COMMERCIAL LAW REVIEW

CASES: NEGOTIABLE INSTRUMENTS LAW

1. RCBC Savings Bank v. Odrada; G.R. No. 219037, October 19, 2016 ATIENZA, John Rafael
Patron
DOCTRINE/S:
FACTS:
In April 2002, respondent Noel M. Odrada (Odrada) sold a secondhand Mitsubishi Montero (Montero) to
Teodoro L. Lim (Lim) for One Million Five Hundred Ten Thousand Pesos (P 1,510,000). Of the total
consideration, Six Hundred Ten Thousand Pesos (P610,000) was initially paid by Lim and the balance
of Nine Hundred Thousand Pesos (P900,000) was paid in managers check issued by RCBC dated April
12, 2002.
After the issuance of the manager's checks and their turnover to Odrada but prior to the checks'
presentation, Lim notified Odrada in a letter dated 15 April 2002 that there was an issue regarding the
roadworthiness of the Montero. Among the issues with the Montero are hidden defects such as
misalignment of engine and signs of head on collision despite Odradas claim that the car never had any
collision. A meeting was requested with regard to the matter. However, Odrada did not go to the slated
meeting and instead deposited the manager's checks with International Exchange Bank (Ibank) on April
16, 2002 and redeposited them on April 19, 2002 but the checks were dishonored both times apparently
upon Lim's instruction to RCBC. Consequently, Odrada filed a collection suit against Lim and RCBC in
the Regional Trial Court of Makati.
In his Answer, Lim alleged that the cancellation of the managers check was at his instance, upon
discovery of the misrepresentations by Odrada about the Montero 's roadworthiness. Lim claimed that
the cancellation was not done ex parte but through a letter dated 15 April 2002. He further alleged that
the letter was delivered to Odrada prior to the presentation of the manager's checks to RCBC. On the
other hand, RCBC contended that the manager's checks were dishonored because Lim had cancelled
the loan. RCBC claimed that the cancellation of the check was prior to the presentation of the manager's
checks. Moreover, RCBC alleged that despite notice of the defective condition of the Montero, which
constituted a failure of consideration, Odrada still proceeded with presenting the manager's checks.
RTC and CA ruled in favor of Odrada

ISSUE/S: WON drawee bank can still deny payment of a managers check due to the Personal Defense
of Lim that a defective Montero was sold to Lim.
HELD: YES
As a general rule, the drawee bank is not liable until it accepts. Acceptance, therefore, creates a privity
of contract between the holder and the drawee so much so that the latter, once it accepts, becomes the
party primarily liable on the instrument. Thus, once he accepts, the drawee admits the following: (a)
existence of the drawer; (b) genuineness of the drawer's signature; ( c) capacity and authority of the
drawer to draw the instrument; and ( d) existence of the payee and his then capacity to endorse.
A managers check makes the bank primarily liable as there is already acceptance upon issuance of a
managers check. HOWEVER, the SC ruled that the issuing bank could validly refuse payment when the
holder is NOT a holder in due course.
In this case, the Court of Appeals gravely erred when it considered Odrada as a holder in due course.
Section 52 of the Negotiable Instruments Law defines a holder in due course as one who has taken the
instrument under the following conditions:

a.
b.
c.
d.

That it is complete and regular upon its face;

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

To be a holder in due course, the law requires that a party must have acquired the instrument in good
faith and/or value. Odrada did not acquire the instrument in good faith as he sold a defective Montero.
He immediately presented the check for payment upon notice of the Monteros defect.
RCBC acted in good faith in following the instructions of Lim. The records show that Lim notified RCBC
of the defective condition of the Montero before Odrada presented the manager's checks. Lim informed
RCBC of the hidden defects of the Montero including a misaligned engine, smashed condenser, crippled
bumper support, and defective transmission. RCBC acted in good faith in stopping the payment of the
manager's checks.
Section 58 of the Negotiable Instruments Law provides: "In the hands of any holder other than a holder
in due course, a negotiable instrument is subject to the same defenses as if it were non-negotiable. x x
x." Since Odrada was not a holder in due course, the instrument becomes subject to personal defenses
under the Negotiable Instruments Law. Hence, RCBC may legally act on a countermand by Lim, the
purchaser of the manager's checks.

2. Rivera v. Spouses Salvador Chua and Violeta Chua; G.R. No. 184458, January 14, 2015
BUENAVENTURA, Angeline Balangue
DOCTRINE/S: The Promissory Note in this case is made out to specific persons, herein respondents,
the Spouses Chua, and not to order or to bearer, or to the order of the Spouses Chua as payees.
However, even if Riveras Promissory Note is not a negotiable instrument and therefore outside the
coverage of Section 70 of the NIL which provides that presentment for payment is not necessary to
charge the person liable on the instrument, Rivera is still liable under the terms of the Promissory Note
that he issued.
FACTS: Rivera obtained a loan from the Spouses Chua. Three years from the date of payment
stipulated in the promissory note, Rivera, as partial payment for the loan, issued and delivered to the
Spouses Chua, as payee, a check drawn against Riveras current account with the Philippine
Commercial International Bank (PCIB) in the amount of P25,000.00. The Spouses Chua received
another check presumably issued by Rivera, likewise drawn against Riveras PCIB current account, duly
signed and dated, but blank as to payee and amount. Such check was issued in the amount of
P133,454.00 with "cash" as payee. Purportedly, both checks were simply partial payment for Riveras
loan in the principal amount of P120,000.00.
Upon presentment for payment, the two checks were dishonored for the reason "account closed."
The Spouses Chua alleged that they have repeatedly demanded payment from Rivera to no avail.
Because of Riveras unjustified refusal to pay, the Spouses Chua were constrained to file a suit. Rivera,
on the other hand, claimed forgery of the subject Promissory Note and denied his indebtedness
thereunder.

ISSUE/S:

1. WON there was forgery?

2. WON the said instrument is a Promissory Note, compliant with Sec. 1 of the NIL?

HELD:
1. NO. Rivera failed to adduce clear and convincing evidence that the signature on the
promissory note is a forgery.
2. NO. Rivera argue that even assuming the validity of the Promissory Note, demand was
still necessary in order to charge him liable thereunder. Rivera argues that it was grave error on the part
of the appellate court to apply Section 70 of the Negotiable Instruments Law (NIL).
The SC held that the subject promissory note is not a negotiable instrument and the provisions of
the NIL do not apply to this case. Section 1 of the NIL requires the concurrence of the following
elements to be a negotiable instrument:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty.
On the other hand, Section 184 of the NIL defines a negotiable promissory note as an unconditional
promise in writing made by one person to another, signed by the maker, engaging to pay on demand, or
at a fixed or determinable future time, a sum certain in money to order or to bearer. Where a note is
drawn to the makers own order, it is not complete until indorsed by him.
The Promissory Note in this case is made out to specific persons, herein respondents, the Spouses
Chua, and not to order or to bearer, or to the order of the Spouses Chua as payees. However, even if
Riveras Promissory Note is not a negotiable instrument and therefore outside the coverage of Section
70 of the NIL which provides that presentment for payment is not necessary to charge the person liable
on the instrument, Rivera is still liable under the terms of the Promissory Note that he issued.

3. Hongkong and Shanghai Banking Corp. Ltd. - Phil. Branches v. CIT; G.R. No. 1660188, June 4,
2014 CARIAGA, Lovely Nikki Alfar
DOCTRINE/S: The instructions given through electronic messages that are subjected to DST in these
cases are not negotiable instruments as they do not comply with the requisites of negotiability under
Section 1 of the Negotiable Instruments Law, which provides:
Sec. 1. Form of negotiable instruments. An instrument to be negotiable must conform to the following
requirements: (a) It must be in writing and signed by the maker or drawer; (b) Must contain an
unconditional promise or order to pay a sum certain in money; (c) Must be payable on demand, or at a
fixed or determinable future time; (d) Must be payable to order or to bearer; and (e) Where the
instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable
certainty.

FACTS: HSBC performs custodial services on behalf of its investor-clients, corporate and individual,
resident or non-resident of the Philippines, with respect to their passive investments in the Philippines,
particularly investments in shares of stocks in domestic corporations. As a custodian bank, HSBC
serves as the collection/payment agent with respect to dividends and other income derived from its
investor-clients passive investments.
HSBCs investor-clients maintain Philippine peso and/or foreign currency accounts, which are managed
by HSBC through instructions given through electronic messages. The said instructions are standard
forms known in the banking industry as SWIFT, or Society for Worldwide Interbank Financial
Telecommunication.
In purchasing shares of stock and other investment in securities, the

investor-clients would send electronic messages from abroad instructing HSBC to debit their local or
foreign currency accounts and to pay the purchase price therefor upon receipt of the securities.
Pursuant to the electronic messages of its investor-clients, HSBC purchased and paid Documentary
Stamp Tax (DST). However, the BIR issued a BIR Ruling to the effect that instructions or advises from
abroad on the management of funds located in the Philippines which do not involve transfer of funds
from abroad are not subject to DST.
With the above BIR Ruling, HSBC filed an administrative claim for refund allegedly representing
erroneously paid DST to the BIR. As its claims for refund were not acted upon by the BIR, HSBC
subsequently brought the matter to the CTA.
The CTA Decisions favored HSBC. However, the CA reversed the decisions of the CTA and ruled that
the electronic messages of HSBCs investor-clients are subject to DST. Hence, these petitions.

