KAUFFMAN VS.

THE PHILIPPINE NATIONAL BANK

G.R. No. 16454
September 29, 1921

Fact: Plaintiff, President of Philippine Fiber and Produce Company was entitled to
dividend from the said company. The treasurer of the company Cabled transfer the said
dividends through Respondent bank to New York, then upon the confirmation the New
York branch of the receipt of the funds, communicated the said receipt to the plaintiff
informing the availability of the fund.

Subsequently, the respondent bank decided to withhold the said funds denying the
plaintiff of its access. The plaintiff questioned the action of the respondent in the court.

The respondent argued that the plaintiff has not cause of action because he is not a
party in the contract of transferring funds and the transaction will not fall under the
provisions of the Negotiable Instrument Law.

Issue: Whether or not the plaintiff has cause of action in with respect to the Negotiable
Instrument Law

Held: No, the plaintiff has no cause of action with respect only to the Negotiable
Instrument Law. The transaction of the Respondent and the Philippine Fiber and
Produce Company is not a negotiable Instrument. The provisions of the Negotiable
Instruments Law can come into operation there must be a document in existence of the
character described in Section 1 of the Law; and no rights properly speaking arise in
respect to said instrument until it is delivered.

In this case there was an order, it is true, transmitted by the defendant bank to its New
York branch, for the payment of a specified sum of money to George A. Kauffman. But
this order was not made payable “to order or “to bearer,” as required in subsection (d) of
that Act; and inasmuch as it never left the possession of the bank, or its representative in
New York City, there was no delivery in the sense intended in section 16 of the same
Law. In this connection it is unnecessary to point out that the official receipt delivered by
the bank to the purchaser of the telegraphic order, and already set out above, cannot
itself be viewed in the light of a negotiable instrument, although it affords complete proof
of the obligation actually assumed by the bank.

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PHILIPPINE AIRLINES VS. CA
G.R. No. L-49188
January 30, 1990

Facts: Amelia Tan was found to have been wronged by Philippine Air Lines (PAL). She
filed her complaint in 1967. After ten years of protracted litigation in the Court of First
Instance and the Court of Appeals, Ms. Tan won her case. Almost twenty-two years
later, Ms. Tan has not seen a centavo of what the courts have solemnly declared as
rightfully hers.
Through absolutely no fault of her own, Ms. Tan has been deprived of what, technically,
she should have been paid from the start, before 1967, without need of her going to
court to enforce her rights. And all because PAL did not issue the checks intended for
her, in her name. Petitioner PAL filed a petition for review on certiorari the decision of
Court of Appeals dismissing the petition for certiorari against the order of the Court of
First Instance (CFI) which issued an alias writ of execution against them. Petitioner
alleged that the payment in check had already been effected to the absconding sheriff,
satisfying the judgment.
Issue: Whether or not payment by check to the sheriff extinguished the judgment debt
Held: No, the payment made by the petitioner to the absconding sheriff was not in cash
or legal tender but in checks. The checks were not payable to Amelia Tan or Able
Printing Press but to the absconding sheriff.
In the absence of an agreement, either express or implied, payment means the
discharge of a debt or obligation in money and unless the parties so agree, a debtor has
no rights, except at his own peril, to substitute something in lieu of cash as medium of
payment of his debt. Strictly speaking, the acceptance by the sheriff of the petitioner’s
checks, in the case at bar, does not, per se, operate as a discharge of the judgment
debt. The check as 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.
Under Article 1249 of the Civil Code, a check, whether a manager’s check or ordinary
cheek, 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.

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METROPOLITAN BANK & TRUST COMPANY VS. CA
G.R. No. 88866
February 18, 1991

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

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CONSOLIDATED PLYWOOD, ET. AL. VS. IFC LEASING
G.R. NO. 72593
April 30, 1987

Facts: Consolidated Plywood Industries Inc. (CPII) is a corporation engaged in the

logging business. It had for its program of logging activities for the year 1978 the opening
of additional roads, and simultaneous logging operations along the route of said roads, in
its logging concession area at Baganga, Manay, and Caraga, Davao Oriental.
For this purpose, it needed 2 additional units of tractors. After conducting said inspection,
IPM assured CPII that the “Used” Allis Crawler Tractors which were being offered were
fit for the job, and gave the corresponding warranty of 90 days performance of the
machines and availability of parts. With said assurance and warranty, and relying on the
IPM’s skill and judgment, CPII through Henry Wee and Rodolfo T. Vergara, president
and vice-president, respectively, agreed to purchase on installment said 2 units of “Used”
Allis Crawler Tractors. It also paid the down payment of P210,000.00. On April 5, 1978,
IPM issued the sales invoice for the 2 units of tractors. At the same time, the deed of
sale with chattel mortgage with promissory note was executed.
Barely 14 days had elapsed after their delivery when one of the tractors broke down and
after another 9 days, the other tractor likewise broke down. Because of the breaking
down of the tractors, the road building and simultaneous logging operations of CPII were
delayed and Vergara advised IPM that the payments of the installments as listed in the
promissory note would likewise be delayed until IPM completely fulfills its obligation
under its warranty.
Since the tractors were no longer serviceable, on April 7, 1979, Wee asked IPM to pull
out the units and have them reconditioned, and thereafter to offer them for sale. The
proceeds were to be given to IFC Leasing and the excess, if any, to be divided between
IPM and CPII which offered to bear 1/2 of the reconditioning cost. No response to this
letter was received by CPII and despite several follow-up calls, IPM did nothing with
regard to the request, until the complaint in the case was filed by IFC Leasing against
CPII, Wee, and Vergara. CPII, et al. filed their amended answer praying for the dismissal
of the complaint. In a decision dated 20 April 1981, the trial court rendered judgment,
ordering CPII, et al. to pay jointly and severally in their official and personal capacities
The Intermediate Appellate Court issued the decision affirming in toto the decision of the
trial court.
Issue: Whether the promissory note in question is a negotiable instrument.
Held: No, the instrument in order to be considered negotiable must contain the so called
“words of negotiability”. These words serve as an expression of consent that the
instrument may be transferred. This consent is indispensable since a maker assumes
greater risk under a negotiable instrument than under a non- negotiable one. Without the
words “or order” or “to the order of,” the instrument is payable only to the person
designated therein and is therefore non-negotiable. Any subsequent purchaser thereof
will not enjoy the advantages of being a holder of a negotiable instrument, but will merely
“step into the shoes” of the person designated in the instrument and will thus be open to
all defenses available against the latter.
Therefore, considering that the subject promissory note is not a negotiable instrument, it
follows that IFC Leasing can never be a holder in due course but remains a mere

4
assignee of the note in question. Thus, CPII may raise against IFC Leasing all defenses
available to it as against IPM. This being so, there was no need for CPII to implead IPM
when it was sued by IFC Leasing because CPII’s defenses apply to both or either of
them.
METROPOLITAN BANK & TRUST COMPANY VS. COURT OF APPEALS
G.R. No. 88866
February, 18, 1991

Facts: Eduardo Gomez opened an account with Golden Savings and deposited 38
treasury warrants. All warrants were subsequently indorsed by Gloria Castillo as Cashier
of Golden Savings and deposited to its Savings account in Metrobank branch in
Calapan, Mindoro. They were sent for clearance. Meanwhile, Gomez is not allowed to
withdraw from his account, later, however, “exasperated” over Floria repeated inquiries
and also as an accommodation for a “valued” client Metrobank decided to allow Golden
Savings to withdraw from proceeds of the warrants. In turn, Golden Savings
subsequently allowed Gomez to make withdrawals from his own account.
Metrobank informed Golden Savings that 32 of the warrants had been dishonored by the
Bureau of Treasury and demanded the refund by Golden Savings of the amount it had
previously withdrawn, to make up the deficit in its account. The demand was rejected.
Metrobank then sued Golden Savings.
Issue: Whether or not the treasury warrants are negotiable instruments
Held: No. The treasury warrants are not negotiable instruments. Clearly stamped on their
face is the word “non-negotiable.” Moreover, and this is equal significance, it is indicated
that they are payable from a particular fund, to wit, Fund 501. An instrument to be
negotiable instrument must contain an unconditional promise or orders to pay a sum
certain in money.
Section 3 of NIL an unqualified order or promise to pay is unconditional though coupled
with: 1st, an indication of a particular fund out of which reimbursement is to be made or a
particular account to be debited with the amount; or 2nd, a statement of the transaction
which give rise to the instrument. But an order to promise to pay out of particular fund is
not unconditional. The indication of Fund 501 as the source of the payment to be made
on the treasury warrants makes the order or promise to pay “not conditional” and the
warrants themselves non-negotiable. There should be no question that the exception on
Section 3 of NIL is applicable in the case at bar.

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PAY VS. PALANCA
G.R. NO. L-29900
JUNE 28, 1974

Facts: George Pay is a creditor of the Late Justo Palanca who died in Manila on July 3, 1963.
The claim of the petitioner is based on a promissory note dated January 30, 1952, whereby
the late Justo Palanca and Rosa Gonzales Vda. de Carlos Palanca promised to pay George
Pay the amount of 26,900.00, with interest thereon at the rate of 12% per annum. Pay filed a
petition to the trial court praying that respondent Segundina, the surviving spouse of the late
Justo Palanca, be appointed as administratrix of a residential dwelling at Taft Avenue,
Manila, in the name of Justo Palanca, and assessed at 41,800.00. The idea is that once said
property is brought under administration, George Pay, as creditor, can file his claim against
the administratrix.

The lower court dismissed the petition due to the following reasons: Segundina refuses to be
appointed as administratrix; the property sought to be administered no longer belonged to the
debtor, the late Justo Palanca; and the rights of Pay had already prescribed considering that
Pay himself admitted expressly that he was relying on the wording "upon demand."; thus the
10-year prescriptive period applies and has, by the time of the filing of the petition, lapsed.
Furthermore, when the “lower court inquired whether any cash payment has been received
by either of the signers of this promissory note from the Estate of the late Carlos Palanca.
Petitioner informed that he does not insist on this provision but that petitioner is only claiming
on his right under the promissory note.”

The promissory note, dated January 30, 1952, is worded thus: " `For value received from
time to time since 1947, we [jointly and severally promise to] pay to Mr. [George Pay] at his
office at the China Banking Corporation the sum of (P26, 900.00), with interest thereon at the
rate of 12% per annum upon receipt by either of the undersigned of cash payment from the
Estate of the late Don Carlos Palanca or upon demand'. Pay appealed to the SC, assailing
the correctness of the rulings of the lower court as to the effect of the refusal of the surviving
spouse of the late Justo Palanca to be appointed as administratrix, as to the property sought
to be administered no longer belonging to the debtor, the late Justo Palanca, and as to the
rights of petitioner-creditor having already prescribed.

Issue: Whether or not a creditor is barred by prescription in his attempt to collect on a

promissory note executed more than 15 years earlier with the debtor sued promising to pay
either upon receipt by him of his share from a certain estate or upon demand

Held: It was provided in the promissory note was executed, it would appear that petitioner
was hopeful that the satisfaction of his credit could he realized either through the debtor sued
receiving cash payment from the estate of the late Carlos Palanca presumptively as one of
the heirs, or, as expressed therein, "upon demand." There is nothing in the record that would
indicate whether or not the first alternative was fulfilled. What is undeniable is that on August
26, 1967, more than 15 years after the execution of the promissory note on January 30,
1952, this petition was filed. The defense interposed was prescription. Its merit is rather
obvious.

According to the Civil Code, which is based on Section 43 of Act No. 190, the prescriptive
period for a written contract is that of 10 years. This is another instance where this Court has

6
consistently adhered to the express language of the applicable norm. There is no necessity
therefore of passing upon the other legal questions as to whether or not it did suffice for the
petition to fail just because the surviving spouse refuses to be made administratrix, or just
because the estate was left with no other property.

ANG TEK LIAN VS. COURT OF APPEALS

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

Facts: Tek Lian drew a check upon the China Banking Corporation for the sum of 4,000,
payable to the order of “cash”. He delivered it to Lee Hua Hong in exchange for money
which the latter handed in the act. The next business day, the check was presented by
Lee Hua Hong to the drawee bank for payment, but it was dishonored for insufficiency of
funds, the balance of the deposit of Ang Tek Lian on both dates being 335 only.
Petitioner was sued for estafa. In his defense, however, he argues that as the check had
been made payable to “cash” and had not been endorsed by Ang Tek Lian, the
defendant is not guilty of the offense charged.
Issue: Whether or not a check payable to “cash” needs indorsement
Held: No, under the Negotiable Instruments Law, a check drawn payable to the order of
“cash” is a check payable to bearer, and the bank may pay it to the person presenting it
for payment without the drawer’s indorsement. 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 drawee bank need not obtain any indorsement
of the check, but may pay it to the person presenting it without any indorsement.

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CALTEX INC. VS. COURT OF APPEALS AND SECURITY BANK AND TRUST CO.
G.R. NO. 97753
AUG. 10, 1992

Facts: Security bank issued Certificates of Time Deposits to Angel Dela Cruz. The same
were given by Dela Cruz to Caltex in connection to his purchase of fuel products of the
latter. On a later date, Dela Cruz approached the bank manager, communicated the loss
of the certificates and requested for a reissuance.
Upon compliance with some formal requirements, he was issued replacements.
Thereafter, he secured a loan from the bank where he assigned the certificates as
security. The petitioner, averred that the certificates were not actually lost but were given
as security for payment for fuel purchases. The bank demanded some proof of the
agreement but the petitioner failed to comply. The loan matured and the time deposits
were terminated and then applied to the payment of the loan. Petitioner demands the
payment of the certificates but to no avail.
Issue: Whether or not the certificates of time deposits (CTDs) are negotiable instruments
Held: Yes, the Court held that the CTDs are negotiable instruments. The CTDs in
question undoubtedly meet the requirements of the law for negotiability.
The Negotiable Instruments Law provides, an instrument to be negotiable must conform
to certain requirements, hence, it must be in writing and signed by the maker or drawer;
must contain an unconditional promise or order to pay a sum certain in money; must be
payable on demand, or at a fixed or determinable future time; must be payable to order
or to bearer; and where the instrument is addressed to a drawee, he must be named or
otherwise indicated therein with reasonable certainty.
The documents provide that the amounts deposited shall be repayable to the depositor.
It is the “bearer.” The documents do not say that the depositor is Angel de la Cruz and
that the amounts deposited are repayable specifically to him. Rather, the amounts are to
be repayable to the bearer of the documents or, for that matter, whosoever may be the
bearer at the time of presentment.
The petitioner’s witness merely declared that Angel de la Cruz is the depositor insofar as
the bank is concerned, but obviously other parties not privy to the transaction between
them would not be in a position to know that the depositor is not the bearer stated in the
CTDs.
Hence, the situation would require any party dealing with the CTDs to go behind the
plain import of what is written thereon to unravel the agreement of the parties thereto
through facts aliunde. This need for resort to extrinsic evidence is what is sought to be
avoided by the NIL and calls for the application of the elementary rule that the
interpretation of obscure words or stipulations in a contract shall not favor the party who
caused the obscurity.

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PHILIPPINE BANK OF COMMERCE VS. JOSE M. ARUEGO
G.R. Nos. L-25836-37
January 31, 1981

Fact: Plaintiff filed a case against the defendant for the unpaid bill of exchange signed by
the later to pay Encal Press and Photo Engraving. The sum sought to be recovered
represents the cost of the printing of “World Current Events,” a periodical published by
the defendant. To facilitate the payment of the printing the defendant obtained a credit
accommodation from the plaintiff.
Thus, for every printing of the “World Current Events,” the printer, Encal Press and Photo
Engraving, collected the cost of printing by drawing a draft against the plaintiff, said draft
being sent later to the defendant for acceptance. As an added security for the payment
of the amounts advanced to Encal Press and Photo-Engraving, the plaintiff bank also
required defendant Aruego to execute a trust receipt in favor of said bank wherein said
defendant undertook to hold in trust for plaintiff the periodicals and to sell the same with
the promise to turn over to the plaintiff the proceeds of the sale of said publication to
answer for the payment of all obligations arising from the draft.
Issue: Whether or not the defendant only an agent when he signed the said bill of
exchange and therefore not personally liable.
Held: No, the defendant is liable when he signed the bill of exchange. Section 20 of the
Negotiable Instruments Law provides that “Where the instrument contains or a person
adds to his signature words indicating that he signs for or on behalf of a principal or in a
representative capacity, he is not liable on the instrument if he was duly authorized; but
the mere addition of words describing him as an agent or as filing a representative
character, without disclosing his principal, does not exempt him from personal liability.”
An inspection of the drafts accepted by the defendant shows that nowhere has he
disclosed that he was signing as a representative of the Philippine Education Foundation
Company.

