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Cases in Negotiable Instruments Law as Outlined in

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

ADDITIONAL CASES IN NEGOTIABLE INSTRUMENTS

LAW

01. Allied Banking Corporation vs.

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

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

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

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

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

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

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Respondent Modesta R. Sabeniano was a client of both

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

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05. Equitable PCI Bank vs.

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

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Whether or not Ong is a holder in due course in the absence

of consideration in the issuance of the managers check.
Held:
The claim is without basis. Easily discernible is that what Ong
obtained from PCI Bank was not just any ordinary check but a
managers check. A managers check is an order of the bank
to pay, drawn upon itself, committing in effect its total
resources, integrity and honor behind its issuance. By
accepting PCI Bank Check issued by Sarande to Ong and
issuing in turn a managers check in exchange thereof, PCI
Bank assumed the liabilities of an acceptor under Section 62
of the Negotiable Instruments Law. Hence, Petitioner is liable
to pay the value of the check with damages.
06. International Corporate Bank vs.
Court of Appeals and PNB
G.R. No. 129910, September 5, 2006
Doctrine:
Discrepancies in the serial numbers of checks cannot be said
to be material alterations. A material alteration is one which
changes the items which are required under Sec.1, NIL; as
well as those items under Sec.125, NIL.
Facts:
The Ministry of Education and Culture issued 15 checks drawn
against respondent which petitioner accepted for deposit on
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various dates. After 24 hours from submission of the checks to

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

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

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Held:
The foreign drawee bank, Wilshire Center Bank N.A., refused
to pay the bearer of this dollar-check drawn by Don Zapanta
because of the defect introduced by RCBC, through its
employee, Olivia Gomez. There is no doubt in the mind of the
Court that a subsequent party which caused the defect in the
instrument cannot have any recourse against any of the prior
endorsers in good faith. The holder or subsequent endorser
who tries to claim under the instrument which had been
dishonored for irregular endorsement must not be the
irregular endorser himself who gave cause for the dishonor.
RCBC, which caused the dishonor of the check upon
presentment to the drawee bank, through the qualified
endorsement of its employee, Olivia Gomez, cannot hold
prior endorsers, Alviar and Gonzales in this case, liable on the
instrument.
08. Metropolitan Bank and Trust Co. vs.
Renato Cabilzo
G.R. No. 154469, December 6, 2006
Doctrine:
The drawee bank cannot shift liability to the collecting bank
with respect to a material alteration where the drawer and
drawee were not grossly negligent. The drawee bank cannot
rely on the collecting bank's endorsement in clearing the
check. The corollary liability of such endorsement is separate
and independent from the liability of the drawee to the
drawer.
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Facts:
Cabilzo issued a postdated Metrobank Check payable to
CASH. The check was presented to Westmont Bank for
payment by Mr. Marquez. Metrobank cleared the check for
encashment. Thereafter, it was discovered that Metrobank
Check which he issued in the amount of P1,000.00 was
altered to P91,000.00. Cabilzo demanded that Metrobank recredit the amount of P91,000.00 to his account.
Issue:
Whether or not petitioner is liable for the amount of the
materially altered check.
Held:
The bank on which the check is drawn is under strict liability to
pay to the order of the payee in accordance with the drawers
instructions. Payment made under materially altered
instrument is not payment done in accordance with the
instruction of the drawer. When the drawee bank pays a
materially altered check, it violates the terms of the check, as
well as its duty to charge its clients account only for bona fide
disbursements he had made. Since the drawee bank, in the
instant case, did not pay according to the original tenor of the
instrument, as directed by the drawer, then it has no right to
claim reimbursement from the drawer, much less, the right to
deduct the erroneous payment it made from the drawers
account which it was expected to treat with utmost fidelity.
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Hence, petitioner is liable to reimburse the drawer for the

amount paid.
09. Theresa Macalalag vs.
People of the Philippines
G.R. No. 164358, December 20, 2006
Doctrine:
Only a full payment of the face value of a check at the time of
presentment or during the 5-day grace period granted by
Batas Pambansa 22 could exonerate a person so charged
from criminal liability. A contrary interpretation would defeat
the purpose of BP 22 as the drawer could very well have
himself exonerated by the mere expediency of paying a
minimal fraction of the face value of the check.
Facts:
Petitioner obtained loans from Grace Estrella. Failing to pay
the interest and the loan, she executed two
acknowledgement/affirmation receipts and as security for
payment of the aforesaid loans, issued two PNB checks in
favor of Estrella. However, when Estrella presented said
checks for payment with the drawee bank, the same were
dishonored for the reason that the account against which the
same was drawn was already closed. Estrella sent a notice of
dishonor and demanded to make good the said checks to
Macalalag, but the latter failed to do so. Hence, Estrella filed
two criminal complaints for Violation of Batas Pambansa Blg.
22.
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Issue:
Whether or not petitioner is violated BP 22 upon issuance of
the check as security.
Held:
We have repeatedly held that there is no violation of Batas
Pambansa Blg. 22 if the complainant was actually told by the
drawer that he has no sufficient funds in a bank. Where, as in
the case at bar, the checks were issued as security for a loan,
payment by the accused of the amount of the check prior to
its presentation for payment would certainly serve the same
purpose. When Estrella presented the checks for payment, the
same were dishonored on the ground that they were drawn
against a closed account. Despite notice of dishonor,
petitioner Macalalag failed to pay the full face value of the
second check issued. Only a full payment of the face value of
the second check at the time of its presentment or during the
five-day grace period could have exonerated her from
criminal liability.
10. Bank of the Philippine Islands vs.
Court of Appeals
G.R. No. 136202, January 25, 2007
Doctrine:
The transaction referred to in Sec.49, NIL is an equitable
assignment where the transferor acquires the instrument
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subject to defenses and equities available among prior

