manipulated.

Cabilzo exercised the level of diligence that would be expected of a

reasonable man in carrying out his work and fulfilling his obligations.
When Metrobank was unable to present evidence to support its
determination of carelessness, it was not permitted to imply that he was
negligent and was therefore barred from establishing equitable estoppel.
Inputs/Comments:

 In the case at bar, the check was altered so that the amount was increased from
P1,000.00 to P91,000.00 and the date was changed from 24 November 1994 to 14
November 1994. Apparently, since the entries altered were among those
enumerated under Section 1 and 125, namely, the sum of money payable and the
date of the check, the instant controversy therefore squarely falls within the
purview of material alteration.

Now, having laid the premise that the present petition is a case of material
alteration, it is now necessary for us to determine the effect of a materially altered
instrument, as well as the rights and obligations of the parties thereunder. The
following provision of the Negotiable Instrument Law will shed us some light in
threshing out this issue:

Section 124. Alteration of instrument; effect of. - Where a negotiable

instrument is materially altered without the assent of all parties liable
thereon, it is avoided, except as against a party who has himself made,
authorized, and assented to the alteration and subsequent indorsers.

 But when the instrument has been materially altered and is in the hands of a
holder in due course not a party to the alteration, he may enforce the payment
thereof according to its original tenor.

Case #29

G.R. No. 176697, September 10, 2014

CESAR V. AREZA AND LOLITA B. AREZA, Petitioners, v. EXPRESS SAVINGS BANK,
INC. AND MICHAEL POTENCIANO, Respondents.

PEREZ, J.:

Facts: The respondents, Express Savings Bank, hold two bank deposits for the
petitioners, Areza. The petitioners were in the "buy and sell" industry of
buying and selling both new and used cars. On May 2, 2000, they received a
purchase order from a man named Mambuay for a used Mitsubishi Pajero
and a brand-new Honda CRV. Mambuay paid petitioners with nine (9)
Philippine Veterans Affairs Office (PVAO) checks payable to various payees
and one (1) Philippine Veterans Affairs Office (PVAO) money order.
contested by the Philippine Veterans Bank (drawee).

The checks were deposited by the petitioners on May 3rd in their bank
savings account. The Philippine Veterans Bank (drawee), which accepted
the cheques, received them from the Bank after it deposited them with its
depositary bank, Equitable-PCI Bank.
Potenciano informed the petitioners that the cheques they had deposited
with the Bank had been honored on May 6, 2000.
 Therefore, the petitioners' savings account received the whole sum of
$1,800,000.00. Petitioners transferred the two autos to the purchaser based
on this information sometime in July 2000.
Checks were returned to the drawee by PVAO because the
The checks' face amounts were changed from the initial 4,000.00 to
200,000.00.

The drawee returned the checks to Equitable-PCI Bank by way of Special

Clearing Receipts. In August 2000, the Bank was informed by Equitable-PCI
Bank that the drawee dishonored the checks on the ground of material
alterations.

Initially, Equitable-PCI Bank complained to the Philippine Clearing House.

The latter decided in favor of the drawee Philippine Veterans Bank in
February 2001.

In response, Equitable-PCI Bank debited the Bank's deposit account by

$1,800,000.00. The petitioners wrote a check for $500,000.00 on March 9th,
2001. According to petitioners, the Bank unilaterally and unjustly placed
their account with the Bank on hold when it dishonored said cheque with
the explanation "Deposit Under Hold." The petitioners' attorney wrote to
the Bank demanding that it fulfill the petitioners' check on March 22, 2001.

Based on the alleged arbitrary and unjustified non-acceptance of their

checks and the unauthorized and unilateral withdrawal from their savings
account,
The Bank and Potenciano were the targets of petitioners' Complaint for
Amount of Money with Damages filed with the RTC of Calamba.

The Petitioners were favored in the RTC's decision. The CA upheld the
conclusions made by the trial court but eliminated the damages award.

Issue(s): What are the liabilities of the drawee, the intermediary banks, and the
petitioners for the altered checks?

Ruling:

LIABILITY OF THE DRAWEE - notwithstanding the nature of his

acceptance, he is only accountable for the original bill.

According to this perspective, Section 124 of the Negotiable Instruments

Law, which states that a material alteration avoids an instrument except as
against an assenting party and subsequent indorsers, but that a holder may
in due course enforce payment in accordance with the instrument's original
tenor.

As a result, when the drawee bank pays a check that has been
fundamentally altered, it disobeys both the terms of the check and its
obligation to solely charge the account of its client for legitimate
disbursements that customer had made.

LIABILITY OF DEPOSITARY BANK AND COLLECTING BANK - Unless the

item is offered for immediate payment over the counter, a depositary bank
—which is also the payor bank—takes the item first. Even if the check is
 physically received and indorsed by another bank first, it is also the bank to
which a check is transferred for deposit in an account at such bank. Any
bank handling an item for collection, other than the bank on which the
check is written, is referred to as a collecting bank.

The Bank and Equitable-PCI Bank are both depositary and collecting banks.

An endorser is a depositary/collecting bank that accepts checks for deposit

and signs them when they are presented to the drawee bank.

The Bank and Equitable-PCI Bank are both responsible for the materially
altered checks because they are collecting banks. Because Equitable-PCI
Bank is not a party to this case and the Bank authorized the debiting of its
account with Equitable-PCI Bank, it has the right to take legal action
against the latter in a different venue.

Inputs/Comments:

 Since the act of presenting the check for payment to the drawee is an assertion
that the party making the presentation has fulfilled its obligation to verify the
genuineness of the endorsements, it has been repeatedly held that in check
transactions, the depositary/collecting bank or last endorser typically bears the
loss. This is because they are responsible for verifying the authenticity of all prior
endorsements. The drawee bank may seek compensation from the
depositary/collecting bank up to the check's full value if any of the guarantees
offered by that institution turn out to be untrue.