9
ABUBAKAR VS. AUDITOR GENERAL
81 PHIL 359

Facts: Auditor General refused to authorize the payment of Treasury warrant No. A-
2867376 for 1,000 which was issued in favor of Placido S. Urbanes, but is now in the
hands of herein petitioner Benjamin Abubakar.
Respondent argued that the money available for the redemption of treasury warrants
issued before January 2, 1942, is appropriated by Republic Act No. 80 (Item F-IV-8) and
this warrant does not come within the purview of said appropriation; and because one of
the requirements of his office had not been complied with, namely, that it must be shown
that the holders of warrants covering payment or replenishment of cash advances for
official expenditures received them in payment of definite government obligations.
The petitioner argues that he is a holder in good faith and for value of a negotiable
instrument and is entitled to the rights and privileges of a holder in due course, free from
defenses.
Issue: Whether or not the subject treasury warrant [which is in custody of the herein
petitioner who is a private individual] is within the scope of the negotiable instruments
law.
Held: No, this treasury warrant is not within the scope of the negotiable instruments law.
For one thing, the document bearing on its face the words "payable from the
appropriation for food administration," is actually an order for payment out of "a particular
fund," and is not unconditional, and does not fulfill one of the essential requirements of a
negotiable instrument. In the United States, government warrants for the payment of
money are not negotiable instruments nor commercial proper.

10
PHILIPPINE EDUCATION COMPANY VS. SORIANO
G.R. No. L-22405
June 30, 1971

Facts: On April 18, 1958 Enrique Montinola sought to purchase from the Manila Post Office
ten money orders of P200.00 each payable to E.P. Montinola withaddress at Lucena,
Quezon. After the postal teller had made out money orders numbered 124685, 124687-
124695, Montinola offered to pay for them with a private check were not generally accepted
in payment of money orders, the teller advised him to see the Chief of the Money Order
Division, but instead of doing so, Montinola managed to leave building with his own check
and the ten (10) money orders without the knowledge of the teller.

On the same date, April 18, 1958, upon discovery of the disappearance of the unpaid money
orders, an urgent message was sent to all postmasters, and the following day notice was
likewise served upon all banks, instructing them not to pay anyone of the money orders
aforesaid if presented for payment. The Bank of America received a copy of said notice three
days later. The following day it deposited the same with the Bank of America.

Postmaster Enrico Palomar, notified the Bank of America that money order No. 124688
attached to his letter had been found to have been irregularly issued and that, in view
thereof, the amount it represented had been deducted from the bank’s clearing account. The
Bank of America debited appellant’s account with the same account and give notice by mean
of debit memo.

Issue: Whether or not the postal money order in question is a negotiable instrument.

Held: No. It is not disputed that the Philippine postal statutes were patterned after similar
statutes in force in United States. The weight of authority in the United States is that postal
money orders are not negotiable instruments (Bolognesi vs. U.S. 189 Fed. 395; U.S. vs.
Stock Drawers National Bank, 30 Fed. 912), the reason behind this rule being that, in
establishing and operating a postal money order system, the government is not engaging in
commercial transactions but merely exercises a governmental power for the public benefit.

Moreover, not being a party to the understanding existing between the postal officers, on the
one hand, and the Bank of America, on the other, appellant has no right to assail the terms
and conditions thereof on the ground that the letter setting forth the terms and conditions
aforesaid is void because it was not issued by a Department Head in accordance with Sec.
79 (B) of the Revised Administrative Code.

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CASABUENA VS. CA
G.R. No. 115410
February 27, 1998

Facts: Private respondents Spouses Urdaneta were granted a parcel of land by a reform
program of the City Government of Manila. 2. The Urdanetas assigned their rights and
interests in ½ of the lot to a certain Arsenia Benin to cover full payment of their debt of
P500. 3. Having additional debt, the Urdanetas executed another deed of assignment
now involving the whole lot with Benin agreeing to shoulder all obligations and so a TCT
was issued in the name of the Urdanetas. 4. Consequently, the administration of the lot
was assigned by Benin to brothers Casabuena, transferring her right, title and interest for
a consideration of money. 5. After the lot was fully paid by the Urdanetas, a Release of
Mortagage was executed under which, the period of nonalienation of the land was
extended from 5 years to 20 years. 6. Petitioner Juan Casabuena was Benin’s rental
collector of his 2-door apartment constructed on the lot but because of their soured
relationship, Benin named Angel Tanjuakio as administrator who later filed an ejectment
case against Juan. However, it was dismissed. 7. Upon learning the litigation between
Casabuena and Benin, the Urdanetas demanded them to vacate the property. Upon
refusal, The Urdanetas filed for ejectment and recovery of possession of the property
against Casabuena. However, the case was dismissed for lack of jurisdiction. 8. This led
the Urdanetas and Benin to enter into an agreement for the return of the property with
the duplex constructed therein. The Urdanetas were declare the true and lawful owners
of the lot.
The CA affirmed the lower court’s finding that the deed of assignment to Benin only
served as evidence of Urdanetas debt to her in view of the prohibition against the sale of
the land. 10. An MR was denied and so this petition for review on certiorari arguing that
the assignment was made by Benin as creditor of Spouses Urdaneta therefore allowing
Benin to transfer ownership of the property to Casabuena.
Issue: Whether or not a deed of assignment transfer ownership of the property to the
assignee.
Held: In the case at bar, the Casabuenas merely stepped into Benin’s shoes, who was a
mere assignee of the rights of her debtors. Not having acquired any right over the land in
question, it follows that Benin took nothing from the defendants Urdanetas with respect
to the property. By mortgaging a piece of property, the Urdanetas merely subjects it to a
lien but ownership thereof is not parted with. An assignment of credit is the process of
transferring the right of the assignor to the assignee, allowing the latter to proceed
against the debtor. The act of assignment could not have operated to delete liens or
restrictions burdening the right assigned, because an assignee cannot acquire a greater
right than the assignor. At most, an assignee can only acquire rights duplicating those
which his assignor is entitled by law. Spouses Urdaneta remained the owners of the lot
in question. The decision of the CA is affirmed.

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SESBRENO VS. COURT OF APPEALS
222 SCRA 466
1993

Facts: On 9 February 1981, petitioner Raul Sesbreño made a money market placement in
the amount of P300,000.00 with the Philippine Underwriters Finance Corporation, Cebu
Branch; the placement, with a term of thirty-two days, would mature on March 13, 1981,
Philfinance, also on February 9, 1981, issued following documents to petitioner.

On March 13, 1981, petitioner sought to encash the postdated checks issued by Philfinance.
However, the checks were dishonored for having been drawn against insufficient funds. On
March 26, 1981, Philfinance delivered to petitioner the DCR No. 10805 issued by private
respondent “Pilipinas”. On 2 April 1981, petitioner approached Ms. Elizabeth de Villa of
private respondent Pilipinas, Makati Branch, and handed her a demand letter informing the
bank that his placement with Philfinance in the amount reflected in the DCR No. 10805 had
remained unpaid and outstanding, and that he in effect was asking for the physical delivery of
the underlying promissory note.

Petitioner then examined the original of the DMC PN No. 2731 and found: That the security
had been issued on 10 April 1980; that it would mature on 6 April 1981; that it had a face
value of 2,300,833.33, with the Phil finance as “payee” and private respondent Delta as
“maker;” and that on face of the promissory note was stamped “non-negotiable.” Pilipinas did
not deliver the Note, nor any certificate of participation in respect thereof, to petitioner.

As petitioner had failed to collect his investment and interest thereon, he filed an action for
damages with the Regional Trial Court against private respondents Delta and Pilipinas. The
trial court dismissed the complaint and counterclaims for lack of merit and for lack of cause of
action. Petitioner appealed to respondent Court of Appeals the Court of Appeals denied the
appeal and held:

Issue: Whether or not the non-negotiability of a promissory note prevents its assignment.

Held: A non-negotiable instrument may not be negotiated but may be assigned or

transferred. The negotiation of a negotiable instrument must be distinguished from the
assignment or transfer of an instrument whether that be negotiable or non-negotiable. Only
an instrument qualifying as a negotiable instrument under the relevant statute may be
negotiated either by indorsement thereof coupled with delivery, or by delivery alone where
the negotiable instrument is in bearer form.

A negotiable instrument may, however, instead of being negotiated, also be assigned or

transferred. The legal consequences of negotiation as distinguished from assignment of a
negotiable instrument are, of course, different. Furthermore, a non-negotiable instrument
may, obviously, not be negotiated; but it may be assigned or transferred, absent an express
prohibition against assignment or transfer written in the face of the instrument. The words
“not negotiable,” stamped on the face of the instrument, did not destroy its assignability, but
the sole effect was to exempt the same from the statutory provisions relative thereto, and

13
though not negotiable, may be transferred by assignment; the assignee taking subject to the
equities between the original parties.

In assignment, the assignee is merely placed in the position of the assignors and acquires
the instrument subject to all the defenses that might have been set up against the original
payee.DMC PN No. 2731, while marked “non-negotiable,” was not at the same time stamped
“non-transferable” or “non-assignable.” It contained no stipulation which prohibited
Philfinance from assigning or transferring, in whole or in part, that Note.

CONSOLIDATED PLYWOOD INDUSTRIES, INC. VS. IFC LEASING

G.R. No. 72593
April 30, 1987

Facts: Petitioner-corporation through petitioners Wee and Vergara, president and vice-
president, respectively, agreed to purchase on installment said two (2) units of “Used”
Allis Crawler Tractors. The seller-assignor issued the sales invoice for the two (2) units of
tractors. At the same time, the deed of sale with chattel mortgage with promissory note
was executed by Petitioner. Thereafter, the seller-assignor, by means of a deed of
assignment assigned its rights and interest in the chattel mortgage in favor of the
respondent. Because of the breaking down of the tractors, Wee asked the seller-
assignor to pull out the units and have them reconditioned, and thereafter to offer them
for sale. Petitioner-corporation advised the seller-assignor that the payments of the
installments as listed in the promissory note would be delayed until the seller-assignor
completely fulfills its obligation under its warranty. No response was received despite
several follow-up calls.
Respondent now sues Petitioner and claims that the defense of breach of warranty, if
there is any, as in this case, does not lie in favor of the Corporation and against IFC
Leasing who is the assignee of the promissory note and a holder of the same in due
course.
Issue: Whether or not the promissory note in question is a negotiable instrument so as to
bar completely all the available defenses of the petitioner against the respondent-
assignee.
Held: No. Considering that paragraph (d), Section 1 of the Negotiable Instruments Law
requires that a promissory note “must be payable to order or bearer,” it cannot be denied
that the promissory note in question is not a negotiable instrument.
“The instrument in order to be considered negotiable must contain the so called ‘words of
negotiability’ — i.e., must be payable to ‘order’ or ‘bearer’. These words serve as an
expression of consent that the instrument may be transferred. This consent is
indispensable since a maker assumes greater risk under a negotiable instrument than
under a non-negotiable one.
“There are the only two ways by which an instrument may be made payable to order.
There must always be a specified person named in the instrument. It means that the bill
or note is to be paid to the person designated in the instrument or to any person to whom
he has indorsed and delivered the same. Without the words ‘or order’ or ‘to the order of,’
the instrument is payable only to the person designated therein and is therefore non-
negotiable. Any subsequent purchaser thereof will not enjoy the advantages of being a
holder of a negotiable instrument, but will merely ‘step into the shoes’ of the person
designated in the instrument and will thus be open to all defenses available against the
latter.”

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Therefore, considering that the subject promissory note is not a negotiable instrument, it
follows that the respondent can never be a holder in due course but remains a mere
assignee of the note in question. Thus, the petitioner may raise against the respondent
all defenses available to it as against the seller-assignor, Industrial Products Marketing.

MANUEL LIM VS. COURT OF APPEALS

251 SCRA 409
December 19, 1995

Facts: Manuel Lim and Rosita Lim are the officers of the Rigi Bilt Industries, Inc. (RIGI).
RIGI had been transacting business with Linton Commercial Company, Inc. The Lims
ordered 100 pieces of mild steel plates from Linton and were delivered to the Lim’s place
of business which was in Caloocan. To pay Linton, the Lims issued a postdated check
for 51,800.00. On a different date, the Lims also ordered another 65 pcs of mild steel
plates and were delivered in the place of business. They again issued another postdated
check. On that same day, they also ordered purlins worth 241,800 which were delivered
to them on various dates. The Lims issued 7 checks for this.
When the 7 checks were presented to the drawee bank (Solidbank), it was dishonored
because payment for the checks had been stopped and/or insufficiency of funds. So, the
Lims were charged with 7 counts of violation of Bouncing Checks Law.
The Malabon trial court held that the Lims were guilty of estafa and violation of BP 22.
They went to CA on appeal. The CA acquitted the Lims of estafa, on the ground that the
checks were not made in payment of an obligation contracted at the time of their
issuance. However, the CA affirmed the finding that they were guilty of violation for BP
22. Motion for Reconsideration to SC.
Issue: Whether or not the issue was within the jurisdiction of the Malabon Trial Court
Held: Yes. The venue of jurisdiction lies either in the RTC Caloocan or Malabon Trial
Court.
BP 22 is a continuing crime. A person charged with a transitory crime may be validly
tried in any municipality or territory where the offense was partly committed. In
determining the proper venue, the ff. must be considered. 1) 7 checks were issued to
Linton in its place of business in Navotas. 2) The checks were delivered Linton in the
same place. 3) The checks were dishonored in Caloocan 4) The Lims had knowledge of
their insufficiency of funds.
Under sec 191 of the Negotiable Instruments Law the issue is the 1ST delivery of the
instrument complete in form to a person who takes it as a holder, while the holder is the
payee or indorsee of a bill/note who is in possession of it or the bearer
The place where the bills were written, signed or dated does not necessarily fix or
determine the place where they were executed. It is the delivery that is important. It is
the final act essential to its consummation of an obligation. An undelivered bill is

15
unoperative. The issuance and delivery of the check must be to a person who takes it as
a holder.
Although Linton sent a collector who received the checks from the Lims at their place of
business, the checks were actually issued and delivered to Linton in Navotas. The
collector is not a holder or an agent, he was just an employee.

LORETO D. DE LA VICTORIA VS. BURGOS

G.R. No. 111190
June 27, 1995

Facts: Raul Sesbreno filed a complaint for damages against Assistant City Fiscal
Bienvenido Mabanto before the RTC of Cebu City. After trial, judgment was rendered
ordering Mabanto to pay Sesbreno P11,000. The decision having become final and
executory, the trial court ordered its execution upon Sesbreno’s motion. The writ of
execution was issued despite Mabanto’s objection. A notice of garnishment was served
upon Loreto de la Victoria as City Fiscal of Mandaue City where Mabanto was then
detailed. De la Victoria moved to quash the notice of garnishment claiming that he was
not in possession of any money, funds, etc. belonging to Mabanto until delivered to him,
and as such are still public funds which could not be subject of garnishment.
Issue: Whether or not the checks subject of garnishment belongs to Mabanto or whether
they still belong to the government.
Held: Under Section 16 of the Negotiable Instruments Law, every contract on a
negotiable instrument is incomplete and revocable until delivery of the instrument for the
purpose of giving effect thereto. As ordinarily understood, delivery means the transfer of
the possession of the instrument by the maker or drawer with the intent to transfer title to
the payee and recognize him as the holder thereof. Herein, the salary check of a
government officer or employee does not belong to him before it is physically delivered
to him. Inasmuch as said checks had not yet been delivered to Mabanto, they did not
belong to him and still had the character of public funds. As a necessary consequence of
being public fund, the checks may not be garnished to satisfy the judgment.

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DEVELOPMENT BANK OF RIZAL VS. SIMA WEI
G.R. No. 85419
March 9,1993

Facts: In consideration for a loan extended by petitioner Bank to respondent Sima Wei, the
latter executed and delivered to the former a promissory note, engaging to pay the petitioner
Bank or order the amount of P1,820,000.00 on or before June 24, 1983 with interest at 32%
per annum. Sima Wei made partial payments on the note.

Sima Wei issued two crossed checks payable to petitioner Bank drawn against China
Banking Corporation. The said checks were allegedly issued in full settlement of the drawer’s
account evidenced by the promissory note. These two checks were not delivered to the
petitioner-payee or to any of its authorized representatives.

For reasons not shown, these checks came into the possession of respondent Lee Kian
Huat, who deposited the checks without the petitioner-payee’s indorsement (forged or
otherwise) to the account of respondent Plastic Corporation, at the Balintawak branch,
Caloocan City, of the Producers Bank. Cheng Uy, Branch Manager of the Balintawak branch
of Producers Bank, relying on the assurance of respondent Samson Tung, President of
Plastic Corporation, that the transaction was legal and regular, instructed the cashier of
Producers Bank to accept the checks for deposit and to credit them to the account of said
Plastic Corporation, inspite of the fact that the checks were crossed and payable to petitioner
Bank and bore no indorsement of the latter. Hence, petitioner filed the complaint as
aforestated.

