Metropolitan Bank & Trust Company vs.

Court of Appeals
G.R. No. 88866, February 18, 1991
FACTS:
In January 1979, a certain Eduardo Gomez opened an account with Golden Savings and Loan
Association and deposited over a period of two months 38 treasury warrants which were drawn
by the Philippine Fish Marketing Authority. Six of these were directly payable to Gomez while
the others have been endorsed by their respective payees, followed by Gomez as second
endorser. All these warrants were subsequently endorsed by Gloria Castillio as cashier of Golden
Savings and deposited to its savings account with Metrobank.. They were then sent for clearing
by Metrobank branch office to its principal office which forwarded them to the Bureau of
Treasury for special clearing. More than two weeks after the deposits, Gloria Castillo went to
Metrobank branch several times to ask whether the warrants had been cleared and she was told to
wait. Meanwhile, Gomez was not allowed to withdraw from his account. Metrobank, exasperated
over the persistent inquiries of Gloria Castillo about the clearance and also wanting to
accommodate a valued client, allowed Golden Savings to withdraw from the uncleared treasury
warrants. In turn, Golden Saving subsequently allowed Gomez to make withdrawals from his
own account.
ISSUE:
Whether or not treasury warrants are negotiable instruments.
RULING:
No, an instrument to be negotiable must contain an unconditional promise or order to pay a sum
certain in money. An unqualified order or promise to pay is unconditional within the meaning of
the Negotiable Instruments Law though coupled with (a) an indication of a particular fund out of
which reimbursement is to be made or a particular account to be debited with the amount; or (b)
a statement of the transaction which gives rise to the instrument. But an order or promise to pay
out of a particular fund is not unconditional. The indication of Fund 501 as the source of the
payment to be made on the treasury warrants makes the order or promise to pay “not
unconditional” and the warrants themselves non-negotiable.
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Caltex Philippines, Inc. vs. Court of Appeals

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

FACTS:
Defendant bank, Security Bank and Trust Company (SBTC) issued 280 certificates of time
deposit (CTDs) in favour of Angel dela Cruz who then used the CTDs to guarantee his
purchases of fuel products and delivered them to plaintiff Caltex. Sometime in March 1982,
Angel dela Cruz informed the bank that he lost all the CTDs and he was advised to submit a
notarized affidavit of loss. Upon receipt of the said affidavit, issued 280 replacement CTDs
which he assigned and transferred to defendant bank in consideration of the loan that was
granted to him. Angel dela Cruz executed a notarized Deed of Assignment of Time Deposit
which stated that he surrendered to defendant bank full control of the CTDs from and after the
date of assignment and authorized said bank to pre-terminate, set-off and apply the said time
deposits to the payment of whatever amount or amounts may be due on the loan upon its
maturity.
On the CTDs issued the word ‘bearer’ appears boldly and after the word BEARER stamped on
the space provided supposedly for the name of the depositor, the words ‘has deposited’ a
certain amount follows. The document further provides that the amount deposited shall be
‘repayable to said the depositor’ on the period indicated

ISSUES:
(1). Whether or not the subject CTDs are negotiable instruments.
(2) Whether or not the CTDs were negotiated to petitioner Caltex.

RULING:
(1) Yes, the CTDs are negotiable instruments. The negotiability or non negotiability of an
instrument is determined from the writing that is from the face of the instrument itself.
The CTDs in question meet the requirements of the law for negotiability in accordance with
Section 1 of the Negotiable Instruments Law which enumerates the requisites for an instrument
to be negotiable:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrrument is addressed to a drawer, he must be named or otherwise indicated
therein with reasonable certainty.

(2) Under the Negotiable Instruments Law, an instrument is negotiated when it is transferred
from one person to another in such a manner as to constitute the transferee the holder thereof,
and the holder may be the payee or indorsee of a bill or note, who is in possession of it, or the
bearer thereof. In these case, there was no negotiation in the sense of a transfer of the legal title
to the CTDs in favor of Caltex. Here, the delivery thereof was only a security for the purchases
of Angel dela Cruz which could at the most constitute petitioner only as a holder for value by
reason of his lien.