CHECKS

I. Kinds of checks;
II. Effects of crossing a check.

Case #30

G.R. No. 219037, October 19, 2016

RCBC SAVINGS BANK, Petitioner, v. NOEL M. ODRADA, Respondent.

CARPIO, J.:

Facts: For P1,510,000.00, of which P610,000.00 was initially paid in cash, Odrada
sold Lim his automobile.

RCBC Savings Bank provided the remaining funding via a car loan. RCBC
issued two manager's checks in the amounts of P900,000.00 and P13,500.00
in favor of Odrada after receiving the Deed of Absolute Sale.

Before the checks were presented, but after the issuance and turnover to
Odrada, Lim issued a letter to Odrada informing him that the car wasn't as
 good as the seller had said. Lim wanted to inspect the car and withdraw the
contract as a result. He also wanted to keep the checks and hold off on
handing them until the questions were answered.

Odrada did not attend the meeting and instead deposited the manager’s
checks with Ibank and redeposited them on a later date, but the checks
were dishonored both times apparently upon Lim’s instruction to RCBC.
Odrada filed a collection suit against Lim and RCBC.

Issue(s): Whether RCBC liable to Odrada for Lim’s issuance of manager’s checks.

Ruling: No, RCBC is not liable.

A manager's check is a check drawn by a bank manager on the bank and

accepted in advance by the bank by the act of its issue, according to
jurisprudence (RCBC v. Hi-Tri Development Corporation 687 Phil. 481). It
might be seen as a promissory note with the bank as its maker since it is the
bank's own check. As a result, the check represents the bank's written
commitment to pay the bearer upon demand, and upon purchase, it
becomes the bank's primary obligation.

The Supreme Court has often ruled that manager's checks are accepted by
the bank at the time they are issued. As a result, the drawee bank is under
an automatic responsibility to pay a manager's check to a holder in good
time regardless of any personal defenses that may be present. A holder who
is not a holder in due course, nonetheless, is still open to defenses.

In this instance, Odrada cannot be regarded as a holder in due course

because he did not act with appropriate honesty in making false statements
regarding the car's roadworthiness and in his subsequent attempts to
deposit the checks a day after Lim had notified him that the vehicle had
major problems. He is therefore vulnerable to the drawee bank's available
defenses because he is not a holder in due course.

RCBC is hence not liable.

Inputs/Comments:

 In most cases, the drawee bank is not held responsible until it accepts. There is no
contractual relationship between the holder and the drawee prior to the
acceptance of the bill. As a result, acceptance establishes a privity of contract
between the holder and the drawee, and once the latter accepts, it assumes
primary liability for the instrument. Considering this, acceptance is the act that
causes the drawee's obligations under Section 62 of the Negotiable Instruments
Law to take effect.

Case #31

G.R. No. 172652, November 26, 2014

METROPOLITAN BANK AND TRUST COMPANY, Petitioner, v. WILFRED N.
CHIOK, Respondent.
G.R. No. 175302
BANK OF THE PHILIPPINE ISLANDS, Petitioner, v. WILFRED N. CHIOK, Respondent.

G.R. No. 175394

GLOBAL BUSINESS BANK, INC., Petitioner, v. WILFRED N. CHIOK, Respondent.

LEONARDO-DE CASTRO, J.:

Facts: On July 5, 1995, respondent Wilfred N. Chiok (Chiok) paid petitioner Bank
of the Philippine Islands petitioner Gonzalo B. Nuguid (Nuguid)
$1,022,288.50 in exchange for three manager's checks (Asian Bank MC Nos.
025935 and 025939, and Metrobank CC No. 003380) totaling $26,068,350.00.
(BPI). Chiok requested that payment on the three checks be suspended
after Nuguid failed to provide the agreed-upon dollar equivalent of the
three checks.
The following day, July 6, 1995, Chiok filed a complaint for damages against
the couple Gonzalo and Marinella Nuguid as well as the depositary banks
Asian Bank and Metrobank with the Regional Trial Court (RTC) of Quezon
City. The complaint also included an application for an ex parte restraining
order and/or preliminary injunction. The RTC issued an Order on July 25,
1995, ordering the issuance of a writ of preliminary prohibitory injunction.
In accordance with the TRO, Asian Bank declined to honor MC Nos. 025935
and 025939 when cheques were provided for payment.

Issue(s): Whether or not payment of manager’s and cashier’s checks are subject to the
condition that the payee thereof should comply with his obligations to the
purchaser of the checks.
Ruling: No. A manager’s check, like a cashier’s check, is an order of the bank to pay,
drawn upon itself, committing in effect its total resources, integrity, and
honor behind its issuance.

A manager's check or cashier's check is recognized as being essentially as

good as the money it reflects due to its unusual nature and widespread use
in trade. While manager's and cashier's checks are still subject to clearing,
they cannot be reversed due to being drawn against a closed account,
insufficient money, or for other comparable reasons like a condition that
isn't stated on the face of the check. The countermanding of manager's and
cashier's checks based on a simple claim that the payee has failed to fulfill
its obligations to the purchaser is not permitted under long-standing and
accepted banking procedures.

As a result, when Nuguid failed to deliver the agreed upon sum to Chiok,
the latter had a claim against Nuguid to demand the cancellation of their
contract; however, Chiok lacked a claim against Metrobank and Global
Bank to cancel the contracts of sale of the manager's or cashier's checks,
which would have allowed him to have the amounts thereof credited back
to his accounts.

Inputs/Comments
 While manager’s and cashier’s checks are still subject to clearing, they cannot be
countermanded for being drawn against a closed account, for being drawn against
 insufficient funds, or for similar reasons such as a condition not appearing on the
face of the check.

Case #32

G.R. No. 211564, November 20, 2017

BENJAMIN EVANGELISTA, Petitioner, vs. SCREENEX, INC., represented by
ALEXANDER G, YU, Respondent.

SERENO, CJ.:

Facts: Screenex granted Evangelista a loan in exchange for two checks.