On July 6, 1986, the Development Bank of Rizal (petitioner Bank for brevity) filed a complaint
for a sum of money against respondents Sima Wei and/or Lee Kian Huat, Mary Cheng Uy,
Samson Tung, Asian Industrial Plastic Corporation (Plastic Corporation for short) and the
Producers Bank of the Philippines. Except for Lee Kian Huat, defendants filed their separate
Motions to Dismiss alleging a common ground that the complaint states no cause of action.
The trial court granted the defendants’ Motions to Dismiss. The Court of Appeals affirmed
this decision, to which the petitioner Bank, represented by its Legal Liquidator, filed this
Petition for Review by Certiorari.

Issue: Whether or not petitioner Bank has a cause of action against any or all of the
defendants, in the alternative or otherwise.

Held: The normal parties to a check are the drawer, the payee and the drawee bank. Courts
have long recognized the business custom of using printed checks where blanks are

17
provided for the date of issuance, the name of the payee, the amount payable and the
drawer’s signature. All the drawer has to do when he wishes to issue a check is to properly
fill up the blanks and sign it. However, the mere fact that he has done these does not give
rise to any liability on his part, until and unless the check is delivered to the payee or his
representative.

A negotiable instrument, of which a check is, is not only a written evidence of a contract right
but is also a species of property. A negotiable instrument must be delivered to the payee in
order to evidence its existence as a binding contract.

METROPOL FINANCING & INVESTMENT CORP. VS. SAMBOK MOTORS

G.R. No. L-39641
February 28, 1983

Facts: Dr. Javier Villaruel executed a promissory note in favor of Ng Sambok Sons Motors
Co., Ltd., in the amount of P15,939.00 payable in twelve (12) equal monthly installments,
beginning May 18, 1969, with interest at the rate of one percent per month. It is further
provided that in case on non-payment of any of the installments, the total principal sum then
remaining unpaid shall become due and payable with an additional interest equal to twenty-
five percent of the total amount due.

The maker, Dr. Villaruel defaulted in the payment of his installments when they became due,
so on October 30, 1969 plaintiff formally presented the promissory note for payment to the
maker. Dr. Villaruel failed to pay the promissory note as demanded, hence plaintiff notified
Sambok as indorsee of said note of the fact that the same has been dishonored and
demanded payment. Sambok failed to pay. Plaintiff filed a complaint for collection of a sum of
money.

Sambok argues that by adding the words “with recourse” in the indorsement of the note, it
becomes a qualified indorser that being a qualified indorser, it does not warrant that if said
note is dishonored by the maker on presentment, it will pay the amount to the holder; that it
only warrants the following pursuant to Section 65 of the Negotiable Instruments Law: (a) that
the instrument is genuine and in all respects what it purports to be; (b) that he has a good
title to it; (c) that all prior parties had capacity to contract; (d) that he has no knowledge of any
fact which would impair the validity of the instrument or render it valueless.

Issue: Whether or not trial court erred in not dismissing the complaint by finding defendant
appellant Sambok Motors Company as assignor and a qualified indorsee of the subject
promissory note and in not holding it as only secondarily liable thereof.

Held: A qualified indorsement constitutes the indorser a mere assignor of the title to the
instrument. It may be made by adding to the indorser’s signature the words “without
recourse” or any words of similar import. Such an indorsement relieves the indorser of the
general obligation to pay if the instrument is dishonored but not of the liability arising from
warranties on the instrument as provided in Section 65 of the Negotiable Instruments Law

18
already mentioned herein. However, appellant Sambok indorsed the note “with recourse” and
even waived the notice of demand, dishonor, protest and presentment.

“Recourse” means resort to a person who is secondarily liable after the default of the person
who is primarily liable. Appellant, by indorsing the note “with recourse” does not make itself a
qualified indorser but a general indorser who is secondarily liable, because by such
indorsement, it agreed that if Dr. Villaruel fails to pay the note, plaintiff-appellee can go after
said appellant. The effect of such indorsement is that the note was indorsed without
qualification. A person who indorses without qualification engages that on due presentment,
the note shall be accepted or paid, or both as the case may be, and that if it be dishonored,
he will pay the amount thereof to the holder.

Appellant Sambok’s intention of indorsing the note without qualification is made even more
apparent by the fact that the notice of demand, dishonor, protest and presentment were
waived. The words added by said appellant do not limit his liability, but rather confirm his
obligation as a general indorser. The lower court did not err in not declaring appellant as only
secondarily liable because after an instrument is dishonored by non-payment, the person
secondarily liable thereon ceases to be such and becomes a principal debtor. His liability
becomes the same as that of the original obligor. Consequently, the holder need not even
proceed against the maker before suing the indorser.

GEMPESAW VS. COURT OF APPEALS

218 SCRA 682
1993

Facts: Petitioner maintains a checking with the respondent drawee Bank. After the
bookkeeper prepared the checks, the completed checks were submitted to the petitioner for
her signature, together with the corresponding invoice receipts which indicate the correct
obligations due and payable to her suppliers.

Petitioner signed each and every check without bothering to verify the accuracy of the checks
against the corresponding invoices because she reposed full and implicit trust and
confidence on her bookkeeper. The issuance and delivery of the checks to the payees
named therein were left to the bookkeeper.Petitioner admitted that she did not make any
verification as to whether or not the checks were actually delivered to their respective
payees. Although the respondent drawee Bank notified her of all checks presented to and
paid by the bank, petitioner did not verify the correctness of the returned checks, much less
check if the payees actually received the checks in payment for the supplies she received.

In the course of her business operations covering a period of two years, petitioner issued,
following her usual practice stated above, a total of eighty-two (82) checks in favor of several
suppliers. These checks were all presented by the indorsees as holders thereof to, and
honored by, the respondent drawee Bank.

Respondent drawee Bank correspondingly debited the amounts thereof against petitioner’s
checking account. Practically, all the checks issued and honored by the respondent drawee
Bank were crossed checks. Aside from the daily notice given to the petitioner by the
respondent drawee Bank, the latter also furnished her with a monthly statement of her bank
transactions, attaching thereto all the cancelled checks she had issued and which were
debited against her current account. It was only after the lapse of more than two (2) years
that petitioner found out about the fraudulent manipulations of her bookkeeper.

19
Petitioner made a written demand on respondent drawee Bank to credit her account with the
money value of the eighty-two (82) checks for having been wrongfully charged against her
account. Respondent drawee Bank refused to grant petitioner’s demand.

Issue: Whether or not the negligence of the drawer is the proximate cause of the resulting
injury to the drawee bank, and the drawer is precluded from setting up the forgery or want of
authority.

Held: Under Sec 23 of the NIL, forgery is a real or absolute defense by the party whose
signature is forged. A party whose signature to an instrument was forged was never a party
and never gave his consent to the contract which gave rise to the instrument. Thus, if a
person’s signature is forged as a maker of a promissory note, he cannot be made to pay
because he never made the promise to pay. However, the law makes an exception to these
rules where a party is precluded from setting up forgery as a defense.

In the case at bar, petitioner admitted that the checks were filled up and completed by her
trusted employee and were later given to her for her signature. Her signing the checks made
the negotiable instrument complete. As a rule, a drawee bank who has paid a check on
which an indorsement has been forged cannot charge the drawer’s account for the amount of
said check.

ATRIUM MANAGEMENT CORPORATION VS. COURT OF APPEALS

G.R. No. 109491
February 28, 2001

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

Leon, treasurer, and the late Antonio de las Alas, Chairman, issued checks in favor of
E.T. Henry and Co. Inc., as payee. E.T. Henry and Co., Inc., in turn, endorsed the four
checks to Atrium for valuable consideration. Enrique Tan of E.T. Henry approached
Atrium for financial assistance, offering to discount four RCBC checks in the total amount
of P2 million, issued by Hi-Cement in favor of E.T. Henry. Atrium agreed to discount the
checks, provided it be allowed to confirm with Hi-Cement the fact that the checks
represented payment for petroleum products which E.T. Henry delivered to Hi-Cement.
Upon presentment for payment, the drawee bank dishonored all four checks for the
common reason “payment stopped”. As a result thereof, Atrium filed an action for
collection of the proceeds of 4 PDC in the total amount of 2M with RTC Manila.
Judgment was rendered in favor of Atrium ordering Lourdes and Rafael de Leon, E.T.
Henry and Co., and Hi-Cement to pay Atrium the said amount plus interest and
attorney’s fees. CA absolved Hi-cement Corporation from liability. It also ruled that since
Lourdes was not authorized to issue the subjects checks in favor of E.T. Henry Inc., the
said act was ultra vires.
Issue: Whether or not the issuance of the questioned checks was an ultra vires act
Held: An ultra vires act is one committed outside the object for which a corporation is
created as defined by the law of its organization and therefore beyond the power
conferred upon it by law. The term “ultra vires” is “distinguished from an illegal act for the
former is merely voidable which may be enforced by performance, ratification, or
estoppel, while the latter is void and cannot be validated.

20
Personal liability of a corporate director, trustee or officer along (although not
necessarily) with the corporation may so validly attach, as a rule, only when: He assents
(a) to a patently unlawful act of the corporation, or (b) for bad faith or gross negligence in
directing its affairs, or (c) for conflict of interest, resulting in damages to the corporation,
its stockholders or other persons;
He consents to the issuance of watered-down stocks or who, having knowledge thereof,
does not forthwith file with the corporate secretary his written objection thereto; he
agrees to hold himself personally and solidarily liable with the corporation; or he is made,
by a specific provision of law, to personally answer for his corporate action.
In the case at bar, Lourdes and Antonio as treasurer and Chairman of Hi-Cement were
authorized to issue the checks. However, Ms. de Leon was negligent when she signed
the confirmation letter requested by Mr. Yap of Atrium and Mr. Henry of E.T. Henry for
the rediscounting of the crossed checks issued in favor of E.T. Henry. She was aware
that the checks were strictly endorsed for deposit only to the payee’s account and not to
be further negotiated. What is more, the confirmation letter contained a clause that was
not true, that is, “that the checks issued to E.T. Henry were in payment of Hydro oil
bought by Hi-Cement from E.T. Henry”. Her negligence resulted in damage to the
corporation. Hence, Ms. de Leon may be held personally liable therefor.

DE OCAMPO VS. GATCHALIAN

30 November 1961
3 SCRA 596

Facts: Gatchalian, was looking for a car for the use of her husband and the family and
Manuel who was accompanied by Emil offered her a car. Manuel represented to Gatchalian
that he was duly authorized by Ocampo Clinic, the owner of the car, to look for a buyer and
negotiate for and accomplish the sale, but which facts were not known to De Ocampo. The
next day, Gatchalian requested Manuel to bring the car the day following together with the
certificate of registration of the car so that her husband would be able to see same but
Manuel told her that unless there is a showing that the party interested in the purchase is
ready he cannot bring the certificate of registration in lieu of which Gatchalian gave him a
check which will be shown to the owner as evidence of buyer’s good faith in the intention to
purchase, it being for safekeeping only of Manuel and to be returned.

Upon receipt of the check from the defendant, Manuel delivered the same to the Ocampo
Clinic, in payment of the fees and expenses arising from the hospitalization of his wife.
Manuel failed to appear the next day and, on his failure, to bring the car and its certificate of
registration and to return the check, as previously agreed upon, Gatchalian issued a “Stop
Payment Order” on the check, with the drawee bank. Said “Stop Payment Order” was issued
without previous notice on De Ocampo not being known to Gatchalian and who furthermore
had no reason to know check was already given to the former.

Gatchalian then filed with the Office of the City Fiscal of Manila, a complaint for Estafa
against Manuel, however, the latter contended that the check is not a negotiable instrument,
under the facts and circumstances stated in the stipulation of facts, and that De Ocampo is
not a holder in due course.

Issue: Whether or not De Ocampo can be considered as a holder in due course.

21
Held: No, De Ocampo can be considered as a holder in due course. Section 52, Negotiable
Instruments Law, defines holder in due course as a holder who has taken the instrument
under the following conditions:

(a) That it is complete and regular upon its face;

(b) That he became the holder of it before it was overdue, and without notice that it had been
previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it.

In order to show that the defendant had “knowledge of such facts that his action in taking the
instrument amounted to bad faith,” it is not necessary to prove that the defendant knew the
exact fraud that was practiced upon the plaintiff by the defendant’s assignor, it being
sufficient to show that the defendant had notice that there was something wrong about his
assignor’s acquisition of title, although he did not have notice of the particular wrong that was
committed. Thus, it is sufficient that the buyer of a note had notice or knowledge that the note
was in some way tainted with fraud. It is not necessary that he should know the particulars or
even the nature of the fraud, since all that is required is knowledge of such facts that his
action in taking the note amounted bad faith. Such considerations would seem sufficient to
justify the ruling that De Ocampo should not be allowed to recover the value of the check.

YANG VS. COURT OF APPEALS

G.R. No. 138074
August 15, 2003

Facts: Petitioner Cely Yang and private respondent Prem Chandiramani entered into an
agreement whereby the latter was to give Yang a PCIB manager’s check in the amount of
P4.2 million in exchange for two (2) of Yang’s manager’s checks, each in the amount of
2.087 million, both payable to the order of private respondent Fernando David. Yang and
Chandiramani agreed that the difference of 26,000.00 in the exchange would be their profit to
be divided equally between them. Yang and Chandiramani also further agreed that the
former would secure from FEBTC a dollar draft in the amount of US$200,000.00, payable to
PCIB FCDU, which Chandiramani would exchange for another dollar draft in the same
amount to be issued by Hang Seng Bank Ltd. of Hong Kong.
Yang gave the aforementioned cashier’s checks and dollar drafts to her business associate,
Albert Liong, to be delivered to Chandiramani by Liong’s messenger, Danilo Ranigo. Ranigo
was to meet Chandiramani and would turn over Yang’s cashier’s checks and dollar draft to
Chandiramani who, in turn, would deliver to Ranigo a PCIB manager’s check in the sum of
4.2 million and a Hang Seng Bank dollar draft for US$200,000.00 in exchange.
Chandiramani did not appear at the rendezvous and Ranigo allegedly lost the two cashier’s
checks and the dollar draft bought by petitioner. It transpired, however, that the checks and
the dollar draft were not lost, for Chandiramani was able to get hold of said instruments,
without delivering the exchange consideration. Chandiramani delivered to respondent
Fernando David said instruments. In exchange, Chandiramani got US$360,000.00 from
David.
Yang asked for the stoppage of payment of the checks she believe to be lost, relying on the
report of her messenger. The stoppage order was eventually lifted by the banks and the
drafts and checks were able to be encashed. Yang then filed an action for injunction and
damages against the banks, Chandimari and David. The trial court and CA held in favor of
David as a holder in due course.

22
Issue: Whether or not David is a holder in due course.
Held: Every holder of a negotiable instrument is presumed to be a holder in due course. This
is especially true if one is a holder because he is the payee or indorsee of the instrument. In
the case at bar, it is evident that David was the payee of the checks. The prima facie
presumption of him being a holder in due course is in his favor.
However, this presumption is disputable. On whether he took the check under the conditions
set forth in Section 52 must be proven. Petitioner relies on two arguments on why David isn’t
a holder in due course—first, because he took the checks without valuable consideration;
and second, he failed to inquire on Chandimari’s title to the checks given to him. The law
gives rise to the presumption of valuable consideration. Petitioner has the burden of
debunking such presumption, which it failed to do so. Her allegation that David received the
checks without consideration is unsupported and devoid of any evidence.
Moreover, petitioner wasn’t able to show any circumstance which should have placed David
in inquiry as to why and wherefore of the possession of the checks by Chandimari. David
wasn’t a privy to the transactions between Yang and Chandimari. Instead, Chandimari and
David had the agreement between themselves of the delivery of the checks. David even
inquired with the banks on the genuineness of the checks in issue. At that time, he wasn’t
aware of any request for the stoppage of payment. Under these circumstances, David had no
obligation to ascertain from Chandimari what the nature of the latter’s title to the checks was,
if any, or the nature of his possession.

