Negotiable-Instruments-Case-Digests.pdf

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Cases in Negotiable Instruments Law as Outlined in Dean Sundiang's Syllabus Disclaimer / uncopyright: The digests came from Renz Pagayanan's Scribd account. The doctrines are borrowed from various sources including Kimiko's notes, LSG's summary of case doctrines etc.; which is simply reformatted for easier reading, memorization and reference.

ADDITIONAL CASES IN NEGOTIABLE INSTRUMENTS LAW

01. Allied Banking Corporation vs. Court of Appeals G.R. No. 125851, July 11, 2006 Doctrine: There are well-defined distinctions between the contract of an endorser and that of a guaranty/surety of a commercial paper. The contract of endorsement is primarily that of transfer, while the contract of guaranty is that of personal security. The liability of an endorser is not as broad as that of a guarantor or surety. Facts: Petitioner purchased a letter of credit from respondent G.G. Sportswear Mfg. Corporation. The export bill was issued by Chekiang First Bank Ltd., Hongkong. With the purchase of the bill, ALLIED credited GGS the peso equivalent of the  of 94 1

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aforementioned bill. On the same date, respondents executed their respective Letters of Guaranty, holding themselves liable on the export bill if it should be dishonored or retired by the drawee for any reason. When ALLIED negotiated the export bill to Chekiang, payment was refused due to some material discrepancies in the documents submitted by GGS relative to the exportation covered by the letter of credit. Consequently, ALLIED demanded payment from all the respondents based on the Letters of Guaranty and Surety executed in favor of ALLIED. However, respondents refused to pay, prompting ALLIED to file an action for a sum of money. Respondents claim that the petitioner did not protest upon dishonor of the export bill by Chekiang First Bank, Ltd. According to respondents, since there was no protest made upon dishonor of the export bill, all of them, as indorsers were discharged under Section 152 of the Negotiable Instruments Law. Issue: Whether or not protest upon dishonor is necessary on a guarantor of a commercial paper. Held: No, Section 152 of the Negotiable Instruments Law pertaining to indorsers, relied on by respondents, is not pertinent to this case. There are well-defined distinctions between the contract of an indorser and that of a guarantor/surety of a commercial paper, which is what is involved in this case. The contract of indorsement is primarily that of transfer, while the contract of guaranty is that of personal security. The liability of a  of 94 2

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guarantor/surety is broader than that of an indorser. Unless the bill is promptly presented for payment at maturity and due notice of dishonor given to the indorser within a reasonable time, he will be discharged from liability thereon. On the other hand, except where required by the provisions of the contract of suretyship, a demand or notice of default is not required to fix the surety’s liability. Hence, respondents are liable and protest upon dishonor is not necessary. 02. Sincere Villanueva vs. Marilyn Nite G.R. No. 148211, July 25, 2006 Doctrine: A check of itself does not operate as an assignment of any part of the funds to the credit of the drawer with the bank, and the bank is not liable to the holder unless and until it accepts or certifies the check. If a bank refuses to pay a check, the payee-holder cannot sue the bank. The payee should instead sue the drawer, who might in turn sue the bank. Facts: Respondent took a loan from petitioner. To secure the loan, respondent issued petitioner an Asian Bank Corporation check. The check was, however, dishonored due to a material alteration when petitioner deposited the check on due date. Petitioner, however, filed an action for a sum of money against ABC which was awarded by the court. When respondent went to withdraw from her account on ABC, she was unable to do  of 94 3

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so because the trial court had ordered ABC to pay petitioner the value of respondent’s ABC check. Respondent then filed a petition to annul and set aside the trial court’s decision ordering ABC to pay petitioner the value of the ABC check. Issue: Whether or not ABC may be held liable to petitioner for the dishonour of the check. Held: If a bank refuses to pay a check notwithstanding the sufficiency of funds, the payee-holder cannot sue the bank because there is no privity of contract exists between the drawee-bank and the payee. Contracts take effect only between the parties, their assigns and heirs. In this case, the contract of loan was between petitioner and respondent. No collection suit could prosper without respondent who was an indispensable party. 03. Bank of the Philippine Islands vs. Commissioner of Internal Revenue G.R. No. 137002, July 27, 2006 Doctrine: The term ‘bill of exchange' denotes checks, drafts and all other kinds of orders for the payment of money, payable at sight or on demand, or after a specific period after sight or from a stated date. A bill of exchange and letter of credit may  of 94 4

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differ as to their negotiability, and as to who owns the funds used for the payment of the instrument at the time presentment is made. However, in both cases, a person orders another to pay money to a third person. Facts: Petitioner Bank of the Philippine Islands (BPI) sold U.S. dollars to the Central Bank of the Philippines. BPI instructed, by cable, its correspondent bank in New York to transfer U.S. dollars deposited in BPI’s account therein to the Federal Reserve Bank in New York for credit to the Central Bank’s account therein. Thereafter, the funds had been credited to its account and the Central Bank promptly transferred to the petitioner’s account in the Philippines the corresponding amount in Philippine pesos. Under the NIRC Section 195, it imposes a documentary stamp tax on (1) foreign bills of exchange, (2) letters of credit, and (3) orders, by telegraph or otherwise, for the payment of money issued by express or steamship companies or by any person or persons. Issue: Whether or not the instruction by cable is a bill of exchange included in the activities where documentary stamp tax is imposed. Held: From this enumeration, two common elements need to be present: (1) drawing the instrument or ordering a drawee,  of 94 5

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within the Philippines; and (2) ordering that drawee to pay another person a specified amount of money outside the Philippines. What is being taxed is the facility that allows a party to draw the draft or make the order to pay within the Philippines and have the payment made in another country. The fact that the funds belong to BPI and were not advanced by the correspondent bank will not remove the transaction from the coverage of Section 195 of the NIRC. A bill of exchange, when drawn in the Philippines but payable in another country, would surely be covered by this section. And in the case of a bill of exchange, the funds may belong to the drawer and need not be advanced by the drawee, as in the case of a check or a draft. In the description of a draft provided hereunder, the drawee is in possession of funds belonging to the drawer of the bill. 04. Citybank NA vs. Sabeniano 504 SCRA 378, October 16, 2006 Doctrine: Manager's Checks are drawn by the bank's manager upon the bank itself and regarded to be as good as the money they represent. The crossing of a check with the phrase ‘Payee's Account Only' is a warning that the check should only be deposited in the payee's account, and such is the duty of the collecting bank. Facts:

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Respondent Modesta R. Sabeniano was a client of both petitioners Citibank and FNCB Finance. Respondent filed a complaint to recover substantial deposits and money market placements with petitioner. Petitioners admitted them however when respondent failed to pay her loans with FNCB Finance despite repeated demands by petitioner Citibank, the latter exercised its right to off-set. In support of respondent’s assertion that she had already paid whatever loans she may have had with petitioner Citibank, she presented as evidence provisional receipts for the acceptance of the checks. Issue: Whether or not petitioner the provisional receipts upon acceptance of checks evidenced the payment. Held: Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as payment. A check, whether a manager’s check or ordinary check, is not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor. Mere delivery of checks does not discharge the obligation under a judgment. The obligation is not extinguished and remains suspended until the payment by commercial document is actually realized. Since the provisional receipt was issued for the the receipt of the check, the same cannot be considered as evidence of payment hence the loan still subsist.

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05. Equitable PCI Bank vs. Rowena Ong G.R. No. 156207, September 15, 2006 Doctrine: A check which has been cleared and credited to the account of the creditor shall be equivalent to a delivery to the creditor of cash in an amount equal to the amount credited to his account. A manager's check stands on the same footing as a certified check. Under Sec.187, NIL, where a check is certified by the bank on which it is drawn, the certification is equivalent to acceptance. Facts: Sarande deposited in her account with Philippine Commercial International (PCI) Bank a check in amount of P225,000 which was cleared. Thereafter, Sarande issued a check amounting to P132,000 owing to a business consideration. On the same day, Ong presented the check to PCI Bank but instead of depositing it, she requested that proceeds thereof converted into a manger’s check whereupon a manager’s check was issued. Thereafter, he deposited said check to Equitable Banking Corporation but was later on dishonored because PCI Bank issued a stop payment owing to Sarande’s account being closed. Issue:

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Whether or not Ong is a holder in due course in the absence of consideration in the issuance of the manager’s check. Held: The claim is without basis. Easily discernible is that what Ong obtained from PCI Bank was not just any ordinary check but a manager’s check. A manager’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. By accepting PCI Bank Check issued by Sarande to Ong and issuing in turn a manager’s check in exchange thereof, PCI Bank assumed the liabilities of an acceptor under Section 62 of the Negotiable Instruments Law. Hence, Petitioner is liable to pay the value of the check with damages. 06. International Corporate Bank vs. Court of Appeals and PNB G.R. No. 129910, September 5, 2006 Doctrine: Discrepancies in the serial numbers of checks cannot be said to be material alterations. A material alteration is one which changes the items which are required under Sec.1, NIL; as well as those items under Sec.125, NIL. Facts: The Ministry of Education and Culture issued 15 checks drawn against respondent which petitioner accepted for deposit on  of 94 9

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various dates. After 24 hours from submission of the checks to respondent for clearing, petitioner paid the value of the checks and allowed the withdrawals of the deposits. However, on October 14, 1981, respondent returned all the checks to petitioner without clearing them on the ground that they were materially altered. Thus, petitioner instituted an action for collection of sums of money against respondent to recover the value of the checks. Issue: Whether or not respondent should be held liable for the materially altered checks. Held: The alterations in the checks were made on their serial numbers. Alteration on serial numbers are not within the purview of material alteration as provided under Section 125 of NIL for the name of the government agency which issued the check was prominently printed. Since there were no material alterations on the checks, respondent as drawee bank has no right to dishonor them and return them to petitioner, the collecting bank. Thus, respondent is liable to petitioner for the value of the checks, with legal interest from the time of filing. 07. Melva Theresa Gonzales vs. Rizal Commercial Banking Corporation G.R. No. 156294, November 29, 2006

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Doctrine: Sec.66, NIL regarding the liabilities of a general endorser cannot be used by the party which introduced a defect on the instrument. Sec.66 must be read in the light of the rule in equity requiring that those who come to court should come with clean hands. Facts: Gonzales was an employee of Rizal Commercial Banking Corporation (RCBC). A foreign check in the amount of $7,500 was drawn by Dr. Don Zapanta and payable to Gonzales’ mother, defendant Eva Alviar. Alviar then endorsed this check. Gonzales presented the foreign check to Olivia Gomez. After examining this, Olivia Gomez acquiesced to the early encashment of the check and signed the check but indicated thereon her authority of “up to P17,500.00 only.” RCBC then tried to collect the check with the drawee bank but was dishonored because of irregular indorsement. Insisting, RCBC again sent the check to the drawee bank, but this time the check was returned due to “account closed.” Unable to collect, RCBC demanded from Gonzales the payment of the peso equivalent of the check that she received. Issue: Whether or not Gonzales is liable to the subsequent indorser despite of the defect introduced by the latter which rendered the instrument dishonored.