Additionally, the accused signed vouchers from Screenex proving that he
got the two cheques as payment for the loan that was given to him.
Evangelista provided two open-dated checks, both payable to Screenex, as
security for the payment. These were kept in a safe place by Philip Gotuaco,
Sr., the father-in-law of respondent Alexander Yu, from the time it was
issued until the latter's passing, along with the other documents and papers
of the business. Before the cheques were deposited, the family personally
demanded that Evangelista repay the money, and the family attorney also
delivered a demand letter.

Evangelista was accused of violating BP 22 in a criminal complaint brought

before the Makati MeTC. The MeTC determined that while the prosecution
had succeeded in proving the first two components of cases concerning BP
22, the third factor had not been established. Because Yu was unable to
demonstrate that the demand letter had actually been received by the
recipient, show prima facie proof of awareness of the lack of cash, or
demonstrate that the 5-day time should begin to run, the court absolved
Evangelista of all criminal charges.

While Evangelista acknowledged writing and delivering the checks to

Gotuaco and fully paying the debt, the court found that no proof of
payment had been provided. Evangelista was ultimately found responsible
for the civil duty.

Evangelista filed a timely appeal to the RTC, pointing out two mistakes of
the MeTC:

1. The lower court erred in failing to recognize that the prosecution

had not made a strong case for civil culpability; and

2. Any civil liability related to Evangelista had been eliminated by

prescription. RTC ruled that the cheques should be considered proof
of Evangelista's debt to establish the existence of the obligation.
Moreover, Evangelista's stated payment of was an affirmative defense
that he was required to prove but did not do so.

CA rejected the request for review of the matter. The court determined that
the prescriptive period started to run when the instrument was issued, and
the corresponding check was returned to the depositor by the bank; that
the question of prescription was brought up for the first time on appeal; and
 that Evangelista never denied the loan obligation despite his assertions to
the contrary and lack of supporting documentation.
Issue(s): Whether the CA erred in holding that Evangelista is still liable for the total
amount indicated in the 2 checks considering that he was already acquitted in
the criminal charged for violation of BP 22.
Ruling: YES, holding Evanglista liable for the 2 checks has already
prescribed.

In BP 22 cases, the civil action corresponding to the criminal action is

presumed to have been instituted concurrently. No hesitation to pursue the
related civil action separately shall be permitted or acknowledged.

The criminal action for violating BP 22 necessarily involves the

corresponding civil action. Notwithstanding this, the civil lawsuit
considered to have been started along with the criminal case is handled as a
separate civil liability based on contract.

Pursuant to the foregoing, the cause of action on the checks is time-barred.

It was established that no formal extrajudicial or judicial demand that could
have extended the time limit within 10 years had been made. In fact,
prescription has taken hold. The court may dismiss the lawsuit on its own
motion thanks to prescription. As a result, we are left with little choice but
to grant the current petition based on prescription. We dismiss the
complaint even if such defense was only just raised for the first time on
appeal from the MeTC decision before the RTC.

It is a well-established principle that the creditor's possession of the

evidence of debt is proof that the debt has not been discharged by payment.
The delivery of the check produces the effect of payment when they have
been impaired by the creditor's fault.

A negotiable instrument is just a replacement for money; it is not money

itself. The delivery of a negotiable instrument does not, therefore,
constitute payment in and of itself.

Inputs/Comments:

 Sec. 119. Instrument; how discharged. - A negotiable instrument is discharged:

a) By payment in due course by or on behalf of the principal debtor;
b) By payment in due course by the party accommodated, where the
instrument is made or accepted for his accommodation;
c) By the intentional cancellation thereof by the holder;
d) By any other act which will discharge a simple contract for the payment of
money;
e) When the principal debtor becomes the holder of the instrument at or after
maturity in his own right.

Case #33

G.R. No. 203020, June 28, 2021

SALLY GO-BANGAYAN, petitioner, vs. SPOUSES LEONCIO AND JUDY CHAM HO,
respondents.

LAZARO-JAVIER, J.:

Facts: The petitioner granted the respondent spouses Ho a loan for PhP
700,000.00 with a 3% monthly interest rate. The couple was able to pay the
interest on the loan each month, but they were unable to pay off the
principal. Judy Ho wrote two crossed checks from their joint account with
the Philippine Bank of Communications, one for P200,000.00 and the other
for P500,000.00, after requests for payment. Sixta, the petitioner's sister-in-
law, personally accepted the checks at the couples' Manila office.

The spouses pleaded with Sally to hold off on depositing the cheques
because they planned to cash them in. Sally agreed. A month later, she
attempted to contact the husbands on their payment, but to no effect. The
petitioner and Sixta demanded payment from the spouses Ho, but they
continued to default on their obligation.

The petitioner wrote Judy a last demand letter, which she received. The
husbands Totally ignored their duty to the petitioner even after she
acknowledged receiving the letter, nevertheless. After then, Sally filed a
lawsuit against Ho's spouse to recover a certain amount of money.

Sally “failed” to provide evidence that the spouses actually received the
disputed loan, thus the spouses claimed they never received one from the
petitioner. As a result, no lawsuit or legal proceeding may be pursued
without a written document signed by the parties who would be held
accountable. Because the spouses acknowledged the validity and proper
execution of the two crossed checks, Sally said she had adequately proven
the spouses' debt.

The RTC decided in the petitioner's favor. The CA, however, overturned the
decision on the grounds that the petitioner had not established the loan's
validity or that cheques had been issued to pay it off.

Issue(s): Whether the admission and due execution of the checks of the spouses
entitles Sally to file a complaint for sum of money against the spouse Ho.

Ruling: YES, the admission and due execution of the crossed checks of the spouses
entitles Sally to file a complaint against the former.

Section 24 of the NIL states that when checks and other negotiable
instruments are delivered to their designated recipients, it is assumed that
the instruments have been issued for value. A pre-existing debt is explicitly
recognized as valid consideration under Section 25 of the same law to
support the issuing of a negotiable instrument, in this example, a check.