BATAAN CIGAR AND CIGARETTE FACTORY, INC. VS. CA

G.R. No. 93048
March 3, 1994

Facts: Bataan Cigar & Cigarette Factory, Inc. (BCCFI), engaged with King Tim Pua
George, to deliver 2,000 bales of tobacco leaf. BCCFI issued post-dated crossed checks
in exchange. Trusting King's words, BCCFI issued another post-dated cross check for
another purchase of tobacco leaves.
During these times, King was dealing with State Investment House Inc. On two separate
occasions King sold the post-dated cross checks to SIHI, that was drawn by BCCFI in
favor of King.
Because King failed to deliver the leaves, BCFI issued a stop payment to all the checks,
including those sold to SIHI.
The RTC held that SIHI had a valid claim of being a holder in due course and to collect
the checks issued by BCCFI.
Issue: Whether or not SIHI is a holder in due course.
Held: The court held that SIHI is not a holder in due course thus granting the petition of
BCCFI. The purpose of cross checks is to avoid those bouncing or encashing of forged
checks. Cross checks have the following effects: it cannot be encashed but only
deposited in a bank; it can only be negotiated on its respective bank once; it serves as a
warning to the hiolder that it has been issued for a defienite purpose thus making SIHI
not a holder in due course. Thus, SIHI can collect from the immediate indorser, in this
case, George King.

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STELCO MARKETING VS. CA
210 SCRA 51
1992

Facts: Stelco Marketing Corporation is engaged in the distribution and sale to the public of
structural steel bars. On seven different occasions in September and October, 1980, it sold to
RYL Construction, Inc. quantities of steels bars of various sizes and rolls of G.I. wire. These
bars and wire were delivered at different places at the indication of RYL Construction, Inc.

On April, RYL gave to Armstrong, Industries — described by STELCO as it’s “sister

corporation” and “manufacturing arm” — a check drawn against Metrobank. That check was
a company check of another corporation, Steelweld Corporation of the Philippines, signed by
its President and its Vice-President. The check was issued by Limson at the behest of his
friend, President of RYL. Romeo Lim had asked Limson, for financial assistance, and the
latter had agreed to give Lim a check only by way of accommodation, “only as guaranty but
not to pay for anything. When the latter deposited the check at its bank, it was dishonored
because “drawn against insufficient funds.” When so deposited, the check bore two
endorsements, that of “RYL Construction,” followed by that of “Armstrong Industries.”

On account of the dishonor of Metrobank Check and on complaint of Armstrong Industries

(through a Mr. Young), Rafael Limson and Artemio Torres were charged in the Regional Trial
Court of Manila with a violation of Batas Pambansa Bilang 22. They were acquitted on the
ground that the check in question was not issued by the drawer “to apply on account for
value,” it being merely for accommodation purposes.

Issue: Whether the acquittal of the two accused did not operate “to release Steelweld
Corporation from its liability under Sec. 29 of the Negotiable Instruments Law for having
issued the check for the accommodation of Romeo Lim.

24
Held: It is noteworthy that the Trial Court’s pronouncement containing reference to said
Section 29 did not specify to whom Steelweld, as accommodation party, is supposed to be
liable; and certain it is that neither said pronouncement nor any other part of the judgment of
acquittal declared it liable to STELCO. As regards an accommodation party, the fourth
condition, i.e., lack of notice of any infirmity in the instruments or defect in title of the persons
negotiating it, has no application. This is because Section 29 of the law preserves the right of
recourse of a “holder for value” against the accommodation party notwithstanding that “such
holder, at the time of taking the instrument, knew him to be only an accommodation party.

There is no evidence whatever that STELCO’s possession of Check ever dated back to nay
time before the instrument’s presentment and dishonor. There is no evidence whatsoever
that the check was ever given to it, or indorsed to it in any manner or form in payment of an
obligation or as security for an obligation, or for any other purpose before it was presented for
payment. On the contrary, the factual finding of the Court of Appeals, which by traditional
precept is normally conclusive on this Court, is that STELCO never became a holder for
value and that nowhere in the check itself does the name of Stelco Marketing appear as
payee, indorsee or depositor thereof.

GO VS. METROBANK
G.R. No. 168842
August 11, 2010

Facts: Petitioner filed a case for a sum of money with damages against herein respondent
Metrobank and Chua. Petitioner alleged that he was doing business under the name "Hope
Pharmacy" which sells medicine and other pharmaceutical products in the City of Cebu.
Petitioner had in his employ Chua as his pharmacist and trustee or caretaker of the business.

Petitioner claimed that there were unauthorized deposits and encashments made by Chua.
She averred that there were thirty-two (32) checks with Hope Pharmacy as payee, that were
not endorsed by him but were deposited under the personal account of Chua with
respondent bank. Petitioner claimed that the said checks were crossed checks payable to
Hope Pharmacy only; and that without the participation and connivance of respondent bank,
the checks could not have been accepted for deposit to any other account, except
petitioner’s account. RTC exonerated Chua, it however declared respondent bank liable for
being negligent in allowing the deposit of crossed checks without the proper indorsement.
Thus, the CA absolved Metrobank.

Issue: Whether or not CA erred in not holding Metrobank liable for allowing the deposit of
crossed checks which were issued in favor of and payable to petitioner and without being
indorsed by the petitioner.

Held: There is no dispute that the subject was crossed checks with petitioner as the named
payee. It is the submission of petitioner that respondent bank should be held accountable for
the entire amount of the checks because it accepted the checks for deposit under Chua’s
account despite the fact that the checks were crossed and that the payee named therein was
not Chua. Respondent bank should not be held liable for the entire amount of the checks

25
considering that, as found by the RTC and affirmed by the CA, the checks were actually
given to Chua as payments by petitioner for loans obtained from the parents of Chua.
Furthermore, petitioner’s non-inclusion of Chua and Tabañag in the petition before this Court
is, in effect, an admission by the petitioner that Chua, in representation of her parents, had
rightful claim to the proceeds of the checks, as payments by petitioner for money he
borrowed from the parents of Chua. Therefore, petitioner suffered no pecuniary loss in the
deposit of the checks to the account of Chua.

However, respondent bank was negligent in permitting the deposit and encashment of the
crossed checks without the proper indorsement. An indorsement is necessary for the proper
negotiation of checks specially if the payee named therein or holder thereof is not the one
depositing or encashing it. Knowing fully well that the subject checks were crossed, that the
payee was not the holder and that the checks contained no indorsement, respondent bank
should have taken reasonable steps in order to determine the validity of the representations
made by Chua. Respondent bank was amiss in its duty as an agent of the payee. Negligence
was committed by respondent bank in accepting for deposit the crossed checks without
indorsement and in not verifying the authenticity of the negotiation of the checks. The law
imposes a duty of extraordinary diligence on the collecting bank to scrutinize checks
deposited with it, for the purpose of determining their genuineness and regularity.

JUANITA SALAS VS. CA

G.R. No. 76788
January 22, 1990

Facts: Petitioner bought a motor vehicle from the Violago Motor Sales Corporation
evidenced by a promissory note. The note was subsequently endorsed to Filinvest
Finance & Leasing Corporation which financed the purchase. Petitioner defaulted in her
installments because VMS delivered a different vehicle to her. Due to her failure to pay
Filinvest filed a collection suit.
The trial court ordered petitioner to pay the defendant. They both appealed the decision
to the Court of Appeals. In her appeal, she did not implead VMS as a party to the case
because she already sued VMS for “breach of contract with damages” in another case.
The Court of Appeals modified the decision and ordered the petitioner to pay the
defendant sum of 54,908.30 at 14% per annum. Her motion for reconsideration was
denied.
Issue: Whether or not the promissory note is a negotiable instrument which will bar
completely all the available defenses of the petitioner against private respondent

Held: The questioned promissory note is a negotiable instrument because it complied

with all the requisites provided for by law: a. that it is in writing and signed by the maker
Juanita Salas; b. that it contains an unconditional promise to pay the amount of
58,138.20; c. that it is payable at a fixed or determinable future time which is 1,614.95
monthly for 36 months due and payable on the 21 st day of each month starting March 21,
1980 thru and inclusive of Feb. 21, 1983;” d. that it is payable to Violago Motor Sales

26
Corporation, or order and as such, and e. that the drawee is named or indicated with
certainty.

The note was negotiated by indorsement in writing on the instrument itself payable to the
Order of Filinvest Finance and Leasing Corporation. It is an indorsement of the entire
instrument. Filinvest is a holder in due course because it has taken the instrument under
the following conditions that it is complete and regular upon its face; it became the holder
thereof before it was overdue, and without notice that it had previously been dishonored;
it took the same in good faith and for value; and when it was negotiated to Filinvest, the
latter had no notice of any infirmity in the instrument or defect in the title of VMS
Corporation. Thus, as a holder in due course, Filinvest holds the instrument free from
any defect of title of prior parties, and free from defenses available to prior parties among
themselves, and may enforce payment of the instrument for the full amount thereof. This
being so, petitioner cannot set up against respondent the defense of nullity of the
contract of sale between her and VMS.

STATE INVESTMENT HOUSE INC. VS. CA

GR No. 101163
January 11, 1993

Facts: Nora Moulic issued to Corazon Victoriano, as security for pieces of jewelry to be
sold on commission, two postdated checks in the amount of fifty thousand each.
Thereafter, Victoriano negotiated the checks to State Investment House, Inc. When
Moulic failed to sell the jewelry, she returned it to Victoriano before the maturity of the
checks.
However, the checks cannot be retrieved as they have been negotiated. Before the
maturity date Moulic withdrew her funds from the bank contesting that she incurred no
obligation on the checks because the jewelry was never sold and the checks are
negotiated without her knowledge and consent. Upon presentment of for payment, the
checks were dishonored for insufficiency of funds.
Issue: Whether or not State Investment House inc. was a holder of the check in due
course
Held: State Investment House inc. was a holder of the check in due course. Section 52
of the NIL provides what constitutes a holder in due course. The evidence shows that: on
the faces of the post-dated checks were complete and regular; that State Investment
House Inc. bought the checks from Victoriano before the due dates; that it was taken in

27
good faith and for value; and there was no knowledge with regard that the checks were
issued as security and not for value.
A prima facie presumption exists that a holder of a negotiable instrument is a holder in
due course. Moulic failed to prove the contrary.
Moreover, Moulic can only invoke this defense against the petitioner if it was a privy to
the purpose for which they were issued and therefore is not a holder in due course.
Section 119 of NIL provides how an instrument be discharged. Moulic can only invoke
paragraphs c and d as possible grounds for the discharge of the instruments. Since
Moulic failed to get back the possession of the checks as provided by paragraph c,
intentional cancellation of instrument is impossible. As provided by paragraph d, the acts
which will discharge a simple contract of payment of money will discharge the
instrument. Correlating Article 1231 of the Civil Code which enumerates the modes of
extinguishing obligation, none of those modes outlined therein is applicable in the instant
case.
Thus, Moulic may not unilaterally discharge herself from her liability by mere expediency
of withdrawing her funds from the drawee bank. She is thus liable as she has no legal
basis to excuse herself from liability on her check to a holder in due course. Moreover,
the fact that the petitioner failed to give notice of dishonor is of no moment. The need for
such notice is not absolute; there are exceptions provided by Sec 114 of NIL.

PRUDENCIO VS. CA
G.R. No. L-34539
July 14, 1986

Facts: Eulalio and Elisa Prudencios, registered owners of a parcel of land mortgaged to

Philippine National Bank (PNB) to guarantee a loan of 1,000.00 extended to Domingo
Prudencio 1955: Concepcion & Tamayo Construction Company (Concepcion) had a pending
contract with the Bureau of Public Works For the construction of the municipal building in
Puerto Princess, Palawan amounting to 36,800.00  In need of funds, Jose Toribio,
Concepcion’s' relative, and attorney-in-fact of the Company, approached PNB to mortgage
their property to secure the loan of 10,000.00 w/ PNB.

The terms and conditions of the original mortgage for l,000.00 were made integral part of the
new mortgage for 10,000.00 and both documents were registered with the Register of Deeds
Dec 23 1955: promissory note covering the loan of 10,000.00 dated Dec 29 1955, maturing
on Apr 27 1956, was signed by Jose Toribio, as attorney-in-fact of the Company, and by the
Prudencios' Deed of Assignment assigning all payments to be made by the Bureau to the
Co. on account of the contract for the construction in favor of the PNB. PNB approved the
Bureau's release of 3 payments directly to Concepcion for material and labor instead of
paying the same to the Bank on account of the contract price totaling 11,234.40 without the
knowledge of the Prudencios' PNB did not apply the initial and subsequent payments to the
Prudencios' debt as provided for in the deed of assignment Jun 30 1956. Concepcion

28
abandoned their work so Bureau rescinded the construction contract and assumed the work
of completing Jun 27 1959. Concepcion filed to cancelled their mortgage complaint was
amended to exclude the Company as defendant, it having been shown that its life as a
partnership had already expired and, in lieu thereof, Ramon Concepcion and Manuel M.
Tamayo, partners of the defunct Company, were impleaded in their private capacity as
defendants.

The CA affirmed  and later the RTC denied it that there’s no stipulation in the deed making it
obligatory on the part of the PNB to notify the petitioners every time it authorizes payment to
the Company Prudencios' contend that as accommodation makers, the nature of their liability
is only that of mere sureties instead of solidary co-debtors such that "a material alteration in
the principal contract, effected by the creditor without the knowledge and consent of the
sureties, completely discharges the sureties from all liability on the contract of suretyship. 

Issue:  Whether or not the Prudencios' as accomodating party are liable as solidary debtors
so real estate mortgage executed by them cannot be cancelled W/N PNB was a holder in
due course

Held: Section 29 of the Negotiable Instrument Law Liability of accommodation party. An

accommodation party is one who has signed the instrument as maker, drawer, acceptor, or
indorser, without receiving value therefor, and for the purpose of lending his name to some
other person. Such a person is liable on the instrument to a holder for value, notwithstanding
such holder at the time of taking the instrument knew him to be only an accommodation
party. Thus, the liability of the accommodation party remains not only primary but also
unconditional to a holder for value remedy is a matter of concern exclusively between
accommodation indorser and accommodated party.

Moreover, PNB is an immediate party and, therefore, is not a holder in due course and
stands on no better footing than a mere assignee holder in due course - payee either
acquired the note from another holder or has not directly dealt with the maker thereof PNB, in
effect, waived payments of the first three releases PNB cannot be regarded as having acted
in good faith which is also one of the requisites of a holder in due course under Section 52 of
the Negotiable Instruments Law It was only when the deed of assignment was shown to the
spouses that they consented to the mortgage and signed the promissory note in the Bank's
favor.

PNB VS. PICORNELL

46 Phil 716
26 Sept 26, 1922

Facts: Picornell, following instruction of Hyndman, Tavera & Ventura (HTV), bought in
bales of tobacco; that Picornell obtained from the branch of the National Bank in Cebu a
sum of of money to the value of the tobacco, together with his commission, drawn the
following bill of exchange. The invoice and bill of lading were delivered to the National
Bank with the understanding that the bank should not delivered them to HTV except
upon payment of the bill; The invoice and bill of lading was delivered and accepted by
HTV who proceeded to the examination of the tobacco. HTV wrote and cable to
Picornell, notifying him that of the tobacco received, there was a certain portion which
was no use and was damaged. After a number of communications between Picornell
and HTV, HTV refuse to pay the bill and instruct the bank to dispose and sell the
tobacco. The Bank sold the tobacco for the amount less of the bill it advanced. The bank
demand payment for the said balance which Picornell and HTV refused to pay, hence
this case.

29
Issue: Whether or not Picornell and HTV are liable to reimburse the bank on the bill it
advanced to pay for the Tobacco.

Held: HTV cannot escape liability in view of Section 28 of the Negotiable Instruments
Law. The drawee by acceptance becomes liable to the payee or his indorsee, and also
to the drawer himself. But the drawer and acceptor are the immediate parties to the
consideration, and if the acceptance be without consideration, the drawer cannot recover
of the acceptor. The payee holds a different relation; he is a stranger to the transaction
between the drawer and the acceptor, and is, therefore, in a legal sense a remote party.
In a suit by him against the acceptor, the question as to the consideration between the
drawer and the acceptor cannot be inquired into. The payee or holder gives value to the
drawer, and if he is ignorant of the equities between the drawer and the acceptor, he is in
the position on a bona fide indorsee. Hence, it is no defense to a suit against the
acceptor of a draft which has been discounted, and upon which money has been
advance by the plaintiff, that the draft was accepted or the accommodation of the drawer.

Bartolome Picornell, he warranted, as drawer of the bill, that it would be accepted upon
proper presentment and paid in due course, and as it was not paid, he became liable to
the payment of its value to the holder thereof, which is the plaintiff bank. The fact that
Picornell was a commission agent of HTV, in the purchase of the tobacco, does not
necessarily make him an agent of the company in its obligations arising from the drawing
of the bill by him. His acts in negotiating the bill constitute a different contract from that
made by his having purchased the tobacco on behalf of HTV.

Furthermore, he cannot exempt himself from responsibility by the fact of his having been
a mere agent of this company, because nothing to this effect was indicated or added to
his signature on signing the bill

PNB VS. CA
G.R. No. L-27155
May 18, 1978

Facts: Plaintiff executed its bondwith Rita Gueco Tapnio (Rita) as principal, in favor of
the Philippine National Bank, to guarantee the payment of Rita’s account with said Bank.
In turn, to guarantee the payment of whatever amount the bonding company would pay
to the Philippine National Bank, both defendants executed the indemnity agreement.