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

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

I. NEGOTIABILITY

01. Philippine Education Co. vs.

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

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postal laws and regulations are inconsistent with the character

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

exercise of governmental power for the publics benefit.
Furthermore, some of the restrictions imposed upon money
order by postal laws and regulations are inconsistent with the
character of negotiable instruments. For instance, postal
money orders may be withheld under a variety of
circumstances, and which are restricted to not more than one
indorsement. Hence, petitioner cannot demand payment and
recover the amount debited.
02. Caltex Phil. vs.
Court of Appeals
212 SCRA 448
Doctrine:
The negotiability or non-negotiability of an instrument is
determined from the writing on the face of the instrument
itself.
Facts:
Defendant bank issued 280 certificates of time deposit (CTD)
in favor of Angela Dela Cruz upon deposit in the amount of
P1,120,000. A sample text of the CTD is as follows: This is to
certify that BEARER has deposited in this Bank the sum of Four
Thousand Only... Dela Cruz delivered the CTD to petitioner
for the purchase of fuel products. Thereafter, he informed the
branch manager that the CTD was lost based on her affidavit,
which the branch manager accepted and issued a
replacement. Thereafter, Dela Cruz negotiated and obtained a
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loan from the bank in the amount of P875,00 and executed a

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

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

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

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

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promissory note to Sesbreo stating that they were awaiting

instructions from Philfinance.
Issue:
Who is liable to pay for the amount owed to Sesbreo by
Philfinance?
Held:
Although the promissory note of Delta has been stamped
NON NEGOTIABLE it was still possible to transfer ownership
of the note via ASSIGNMENT (assigned or transferred). This
was what was done to Sesbreo; he was assigned the amount
of the promissory note of Delta up to the amount owed to him
by Philfinance (304,533.33). Delta and Pilipinas Bank both
refused to pay Sesbreo such amount. Delta defends itself by
arguing that its promissory note with Philfinance has already
been extinguished via compensation (when both parties are
creditor and debtor to one another). Delta cannot be
compelled to pay its debt twice. The court ruled that it is
PILIPINAS BANK who should be liable to pay Sesbreo the
amount for its failure/refusal to deliver the note to Sesbreo
upon his demand. Such failure caused prejudice against the
petitioner. Pilipinas Bank had no right to refuse delivery of the
note to Sesbreo, such failure was clearly a breach of its duty
as custodian. The conclusion reached by the court is of course
without prejudice to the right of Pilipinas Bank to be
reimbursed by Philfinance.
05. Firestone Tire and Rubber CO vs.
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Court of Appeals
353 SCRA 601
(G.R. No. 113236, March 5, 2001)
Doctrine:
Withdrawal slips are not negotiable instruments. The essence
of negotiability which characterizes a negotiable paper as a
credit instrument lies in its freedom to circulate freely as a
substitute for money. Withdrawal slips lack this character.
Facts:
Fojas Arca and Firestone Tire entered into a franchising
agreement wherein the former purchase on credit the latters
products. The former could pay through special withdrawal
slips which were deposited and accepted by Citibank.
Firestone believed in the sufficient funding of the slips
until Citibank informed the former that one of the slips
was dishonored. It wrote then a demand letter to Fojas
Arca for the payment and damages but the latter refused to
pay, prompting Firestone to file an action against it.
Issue:
Whether or not the bank is liable for the alleged belated delay
in notifying the dishonor of the negotiable instrument.
Held:

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The withdrawal slips are non-negotiable. The essence of

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

II. PAYABLE TO BEARER

06. Ang Tek Lian vs.

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

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

III. COMPLETE BUT UNDELIVERED (Section 16)

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07. Development Bank of the Phils vs.

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

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Held:
No, not yet. Because there was no delivery yet to DBR, he was
not yet a party to the instrument, even though he was the
payee. The payee of a negotiable instrument acquires no
interest with respect thereto until its delivery to him. Delivery
of an instrument means transfer of possession, actual or
constructive, from one person to another. Without the initial
delivery of the instrument from the drawer to the payee, there
can be no liability on the instrument. Moreover, such delivery
must be intended to give effect to the instrument.