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Held: The foreign drawee bank, Wilshire Center Bank N.A., refused to pay the bearer of this dollar-check drawn by Don Zapanta because of the defect introduced by RCBC, through its employee, Olivia Gomez. There is no doubt in the mind of the Court that a subsequent party which caused the defect in the instrument cannot have any recourse against any of the prior endorsers in good faith. The holder or subsequent endorser who tries to claim under the instrument which had been dishonored for “irregular endorsement” must not be the irregular endorser himself who gave cause for the dishonor. RCBC, which caused the dishonor of the check upon presentment to the drawee bank, through the qualified endorsement of its employee, Olivia Gomez, cannot hold prior endorsers, Alviar and Gonzales in this case, liable on the instrument. 08. Metropolitan Bank and Trust Co. vs. Renato Cabilzo G.R. No. 154469, December 6, 2006 Doctrine: The drawee bank cannot shift liability to the collecting bank with respect to a material alteration where the drawer and drawee were not grossly negligent. The drawee bank cannot rely on the collecting bank's endorsement in clearing the check. The corollary liability of such endorsement is separate and independent from the liability of the drawee to the drawer.  of 94 12

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Facts: Cabilzo issued a postdated Metrobank Check payable to “CASH”. The check was presented to Westmont Bank for payment by Mr. Marquez. Metrobank cleared the check for encashment. Thereafter, it was discovered that Metrobank Check which he issued in the amount of P1,000.00 was altered to P91,000.00. Cabilzo demanded that Metrobank recredit the amount of P91,000.00 to his account. Issue: Whether or not petitioner is liable for the amount of the materially altered check. Held: The bank on which the check is drawn is under strict liability to pay to the order of the payee in accordance with the drawer’s instructions. Payment made under materially altered instrument is not payment done in accordance with the instruction of the drawer. When the drawee bank pays a materially altered check, it violates the terms of the check, as well as its duty to charge its client’s account only for bona fide disbursements he had made. Since the drawee bank, in the instant case, did not pay according to the original tenor of the instrument, as directed by the drawer, then it has no right to claim reimbursement from the drawer, much less, the right to deduct the erroneous payment it made from the drawer’s account which it was expected to treat with utmost fidelity.  of 94 13

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Hence, petitioner is liable to reimburse the drawer for the amount paid. 09. Theresa Macalalag vs. People of the Philippines G.R. No. 164358, December 20, 2006 Doctrine: Only a full payment of the face value of a check at the time of presentment or during the 5-day grace period granted by Batas Pambansa 22 could exonerate a person so charged from criminal liability. A contrary interpretation would defeat the purpose of BP 22 as the drawer could very well have himself exonerated by the mere expediency of paying a minimal fraction of the face value of the check. Facts: Petitioner obtained loans from Grace Estrella. Failing to pay the interest and the loan, she executed two acknowledgement/affirmation receipts and as security for payment of the aforesaid loans, issued two PNB checks in favor of Estrella. However, when Estrella presented said checks for payment with the drawee bank, the same were dishonored for the reason that the account against which the same was drawn was already closed. Estrella sent a notice of dishonor and demanded to make good the said checks to Macalalag, but the latter failed to do so. Hence, Estrella filed two criminal complaints for Violation of Batas Pambansa Blg. 22.  of 94 14

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Issue: Whether or not petitioner is violated BP 22 upon issuance of the check as security. Held: We have repeatedly held that there is no violation of Batas Pambansa Blg. 22 if the complainant was actually told by the drawer that he has no sufficient funds in a bank. Where, as in the case at bar, the checks were issued as security for a loan, payment by the accused of the amount of the check prior to its presentation for payment would certainly serve the same purpose. When Estrella presented the checks for payment, the same were dishonored on the ground that they were drawn against a closed account. Despite notice of dishonor, petitioner Macalalag failed to pay the full face value of the second check issued. Only a full payment of the face value of the second check at the time of its presentment or during the five-day grace period could have exonerated her from criminal liability. 10. Bank of the Philippine Islands vs. Court of Appeals G.R. No. 136202, January 25, 2007 Doctrine: The transaction referred to in Sec.49, NIL is an equitable assignment where the transferor acquires the instrument  of 94 15

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subject to defenses and equities available among prior parties. The underlying premise of the provision is that a valid transfer of ownership of the negotiable instrument in question has taken place. Facts: Templonuevo demanded payment from petitioner of a sum of money representing the aggregate value of three checks which were erroneously deposited with the petitioner to A.A. Salazar Construction and Engineering Services account. Finding merit in the demands, the bank then froze the account of the engineering firm as the account of Salazar was already closed or had insufficient funds. Failure of any settlement between Templonuevo and Salazar, this prompted the bank to debit the account of Salazar and give back the money to Templonuevo through cashier’s check. The account of Salazar was also debited for whatever charges incurred for the issuance of the cashier’s check. Hence, respondent Salazar filed this action for the recovery of the money. Issue: Whether or not the collecting bank have the authority to withdraw unilaterally from such depositor’s account the amount it had previously paid upon certain unendorsed order instruments deposited by the depositor to another account that she later closed? Held:  of 94 16

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Consequently, petitioner, as the collecting bank, had the right to debit Salazar’s account for the value of the checks it previously credited in her favor. It is of no moment that the account debited by petitioner was different from the original account to which the proceeds of the check were credited because both admittedly belonged to Salazar, the former being the account of the sole proprietorship which had no separate and distinct personality from her, and the latter being her personal account. However, the bank is liable for damages caused to Salazar as a result of the erroneous debit by reason of its failure to perform its obligation to treat their depositors with meticulous care, having in mind the fiduciary nature of their relationship.

I. NEGOTIABILITY

01. Philippine Education Co. vs. Soriano 39 SCRA 587 Doctrine: Postal Money Orders are not negotiable instruments. In establishing and operating a postal money order system, the government is not engaged in commercial transactions but is merely exercising a governmental power for the public benefit. Restrictions upon postal money orders imposed by

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postal laws and regulations are inconsistent with the character of negotiable instruments as defined under Sec.1, NIL. Facts: Enrique Montinola sought to purchase from the Manila Post Office 10 money orders (P200 each), offering to pay for them with a private check. Montinola was able to leave the building with his check and the 10 money orders without the knowledge of the teller. Upon discovery that it was stolen, message was sent to all postmasters and banks involving the unpaid money orders. One of the money orders was received by the Philippine Education Co. as part of its sales receipt. It was deposited by the company with the Bank of America, which cleared it with the Bureau of Post. The Postmaster, through the Chief of the Money Order Division of the Manila Post Office informed the bank of the irregular issuance of the money order. The bank debited the account of the company. The company moved for reconsideration. Issue: Whether postal money orders are negotiable instruments and the petitioner as a holder in due course can demand payment. Held: Philippine postal statutes are patterned from those of the United States, and the weight of authority in said country is that Postal money orders are not negotiable instruments  of 94 18

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inasmuch as the establishment of a postal money order is an exercise of governmental power for the public’s benefit. Furthermore, some of the restrictions imposed upon money order by postal laws and regulations are inconsistent with the character of negotiable instruments. For instance, postal money orders may be withheld under a variety of circumstances, and which are restricted to not more than one indorsement. Hence, petitioner cannot demand payment and recover the amount debited. 02. Caltex Phil. vs. Court of Appeals 212 SCRA 448 Doctrine: The negotiability or non-negotiability of an instrument is determined from the writing on the face of the instrument itself. Facts: Defendant bank issued 280 certificates of time deposit (CTD) in favor of Angela Dela Cruz upon deposit in the amount of P1,120,000. A sample text of the CTD is as follows: “This is to certify that BEARER has deposited in this Bank the sum of Four Thousand Only...” Dela Cruz delivered the CTD to petitioner for the purchase of fuel products. Thereafter, he informed the branch manager that the CTD was lost based on her affidavit, which the branch manager accepted and issued a replacement. Thereafter, Dela Cruz negotiated and obtained a  of 94 19

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loan from the bank in the amount of P875,00 and executed a notarized Deed of Assignment of time deposit. In 1982, Credit Manager of Caltex went to the defendant bank's and presented for verification the CTDs declared lost by Angel Dela Cruz alleging that the same were delivered to herein plaintiff "as security for purchases made with Caltex Philippines, Inc." by said depositor. However, this was rejected by the defendant. When the loan of Dela Cruz fell due, the latter set-off and applied the time deposits in question to the payment of the matured loan. However, the plaintiff filed the instant complaint, praying that defendant bank be ordered to pay it the aggregate value of the certificates of time deposit of P1,120,000.00 plus accrued interest and damages as well as attorney's fees. On appeal, the CA held in favor of defendant bank on the basis that CTD was not a negotiable instrument, hence, Caltex cannot be a holder in due course. Issue: Whether or not the Certificate of Time Deposit (CTD) is a negotiable instrument and Caltex was a holder in due course? Held: The Certificate of Time Deposit is a negotiable instrument. The negotiability or non-negotiability of an instrument is determined from the writing, that is, from the face of the instrument itself. The duty of the court in such case is to ascertain, not what the parties may have secretly intended as contra distinguished from what their words express, but what is the meaning of the words they have used. What the parties  of 94 20

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meant must be determined by what they said. However, Petitioner's insistence that the CTDs were negotiated to it begs the question. 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 a holder may be the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof. In the present case, however, there was no negotiation in the sense of a transfer of the legal title to the CTDs in favor of petitioner in which situation, for obvious reasons, mere delivery of the bearer CTDs would have sufficed. Here, the delivery thereof only as security for the purchases of Angel de la Cruz could at the most constitute petitioner only as a holder for value by reason of his lien. 03. Metrobank vs. Court of Appeals 194 SCRA 168 Doctrine: The indication of a particular fund as the source of payment makes the order to pay conditional. An order or promise to pay out of a particular fund is ‘not unconditional', as stated in Sec.3, NIL. Facts: Gomez opened an account with Golden Savings and deposited 38 treasury warrants. All these warrants were subsequently indorsed by Castillo, cashier of Golden Savings  of 94 21

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and deposited to its Savings Account in Metrobank. Gloria Castillo went several times to Metrobank for the cleared warrants. Exasperated over Gloria’s repeated inquiries and also as an accommodation for a valued client, she was allowed to withdraw from the proceeds of the warrants. In turn, Golden Savings subsequently allowed Gomez to make withdrawals. After the withdrawal of Gomez, Metrobank informed Golden Savings that the warrants were dishonoured by the Bureau of Treasury for forgery of signatures and demanded the refund of the amount contending that by indorsing the warrants in general, Golden Savings assumed the warranty of a general indorser under Section 66. Issue: Whether or not Golden Savings should be liable as a general indorser under Section 66. Held: No, Section 66 is not applicable to the warrants because the same is non-negotiable. The indication of Fund 501 as the source of the payment to be made on the treasury warrants makes the order not unconditional and the warrants themselves non-negotiable. 04. Sesbreño vs. Court of Appeals 222 SCRA 466 Doctrine:  of 94 22

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A non-negotiable document may not be negotiated; but it may be assigned or transferred, absent an express prohibition against assignment or transfer written on the face of the instrument. A note, though not negotiable, may be transferred by assignment, the assignee taking it being subject to the equities between the original parties. Facts: Raul Sesbreño made a money market transaction with Philfinance amounting to P300,000 with a maturity date 32 days later. In return Sesbreño received from Philfinance several securities; a share of a promissory note issued by Delta Motors Corp. (a respondent) to Philfinance, a certificate of securities delivery stating that the said promissory note was in possession of Pilipinas Bank (another respondent), under custodianship, and post-dated checks payable on the date of maturity of his investment with Philfinance in the amount of 304,533.33. On the date of maturity of his investment, Sesbreño sought to encash the checks given to him; they were however dishonored for having been drawn against insufficient funds. Later Philfinance approached Sesbreño delivering to him a letter stating that the promissory note (from Delta) assigned to him can be claimed from Pilipinas Bank upon his demand. Sesbreño made such demand from Pilipinas Bank and subsequently he was able to inspect the promissory note from Delta and he discovered that on the face of the instrument is stamped the words “NON NEGOTIABLE”. Later, Pilipinas Bank rejected delivering the

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promissory note to Sesbreño stating that they were awaiting instructions from Philfinance. Issue: Who is liable to pay for the amount owed to Sesbreño by Philfinance? Held: Although the promissory note of Delta has been stamped “NON NEGOTIABLE” it was still possible to transfer ownership of the note via ASSIGNMENT (assigned or transferred). This was what was done to Sesbreño; he was assigned the amount of the promissory note of Delta up to the amount owed to him by Philfinance (304,533.33). Delta and Pilipinas Bank both refused to pay Sesbreño such amount. Delta defends itself by arguing that its promissory note with Philfinance has already been extinguished via compensation (when both parties are creditor and debtor to one another). Delta cannot be compelled to pay its debt twice. The court ruled that it is PILIPINAS BANK who should be liable to pay Sesbreño the amount for its failure/refusal to deliver the note to Sesbreño upon his demand. Such failure caused prejudice against the petitioner. Pilipinas Bank had no right to refuse delivery of the note to Sesbreño, such failure was clearly a breach of its duty as custodian. The conclusion reached by the court is of course without prejudice to the right of Pilipinas Bank to be reimbursed by Philfinance. 05. Firestone Tire and Rubber CO vs.  of 94 24