It is not disputed that Rita was indebted to the bank in the sum of 2,000.00, plus
accumulated interests unpaid, which she failed to pay despite demands. The Bank wrote
a letter of demand to plaintiff, whereupon, plaintiff paid the bank the full amount due and
owing in the sum of 2,379.91, for and on account of defendant Rita’s obligation. Plaintiff,
in turn, made several demands, both verbal and written, upon defendants but to no avail.

Rita claims when demand was made upon her by plaintiff for her to pay her debt to the
Bank, she told the plaintiff that she did not consider herself to be indebted to the Bank at

30
all because she had an agreement with Jacobo Tuazon leasing to the latter her unused
export sugar quota for a total of 2,800.00, which was already in excess of her obligation
guaranteed by plaintiff’s bond. This lease agreement, according to her, was with the
knowledge of the bank. But the Bank has placed obstacles to the consummation of the
lease, and the delay caused by said obstacles forced Tuazon to rescind the lease
contract. Thus, Rita filed her third-party complaint against the Bank to recover from the
latter any and all sums of money which may be adjudged against her and in favor of the
plaintiff, plus moral damages, attorney’s fees and costs.

Issue: Whether or not PNB should be liable

Held: The law provides that a corporation is civilly liable in the same manner as natural
persons for torts, because “generally speaking, the rules governing the liability of a
principal or master for a tort committed by an agent or servant are the same whether the
principal or master be a natural person or a corporation, and whether the servant or
agent be a natural or artificial person. All of the authorities agree that a principal or
master is liable for every tort which he expressly directs or authorizes, and this is just as
true of a corporation as of a natural person.

A corporation is liable, therefore, whenever a tortious act is committed by an officer or

agent under express direction or authority from the stockholders or members acting as a
body, or, generally, from the directors as the governing body.”

While petitioner had the ultimate authority of approving or disapproving the proposed
lease since the quota was mortgaged to the Bank, the latter certainly cannot escape its
responsibility of observing, for the protection of the interest of private respondents, that
degree of care, precaution and vigilance which the circumstances justly demand in
approving or disapproving the lease of said sugar quota.

ANG TIONG VS. TING

22 SCRA 713
Feb 22, 1968

Facts: Lorenzo Ting issued Philippine Bank of Communications check K-81618, for the
sum of 4,000.00, payable to “cash or bearer”. With Felipe Ang’s signature at the back
thereof, the instrument was received by the plaintiff Ang Tiong who thereafter presented
it to the drawee bank for payment. The bank dishonored it. The plaintiff then made
written demands on both Lorenzo Ting and Felipe Ang that they make good the amount
represented by the check. These demands went unheeded; so, he filed in the municipal
court of Manila an action for collection of the sum of 4,000.00, plus 500.00 attorney’s
fees.
On March 6, 1962 the municipal court adjudged for the plaintiff against the two
defendants. Only Felipe Ang appealed to the Court of First Instance of Manila which
rendered judgment on July 31, 1962, amended by an order dated August 9, 1962,

31
directing him to pay to the plaintiff “the sum of 4,000.00, with interest at the legal rate
from the date of the filing of the complaint, a further sum of 400.00 as attorney’s fees,
and costs.” Felipe Ang then elevated the case to the Court of Appeals, which certified it
to this Court because the issues raised are purely of law.
Issue: Whether or not the lower court err in adjudging Ang as general indorser
Held: Nothing in the check in question indicates that the appellant is not a general
indorser within the purview of Section 63 of the Negotiable Instruments Law which
makes “a person placing his signature upon an instrument otherwise than as maker,
drawer or acceptor” a general indorser, — “unless he clearly indicates plaintiff
appropriate words his intention to be bound in some other capacity,” which he did not do.
Section 66 provides that “every indorser who indorses without qualification, warrants to
all subsequent holders in due course” a) that the instrument is genuine and in all
respects what it purports to be; b) that he has a good title to it; c) that all prior parties
have capacity to contract; and d) that the instrument is at the time of his indorsement
valid and subsisting. In addition, he engages that on due presentment, it shall be
accepted or paid, or both, as the case may be, and that if it be dishonored, he will pay
the amount thereof to the holder.

ATRIUM MANAGEMENT CORPORATION VS. CA

G.R. No. 109491
February 28, 2001

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

Leon, treasurer, and the late Antonio de las Alas, Chairman, issued checks in favor of
E.T. Henry and Co. Inc., as payee. E.T. Henry and Co., Inc., in turn, endorsed the four
checks to Atrium for valuable consideration. Enrique Tan of E.T. Henry approached
Atrium for financial assistance, offering to discount four RCBC checks in the total amount
of 2 million, issued by Hi-Cement in favor of E.T. Henry. Atrium agreed to discount the
checks, provided it be allowed to confirm with Hi-Cement the fact that the checks
represented payment for petroleum products which E.T. Henry delivered to Hi-Cement.
Upon presentment for payment, the drawee bank dishonored all four checks for the
common reason “payment stopped”.

32
As a result, thereof, Atrium filed an action for collection of the proceeds of 4 PDC in the
total amount of 2 million with RTC Manila. Judgment was rendered in favor of Atrium
ordering Lourdes and Rafael de Leon, E.T. Henry and Co., and Hi-Cement to pay Atrium
the said amount plus interest and attorney’s fees.

CA then absolved Hi-cement Corporation from liability. It also ruled that since Lourdes
was not authorized to issue the subjects checks in favor of E.T. Henry Inc., the said act
was ultra vires.

Issue: Whether or not the issuance of the questioned checks was an ultra vires act

Held: An ultra vires act is one committed outside the object for which a corporation is
created as defined by the law of its organization and therefore beyond the power
conferred upon it by law. The term “ultra vires” is “distinguished from an illegal act for the
former is merely voidable which may be enforced by performance, ratification, or
estoppel, while the latter is void and cannot be validated.

In the case at bar, Lourdes M. de Leon and Antonio de las Alas as treasurer and
Chairman of Hi-Cement were authorized to issue the checks. However, Ms. de Leon was
negligent when she signed the confirmation letter requested by Mr. Yap of Atrium and
Mr. Henry of E.T. Henry for the rediscounting of the crossed checks issued in favor of
E.T. Henry. She was aware that the checks were strictly endorsed for deposit only to the
payee’s account and not to be further negotiated. What is more, the confirmation letter
contained a clause that was not true, that is, “that the checks issued to E.T. Henry were
in payment of Hydro oil bought by Hi-Cement from E.T. Henry”. Her negligence resulted
in damage to the corporation. Hence, Ms. de Leon may be held personally liable
therefor.

ASSOCIATED BANK VS. CA

G.R. No. 107382
January 31, 1996

Facts: The Province of Tarlac maintains a current account with the Philippine National
Bank (PNB Tarlac Branch) where the provincial funds are deposited. Portions of the
funds were allocated to the Concepcion Emergency Hospital. Checks were issued to it
and were received by the hospital’s administrative officer and cashier Fausto Pangilinan.
Pangilinan, through the help of Associated Bank but after forging the signature of the
hospital’s chief Adena Canlas, was able to deposit the checks in his personal account.
All the checks bore the stamp “All prior endorsement guaranteed Associated Bank.”
Through post-audit, the province discovered that the hospital did not receive several

33
allotted checks, and sought the restoration of the debited amounts from PNB. In turn,
PNB demanded reimbursement from Associated Bank. Both banks resisted payment.
Hence, the present action.
Issue: Whether or not the thirty checks bearing forged endorsements are paid, and who
bears the loss, the drawer, the drawee bank or the collecting bank

Held: A forged signature, whether it be that of the drawer or the payee, is wholly
inoperative and no one can gain title to the instrument through it. A person whose
signature to an instrument was forged was never a party and never consented to the
contract which allegedly gave rise to such instrument. Section 23 does not avoid the
instrument but only the forged signature. Thus, a forged indorsement does not operate
as the payee’s indorsement. The exception to the general rule in Section 23 is where “a
party against whom it is sought to enforce a right is precluded from setting up the forgery
or want of authority.” Parties who warrant or admit the genuineness of the signature in
question and those who, by their acts, silence or negligence are estopped from setting
up the defense of forgery, are precluded from using this defense. Indorsers, persons
negotiating by delivery and acceptors are warrantors of the genuineness of the
signatures on the instrument.

An indorser of an order instrument warrants “that the instrument is genuine and in all
respects what it purports to be; that he has a good title to it; that all prior parties had
capacity to contract; and that the instrument is at the time of his indorsement valid and
subsisting.” He cannot interpose the defense that signatures prior to him are forged. A
collecting bank where a check is deposited and which indorses the check upon
presentment with the drawee bank, is such an indorser. So even if the indorsement on
the check deposited by the banks’ client is forged, the collecting bank is bound by his
warranties as an indorser and cannot set up the defense of forgery as against the
drawee bank.

GEMPESAW VS. CA
218 SCRA 682
1993

Facts: Petitioner maintains a checking with the respondent drawee Bank. After the
bookkeeper prepared the checks, the completed checks were submitted to the petitioner for
her signature, together with the corresponding invoice receipts which indicate the correct
obligations due and payable to her suppliers. Petitioner signed each and every check without
bothering to verify the accuracy of the checks against the corresponding invoices because
she reposed full and implicit trust and confidence on her bookkeeper. The issuance and
delivery of the checks to the payees named therein were left to the bookkeeper. Petitioner
admitted that she did not make any verification as to whether or not the checks were actually
delivered to their respective payees. Although the respondent drawee Bank notified her of all

34
checks presented to and paid by the bank, petitioner did not verify the correctness of the
returned checks, much less check if the payees actually received the checks in payment for
the supplies she received.

In the course of her business operations covering a period of two years, petitioner issued,
following her usual practice stated above, a total of eighty-two checks in favor of several
suppliers. These checks were all presented by the indorsees as holders thereof to, and
honored by, the respondent drawee Bank. Respondent drawee Bank correspondingly
debited the amounts thereof against petitioner’s checking account. Most of the
aforementioned checks were for amounts in excess of her actual obligations to the various
payees as shown in their corresponding invoices. Practically, all the checks issued and
honored by the respondent drawee Bank were crossed checks. Aside from the daily notice
given to the petitioner by the respondent drawee Bank, the latter also furnished her with a
monthly statement of her bank transactions, attaching thereto all the cancelled checks she
had issued and which were debited against her current account. It was only after the lapse of
more than two (2) years that petitioner found out about the fraudulent manipulations of her
bookkeeper. Petitioner made a written demand on respondent drawee Bank to credit her
account with the money value of the eighty-two checks for having been wrongfully charged
against her account. Respondent drawee Bank refused to grant petitioner’s demand.

Issue: Whether or not the negligence of the drawer is the proximate cause of the resulting
injury to the drawee bank, and the drawer is precluded from setting up the forgery or want of
authority.

Held: Section 23 of the NIL states that, forgery is a real or absolute defense by the party
whose signature is forged. A party whose signature to an instrument was forged was never a
party and never gave his consent to the contract which gave rise to the instrument. Thus, if a
person’s signature is forged as a maker of a promissory note, he cannot be made to pay
because he never made the promise to pay. However, the law makes an exception to these
rules where a party is precluded from setting up forgery as a defense.

In the case at bar, petitioner admitted that the checks were filled up and completed by her
trusted employee and were later given to her for her signature. Her signing the checks made
the negotiable instrument complete. As a rule, a drawee bank who has paid a check on
which an indorsement has been forged cannot charge the drawer’s account for the amount of
said check. An exception to this rule is where the drawer is guilty of such negligence which
causes the bank to honor such a check or checks. The petitioner relied implicitly upon the
honesty and loyalty of her bookkeeper, and did not even verify the accuracy of the amounts
of the checks she signed against the invoices attached thereto. Moreover, although she
regularly received her bank statements, she apparently did not carefully examine the same
nor the check stubs and the returned checks, and did not compare them with the sales
invoices. Thus, it is clear that under the NIL, petitioner is precluded from raising the defense
of forgery by reason of her gross negligence.

REPUBLIC BANK VS. MAURICIA T. EBRADA

G.R. No. L-40796        
July 31, 1975

Facts: Ebrada encashed a check issued by the Bureau of Treasury for the sum of 1246.08 at
Republic Bank in 1963. The Bureau of Treasury informed Republic Bank that the alleged
indorsement on the reverse side of the check by the payee named Martin Lorenzo was forged
because the latter had died last 1952. As a result, the Bureau of Treasury requested Republic
Bank to refund the proceeds of the check.

Republic Bank then made verbal demands to Ebrada to account for the sum of 1246.08 in order
for the bank to receive a refund of the amount, but she refused to do so. Republic Bank filed a

35
complaint against Mauricia Ebrada before the City Court of Manila. Then, Ebrada filed an answer
denying the allegations of Republic Bank claiming that she is entitled to the proceeds of the check
issued by the Bureau of Treasury because she is a holder in due course. In addition, Ebrada filed
a third-party complaint against Adelaida Dominquez who filed a fourth party complaint against
Justina Tinio. After, the City Court ruled that Ebrada has to reimburse the proceeds of the check
to Republic Bank. Then, Ebrada filed an appeal before the Court of First Instance of Manila.
Ebrada and the other parties provided a partial stipulation of facts as follows:

The Bureau of Treasury issued a check payable to the order of Martin Lorenzo in the sum of
1246.08 and it was drawn on the Republic Bank. Adelaida Dominquez had delivered the check to
Ebrada for the purpose of encashment. Then, Ebrada went to Republic Bank and she affixed her
signature on the check when she encashed it to said bank. After, Ebrada received the proceeds
of the check and immediately turned over the amount to Adelaida Dominguez who in turn handed
the check to Justina Tinio. As a result, the CFI of Manila ruled that Ebrada is liable to pay the sum
of 1246.08 with legal interest to Republic Bank based on the partial stipulation of facts.

Issue: Whether or not Republic Bank is entitled to recover the proceeds of the check from
Mauricia Ebrada

Held: Republic Bank is entitled to recover the proceeds of the check from Mauricia Ebrada.
Based on Section 65 of NIL, the indorser is supposed to have warranted that she has good title to
the check. However, the case shows that the signature of the original payee is forged which
makes his signature inoperative under Section 23 of NIL. However, the persons who are involved
with the negotiation of the instrument subsequent to the forgery are still liable over the instrument
and are precluded from using forgery as a defense.

The drawee can recover from the holder the money paid to him on the forged instrument because
it does not have the duty to ascertain the genuineness of the signatures of the payees or the
indorsers. It is the duty of the indorser to warrant to the drawee that the signatures of the payee or
the previous indorsers are genuine. Despite that the bank may be negligent in detecting that the
check is forged, the encasher of the check should have performed his duty to ascertain the
genuineness of the check in order to easily detect the forgery.
In Ebrada’s case, she is liable to reimburse the proceeds of the check to Republic Bank because
she was the last indorser indicated at the back of the check who should have warranted that she
has good title to the check. When Ebrada received the check from Dominguez, she was duty-
bound to ascertain whether the check was genuine before presenting it to Republic Bank for
payment. However, she has failed to do her duty, but instead warrant that she has a good title of
the check even though the payee of the check was already dead 11 years before the check was
issued. In addition, she is not exempted from liability over the check when she immediately turns
over the proceeds of the check to Dominguez because she is an accommodation party in
accordance with Section 29 of NIL. Therefore, Ebrada is liable to pay the proceeds of the check to
Republic bank.

METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM VS. CA

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

Facts: By special arrangement with PNB, Metropolitan Waterworks and Sewerage

System (MWSS) used personalized checks in drawing from its account. The checks
were printed by its printer, F. Mesina Enterprises. 23 checks were paid and cleared by
PNB, and debited against MWSS’ account from March to May 1969.

36
The checks were deposited by payees Raul Dizon, Arturo Sison, and Antonio Mendoza
in their account with PCIBank. Said persons were later found to be fictitious. MWSS
requested PNB to restore the amount debited due to the 23 checks, allegedly forged, to
its account. The bank refused. Hence, the present action.

Issue: Whether or not the bank shall bear the loss resulting from the alleged forged
checks.

Held: There was no express and categorical finding that the 23 checks were forged or
signed by persons other than the authorized MWSS signatories.

Forgery is not presumed but should be established by clear, positive and convincing
evidence. MWSS is barred from setting up defense o
f forgery under Section 23 of the Negotiable Instruments Law as MWSS committed gross
negligence in the printing of its personalized checks, failed to reconcile its bank
statements with its own records, and failed to provide appropriate security measures
over its own record. PNB, the drawee bank, had taken necessary measures in the
detection of forged checks and the prevention of their fraudulent encashment through
constant reminders to all its current account bookkeepers informing them of the activities
of forgery syndicates. MWSS’ gross negligence was the proximate cause of the loss, and
should bear the loss.