IV. LIABILITY OF PERSONS SIGNING AS AGENT (Section

20)
08. Philippine Bank of Commerce vs.
Aruego
102 SCRA 530
Doctrine:
A party who signs a bill of exchange as an agent, but failed to
disclose his principal becomes personally liable for the drafts
he accepted.
Facts:
Plaintiff instituted an action against defendant Aruego for
recovery of money signed by the defendant. The latter
interposes that he signed the drafts in a representative
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capacity, that he signed only as an accommodation party and

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

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the principal and must disclose the name of his principal;

otherwise he shall be held personally liable.
Facts:
Sometime in 1979, Ong discovered that Diaz and Francisco
had executed and signed seven checks drawn against the
Insular Bank of Asia & America (IBAA) and payable to Herby
Commercial & Construction Corporation (HCCC) for
completed and delivered work under the contract. Ong,
however, claims that these checks were never delivered to
HCCC. Upon inquiry with Diaz, Ong learned that the GSIS
gave Francisco custody of the checks since she promised that
she would deliver the same to HCCC. Instead, Francisco
forged the signature of Ong, without his knowledge or
consent, at the dorsal portion of the said checks to make it
appear that HCCC had indorsed the checks; Francisco then
indorsed the checks for a second time by signing her name at
the back of the checks and deposited the checks in her IBAA
savings account. IBAA credited Franciscos account with the
amount of the checks and the latter withdrew the amount so
credited. Petitioner claims that she was, in any event,
authorized to sign Ongs name on the checks by virtue of the
Certification executed by Ong in her favor giving her the
authority to collect all the receivables of HCCC from the GSIS,
including the questioned checks.
Issue:
Whether or not petitioner singing in a representative capacity
is liable to the questioned checks.
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Held:
The Negotiable Instruments Law provides that when a
person is under obligation to indorse in a representative
capacity, he may indorse in such terms as to negative personal
liability. An agent, when so signing, should indicate that he is
merely signing as an agent in behalf of the principal and
must disclose the name of his principal. Otherwise, he will
be
held
liable
personally. If Francisco was indeed
authorized, she didn't comply with the requirements of the
law. Instead of signing Ongs name, she should have signed
in her own name as agent of HCCC. Hence, she is liable.

V. FORGERY

10. Jai-Alai vs.

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

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relationship between the depositor and the collecting bank

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

discharge it or enforce its payment can be acquired through
or under the forged signature except against a party who
cannot invoke its forgery or want of authority. It stands to
reason that as a collecting bank which indorsed the checks
to the drawee-banks for clearing, should be liable to the
latter for reimbursement for the indorsements on the checks
had been forged prior to their delivery to the petitioner. The
payments made by the drawee banks to respondent were
ineffective - the creditor-debtor relationship hadn't been
validly effected.

11. Republic Bank vs.

Ebrada
65 SCRA 680
Doctrine:
It is only the negotiation predicated on the forged instrument
that should be declared inoperative. The negotiation of the
check in question between the parties after the immediate
parties to the forgery should be considered valid and
enforceable, barring any claim of forgery.
Facts:
Mauricia T. Ebrada (defendant) encashed a check at the
Republic Bank. The check was issued by the Bureau of
Treasury and was indorsed several times before falling into the
hands of the defendant. Defendant managed to cash the
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check (worth around 1200 pesos). It was however discovered

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

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presenting it to plaintiff Bank. The Bank may recover from

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

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

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

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Having stamped its guarantee of "all prior endorsements and/

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

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

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As a rule, a drawee bank who has paid a check on which an

endorsement has been forged cannot charge the drawer's
account for the amount of said check. An exception to the rule
is where the drawer is guilty of such negligence which causes
the bank to honor such a check or checks.
Facts:
Gempesaw filed for recovery of the money value of 82 checks
charged against her account due to forgery of indorsements
made by Alicia Galang, her trusted bookkeeper. In the normal
course of her grocery business, it would be Galang who
would write the amounts in the check and Gempesaw would
only sign the checks without ascertaining its contents. The
checks were deposited in the accounts of Romero and Lam,
with the aggregate total amounting to 1.2 million pesos.
Gempesaw filed a case with the RTC which held that
Gempesaw was negligent in handling her affairs by not
ascertaining the values of the payments and if indeed the
payments reached the payees making forgery not a defense
for her to recover. The CA affirmed.
Issue:
W/N the forgery entitles Gempesaw to reimbursement?
Held:
Partly Yes & No. The SC found that Gempesaw is indeed
negligent which precludes her from raising the defense of
forgery. However, the SC, using Art. 1170 of the Civil Code,
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said that the bank becomes also liable for damages for
accepting the check with a second indorsement. It should be
noted that in the current banking system, checks with second
indorsements are not generally accepted and given this fact,
the Bank should also shoulder liability. Gempesaw and the
bank are liable 50-50 for the loss.
15. Associated Bank vs.
Court of Appeals
252 SCRA 520
Doctrine:
The drawee-bank cannot debit the account of the drawer
because it paid checks which bore forged endorsements.
However, if the drawer was negligent to the point of
contributing substantially to the loss, then the drawee-bank
can charge the drawer's account. If both the drawee-bank and
the drawer were negligent, the loss should be apportioned
between them.
Facts:
Faustino Pangilinan, cashier of the Concepcion Emergency
Hospital, forged the signature of Dr. Adena Canlas who was
the Chief of the said hospital and endorsed 30 checks
amounting to P203,300 to himself. The money was drawn
from the account of the Province of Tarlac with PNB.
Pangilinan deposited the checks to his personal savings
account with Associated Bank which was cleared and paid for
by PNB. The checks have a stamp of Associated Bank which
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reads All prior endorsements guaranteed by Associated