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Court of Appeals 353 SCRA 601 (G.R. No. 113236, March 5, 2001) Doctrine: Withdrawal slips are not negotiable instruments. The essence of negotiability which characterizes a negotiable paper as a credit instrument lies in its freedom to circulate freely as a substitute for money. Withdrawal slips lack this character. Facts: Fojas Arca and Firestone Tire entered into a franchising agreement wherein the former purchase on credit the latter’s products. The former could pay through special withdrawal slips which were deposited and accepted by Citibank. Firestone believed in the sufficient funding of the slips until Citibank informed the former that one of the slips was dishonored. It wrote then a demand letter to Fojas Arca for the payment and damages but the latter refused to pay, prompting Firestone to file an action against it. Issue: Whether or not the bank is liable for the alleged belated delay in notifying the dishonor of the negotiable instrument. Held:

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The withdrawal slips are non-negotiable. The essence of negotiability which characterizes a negotiable paper as a credit instrument lies in its freedom to circulate freely as a substitute for money. The withdrawal slips in question lacked this character. Hence, the rule on immediate notice of dishonor is non-applicable to the case at hand. Thus, the bank was under no obligation to give immediate notice that it wouldn't make payment on the subject withdrawal slips. Nonetheless, Citibank erroneously accepted the same as such and thus, must bear the risks attendant to the acceptance of the instruments.

II. PAYABLE TO BEARER

06. Ang Tek Lian vs. Court of Appeals 87 SCRA 383 Doctrine: Where a check is made payable to the order of "cash," the word "cash" does not purport to be the name of any person and hence the instrument is payable to bearer. The draweebank may pay it to the person presenting it without need of obtaining any endorsement. Facts:

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In 1946, Ang Tek Lian approached Lee Hua and asked him if he could give him P4,000.00. He said that he meant to withdraw from the bank but the bank’s already closed. In exchange, he gave Lee Hua a check which is “payable to the order of "cash." The next day, Lee Hua presented the check for payment but it was dishonored due to insufficiency of funds. Lee Hua eventually sued Ang Tek Lian. In his defense, Ang Tek Lian argued that he did not indorse the check to Lee Hua and that when the latter accepted the check without Ang Tek Lian’s indorsement, he had done so fully aware of the risk he was running thereby. Issue: Whether or not the indorsement of Ang Tek Lian is essential in a bearer instrument. Held: No. Under the Negotiable Instruments Law, a check drawn payable to the order of “cash” is a check payable to bearer hence a bearer instrument, and the bank may pay it to the person presenting it for payment without the drawer’s indorsement. The drawee bank need not obtain any indorsement of the check, but may pay it to the person presenting it without any indorsement.

III. COMPLETE BUT UNDELIVERED (Section 16)

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07. Development Bank of the Phils vs. Sima Wei 219 SCRA 383 Doctrine: The payee of a negotiable instrument acquires no interest thereto until its delivery to him. Delivery of an instrument means transfer of possession, actual or constructive, from one person to another with intent of transferring title thereto. However, it does not follow that the drawer of an undelivered instrument is freed from the liability of the principal contract which gave rise thereto. Facts: Development Bank of Rizal seeks to collect from Sima Wei P1M based on a promissory note issued by the latter. Sima Wei, issued 2 crossed checks each worth P500K payable to DBR with the intent of settling its account with DBR. For some reason, the checks were never delivered to DBR or any of its authorized representatives. The checks landed with corespondent Lee, who deposited it to a different account even without Sima Wei's indorsement. This stupid small time bank on the other hand presumed regularity and credited the checks to Lee's account (how stupid, eh?!). Issue: W/N DBR can sue Sima Wei for the value of the checks.

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Held: No, not yet. Because there was no delivery yet to DBR, he was not yet a party to the instrument, even though he was the payee. The payee of a negotiable instrument acquires no interest with respect thereto until its delivery to him. Delivery of an instrument means transfer of possession, actual or constructive, from one person to another. 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.

IV. LIABILITY OF PERSONS SIGNING AS AGENT (Section 20) 08. Philippine Bank of Commerce vs. Aruego 102 SCRA 530 Doctrine: A party who signs a bill of exchange as an agent, but failed to disclose his principal becomes personally liable for the drafts he accepted. Facts: Plaintiff instituted an action against defendant Aruego for recovery of money signed by the defendant. The latter interposes that he signed the drafts in a representative  of 94 29

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capacity, that he signed only as an accommodation party and that he is not liable. The court denied the motion and rendered judgment against the defendant. Hence this petition. Issue: Whether or not defendant is liable by accepting the instrument? Held: Yes, an inspection of the drafts accepted by the defendant shows that nowhere has he disclosed that he was signing as representative of the Philippine Education Foundation Company. For failure to disclose his principal as required under Section 20 of the NIL, he is personally liable for the drafts he accepted. 09. Francisco vs. Court of Appeals 319 SCRA 354 (1999) Doctrine: The NIL provides that where any person is under obligation to endorse in a representative capacity, he may endorse in such terms as to negative personal liability. An agent, when so signing, should indicate that he is merely signing on behalf of

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the principal and must disclose the name of his principal; otherwise he shall be held personally liable. Facts: Sometime in 1979, Ong discovered that Diaz and Francisco had executed and signed seven checks drawn against the Insular Bank of Asia & America (IBAA) and payable to Herby Commercial & Construction Corporation (HCCC) for completed and delivered work under the contract. Ong, however, claims that these checks were never delivered to HCCC. Upon inquiry with Diaz, Ong learned that the GSIS gave Francisco custody of the checks since she promised that she would deliver the same to HCCC. Instead, Francisco forged the signature of Ong, without his knowledge or consent, at the dorsal portion of the said checks to make it appear that HCCC had indorsed the checks; Francisco then indorsed the checks for a second time by signing her name at the back of the checks and deposited the checks in her IBAA savings account. IBAA credited Francisco’s account with the amount of the checks and the latter withdrew the amount so credited. Petitioner claims that she was, in any event, authorized to sign Ong’s name on the checks by virtue of the Certification executed by Ong in her favor giving her the authority to collect all the receivables of HCCC from the GSIS, including the questioned checks. Issue: Whether or not petitioner singing in a representative capacity is liable to the questioned checks.  of 94 31

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Held: The Negotiable Instruments Law provides that when a person is under obligation to indorse in a representative capacity, he may indorse in such terms as to negative personal liability. An agent, when so signing, should indicate that he is merely signing as an agent in behalf of the principal and must disclose the name of his principal. Otherwise, he will be held liable personally. If Francisco was indeed authorized, she didn't comply with the requirements of the law. Instead of signing Ong’s name, she should have signed in her own name as agent of HCCC. Hence, she is liable.

V. FORGERY

10. Jai-Alai vs. Bank of the Philippine Islands 66 SCRA 29 Doctrine: The collecting bank which endorsed the checks to the drawee-bank for clearing, should be liable to the latter for reimbursement because the endorsement of the checks had been forged prior to delivery. The payments made by the drawee-bank to the collecting bank on account of the forged checks were ineffective because the creditor-debtor

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relationship between the depositor and the collecting bank had not been validly effected. Facts: Checks were deposited by petitioner in its current account with the bank. These checks were from a certain Ramirez, a consistent bettor in its games, who was a sales agent from Inter-Island Gas. Inter-Island later found out that of the forgeries committed in the checks and thus, it informed all the parties concerned. Upon the demands on the bank as the collecting bank, it debited the account of petitioner. Thereafter, petitioner tried to issue a check for payment of shares of stock but such was dishonored for insufficient funds. It filed a complaint against the bank. Issue: Whether or not the respondent bank had the right to debit the petitioner's current account. Held: Respondent bank acted within legal bounds when it debited the account of petitioner. When the petitioner deposited the checks to its account, the relationship created was one of agency still and not of creditor-debtor. The bank was to collect from the drawers of the checks with the corresponding proceeds. The Bank may have the proceeds already when it debited the account of petitioner. Nonetheless, there is still no creditor-debtor relationship. Following Section 23, a  of 94 33

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forged signature is wholly inoperative and no right to discharge it or enforce its payment can be acquired through or under the forged signature except against a party who cannot invoke its forgery or want of authority. It stands to reason that as a collecting bank which indorsed the checks to the drawee-banks for clearing, should be liable to the latter for reimbursement for the indorsements on the checks had been forged prior to their delivery to the petitioner. The payments made by the drawee banks to respondent were ineffective - the creditor-debtor relationship hadn't been validly effected.

11. Republic Bank vs. Ebrada 65 SCRA 680 Doctrine: It is only the negotiation predicated on the forged instrument that should be declared inoperative. The negotiation of the check in question between the parties after the immediate parties to the forgery should be considered valid and enforceable, barring any claim of forgery. Facts: Mauricia T. Ebrada (defendant) encashed a check at the Republic Bank. The check was issued by the Bureau of Treasury and was indorsed several times before falling into the hands of the defendant. Defendant managed to cash the  of 94 34

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check (worth around 1200 pesos). It was however discovered that the original payee, Martin Lorenzo, was already dead for more than a decade. Therefore the initial endorsement must have been a forgery. Issue: W/N Ebrada is liable to return the amount that she cashed. W/N a drawee of a check (bank) can recover from the holder (Ebrada) the money paid from a forged instrument. Held: Sec. 23 of the Negotiable Instruments Law dictates that where the signature on the negotiable instrument is forged then the negotiation of the check is without force or effect. In this specific case the court held that since the check was endorsed multiple times already it was not the responsibility of the bank to ascertain if the signatures of the previous endorsements were genuine or not. It was the responsibility of the holder of the check to satisfy himself that the paper is genuine. The acts of presenting the check for payment or putting it into circulation asserts that the holder has performed his duty to ascertain the validity of the instrument. “Everyone with even the least experience in business knows that no business man would accept a check in exchange for money or goods unless he is satisfied that the check is genuine. If he is deceived he has suffered a loss of his cash or goods through his own mistake.” Ebrada, upon receiving the check in question, was duty bound to ascertain if it was genuine or not before

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presenting it to plaintiff Bank. The Bank may recover from Ebrada the amount she received for the check. 12. MWSS vs. Court of Appeals 143 SCRA 20 Doctrine: Petitioner MWSS was guilty of gross negligence in the printing of its personalized checks. The drawee-bank PNB cannot be faulted for not having detected the fraudulent encashment of the checks because the printing of MWSS's personalized checks was not done under its supervision and control. MWSS was in a better position to detect and prevent the fraudulent encashment. Facts: Metropolitan Waterworks and Sewerage System (MWSS) has several accounts with Philippine National Bank (PNB). One of them is NWSA Account No. 6 (NAWASA/NWSA, is the predecessor-in-interest of MWSS). By special arrangement, MWSS used personalized checks, on the months of March to May, 23 checks were released by NWSA; all of them were cleared and debited against their account. In those same months, the same 23 checks were cleared and debited against the NWSA account. These checks were deposited by Raul Dizon, Arturo Sison and Antonio Mendoza to 2 banks, namely Philippine Commercial and Industrial Bank (PCIB) and Philippine Bank of Commerce (PBC). Subsequent  of 94 36