ISSUE/S: Whether the instructions given through electronic messages are negotiable instruments that
are subject to DST.
HELD: NO. Read Doctrine.
The electronic messages are not signed by the investor-clients as supposed drawers of a bill of
exchange; they do not contain an unconditional order to pay a sum certain in money as the payment is
supposed to come from a specific fund or account of the investor-clients; and, they are not payable to
order or bearer but to a specifically designated third party. Thus, the electronic messages are not bills
of exchange. As there was no bill of exchange or order for the payment drawn abroad and made
payable here in the Philippines, there could have been no acceptance or payment that will trigger the
imposition of the DST under the Tax Code.
Acceptance applies only to bills of exchange. Acceptance of a bill of exchange has a very definite
meaning in law. In particular, Section 132 of the Negotiable Instruments Law provides: Sec. 132.
Acceptance; how made, by and so forth. The acceptance of a bill [of exchange] is the signification by
the drawee of his assent to the order of the drawer. The acceptance must be in writing and signed by
the drawee. It must not express that the drawee will perform his promise by any other means than the
payment of money.
Under the law, what is accepted is a bill of exchange, and the acceptance of a bill of exchange is both
the manifestation of the drawees consent to the drawers order to pay money and the expression of the
drawees promise to pay. Once the drawee accepts, he becomes an acceptor. As acceptor, he engages
to pay the bill of exchange according to the tenor of his acceptance.
Acceptance is made upon presentment of the bill of exchange, or within 24 hours after such
presentment. Presentment for acceptance is the production or exhibition of the bill of exchange to the
drawee for the purpose of obtaining his acceptance.
Presentment for acceptance is necessary only in the instances where the law requires it. In the
instances where presentment for acceptance is not necessary, the holder of the bill of exchange can
proceed directly to presentment for payment.
Presentment for payment is the presentation of the instrument to the person primarily liable for the
purpose of demanding and obtaining payment thereof.
Thus, whether it be presentment for acceptance or presentment for payment, the negotiable instrument
has to be produced and shown to the drawee for acceptance or to the acceptor for payment.

The electronic messages received by HSBC from its investor-clients abroad instructing the former to
debit the latters local and foreign currency accounts and to pay the purchase price of shares of stock or
investment in securities do not properly qualify as either presentment for acceptance or presentment for
payment. There being neither presentment for acceptance nor presentment for payment, then there
was no acceptance or payment that could have been subjected to DST to speak of.
To reiterate, there was no bill of exchange or order for the payment drawn abroad and made payable
here in the Philippines. Thus, there was no acceptance as the electronic messages did not constitute
the written and signed manifestation of HSBC to a drawers order to pay money. As HSBC could not
have been an acceptor, then it could not have made any payment of a bill of exchange or order for the
payment of money drawn abroad but payable here in the Philippines.

4. Patrimonio v. Gutierrez; G.R. No. 187769, June 4, 20414 C

HING, Tiffany Kimberly Dy Tan
DOCTRINE/S:
In order that one who is not a holder in due course can enforce the instrument against a party prior to
the instruments completion, two requisites must exist: (1) that the blank must be filled strictly in
accordance with the authority given; and (2) it must be filled up within a reasonable time. If it was proven
that the instrument had not been filled up strictly in accordance with the authority given and within a
reasonable time, the maker can set this up as a personal defense and avoid liability. However, if the
holder is a holder in due course, there is a conclusive presumption that authority to fill it up had been
given and that the same was not in excess of authority.
To be a holder in bad faith, it is sufficient that the buyer of a note had notice or knowledge that the note
was in some way tainted with fraud. It is not necessary that he should know the particulars or even the
nature of the fraud, since all that is required is knowledge of such facts that his action in taking the note
amounted bad faith.

Facts:
Alvin Patrimonio and Nap Gutierrez put up a business (Slam Dunk Corporation) to produce
mini-concerts and shows related to basketball. Alvin pre-signed several checks to answer for the
expenses of the company. Though signed, these checks had no payees name, date, or amount. These
blank checks were entrusted to Nap with specific instruction not to fill them out without notice to and
approval by Alvin so that he (Alvin) could verify the validity of the payment and make arrangements to
fund the account.
Nap secured a loan from Octavio Marasigan (Alvins teammate) of P200,000 allegedly for Alvins
construction of his house. This was done without the knowledge of Alvin. Nap also agreed to an interest
of 5% per month from March to May 1994. Nap simultaneously delivered to Octavio one check with the
words CASH on the payee, the amount of P200,000, and the date of May 23, 1994. When it was
deposited to the drawee bank, it was dishonored due to ACCOUNT CLOSED, the account was closed
since March 1993.
Despite demand from Octavio, Alvin refused to pay the face value of the check, hence, he filed a case
for BP 22 against Alvin. Alvin contends that theres no legal basis to hold him liable both under the
contract of loan and under the check because (1) the subject check was not completely filled out strictly
under the authority he has given and (2) Octavio was not a holder in due course.

Issue: WON Alvin is liable to Octavio.

Held: NO
Sec. 14 of NIL states that if the maker or drawer delivers a pre-signed blank paper to another person for
the purpose of converting it into a negotiable instrument, that person is deemed to have prima facie

authority to fill it up. It merely requires that the instrument be in the possession of a person other than
the drawer or maker and from such possession, together with the fact that the instrument is wanting in a
material particular, the law presumes agency to fill up the blanks.
In order that one who is not a holder in due course can enforce the instrument against a party prior to
the instruments completion, two requisites must exist: (1) that the blank must be filled strictly in
accordance with the authority given; and (2) it must be filled up within a reasonable time. If it was proven
that the instrument had not been filled up strictly in accordance with the authority given and within a
reasonable time, the maker can set this up as a personal defense and avoid liability. However, if the
holder is a holder in due course, there is a conclusive presumption that authority to fill it up had been
given and that the same was not in excess of authority.
To be a holder in bad faith, it is sufficient that the buyer of a note had notice or knowledge that the note
was in some way tainted with fraud. It is not necessary that he should know the particulars or even the
nature of the fraud, since all that is required is knowledge of such facts that his action in taking the note
amounted bad faith.
In this case, Octavios knowledge that Alvin is not a party or a privy to the contract of loan, and
correspondingly had no obligation or liability to him, renders him dishonest, hence, in bad faith. Since he
knew that the underlying obligation was not actually for the petitioner, the rule that a possessor of the
instrument is prima facie a holder in due course is inapplicable. His inaction and failure to verify, despite
knowledge that Alvin was not a party to the loan, may be construed as gross negligence amounting to
bad faith.
Additionally, no evidence is on record that Nap ever secured prior approval from Alvin to fill up the blank
or to use the check. In his testimony, Alvin asserted that he never authorized nor approved the filling up
of the blank checks.

5. People v. Wagas; G.R. No. 157943, September 4, 2013 D

ORIA, Arniebelle Mangaron
DOCTRINE/S:
A check made payable to cash is payable to the bearer and could be negotiated by mere delivery
without the need of an indorsement.
In every criminal prosecution, such as that for estafa, the identity of the offender, like the crime itself,
must be established by proof beyond reasonable doubt.
FACTS:
In this case, Gilbert R. Wagas appeals his conviction for estafa by the RTC of Cebu. It was alleged that
Wagas ordered 200 bags of rice from complainant Alberto Ligaray. As payment, Wagas issued a
postdated BPI check for P200,000, payable to cash, in favor of Ligaray. However, when the check was
deposited, it was dishonored due to insufficiency of funds. When Wagas refused and failed to pay even
after notification and demand, Ligaray filed a complaint for estafa, of which the former was convicted by
the RTC.
On appeal, Wagas contended that he had never met Ligaray in person and insists that it is highly
unlikely for a businessman to enter into a transaction involving a huge amount of money only over the
telephone. Wagas also pointed out that the delivery receipt was signed by one Robert Caada and it
indicated that the goods had been "Ordered by Robert Caada." In addition, there was no showing that
Caada acted on his behalf. Wagas asserted that he had issued the check to Caada for a different
transaction and that Caada had merely negotiated the check to Ligaray.

ISSUE/S: Whether Wagas was properly charged and convicted of estafa? NO

HELD:

While the prosecution may have established the elements of estafa, it had not proved that it was Wagas
who had defrauded Ligaray by issuing the check.
Ligaray expressly admitted that he did not personally meet the person with whom he was
transacting over the telephone, not even after the check was dishonored.
Ligaray was delivered a check made payable to cash. Under the NIL, this type of check is payable
to the bearer and could be negotiated by mere delivery without the need of an indorsement.
It was highly probable that Wagas issued the check not to Ligaray, but to somebody else
like Caada, his brother-in-law, who then negotiated it to Ligaray.
Ligaray admitted that it was Caada who received the rice and who delivered the check.
Records were bereft of any proof that Caada was acting on behalf of Wagas.
Ligarays declaration that it was Wagas who he had transacted with over the telephone was not
reliable because he did not explain how he determined the latters identity.
The RPC punishes fraud or deceit in estafa, not the mere issuance of a worthless check. Wagas could
not be held guilty simply because he issued the check used to defraud Ligaray. It must be proven that it
was him who defrauded Ligaray. However, even though he was acquitted of estafa, he may still be held
civilly liable. Wagas, as the drawer, is legally liable to pay Ligaray, a holder in due course.

6. Lim v. Mindanao Wines and Liquor Galleria; G.R. No. 175851, July 2012 FERNANDEZ, Gil
Aldrick Sy
DOCTRINE/S: The extinction of the penal action does not carry with it the extinction of the civil liability
where x x x the acquittal is based on reasonable doubt as only preponderance of evidence is required in
civil cases
FACTS:Mindanao wines delivered cases of liquors to H & E commercial owned by Emilia, for which the
latter issued four PNB post dated checks worth 25,000 each. Two of the check bounced for reasons of
account closed and drawn against insufficient funds. When demands went unheeded, Mindanao wines
filed BP22 case against Emilia.
MTCC held that she is not criminally liable for BP 22. However, she was held civilly liable.
Emilia, petitioner, contends that since her acquittal was based on insuffiency of evidence, it should then
follow that the civil aspect of the criminal cases filed against her be likewise dismissed. Hence, there is
no basis for her adjudged civil liability.