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

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

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

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

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

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3 cases are consolidated in this decision involving Ford,

Citibank, and PCIBank. The original action was instituted by
Ford to recover from drawee bank Citibank and collecting
bank PCIBank a sum of money for the value of several checks
payable to the Commissioner of Internal Revenue, which were
embezzled allegedly by and organized syndicate. In 1977,
Ford issued a Citibank check payable to the CIR for its tax
obligations for the third quarter of the said year. After clearing,
the check was deposited to PCIBank. However, it was paid to
or received by the payee, CIR. The latter compelled Ford to
make another payment, which was then credited. Ford on the
other hand subjected Citibank for reimbursement for the
second assessment. The same thing happened in 1978 and
1979. After an investigation conducted by the NBI, it was
discovered that an organized syndicate was behind the scam.
It was revealed that the General Ledger Accountant of Ford
recalled the checks and caused PCIBank to replace the checks
with manager's checks, which were later deposited by alleged
members of the syndicate. Ford filed a complaint against the
officer but was dismissed because he could not be served
summons as he was a fugitive from justice. Ford mainly
impleads Citibank and PCIBank for the recovery of the sum of
money. The trial court ruled in favor of Ford in declaring that
Citibank and PCIBank were jointly liable. The CA however
modified the decision, saying that only Citibank was liable.
Hence, this petition.
Issue:
Has Ford the right to recover the value of the checks intended
as payment to CIR?
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Held:
With regard to the 1977 case, the SC held PCIBank solely
liable for paying Ford on the basis of its negligence in failing
to verify the authority of the Ford employee to negotiate the
checks. It showed the employees lack of care and prudence
required in the circumstances. Further, PCIBank's clearing
stamps enabled the checks to pass through the clearing
house and therefore Citibank had no choice but to pay it.
PCIBank's contention that Ford was guilty of imputed
contributory negligence cannot prosper because it was
established that the officer's instruction to replace the checks
was not in the ordinary course of business which could have
prompted PCIBank to validate the check. Regarding the 1978
and 1979 cases, the SC held that both Citibank and PCIBank
were both liable for the sum and must share in the loss. The
SC was able to establish the proximate cause of the loss which
was the negligence of PCIBank and that one of its employees
was in with the syndicate. The general rule that a bank is liable
for the fraudulent acts or representation of an officer or an
agent acting within the course and apparent scope of his
employment or authority was applied. Citibank on the other
hand was held liable based on its contractual relationship with
Ford. There was a breach of such relationship and failed to
scrutinize the checks before paying the amount to the CIR.
The SC applied the doctrine of comparative negligence, citing
both Citibank and PCIBank for failing in their respective
obligations and negligence in the selection and supervision of
their employees.

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19. Ramon Ilusorio vs.

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

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

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

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W/N Far East Bank is liable to reimburse Samsung for cashing

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

VI. MATERIAL ALTERATION (Section 124 and 125)

21. Philippine National Bank vs.
Court of Appeals
256 SCRA 491
Doctrine:

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An alteration is said to be material if it alters the effect of the