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investigation by NBI shows that these depositors were all fictitious persons. After knowing the NBI report, NWSA then demanded to PNB immediate restoration of the value debited against their account. CFI ruled in favor of MWSS. However, it was overturned by the Court of Appeals, ruling for PNB. Hence this case. Issue: W/N MWSS can recover the amounts debited against their account. Held: No. The MWSS committed negligence on their part to bar their action for the restoration of the money. First, the alleged forgery of the 23 checks must be proved with clear, positive and convincing evidence. Forgery cannot be presumed. The reports, affidavit and memorandum submitted by MWSS merely alleges the discrepancy of signatures and does not conclude the checks to be forged. Nonetheless, MWSS is barred from setting up defense. Section 23 of the Negotiable Instruments Law (NIL) provides that when a signature of an instrument is forged, it s wholly inoperative unless the party against whom it is sought to enforce is precluded from setting up the forgery. One of those conditions that bar setting up defense is negligence. MWSS was negligent on 3 points. 1. Using personalized checks, MWSA failed to provide security measures to the printing office. • Failed to give printer specific instructions • Failed to retrieve spoiled check forms • Failed to provide any control regarding the paper • Failed to furnish  of 94 37

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PNB with samples of typewriting, check writing and print of personalized checks • Failed to send a representative to the printing office Faustino Medina, owner of the printing press even testified that they leave the finished and unfinished checks vouchers the rack of the machine so that work could be continued the following day. 2. MWSS failed to reconcile the bank statements with their own records. Mr. Zapaorteza, the person who was supposedly in charge of verifying such accounts, unreasonably delayed in taking prompt deliveries of PNB bank statements and credit and debit memos. It was the proximate cause of the failure to discover the fraud. 3. MWSS failed to provide security measures over its own records. It was shown that Mr. Ongtengco, the cashier of the Treasury Dept of NWSA, allows people known to him to enter his office while the check writer is merely on top of his table. NBI reports concluded that the forged checks were an inside job, because the forgers knew specifically the account number that holds sufficient amount to encash such checks. PNB should have no liability because it has taken necessary measures in the detection of forged checks. It actually sent a memorandum to all Current Account Bookkeepers, including MWSS, warning them of the activities of forgery syndicates who specifically target depositors using personalized checks. 13. Banco de Oro vs. Equitable Banking Corporation 157 SCRA 189 Doctrine:

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Having stamped its guarantee of "all prior endorsements and/ or lack of endorsements," the collecting bank is estopped from claiming otherwise. Whenever any bank treats the signature at the back of the check as an endorsement, and thus guarantees the same, it is liable. The drawer cannot be held liable for the negligence of the collecting bank. There is no privity between the drawer and the collecting bank. Facts: BDO drew checks payable to member establishments. Subsequently, the checks were deposited in Trencio's account with Equitable. The checks were sent for clearing and was thereafter cleared. Afterwards, BDO discovered that the indorsements in the back of the checks were forged. It then demanded that Equitable credit its account but the latter refused to do so. This prompted BDO to file a complaint against Equitable and PCHC. The trial court and RTC held in favor of the Equitable and PCHC. Issue: Whether or not Banco de Oro could collect reimbursement from Equitable Bank. Held: First, PCHC has jurisdiction over the case in question. The articles of incorporation of PHHC extended its operation to clearing checks and other clearing items. No doubt transactions on non-negotiable checks are within the ambit of  of 94 39

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its jurisdiction. Further, the participation of the two banks in the clearing operations is submission to the jurisdiction of the PCHC. Petitioner is likewise estopped from raising the nonnegotiability of the checks in issue. It stamped its guarantee at the back of the checks and subsequently presented it for clearing and it was in the basis of these endorsements by the petitioner that the proceeds were credited in its clearing account. The petitioner cannot now deny its liability as it assumed the liability of an indorser by stamping its guarantee at the back of the checks. Furthermore, the bank cannot escape liability of an indorser of a check and which may turn out to be a forged indorsement. Whenever a bank treats the signature at the back of the checks as indorsements and thus logically guarantees the same as such there can be no doubt that said bank had considered the checks as negotiable. A long line of cases also held that in the matter of forgery in endorsements, it is the collecting bank that generally suffers the loss because it had the duty to ascertain the genuineness of all prior indorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the indorsements. 14. Gempesaw vs. Court of Appeals 218 SCRA 682 Doctrine:

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As a rule, a drawee bank who has paid a check on which an endorsement 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 a check or checks. Facts: Gempesaw filed for recovery of the money value of 82 checks charged against her account due to forgery of indorsements made by Alicia Galang, her trusted bookkeeper. In the normal course of her grocery business, it would be Galang who would write the amounts in the check and Gempesaw would only sign the checks without ascertaining its contents. The checks were deposited in the accounts of Romero and Lam, with the aggregate total amounting to 1.2 million pesos. Gempesaw filed a case with the RTC which held that Gempesaw was negligent in handling her affairs by not ascertaining the values of the payments and if indeed the payments reached the payees making forgery not a defense for her to recover. The CA affirmed. Issue: W/N the forgery entitles Gempesaw to reimbursement? Held: Partly Yes & No. The SC found that Gempesaw is indeed negligent which precludes her from raising the defense of forgery. However, the SC, using Art. 1170 of the Civil Code,  of 94 41

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said that the bank becomes also liable for damages for accepting the check with a second indorsement. It should be noted that in the current banking system, checks with second indorsements are not generally accepted and given this fact, the Bank should also shoulder liability. Gempesaw and the bank are liable 50-50 for the loss. 15. Associated Bank vs. Court of Appeals 252 SCRA 520 Doctrine: The drawee-bank cannot debit the account of the drawer because it paid checks which bore forged endorsements. However, if the drawer was negligent to the point of contributing substantially to the loss, then the drawee-bank can charge the drawer's account. If both the drawee-bank and the drawer were negligent, the loss should be apportioned between them. Facts: Faustino Pangilinan, cashier of the Concepcion Emergency Hospital, forged the signature of Dr. Adena Canlas who was the Chief of the said hospital and endorsed 30 checks amounting to P203,300 to himself. The money was drawn from the account of the Province of Tarlac with PNB. Pangilinan deposited the checks to his personal savings account with Associated Bank which was cleared and paid for by PNB. The checks have a stamp of Associated Bank which  of 94 42

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reads “All prior endorsements guaranteed by Associated Bank”. The Province of Tarlac, through the Provincial Treasurer, wrote PNB to restore the various amounts debited from the current account of the Province. PNB on its part demanded reimbursement from Associated Bank. Both banks resisted payment which led to the Province of Tarlac suing PNB. PNB in turn impleaded Associated Bank in the suit as a third-party defendant while Associated Bank impleaded Canlas and Pangilinan as fourth-party defendants. For convenience, the transfers were effected in the following sequence: TARLAC PNB - ASSOCIATED BANK - CANLAS & PANGILINAN. The trial court ruled that 1) PNB should pay the Province of Tarlac the P203,300 with legal interests, 2) Associated Bank should be pay the same amount to PNB and 3) dismissed the complaints against Canlas and Pangilinan. On appeal, the CA affirmed the ruling of the trial court. Issue: Who should bear the loss arising from the forgery, the Province of Tarlac, PNB, Associated Bank or Pangilinan? Held: The SC held that the Province and Associated Bank should bear losses in the proportion of 50-50. The Province can only recover 50% of the P203,300 from PNB because of the negligence they exhibited in releasing the checks to the then already retired Pangilinan who is an unauthorized person to handle the said checks. On the other hand, Associated Bank is liable to PNB only to 50% of the same amount because of its  of 94 43

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liability as indorser of the checks that were deposited by Pangilinan, and guaranteed the genuineness of the said checks. They failed to exercise due diligence in checking the veracity of indorsements. 16. Metrobank vs. First National City Bank 118 SCRA 537 Doctrine: The failure of FNCB as drawee-bank to inform the collecting bank, Metrobank, about the alteration in question until after the lapse of 9 days negates whatever right it might have had against Metrobank in the light of Central Bank Circular No.9, as amended by Circular No.138, which requires all items cleared on a particular clearing to be returned not later than 3:30PM on the following business day. While it is true that Metrobank endorsed the check, such an endorsement must be read together with the 24-hour rule on Clearing House Operations of the Central Bank. Facts: A check was drawn by Joaquin Cunanan & Company (JCC) on First National City Bank (FNCB) which was deposited in Metrobank by Salvador Sales. The check was cleared the same day and the latter withdrew it and closed his account. Thereafter, upon return of the cancelled check, JCC notified the bank that the check was altered from actual amount of P50 raised to P50,000 and over the name superimposed the word  of 94 44

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Cash. FNCB notified and reiterated the request to Metrobank for the reimbursement but the latter was adamant in its refusal, hence, this action. Issue: Whether or not Metrobank should bear the loss from a materially altered check? Held: In this case, the check was not returned to Metro Bank in accordance with the 24-hour clearing house period, but was cleared by FNCB. Failure of FNCB, therefore, to call the attention of Metro Bank to the alteration of the check in question until after the lapse of nine days, negates whatever right it might have had against Metro Bank in the light of the said Central Bank Circular. Its remedy lies not against Metro Bank, but against the party responsible for the changing the name of the payee and the amount on the face of the check. 17. Republic Bank vs. Court of Appeals 196 SCRA 100 Doctrine: It is true that when an endorsement is forged, the collecting bank or last endorser, as a general rule, bears the loss. But the unqualified endorsement of the collecting bank should be read together with the 24-hour rule on clearing house  of 94 45

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regulations. When the drawee bank fails to return a forged or altered check to the collecting bank within the 24-hour clearing period, the collecting bank is absolved from liability. Facts: San Miguel Corporation (SMC) drew a check amounting to P240.00 on its account in First National City Bank (FNCB) in favor of Delgado, a stockholder. Delgado fraudulently altered the amount of the check to P9,240 after which he endorsed and deposited it with Republic Bank. Republic Bank endorsed the check to First National City Bank (FNCB), the drawee bank, by stamping on the back of the check “all prior and / or lack of indorsement guaranteed". Based on such endorsement, FNCB paid the amount to Republic Bank. Later on, SMC informed FNCB of the material alteration of the amount. FNCB recredited the amount to San Miguel’s account, and demanded refund from Republic Bank. Republic Bank refused, claiming there was delay in giving it notice of the alteration. Issue: Whether petitioner Republic Bank as the collecting bank should bear the loss resulting from the altered check. Held: When an indorsement is forged, the collecting bank or last indorser, as a general rule, bears the loss. But the unqualified indorsement of the collecting bank on the check should be  of 94 46

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read together with the 24-hour regulation on clearing house operation. Hence, when a drawee bank fails to return a forged or altered check to the collecting bank within the 24-hour clearing period, the collecting bank is absolved from liability. 18. Philippine Commercial International Bank vs. Court of Appeals 350 SCRA 446 (G.R. No. 121413, January 29, 2001) Doctrine: The mere fact that the forgery was committed by a drawerpayor's confidential employee or agent, who by virtue of his position had unusual facilities for perpetrating the fraud and imposing the forged paper upon the bank, does not entitle the bank to shift the loss to the drawer-payor, in the absence of circumstances raising estoppel against the drawer. A bank is liable for the fraudulent acts or representations of an office or agent acting within the scope of his employment or authority. But in this case, responsibility for negligence does not lie on the collecting bank's shoulders alone. Citibank, as drawee-bank was likewise negligent, and must also answer for the damages suffered by the drawer because of the contractual relationship between it and the latter. Thus, invoking the doctrine of comparative negligence, both PCI and Citibank are equally liable. Facts:

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3 cases are consolidated in this decision involving Ford, Citibank, and PCIBank. The original action was instituted by Ford to recover from drawee bank Citibank and collecting bank PCIBank a sum of money for the value of several checks payable to the Commissioner of Internal Revenue, which were embezzled allegedly by and organized syndicate. In 1977, Ford issued a Citibank check payable to the CIR for its tax obligations for the third quarter of the said year. After clearing, the check was deposited to PCIBank. However, it was paid to or received by the payee, CIR. The latter compelled Ford to make another payment, which was then credited. Ford on the other hand subjected Citibank for reimbursement for the second assessment. The same thing happened in 1978 and 1979. After an investigation conducted by the NBI, it was discovered that an organized syndicate was behind the scam. It was revealed that the General Ledger Accountant of Ford recalled the checks and caused PCIBank to replace the checks with manager's checks, which were later deposited by alleged members of the syndicate. Ford filed a complaint against the officer but was dismissed because he could not be served summons as he was a “fugitive from justice”. Ford mainly impleads Citibank and PCIBank for the recovery of the sum of money. The trial court ruled in favor of Ford in declaring that Citibank and PCIBank were jointly liable. The CA however modified the decision, saying that only Citibank was liable. Hence, this petition. Issue: Has Ford the right to recover the value of the checks intended as payment to CIR?  of 94 48

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Held: With regard to the 1977 case, the SC held PCIBank solely liable for paying Ford on the basis of its negligence in failing to verify the authority of the Ford employee to negotiate the checks. It showed the employees lack of care and prudence required in the circumstances. Further, PCIBank's clearing stamps enabled the checks to pass through the clearing house and therefore Citibank had no choice but to pay it. PCIBank's contention that Ford was guilty of “imputed contributory negligence” cannot prosper because it was established that the officer's instruction to replace the checks was not in the ordinary course of business which could have prompted PCIBank to validate the check. Regarding the 1978 and 1979 cases, the SC held that both Citibank and PCIBank were both liable for the sum and must share in the loss. The SC was able to establish the proximate cause of the loss which was the negligence of PCIBank and that one of its employees was in with the syndicate. The general rule that a bank is liable for the fraudulent acts or representation of an officer or an agent acting within the course and apparent scope of his employment or authority was applied. Citibank on the other hand was held liable based on its contractual relationship with Ford. There was a breach of such relationship and failed to scrutinize the checks before paying the amount to the CIR. The SC applied the doctrine of comparative negligence, citing both Citibank and PCIBank for failing in their respective obligations and negligence in the selection and supervision of their employees.

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19. Ramon Ilusorio vs. CA 393 SCRA 89 (G.R. No. 139130, November 27, 2002) Doctrine: It is a rule that when a signature is forged or made without the authority of the person whose signature is forged or made without the authority of the person whose signature it purports to be, the check is wholly inoperative. However, the rule does provide for an exception, namely: ‘unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority.' In the instant case, it is the exception that applies. Petitioner is precluded from setting up the forgery, assuming there is forgery, due to his own negligence in entrusting to his secretary his credit cards and checkbook including the verification of his statements of account. Facts: Ilusioro was a prominent business man and a creditor in good standing of Manila Banking Corporation. Due to his numerous business dealings and frequent travels he left the management of his account to his secretary Katherine Eugenio. From September 1980 to January 1981, Eugenio was able to encash and deposit 17 checks to her account drawn against that of Ilusorio. When a business partner informed him of Eugenio's activities he fired her and instituted criminal action for estafa through falsification. At the same  of 94 50

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time, private respondent Manila Bank also instituted criminal action against Eugnio for estafa through falsification of commercial documents. Petitioner requested the bank to restore to his account the value of the checks but respondent refused. Hence, this instance case. ISSUE: 1) W/n petitioner has a cause of action against Manila Bank. 2) W/n Manila Bank is barred from raising defense that the fact of forgery was not established by filing an estafa case against Eugenio. RULING: The Court finds that petitioner has no cause of action against Manila Bank. Petitioner has the burden of proving negligence on the part of the bank for failure to detect the discrepancy in the signature. The forgery was not proven because of the petitioners own inaction, by not providing further specimen signatures. He is precluded therefore from setting up forgery. Sec. 23 of the N.I.L provides for the exception that unless the party against whom it is sought to enforce such right is precluded from setting up forgery or want of authority. On the second issue, the fact that Manila Bank filed a cased against Eugenio would not estop it from asserting the fact that forgery has not been clearly established. Based on Sec 2 Rule 110 of the Rules of Court, the party to the complaint is the People of the Philippines. Petitioner therefore cannot hold Manila Bank in estoppels for it is not the actual party to the criminal action. Petition is denied.  of 94 51

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20. Samsung Construction Co. Phils., Inc. vs. FEBTC and CA G.R. No. 129015, August 13, 2004 Doctrine: The bare fact that the forgery was committed by an employee of the party whose signature was forged cannot necessarily imply that such party's negligence was the cause of the forgery. Employers do not possess the supernatural gift of cognition as to the evil that may lurk within the hearts and minds of their employees. Facts: Samsung Construction held an account with Far East Bank. One day a check worth 900,000, payable to cash, was presented by one Roberto Gonzaga in the Makati Branch of Far East Bank. The check was certified to be true by Jose Sempio, the assistant accountant of Samsung, who was also present during the time the check was cashed. Later however it was discovered that no such check was ever approved by the Samsung's head accountant, the president of the company also never signed any such check. Issue:

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W/N Far East Bank is liable to reimburse Samsung for cashing out the forged check, which was drawn from the account of Samsung Held: Far East Bank is liable for reimbursement. Sec. 23 of the Negotiable Instrument Law states that a forged signature makes the instrument “wholly inoperative”. If payment is made the drawee (Far East) cannot charge it to the drawer's account (Samsung). The fact that the forgery is clever is immaterial. The forged signature may so closely resemble the genuine as to defy detection by the depositor himself. And yet, if the bank pays the check, it is paying out with its own money and not of the depositor's. This rule of liability can be stated briefly in these words: “A bank is bound to know its depositor's signature.” The accusation of negligence on the part of Samsung was not clearly proven. Absence of proof to the contrary, the presumption is that the ordinary course of business was followed.

VI. MATERIAL ALTERATION (Section 124 and 125) 21. Philippine National Bank vs. Court of Appeals 256 SCRA 491 Doctrine:

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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 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 Sec.1, NIL. The drawee bank cannot refuse to accept a check on the ground that the serial number of the said check was altered, since the serial number is an item which is not an essential requisite for negotiability under Sec.1, NIL. The alteration did not change the relations between the parties. Facts: DECS issued a check in favor of Abante Marketing containing a specific serial number, drawn against PNB. The check was deposited by Abante in its account with Capitol and the latter consequently deposited the same with its account with PBCOM which later deposited it with petitioner for clearing. The check was thereafter cleared. However, on a relevant date, petitioner PNB returned the check on account that there had been a material alteration on it. Subsequent debits were made but Capitol cannot debit the account of Abante any longer for the latter had withdrawn all the money already from the account. This prompted Capitol to seek reclarification from PBCOM and demanded the recrediting of its account. PBCOM followed suit by doing the same against PNB. Demands unheeded, it filed an action against PBCOM and the latter filed a third-party complaint against petitioner.  of 94 54

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Issue: Whether or not PBCOM should bear the loss for the check materially altered. Held: An alteration is said to be material if it alters the effect of the instrument. It means an unauthorized change in the 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 the party. In other words, a material alteration is one which changes the items which are required to be stated under Section 1 of the NIL. In this case, the alleged material alteration was the alteration of the serial number of the check in issue— which is not an essential element of a negotiable instrument under Section 1. PNB alleges that the alteration was material since it is an accepted concept that a TCAA check by its very nature is the medium of exchange of governments, instrumentalities and agencies. As a safety measure, every government office or agency is assigned checks bearing different serial numbers. But this contention has to fail. The check's serial number is not the sole indicia of its origin. The name of the government agency issuing the check is clearly stated therein. Thus, the check's drawer is sufficiently identified, rendering redundant the referral to its serial number. Therefore, there being no material alteration in the

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check committed, PNB could not return the check to PBCOM. It should pay the same. 22. Montinola vs. Philippine National Bank 88 Phil 178 Doctrine: The insertion of the words "Agent, Phil. National Bank" which converts the bank from a mere drawee to a drawer and therefore changes its liability constitutes a material alteration of the instrument without the consent of the parties liable thereto, and so discharges the instrument. Facts: Ramos, a disbursing officer of USAFE made cash advancements with the provincial Treasurer of Lanao. The latter gave him a P500,000 check. Thereafter, Ramos presented the check to Laya for encashment. Laya in his capacity as Provincial Treasurer issued a check to Ramos in the sum of P100,000. Ramos was assigned only P30,000 of the value of the document to Montinola and to deposit the balance to Ramos’s credit. This writing however, mysteriously obliterated and in its place, a supposed indorsement appearing on the back of the check was made for the whole amount of the check “Agent, Phil. National Bank” under the signature of Laya purportedly showing that Laya issued the check as agent of the PNB.

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Issue: Whether the words, “Agent, Phil. National Bank” were added after Laya had issued the check and thus constitutes a material alteration which discharges the instrument. Held: The insertion of the words “Agent, Phil. National Bank,” which converts the bank from a mere drawer and therefore changes its liability, constitutes a material alteration of the instrument without the consent of the parties liable thereon, and so discharges the instrument.

VII. ACCOMMODATION PARTY

23. Sadaya vs. Sevilla 19 SCRA 924 Doctrine: A solidary accommodation maker who made payment has the right to contribution from is co-accommodation makers, in the absence of agreement to the contrary between them, and subject to conditions imposed by law. Facts:

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Sadaya, Sevilla and Varona signed solidarily a promissory note in favor of the bank. Varona was the only one who received the proceeds of the note. Sadaya and Sevilla both signed as co-makers to accommodate Varona. Thereafter, the bank collected from Sadaya. Varona failed to reimburse. Consequently, Sevilla died and intestate estate proceedings were established. Sadaya filed a creditor’s claim on his estate for the payment he made on the note. The administrator resisted the claim on the ground that Sevilla didn't receive any proceeds of the loan. Issue: Whether or not Sadaya had the right to demand payment. Held: A solidary accommodation maker, who made payment, has the right to contribution, from his co-accomodation maker, in the absence of agreement to the contrary between them, subject to conditions imposed by law. This right springs from an implied promise to share equally the burdens that may ensue from their having consented to stamp their signatures on the promissory note. 24. Crisologo-Jose vs. Court of Appeals 117 SCRA 594 Doctrine:

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Sec.29, NIL does not include nor apply to corporations which are accommodation parties, because the issue or endorsement of negotiable paper by a corporation without consideration and for the accommodation of another is ultra vires. By way of exception, an officer or agent of a corporation shall have the power to execute or endorse a negotiable paper in the name of the corporation for the accommodation of a third person only if specifically authorized to do so. Facts: The VP of Mover Enterprises, Inc. issued a check drawn against Traders Royal Bank, payable to petitioner Ernestina Crisologo-Jose, for the accommodation of his client. Petitioner payee was charged with the knowledge that the check was issued for the personal account of the President who merely prevailed upon the VP to act as co-signatory in accordance with the arrangement of the corporation with its depository bank. Issue: Whether or not private respondent, is an accommodation party under NIL and is liable for the amount of said check. Held: Yes. To be considered an accommodation party, a person must (1) be a party to the instrument, (2) not receive value therefor, (3) sign for the purpose of lending his name for the credit of some other person. It is not a valid defense that the  of 94 59

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accommodation party did not receive any valuable consideration when he executed the instrument. He is liable to a holder for value as if the contract was not for accommodation, in whatever capacity such accommodation party signed the instrument, whether primarily or secondarily. 25. Stelco Marketing vs. Court of Appeals 210 SCRA 51 Doctrine: A holder of a check who is not a holder in due course cannot sue the drawer-accommodation party. The Steelweld check was given by its president to R.Y. Lim only by way of accommodation, to be used as collateral for another obligation. In breach of trust, R.Y. Lim endorsed the check in payment of an obligation to a third person, Armstrong. When the latter deposited the same, it was dishonored and after the dishonor, Stelco came into possession of it. Stelco's mere possession of the check does not make it a holder for value and gives no rise to liability on the part of the accommodation party, Steelweld, under Sec.29, NIL. Facts: Petitioner Stelco Marketing Corp (Stelco) is engaged in the distribution and sale to the public of structural steel bars. It sold on 7 occasions quantities of steel bars and rolls of G.I sheets with an aggregate amount of P126,859.61 to RYL Construction, Inc. (RYL). Despite the parties' agreement that  of 94 60