ISSUE/S:WON she should be civilly liable? Yes

HELD:Despite her acquittal from the charges of violation of Batas Pambansa Bilang 22 (BP 22) or the
Bouncing Checks Law, the lower courts still found petitioner Emilia Lim (Emilia) civilly liable and ordered
her to pay the value of the bounced checks,
Emila was acquitted because one element of BP 22 was lacking, there was no proof of dishonor of the
checks that was presented by the prosecution. However, this does not mean that Emilia has no existing
debt with Mindanao Wines, a civil aspect which is proven by another quantum of evidence, mere
preponderance of evidence.

7. BPI v. Spouses Royeca; G.R. No. 176664, July 21, 2008 FRANCISCO, Marvin Parinas
DOCTRINE/S:
See Held
FACTS:

1993, Spouses Royeca executed and delivered to Toyota Shaw, Inc. a Promissory Note (PN)
payable in 48 equal monthly installments with a maturity date of August 18, 1997. The PN provides
for a penalty of 3% for every month or fraction of a month that an installment remain unpaid.
The spouses executed a Chattel Mortgage (CM) in favor of Toyota (1993 Toyota Corolla) to secure
the payment of the PN.
Toyota executed a Deed of Assignment (with notice to the spouses) transferring all its rights, title,
and interest in the CM to Far East Bank and Trust Company (FEBTC).
2000, FEBTC sent a formal demand to the spouses claiming that the latter failed to pay 4 monthly
amortizations.
Spouses refused, hene, FEBTC filed a complaint for Replevin and Damages against the
spouses. The complaint was later amended to substitute BPI as plaintiff when it merged
with and absorbed FEBTC.
Answer of the spouses:
That on May 1997, they delivered 8 post-dated checks to FEBTC in different amounts and were
able to show the Acknowledgment Receipt from FEBTC.
That they did not receive any notice from the drawee banks nor from FEBTC that these checks were
dishonored. Considering that the checks were issued three years ago, they believed in good faith
that their obligation had already been paid.
Claim from FEBTC
That they had received the 8 PDCs from the spouses, however, 2 of those were dishonored.
Further, that the said 2 checks were not deposited anymore due to the previous dishonor, hence,
the spouses still had a remaining outstanding balance.

ISSUE/S:
Whether tender of checks constitutes payment. NO.
HELD:
Settled is the rule that payment must be made in legal tender. A check is not legal tender and,
therefore, cannot constitute a valid tender of payment. 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. 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 (Doctrine).
The spouses therefore had to present proof, not only that they delivered the checks to the petitioner,
but also that the checks were encashed. They failed to do so. Had the checks been actually
encashed, the spouses could have easily produced the cancelled checks as evidence to prove the
same. Instead, they merely averred that they believed in good faith that the checks were encashed
because they were not notified of the dishonor of the checks and three years had already lapsed
since they issued the checks.
Because of this failure of the spouses to present sufficient proof of payment, it was no
longer necessary for the BPI (FEBTC) to prove non-payment, particularly proof that the
checks were dishonored.
The spouses are ordered to deliver the possession of the subject vehicle, or in the alternative,
pay BPI the amount of the dishonored checks plus late penalty charges or interest thereon.
8. PNB v. Rodriguez; G.R. No. 170325, September 26, 2008 GATCHALIAN, Andrea Mae Dizon
DOCTRINE/S:
As a rule, when the payee is fictitious or not intended to be the true recipient of the proceeds, the
check is considered as a bearer instrument under Sec. 9(c) of NIL.
Fictitious person defined - If the payee is not the intended recipient of the proceeds of the check.
Fictitious Payee Rule
General Rule: The drawee bank is absolved from liability and the drawer bears the loss.
The is treated as a bearer instrument that can be negotiated by delivery. The underlying

theory is that one cannot expect a fictitious payee to negotiate the check by placing his
indorsement thereon. And since the maker knew this limitation, he must have intended for
the instrument to be negotiated by mere delivery.
Exception: A showing of commercial bad faith on the part of the drawee bank, or any
transferee of the check for that matter. The exception will cause the bank to bear the loss.
Commercial bad faith is present if the transferee of the check acts dishonestly, and is a
party to the fraudulent scheme.

FACTS:
Respondents-Spouses Erlando and Norma Rodriguez have checking/current accounts in petitioner
PNB, Amelia Avenue Branch. They were engaged in the informal lending business. They had a
discounting arrangement with the Philnabank Employees Savings and Loan Association (PEMSLA), an
association of PNB employees which also has an account with PNB Amelia.
PEMSLA regularly granted loans to its members. Spouses Rodriguez would rediscount the postdated
checks issued to members whenever the association was short of funds. As was customary, the
spouses would replace the postdated checks with their own checks issued in the name of the members.
It was PEMSLAs policy not to approve applications for loans of members with outstanding debts. To
subvert this policy, some PEMSLA officers devised a scheme to obtain additional loans despite their
outstanding loan accounts. They took out loans in the names of unknowing members, without the
knowledge or consent of the latter. The PEMSLA checks issued for these loans were then given to the
spouses for rediscounting. The officers carried this out by forging the indorsement of the named payees
in the checks. The Rodriguez checks were deposited directly by PEMSLA to its savings account without
any indorsement from the named payees.
When PNB found out about the scheme, it closed the current account of PEMSLA. As a result, the
PEMSLA checks deposited by the spouses were returned or dishonored for the reason Account Closed.
The corresponding Rodriguez checks (69 total), however, were deposited as usual to the PEMSLA
savings account. The amounts were duly debited from the Rodriguez account. Thus, because the
PEMSLA checks given as payment were returned, spouses Rodriguez incurred losses from the
rediscounting transactions.
Respondent-Spouses filed a civil complaint to recover the value of the check and contended that
because PNB credited the checks to the PEMSLA account even without indorsements, PNB
violated its contractual obligation to them as depositors, hence, it should bear the loss. But PNB claimed
that the payees were fictitious hence the checks were negotiable by mere delivery.
RTC ruled in favor of the spouses. Initially, CA reversed the decision and ruled that the checks were
bearer instruments but later on amended itself and ruled that the checks were payable to order. PNB
failed to present sufficient proof to defeat the claim of the spouses Rodriguez that they really intended
the checks to be received by the specified payees.

ISSUE/S:
1. Whether the subject checks are payable to order or to bearer? Payble to order
2. Who bears the loss? PNB
HELD:
Considering that respondents-spouses were transacting with PEMSLA and not the individual payees, it
is understandable that they relied on the information given by the officers of PEMSLA that the payees
would be receiving the checks. Verily, the subject checks are presumed order instruments. This is
because, PNB failed to present sufficient evidence to defeat the claim of respondents-spouses that the
named payees were the intended recipients of the checks proceeds. The bank failed to satisfy a
requisite condition of a fictitious-payee situation that the maker of the check intended for the payee to
have no interest in the transaction.

Because of a failure to show that the payees were fictitious in its broader sense, the fictitious-payee
rule does not apply. Thus, the checks are to be deemed payable to order. Consequently, the drawee
bank bears the loss.

PNB was remiss in its duty as the drawee bank. It does not dispute the fact that its teller or tellers
accepted the 69 checks for deposit to the PEMSLA account even without any indorsement from the
named payees. PNB, as the drawee bank, had the responsibility to ascertain the regularity of the
indorsements, and the genuineness of the signatures on the checks before accepting them for deposit.
9. RCBC v. Hi-Tri Development Corp.; G.R. No. 192413, June 13, 2012 ITARALDE, Mark Dean Del
Rosario
DOCTRINE/S: The mere issuance of a managers check does not ipso facto work as an automatic
transfer of funds to the account of the payee. The doctrine that the deposit represented by a managers
check automatically passes to the payee is inapplicable, because the instrument although accepted in
advance remains undelivered
FACTS: Because of a failed sale of land transaction between Sps. Bakunawa (owners of Hi-Tri) and
Millan, Hi-Tri made the issuance by RCBC Ermita of a managers check to supposedly return the
downpayment paid by Millan and to rescind the sale. This managers check was never accepted by
Millan and was never presented to the bank, and became one of the bases a civil case Bakunawa filed
against Millan. During the pendency of the case, without knowledge of Hi-Tri nor Bakunawa, RCBC
reported the unwithdrawn managers check as among its unclaimed balances to the Bureau of Treasury.
Because of this report, the funds of managers check became the subject of escheat proceedings.
Hence, Hi-Tri and Bakunawa, after having an amicable settlement with Millan were dismayed to find out
about this.
ISSUE: Whether or not the funds for the unclaimed managers check may be escheated in favor of the
Republic?
HELD: The mere issuance of a managers check does not ipso facto work as an automatic transfer of
funds to the account of the payee. In case the procurer of the managers or cashiers check retains
custody of the instrument, does not tender it to the intended payee, or fails to make an effective delivery.
Petitioner acknowledges that the Managers Check was procured by respondents, and that the amount
to be paid for the check would be sourced from the deposit account of Hi-Tri. When Rosmil did not
accept the Managers Check offered by respondents, the latter retained custody of the instrument
instead of cancelling it. As the Managers Check neither went to the hands of Rosmil nor was it further
negotiated to other persons, the instrument remained undelivered. Petitioner does not dispute the fact
that respondents retained custody of the instrument. Since there was no delivery, presentment of the
check to the bank for payment did not occur. An order to debit the account of respondents was never
made. In fact, petitioner confirms that the Managers Check was never negotiated or presented for
payment to its Ermita Branch, and that the allocated fund is still held by the bank. As a result, the
assigned fund is deemed to remain part of the account of Hi-Tri, which procured the Managers Check.
The doctrine that the deposit represented by a managers check automatically passes to the payee is
inapplicable, because the instrument although accepted in advance remains undelivered. Hence,
respondents should have been informed that the deposit had been left inactive for more than 10 years,
and that it may be subjected to escheat proceedings if left unclaimed.
10. GO. v. MBTC; G.R. No 168842, August 11, 2010 L
IM, Frederick Xavier Ramos
DOCTRINE/S:

10

A crossed check is one where two parallel lines are drawn across its face or across the corner thereof. It
may be crossed generally or specially. A check is crossed specially when the name of a particular
banker or a company is written between the parallel lines drawn. It is crossed generally when only the
words and company are written or nothing is written at all between the parallel lines, as in this case. It
may be issued so that presentment can be made only by a bank.
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 one who has an account with a
bank; and (c) the act of crossing the check serves as 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:
Petitioner operated a pharmacy which employed two persons. One to handle the day-to-day operations
and the other to handle accounting concerns.
Petitioner alleges that the two employees deposited 32 checks through the respondent bank. The
checks, valuing at a collective P1,492,595.06, were deposited to their personal account of one of the
employees. These checks, however, were crossed checks payable to the name of the pharmacy (Hope
Pharmacy). Thus, the petitioner seeks to hold the respondent bank liable as its participation was
indispensable for the checks to have been erroneously accepted for deposit for any other account which
was not that of the pharmacy.