instrument. It means an unauthorized change in an instrument
that purports to modify in any respect the obligation of a party
or an unauthorized addition of words or numbers or other
change to an instrument relating to the obligation of a party.
In other words, a material alteration is one which changes the
items which are required to be stated under Sec.1, NIL. The
drawee bank cannot refuse to accept a check on the ground
that the serial number of the said check was altered, since the
serial number is an item which is not an essential requisite for
negotiability under Sec.1, NIL. The alteration did not change
the relations between the parties.
Facts:
DECS issued a check in favor of Abante Marketing
containing a specific serial number, drawn against PNB. The
check was deposited by Abante in its account with Capitol
and the latter consequently deposited the same with its
account with PBCOM which later deposited it with
petitioner for clearing. The check was thereafter cleared.
However, on a relevant date, petitioner PNB returned the
check on account that there had been a material alteration
on it. Subsequent debits were made but Capitol cannot debit
the account of Abante any longer for the latter had withdrawn
all the money already from the account. This prompted
Capitol to seek reclarification from PBCOM and demanded
the recrediting of its account. PBCOM followed suit by
doing the same against PNB. Demands unheeded, it filed an
action against PBCOM and the latter filed a third-party
complaint against petitioner.
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Issue:
Whether or not PBCOM should bear the loss for the check
materially altered.
Held:
An alteration is said to be material if it alters the effect of the
instrument. It means an unauthorized change in the
instrument that purports to modify in any respect the
obligation of a party or an unauthorized addition of
words or numbers or other change to an incomplete
instrument relating to the obligation of the party. In other
words, a material alteration is one which changes the items
which are required to be stated under Section 1 of the NIL.
In this case, the alleged material alteration was the alteration
of the serial number of the check in issue which is not an
essential element of a negotiable instrument under Section
1. PNB alleges that the alteration was material since it is an
accepted concept that a TCAA check by its very nature is
the
medium
of
exchange
of
governments,
instrumentalities and agencies. As a safety measure, every
government office or agency is assigned checks bearing
different serial numbers. But this contention has to fail. The
check's serial number is not the sole indicia of its origin. The
name of the government agency issuing the check is clearly
stated therein. Thus, the check's drawer is sufficiently
identified, rendering redundant the referral to its serial
number. Therefore, there being no material alteration in the

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check committed, PNB could not return the check to PBCOM.

It should pay the same.
22. Montinola vs.
Philippine National Bank
88 Phil 178
Doctrine:
The insertion of the words "Agent, Phil. National Bank" which
converts the bank from a mere drawee to a drawer and
therefore changes its liability constitutes a material alteration
of the instrument without the consent of the parties liable
thereto, and so discharges the instrument.
Facts:
Ramos, a disbursing officer of USAFE made cash
advancements with the provincial Treasurer of Lanao. The
latter gave him a P500,000 check. Thereafter, Ramos
presented the check to Laya for encashment. Laya in his
capacity as Provincial Treasurer issued a check to Ramos in the
sum of P100,000. Ramos was assigned only P30,000 of the
value of the document to Montinola and to deposit the
balance to Ramoss credit. This writing however, mysteriously
obliterated and in its place, a supposed indorsement
appearing on the back of the check was made for the whole
amount of the check Agent, Phil. National Bank under the
signature of Laya purportedly showing that Laya issued the
check as agent of the PNB.

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

VII. ACCOMMODATION PARTY

23. Sadaya vs.

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

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Sadaya, Sevilla and Varona signed solidarily a promissory note

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

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Sec.29, NIL does not include nor apply to corporations which

are accommodation parties, because the issue or
endorsement of negotiable paper by a corporation without
consideration and for the accommodation of another is ultra
vires. By way of exception, an officer or agent of a corporation
shall have the power to execute or endorse a negotiable
paper in the name of the corporation for the accommodation
of a third person only if specifically authorized to do so.
Facts:
The VP of Mover Enterprises, Inc. issued a check drawn
against Traders Royal Bank, payable to petitioner Ernestina
Crisologo-Jose, for the accommodation of his client. Petitioner
payee was charged with the knowledge that the check was
issued for the personal account of the President who merely
prevailed upon the VP to act as co-signatory in accordance
with the arrangement of the corporation with its depository
bank.
Issue:
Whether or not private respondent, is an accommodation
party under NIL and is liable for the amount of said check.
Held:
Yes. To be considered an accommodation party, a person
must (1) be a party to the instrument, (2) not receive value
therefor, (3) sign for the purpose of lending his name for the
credit of some other person. It is not a valid defense that the
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accommodation party did not receive any valuable

consideration when he executed the instrument. He is liable to
a holder for value as if the contract was not for
accommodation, in whatever capacity such accommodation
party signed the instrument, whether primarily or secondarily.
25. Stelco Marketing vs.
Court of Appeals
210 SCRA 51
Doctrine:
A holder of a check who is not a holder in due course cannot
sue the drawer-accommodation party. The Steelweld check
was given by its president to R.Y. Lim only by way of
accommodation, to be used as collateral for another
obligation. In breach of trust, R.Y. Lim endorsed the check in
payment of an obligation to a third person, Armstrong. When
the latter deposited the same, it was dishonored and after the
dishonor, Stelco came into possession of it. Stelco's mere
possession of the check does not make it a holder for value
and gives no rise to liability on the part of the accommodation
party, Steelweld, under Sec.29, NIL.
Facts:
Petitioner Stelco Marketing Corp (Stelco) is engaged in the
distribution and sale to the public of structural steel bars. It
sold on 7 occasions quantities of steel bars and rolls of G.I
sheets with an aggregate amount of P126,859.61 to RYL
Construction, Inc. (RYL). Despite the parties' agreement that
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payment would be on COD basis, RYL never paid upon