METROPOLITAN BANK & TRUST COMPANY VS. CA

G.R. No. 88866
February 18, 1991

Facts: Eduardo Gomez opened an account with Golden Savings and Loan Association
and deposited over a period of two months 38 treasury warrants which were drawn by
the Philippine Fish Marketing Authority. Six of these were directly payable to Gomez

37
while the others have been endorsed by their respective payees, followed by Gomez as
second endorser. All these warrants were subsequently endorsed by Gloria Castillio as
cashier of Golden Savings and deposited to its savings account with Metrobank. They
were then sent for clearing by Metrobank branch office to its principal office which
forwarded them to the Bureau of Treasury for special clearing.

More than two weeks after the deposits, Gloria Castillo went to Metrobank branch
several times to ask whether the warrants had been cleared and she was told to wait.
Meanwhile, Gomez was not allowed to withdraw from his account. Metrobank,
exasperated over the persistent inquiries of Gloria Castillo about the clearance and also
wanting to accommodate a valued client, allowed Golden Savings to withdraw from the
uncleared treasury warrants. In turn, Golden Saving subsequently allowed Gomez to
make withdrawals from his own account.

Issue: Whether or not treasury warrants are negotiable instruments.

Held: Under the NIL, for an instrument to be negotiable must contain an unconditional
promise or order to pay a sum certain in money. An unqualified order or promise to pay
is unconditional within the meaning of the Negotiable Instruments Law though coupled
with an indication of a particular fund out of which reimbursement is to be made or a
particular account to be debited with the amount; or a statement of the transaction which
gives rise to the instrument. But an order or promise to pay out of a particular fund is not
unconditional. The indication of Fund 501 as the source of the payment to be made on
the treasury warrants makes the order or promise to pay “not unconditional” and the
warrants themselves non-negotiable.

SAMSUNG CONSTRUCTION COMPANY PHILIPPINES, INC. VS. FAR EAST BANK

G.R. No. 129015
August 13, 2004

Facts: Samsung Construction Company Philippines, Inc. (Samsung Construction),

maintained a current account with defendant Far East Bank and Trust Company
(“FEBTC”). The sole signatory to Samsung Construction’s account was Jong Kyu Lee

38
(“Jong”), its Project Manager, while the checks remained in the custody of the company’s
accountant, Kyu Yong Lee (“Kyu”).

Roberto Gonzaga presented for payment FEBTC Check No. 432100 to the bank. The
check, payable to cash and drawn against Samsung Construction’s current account, was
in the amount of 999,500.00. The bank teller observed the bank’s policy in encashing
checks. Satisfied with the genuineness of the signature of Jong, the bank authorized the
encashment of the check to Gonzaga.

Kyu, the following day examined the balance of the bank account and discovered that a
check in the amount of 999,500.00. had been encashed. Aware that he had not prepared
such a check for Jong’s signature, Kyu perused the checkbook and found that the last
blank check was missing. He reported the matter to Jong, who then proceeded to the
bank. Jong learned of the encashment of the check, and realized that his signature had
been forged. The Bank Manager reputedly told Jong that he would be reimbursed for the
amount of the check.

Samsung Construction, through counsel, demanded that FEBTC credit to it the said
amount with interest. In response, FEBTC said that it was still conducting an
investigation on the matter. Unsatisfied, Samsung Construction filed a Complaint for
violation of Section 23 of the Negotiable Instruments Law, and prayed for the payment of
the amount debited as a result of the questioned check plus interest, and attorney’s fees.

Issue: Whether or not Samsung Construction was precluded from setting up the defense
of forgery under Section 23 of the Negotiable Instruments Law

Held: Samsung Construction is not precluded to set up the defense of Forgery. Under
Section 23 of the Negotiable Instruments Law bars a party from setting up the defense of
forgery if it is guilty of negligence.

Undoubtedly, the record does not clearly establish what measures Samsung Construction
employed to safeguard its blank checks. Jong did testify that his accountant, Kyu, kept the
checks inside a “safety box,” and no contrary version was presented by FEBTC. The
presumption remains that every person takes ordinary care of his concerns, and that the
ordinary course of business has been followed. Negligence is not presumed, but must be
proven by him who alleges it.

The drawee who has paid upon the forged signature is held to bear the loss, because he has
been negligent in failing to recognize that the handwriting is not that of his customer. But it
follows obviously that if the payee, holder, or presenter of the forged paper has himself been
in default, if he has himself been guilty of a negligence prior to that of the banker, or if by any
act of his own he has at all contributed to induce the banker’s negligence, then he may lose
his right to cast the loss upon the banker. Yet, we are unable to conclude that Samsung
Construction was guilty of negligence in this case.

PHILIPPINE NATIONAL BANK VS. QUIMPO

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

Facts: Francisco S. Gozon II, went to PNB – Caloocan Branch in his car accompanied by
his friend Ernesto Santos. He left Santos and transacted his business in the Bank.
Santos saw that Gozon left his check book he took a check therefrom, filled it up for the

39
amount of 5,000.00, forged the signature of Gozon, and thereafter he encashed the
check in the bank on the same day.

Upon receipt of the statement of account from the bank, Gozon asked that the said
amount of 5,000.00 should be returned to his account as his signature on the check was
forged but the bank refused. Gozon then filed the complaint for recovery of the amount of
5,000.00, plus interest, damages, attorney’s fees and costs against PNB. Later, the RTC
ruled in favor of Gozon.

PNB filed for petition for review alleging that Gozon’s negligence was the proximate
cause of his loss, thus, precludes him in setting up the defense of forgery or want of
authority under Sec. 23 of NIL.

Issue: Whether or not Gozon is precluded to set up the defense of forgery because he is
negligent.

Held: The Court found that it was PNB that was negligent. The prime duty of a bank is to
ascertain the genuineness of the signature of the drawer or the depositor on the check
being encashed. It is expected to use reasonable business prudence in accepting and
cashing a check presented to it. Thus, the Court held that Gozon cannot be considered
negligent under the circumstances of the case.

It was clearly proven that the petitioner was negligent in encashing said forged check
without carefully examining the signature which shows marked variation from the
genuine signature of private respondent.

BANCO DE ORO VS. EQUITABLE BANKING CORPORATION

157 SCRA 189
1988

Facts: The plaintiff drew six crossed Manager’s and payable to certain member
establishments of Visa Card. Subsequently, the Checks were deposited with the
defendant to the credit of its depositor, a certain Aida Trencio. Following normal

40
procedures, and after stamping at the back of the Checks the usual endorsements. All
prior and/or lack of endorsement guaranteed the defendant sent the checks for clearing
through the Philippine Clearing House Corporation (PCHC).

Accordingly, plaintiff paid the Checks; its clearing account was debited for the value of
the Checks and defendant’s clearing account was credited for the same amount,
Thereafter, plaintiff discovered that the endorsements appearing at the back of the
Checks and purporting to be that of the payees were forged and/or unauthorized or
otherwise belong to persons other than the payees. Pursuant to the PCHC Clearing
Rules and Regulations, plaintiff presented the Checks directly to the defendant for the
purpose of claiming reimbursement from the latter.

However, defendant refused to accept such direct presentation and to reimburse the
plaintiff for the value of the Checks; hence, this case.

Issue: Whether or not the petitioner can escape liability by reason of forgery.

Held: A commercial bank cannot escape the liability of an endorser of a check and which
may turn out to be a forged endorsement. Whenever any bank treats the signature at the
back of the checks as endorsements and thus logically guarantees the same as such
there can be no doubt said bank has considered the checks as negotiable.

Apropos the matter of forgery in endorsements, this Court has succinctly emphasized
that the collecting bank or last endorser generally suffers the loss because it has the duty
to ascertain the genuineness of all prior endorsements considering that the act of
presenting the check for payment to the drawee is an assertion that the party making the
presentment has done its duty to ascertain the genuineness of the endorsements.

Section 66 of the Negotiable Instruments provides that every indorser who indorse
without qualification, warrants to all subsequent holders in due course’ that the
instrument is genuine and in all respects what it purports to be; that he has good title to
it; that all prior parties have capacity to contract; and that the instrument is at the time of
his indorsement valid and subsisting.

Thus, the drawer generally owes no duty of diligence to the collecting bank, the law
imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it
for the purpose of determining their genuineness and regularity. The collecting bank
being primarily engaged in banking holds itself out to the public as the expert and the law
holds it to a high standard of conduct.

FACTS:

41
Respondent maintained a
current account with
petitioner. He sold certain
shares of stocks to
Island Securities
Corporations. To pay
Ong, Island
Securities purchased 2 Pacific
Banking Corporation
mangers checks, issued
in the name of respondent.
Ong’s friend Paciano
Tanlimco got hold of the
checks. Tanlimco forged
Ong’s

42
signature and deposited said
checks with petitioner bank.
Even though Ong’s
specimen signature was on
file, petitioner bank accepted
and credited both
checks to the account of
Tanlimco, without
verifying the signature
indorsements appearing at the
back thereof. Tanlimco,
immediately withdrew
the money and absconded.
Ong first sought the help
of Tanlimcos family to
recover the amount and
43
reported the incident to the
Central Bank, which were
both proved futile.
It was only about five months
from discovery of fraud, did
Ong demanded in
his complaint that petitioner
pay the value of the checks
from the bank on
whose gross negligence he
imputed his loss. In his suit
he insisted that he did
not deliver, negotiate,
endorse or transfer to any
person or entity the subject
checks.
44
The petitioner bank
contended that Ong never
acquired ownership over the
checks because he never
received them, hence, he had
no legal personality
to sue.
The trial court rendered a
decision, ordering the
defendant to pay the plaintiff.
Petitioner elevated the case to
the Court of Appeals without
success.

WESTMONT BANK VS. EUGENE ONG

G.R. No. 132560
January 30, 2002

FACTS:
45
Respondent maintained a
current account with
petitioner. He sold certain
shares of stocks to
Island Securities
Corporations. To pay
Ong, Island
Securities purchased 2 Pacific
Banking Corporation
mangers checks, issued
in the name of respondent.
Ong’s friend Paciano
Tanlimco got hold of the
checks. Tanlimco forged
Ong’s

46
signature and deposited said
checks with petitioner bank.
Even though Ong’s
specimen signature was on
file, petitioner bank accepted
and credited both
checks to the account of
Tanlimco, without
verifying the signature
indorsements appearing at the
back thereof. Tanlimco,
immediately withdrew
the money and absconded.
Ong first sought the help
of Tanlimcos family to
recover the amount and
47
reported the incident to the
Central Bank, which were
both proved futile.
It was only about five months
from discovery of fraud, did
Ong demanded in
his complaint that petitioner
pay the value of the checks
from the bank on
whose gross negligence he
imputed his loss. In his suit
he insisted that he did
not deliver, negotiate,
endorse or transfer to any
person or entity the subject
checks.
48
The petitioner bank
contended that Ong never
acquired ownership over the
checks because he never
received them, hence, he had
no legal personality
to sue.
The trial court rendered a
decision, ordering the
defendant to pay the plaintiff.
Petitioner elevated the case to
the Court of Appeals without
success.
FACTS:

49
Respondent maintained a
current account with
petitioner. He sold certain
shares of stocks to
Island Securities
Corporations. To pay
Ong, Island
Securities purchased 2 Pacific
Banking Corporation
mangers checks, issued
in the name of respondent.
Ong’s friend Paciano
Tanlimco got hold of the
checks. Tanlimco forged
Ong’s

50
signature and deposited said
checks with petitioner bank.
Even though Ong’s
specimen signature was on
file, petitioner bank accepted
and credited both
checks to the account of
Tanlimco, without
verifying the signature
indorsements appearing at the
back thereof. Tanlimco,
immediately withdrew
the money and absconded.
Ong first sought the help
of Tanlimcos family to
recover the amount and
51
reported the incident to the
Central Bank, which were
both proved futile.
It was only about five months
from discovery of fraud, did
Ong demanded in
his complaint that petitioner
pay the value of the checks
from the bank on
whose gross negligence he
imputed his loss. In his suit
he insisted that he did
not deliver, negotiate,
endorse or transfer to any
person or entity the subject
checks.
52
The petitioner bank
contended that Ong never
acquired ownership over the
checks because he never
received them, hence, he had
no legal personality
to sue.
The trial court rendered a
decision, ordering the
defendant to pay the plaintiff.
Petitioner elevated the case to
the Court of Appeals without
success.
Facts: Respondent maintained a current account with petitioner. He sold certain
shares of stocks to Island Securities Corporations. To pay Ong, Island
Securities purchased 2 Pacific Banking Corporation mangers checks, issued in the name
of respondent. Ong’s friend Paciano Tanlimco got hold of the checks. Tanlimco forged
Ong’s signature and deposited said checks with petitioner bank. Even though Ong’s
specimen signature was on file, petitioner bank accepted and credited both checks to
the account of Tanlimco, without verifying the signature indorsements appearing at
the back thereof. Tanlimco, immediately withdrew the money and absconded.

Ong first sought the help of Tanlimcos family to recover the amount and reported
the incident to the Central Bank, which were both proved futile. It was only about five
months from discovery of fraud, did Ong demanded in his complaint that petitioner pay

53
the value of the checks from the bank on whose gross negligence he imputed his loss. In
his suit he insisted that he did not deliver, negotiate, endorse or transfer to any person or
entity the subject checks. The petitioner bank contended that Ong never acquired
ownership over the checks because he never received them, hence, he had no legal
personality to sue. The trial court rendered a decision, ordering the defendant to pay the
plaintiff. Petitioner elevated the case to the Court of Appeals without success.

Issue: Whether or not Eugene Ong should be allowed to recover from the collecting
bank.

Held: Eugene Ong should be allowed to recover from the collecting bank. Under Section
23 of the Negotiable Instruments Law: When a signature is forged or made without the
authority of the person whose signature it purports to be, it is wholly inoperative, and no
right to retain the instrument, or to give a discharge therefor, or to enforce payment
thereof against any party thereto, can be acquired through or under such signature,
unless the party against whom it is sought to enforce such right is precluded from setting
up the forgery or want of authority.

In the case at bar, Since the signature of the payee was forged to make it appear that he
had made an indorsement in favor of the forger, such signature should be deemed as
inoperative and ineffectual. Petitioner, as the collecting bank, grossly erred in making
payment by virtue of said forged signature. The collecting bank is liable to the payee and
must bear the loss because it is its legal duty to ascertain that the payee’s endorsement
was genuine before cashing the check.

ILUSORIO VS. CA
G.R. No. 139130
November 27, 2002

Facts: Petitioner is a prominent businessman who, at the time material to this case, was the
Managing Director of Multinational Investment Bancorporation and the Chairman and/or President
of several other corporations. He was a depositor in good standing of respondent bank, the
Manila Banking Corporation, under current Checking Account No. 06-09037-0. As he was then
running about 20 corporations, and was going out of the country a number of times, petitioner
entrusted to his secretary, Katherine E. Eugenio, his credit cards and his checkbook with blank
checks. It was also Eugenio who verified and reconciled the statements of said checking account.

Between the dates September 5, 1980 and January 23, 1981, Eugenio was able to encash and
deposit to her personal account about 17 checks drawn against the account of the petitioner at
the respondent bank, with an aggregate amount of 119,634.34. Petitioner did not bother to check
his statement of account until a business partner apprised him that he saw Eugenio use his credit

54
cards. Petitioner fired Eugenio immediately, and instituted a criminal action against her for estafa
thru falsification before the Office of the Provincial Fiscal of Rizal. Private respondent, through an
affidavit executed by its employee, Mr. Dante Razon, also lodged a complaint for estafa thru
falsification of commercial documents against Eugenio on the basis of petitioner’s statement that
his signatures in the checks were forged.

Petitioner then requested the respondent bank to credit back and restore to its account the value
of the checks which were wrongfully encashed but respondent bank refused. Hence, petitioner
filed the instant case. At the trial, petitioner testified on his own behalf, attesting to the truth of the
circumstances as narrated above, and how he discovered the alleged forgeries. Several
employees of Manila Bank were also called to the witness stand as hostile witnesses. They
testified that it is the bank’s standard operating procedure that whenever a check is presented for
encashment or clearing, the signature on the check is first verified against the specimen signature
cards on file with the bank.

Manila Bank also sought the expertise of the National Bureau of Investigation (NBI) in determining
the genuineness of the signatures appearing on the checks. However, the NBI informed the trial
court that they could not conduct the desired examination for the reason that the standard
specimens submitted were not sufficient for purposes of rendering a definitive opinion.

After evaluating the evidence on both sides and finding no sufficient basis for plaintiff’s cause
herein against defendant bank, the case was dismissed. Aggrieved, petitioner elevated the case
to the Court of Appeals by way of a petition for review but without success. The appellate court
held that petitioner’s own negligence was the proximate cause of his loss.