ISSUE/S: W/N the bank may be held liable for allowing the deposit of the crossed checks to an account
which was not that of the intended payee.
HELD: Yes.
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 one who has an account with a
bank; and (c) the act of crossing the check serves as 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.
Respondent bank was negligent in permitting the deposit and encashment of the crossed checks
without the proper indorsement. An indorsement is necessary for the proper negotiation of checks
specially if the payee named therein or holder thereof is not the one depositing or encashing it. Knowing
fully well that the subject checks were crossed, that the payee was not the holder and that the checks
contained no indorsement, respondent bank should have taken reasonable steps in order to determine
the validity of the representations made by the employee. Respondent bank was amiss in its duty as an
agent of the payee. Prudence dictates that respondent bank should not have merely relied on the
assurances given by the employee. Thus, the bank must be held liable.

11. San Miguel Corp. v. Puzon; G.R. No. 167567, September 22, 2010 MACALINO, Marc Artemio
Nucup
DOCTRINE/S:
The person to whom an instrument (cheque) so dated is delivered acquires the title thereto as of the
date of delivery -- party delivering did so for the purpose of giving effect thereto.
FACTS:
Puzon is a dealer of beer products of San Miguel Beer (SMB) in Paranaque and he issued two
post dated cheques worth P11M as security for the payment thereof. The cheques were not
used as payment but as security.

11

Days after, he visited the Sales office of SMC in Paranaque to reconcile his account with them
and requested the cheques he issued. However, after he got hold of the cheques, he
immediately left the premises along with said instruments. SMC demanded the cheques back
but Puzon did not heed to their request. Hence, SMC sued Puzon for theft.
The prosecutor dismissed SMCs case for lack of probable cause and found that their
relationship is of the nature of creditor-debtor. The SOJ and CA affirmed the prosecutors
resolution.

ISSUE/S:
1. Whether the post-dated cheques issued by Puzon to SMC were payments for the products
or were only used as security to ensure payment for his obligation.
2. Whether such taking of the post-dated cheques resulted into theft by Puzon.
HELD:
The SC stated Section 12 of NIL which states ...the person to whom an instrument so dated is delivered
acquires the title thereto as of the date of delivery. But such delivery must mean that the person
delivering the instrument must have the purpose of giving effect thereto. Otherwise, the person to whom
such instrument is given shall not acquire proper title to it.
In this case, since the cheques issued by Puzon only served as a security to ensure payment of the
products, ownership of the instrument did not transfer to SMC. Thus, there can be no theft as claimed by
SMC.

12. BPI v. CA; G.R. No. 1336202, January 25, 2007 M

ANALAYSAY, Crizette Tanya Sumulong
DOCTRINE/S:
(1) Transferees in a transfer without endorsement need to prove something more than mere
possession of the instrument to authorize payment to them (in the absence of any other facts from
which the authority to receive payment may be inferred).
(2) Unless the high standard of conduct was not observed, banks generally have a right of set-off over
the deposits.
SHORT FACTS & HELD: 3 checks (no indorsement) were credited to Respondent Salazars personal
account. Later, the designated payee contested. So the Bank debited her corporate account (with no
notice) so it can pay payee. HELD: In transfers without indorsement, possessor must prove he has
authority to receive the amount (with evidence other than possession). Here, no evidence. So, the Bank
has right set-off but it cannot be exercised since no high standard of care was observed (allowed
encashment when no indorsement, no notice to client, violated freeze order).
FACTS:
(1) Respondent Salazar had 2 accounts with Petitioner Bank: Personal & Corporate (A.A.
Construction). She had in her possession 3 checks (about P300K total) all payable to JRT
Construction (Respondent Templonuevo's company).
(2) Although all checks had no indorsements, Respondent Salazar was able to deposit the checks in
her personal account & encash it in an 8 month span.
(3) After a year, Respondent Templonuevo (payee) protested. So Petitioner Bank froze the corporate
account of Respondent Salazar instead of her personal account where the contested amount was
credited (because her personal account was already closed).
(4) But 11 days after the assurance that the account will remain untouched, Petitioner Bank debited the
contested amount from Respondent Salazar's corporate account & paid Respondent Templonuevo.
Petitioner did this: (1) Despite knowledge of ongoing negotiations between the Respondents (2)
Despite the freeze order & (3) mWithout notice to client Respondent Salazar.

12

(5) RTC & CA ruled for Respondent Salazar giving credence to her argument that there existed a prior
agreement that entitles her to the amounts of the checks.

ISSUE/S:
(1) Does Petitioner Bank have the right of set-off?
(2) Did Petitioner Bank act judiciously?
HELD: Partially granted. Records show no prior agreement that makes Respondent Salazar a
transferee.
(1) YES. The checks are payable to order. Not being a payee or indorsee of the checks, Respondent
Salazar could not be a holder. It is an exception to the general rule for a payee of an order
instrument to transfer the instrument without indorsement. As it is abnormal, it is but fair to the
maker & to prior holders to require possessors to prove that they came into possession by virtue of
a legitimate transaction with the last holder. Here, Respondent Salazar failed to discharge this
burden. Further, she ascertained the genuineness of all prior endorsements (stamp at back of
check). As a general indorser, her liability to the payee cannot be denied. So, Petitioner Bank had
the right to debit her account. It is of no moment that the account debited was different from the
original account where proceeds were credited because both admittedly belonged to Respondent
Salazar.
(2) NO. Petitioner Bank ordered to return amount debited to Respondent Salazar. Banks must observe
a high standard of conduct. This was not done. First, the irregularity appeared plainly on the face of
the checks. Despite the obvious lack of indorsement, Petitioner Bank permitted encashment of the
checks 3 times on 3 separate occasions. This negates Petitioner Banks claim that it merely made a
mistake in crediting the value of the checks. Second, the freeze order was not respected. Third, no
due notice was given. Lastly, Respondent Salazar issued several checks drawn on said corporate
account only for it to be dishonored thereby causing undue embarrassment on her part.
13. FEBTC v. Gold Palace Jewellery; G.R. No. 168274, August 20, 2008 MANCIA, Ryle Scott De
Guzman
DOCTRINE/S:
The acceptor, by accepting the instrument, engages that he will pay it according to the tenor of his
acceptance. This provision applies with equal force in case the drawee pays a bill without having
previously accepted it. His actual payment of the amount in the check implies not only his assent to the
order of the drawer and a recognition of his corresponding obligation to pay the aforementioned sum,
but also, his clear compliance with that obligation. Actual payment by the drawee is greater than his
acceptance, which is merely a promise in writing to pay. The payment of a check includes its
acceptance.
FACTS:
In June 1998, Samuel Tagoe, a foreigner, purchased from respondent Gold Palace Jewellery Co. pieces
of jewelry worth P 258,000. As payment, he offered a foreign draft issued by the United Overseas Bank
of Malaysia addressed to Land Bank of the Philippines, and payable to Gold Palace for P 380,000.00.
Respondent Judy Yang, the assistant general manager of Gold Palace, inquired from petitioner Far East
Bank & Trust Company's the nature of the draft. The teller informed her that the same was similar to a
manager's check, but advised her not to release the pieces of jewelry until the draft had been cleared.
Yang issued a cash invoice to Tagoe and told him that the jewelries would be released when the draft
had been cleared. Julie Yang-Go deposited the draft in the companys account with FEBTC SM North.
The latter presented it for clearing to LBP, the drawee bank, who cleared the same. United Overseas
account with LBP was debited and Gold Palaces account with FEBTC was credited with the amount
stated in the draft. The pieces of jewelry were then released to Tagoe and because the amount in the
draft was more than the value of the goods, a check for P 122,000 was issued to him. It was encashed
by Tagoe.

13

LBP informed FEBTC that the amount in the foreign draft had been materially-altered from P 300.00 to
P 380,000.00 and that they will be returning it. FEBTC thus refunded the amount paid by LBP. Thus,
FEBTC had to seek reimbursement from Gold Palace but they were only able to debit PHP 168,053.37,
which was done without a prior written notice to Gold Palace as they only informed them by phone.
They thus demanded the difference of PHP 211,946.64 from Gold Palace. As the latter did not respond
favorably, FEBTC instituted a civil case for sum of money and damages. Gold Palace denies the
allegations in the complaint and claims as their defense that the subject foreign draft has been cleared
and it was not they who caused the alteration.
The Regional Trial Court ruled in favor of FEBTC, ordering Gold Palace to pay the remaining balance on
the basis of its warranties as general indorser. However, the Court of Appeals reversed the RTC
decision as FEBTC failed to undergo the proceedings on the protest of the foreign draft or to notify Gold
Palace of the dishonor of the drafts. Thus, FEBTC could not charge Gold Palace on its secondary
liability as an indorser. Its remedy therefore is against the party who made the material alteration.