delivery of the materials and despite insistent demands.
One year later, RYL issued a check drawn against Metrobank
to Armstrong Industries, the sister company and
manufacturing arm of Stelco, to the amount of its obligations
to the latter. The check however was a company check of
another corporation Steelweld Corporation of the Philippines
(Steelweld) signed by its President and Vice President. Said
check was issued by the president of Steelweld at the request
of the president of RYL as an accommodation and only as
guaranty but not to pay for anything. Armstrong
subsequently deposited the check but was dishonoured
because it was DAIF*. It bore the endorsements of RYL and
Armstrong. The latter filed a complaint against the pres and
vp of Steelweld for violation of BP22. The trial court acquitted
the defendants noting that the checks were not issued to
a p p l y o n a c c o u n t f o r v a l u e , i t b e i n g m e re l y f o r
accommodation purposes. However, the court did not release
Steelweld from its liabilities, relying on Sec 29 of the NIL for
issuing a check for accommodation. Relying on the previous
decision and averring that it was a holder in due course,
Stelco subsequently filed a complaint for recovery of the value
of the materials from RYL and Steelweld. However, RYL had
already been dissolved leading the trial court to rule against
Steelweld and hold them liable. Steelweld appealed to the CA
which reversed the decision of the RTC declaring that STELCO
was not a holder in due course and Steelweld was a stranger
to the contract between STELCO and RYL.
Issue:

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Whether or not petitioner as a holder for value may recover

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

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

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W/N the checks are evidence of the liability of the respondent

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

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

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

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

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Petitioner sold to Wonderland Food Industries two parcels

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

VII. HOLDERS IN DUE COURSE

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29. De Ocampo vs.

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

never appeared. The failure of Gonzales to appeal resulted in
Gatchalian to issue a STOP PAYMENT ORDER on the check. It
was later found out that Gonzales used the check as payment
to the Vicente de Ocampo (Ocampo Clinic) for the
hospitalization fees of his wife (the fees were only P441.75, so
he got a refund of P158.25). De Ocampo now demands
payment for the check, which Gatchalian refused, arguing that
de Ocampo is not a holder in due course and that there is no
negotiation of the check. The Court of First Instance ordered
Gatchalian to pay the amount of the check to De Ocampo.
Hence this case.
Issue:
W/N de Ocampo is a holder in due course.
Held:
No. de Ocampo is not a holder in due course. De Ocampo
was negligent in his acquisition of the check. There were many
instances that arouse suspicion: the drawer in the check
(Gatchalian) has no liability with de Ocampo; it was crosschecked (only for deposit) but was used a payment by
Gonzales; it was not the exact amount of the medical fees. The
circumstances should have led him to inquire on the validity
of the check. However, he failed to exercise reasonable
prudence and caution. In showing a person had knowledge of
facts that his action in taking the instrument amounted to bad
faith need not prove that he knows the exact fraud. It is
sufficient to show that the person had NOTICE that there was
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something wrong. The bad faith here means bad faith in the
commercial sense obtaining an instrument with no questions
asked or no further inquiry upon suspicion. The presumption
of good faith did not apply to de Ocampo because the defect
was apparent on the instruments face it was not payable to
Gonzales or bearer. Hence, the holder's title is defective or
suspicious. Being the case, de Ocampo had the burden of
proving he was a holder in due course, but failed. *The
Gatchalian is not obligated to pay the amount of the check to
de Ocampo.
30. Mesina vs.
IAC
145 SCRA 497
Doctrine:
The holder of a cashier's check who is not a holder in due
course cannot enforce such check against the issuing bank
which dishonors the same. If a payee of a cashier's check
obtained it from the issuing bank by fraud, or if there is some
other reason why the payee is not entitled to collect the
check, the bank would, of course, have the right to refuse
payment on the check when presented by the payee since the
bank was aware of the facts and circumstances surrounding
the check.
Facts:
Jose Go purchased from Associated Bank a cashier's check
worth P800.000. Unfortunately, Go left the check at the desk
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of the bank manager who then entrusted it to Albert Uy, a