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payment would be on COD basis, RYL never paid upon delivery of the materials and despite insistent demands. One year later, RYL issued a check drawn against Metrobank to Armstrong Industries, the sister company and manufacturing arm of Stelco, to the amount of its obligations to the latter. The check however was a company check of another corporation Steelweld Corporation of the Philippines (Steelweld) signed by its President and Vice President. Said check was issued by the president of Steelweld at the request of the president of RYL as an accommodation and “only as guaranty but not to pay for anything.” Armstrong subsequently deposited the check but was dishonoured because it was DAIF*. It bore the endorsements of RYL and Armstrong. The latter filed a complaint against the pres and vp of Steelweld for violation of BP22. The trial court acquitted the defendants noting that the checks were not issued to a p p l y o n a c c o u n t f o r v a l u e , i t b e i n g m e re l y f o r accommodation purposes. However, the court did not release Steelweld from its liabilities, relying on Sec 29 of the NIL for issuing a check for accommodation. Relying on the previous decision and averring that it was a holder in due course, Stelco subsequently filed a complaint for recovery of the value of the materials from RYL and Steelweld. However, RYL had already been dissolved leading the trial court to rule against Steelweld and hold them liable. Steelweld appealed to the CA which reversed the decision of the RTC declaring that STELCO was not a holder in due course and Steelweld was a stranger to the contract between STELCO and RYL. Issue:

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Whether or not petitioner as a holder for value may recover from the accommodation party. Issue: W/N STELCO was a holder in due course Held: STELCO's reliance on the RTC's decision in the previous criminal case is misplaced. Although the RTC maintained that Steelweld was liable for issuing a check for accommodation, the RTC did not specify to whom it was liable. Despite the records showing that STELCO was in possession of the check, such possession does not give a presumption that the holder is one for value. There was no evidence that STELCO had possession before the checks were presented and dishonoured nor evidence that the checks were given to STELCO, indorsed to STELCO in any manner or form of payment. Only after said checks were dishonoured were they acquired by STELCO. STELCO never became a holder for value since nowhere in the check was STELCO identified as payee, indorsee, or depositor. Evidence shows that Armstrong was the intended payee, that it was the injured party, and the proper party to bring the action. 26. Travel-On vs. Court of Appeals 210 SCRA 352 Doctrine:  of 94 62

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An accommodating party lends his credit to the accommodated party by issuing or endorsing a check which is held by a payee or endorsee as a holder in due course who gave full value therefor to the accommodated party. The accommodated party receives full value, for which he must then repay the accommodating party unless of course the latter intended to make a donation to the former. But the accommodating party is bound on the check to the holder in due course who is necessarily a third person and is not the accommodated party. Facts: Travel-On (petitioner) is a travel agency, selling airline tickets on commission basis for and in behalf of different air-line companies. Arturo Miranda (respondent) had a running credit line with said agency. He procured tickets from Travel-On on behalf of airline passengers and derived commissions therefrom. Travel-On filed a suit to collect six (6) checks issued by the respondent totaling 115,000 pesos. Respondent avers that he has no obligations to petitioner and argues that the checks that the petitioner is seeking to collect from him were for purposes of “accommodation.” The respondent's story is that the General Manager of Travel-On asked respondent to write the checks because she used them as “evidence” to show the Board of Directors that the financial condition of the company was sound. Petitioner denies this accusation. Issue:

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W/N the checks are evidence of the liability of the respondent to the petitioner even assuming that they were for purposes of accommodation. Held: The checks themselves are proof of the indebtedness of the respondent to petitioner. Even if the checks were for purposes of accommodation, as described in Sec. 29 of the Negotiable Instruments Law, the respondent would still be liable considering that the petitioner is a holder for value. “A check which is regular on its face is deemed prima facie to have been issued for a valuable consideration and every person whose signature appears thereon is deemed to have become a party thereto for value.” “The rule is quite settled that a negotiable instrument is presumed to have been given or indorsed for a sufficient consideration unless otherwise contradicted by other competent evidence.” The facts that all checks issued by the respondent to petitioner were presented for payment by the latter would lead to no other conclusion than that these checks were intended for enchasment. There is nothing in the checks themselves or in any other document that states otherwise. The argument of the respondent that the checks were merely “simulated” cannot stand without the clearest and most convincing kinds of evidence. No such evidence was submitted by the respondent. 27. BPI vs. Court of Appeals 236 SCRA 641

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Doctrine: Ordinarily, Napiza having affixed his signature at the dorsal side of the check, should be liable for the amount stated therein in accordance with Sec.66, NIL (i.e.: as a general indorser, and not as an accommodation maker), however, to hold him liable by the strict application of the law would result in injustice. The proximate cause of the withdrawal and eventual loss on BPI's part was its own personnel's negligence in allowing withdrawals in disregard of its own rules and the clearing requirement in the banking system. In so doing, BPI assumed the risk of a forged or counterfeit foreign check and hence, should suffer the resulting damage. Facts: By way of accommodation and only for the purpose of clearing, Benjamin Napiza (private respondent herein), deposited a check in the amount of $2,500.00 in his dollar deposit with the petitioner Bank of the Philippine Islands. This check belongs to Henry Chan. Napiza delivered to Chan a signed blank withdrawal slip, with the understanding that as soon as the check is cleared, both of them would go to the bank to withdraw the amount of the check upon private respondent's presentation to the bank of his passbook. However, using the same blank withdrawal slip, a bank employee was able to withdraw the amount of $2,541.67, which was made payable to Ramon A. de Guzman and Agnes C. de Guzman. Later, the bank received a communication that the deposited check was a counterfeit. The bank informed respondent Napiza that the check bounced, hence, the latter  of 94 65

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tried to locate Chan. Since Napiza was unable to locate Chan, the bank demanded payment from him. Napiza refused to pay on the ground that the check was deposited for clearing purposes only to accommodate Chan. As a result, petitioner bank filed a complaint against private respondent for the return of the amount of $2,500.00 or the prevailing peso equivalent plus interest, attorney's fees, and litigation costs. The lower court dismissed the complaint. The lower court held that having committed a mistake of not waiting for the clearance of the check before authorizing the withdrawal of its value, petitioner should suffer the resultant loss. The Court of Appeals affirmed the lower court's decision and stressed that the mere deposit of the check did not mean that it was already the property of the depositor. The check had to be cleared and its proceeds can only be withdrawn upon presentation of a passbook in accordance with the bank's rules and regulations. Hence, this petition. Issue: W/N respondent Napiza is liable to pay the collecting bank BPI. Held: Napiza is not liable to pay, BPI is held to have been negligent in not following its own protocol with regard to withdrawal of amounts from deposited checks. BPI failed to exercise the “diligence of a good father of a family” in allowing the amount of a deposited check to be withdrawn despite the fact that it still wasn't cleared by the drawee bank (in this case a foreign  of 94 66

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bank in NY). It is admitted that Napiza did deliver to Chan a signed blank withdrawal slip which ultimately allowed Ramon de Guzman (Chan's cohorts?) to withdraw the amount of the deposited check. However it was the further negligence of the bank in not following its own rules: not waiting for the clearance of the foreign check, allowing withdrawal without the account holder's (respondent's) passbook, crediting the amount of the check to the respondent's account without the clearance from the foreign bank, allowing the withdrawal to take place without the presence of the account holder in person, etc. The court held that the encashment of checks without prior clearance is “contrary to normal or ordinary banking practice specially so where the drawee bank is a foreign bank and the amounts involved were large.” 28. Agro Conglomerates, Inc. vs. Court of Appeals 348 SCRA 450 (G.R. No. 11766, December 16, 2000) Doctrine: An accommodation party has the right, after paying the h o l d e r, t o o b t a i n re i m b u r s e m e n t f ro m t h e p a rt y accommodated, since the relationship between them has in e ff e c t b e c o m e o n e o f p r i n c i p a l a n d s u re t y, t h e accommodation party being the surety. Facts:

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Petitioner sold to Wonderland Food Industries two parcels of land. They stipulated under a Memorandum of Agreement that the terms of payment would be P1,000,000 in cash, P2,000,000 in shares of stock, and the balance would be payable in monthly installments. Petitioner Soriano signed as maker the promissory notes payable to the bank. However, the petitioners failed to pay the obligations as they were due. During that time, the bank was in financial distress and this prompted it to endorse the promissory notes for collection. The bank gave ample time to petitioners then to satisfy their obligations. Issue: Whether or not Agro Conglomerates is liable as accommodation parties. Held: Petitioners became liable as accommodation parties. They have the right after paying the instrument to seek reimbursement from the party accommodated, since the relation between them has in effect became one of principal and surety. Furthermore, as it turned out, the contract of surety between Woodland and petitioner was extinguished by the rescission of the contract of sale of the farmland. With the rescission, there was confusion in the persons of the principal debtor and surety.

VII. HOLDERS IN DUE COURSE  of 94 68

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29. De Ocampo vs. Gatchalian 3 SCRA 596 Doctrine: Where a holder's title is defective or suspicious, it cannot be stated that the payee acquired the check without the knowledge of such defect in holder's title, and for this reason the presumption that he is a holder in due course or that he acquired the instrument in good faith does not exist. Where the payee acquired the check under circumstances which should have put him on inquiry (i.e.: why the holder had the check and used it to pay his own personal account) the duty devolved upon him to prove that he actually acquired the check in good faith. Facts: Anita Gatchalian was interested in buying a car when she was offered by Manuel Gonzales to a car owned by the Ocampo Clinic. Gonzales claim that he was duly authorized to look for a buyer, negotiate and accomplish the sale by the Ocampo Clinic. Anita accepted the offer and insisted to deliver the car with the certificate of registration the next day but Gonzales advised that the owners would only comply only upon showing of interest on the part of the buyer. Gonzales recommended issuing a check (P600 / payable-to-bearer / cross-checked) as evidence of the buyer's good faith. Gonzales added that it will only be for safekeeping and will be  of 94 69

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returned to her the following day. The next day, Gonzales never appeared. The failure of Gonzales to appeal resulted in Gatchalian to issue a STOP PAYMENT ORDER on the check. It was later found out that Gonzales used the check as payment to the Vicente de Ocampo (Ocampo Clinic) for the hospitalization fees of his wife (the fees were only P441.75, so he got a refund of P158.25). De Ocampo now demands payment for the check, which Gatchalian refused, arguing that de Ocampo is not a holder in due course and that there is no negotiation of the check. The Court of First Instance ordered Gatchalian to pay the amount of the check to De Ocampo. Hence this case. Issue: W/N de Ocampo is a holder in due course. Held: No. de Ocampo is not a holder in due course. De Ocampo was negligent in his acquisition of the check. There were many instances that arouse suspicion: the drawer in the check (Gatchalian) has no liability with de Ocampo; it was crosschecked (only for deposit) but was used a payment by Gonzales; it was not the exact amount of the medical fees. The circumstances should have led him to inquire on the validity of the check. However, he failed to exercise reasonable prudence and caution. In showing a person had knowledge of facts that his action in taking the instrument amounted to bad faith need not prove that he knows the exact fraud. It is sufficient to show that the person had NOTICE that there was  of 94 70

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something wrong. The bad faith here means bad faith in the commercial sense – obtaining an instrument with no questions asked or no further inquiry upon suspicion. The presumption of good faith did not apply to de Ocampo because the defect was apparent on the instruments face – it was not payable to Gonzales or bearer. Hence, the holder's title is defective or suspicious. Being the case, de Ocampo had the burden of proving he was a holder in due course, but failed. *The Gatchalian is not obligated to pay the amount of the check to de Ocampo. 30. Mesina vs. IAC 145 SCRA 497 Doctrine: The holder of a cashier's check who is not a holder in due course cannot enforce such check against the issuing bank which dishonors the same. If a payee of a cashier's check obtained it from the issuing bank by fraud, or if there is some other reason why the payee is not entitled to collect the check, the bank would, of course, have the right to refuse payment on the check when presented by the payee since the bank was aware of the facts and circumstances surrounding the check. Facts: Jose Go purchased from Associated Bank a cashier's check worth P800.000. Unfortunately, Go left the check at the desk  of 94 71