ISSUE/S:
Whether or not Gold Palace should be held liable for the materially altered foreign draft
HELD: No.
Section 62 of the Negotiable Instruments law provides that the acceptor, by accepting the instrument,
engages that he will pay it according to the tenor of his acceptance. The same is applicable if the
drawee pays a bill without having previously accepted it. It amounts not only to an assent to the order of
the drawer and recognition of an obligation, but also his clear compliance. The payment of a check
includes its acceptance. In this case, LBP cleared and paid the foreign draft and forwarded the amount
to FEBTC, which credited the same to Gold Palace. LBP then, by said payment, recognized and
complied with its obligation to pay in accordance of his acceptance. LBP was liable on its payment of the
check according to the tenor of the check at the time of payment, which was the raised amount.
Therefore, LBP could not question anymore the payment it erroneously made to a holder in due course.
Gold Palace was not guilty of negligence or participation in the alteration, and was thus a holder in due
course. Gold Palace is protected by Sec. 62 of the NIL. LBP, having the means to communicate with the
Malaysian bank, should have first verified the amount of the draft before clearing and paying it. Gold
Palace, on the other hand, merely relied on the clearance of the banks. FEBTC, consequently, should
not have debited Gold Palaces account.
In some cases, the Court may rule that a drawee bank may recover, having paid to an innocent holder
the amount of an uncertified, altered check, from an innocent holder if said drawee bank was in good
faith and without negligence which contributed to the loss. However, this does not apply in the present
case.

14. Cayanan v. North Star International Travel, Inc.; G.R. No. 172594, October 5, 2011 MORA,
Mirielle Anne Sonido
DOCTRINE/S:
Under the Negotiable Instruments Law, it is presumed that every party to an instrument acquires the
same for a consideration or for value.
FACTS:
Petitioner Cayanan is an owner/General Manager of a recruitment agency. Respondent North Star is a
travel agency.

14

Virginia Balagtas as North Stars General Manager, in accommodation and upon instructions of its
client, petitioner herein, sent USD 60,000 to View Sea Ventures in Nigeria, from her personal account in
Citibank. She sent USD 40,000 to View Sea again, of which USD 15,000 was from petitioner.
North Star also extended credit to petitioner for the airplane tickets of his clients.The total amount of
credit extensions reached Php510, 035.47
Petitioner Cayanan issued 5 checks to North Star, to cover his obligations to North Star. However, when
the checks were presented for payment, the checks were dishonored. 2 checks were dishonored for
insufficiency of funds, and the 3 others were dishonored because of a stop payment order from
petitioner.
North Star demanded payment from Cayanan but he failed to settle his obligations. Thus, North Star
instituted a criminal case charging petitioner with violation of BP 22 or the Bouncing Checks Law.
MeTC: found petitioner guilty as charged
RTC acquitted petitioner. Also held that there is no basis for the imposition of the civil liability, the
checks were presented beyond the 90 days period and therefore no violation of the provision of BP 29
CA reversed RTC decision in so far as the civil aspect is concerned and held that although Cayanan
was acquitted of criminal charges, he may still be held civilly liable for the value of the checks he issued
since he never denied having issued the 5 postdated checks which were dishonored.
Hence the present case. The petitioner herein argues that the CA erred in holding him civilly liable to
North Star for the value of the checks since North Star did not give any valuable consideration for the
checks. He insists that the USD 85,000 sent for the account of North Star but for the account of
Virginias investment

ISSUE:
Whether the CA erred in holding him civilly liable to North Star for the value of the checks?
HELD:
NO, The Court held that upon issuance of a check, in the absence of evidence to the contrary, it is
presumed that the same was issued for valuable consideration which may consist either in some
right, interest, profiit or benefit accruing to the party who makes the contract, or some forbearance,
detriment, loss or some responsibility, to act, or labor, or service given, suffered or undertaken by the
other side. Under the Negotiable Instruments Law, it is presumed that every party to an instrument
acquires the same for a consideration or for value.
In this case, the petitioner failed to rebut the presumption, and prove that the checks were in fact without
valuable consideration.
The evidence shows that it was the petitioner and not Virgina Balagtas who had a contract with Sea
Ventures, as he was sending contract workers to Nigeria. Virginia Balagtas merely sent the money
through telegraphic transfer in exchange for the checks issued by the petitioner to North Star.
The transaction between petitioner and North Star is actually in the nature of a loan; and the checks
were issued as payment of the principal and interest.
Therefore, when petitioner issued the subject checks to North Star as payee, he did so to settle his
obligation with North Star for the US$85,000. And since the only payment petitioner made to North Star
was in the amount of P220,000.00, which was applied to interest due, his liability is not extinguished.

15

Having failed to fully settle his obligation under the checks, the appellate court was correct in holding
petitioner liable to pay the value of the five checks he issued in favor of North Star.

15. Dino v. Judal-Loot; G.R. No. 170912, April 19, 2010 M

ORENO III, Rufino Gerard Gadia
DOCTRINE/S:
In the case of a crossed check, as in this case, the following principles must additionally be considered:
A crossed check (a) may not be encashed but only deposited in the bank; (b) may be negotiated only
once to one who has an account with a bank; and (c) warns the holder that it has been issued for a
definite purpose so that the holder thereof must inquire if he has received the check pursuant to that
purpose; otherwise, he is not a holder in due course.

FACTS:
Petitioner was induced to lend a syndicate P3,000,000.00 to be secured by a real estate mortgage on
several parcels of land situated in Canjulao, Lapu-lapu City. Upon scrutinizing the documents involving
the properties, petitioner discovered that the documents covered rights over government properties.
Realizing he had been deceived, petitioner advised Metrobank to stop payment of his checks. However,
only the payment of Check No. C-MA- 142119406-CA was ordered stopped. The other two checks
were already encashed by the payees.
Meanwhile, Check No. C-MA- 142119406-CA (a cross-check) was negotiated and indorsed to
respondents by petitioner in exchange for cash in the sum of P948,000.00, which respondents borrowed
from Metrobank and charged against their credit line. Drawee bank, Metrobank, Cebu-Mabolo Branch,
which is also their depositary bank, answered that the checks were suffiiently funded. However, the
same was dishonored by the drawee bank when they tried to deposit it for reason PAYMENT
STOPPED. Respondents filed a collection suit against petitioner and Lobitana before the trial court.
The trial court ruled in favor of respondents and declared them due course holders of the subject check,
since there was no privity between respondents and defendants. CA affirmed but modified the trial
courts decision by deleting the award of interest, moral damages, attorneys fees and litigation
expenses. The Court of Appeals opined that petitioner was only exercising (although incorrectly), what
he perceived to be his right to stop the payment of the check which he rediscounted. The Court of
Appeals ruled that petitioner acted in good faith in ordering the stoppage of payment of the subject
check and thus, he must not be made liable for those amounts.

ISSUE/S: WON The respondents were holders in due course?

HELD:
PETITION GRANTED. Section 52 of the Negotiable Instruments Law defines a holder in due course,
thus:
A holder in due course is a holder who has taken the instrument under the following conditions:
a.
b.
c.
d.

That it is complete and regular upon its face;

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

In the case of a crossed check, as in this case, the following principles must additionally be considered:
A crossed check (a) may not be encashed but only deposited in the bank; (b) may be negotiated only
once to one who has an account with a bank; and (c) warns the holder that it has been issued for a
definite purpose so that the holder thereof must inquire if he has received the check pursuant to that
purpose; otherwise, he is not a holder in due course.

16

Based on the foregoing, respondents had the duty to ascertain the indorsers, in this case Lobitanas,
title to the check or the nature of her possession. This respondents failed to do. Respondents
verification from Metrobank on the funding of the check does not amount to determination of Lobitanas
title to the check. Failing in this respect, respondents are guilty of gross negligence amounting to legal
absence of good faith, contrary to Section 52(c) of the Negotiable Instruments Law. Hence,
respondents are not deemed holders in due course of the subject check.
However, the fact that respondents are not holders in due course does not automatically mean that they
cannot recover on the check. The Negotiable Instruments Law does not provide that a holder who is not
a holder in due course may not in any case recover on the instrument. The only disadvantage of a
holder who is not in due course is that the negotiable instrument is subject to defenses as if it were
non-negotiable. Among such defenses is the absence or failure of consideration,[ which petitioner
sufficiently established in this case. Petitioner issued the subject check supposedly for a loan in favor of
Consings group, who turned out to be a syndicate defrauding gullible individuals. Since there is in fact
no valid loan to speak of, there is no consideration for the issuance of the check. Consequently,
petitioner cannot be obliged to pay the face value of the check.