In this instance, the spouses conceded the validity and proper execution of
the crossed checks they issued in Sally's name, giving rise to the
presumption under the presumptions, which the spouses later failed to
refute. A simple denial of the loan's existence is insufficient to disprove the
NIL's presumptions.
Inputs/Comments:

 Sec. 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 thereto for value.

Case #34

G.R. No. 170865, April 25, 2012

PHILIPPINE NATIONAL BANK, petitioner, VS. SPOUSES CHEAH CHEE CHONG
AND OFELIA CAMACHO CHEAH, respondents.

G.R. NO. 170892

SPOUSES CHEAH CHEE CHONG AND OFELIA CAMACHO CHEAH, petitioners, VS.
PHILIPPINE NATIONAL BANK, respondent.

DEL CASTILLO, J.:

Facts: Ofelia Cheah (Ofelia) and her friend Adelina Guarin (Adelina) were
conversing in the latter's office when Filipina Tuazon (Filipina), a friend of
Adelina's, approached her and requested permission to clear and cash
Filipina's $300,000.00 Bank of America check for a fee. Adelina asked Ofelia
whether she could comply with Filipina's request as she had a joint dollar
savings account with her Malaysian husband Cheah Chee Chong (Chee
Chong) at PNB Buendia Branch. Adelina does not have a dollar account in
which to deposit the check.

Ofelia helped a friend out by depositing a foreign check in her and her
husband's dollar account to assist the latter's buddy in cashing the
proceeds. Before the clearing period had even passed, the local bank
accepted the check for collection and instantly credited the profits to the
accounts of the spouses. It was discovered that she and her bank had been
dealing with a rubber check the entire time only after the money had been
withheld and dispersed to various beneficiaries.

Issue(s): Who bears the loss?

Ruling: BOTH THE PNB AND THE SPOUSES CHEAH are equally negligent hence
they should equally suffer the loss.

The release of the check's proceeds by PNB before the expiration of the 15-
day clearing period was the direct cause of the loss, and PNB's failure to
take preventive and protective measures against the possibility of being
harmed by bad checks caused it to suffer the harm of losing a sizable sum of
money.

By ignoring its own banking policy, PNB reprehensibly disregarded its

obligation to exercise extreme attention and prudent business judgment,
which is the equivalent of gross negligence. Ofelia and her husband were
duped because of her failure to exercise caution when putting her whole
trust in a stranger.
 As the irregularity of such a rapid transaction should have already alerted
Ofelia, the spouses Cheah are responsible for the loss and must split it with
the bank. Ofelia's prior consultation with PNB authorities is insufficient to
completely release her from responsibility.

Inputs/Comments:

 “Diligence required is more than that of a good father of a family. The highest
degree of diligence is expected. PNB failed to do its duty in exercising
extraordinary diligence and reasonable business practice.

 The Spouses Cheah is guilty of contributory negligence and hence should suffer
the loss. Contributory negligence is conduct on the part of the injured party;
contributing as a legal cause to the harm he has suffered which falls below the
standard to which he is required to conform for its protection.

Case #35

G.R. No. 168842, August 11, 2010

VICENTE GO, Petitioner, vs. METROPOLITAN BANK AND TRUST CO., Respondent.

NACHURA, J.:

Facts: Before the RTC of Cebu, Vicente Go filed 2 distinct cases against Ma. For a
certain amount of money with preliminary attachment, Teresa Chua and
Glyndah Tabanag. The same petitioner sued Metropolitan Bank and Trust
Co. and Chua as respondents in another lawsuit for an amount of money
with damages.

Go claimed that Chua and Tabanag made improper deposits and encashes
in the initial cases. In the second instance, Go claimed that 32 checks for
different amounts with Hope Pharmacy listed as the payee were not at all
endorsed by him but rather placed in Chua's personal account with the
respondent bank.

The 32 checks were determined by the court to be crossed checks with the
petitioner listed as payee. The petitioner contends that the respondent bank
should be held accountable for the full amount of the checks since it
accepted them for deposit under Chua's account even though they were
crossed and had a different payee listed than Chua.

Respondent bank committed negligence by permitting the crossed checks

to be deposited and cashed without the correct indorsement, which is
required for the proper negotiation of checks, particularly where the payee
identified on the check, or its holder is not the one depositing or cashing
the check.

Issue(s): Whether the appellate court erred in not holding the respondent bank liable
for allowing the deposit of the crossed checks.
Ruling: YES, negligence was committed by respondent bank in accepting for
deposit the crossed checks without indorsement and in not verifying the
authenticity of the negotiation of the checks.

The collecting bank is required by law to examine checks that are deposited
with it carefully to determine their validity and regularity. The banks are
required to treat the accounts of their depositors with extreme care,
constantly keeping in mind the fiduciary nature of the relationship, as a
company affected by the public interest and due to the nature of its
functions.

The fact that Mr. Go/Hope Pharmacy had not objected to this arrangement
throughout the previous three years does not lessen the bank's obligation to
conduct unusual care. Thus, the Decision of the RTC, as affirmed by the CA,
holding respondent bank liable for moral damages is sufficient to remind it
of its responsibility to exercise extraordinary diligence in the course of its
business which is imbued with public interest.

The Court upheld the RTC's conclusion that the respondent bank acted
negligently by allowing the crossed checks to be deposited and cashed
without the requisite indorsement. If the payee or holder of the check is not
the one depositing or cashing it, an endorsement is required for effective
check negotiation. Respondent bank was required to take reasonable steps
to ascertain the veracity of Chua's assertions despite fully understanding
that the subject checks were crossed, that the payee was not the holder, and
that there was no indorsement on them.

The respondent bank failed in its responsibility to act as the payee's agent.
Prudence demands that the respondent bank not have solely relied on
Chua's assurances.