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of the bank manager who then entrusted it to Albert Uy, a bank employee, for safekeeping. At the time, Uy had a visitor, a certain Alexander Lim. Uy had to answer the phone and immediately went to the CR and when he got back, Lim was gone. When Go went to get his check from Uy, it was found to be missing. Upon advise of Uy, Go went to Associated Bank to accomplish a “STOP PAYMENT” order. After two days, Associated Bank received the missing check for clearing which it immediately dishonored. The same check was returned for clearing after a few days which was again dishonored by the bank. A few days later, the bank this time didn't receive the check but a letter from a lawyer, Atty. Lorenzo Navarro demanding payment for a then undisclosed client. This led to Associated Bank to file an interpleader, citing Jose Go, Atty. Navarro and a John Doe (for the then unknown client) as respondents. Associated Bank then received summons for a complaint for damages from Marcelo Mesina, Atty. Navarro's client who was named for the first time, stating that he got the check from Lim for “a certain transaction” but refused to specify details and asserted that he was a holder in due course. The trial court ruled in favor of Associated Bank and Go, ordering the former to issue a new cashier's check to Go. Mesina filed a petition for certiorari with the IAC which was also denied. Issue: W/N Mesina is a holder in due course and should be entitled for the value of the check? Held:  of 94 72

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No. The SC held that Mesina failed to substantiate his claim as a holder in due course given that by refusing to say how and why the check was passed to him by Lim who stole the check, he had notice of the defect of his title to the check from the very start. The check was Go's check, a cashier's check at that, and the bank knowing such, is liable to nobody but Go. Since the bank was aware of the facts surrounding the loss of the check in question, it has every right to refuse payment of the check when presented by the payee.

VII. LIABILITY OF THE GENERAL INDORSER

31. Metropol vs. Sambok 120 SCRA 864 Doctrine: "Recourse" means resort to a person who is secondarily liable after the default if the person who is primarily liable. Sambok, by endorsing the note "with recourse" does not make itself a qualified endorser but a general endorser who is secondarily liable. Facts: Dr. Villaruel issued a promissory note to Ng Sambok Sons Motors Co. in the amount of 15,000 payable in 12 monthly  of 94 73

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installments. Later Sambok Motors Company, a sister company of Ng Sambok Sons Motors Co. and under the same management, negotiated and indorsed the note in favor of the plaintiff (METROPOL) with the following indorsement: “Pay to the order of Metropol Bacolod Financing and Investment Corp with recourse…” The maker, Dr. Villaruel defaulted in his monthly installment and so Metropol came to him to demand payment. When the plaintiff discovered that he could not pay, Metropol notified Sambok that the promissory note has been dishonored. Metropol demanded payment to Sambok as indorsee of the promissory note. Sambok also failed to pay and so charges were filed. Sambok declares in court that it is not liable to pay until the maker of the note, Dr. Villaruel, has been deemed insolvent. During the pendency of the case, Dr. Villaruel died. Issue: W/N Sambok is still liable to pay the value of the promissory note as its indorser. Held: Yes, Sambok is still liable to pay. “Recourse” means resort to a person who is secondarily liable after the default of the person who is primarily liable. The appellant, contrary to its belief, in indorsing the note “with recourse” does not make itself a qualified indorser but a general indorser who is secondarily liable. By such indorsment, Sambok agreed to pay of Dr. Villaruel fails to pay the note. The words added by

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Sambok does not limit his liability, but rather confirm his obligation as a general indorser.

32. Maralit vs. Imperial 301 SCRA 605 (1999) Doctrine: Notwithstanding criminal liability, Imperial is still civilly liable on the checks, having signed the same as a general endorser. The dispositive portion acquitting her dealt only with her criminal liability, not her civil liability. Facts: Petitioner Maralit claimed that, as a consequence of the materially altered treasury warrant encashed by respondent imperial, she was held personally liable by the PNB for the total amount of P320,287.30. However, respondent claimed that she merely helped a relative, Aida Abengoza, to encash the treasury warrant and that she did not know the amounts were altered nor did she represent to petitioner that the treasury warrants are genuine and that upon being informed of dishonor, she immediately contacted her relative and signed an acknowledgement to pay the total amount of the treasury warrant. Issue:

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Whether or not respondent should be held liable as a general indorser. Held: The Court symphatizes with the petitioner that there was indeed damage and loss, but said loss is chargeable to the respondent who upon her indorsements warrant that the instrument is genuine in all respect what it purports to be and that she will pay the amount thereof in case of dishonor. Thus, while the MTC found petitioner partly responsible for the encashment of the altered checks, it found respondent civilly liable because of her indorsements of the treasury warrants, in addition to the fact that respondent executed a notarized acknowledgment of debt promising to pay the total amount of said warrants. 33. Sapiera vs. Court of Appeals 314 SCRA 370 (1999) Doctrine: Sec.17, NIL states that where a signature is so placed upon the instrument that it is not clear in what capacity the person making it intended to sign, he is deemed an endorser. Under Sec.63, NIL, a person placing his signature other than as maker, drawer, or acceptor, is deemed to be an endorser unless an intention to be bound in some other capacity can be shown. The liabilities of a general endorser are set forth in Sec.66, NIL. It is undisputed that the 4 checks were signed by  of 94 76

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petitioner at the back without any indication as to how she would be bound thereby, and therefore, she is deemed to be an endorser thereof. Facts: On several occasions, petitioner Sapiera, a sari-sari store owner, purchased from Monnico Mart certain grocery items, mostly cigarettes, and paid for them with checks issued by one Arturo de Guzman. These checks were signed at the back by the petitioner. When presented for payment, the checks were dishonored because the drawer’s account was already closed. Private respondent Roman Sua informed De Guzman and petitioner about the dishonor but both failed to pay the value of the checks. Issue: Whether or not petitioner be required to pay civil indemnity to private respondent. Held: Yes. It is undisputed that the four (4) checks issued by De Guzman were signed by petitioner at the back without any indication as to how she should be bound thereby and, therefore, she is deemed to be an indorser thereof. The NIL clearly provides – Sec. 17. Construction where instrument is ambiguous. --- Where the language of the instrument is ambiguous, or there are admissions therein, the following rules of construction apply: x x x (f) Where a signature is so  of 94 77

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placed upon the instrument that it is not clear in what capacity the person making the same intended to sign, he is deemed an indorser. x x x 34. BPI vs. Court of Appeals and Napiza (G.R. No. 11239, February 29, 2000) Doctrine: Petitioner contends that that by signing the withdrawal slip, private respondent Napiza ‘presented the opportunity for the withdrawal of the amount in question'. Ordinarily, private respondent may be held liable as an endorser of the check or even as an accommodation party, however, to hold him responsible for the amount of the check he deposited by the strict application of the law and without considering the attending circumstances in the case would result in an injustice and in the erosion of the public trust in the banking system. Under petitioner's own rules to be able to withdraw from the savings account deposit a duly filled up withdrawal slip and the depositor's passbook must be presented. In allowing the withdrawal of private respondent's deposit in disregard of its own rules, it is clear that the negligence of BPI was the proximate cause of the loss. Facts: Private respondent Benjamin Napiza deposited in his foreign current deposit with BPI a dollar check owned by Henry Chan in which he affixed his signature at the dorsal side thereof. For  of 94 78

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this purpose, Napiza gave Chan a signed blank withdrawal slip. However, Gayon Jr. got hold of the withdrawal slip and used it to withdraw the proceeds of the dollar check, even before the check was cleared and without the presentation of the bank passbook. Issue: Whether or not petitioner can hold private respondent liable for the proceeds of the check for having affixed his signature at the dorsal side as indorser. Held: No. It is thus clear that ordinarily private respondent may be held liable as an indorser of the check or even as an accommodation party.[17] However, to hold private respondent liable for the amount of the check he deposited by the strict application of the law and without considering the attending circumstances in the case would result in an injustice and in the erosion of the public trust in the banking system. The interest of justice thus demands looking into the events that led to the encashment of the check.

VIII. PRESENTMENT FOR PAYMENT/ACCEPTANCE

35. Prudential Bank vs. IAC 216 SCRA 257  of 94 79

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Doctrine: Presentment for acceptance is necessary only in the cases expressly provided for in Sec.143, NIL. Sight draft do not require presentment for acceptance. Corollarily, sight drafts, pursuant to sec.7, NIL are payable on demand. Facts: To effect payment for machineries purchased by Philippine Rayon Mills with Nissho Co., Ltd, the former opened a commercial letter of credit with the Prudential Bank and Trust Company in favor of Nissho. Drafts were drawn and issued by Nissho, which were all paid by the Prudential Bank through its correspondent in Japan. Two of these drafts were accepted by Philippine Rayon Mills while the others were not. Petitioner instituted an action for the recovery of the sum of money it paid to Nissho as Philippine Rayon Mills was not able to pay its obligations arising from the letter of credit. Respondent court ruled that with regard to the ten drafts which were not presented and accepted, no valid demand for payment can be made. Petitioner however claims that the drafts were sight drafts which did not require presentment for acceptance to Philippine Rayon.

Issue: Whether presentment for acceptance of the drafts was indispensable to make Philippine Rayon liable thereon.  of 94 80

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Held: In the case at bar, the drawee was necessarily the herein petitioner. It was to the latter that the drafts were presented for payment. There was in fact no need for acceptance as the issued drafts are sight drafts. Presentment for acceptance is necessary only in the cases expressly provided for in Section 143 of the Negotiable Instruments Law (NIL). In no other case is presentment for acceptance necessary in order to render any party to the bill liable. Obviously then, sight drafts do not require presentment for acceptance.

36. Wong vs. Court of Appeals 351 SCRA 100 (G.R. No. 117857, February 2, 2001) Doctrine: Nowhere in Batas Pambansa 22 is a person required to maintain funds in his account for only 90 days. That the check must be deposited within 90 days is simply one of the conditions for the prima facie presumption of knowledge of lack of funds to arise. Corollarily, under Sec.185, NIL, a check must be presented for payment within a reasonable time after its issue or the drawer will be discharged from liability thereon to the extent of the loss caused by the delay. Facts:  of 94 81

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Petitioner Wong was an agent of Limtong Press, Inc. (LPI), a manufacturer of calendars. After printing the calendars, LPI would ship the calendars directly to the customers. Thereafter, the agents would come around to collect the payments. Petitioner, however, had a history of unremitted collections, which he duly acknowledged in a confirmation receipt he cosigned with his wife. Petitioner issued several checks in December 1985, initially to guarantee the payment of unremitted collections, however, upon agreement between the parties, the checks will be applied to unremitted collections. Before maturity, petitioner advised not to deposit the said checks, but after failing to replace them, respondent presented the check on June 1986 which was later on dishonoured by reason of “account closed”. Having failed to pay, a case of violation of BP 22 was filed against petitioner. Petitioner contends that he is not liable by reason of the delay in presenting the checks. Issue: Wether or not the petitioner is discharged from the liability on the said checks due to delay in presentment. Held: Under Section 186 of the Negotiable Instruments Law, “a check must be presented for payment within a reasonable time after its issue or the drawer will be discharged from liability thereon to the extent of the loss caused by the delay.” By current banking practice, a check becomes stale after more  of 94 82