Ang Tek Lian vs. Court of Appeals

G.R. No. L-2516, September 25, 1950

FACTS:

The appellant, Ang Tek Lian issued a check payable to the order of “cash” in exchange for money in the
amount of Php4,000. Relying on appellant’s assurance that he had sufficient funds, the payee encashed
but it was dishonored for insufficiency of funds.

ISSUE:

Whether or not appellant-drawer, is liable given the fact that the check had been made payable to cash
and had not been endorsed by the drawer.

RULING:

Yes, he is liable. A check payable to the order of cash is a check payable to bearer, and the bank may pay
it to the person presenting it for payment without the drawer’s endorsement.

PNB vs. Manila Oil Refining and By Products Company

G.R. No. L-18103, June 8, 1922

FACTS:

The manager and the treasurer of the defendant executed and delivered to the complainant Philippine
National Bank a written instrument with a judgment note on demand, PNB brought an action and filed a
motion confessing judgment.

ISSUE:

Whether or not a judgment note or a provision in a promissory note whereby in case the same is not
paid at maturity, the maker authorizes any attorney to and confess judgment thereon for the principal
amount with interest, costs and attorney’s fees, and waives all errors, rights to inquisition, and appeal,
and all property exemptions. Will it affect the negotiable character of the instrument?

RULING:

No, a judgment note will not affect the negotiable character of the instrument. However, judgment note
is not valid and effective. Warrants of attorney to confess judgment are void as against public policy
because they enlarge the field for fraud, under these instruments the promissor bargains away his right
a day in court, and the effect of instrument is to strike down the right of appeal accorded by statute.PNB
vs. Rodriguez
Philippine National Bank vs. Erlando Rodriguez and Norma Rodriguez

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

FACTS:

Spouses Rodriguez were engaged in informal lending business and had discounting arrangement with
the Philnabank Employees Savings and Loan Association (PEMSLA), an association of PNB employees.
The association maintained current and savings account with Philippine National Bank (PNB). PEMSLA
regularly granted a loan to its members and Spouses Rodriguez would rediscount the post dated checks
issued to members whenever the association was short of funds. As it was customary, the spouses
would replace the post dated checks with their own checks issued in the name of the members.

PEMSLA has a policy that members with outstanding debts would not be granted loan. To subvert this
policy, some PEMSLA officers devised a scheme to obtain additional loans despite their outstanding loan
accounts. They took out loans in the names of unknowing members, without the knowledge or consent
of the latter. The officers carried this out by forging the endorsement of the named payees in the
checks. In return, the spouses issued their personal checks in the name of the members and delivered
the checks to an officer of PEMSLA. The PEMSLA checks, on the other hand, were deposited by the
spouses to their account. Rodriguez checks were deposited directly by PEMSLA to its saving account
without any endorsement from the named payees. This irregular procedure was made possible through
the facilitation of Edmundo Palermo Jr., treasurer of PEMSLA and bank teller in the PNB branch. This
became the usual practice for the parties. When PNB found out this fraudulent acts, it closed the current
account of PEMSLA to put a stop to this scheme. As a result, the PEMSLA checks deposited by the
spouses were returned or dishonored for the reason “account closed”. The amounts of the checks
issued were duly debited from the Rodriguez account. Thus, the spouses incurred losses from the
rediscounting transactions so they filed a civil complaint for damages against PEMSLA, the Multi-
Purpose Cooperative of Philnabankers (MCP), and PNB.

ISSUE:

When the payee of the check is not intended to be the true recipient of its proceeds, is it payable to
order or bearer? What is the fictitious-payee rule and who is liable under it? Is there any exception?

RULING:

When a person making the check so payable did not intend for the specified payee to have any part in
the transaction, the payee is considered a fictitious payee.