Inputs/Comments:

 The law imposes a duty of extraordinary diligence on the collecting bank to

scrutinize checks deposited with it, for the purpose of determining their
genuineness and regularity. As a business affected with public interest and because
of the nature of its functions, the banks are under obligation to treat the accounts
of its depositors with meticulous care, always having in mind the fiduciary nature
of the relationship. The fact that this arrangement had been practiced for three
years without Mr. Go/Hope Pharmacy raising any objection does not detract from
the duty of the bank to exercise extraordinary diligence.

Case #36

G.R. NO. 157833, October 15, 2007

BANK OF THE PHILIPPINE ISLANDS, Petitioner, v. GREGORIO C.
ROXAS, Respondent.

SANDOVAL-GUTIERREZ, J.:
Facts: Respondent Gregorio C. Roxas is a trader. He occasionally provided
vegetable oil supplies to Rodrigo and Marissa Cawili. Spouses Cawili issued
a personal check in settlement.

The drawee bank, however, refused to honor the check when the
respondent attempted to cash it. Then, the Cawili spouses gave him their
word that they would replace the cashed check with a cashier's check from
the Bank of the Philippine Islands (BPI), the petitioner, in place of the
cashed one.

Respondent and Rodrigo Cawili visited the petitioner's branch, where they
were individually attended to by Elma Capistrano, the branch manager. Per
to Elma's directions, the bank teller created a BPI Cashier's Check payable
to the respondent and drawn on Marissa Cawili's account. In front of Elma,
Rodrigo then gave the respondent the check.
The next day, the respondent went back to the petitioner's branch. to cash
the cashier's check, but it had been returned unpaid. Marissa's account was
closed on that date, Elma informed him.

The bank officers attempted to seize the check from the responder despite
the respondent's plea that they be allowed to cash it. The respondent filed a
suit for a certain amount of money against the petitioner with the Regional
Trial Court.

In its response, the petitioner argues that the check was written in error and
in good faith; that it was dishonored because of a lack of regard; and that
the respondent's only option was to sue Rodrigo Cawili, the person who
bought the check.
After the trial, the RTC issued a judgment in the plaintiff's favor and
directed the Bank of the Philippine Islands, the respondent, to pay Gerardo
C. Roxas.
On appeal, the Court of Appeals, in its Decision, affirmed the trial court's
judgment.

Issue(s): Whether petitioner is liable to respondent for the cashier's check; and
Whether the respondent is a holder in due course.

Ruling:
Under Section SEC. 52 of the NIL, a holder in due course is a holder who
has taken the instrument under the following conditions:
1. That it is complete and regular upon its face;
2. 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;
3. That he took it in good faith and for value;
4. 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 person negotiating it.

Primarily, every holder is assumed to be one in good standing. If someone

disputes this, it is their responsibility to provide evidence that one or more
of the qualifications necessary to qualify as a holder in good standing are
not met. 
 In this instance, the petitioner argues that because the criterion of "value" is
missing, the respondent cannot be a holder in good faith. Petitioner's
contention lacks merit.
Because the Petitioner bank became liable to the Respondent from the
moment it issued the cashier's check, the Court took judicial notice of the
"well-known and recognized practice in the business sector that a cashier's
check is deemed as cash." Petitioner was required to pay the same upon
presentation by the former after being accepted by respondent without any
conditions.

Inputs/Comments:

 In New Pacific Timber & Supply Co. Inc. v. Seneris, this Court took judicial notice
of the "well-known and accepted practice in the business sector that a cashier's
check is deemed as cash." This is because the mere issuance of a cashier's check is
considered acceptance thereof.

Case #37

G.R. No. 101163, January 11, 1993

STATE INVESTMENT HOUSE, INC., Petitioner, v. COURT OF APPEALS and NORA B.
MOULIC, Respondents.

BELLOSILLO, J.:

Facts: Two postdated checks in the amount of $50,000 each were provided by
Nora Moulic to Corazon Victoriano as security for jewelry items that were
going to be sold on commission.

Victoriano then arranged the checks to be written to State Investment

House, Inc. When Moulic was unable to sell the jewelry, she gave it back to
Victoriano before the checks were due to mature. The checks, however,
cannot be obtained because they have been negotiated. Moulic withdrew
her money from the bank before the checks matured, claiming that she had
no duty to pay for them because the jewelry had never been sold and the
checks had been arranged without her knowledge or approval.

The checks were returned for lack of funds when they were presented for
payment.

Issue(s): Whether the State Investment House Inc. was a holder in due course; and

Whether Moulic can set up against the petitioner the defense that there was
failure or absence of consideration.

Ruling: Respecting the first issue, SIHI is, under Section 52 of the NIL, is a holder in
due course, because its evidence the evidence shows that:
 1. 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;
2. That it was taken in good faith and for value; and
3. There was no knowledge with regard that the checks were issued
as security and not for value.
There is a presumption that a holder of a negotiable instrument would
remain a holder in good faith. Moulic was unable to refute this.

Second, NO, Moulic cannot use this argument against the petitioner unless
it was aware of the reason they were issued and is not, thus, a holder in
good standing.

According to Article 1231 of the Civil Code, which lists the ways in which
obligations can be discharged, none of the methods listed there are
appropriate in the current situation. Hence, Moulic cannot unilaterally
absolve herself of her obligation by merely taking money out of the drawee
bank. She is therefore responsible because there is no legitimate reason for
her to be exempt from liability for her check to a holder in good faith.
Furthermore, it makes no difference that the petitioner neglected to
provide notice of dishonor. There are exceptions allowed by Section 114 of
NIL, therefore the requirement for such notice is not always necessary.

Inputs/Comments:

 Sec. 52. What constitutes a holder in due course. - 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 has 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 person negotiating it.

 Sec. 119. Instrument; how discharged. - A negotiable instrument is

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.

 Section 119 of NIL provides how an instrument can 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.