bank employee, for safekeeping. At the time, Uy had a visitor,
a certain Alexander Lim. Uy had to answer the phone and
immediately went to the CR and when he got back, Lim was
gone. When Go went to get his check from Uy, it was found to
be missing. Upon advise of Uy, Go went to Associated Bank to
accomplish a STOP PAYMENT order. After two days,
Associated Bank received the missing check for clearing
which it immediately dishonored. The same check was
returned for clearing after a few days which was again
dishonored by the bank. A few days later, the bank this time
didn't receive the check but a letter from a lawyer, Atty.
Lorenzo Navarro demanding payment for a then undisclosed
client. This led to Associated Bank to file an interpleader,
citing Jose Go, Atty. Navarro and a John Doe (for the then
unknown client) as respondents. Associated Bank then
received summons for a complaint for damages from Marcelo
Mesina, Atty. Navarro's client who was named for the first time,
stating that he got the check from Lim for a certain
transaction but refused to specify details and asserted that he
was a holder in due course. The trial court ruled in favor of
Associated Bank and Go, ordering the former to issue a new
cashier's check to Go. Mesina filed a petition for certiorari with
the IAC which was also denied.
Issue:
W/N Mesina is a holder in due course and should be entitled
for the value of the check?
Held:
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No. The SC held that Mesina failed to substantiate his claim as

a holder in due course given that by refusing to say how and
why the check was passed to him by Lim who stole the check,
he had notice of the defect of his title to the check from the
very start. The check was Go's check, a cashier's check at that,
and the bank knowing such, is liable to nobody but Go. Since
the bank was aware of the facts surrounding the loss of the
check in question, it has every right to refuse payment of the
check when presented by the payee.

VII. LIABILITY OF THE GENERAL INDORSER

31. Metropol vs.

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

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

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

32. Maralit vs.

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

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Whether or not respondent should be held liable as a general

indorser.
Held:
The Court symphatizes with the petitioner that there was
indeed damage and loss, but said loss is chargeable to the
respondent who upon her indorsements warrant that the
instrument is genuine in all respect what it purports to be and
that she will pay the amount thereof in case of dishonor. Thus,
while the MTC found petitioner partly responsible for the
encashment of the altered checks, it found respondent civilly
liable because of her indorsements of the treasury warrants, in
addition to the fact that respondent executed a notarized
acknowledgment of debt promising to pay the total amount
of said warrants.
33. Sapiera vs.
Court of Appeals
314 SCRA 370 (1999)
Doctrine:
Sec.17, NIL states that where a signature is so placed upon the
instrument that it is not clear in what capacity the person
making it intended to sign, he is deemed an endorser. Under
Sec.63, NIL, a person placing his signature other than as
maker, drawer, or acceptor, is deemed to be an endorser
unless an intention to be bound in some other capacity can
be shown. The liabilities of a general endorser are set forth in
Sec.66, NIL. It is undisputed that the 4 checks were signed by
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petitioner at the back without any indication as to how she

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

the person making the same intended to sign, he is deemed
an indorser. x x x
34. BPI vs.
Court of Appeals and Napiza
(G.R. No. 11239, February 29, 2000)
Doctrine:
Petitioner contends that that by signing the withdrawal slip,
private respondent Napiza presented the opportunity for the
withdrawal of the amount in question'. Ordinarily, private
respondent may be held liable as an endorser of the check or
even as an accommodation party, however, to hold him
responsible for the amount of the check he deposited by the
strict application of the law and without considering the
attending circumstances in the case would result in an
injustice and in the erosion of the public trust in the banking
system. Under petitioner's own rules to be able to withdraw
from the savings account deposit a duly filled up withdrawal
slip and the depositor's passbook must be presented. In
allowing the withdrawal of private respondent's deposit in
disregard of its own rules, it is clear that the negligence of BPI
was the proximate cause of the loss.
Facts:
Private respondent Benjamin Napiza deposited in his foreign
current deposit with BPI a dollar check owned by Henry Chan
in which he affixed his signature at the dorsal side thereof. For
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this purpose, Napiza gave Chan a signed blank withdrawal

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

VIII. PRESENTMENT FOR PAYMENT/ACCEPTANCE

35. Prudential Bank vs.

IAC
216 SCRA 257
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Doctrine:
Presentment for acceptance is necessary only in the cases
expressly provided for in Sec.143, NIL. Sight draft do not
require presentment for acceptance. Corollarily, sight drafts,
pursuant to sec.7, NIL are payable on demand.
Facts:
To effect payment for machineries purchased by Philippine
Rayon Mills with Nissho Co., Ltd, the former opened a
commercial letter of credit with the Prudential Bank and Trust
Company in favor of Nissho. Drafts were drawn and issued by
Nissho, which were all paid by the Prudential Bank through its
correspondent in Japan. Two of these drafts were accepted
by Philippine Rayon Mills while the others were not. Petitioner
instituted an action for the recovery of the sum of money it
paid to Nissho as Philippine Rayon Mills was not able to pay
its obligations arising from the letter of credit. Respondent
court ruled that with regard to the ten drafts which were not
presented and accepted, no valid demand for payment can
be made. Petitioner however claims that the drafts were sight
drafts which did not require presentment for acceptance to
Philippine Rayon.