A check that is payable to a specified payee is an order instrument. However, under Section 9(c), of the
NIL, a check payable to a specified payee may nevertheless be considered as a bearer instrument if it is
payable to the order of a fictitious person or a non existing person, and such fact is known to the person
making it so payable.

In a fictitious payee situation, the drawee bank is absolved from liability and the drawer bears the loss.
When faced with a check payable to a fictitious payee, it is treated as bearer instrument that can be
negotiated by delivery. The underlying theory is that one cannot expect fictitious payee to negotiate the
check by placing his endorsement thereon. And since, the maker knew this limitation, he must have
intended the instrument to be negotiated by mere delivery. thus, in case of controversy, the drawer of
the check will bear the loss. This rule is justified for otherwise, it will be most convenient for the maker
who desires to escape payment of the check to always deny the validity of the indorsement. This despite
the fact that the fictitious payee was purposely named without any intention that the payee should
receive the proceeds of the check.

However, there is a “commercial bad faith” exception to the fictitious payee rule. A showing of
commercial bad faith on the part of the drawee bank, or any transferee of the check for that matter, will
work to strip it of its defense. The exception will cause it to bear the loss. Commercial bad faith is
present if the transferee of the checks acts dishonestly, and is a party to the fraudulent scheme.

Republic Planters Bank vs CA

Republic Planters Bank vs Court of Appeals

G.R. No. 93073, December 27, 1992

FACTS:

Defendants Shozo Yamaguchi and Fermin Canlas were President/ Chief Operating Officer and Treasurer,
respectively, of Worldwide Garment Manufacturing, Inc. By virtue of a board resolution, the defendants
were authorized to apply for credit facilities with the petitioner Republic Planters Bank in the forms of
export advances and letters of credit/ trust receipts accommodations. Petitioner bank issued nine
promissory notes, each of which were uniformly worded and stated: “… I/we jointly and severally
promise to pay to the order of the Republic Planters Bank…” On the right bottom margin of the
promissory notes appeared the signature of the defendants above their printed names with the phrase
“and (in) his personal capacity” typewritten below.

ISSUE:

Is defendant Fermin Canlas solidarily liable with Shozo Yamaguchi on each of the nine promissory notes?
RULING:

Yes, he is solidarily liable on each of the promissory notes bearing his signature for the following
reasons:

(a) Under the negotiable instruments law, persons who write their names on the face of promissory
notes are makers and are liable as such. By signing the notes, the maker promise to pay to the order of
the payee or any holder according to the tenor thereof.

(b) Where an instrument containing the words “I promise to pay” is signed by two or more persons they
are deemed to be jointly and severally liable thereon. An instrument which begins with “I”, “We” or
“Either of us” promise to pay, when signed by two or more persons, makes them solidarily liable.

Sps. Evangelista vs. Mercator Finance Corp.

Sps. Evangelista vs. Mercator Finance Corporation

G.R. No. 148864, August 21, 2003

FACTS:

On February 16, 1982, the petitioners Spouses Evangelista executed a mortgage in favor of defendant
Mercator Finance Corporation (MFC) for and in consideration of certain loans and/or other forms of
credit accommodation obtained from the mortgagee-defendant MFC to secure the payment of the same
and those others that the mortgagee might extend to the mortgagor, Embassy Farms Inc. Petitioners, in
their capacities and as officers of Embassy Farms Inc. signed the promissory note and the subsequent
Continuing Suretyship Agreement executed to guarantee the indebtedness of Embassy Farms, and the
succeeding promissory notes restructuring the loan. Due to their failure to pay the obligation, the
properties were foreclosed and sold. After 10 years, however, petitioners filed a complaint for
annulment of titles of the properties sold.

ISSUE:

If there is an ambiguity in the wording of a promissory note, how should it be interpreted?