Case #38
G.R. No. 93048, March 3, 1994
BATAAN CIGAR AND CIGARETTE FACTORY, INC., Petitioner, v. THE COURT OF
APPEALS and STATE INVESTMENT HOUSE, INC., Respondents.

NOCON, J.:

Facts: The petitioner, Bataan Cigar & Cigarette Factory, Inc. (BCCFI), a business
that produces cigarettes, hired King Tim Pua George (hence referred to as
George King), one of its suppliers, to start delivering 2,000 bales of tobacco
leaf in October 1978. In exchange, BCCFI issued crossed checks totaling
P820,000.00 on July 13, 1978, with a postmark date of sometime in March
1979.

The petitioner consented to buy an extra 2,500 bales of tobacco leaves

despite the supplier's incapacity to fulfill their earlier agreement because of
his promise to complete delivery three months after December 5, 1978.
Once more, the petitioner issued crossed checks totaling P1,100,000 with a
postdated date payable somewhere in September 1979.

George King was simultaneously handling SIHI, a private respondent,

during these times. On July 19, 1978, he sold a discounted check for
P164,000.00 (TCBT 551826), drawn by the petitioner and payable to SIHI
with George King listed as the payee.

On December 19 and 26, 1978, he once more sold to the respondent checks
TCBT Nos. 608967 & 608968, both for P100,000.00, drawn by the petitioner
on George King, and with postdates of September 15 & 30, 1979, respectively.

Due to George King's failure to comply with the petitioner's demands to

produce the tobacco leaf bales as promised, BCCFI obtained a stop payment
order on all checks made payable to George King on March 30, 1979,
including check TCBT 551826. Due to George King's failure to deliver the
tobacco leaves, stop payment orders were later issued on checks TCBT Nos.
608967 & 608968 on September 14 & 28, 1979, respectively.

After failing in its attempts to collect from BCCFI, SIHI filed the current
lawsuit, identifying just BCCFI as a party defendant. The trial court declared
SIHI to be a holder of a legitimate claim in good faith. As a payee, King Tim
Pua George is not a necessary participant in this lawsuit, so his exclusion as
a defendant is irrelevant, the document continued.

Issue(s): Whether SIHI, a second indorser, a holder of crossed checks, is a holder in

due course, to be able to collect from the drawer, BCCFI.

Ruling: YES. According to Section 52(c) of the Negotiable Instruments Law, the
holder of the check is found to have committed in gross negligence that
amounted to a legal absence of good faith by failing to inquire about
crossed checks. As a result, the authority generally agrees that the check's
holder is not one who holds the document in good faith.

The act of crossing a check serves as notice to the holder that the check has
been sued for a specific purpose so that he must inquire if he has received
the check in accordance with that purpose. This is done to preserve the
credit worthiness of checks.
Inputs/Comments:

 The Negotiable Instruments Law states what constitutes a holder in due course,
thus:

Sec. 52 - 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 person negotiating it.

 Section 59 of the NIL further states that every holder is deemed  prima facie a
holder in due course. However, when it is shown that the title of any person who
has negotiated the instrument was defective, the burden is on the holder to prove
that he or some person under whom he claims, acquired the title as holder in due
course.

Crossed check is one where two parallel lines are drawn across its face or across a corner
thereof. It may be crossed generally or specially.

Case #39

G.R. No. L-15126. November 30, 1961

VICENTE R. DE OCAMPO & CO., Plaintiff-Appellee, v. ANITA GATCHALlAN, ET
AL., Defendants-Appellants.

LABRADOR, J.:

Facts: Anita C. Gatchalian was interested in finding a car for her husband and the
family at the time, and Manuel Gonzales, who was with him and Emil
Fajardo, whom Gatchalian knew personally, showed her, and offered her an
automobile. Gonzales assured Gatchalian that he had the owner's
permission to use the car. must find a buyer for the car, conduct
negotiations, and complete the transaction. Campo Clinic. Gonzales was
asked to bring the car and the certificate of registration the day after
Gatchalian found the price of the car to her satisfaction so that her husband
could see the same.

Gonzales informed Gatchalian in this request that the owner of the car will
not be willing to issue the certificate of registration unless there is a
showing that the party interested in purchasing said car is prepared and
willing to make such a purchase, and that for this reason Gonzales
requested Gatchalian to give him a check which will be displayed to the
 owner as proof of buyer in good faith in the intention to purchase said car,
the said check to be for safety.

Gatchalian drew and issued a check, which Gonzales executed and issued a
receipt for, and based on these representations of Gonzales and with the
understanding that said check would only be for safekeeping and would be
returned to Gatchalian the following day when the car and its certificate of
registration would be brought to Gatchalian by Gonzales. Gonzales was
supposed to return the check the following day, but since he didn't show
up, he also forgot to bring the automobile and its registration, and as was
previously discussed, Gatchalian put a "Stop Payment Order" on the check
with the drawee bank.

Vicente R. De Ocampo & Co. accepted said check, applying PhP

441.75 thereof to payment of said fees and expenses, and giving Gonzales
the amount of PhP 158.25 representing the balance on the amount of the
said check in exchange for and in consideration of said fees and expenses of
hospitalization and the release of the wife of Gonzales from its hospital. De
Ocampo filed an estafa complaint against Gonzales at the office of the City
Fiscal of Manila based on and arising from Gonzales' acts in paying his
debts to De Ocampo and receiving the cash balance of the check, and that
complaint was upheld. The acts of accepting the check and applying its
proceeds in the manner specified were made without previous inquiry by
De Ocampo from Gatchalian.

Issue(s): Whether De Ocampo is a holder in due course.

Held: NO, De Ocampo is not a holder in due course.

Holder in due course is defined by Section 13 of the NIL as a holder who has
taken the instrument under the following conditions:
1. That it is complete and regular on its face;
2. That he became the holder of it before it was overdue and without
notice that it had previously been dishonored, if such was the fact;
3. That he took it in good faith and for value; and
4. That, at the time it was negotiated to him, he had no notice of any
defect therein.