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

36. Wong vs.

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

manufacturer of calendars. After printing the calendars, LPI
would ship the calendars directly to the customers. Thereafter,
the agents would come around to collect the payments.
Petitioner, however, had a history of unremitted collections,
which he duly acknowledged in a confirmation receipt he cosigned with his wife. Petitioner issued several checks in
December 1985, initially to guarantee the payment of
unremitted collections, however, upon agreement between
the parties, the checks will be applied to unremitted
collections. Before maturity, petitioner advised not to deposit
the said checks, but after failing to replace them, respondent
presented the check on June 1986 which was later on
dishonoured by reason of account closed. Having failed to
pay, a case of violation of BP 22 was filed against petitioner.
Petitioner contends that he is not liable by reason of the delay
in presenting the checks.
Issue:
Wether or not the petitioner is discharged from the liability on
the said checks due to delay in presentment.
Held:
Under Section 186 of the Negotiable Instruments Law, a
check must be presented for payment within a reasonable
time after its issue or the drawer will be discharged from
liability thereon to the extent of the loss caused by the delay.
By current banking practice, a check becomes stale after more
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than six (6) months, 23 or 180 days. Private respondent herein

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

reversed and favored Gueco. CA affirmed in favor of the
Gueco's. Hence this case.
ISSUE:
a. W/N International Corporate Bank is liable for damages.
b. W/N International Corporate Bank should shoulder the loss
due to a stale check.
Held:
a. No. The court agrees that there was not sufficient evidence
to prove that the signing of the Joint Motion to Dismiss is a
condition included in their agreement. In fact, the document
was not shown to Gueco in the negotiation meeting. However,
the Bank should not be liable for damages. There was no
fraud on the part of the bank. The refusal to release the car
was not done with intent to cause prejudice. The Bank simply
refused because it believed that the signing of the Joint
Motion to Dismiss was part of their agreement. There was no
deliberate attempt to cause prejudice.
b. NO. The stale check, having failure to present it within a
reasonable time, is valueless and cannot be paid. The check
issued by Gueco became stale due to the Bank inaction
(claiming the signing of the Joint Motion to Dismiss as a
condition precedent). Sec 186 of the NIL provides that failure
to present within a reasonable time will result discharge ONLY
to the extent of LOSS caused by delay. The Gueco's has not
proven that they have suffered damage or loss due to the
delay in presentment. The Bank is justified in delaying
presentment due to a legal controversy. Spouses Gueco is
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ordered to pay P150, 000 as agreed upon and International

Corporate Bank is ordered to release the car.

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

Nora Moulic issued 2 post-dated checks (P50, 000 each) to
Corazon Victoriano. Victoriano negotiated the checks to State
Investment House, Inc. (STATE). Moulic failed to sell the
jewelry so returned it to Victoriano. However, the checks
cannot be retrieved because it was already negotiated to
STATE. Probably wanting to escape liability, Moulic withdrew
her funds from drawee bank. So when STATE presented the
check, they were dishonored for insufficiency of funds. The
STATE instituted the case. RTC dismissed the complaint. CA
affirmed the dismissal. Hence this case.
Issue:
W/N the STATE is a holder in due course to warrant payment
of the checks.
Held:
YES, the STATE is a holder in due course. In conformity with
52 of NIL, evidence proved that (a) the checks were complete
and regular upon its face; (b) STATE acquired the checks
before due dates; (c) STATE took the checks in good faith and
for value; (d) STATE was never informed that checks were
merely issued for security. Being a holder in due course, the
STATE cannot be refused of payment due to failure of
consideration or the check being only as security. These are
not grounds for discharge of the instrument against a holder
in due course, as SEC 119 provides. Moulic cannot unilaterally
discharge herself from liability. No notice of dishonor is
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required. SEC 114 allows no notice of dishonor when the

drawer has no right to expect or require that the drawee/
acceptor will honor the instrument. This is shown when Moulic
withdrew her funds from the drawee bank. Thus, the
allegation of no notice of dishonor by Moulic is immaterial. No
notice is needed. The recovery of the checks by the STATE is
valid (apparently, Victoria had a real estate mortgage with
STATE which was subsequently foreclosed). Records show that
the extrajudicial foreclosure by the STATE on Victoriano's
property resulted in a deficit. (Liability = 1.9M; Auction = 1M
only). The law on mortgage, ACT 3135, does not expressly
prohibit the recovery of deficit in case of foreclosure. Moulic
is liable to pay the amount of the checks, without prejudice for
any action against Victoriano.
39. Bataan Cigar vs.
Court of Appeals
230 SCRA 643
Doctrine:
The crossing of a check has the following effects: (a) the check
may not be encashed but only deposited in the bank; (b) the
check may be negotiated only once to the one who has an
account with the bank; (c) the act of crossing a check serves as
a warning to the holder that the check has been issued for a
definite purpose so that he must inquire if he has received the
check pursuant to that purpose, otherwise he is not a holder
in due course.
Facts:
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Petitioner engaged one of its suppliers King Tim Pua George

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

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

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

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

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

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

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For my parents...

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Yes. The Court held that acceptance of a check implies an

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

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