Issue: Whether or not private respondent, in filing an estafa case against petitioner’s secretary, is
barred from raising the defense that the fact of forgery was not established

Held: The Manila Bank had filed a case for estafa against Eugenio would not estop it from
asserting the fact that forgery has not been clearly established. Petitioner cannot hold private
respondent in estoppel for the latter is not the actual party to the criminal action. In a criminal
action, the State is the plaintiff, for the commission of a felony is an offense against the State.
Thus, under Section 2, Rule 110 of the Rules of Court the complaint or information filed in court is
required to be brought in the name of the “People of the Philippines.”

Moreover, as petitioner himself stated in his petition, respondent bank filed the estafa case
against Eugenio on the basis of petitioner’s own affidavit, but without admitting that he had any
personal knowledge of the alleged forgery. It is, therefore, easy to understand that the filing of the
estafa case by respondent bank was a last-ditch effort to salvage its ties with the petitioner as a
valuable client, by bolstering the estafa case which he filed against his secretary.

PHILIPPINE NATIONAL BANK VS. CA

G.R. No. 107508
April 25, 1996

Facts: The Ministry of Education and Culture issued a check with serial number 7-3666-
223-3, dated August 7, 1981 in the amount of 97,650.00 payable to F. Abante Marketing
drawn against Philippine National Bank (PNB). F. Abante Marketing deposited the check
in its savings account with Capitol City Development Bank.

Then Capitol deposited the same in its account with the Philippine Bank of
Communications which, in turn, sent the check to PNB for clearing. PNB cleared the
check as good, however, it returned the check because there was material alteration of
the check number.

Issue: Whether or not an alteration of a serial number of a check is a material alteration.

55
Held: Under the NIL, alteration of a serial number of a check is not a material alteration.
An alteration is said to be material if it alters the effect of the instrument. It means an
unauthorized change in an instrument that purports to modify in any respect the
obligation of a party or an unauthorized addition of words or numbers or other change to
an incomplete instrument relating to the obligation of a party. In other words, a material
alteration is one which changes the items which are required to be stated under Section
1 of the Negotiable Instrument

Moreover, Check number is not an essential requisite for negotiability under Section 1 of
the NIL. This alteration did not change the relations between the parties. The name of
the drawer and the drawee were not altered. The intended payee was the same. The
sum of money due to the payee remained the same.

The checks serial number is not the sole indication of its origin. The name of the
government agency which issued the subject check was prominently printed therein. The
checks issuer was therefore sufficiently identified, rendering the referral to the serial
number redundant and inconsequential. Petitioner, thus cannot refuse to accept the
check in question on the ground that the serial number was altered, the same being an
immaterial or innocent one.

PHILIPPINE COMMERCIAL INTERNATIONAL BANK VS. COURT OF APPEALS

G.R. No. 121413
January 29, 2001

Facts: The plaintiff Ford drew and issued its Citibank check in favor of the Commissioner of
Internal Revenue as payment of plaintiff’s percentage or manufacturer’s sales taxes. The
aforesaid check was deposited with the defendant IBAA (now PCIBank) and was
subsequently cleared at the Central Bank. Upon presentment with the defendant Citibank,
the proceeds of the check were paid to IBAA as collecting or depository bank. The proceeds
of the same Citibank check of the plaintiff were never paid to or received by the payee
thereof, the Commissioner of Internal Revenue.

In a letter by the acting CIR, Ford was informed that its check was not paid to the
government or its authorized agent but was encashed by unauthorized persons. An
investigation revealed that Ford’s general ledger accountant had recalled the check

56
purportedly because of an error in the computation of tax due. With his instruction, PCIBank
replaced the check with two of its own Manager’s Checks which were subsequently
deposited with another bank.

Issue: Whether or not PCIB is liable to reimburse Ford for the payment of the crossed check.

Held: The crossing of the check with the phrase “Payee’s Account Only,” is a warning that
the check should be deposited only in the account of the CIR. Thus, it is the duty of the
collecting bank PCIBank to ascertain that the check be deposited in payee’s account only.
Therefore, it is the collecting bank (PCIBank) which is bound to scrutinize the check and to
know its depositors before it could make the clearing indorsement “all prior indorsements
and/or lack of indorsement guaranteed”.

The mere fact that the forgery was committed by a drawer-payors 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 some circumstance raising estoppel against the drawer. This
rule likewise applies to the checks fraudulently negotiated or diverted by the confidential
employees who hold them in their possession.

In this case, there was no evidence presented confirming the conscious participation of
PCIBank in the embezzlement. As a general rule, however, a banking corporation is liable for
the wrongful or tortuous acts and declarations of its officers or agents within the course and
scope of their employment. A bank will be held liable for the negligence of its officers or
agents when acting within the course and scope of their employment. It may be liable for the
tortuous acts of its officers even as regards that species of tort of which malice is an essential
element. In this case, we find a situation where the PCI Bank appears also to be the victim of
the scheme hatched by a syndicate in which its own management employees had
participated.

Thus, a bank holding out its officers and agents as worthy of confidence will not be permitted
to profit by the frauds these officers or agents were enabled to perpetrate in the apparent
course of their employment; nor will it be permitted to shirk its responsibility for such frauds,
even though no benefit may accrue to the bank therefrom. For the general rule is that a bank
is liable for the fraudulent acts or representations of an officer or agent acting within the
course and apparent scope of his employment or authority. And if an officer or employee of a
bank, in his official capacity, receives money to satisfy an evidence of indebtedness lodged
with his bank for collection, the bank is liable for his misappropriation of such sum.

PAPA VS. A.U. VALENCIA AND CO., INC

284 SCRA 643
1998

Facts: The respondents, A.U Valencia & Penarroyo, filed a complaint for specific
performance against petitioner Papa to deliver the title and turn over the accrued rentals.
The case arose from a sale of a parcel of land allegedly made to Penarroyo by petitioner
acting as attorney-in-fact of Anne Butte. The purchaser, through Valencia, made a check
payment in the amount of 40,000 and in cash, 5,000. Both were accepted by petitioner
as evidenced by various receipts. It appeared that the said property has already been
mortgaged to the bank previously together with other properties of Butte.

57
On appeal, the petitioner argued that alleged sale of the subject property had not been
consummated because he did not encashed the check in the amount of 40,000.00,
which did not produce the effect of payment as in Art. 1249 of the Civil Code.

Issue: Whether or not the payments by check shall produce the effect of payment only
when cashed?

Held: The respondents Valencia and Peñarroyo had given petitioner Myron C. Papa the
amounts of 5,000.00 in cash on May 24 1973, and 40,000.00 in check on June 15,
1973, in payment of the purchase price of the subject lot. Petitioner himself admits
having received said amounts, and having issued receipts therefor. Petitioner’s assertion
that he never encashed the aforesaid check is not substantiated and is at odds with his
statement in his answer that “he can no longer recall the transaction which is supposed
to have happened 10 years ago.”

Granting that petitioner had never encashed the check, his failure to do so for more than
ten years undoubtedly resulted in the impairment of the check through his unreasonable
and unexplained delay. While it is true that the delivery of a check produces the effect of
payment only when it is cashed, pursuant to Art. 1249 of the Civil Code, the rule is
otherwise if the debtor is prejudiced by the creditor’s unreasonable delay in presentment.

The 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 was given.
It has, likewise, been held that if no presentment is made at all, the drawer cannot be
held liable irrespective of loss or injury unless presentment is otherwise excused.

This is in harmony with Article 1249 of the Civil Code under which payment by way of
check or another negotiable instrument is conditioned on its being cashed, except when
through the fault of the creditor, the instrument is impaired. The payee of a check would
be a creditor under this provision and if its no-payment is caused by his negligence,
payment will be deemed effected and the obligation for which the check was given as
conditional payment will be discharged. Considering that respondents Valencia and
Peñarroyo had fulfilled their part of the contract of sale by delivering the payment of the
purchase price, said respondents, therefore, had the right to compel petitioner to deliver
to them the owner’s duplicate of TCT No. 28993 of Angela M. Butte and the peaceful
possession and enjoyment of the lot in question.

EASTERN LIFE INS. CO. VS. HONGKONG SHANGHAI BANK

G.R. No. L-18657
August 23, 1922

Facts: Great Eastern Life Ins. Co. (Eastern) drew its check for 2,000 on the Hongkong
and Shanghai Banking Corporation (HSBC) payable to the order of Lazaro Melicor. E. M.
Maasim fraudulently obtained possession of the check, forged Melicor's signature, as an
endorser, and then personally endorsed and presented it to the Philippine National Bank
(PNB) and it was placed to his credit.

The next day, PNB endorsed the check to the HSBC who paid it HSBC sent a bank
statement to the Eastern showing the amount of the check was charged to its account,

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and no objection was made 4 months after the check was charged, it developed that
Lazaro Melicor, to whom the check was made payable, had never received it, and that
his signature, as an endorser, was forged by Maasim, Eastern promptly made a demand
upon the HSBC to credit the amount of the forged check Eastern filed against HSBC and
PNB. Thus, the RTC dismissed the case.

Issues: Whether or not Eastern has the right to recover the amount of the forged check

Held: Under Section 23 of Negotiable Instruments Law provides that a signature is

forged or made without the authority of the person whose signature it purports to be, it is
wholly inoperative, and no right to retain the instrument, or to give a discharge therefor,
or to enforce payment thereof against any party thereto, can be acquired through or
under such signature, unless the party against whom it is sought to enforce such right is
precluded from setting up the forgery or want of authority.

Thus, the Philippine National Bank had no license or authority to pay the money to
Maasim or anyone else upon a forge signature. Its remedy is against Maasim to whom it
paid the money.

QUIRINO GONZALES LOGGING VS. CA

G.R. No. 126568
April 30, 2003.

Facts: Spouses Quirino and Eufemia Gonzales of the Quirino Gonzales Logging
Concessionaire executed promissory notes in favor to respondent Republic Planters
Bank to secure certain advances from the Bank in connection with its exportation of logs.
The notes were payable 30 days after date and provided for the solidary liability of
petitioners as well as attorney’s fees at ten percent of the total amount due in the event
of their nonpayment at maturity. Later on, petitioner has long been defaulted in the
payment of their obligations with the promissory notes they executed.

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The Bank then filed a complaint against the petitioner for “sum of money.” However,
petitioners seek to evade liability under the Bank’s causes of action by claiming that they
Gonzales signed the promissory notes in blank and that they had not received the value
of said notes.

Issue: Whether or not the petitioners would be held liable for the payment of the
promissory notes they executed despite of the fact that they singed the notes in blank.

Held: Section 14 of the NIL allows the prima facie authority of the person in possession
of negotiable instruments, such as the notes herein, to fill in the blanks, to complete an
incomplete instrument. Moreover, a signature on a blank paper delivered in order that it
may be converted into a negotiable instrument operates as a prima facie authority to fill it
up as such for any amount. Also, petitioner admitted to the genuineness and due
execution of the promissory notes. The promissory notes, however, appear to be
negotiable as they meet the requirements of Section 1 of the Negotiable Instruments
Law.

Such being the case, the notes are prima facie deemed to have been issued for
consideration. It bears noting that no sufficient evidence was adduced by petitioners to
show otherwise. In order, however, that any such instrument when completed may be
enforced against a person who became a party thereto prior to its completion, it must be
filled up strictly in accordance with the authority given and within a reasonable time. But
if any such instrument, after completion, is negotiated to a holder in due course, it is valid
and effectual for all purposes in his hands, and he may enforce it as if it had been filled
up strictly in accordance with the authority given and within a reasonable time.

CRISOLOGO-JOSE VS. CA
177 SCRA 594
1989

Facts: Ricardo S. Santos, Jr. was the vice-president of Mover Enterprises, Inc. in-charge of
marketing and sales; and the president of the said corporation was Atty. Oscar Z. Benares. Atty.
Benares, in accommodation of his clients, the spouses Jaime and Clarita Ong, issued check
against Traders Royal Bank, payable to defendant Ernestina Crisologo-Jose. Since the check
was under the account of Mover Enterprises, Inc., the same was to be signed by its president,
Atty. Oscar Z. Benares, and the treasurer of the said corporation.

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However, since at that time, the treasurer of Mover Enterprises was not available, Atty. Benares
prevailed upon the plaintiff, Ricardo S. Santos, Jr., to sign the aforesaid check. The check was
issued to defendant Ernestina Crisologo-Jose in consideration of the waiver or quitclaim by said
defendant over a certain property which the Government Service Insurance System (GSIS)
agreed to sell to the spouses Jaime and Clarita Ong, with the understanding that upon approval
by the GSIS of the compromise agreement with the spouses Ong, the check will be encashed
accordingly.

Subsequently the compromise agreement was not approved within the expected period of time,
the aforesaid check was replaced by Atty. Benares. This replacement check was also signed by
Atty. Oscar Z. Benares and by the plaintiff Ricardo S. Santos, Jr. When defendant deposited this
replacement check with her account at Family Savings Bank, Mayon Branch, it was dishonored
for insufficiency of funds. The petitioner filed an action against the corporation for accommodation
party.

Issue: Whether or not the corporation, Mover Enterprises, Inc., can be held liable as
accommodation party.

Held: The provision of the NIL which holds an accommodation party liable on the instrument to a
holder for value, although such holder at the time of taking the instrument knew him to be only an
accommodation party, does not include nor apply to corporations which are accommodation
parties. This is because the issue or indorsement of negotiable paper by a corporation without
consideration and for the accommodation of another is ultra vires. Hereafter, one who has taken
the instrument with knowledge of the accommodation nature thereof cannot recover against a
corporation where it is only an accommodation party. If the form of the instrument, or the nature of
the transaction, is such as to charge the indorsee with knowledge that the issue or indorsement of
the instrument by the corporation is for the accommodation of another, he cannot recover against
the corporation thereon.

By way of exception, an officer or agent of a corporation shall have the power to execute or
indorse a negotiable paper in the name of the corporation for the accommodation of a third
person only if specifically authorized to do so. Thus, corporate officers, such as the president and
vice-president, have no power to execute for mere accommodation a negotiable instrument of the
corporation for their individual debts or transactions arising from or in relation to matters in which
the corporation has no legitimate concern. Since such accommodation paper cannot thus be
enforced against the corporation, especially since it is not involved in any aspect of the corporate
business or operations, the inescapable conclusion in law and in logic is that the signatories
thereof shall be personally liable therefor, as well as the consequences arising from their acts in
connection therewith.

MCGUIRE SUMACAD VS. THE PROVINCE OF SAMAR

G.R. No. L-8155
October 23, 1956

Facts: While the province of Samar was still occupied by Japanese military forces, a
check was issued by said province to Paulino M. Santos for the sum of P25,000, drawn
against the Philippine National Bank Cebu Branch. The payee negotiated the check with
James McGuire, an American citizen and resident of the municipality of Borongan.
James McGuire presented the check to the municipal treasurer of Borongan for

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payment, but the latter (who merely noted it) was not able or did not choose to pay the
same.

James McGuire wrote letters to the Bureau of Posts seeking payment of the check,
which were in turn referred to the PNB. As of this date the province of Samar still had a
deposit of 84,287.47 in the PNB. PNB requested James McGuire to present the check to
the provincial treasurer and the provincial auditor for certification. Before the check could
be certified by the authorities concerned as being in order and entitled to priority of
payment, the province of Samar, withdraw the amount of 83,504.07, leaving a balance of
only 743.43. In the meantime, James McGuire transferred his rights to the check to the
herein Plaintiffs who, unable to cash it.

Issue: Whether or not defendants are solidarily liable to pay the check.

Held: The obligation of the Appellant bank is merely subsidiary. An implied acceptance of

the check by the Appellant bank was thereby created. 

The request by the Appellant bank from the Bureau of Posts for photostatic copies of the
check and the subsequent requirement by it for its presentation by James McGuire to the
provincial treasurer and the provincial auditor for certification, would be an empty gesture
if the Appellant did not thereby mean to assume the obligation of paying the check and
holding sufficient deposit of the drawer for the purpose. Even so, Appellant’s resulting
obligation is merely subsidiary, the province of Samar being primarily liable to pay the
check.