RULING:

A reading of the promissory note in question will show that there is no ambiguity even if the petitioners
insist that it does not convey their true intent in executing the document. Assuming that there is an
ambiguity, Section 17 of the Negotiable Instruments Law states: Where the language of the instrument
is ambiguous or there are omissions therein, the following rules of construction apply: x x x

(g) where an instrument containing the word “I promise to pay” is signed by two or more persons, they
are deemed to be jointly and severally liable thereon.
Ilano vs. Espanol
Victoria J. Ilano represented by her Attorney-in-fact, Milo Antonio C. Ilano vs. Hon.
Dolores L. Espanol, in her capacity as Executive Judge, RTC of Imus, Cavite, Br. 90, et. al
G.R. No. 161756. December 16, 2005
478 SCRA 365
FACTS:
Victoria J. Ilano filed a complaint for Revocation/Cancellation of Promissory Notes and Bills of
Exchange (Checks) with Damages and Prayer for Preliminary Injun
ction or Temporary Restraining Order (TRO) against private respondents. The petitioner alleged,
among other things, that respondents, through deceit, abuse of confidence machination, fraud,
falsification, forgery, defraudation, and bad faith, and with malice, malevolence and selfish
intent, succeeded in inducing her to sign antedated promissory notes and some blank checks, and
by taking undue advantage of her signature on some other blank checks, succeeded in procuring
them, even if there was no consideration for all of these instruments on account of which she
suffered anxiety, tension, sleepless nights, wounded feelings and embarrassment. However, the
RTC dismissed the complaint for failure to allege the ultimate facts-bases of petitioners claim
that her right was violated and that she suffered damages.

The Court of Appeals affirmed the dismissal by Branch 20 of the Regional Trial Court (RTC) of
Cavite at Imus, for lack of cause of action.

For recital of the allegations in the complaint, see photo.

ISSUES:
1. Remedial Law: Whether or not petitioner’s complaint failed to state a cause of action.
2. Commercial Law: Is validity and negotiability of Check No. 0084078, drawn against another
account of petitioner and was dishonored on January 12, 2000 due to Account Closed, affected
by the fact that its date of issue bears only the year 1999?
RULING:
1. While some of the allegations may lack particulars, and are in the form of conclusions of law,
the elements of a cause of action are present. For even if some are not stated with particularity,
petitioner alleged 1) her legal right not to be bound by the instruments which were bereft of
consideration and to which her consent was vitiated; 2) the correlative obligation on the part of
the defendants-respondents to respect said right; and 3) the act of the defendants-respondents in
procuring her signature on the instruments through deceit, abuse of confidence machination,
fraud, falsification, forgery, defraudation, and bad faith, and with malice, malevolence and
selfish intent.
A cause of action has three elements: (1) the legal right of the plaintiff, (2) the correlative
obligation of the defendant, and (3) the act or omission of the defendant in violation of said legal
right. In determining the presence of these elements, inquiry is confined to the four corners of the
complaint including its annexes, they being parts thereof. If these elements are absent, the
complaint becomes vulnerable to a motion to dismiss on the ground of failure to state a cause of
action.
Where the allegations of a complaint are vague, indefinite, or in the form of conclusions, its
dismissal is not proper for the defendant may ask for more particulars.

2. No. Section 6 of the Negotiable Instruments Law provides that the validity and negotiable
character of an instrument are not affected by the fact that:
(a) It is not dated; or
(b) Does not specify the value given, or that any value had been given therefor; or
(c) Does not specify the place where it is drawn or the place where it is payable; or
(d) Bears a seal; or
(e) Designates a particular kind of current money in which payment is to be made.

RAUL SESBREÑO vs HON. COURT OF APPEALS, DELTA MOTORS CORPORATION AND

PILIPINAS BANK
G.R. No. 89252 May 24, 1993
FACTS:  Raul Sesbreno made a money market placement in the amount of P300,000 with
PhilFinance, with a term of 32 days. PhilFinance issued to Sesbreno the Certificate of Confirmation
of Sale of a Delta Motor Corporation Promissory Note (DMC PN No. 2731), the Certificate of
Securities Delivery Receipt indicating the sale of the Note with notation that said security was in the
custody of Pilipinas Bank, and postdated checks drawn against the Insular Bank of Asia and
America for P304,533.33 payable on 13 March 1981. The checks were dishonored for having been
drawn against insufficient funds.  Philfinance delivered to petitioner Denominated Custodian Receipt
(DCR).