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than six (6) months, 23 or 180 days. Private respondent herein deposited the checks 157 days after the date of the check. Hence, said checks cannot be considered stale. 37. The International Corporate Bank vs. Sps. Francis S. Gueco and Ma. Luz E. Gueco 351 SCRA 516 (G.R. No. 141968, February 12, 2001) Doctrine: While it is true that failure to present for payment within a reasonable time will result in the discharge of the drawer to the extent of the loss caused by the delay, failure to present on time does not totally wipe out all liability. The original obligation to pay certainly has not been erased. Facts: In order to purchase a car (Nissan Sentra), spouses Gueco obtained a loan from International Corporate Bank. They issued promissory notes, payable in monthly installments, and chattel mortgage as security for the loan. The spouses defaulted in their payment of installments. Thus, Bank filed a civil action with replevin in MTC. The bank demanded P184, 000. But after some negotiations, a compromise was reached and the amount was lowered to P150, 000. Gueco delivered a manager's check amounting to P150, 000 but the car was not released due to his refusal to sign the Joint Motion to Dismiss. The bank alleges that among the conditions of the compromise was the signing of the Joint Motion to Dismiss.  of 94 83

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MTC dismissed the case filed by spouses Gueco. RTC reversed and favored Gueco. CA affirmed in favor of the Gueco's. Hence this case. ISSUE: a. W/N International Corporate Bank is liable for damages. b. W/N International Corporate Bank should shoulder the loss due to a stale check. Held: a. No. The court agrees that there was not sufficient evidence to prove that the signing of the Joint Motion to Dismiss is a condition included in their agreement. In fact, the document was not shown to Gueco in the negotiation meeting. However, the Bank should not be liable for damages. There was no fraud on the part of the bank. The refusal to release the car was not done with intent to cause prejudice. The Bank simply refused because it believed that the signing of the Joint Motion to Dismiss was part of their agreement. There was no deliberate attempt to cause prejudice. b. NO. The stale check, having failure to present it within a reasonable time, is valueless and cannot be paid. The check issued by Gueco became stale due to the Bank inaction (claiming the signing of the Joint Motion to Dismiss as a condition precedent). Sec 186 of the NIL provides that failure to present within a reasonable time will result discharge ONLY to the extent of LOSS caused by delay. The Gueco's has not proven that they have suffered damage or loss due to the delay in presentment. The Bank is justified in delaying presentment due to a legal controversy. Spouses Gueco is  of 94 84

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ordered to pay P150, 000 as agreed upon and International Corporate Bank is ordered to release the car.

IX. CHECKS 38. State Investment House vs. Court of Appeals 217 SCRA 32 Doctrine: That State Investment failed to give notice of dishonor to Moulic is of no moment. The need for such notice is not absolute; there are exceptions under Sec.114, NIL (i.e.: when notice need not be given to drawer). Moulic already knew of the dishonor because, by withdrawing her funds to protect herself, she could not have expected her checks to be honored. The withdrawal of the money from the drawee bank to avoid liability on the checks cannot prejudice the rights of holders in due course. The drawing and negotiation of a check have certain effects aside from the transfer of title or the incurring of liability in regard to the instrument by the transferor. The holder who takes the negotiated paper makes a contract with the parties on the face of the instrument. There is an implied representation that funds or credit are available for the payment of the instrument in the bank upon which it is drawn. Consequently, the withdrawal of money renders Moulic liable to State Investment, a holder in due course. Facts:  of 94 85

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As security for pieces of jewelry to be sold on commission, Nora Moulic issued 2 post-dated checks (P50, 000 each) to Corazon Victoriano. Victoriano negotiated the checks to State Investment House, Inc. (STATE). Moulic failed to sell the jewelry so returned it to Victoriano. However, the checks cannot be retrieved because it was already negotiated to STATE. Probably wanting to escape liability, Moulic withdrew her funds from drawee bank. So when STATE presented the check, they were dishonored for insufficiency of funds. The STATE instituted the case. RTC dismissed the complaint. CA affirmed the dismissal. Hence this case. Issue: W/N the STATE is a holder in due course to warrant payment of the checks. Held: YES, the STATE is a holder in due course. In conformity with 52 of NIL, evidence proved that (a) the checks were complete and regular upon its face; (b) STATE acquired the checks before due dates; (c) STATE took the checks in good faith and for value; (d) STATE was never informed that checks were merely issued for security. Being a holder in due course, the STATE cannot be refused of payment due to failure of consideration or the check being only as security. These are not grounds for discharge of the instrument against a holder in due course, as SEC 119 provides. Moulic cannot unilaterally discharge herself from liability. No notice of dishonor is  of 94 86

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required. SEC 114 allows no notice of dishonor when the drawer has no right to expect or require that the drawee/ acceptor will honor the instrument. This is shown when Moulic withdrew her funds from the drawee bank. Thus, the allegation of no notice of dishonor by Moulic is immaterial. No notice is needed. The recovery of the checks by the STATE is valid (apparently, Victoria had a real estate mortgage with STATE which was subsequently foreclosed). Records show that the extrajudicial foreclosure by the STATE on Victoriano's property resulted in a deficit. (Liability = 1.9M; Auction = 1M only). The law on mortgage, ACT 3135, does not expressly prohibit the recovery of deficit in case of foreclosure. Moulic is liable to pay the amount of the checks, without prejudice for any action against Victoriano. 39. Bataan Cigar vs. Court of Appeals 230 SCRA 643 Doctrine: The crossing of a check has the following effects: (a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated only once – to the one who has an account with the bank; (c) the act of crossing a 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. Facts:  of 94 87

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Petitioner engaged one of its suppliers King Tim Pua George to deliver bales of tobacco leaf. In consideration thereof, petitioner issued a crossed check. Relying on the supplier's representation, petitioner agreed to purchase additional bales of tobacco leaves, despite the supplier's failure to deliver in accordance with their earlier agreement upon which he issued post dated crossed checks. However, the supplier sold the said check at a discount to private respondent State Investment House Inc.(SIHI). Upon failure to deliver said bales of tobacco leaf, petitioner issued a stop order payment on all checks. SIHI then instituted this action, upon dishonor of the check, on the ground that the same is a holder in due course and would be able to collect from petitioner. Issue: Whether or not SIHI, a holder of a crossed check, is a holder in due course and would be able to collect from petitioner. Held: It is a settled ruled that crossing of checks should put the holder on inquiry and upon him devolves the duty to ascertain the indorser’s title to the check or the nature of his possession. Failing in this respect, the holder is declared guilty of gross negligence amounting to legal absence of good faith and is to the effect that the holder of the check is not a holder in due course. There being failure of consideration which is a personal defense, cannot be obliged to pay the checks to SIHI who is not a holder in due course.  of 94 88

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40. Citytrust Banking Corporation vs. IAC 232 SCRA 559 Doctrine: A bank is liable for dishonoring checks which are sufficiently funded, notwithstanding the fact that the depositor wrote down an inaccurate account number. The use of numbers is simply for the convenience of the bank but was never intended to disregard the real name of the depositor. Facts: The case emanated from a complaint filed by respondent Emme for damages against petitioner. Respondent deposited with petitioner several cash in order to amply cover the post dated checks she issued. When presented for encahsement upon maturity, all checks were dishonoured due to insufficiency of funds. Petitioner in its answer averred that it was respondent’s fault that her checks were dishonoured because the account no. Reflected in the deposit slip which is 2900823 was not her correct no. Which is 29000823. Issue: Whether or not petitioner is liable for damages on the dishonored checks. Held:  of 94 89

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The depositor expects the bank to treat his account with utmost fidelity, whether such account consists only of a few hundred pesos or of millions. The bank is engaged in business impressed with public interest and it is its duty to protect in return its many clients and depositors who transact business with it. It is under obligation to treat the accounts of its depositors with meticulous care having in mind the fiduciary nature of their relationship. Hence, nominal damages may be awarded in order that a right of the plaintiff, which have been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him. 41. Tan vs. Court of Appeals 239 SCRA 310 Doctrine: A cashier's check is a primary obligation of the issuing bank and accepted in advance by its issuance. By its very nature, a cashier's check is a bank's order to pay, drawn upon itself, committing in effects its total resources, integrity and honor behind the check. Facts: Ramon Tan, a trader-businessman and community leader in Puerto Princesa, secured a Cashier's Check amounting P30, 000 from PCIB, Puerto Princesa. When in Manila, he deposited  of 94 90

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the check in his account with RCBC Binondo. However, he used the wrong deposit slip (local instead of regional). Thus, RCBC erroneously sent the check for clearing, which was returned for having missent / misrouted. RCBC debited the amount from the account of Tan. Tan was not informed of this transaction until 42 days later. Thus, when he issued 2 checks, they were dishonored due to insufficiency of funds. Having suffered shame and humiliation in the business community, he instituted a case against the bank. The Trial Court ruled in favor of Tan. The CA revered the decision and absolved RCBC from liability. Hence this case. Issue: W/N RCBC is liable for damages Held: Yes. There was no implied instruction from Tan (to clear the check with the Central Bank) arising from the wrong deposit slip. It is the duty of the Bank to check and determine transactions. A depositor does not have sufficient knowledge of banking procedures as much as bankers do. As the check passed through several bank personnel, it should have noticed the error and corrected it. The usage of the wrong deposit slip was not the proximate cause of the clearing fiasco. It was with the bank's failure of its duty to check and countercheck the transaction for possible errors. Thus, it should be held liable for damages. RCBC's defense that immediate payment without awaiting clearance of a cashier's check is discretionary is unavailing. A cashier's check is a  of 94 91

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primary obligation of the issuing bank and accepted in advance by its mere issue. It is regarded substantially to be good as the money it represents. RCBC should have accepted the cashier's check of PCIB. Moral damages can be recovered despite the fact that there was no bad faith or malice by the bank. The bank is still liable for moral damages due to its negligence. This is not meant to enrich the petitioner but to alleviate the moral suffering he has undergone. RCBC is liable for moral damages of P100, 000. 42. Papa vs. A.U. Valencia and Co. Inc. 284 SCRA 643 Doctrine: While it is true that the delivery of a check produces the effect of payment only when it is cashed pursuant to article 1249 of the civil code, the rule is otherwise if the debtor is prejudiced by the creditor's unreasonable delay in presentment. Facts: Myron Papa, acting as attorney-in-fact of Angela Butte, allegedly sold a parcel of land in La Loma, Quezon City to Felix Penarroyo. However, prior to the alleged sale, the land was mortgaged by Butte to Associated Banking Corporation along with other properties and after the alleged sale but prior to the property's release by delivery, Butte died. The Bank refused to release the property despite Penarroyo's unless and until the other mortgaged properties by Butte  of 94 92

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have been redeemed and because of this Penarroyo settled to having the title of the property annotated. It was later discovered that the mortgage rights of the Bank were transferred to one Tomas Parpana, administrator of the estate of Ramon Papa Jr. and his since then been collecting rents. Despite repeated demands of Penarroyo and Valencia, Papa refused to deliver the property which led to a suit for specific performance. The trial court ruled in favor of Penarroyo and Valencia. On appeal to the CA, and ultimately in relation to negotiable instruments, Papa averred that the sale of the property was not consummated since the PCIB check issued by Penarroyo for payment worth 40000 pesos was not encashed by him. However, the CA saw the contrary and that Papa in fact encashed the check by means of a receipt. Finally on appeal to the SC, Papa cited that according to Art 1249 of the Civil Code, payment of checks only produce effect once they have been encashed and he insists that he never encashed the check. He further alleged that if check was encashed, it should have been stamped as such or at least a microfilm copy. It must be noted that the check was in possession of Papa for ten (10) years from the time payment was made to him. Issue: W/N the check was encashed and can be considered effective as payment? Held:

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Yes. The Court held that acceptance of a check implies an undertaking of due diligence in presenting it for payment, and if he from whom it is received sustains loss by want of such diligence, it will be held to operate as actual payment of the debt or obligation for which it is given. In this case, granting that check was never encashed, Papa's failure to do so for more than ten (10) years undoubtedly resulted in the impairment of the check through his unreasonable and unexplained delay. After more than ten (10) years from the payment in part by cash and in part by check, the presumption is that the check had been encashed.

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