16. Bank of America NT & SA v. Phil. Racing Club; G.R. No. 150228, July 30, 2009 PABALAN,
Danica Visbe
DOCTRINE/S:
Banks have the obligation to treat their clients account meticulously and with the highest degree of
care, considering the fiduciary nature of their relationship.The diligence required of banks, therefore,
is more than that of a good father of a family (Extraordinary Diligence)
Doctrine of Last Clear Chance - the one who had a last clear opportunity to avoid the impending
harm but failed to do so is chargeable with the consequences thereof.
FACTS:
PRCI President and VP left and entrusted pre-signed blank checks with the company accountant
before they went to a business trip abroad. Such checks were obtained by an employee of PRC and
the latter encashed the checks from petitioner drawee bank.
There were noticeable irregularities in the checks such (i.e. Pay to CASH but below it is written
110,000 in words). Despite the highly irregular entries on the face of the checks, petitioner bank,
without as much as verifying and/or confirming the legitimacy of the checks, encashed said checks.
PRC claims damages against bank for alleged negligence of the latter.
Lower court awarded damages. CA affirmed.
Bank of America filed petition for review on certiorari.
ISSUE/S:
(1) WON bank only complied with its duty in accordance with Section 126 and 185 of the NIL?
(2) WON bank can presume, upon presentment, that the checks were validly issued pursuant to
Sections 16 and 18 of the NIL?
(3) Who is most liable?
HELD:
(1) NO. There is no dispute that the signatures appearing on the subject checks were genuine
signatures of authorized PRCI officers. However, the presence of irregularities in each check should
have alerted the petitioner bank to be cautious before proceeding to encash them which it did not
do. The misplacement of the typewritten entries for the payee and the amount on the same blank
and the repetition of the amount using a check writer were glaringly obvious irregularities on the
face of the check. Clearly, someone made a mistake in filling up the checks and the repetition of the
entries was possibly an attempt to rectify the mistake. Also, if the check had been filled up by the
person who customarily accomplishes the checks of respondent, it should have occurred to the

17

banks employees that it would be unlikely that such mistakes would be made. All these
circumstances should have alerted the bank to the possibility that the holder or the person who is
attempting to encash the checks did not have proper title to the checks or did not have authority to
fill up and encash the same. Petitioner could have made a simple phone call to its client to clarify
the irregularities and the loss to respondent due to the encashment of the stolen checks would have
been prevented.
(2) NO. Such provisions are applicable if there were no irregularties in the checks presented (i.e. when
correctly filled out and presented in good order). In that case, there would be nothing to give notice to
the bank of any infirmity in the title of the holder of the checks and it could validly presume that there
was proper delivery to the holder. However, the undisputed facts plainly show that there were
circumstances that should have alerted the bank to the likelihood that the checks were not properly
delivered to the person who encashed the same. Thus, the subject checks are properly characterized as
incomplete and undelivered instruments thus making Section 15 of the NIL applicable.
(3) Bank of America is most liable. PRCI officers practice of pre-signing blank checks is also negligent
behavior but the bank will emerge as the party foremost liable in this case, applying the Doctrine of Last
Clear Chance - the one who had a last clear opportunity to avoid the impending harm but failed to do so
is chargeable with the consequences thereof.
Dispositive: MODIFIED. Bank was held liable for 60% of the damages while PRCI was held liable for the
40%

17. Hi-Cement Corp. v. IBAA; G.R. No. 132403, September 28, 2007 REYES, Maria Klaridelle
Andaya
DOCTRINE/S:
Section 52 of the NIL states:
A holder in due course is a holder who has taken the instrument under the following conditions: (a) it is
complete and regular on its face; (b) he became the holder of it before it was overdue, and without
notice that it has previously been dishonored, if such was the fact; (c) he took it in good faith and for
value and (d) at the time it was negotiated to him, he had no notice of any infirmity in the instrument or
defect in the title of the person negotiating it.
Absent any of the elements set forth in Section 52, the holder is not a holder in due course.
FACTS:

Enrique Tan and Lilia Tan (spouses Tan) were the controlling stockholders of E.T. Henry & Co., Inc.
(E.T. Henry), a company engaged in the business of processing and distributing bunker fuel.
Among E.T. Henry's customers were petitioner Hi-Cement Corporation (Hi-Cement), Riverside Mills
Corporation (Riverside) and Kanebo Cosmetics Philippines, Inc. (Kanebo).
E.T. Henry and respondent Insular Bank of Asia and America (later PCIB and now Equitable
PCI-Bank) were into "re-discounting" of checks.
For every transaction, respondent required E.T. Henry to execute a promissory note and a deed of
assignment bearing the conformity of the client to the re-discounting.
In February 1981, 20 checks of Hi-Cement (which were crossed and which bore the restriction
"deposit to payees account only") were dishonored.
So were the checks of Riverside and Kanebo.
Respondent filed a complaint for sum of money in the then Court of First Instance of Rizal against
E.T. Henry, the spouses Tan, Hi-Cement (including its general manager and its treasurer as
signatories of the postdated crossed checks), Riverside and Kanebo.
In their answer (with counterclaim against respondent and cross-claims against Hi-Cement,
Riverside and Kanebo), E.T. Henry and the spouses Tan claimed that the drawers of the postdated
checks failed to honor them due to the adverse economic conditions prevailing at the time
respondent presented them for payment.
RTC ruled in favor of respondent.

18

CA affirmed RTC decision.

In G.R. No. 132403, petitioner Hi-Cement disclaims liability for the postdated crossed checks
because (1) it did not authorize their issuance; (2) respondent was not a holder in due course.

ISSUE/S:
1. Whether Hi-Cements General Manager and Treasurer had authority to issue the Postdated
Crossed Checks
2. Whether Respondent Bank was a holder in due course
HELD:
1. YES, Hi-Cements General Manager and Treasurer are authorized to Issue the
Postdated Crossed Checks
Since Hi-Cement never objected to the signatories issuance of all previous checks to E.T.
Henry, it is now estopped from denying such authority now.
2. NO, Respondent Bank Not a Holder In Due Course
In the case at bar, the last two requirements set forth in Sec. 52 of the NIL were not met.
Respondent's claim that it acted in good faith when it accepted and discounted
Hi-Cements postdated crossed checks from E.T. Henry (as payee therein) fails to
convince us.
Good faith becomes inconsequential amidst proof of respondent's grossly negligent
conduct in dealing with the subject checks.
Respondent was all too aware that subject checks were crossed and bore restrictions that
they were for deposit to payee's account only; hence, they could not be further negotiated
to it.
The records likewise reveal that respondent completely disregarded a telling sign of
irregularity in the re-discounting of the checks when the general manager did not
acquiesce to it as only the treasurer's signature appeared on the deed of assignment.
It is then settled 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 faithand as such[,] the consensus of authority is to
the effect that the holder of the check is not a holder in due course.
The drawer of the postdated crossed checks was not liable to the holder who was deemed
not a holder in due course.
However, the NIL does not absolutely bar a holder who is not a holder in due course from
recovering on the checks.

It may recover from the party who indorsed/encashed the checks "if the latter has no valid excuse
for refusing payment."
Here, there was no doubt that it was E.T. Henry that re-discounted Hi-Cement's checks and
received their value from respondent.
Since E.T. Henry had no justification to refuse payment, it should pay respondent

18. Sps. Violago v. BA Finance Corp.; G.R. No. 158262, July 21, 2008 SANA, Marco Carlo
Saliganan
DOCTRINE/S: A holder in due course of an instrument may enforce payment of the instrument for the
full amount thereof, and the maker cannot set up the defense of nullity of the contract of sale.
FACTS: Sps. Violago bought a car from their cousin Avelino. All three signed a promissory note to pay
jointly and severally to the order of VMSC, Avelino' company, the amount of the car. VMSC endorsed

19

the promissory note to BA Finance. The car was never delivered to the spouses. BA Finance received
another promissory note with the same car as a security loan from a different owner. BA Finance filed a
complaint for Replevin with Damages against the spouses for non-payment of their promissory note.

ISSUE/S: Whether BA Finance is a holder in due course.

HELD: The law presumes that a holder of a negotiable instrument is a holder in due course; and the
note is complete on its face, it was endorsed by VMSC to BA Finance, who received it in good faith
without any knowledge of an infirmity. Thus, BA Finance is a holder in due course that holds the
instrument free from any defect of title of prior parties and from defenses available to prior parties
among themselves, and may enforce payment of the instrument for the full amount. The maker cannot
set up the defense of nullity of the contract of sale.
19. Bank of America v. Associated Citizen Bank; G.R. Nos. 141001 & 141018, May 21, 2009
SANTOS, Norman Kenneth Vergara
DOCTRINE/S: Effects of crossing checks; Sec. 66 of NIL, General Indorser. - See held.
FACTS: BA-Finance granted Miller a credit line facility through which the latter could assign or discount
its trade receivables with the former.
Miller discounted and assigned several trade receivables to BA-Finance by executing Deeds of
Assignment in favor of the latter. In consideration of the assignment, BA-Finance issued four checks
payable to the Order of Miller Offset Press, Inc. with the notation For Payees Account Only. These
checks were drawn against Bank of America.
The four checks were deposited by Ching Uy Seng (a.k.a. Robert Ching), then the corporate secretary
of Miller, Associated Citizens Bank (Associated Bank). The Account is a joint bank account under the
names of Ching Uy Seng and Uy Chung Guan Seng. Associated Bank stamped the checks with the
notation all prior endorsements and/or lack of endorsements guaranteed, and sent them through
clearing. Later, the drawee bank, Bank of America, honored the checks and paid the proceeds to
Associated Bank as the collecting bank.
Miller failed to deliver to BA-Finance the proceeds of the assigned trade receivables. Consequently,
BA-Finance filed a Complaint against Miller for collection of the amount of P731,329.63 which
BA-Finance allegedly paid in consideration of the assignment, plus interest at the rate of 16% per
annum and penalty charges.

ISSUE (1/2): W/N Bank of America correctly relied on the acceptance of Associated Bank stating that
all prior endorsement and/or lack of endorsement guaranteed, through which Associated Bank assumed
the liability of a general endorser under Section 66 of the Negotiable Instruments Law.
HELD: No, Bank of America is liable for the check.
The bank on which a check is drawn, known as the drawee bank, is under strict liability, based on the
contract between the bank and its customer (drawer), to pay the check only to the payee or the payees
order. The drawers instructions are reflected on the face and by the terms of the check. When the
drawee bank pays a person other than the payee named on the check, it does not comply with the terms
of the check and violates its duty to charge the drawers account only for properly payable items. Thus,
we ruled in Philippine National Bank v. Rodriguez[10] that a drawee should charge to the drawers
accounts only the payables authorized by the latter; otherwise, the drawee will be violating the
instructions of the drawer and shall be liable for the amount charged to the drawers account.