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 had been issued on 10 April 1980; that it would mature on 6 April 1981;
that it had a face value of P2,300,833.33, with the Philfinance as «payee» and private respondent
Delta Motors Corporation («Delta») as «maker;» and that on face of the promissory note was
stamped «NON NEGOTIABLE.»  Pilipinas did not deliver the Note, nor any certificate of participation
in respect thereof, to petitioner.

Petitioner later made similar demand letters again asking private respondent Pilipinas for physical
delivery of the original of DMC PN No. 2731.

Petitioner also made a written demand upon private respondent Delta for the partial satisfaction of
DMC PN No. 2731, explaining that Philfinance, as payee thereof, had assigned to him said Note to
the extent of P307,933.33. Delta, however, denied any liability to petitioner on the promissory note.

As petitioner had failed to collect his investment and interest thereon, he filed an action for damages
against private respondents Delta and Pilipinas.

ISSUE: WON DMC PN No. 2731 marked as non-negotiable may be assigned?

HELD: YES. Only an instrument qualifying as a negotiable instrument under the relevant statute may
be negotiated either by indorsement thereof coupled with delivery, or by delivery alone where the
negotiable instrument is in bearer form. A negotiable instrument may, however, instead of being
negotiated, also be assigned or transferred. The legal consequences of negotiation as distinguished
from assignment of a negotiable instrument are, of course, different. A non-negotiable instrument
may, obviously, not be negotiated; but it may be assigned or transferred, absent an express
prohibition against assignment or transfer written in the face of the instrument:
The words «not negotiable,» stamped on the face of the bill of lading, did not destroy its
assignability, but the sole effect was to exempt the bill from the statutory provisions relative
thereto, and a bill, though not negotiable, may be transferred by assignment; the assignee taking
subject to the equities between the original parties.  12 (Emphasis added)

Consolidated Plywood Industries Inc. vs. IFC Leasing

Consolidated Plywood Industries Inc., et. al. vs. IFC Leasing and Acceptance Corporation

G.R. No.72593, April 30 1997

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

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

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

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

RULING No, an instrument in order to be considered negotiable, it must contain the so-called ” words of
negotiability” must be payable to order or bearer. Those words serve as an expression of consent that
the instrument may be transferred.
An instrument, to be made payable to order, there must always be a specified person named in the
instrument. It means that the bill or note is to be paid to the person designated in the instrument or to
any person to whom he has endorsed and delivered the same without the words or on order or to the
order of, the instrument is payable only to the person designated therein and is therefore non-
negotiable. Any subsequent purchaser thereof will not enjoy the advantages of being a holder of a
negotiable instrument but will merely step into the shoes of the person designated in the instrument
and will be thus open to all defenses available against the latter.

LORETO D. DE LA VICTORIA vs.

HON. JOSE P. BURGOS, and RAUL H. SESBREÑO

G.R. No. 111190 June 27, 1995

Raul Sesbreno filed a complaint for damages against Assistant City Fiscal Bienvenido Mabanto before the
RTC of Cebu City. After trial, judgment was rendered ordering Mabanto to pay Sesbreno P11,000. The
decision having become final and executory, the trial court ordered its execution upon Sesbreno’s
motion. The writ of execution was issued despite Mabanto’s objection. A notice of garnishment was
served upon Loreto de la Victoria as City Fiscal of Mandaue City where Mabanto was then detailed. De la
Victoria moved to quash the notice of garnishment claiming that he was not in possession of any money,
funds, etc. belonging to Mabanto until delivered to him, and as such are still public funds which could
not be subject of garnishment.

Issue: Whether or not the checks subject of garnishment belong to Mabanto or whether they still belong
to the government.