While De Ocampo was unaware of the circumstances surrounding the

delivery of the check to Gonzales, including the fact that Gatchalian had no
duty or liability to the Ocampo Clinic and that the check's value did not
exactly match Matilde Gonzales's debt to Dr. V. R. De Ocampo, as well as
the fact that the check contained two parallel lines in the top left corner,
which signifies that it could only be deposited and not changed into cash,
should have prompted De Ocampo to enquire as to why Gonzales possessed
the check and why he used it to settle Matilde's account.
It was the payee's responsibility to find out from the holder precisely what
kind of ownership or possession he had of the check. De Ocampo neglected
to get information regarding Gonzales's title and possession, which
amounted to a breach of good faith under the law, and as a result, it cannot
be regarded as holding the check in good faith.
Inputs/Comments:
  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.

Case #40

G.R. No. 192413, June 13, 2012

Rizal Commercial Banking Corporation, Petitioner, vs. Hi-Tri Development
Corporation and Luz R. Bakunawa, Respondents.

SERENO, J.:

Facts: Six pieces of land are officially owned by Luz Bakunawa and her late
husband Manuel. The Presidential Commission on Good Governance seized
the lots (PCGG).

Through her agent, Jerry Montemayor, Teresita Millan made a purchase bid
for the lots sometime in 1990, promising to take care of removing any
potential roadblocks in the way of the sale's completion.

The Owner's Copies of the TCTs pertaining to those lots were given by the
Spouses to Millan, and in exchange, Millan paid a down payment. The deal
was rescinded as a result, and the couples were given the option of
returning the down money to Millan because she was unable to remove the
barriers as promised.

Millan hesitated to accept to the same.

The Spouses used the Hi-Tri Development Corporation to withdraw a

manager's check from RCBC-Ermita that was made out to Millan's business.

Issue(s): Whether the issuance of a manager’s check automatically transfers funds to

the account of the payee.

Ruling: Respondents contend further that their ongoing possession of the

Manager's Check served as proof of their ownership of the monies. A
portion of the money in the bank are not automatically assigned to the
drawer's credit upon the issue of the check.

In this case, the bank is only held responsible after accepting or certifying
the check. The money to be paid to the check's holder would subsequently
be debited from the depositor-account drawer's after the check has been
accepted for payment.

It is undeniable that the check was not delivered effectively, making the
instrument invalid. Furthermore, it has already been determined that
respondents kept control of the money. The Court decided that the allotted
 deposit, which is the subject of the Manager's Check, should be excluded
from the escheat proceedings because it is clear from their previous
conduct that they have not given up on their claim to the fund. State
confiscation of unclaimed sums is the goal of escheat procedures.
Additionally, it should be emphasized that the records contain no evidence
of an OSG appeal of the contested CA judgements. The lack of an appeal
was taken as a sign that the Republic was not interested in continuing the
escheat procedures in its favor.

Inputs/Comments:

 Sec. 16. Delivery; when effectual; when presumed. - Every contract on a negotiable
instrument is incomplete and revocable until delivery of the instrument for the
purpose of giving effect thereto. As between immediate parties and as regards a
remote party other than a holder in due course, the delivery, in order to be
effectual, must be made either by or under the authority of the party making,
drawing, accepting, or indorsing, as the case may be; and, in such case, the delivery
may be shown to have been conditional, or for a special purpose only, and not for
the purpose of transferring the property in the instrument. But where the
instrument is in the hands of a holder in due course, a valid delivery thereof by all
parties prior to him to make them liable to him is conclusively presumed. And
where the instrument is no longer in the possession of a party whose signature
appears thereon, a valid and intentional delivery by him is presumed until the
contrary is proved.
 The issuing of a manager's check alone does not constitute an automatic transfer
of monies to the payee's account. If the person who bought the manager's or
cashier's check keeps possession of the money order, doesn't give it to the
intended recipient, or fails to deliver it properly.

Case #41

G.R. No. 198660, October 23, 2013

TING TING PUA, Petitioners, v. SPOUSES BENITO LO BUN TIONG AND CAROLINE
SIOK CHING TENG, Respondents.

VELASCO JR., J.:

Facts: The dispute was brought on by petitioner Pua's Complaint for an Amount
of Money against respondent-spouses Benito Lo Bun Tiong (Benito) and
Caroline Siok Ching Teng (Caroline). During the trial, the petitioner, Pua,
made it clear that the respondents had given the PhP 8,500,000 check to
pay for the debts they had gotten from her on various dates in 1988 under a
compound interest agreement. All told, respondents wrote 17 cheques
totaling PhP 1,975,000. When these checks were sent to the drawee bank,
they were dishonored.

The petitioner claimed compensation for the shame. But, due to their
financial struggles, respondents begged for more time. Pua, the petitioner,
complied and only periodically reminded the respondents of their due.
When their financial condition started to improve in September 1996,
respondents called petitioner Pua and requested the computation of their
loan obligations.
 So, the petitioner gave them a computation dated showing that, at the
agreed-upon 2% compounded interest rate each month, the loan amount
due to the petitioner increased to PhP 13,218,544.20. After obtaining the
computation, the respondents requested that the petitioner reduce their
obligation to PhP 8,500,000.13 In order to get payment as quickly as
feasible, petitioner Pua agreed to the reduced amount.

After that, the respondents gave the petitioner Asiatrust a check for PhP
8,500,000. Respondents in turn demanded that the previously bounced
cheques be returned. However, the petitioner declined to return the
bounced checks and told the respondents that she would only do so after
the encashment.

But it was also dishonored when it was delivered by the petitioner to the
drawee bank, exactly like the other 17 checks. The petitioner claims that she
decided to bring a case as a result to recover the money the respondents
owe her.