20

The Negotiable Instruments Law is silent with respect to crossed checks, although the Code of
Commerce makes reference to such instruments. In Bataan Cigar v. Court of Appeals, the effects of
crossing a check as follows:
(a) the check may not be encashed but only deposited in the bank;
(b) the check may be negotiated only once to one who has an account with a bank; and
(c) the act of crossing the check serves as a warning to the holder that the check has been issued for a
definite purpose so that he must inquire if he has received the check pursuant to that purpose;
otherwise, he is not a holder in due course.
In this case, the four checks were drawn by BA-Finance and made payable to the Order of Miller Offset
Press, Inc. The checks were also crossed and issued For Payees Account Only. Clearly, the drawer
intended the check for deposit only by Miller Offset Press, Inc. in the latters bank account. Thus, when a
person other than Miller, i.e., Ching Uy Seng, a.k.a. Robert Ching, presented and deposited the checks
in his own personal, and the drawee bank, Bank of America, paid the value of the checks and charged
BA-Finances account therefor, the drawee Bank of America is deemed to have violated the instructions
of the drawer, and therefore, is liable for the amount charged to the drawers account.

ISSUE (2/2): W/N Associate Bank is liable to reimburse Bank of America.

HELD: Yes, Associate Bank is liable as a general endorser under Sec. 66 of the NIL.
A collecting bank where a check is deposited, and which endorses the check upon presentment with the
drawee bank, is an endorser. Under Section 66 of the Negotiable Instruments Law, an endorser
warrants that the instrument is genuine and in all respects what it purports to be; that he has good title to
it; that all prior parties had capacity to contract; and that the instrument is at the time of his endorsement
valid and subsisting. This Court has repeatedly held that in check transactions, the collecting bank or
last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior
endorsements considering that the act of presenting the check for payment to the drawee is an
assertion that the party making the presentment has done its duty to ascertain the genuineness of the
endorsements.
When Associated Bank stamped the back of the four checks with the phrase all prior endorsements
and/or lack of endorsement guaranteed, that bank had for all intents and purposes treated the checks as
negotiable instruments and, accordingly, assumed the warranty of an endorser. Being so, Associated
Bank cannot deny liability on the checks.
Associated Bank was also clearly negligent in disregarding established banking rules and regulations by
allowing the four checks to be presented by, and deposited in the personal bank account of, a person
who was not the payee named in the checks. The checks were issued to the Order of Miller Offset
Press, Inc., but were deposited, and paid by Associated Bank, to the personal joint account of Ching Uy
Seng (a.k.a. Robert Ching) and Uy Chung Guan Seng. It could not have escaped Associated Banks
attention that the payee of the checks is a corporation while the person who deposited the checks in his
own account is an individual. Verily, when the bank allowed its client to collect on crossed checks issued
in the name of another, the bank is guilty of negligence. As ruled by this Court in Jai-Alai Corporation of
the Philippines v. Bank of the Philippine Islands, one who accepts and encashes a check from an
individual knowing that the payee is a corporation does so at his peril. Accordingly, we hold that
Associated Bank is liable for the amount of the four checks and should reimburse the amount of the
checks to Bank of America.

20. Ang v. Associated Bank; G.R. No. 146511, September 5, 2007 SUPAPO, Karen Garcia
DOCTRINE/S:
1. 3 requisites to be an accommodation party
2. Liability of an accommodation party is one of surety - primary and unconditional.

21

3.
4.

without receiving value therefor means without receiving value by virtue of the instrument
Accommodation party may seek reimbursement from the accommodated party.

FACTS:
1. Tomas Ang lent his name to be a co-maker with Antonio Ang for 2 promissory notes to secure a
loan from Associated Bank, which held them solidarily liable.
2. Upon non-payment, the bank filed a complaint for collection of sum of money against them.
3. Tomas argued that the bank knew he received nothing from the loan; and that the bank granted
Antonio successive extensions of time of payment without his consent, which releases him from his
liability.
ISSUE/S:
1. Is Tomas Ang an accommodation party?
2. Can Associated bank collect from Tomas Ang?
3. Can Tomas set up as his defense that he did not received any value?
4. Can Tomas recover from Antonio Ang (accommodated party)?
HELD:
1. YES, he is an accommodation maker as he met all 3 requisites:
(1) he must be a party to the instrument, signing as maker, drawer, acceptor, or indorser;
(2) he must not receive value therefor; and
(3) he must sign for the purpose of lending his name or credit to some other person.
2.

YES, it can collect as Tomas liability is one of surety that is unconditional and primary to a holder
for value even if the holder knew him to be merely as an accommodation party and even if the
accommodated party receives an extension of the period for payment without his consent.

3.

NO, the consideration for the note as regard its maker is the money advanced to the
accommodated party. The phrase without receiving value therefor under Sec 29 NIL means
without receiving value by virtue of the instrument and not without receiving payment for lending
his name.

4.

YES, he may subrogate himself in the place of the the creditor with the right to enforce the guaranty
against the other signers of the note for the reimbursement of what he is entitled to recover from
them.

21. Gonzales v. PCIB; G.R. No. 180257, February 23, 2011 VELASCO, Michelle Lae Adul
DOCTRINE/S:
A written notice on the default and deficiency of the loan is required to apprise an accommodation party.
PCIB is obliged to formally inform and apprise Gonzales of the defaults and the outstanding obligations,
more so when PCIB was invoking the solidary liability of Gonzales.
FACTS:
Spouses Panlilio and Gonzales obtained loans from PCIB.
The loans were covered by promissory notes. And to secure such loans, a real estate mortgage (REM)
was executed by Gonzales and the spouses. The promissory notes specified, among others, the
solidary liability of the debtors. However, it was the spouses Panlilio who received the loan proceeds of
PhP 1,800,000.
The monthly interest dues of the loans were paid by the spouses Panlilio; however, the spouses
defaulted. PCIB allegedly called the attention of Gonzales.

22

Gonzales issued a check in favor of Unson drawn against his credit line with the bank. It was dishonored
by PCIB due to the termination by PCIB of the credit line for the unpaid interest dues from the loans of
Gonzales and the spouses Panlilio. PCIB also froze Gonzales FCD account.
Gonzales, through counsel, wrote PCIB insisting that the check he issued had been fully funded, and
demanded the return of the proceeds of his FCD as well as damages for the unjust dishonor of the
check.
PCIB refused to heed his demands. Thus, this case.

RTC: Solidarily liable with spouses Panlilio. PCIB not at fault in terminating Gonzales credit line and
FCD account.
CA: Affirmed RTCs decision
ISSUE/S:
Whether PCIB properly dishonored the check of Gonzales drawn against his credit line with the bank
HELD:
No. There was improper dishonor of the check.
First. There was no proper notice to Gonzales of the default and delinquency of the PhP 1,800,000 loan.
Gonzales is only an accommodation party and as such only lent his name and credit to the spouses
Panlilio. He has a right to be properly apprised of the default or delinquency of the loan precisely
because he is a co-signatory of the promissory notes and of his solidary liability.
Even when Gonzales had personal knowledge of the default, such was not enough to properly apprise
Gonzales about the default and the outstanding dues. It is not enough to be merely informed to pay over
a hundred thousand without being formally apprised of the exact aggregate amount and the
corresponding dues pertaining to specific loans and the dates they became due.
PCIB is well aware and did not dispute the fact that Gonzales is an accommodation party. It also acted
in accordance with such fact by 1) releasing the proceeds of the loan to the spouses Panlilio, 2)
informing only the spouses Panlilio of the interest dues, and 3) debiting the amounts due from their
PCIB account.
No evidence was presented tending to show that Gonzales was periodically sent notices or notified of
the various periodic interest dues covering the three promissory notes. Neither do the records show that
Gonzales was aware of amounts for the periodic interests and the payment for them. Such were
serviced by the spouses Panlilio.
Thus, PCIB ought to have notified Gonzales about the status of the default or delinquency of the interest
dues that were not paid. And such notification must be formal or in written form considering that the
outstanding periodic interests became due at various dates, and the various amounts have to be certain
so that Gonzales is not only properly apprised but is given the opportunity to pay them being solidarily
liable for the loans covered by the promissory notes.
Without a clear and determinate demand through a formal written notice for the exact periodic interest
dues for the loans, Gonzales cannot be expected to pay for them.

Second. PCIB was grossly negligent in not giving prior notice to Gonzales about its course of action to
suspend, terminate, or revoke the credit line, thereby violating the clear stipulation in the COHLA.

23

Third. There is no dispute on the right of PCIB to suspend, terminate, or revoke the COHLA under the
cross default provisions of both the promissory notes and the COHLA. However, these cross default
provisions do not confer absolute unilateral right to PCIB, as they are qualified by the other stipulations
in the contracts or specific circumstances, like in the instant case of an accommodation party.
22. Aglibot v. Santia; G.R. No. 185945, December 5, 2012 V
ILLAFUERTE, Diana Jean Tupaz
DOCTRINE/S:
Sec. 29. Liability of an accommodation party. An accommodation party is one who has signed
the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the
purpose of lending his name to some other person. Such a person is liable on the instrument to a
holder for value notwithstanding such holder at the time of taking the instrument knew him to be only
an accommodation party.

As far as a holder for value is concerned an accommodation party is a solidary co-debtor.