Held: Under Section 16 of the Negotiable Instruments Law, every contract on a negotiable instrument is
incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. As
ordinarily understood, delivery means the transfer of the possession of the instrument by the maker or
drawer with the intent to transfer title to the payee and recognize him as the holder thereof. Herein, the
salary check of a government officer or employee does not belong to him before it is physically delivered
to him. Inasmuch as said checks had not yet been delivered to Mabanto, they did not belong to him and
still had the character of public funds. As a necessary consequence of being public fund, the checks may
not be garnished to satisfy the judgment.

DEVELOPMENT BANK OF RIZAL (DBR), plaintiff-petitioner, vs. SIMA WEI and/or LEE KIAN
HUAT, MARY CHENG UY, SAMSON TUNG, ASIAN INDUSTRIAL PLASTIC CORPORATION and
PRODUCERS BANK OF THE PHILIPPINES, defendants-respondents. FACTS: Sima Wei executed a
promissory note in consideration of a loan secured from DBR in the amount of P1,820,000. Sima Wei
was able to pay partially for the loan but failed to pay the balance. Subsequently, Sima Wei issued two
crossed checks payable to DBR. These two checks however were not delivered to the DBR but instead
came into the possession of respondent Lee Kian Huat, who deposited the checks without DBR's
indorsement to the account of respondent Plastic Corporation with Producers Bank. Inspite of the fact that
the checks were crossed and payable to DBR and bore no indorsement of the latter, the Branch Manager
of Producers Bank authorized the acceptance of the checks for deposit and credited them to the account of
said Plastic Corporation. DBR instituted actions against the Sima Wei and the other defendants. The trial
court dismissed the case stating that DBR had no cause of action against the defendants-respondents. CA
affirmed this decision. ISSUE: Whether petitioner Bank has a cause of action against any or all of the
defendantsrespondents. RULING: A negotiable instrument, of which a check is, is not only a written
evidence of a contract right but is also a species of property. Just as a deed to a piece of land must be
delivered in order to convey title to the grantee, so must a negotiable instrument be delivered to the payee
in order to evidence its existence as a binding contract. Section 16 provides that every contract on a
negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of
giving effect thereto. Thus, the payee of the negotiable instrument acquires no interest with respect
thereto until its delivery to him. Without the initial delivery of the instrument from the drawer to the
payee, there can be no liability on the instrument. Moreover, such delivery must be intended to give effect
to the instrument. Since petitioner Bank never received the checks on which it based its action against
said respondents, it never owned them (the checks) nor did it acquire any interest therein. Thus, anything
which the respondents may have done with respect to said checks could not have prejudiced petitioner
Bank. It had no right or interest in the checks which could have been violated by said respondents.
Petitioner Bank has therefore no cause of action against said respondents, in the alternative or otherwise.
If at all, it is Sima Wei, the drawer, who would have a cause of action against her co-respondents, if the
allegations in the complaint are found to be true.