PAULINO GULLAS VS. PNB

G.R. No. L-43191
November 13, 1935

Facts: Gullas maintains a current account with herein respondent PNB. He together with
one Pedro Lopez signed as endorsers of a Warrant issued by the US Veterans Bureau
payable to the order of one Francisco Bacos. PNB cashed the check but was

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subsequently dishonored by the Insular Treasurer. PNB then sent notices to petitioner
which could not be delivered to him at the time because he was in Manila. PNB in the
letter informed the petitioner the outstanding balance on his account was applied to the
part payment of the dishonored check.
Upon petitioner’s return, he received the notice of dishonor and immediately paid the
unpaid balance of the warrant. As a consequence of these, petitioner was
inconvenienced when his insurance was not paid due to lack of funds and was publicized
widely at his area to his mortification.
Issue: Whether or not PNB has the right to apply petitioner’s deposit to his debt to the
bank.
Held: Under the law, a bank has a right of set off of the deposits in its hands for the
payment of any indebtedness to it on the part of a depositor. The Civil Code contains
provisions regarding compensation and deposit. The portions of Philippine law provide
that compensation shall take place when two persons are reciprocally creditor and
debtor of each other. In this connection, it has been held that the relation existing
between a depositor and a bank is that of creditor and debtor. 
Therefore, from the premise that the Philippine National Bank had with respect to the
deposit of Gullas a right of set off, the court next consider if that remedy was enforced
properly. The fact we believe is undeniable that prior to the mailing of notice of dishonor,
and without waiting for any action by Gullas, the bank made use of the money standing
in his account to make good for the treasury warrant. Gullas was merely an indorser and
had issued in good faith. As to an indorser, the situation is different and notice should
actually have been given him in order that he might protect his interests.

NYCO SALES CORP VS. BA FINANCE CORP

G.R. No. 71694
August 16, 1991

Facts: Nyco Sales whose president and general manager Rufino Yao is engaged in the
business of selling construction materials. Fernandezes acting on behalf of Sanshell
Corporation approached Yao for credit accommodation. They requested Nyco thru Yao
to garant Sanshell discounting priveleges which Nyco had with BA Finance.

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Fernandezes went to Yao for the purpose of discounting Sanshell’s BPI PDC’s on the
aount of Php 60,000 payable to Nyco. Nyco then thru Yao endorsed the check in favor of
BA Finance. BA Finance then issued a check payable Nyco which endorsed it in favor of
Sanshell which made use of the negotiation. Nyco executed a Deed of Assignment in
favor of BA Finance with the conformity of Sanshell.

Under the deed, the subject of Assignment was the BPI PDC Check. Agreed that there
will be a Continuing Suretyship Agreement whereby Fernandezes unconditionally
guaranteed to BA Finance the compliance of all indebtness of Nyco. The check was
subsequently dishonored by the drawee bank upon presentment for payment. BA
Finance reported the matter to the Fernandezes and issued a substitute check with the
same amount to BA Finance which was again subsequently dishonored.

Despite repeated demands, Nyco and the Fernandezes failed to pay the obligation. BA
Finance then instituted an action to the court. Nyco and Fernandezes were considered in
default. TC ruled in favor of BA Finance ordering the Fernandezes and Nycho solidarily
to pay the former. Nycho moved to set aside the order and impleaded Sanshell. TC ruled
in favor of BA Finance. The TC denied the cross claim of Nycho because it seems that
Fernadezes never received the cross claim of Nycho and have not been declared in
default. Discharged of liability when BA Finance failed to give a notice of dishonor. No
novation when BA Finance accepted SBTC check. Yao as President is not authorized to
enter into credit assignment with BA Finance since there is no Board Resolution
authorizing the same.

Issue: Whether or not Nyco is liable for the acts of its president.

Held: The by-laws of Nyco expressly authorized its President to enter into contracts,
borrowing money, signing, indorsing checks in behalf of the compant.

Also, it appears that the same kind of transaction already happened between Nyco and
BA Finance. Hence, Nyco is placed from estopped from denying Yao’s authority because
of its silence just to escape liability.

GREAT ASIAN SALES CENTER CORPORATION VS. CA

G.R. No.105774
April 25, 2002

Facts: Great Asian is engaged in the business of buying and selling household appliances. In
March 1981, the board of directors of Great Asian approved a resolution authorizing its
Treasurer and GM, Arsenio Lim Piat, Jr. to secure a loan from Bancasia in an amount not to
exceed 1M and also authorized Arsenio to sign all papers, documents or promissory notes

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necessary to secure the loan. In Feb. 1982, the board of directors of Great Asian approved a
2nd resolution authorizing Great Asian to secure a discounting line with Bancasia in an
amount not exceeding P2M and also designated Arsenio as the authorized signatory to sign
all instruments, documents and checks necessary to secure the discounting line.

Tan Chong Lin signed 2 Surety Agreements in favor of Bancasia to guarantee, solidarily, the
debts of Great Asian to Bancasia. Great Asian, through Arsenio, signed 4 Deeds of
Assignment of Receivables, assigning to Bancasia 15 postdated checks issued by various
customers in payment for appliances and other merchandise. Arsenio endorsed all the 15
checks by signing his name at the back of the checks. Eight of the dishonored checks bore
the endorsement of Arsenio below the stamped name of “Great Asian Sales Center”, while
the rest of the dishonored checks just bore the signature of Arsenio. The drawee banks
dishonored the fifteen checks on maturity when deposited for collection by Bancasia, with
any of the following as reason for the dishonor: “account closed”, “payment stopped”,
“account under garnishment”, and “insufficiency of funds”. After the drawee bank dishonored
the checks, Bancasia sent letters to Tan Chong Lin, notifying him of the dishonor and
demanding payment from him. Neither Great Asian nor Tan Chong Lin paid Bancasia the
dishonored checks.

In June 1982, Bancasia filed a complaint for collection of a sum of money against Great
Asian and Tan Chong Lin. Great Asian raised the alleged lack of authority of Arsenio to sign
the Deeds of Assignment as well as the absence of consideration and consent of all the
parties to the Surety Agreements signed by Tan Chong Lin.

Issue: Whether or not Great Asian is liable to Bancasia under the Deeds of Assignment for
breach of contract pursuant to the civil code, independent of the negotiable instruments law.

Held: Bancasia’s complaint against Great Asian is founded on the latter’s breach of contract
under the Deeds of Assignment. The Deeds of Assignment uniformly provided for one vital
suspensive condition. In case the drawers fail to pay the checks on maturity, Great Asian
obligated itself to pay Bancasia the full-face value of the dishonored checks, including
penalty and attorney’s fees. The failure of the drawers to pay the checks is a suspensive
condition, the happening of which gives rise to Bancasia’s right to demand payment from
Great Asian. This conditional obligation of Great Asian arises from its written contracts with
Bancasia as embodied in the Deeds of Assignment.

Great Asian sold the postdated checks on with recourse basis against itself. This is an
obligation that Great Asian is bound to faithfully comply because it has the force of law as
between Great Asian and Bancasia, as provided in Art 1159 of the Civil Code. Great Asian
and Bancasia agreed on this specific with recourse stipulation, despite the fact that the
receivables were negotiable instruments with the endorsement of Arsenio. The contracting
parties had the right to adopt the stipulation which is separate and distinct from the
warranties of an endorser under the Negotiable Instruments Law.

The explicit with recourse stipulation against Great Asian effectively enlarges, by agreement
of the parties, the liability of Great Asian beyond that of a mere endorser of a negotiable
instrument. Thus, whether or not Bancasia gives notice of dishonor to Great Asian, the latter
remains liable to Bancasia because of the with recourse stipulation which is independent of
the warranties of an endorser under the Negotiable Instruments Law.

There is nothing in the Negotiable Instruments Law or in the Financing Company Act, that
prohibits Great Asian and Bancasia parties from adopting the with recourse stipulation
uniformly found in the Deeds of Assignment. Instead of being negotiated, a negotiable
instrument may be assigned. Assignment of a negotiable instrument is actually the principal
mode of conveying accounts receivable under the Financing Company Act. Since in
discounting of receivables the assignee is subrogated as creditor of the receivable, the

65
endorsement of the negotiable instrument becomes necessary to enable the assignee to
collect from the drawer. This is particularly true with checks because collecting banks will not
accept checks unless endorsed by the payee. The purpose of the endorsement is merely to
facilitate collection of the proceeds of the checks.

Under the Negotiable Instruments Law, notice of dishonor is not required if the drawer has no
right to expect or require the bank to honor the check, or if the drawer has countermanded
payment. In the instant case, all the checks were dishonored for any of the following reasons:
“account closed”, “account under garnishment”, insufficiency of funds”, or “payment stopped”.
In the first three instances, the drawers had no right to expect or require the bank to honor
the checks, and in the last instance, the drawers had countermanded payment.

LUIS WONG VS. CA

GR No. 105774
February 2, 2001

Facts: Luis Wong is a collector of Limtong Press, Inc., a company which prints calendars.
Wong was assigned to collect check payments from LPI’ clients. One time, six of LPI’s clients

66
were not able to give the check payments to Wong. Wong then made arrangements with LPI
so that for the meantime, Wong can use his personal checks to guarantee the calendar
orders of the LPI’s clients. LPI however has a policy of not accepting personal checks of its
agents. LPI instead proposed that the personal checks should be used to cover Wong’s debt
with LPI which arose from unremitted checks by Wong in the past. Wong agreed. So, he
issued 6 checks dated December 30, 1985. Before the maturity of the checks, Wong
persuaded LPI not to deposit the checks because he said he’ll be replacing them within 30
days. LPI complied however Wong reneged on the payment. On June 5, 1986 or 157 days
from date of issue, LPI presented the check to RCBC but the checks were dishonored.

On June 20, 1986, LPI sent Wong a notice of dishonor. Wong failed to make good the
amount of the checks within five banking days from his receipt of the notice. LPI then sued
Wong for violations of Batas Pambansa Blg. 22. Among others, Wong argued that he’s not
guilty of the crime of charged because one of the elements of the crime is missing, that is,
prima facie presumption of “knowledge of lack of funds” against the drawer. According to
Wong, this element is lost by reason of the belated deposit of the checks by LPI which was
157 days after the checks were issued; that he is not expected to keep his bank account
active beyond the 90-day period – 90 days being the period required for the prima facie
presumption of knowledge of lack of fund to arise.

Issue: Whether or not Wong is guilty of the crime charged.

Held: The court ruled that Wong is guilty of violating BP 22. The elements of violation of BP
22 pertinent to this case are: the making, drawing and issuance of any check to apply for
account or for value; the knowledge of the maker, drawer, or issuer that at the time of issue
he does not have sufficient funds in or credit with the drawee bank for the payment of such
check in full upon its presentment; and the subsequent dishonor of the check by the drawee
bank for insufficiency of funds or credit or dishonor for the same reason had not the drawer,
without any valid cause, ordered the bank to stop payment. Under the second element, the
presumption of knowledge of the insufficiency arises if the check is presented within 90 days
from the date of issue of the check.

This presumption is lost, as in the case at bar, by failure of LPI to present it within 90 days.
But this does not mean that the second element was not attendant with respect to Wong. The
presumption is lost but lack of knowledge can still be proven, LPI did not deposit the checks
because of the reassurance of Wong that he would issue new checks. Upon his failure to do
so, LPI was constrained to deposit the said checks. After the checks were dishonored, Wong
was duly notified of such fact but failed to make arrangements for full payment within five
banking days thereof. There is, on record, sufficient evidence that Wong had knowledge of
the insufficiency of his funds in or credit with the drawee bank at the time of issuance of the
checks. The Supreme Court also noted that under Section 186 of the Negotiable Instruments
Law, “a check must be presented for payment within a reasonable time after its issue or the
drawer will be discharged from liability thereon to the extent of the loss caused by the delay.”
By current banking practice, a check becomes stale after more than six months, or 180 days.
LPI deposited the checks 157 days after the date of the check. Hence said checks cannot be
considered stale.

REPUBLIC OF THE PHILIPPINES VS. PHILIPPINE NATIONAL BANK

G.R. No. L-16106
December 30, 1961

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Facts: The Republic of the Philippines filed a complaint for escheat before the Court of
First Instance of Manila of unclaimed bank deposits balances under the provisions of Act
No. 3936 against several banks, among them the First National City Bank of New York. It
was prayed that all the credits and deposits held by the defendant banks in favor of
persons known to be dead or who have not made further deposits or withdrawals during
the period of 10 years or more be escheated to the Republic of the Philippines by
ordering defendant banks to deposit them to its credit with the Treasurer of the
Philippines.

In its answer the First National City Bank of New York claims that it has inadvertently
included in its report certain items amounting to 18,589.89 which are not credits or
deposits within the contemplation of Act No. 3936 which it prayed that said items be
excluded in the claim of plaintiff. The court a quo rendered judgment holding that
cashier's or manager's checks and demand drafts as those which defendant wants
excluded from the complaint come within the purview of Act No. 3936. However, upon
filling Motion for Reconsideration, the court a quo changed its view and held that even
said demand drafts do not come within the purview of said Act and so amended its
decision.

Issue: Whether demand drafts come within the meaning of the term "credits" or
"deposits" and create a creditor-debtor relationship between drawee and the payee.

Held: A demand draft is a bill of exchange payable on demand, a bill of exchange within
the meaning of our NIL does not operate as an assignment of funds in the hands of the
drawee who is not liable on the instrument until he accepts it. In other words, in order
that a drawee may be liable on the draft and then become obligated to the payee it is
necessary that he first accepts the same.

In fact, our law requires that with regard to drafts or bills of exchange there is need that
they be presented either for acceptance or for payment within a reasonable time after
their issuance or after their last negotiation thereof as the case may be. Failure to make
such presentment will discharge the drawer from liability or to the extent of the loss
caused by the delay. Since it is admitted that the demand drafts herein involved have not
been presented either for acceptance or for payment, the inevitable consequence is that
the appellee bank never had any chance of accepting or rejecting them.

Thus, the appellee bank never became a debtor of the payee concerned and as such the
aforesaid drafts cannot be considered as credits subject to escheat within the meaning of
the law. The case, however, is different with regard to telegraphic payment orders which
the court ruled that it should be escheated in favor of the Republic of the Philippines.

ASSOCIATED BANK VS. CA

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252 SCRA 620
1996

Facts: The Province of Tarlac maintains a current account with the Philippine National Bank
(PNB). A portion of the funds of the province is allocated to the Concepcion Emergency
Hospital. The allotment checks for said government hospital are drawn to the order of
“Concepcion Emergency Hospital, Concepcion, Tarlac” or “The Chief, Concepcion
Emergency Hospital, Concepcion, Tarlac.” The checks are released by the Office of the
Provincial Treasurer and received for the hospital by its administrative officer and cashier.

The books of account of the Provincial Treasurer were post-audited by the Provincial Auditor.
It was then discovered that the hospital did not receive several allotment checks drawn by
the Province. the Provincial Treasurer requested the manager of the PNB to return all of its
cleared checks which were issued from 1977 to 1980 in order to verify the regularity of their
encashment. After the checks were examined, the Provincial Treasurer learned that 30
checks encashed by one Fausto Pangilinan, with the Associated Bank acting as collecting
bank.

It turned out that Fausto Pangilinan, who was the administrative officer and cashier of payee
hospital collected the questioned checks from the office of the Provincial Treasurer.
Pangilinan sought to encash the first check with Associated Bank. Pangilinan was able to
withdraw the money when the check was cleared and paid by the drawee bank, PNB. After
forging the signature of Dr. Adena Canlas who was chief of the payee hospital, Pangilinan
followed the same procedure for the second check as well as for twenty-eight other checks of
various amounts and on various dates. While both banks are innocent of the forgery,
Associated Bank claims that PNB was at fault and should solely bear the loss because it
cleared and paid the forged checks.

Issue: Whether or not the thirty checks bearing forged endorsements are paid, who bears the
loss, the drawer, the drawee bank or the collecting bank

Held: Under the NIL, a forged signature, whether it be that of the drawer or the payee, is
wholly inoperative and no one can gain title to the instrument through it. A person whose
signature to an instrument was forged was never a party and never consented to the contract
which allegedly gave rise to such instrument. Section 23 does not avoid the instrument but
only the forged signature.

Thus, a forged indorsement does not operate as the payee’s indorsement. The exception to
the general rule in Section 23 is where “a party against whom it is sought to enforce a right is
precluded from setting up the forgery or want of authority.” Parties who warrant or admit the
genuineness of the signature in question and those who, by their acts, silence or negligence
are estopped from setting up the defense of forgery, are precluded from using this defense.
Indorsers, persons negotiating by delivery and acceptors are warrantors of the genuineness
of the signatures on the instrument.

An indorser of an order instrument warrants “that the instrument is genuine and in all
respects what it purports to be; that he has a good title to it; that all prior parties had capacity
to contract; and that the instrument is at the time of his indorsement valid and subsisting.” He
cannot interpose the defense that signatures prior to him are forged. A collecting bank where
a check is deposited and which indorses the check upon presentment with the drawee bank,
is such an indorser. So even if the indorsement on the check deposited by the banks’s client
is forged, the collecting bank is bound by his warranties as an indorser and cannot set up the
defense of forgery as against the drawee bank.

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NEGOTIABLE INSTRUMENTS
Law 222

DIGESTED CASES

Claustro, Agnetha A.

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