Both respondents Caroline and Benito, as well as Rosa Dela Cruz Tuazon
(Tuazon), who was the OIC-Manager of Asiatrust's Binondo Branch in 1997,
gave testimony on behalf of the defense. Respondents vehemently denied
borrowing money from the petitioner. Respondent Caroline described how
she and petitioner's sister Lilian formed a partnership in August 1995 to run
a mahjong business.

But in March 1996, respondent Caroline and Lilian had a heated argument
that led to the breakdown of their partnership and the closure of their
company. Respondent Caroline claimed that she overlooked the five (5)
pre-signed cheques she left with Lilian in the rush of the divorce and
because of their acrimonious split.

Following the trial, the RTC rendered a Decision dated January 31, 2006, in
the petitioner's favor. In finding as it did, the RTC noted that under the
Negotiable Instruments Law, the petitioner's possession of the checks
signed by Caroline increases the inference that they were issued and
delivered for a significant consideration. On the other hand, the court a quo
fully dismissed the defense's claim that the respondents had no loan
obligation to Pua.

Issue(s): Whether the Respondents should be held liable.

Ruling: Yes. The Respondents should be held liable.

The 17 original checks that have been written up and given to the petitioner
serve as sufficient evidence of the respondents' loan obligations to the
petitioner.

A check can be used "in lieu of and for the same purpose as a promissory
note," because it "constitutes evidence of indebtedness" and is a true "proof
of an obligation," as this Court explicitly recognized in Pacheco v. Court of
Appeals.
 In fact, it was noted in the landmark case of Lozano v. Martinez that a
check performs more than a promissory note because it is a "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" in addition to containing an
undertaking to pay a certain amount of money.

Inputs/Comments:

 Respondent Benito cannot escape the joint and solidary liability to pay the loan on
the ground that the obligation arose from checks solely issued by his wife. Without
any evidence to the contrary, it is presumed that the proceeds of the loan
redounded to the benefit of their family. Hence, the conjugal partnership is liable
therefor. The unsupported allegation that respondents were separated in fact,
standing alone, does not persuade this Court to solely bind respondent Caroline
and exempt Benito. As the head of the family, there is more reason that
respondent Benito should answer for the liability incurred by his wife presumably
in support of their family.

Case #42

G.R. No. 175350, June 13, 2012

EQUITABLE BANKING CORPORATION, INC. Petitioner, vs. SPECIAL STEEL
PRODUCTS, and AUGUSTO L. PARDO, Respondents.

DEL CASTILLO, J.:

Facts: A private domestic company called the Special Steel Products, Inc. (SSPI)
sells steel products, and it sold welding electrodes to International Copra
Export Corporation (Interco). For this transaction, Interco issued three
checks, each crossed with the notation "account payee only," and drawn on
the Equitable account. The checks were made payable to the order of SSPI.

The records do not specify who signed the checks, nor do they specify how
Jose Isidro Uy (Uy), a worker for Interco, came to hold them. Uy only
asserted his legal right to the property. Because he is the son-in-law of
Interco's largest shareholder, Uy insisted that the deposits be made in his
personal accounts with petitioner Equitable, and the bank complied
because it believes Uy is one of its cherished clienteles.

As this was going on, SSPI reminded Interco of the unpaid welding
electrodes and explained that it was necessary for them to be paid because
of a financial crisis it was going through. Interco responded that it had
already issued three checks that were made out to SSPI and drawn on
Equitable4to, but SSPI denied this. It was then discovered that Uy had
received those checks, not SSPI.

As a result, Interco paid SSPI the value of the checks plus a portion of the
accrued interest, but refused to pay the whole amount due on the grounds
that Interco was not to blame for the delay. The defendant Augusto Pardo
(Pardo), who is the president of SSPI, then filed a lawsuit for damages
 against Uy and Equitable Bank, claiming that the three crossed checks were
all payable to SSPI and that only SSPI was authorized to deposit and cash
them.

The trial court decided that Uy and Equitable should be held accountable,
but the CA decided that Equitable should also be held accountable since it
breached its duty by allowing the crossed checks to be placed in Uy's
personal account. this petition, it follows.

Issue(s): Whether respondent payee SSPI has a cause of action against the drawee
bank, Equitable.

Ruling: YES, The Court ruled that SSPI has a cause of action against Equitable.

It was decided that the nature of crossed checks should alert banks to the
need for greater vigilance in determining whether the payee on the check
has given the check's holder permission to deposit the check in a different
account. In this instance, Interco issued checks in favor of SSPI that were all
crossed and made payable to SSPI's order with the notation "account payee
only."

There is a reasonable expectation that the payee will receive the check
funds and that there won't be any check fraud. Crossed checks are only
meant to be deposited in the listed payee's account and no other, according
to standard banking procedure.

The public now views banks with respect, gratitude, and even trust and
confidence, giving them this reputation and presence. It is crucial to stress
that banks should use caution to prevent any harm owing to negligence or
bad faith on their part. In other words, because the banking industry serves
the public interest, having the public's trust and confidence in it is crucial.
When the public has faith in an organization, it is expected that they would
exercise the utmost care and uphold the highest standards of integrity and
performance. In this instance, Equitable failed to exercise the necessary
level of care that is expected of a banking institution.

The fact that a person, other than the named payee of the crossed check,
was presenting it for deposit should have put the bank on guard.
Equitable ought to have checked to see if SSPI, the payee, had given Uy
permission to present it on its behalf or had endorsed it for him. Due to the
lack of an account SSPI had with Equitable and the bank's lack of a
specimen signature from SSPI, the bank intentionally took the risk of
relying only on Uy's representations that he had good title to the property.

Such reliance was misplaced, and it amounts to the bank engaging in gross
negligence, which is defined as the absence of any care or diligence, or the
complete lack of it, demonstrating a careless disregard for the potential
consequences without making any effort to avoid them.

Inputs/Comments:

 Crossed checks are the type that alerts a bank that the check is only payable to the
person named therein and that the bank should use more caution or spend more
money than necessary to find out whether the person named on the check has
given the holder permission to deposit the check in another account.