G.R. No. L-39641 February 28, 1983 DE CASTRO, J.: METROPOL (BACOLOD) FINANCING & INVESTMENT
CORPORATION, plaintiff-appellee, vs. SAMBOK MOTORS COMPANY and NG SAMBOK SONS MOTORS
CO., LTD., defendants-appellants. FACTS: Javier Villaruel executed a promissory note in favor of Ng
Sambok Sons Motors Co., Ltd. with an acceleration clause. Sambok Motors Company (Sambok), a sister
company of Ng Sambok Sons Motors Co., Ltd., negotiated and indorsed the note in favor of plaintiff
Metropol Financing & Investment Corporation with the following indorsement: Pay to the order of
Metropol Bacolod Financing & Investment Corporation with recourse. Notice of Demand; Dishonor;
Protest; and Presentment are hereby waived. SAMBOK MOTORS CO. The maker, Dr. Villaruel defaulted
in the payment of his installments when they became due, so plaintiff formally presented the
promissory note for payment to him; however, he failed to pay. Plaintiff then demanded payment from
Sambok as indorsee of said note. Sambok failed to pay. Plaintiff thus filed a complaint for collection of a
sum of money. The trial court rendered its decision against Sambok Motors. Not satisfied with the
decision, the present appeal was instituted. Appellant Sambok argues that by adding the words "with
recourse" in the indorsement of the note, it becomes a qualified indorser that being a qualified indorser,
it does not warrant that if said note is dishonored by the maker on presentment, it will pay the amount
to the holder; that it only warrants the following pursuant to Section 65 of the Negotiable Instruments
Law. ISSUE: WON Sambok is a qualified indorser. HELD: NO. A qualified indorsement constitutes the
indorser a mere assignor of the title to the instrument. It may be 2 made by adding to the indorser's
signature the words "without recourse" or any words of similar import. Such an indorsement relieves
the indorser of the general obligation to pay if the instrument is dishonored but not of the liability
arising from warranties on the instrument as provided in Section 65 of the Negotiable Instruments Law
already mentioned herein. However, appellant Sambok indorsed the note "with recourse" and even
waived the notice of demand, dishonor, protest and presentment. "Recourse" means resort to a person
who is secondarily liable after the default of the person who is primarily 3 liable. Appellant, by indorsing
the note "with recourse" does not make itself a qualified indorser but a general indorser who is
secondarily liable, because by such indorsement, it agreed that if Dr. Villaruel fails to pay the note,
plaintiff-appellee can go after said appellant. The effect of such indorsement is that the note was
indorsed without qualification. A person who indorses without qualification engages that on due
presentment, the note shall be accepted or paid, or both as the case may be, and that if it be
dishonored, he will pay the amount thereof to the 4 holder. Appellant Sambok's intention of indorsing
the note without qualification is made even more apparent by the fact that the notice of demand,
dishonor, protest and presentment were an waived. The words added by said appellant do not limit his
liability, but rather confirm his obligation as a general indorser.

NATIVIDAD GEMPESAW vs. CA and PHILIPPINE BANK OF COMMUNICATIONS

G.R. No. 92244 February 9, 1993

Natividad Gempesaw issued checks, prepared by her bookkeeper, a total of 82 checks in favor of several
supplies. Most of the checks for amounts in excess of actual obligations as shown in their corresponding
invoices. It was only after the lapse of more than 2 years did she discovered the fraudulent
manipulations of her bookkeeper. It was also learned that the indorsements of the payee were forged,
and the checks were brought to the chief accountant of Philippine Bank of Commerce (the Drawee Bank,
Buendia Branch) who deposited them in the accounts of Alfredo Romero and Benito Lam. Gempesaw
made demand upon the bank to credit the amount charged due the checks. The bank refused. Hence,
the present action.

Issue: Who shall bear the loss resulting from the forged indorsements.

Held: As a rule, a drawee bank who has paid a check on which an indorsement has been forged cannot
charge the drawer’s account for the amount of said check. An exception to the rule is where the drawer
is guilty of such negligence which causes the bank to honor such checks. Gempesaw did not exercise
prudence in taking steps that a careful and prudent businessman would take in circumstances to
discover discrepancies in her account. Her negligence was the proximate cause of her loss, and under
Section 23 of the Negotiable Instruments Law, is precluded from using forgery as a defense. On the
other hand, the banking rule banning acceptance of checks for deposit or cash payment with more than
one indorsement unless cleared by some bank officials does not invalidate the instrument; neither does
it invalidate the negotiation or transfer of said checks. The only kind of indorsement which stops the
further negotiation of an instrument is a restrictive indorsement which prohibits the further negotiation
thereof, pursuant to Section 36 of the Negotiable Instruments Law. In light of any case not provided for
in the Act that is to be governed by the provisions of existing legislation, pursuant to Section 196 of the
Negotiable Instruments Law, the bank may be held liable for damages in accordance with Article 1170 of
the Civil Code. The drawee bank, in its failure to discover the fraud committed by its employee and in
contravention banking rules in allowing a chief accountant to deposit the checks bearing second
indorsements, was adjudged liable to share the loss with Gempesaw on a 50:50 ratio.