FACTS:
Private respondent Engr. Ingersol Santia (Santia) loaned the amount of P2,500,000.00 to Pacific
Lending & Capital Corporation (PLCC), through its Manager, petitioner Fideliza J. Aglibot (Aglibot). The
loan was evidenced by a promissory note.
Allegedly as a guaranty for the payment of the note, Aglibot issued and delivered to Santia eleven (11)
post-dated personal checks drawn from her own account maintained at Metrobank.
Upon presentment of the checks for payment, they were dishonored by the bank for having been drawn
against insufficient funds or closed account. Santia thus demanded payment from PLCC and Aglibot of
the face value of the checks, but neither of them heeded his demand.
Consequently, eleven (11) Informations for violation of B.P. 22 were filed before the MTCC.
MTCC acquitted Aglibot. On appeal, the RTC absolved Aglibot and dismissed the civil aspect of the
case on the ground of failure to fulfill a condition precedent of exhausting all means to collect from the
principal debtor.
On appeal, the Court of Appeals (CA) ruled that the RTC erred and that Aglibot is personally liable for
the loan.
Thus, Aglibot filed this instant petition for certiorari under Rule 45. Aglibot maintains that it was error for
the appellate court to adjudge her personally liable for issuing her own eleven (11) post-dated checks to
Santia, since she did so in behalf of her employer, PLCC, the true borrower and beneficiary of the loan.
Still maintaining that she was a mere guarantor of the said debt of PLCC when she agreed to issue her
own checks, Aglibot insists that Santia failed to exhaust all means to collect the debt from PLCC, the
principal debtor, and therefore he cannot now be permitted to go after her subsidiary liability.

ISSUE/S: WON petitioner Aglibot can be held liable to private respondent Santia.
HELD: Yes. Aglibot is an accommodation party and therefore liable to Santia.
Sec. 29. Liability of an accommodation party. An accommodation party is one who has signed the
instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose
of lending his name to some other person. Such a person is liable on the instrument to a holder for value
notwithstanding such holder at the time of taking the instrument knew him to be only an accommodation
party.

24

CA ruled that by issuing her own post-dated checks, Aglibot thereby bound herself personally and
solidarily to pay Santia, and dismissed her claim that she issued her said checks in her official capacity
as PLCCs manager merely to guarantee the investment of Santia. It noted that she could have issued
PLCCs checks, but instead she chose to issue her own checks, drawn against her personal account
with Metrobank. It concluded that Aglibot intended to personally assume the repayment of the
loan, pointing out that in her Counter-Affidavit, she even admitted that she was personally indebted to
Santia, and only raised payment as her defense, a clear admission of her liability for the said loan.
The relation between an accommodation party and the party accommodated is, in effect, one of
principal and surety the accommodation party being the surety. It is a settled rule that a surety is bound
equally and absolutely with the principal and is deemed an original promisor and debtor from the
beginning. The liability is immediate and direct. It is not a valid defense that the accommodation party
did not receive any valuable consideration when he executed the instrument; nor is it correct to say that
the holder for value is not a holder in due course merely because at the time he acquired the instrument,
he knew that the indorser was only an accommodation party.
Unlike in a contract of suretyship, the liability of the accommodation party remains not only primary but
also unconditional to a holder for value, such that even if the accommodated party receives an
extension of the period for payment without the consent of the accommodation party, the latter is still
liable for the whole obligation and such extension does not release him because as far as a holder for
value is concerned, he is a solidary co-debtor.
Petition is DENIED. Court of Appeals decision is AFFIRMED.

23. MBTC v. BA Finance; G.R. No. 179952, December 4, 2009 A

TIENZA, John Rafael Patron
DOCTRINE/S:
(1) Where an instrument is payable to the order of two or more payees or indorsees who are not
partners, all must indorse unless the one indorsing has authority to indorse for the other.
(2) In indorsing a check to the drawee bank, a collecting bank stamps the back of the check with the
phrase "all prior endorsements and/or lack of endorsement guaranteed" and, for all intents and
purposes, treats the check as a negotiable instrument, hence, assumes the warranty of an indorser

FACTS:
Lamberto Bitanga (Bitanga) obtained from respondent BA Finance Corporation (BA Finance) a
P329,280 loan to secure which, he mortgaged his car to respondent BA Finance with an insurance
stipulation that the car be insured against loss or damage by accident, theft and fire and that he will
make all loss, if any, under such policy or policies, payable to the MORTGAGEE (BA finance) or its
assigns as its interest may appear
Bitanga thus had the mortgaged car insured by respondent Malayan Insurance Co., Inc. (Malayan
Insurance) which issued a policy stipulating that, inter alia, Loss, if any shall be payable to BA FINANCE
CORP. as its interest may appear.
The car was stolen. On Bitangas claim, Malayan Insurance issued a check payable to the order of
"B.A. Finance Corporation and Lamberto Bitanga" for P224,500, drawn against China Banking
Corporation (China Bank). The check was crossed with the notation "For Deposit Payees Account
Only."

Without the indorsement or authority of his co-payee BA Finance, Bitanga deposited the check to
his account with the Asianbank Corporation (Asianbank), now merged with herein petitioner

25

Metropolitan Bank and Trust Company (Metrobank). Bitanga subsequently withdrew the entire proceeds
of the check.
In the meantime, Bitangas loan became past due, but despite demands, he failed to settle it.
BA Finance eventually learned of the loss of the car and of Malayan Insurances issuance of a crossed
check payable to it and Bitanga, and of Bitangas depositing it in his account at Asianbank and
withdrawing the entire proceeds thereof.
BA Finance thereupon demanded the payment of the value of the check from Asianbank but to no avail,
prompting it to file a complaint before the Regional Trial Court (RTC) of Makati for sum of money and
damages against Asianbank and Bitanga, alleging that, inter alia, it is entitled to the entire proceeds of
the check.
In its Answer with Counterclaim, Asianbank alleged that BA Finance "instituted [the] complaint in bad
faith to coerce [it] into paying the whole amount of the CHECK knowing fully well that its rightful claim, if
any, is against Malayan [Insurance]."
The trial court, holding that Asianbank was negligent in allowing Bitanga to deposit the check to his
account and to withdraw the proceeds thereof, without his co-payee BA Finance having either indorsed
it or authorized him to indorse it in its behalf, found Asianbank and Bitanga jointly and severally liable to
BA Finance following Section 41 of the Negotiable Instruments Law and Associated vs. Court of
Appeals.
CA affirmed

ISSUE/S:
(1) WON Asianbank can be held liable for depositing the joint check to Bitangas account.
(2) Is petitioner Asianbank liable to BA Finance for the full value of the check?

HELD:
HELD ON ISSUE (1) YES
Section 41 of the Negotiable Instruments Law provides:
Where an instrument is payable to the order of two or more payees or indorsees who are not partners,
all must indorse unless the one indorsing has authority to indorse for the others.
Bitanga alone endorsed the crossed check, and petitioner allowed the deposit and release of the
proceeds thereof, despite the absence of authority of Bitangas co-payee BA Finance to endorse it on its
behalf.
Petitioners argument that since there was neither forgery, nor unauthorized indorsement because
Bitanga was a co-payee in the subject check, the dictum in Associated Bank v. CA does not apply in the
present case fails. However, the SC held that the payment of an instrument over a missing indorsement
is the equivalent of payment on a forged indorsement or an unauthorized indorsement in itself in the
case of joint payees.
Clearly, petitioner, through its employee, was negligent when it allowed the deposit of the crossed
check, despite the lone endorsement of Bitanga, ostensibly ignoring the fact that the check did not, it
bears repeating, carry the indorsement of BA Finance.

26

As has been repeatedly emphasized, the banking business is imbued with public interest such that the
highest degree of diligence and highest standards of integrity and performance are expected of banks in
order to maintain the trust and confidence of the public in general in the banking sector. Undoubtedly,
BA Finance has a cause of action against petitioner.

HELD ON ISSUE (2) YES

Petitioner, at all events, argue that its liability to BA Finance should only be one-half of the amount
covered by the check as there is no indication in the check that Bitanga and BA Finance are solidary
creditors to thus make them presumptively joint creditors under Articles 1207 and 1208 of the Civil Code
which respectively provide.
However, the SC held that the provisions of the Negotiable Instruments Law and underlying
jurisprudential teachings on the black-letter law provide definitive justification for petitioners full liability
on the value of the check.
To be sure, a collecting bank, Asianbank in this case, where a check is deposited and which indorses
the check upon presentment with the drawee bank, is an indorser. This is because in indorsing a check
to the drawee bank, a collecting bank stamps the back of the check with the phrase "all prior
endorsements and/or lack of endorsement guaranteed" and, for all intents and purposes, treats the
check as a negotiable instrument, hence, assumes the warranty of an indorser. Without Asianbanks
warranty, the drawee bank (China Bank in this case) would not have paid the value of the subject check.
Petitioner, as the collecting bank or last indorser, generally suffers the loss because it has 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 prior indorsements.

24. Allied Banking Corp. v. Lim Sio Wan; G.R. No. 133179, March 27, 2008 BUENAVENTURA,
Angeline Balangue
DOCTRINE/S: The SC has held in a line of cases that a collecting bank which indorses a check bearing
a forged indorsement and presents it to the drawee bank guarantees all prior indorsements, including
the forged indorsement itself, and ultimately should be held liable therefor. However, this general rule is
subject to exceptions. One such exception is when the issuance of the check itself was attended with
negligence.
FACTS: Lim Sio Wan deposited an amount with Allied Bank (issuing bank) a money market placement
for a term of 31 days. However, before the expiration of the said term, a person claiming to be Lim Sio
Wan called Allied and requested for the pre-termination of the placement and ordered Allied to issue a
managers check representing the proceeds thereof. Impersonator notified Allied that one Deborah
Santos would pick up the checks.
Allied acceded to the order of the impersonator, but issued crossed checks for payees account only.
The managers checks were deposited to the account of Filipinas Cement Corporation (FCC) with
Metrobank (collecting bank). Then Lims signature as indorser was forged.
It turns out, Santos was a money market trader of Producers Bank who handled the account of FCC.
When the placement of FCC matured, Santos paid the check of Lim Sio Wan to FCCs account with
Metrobank. The Allied Bank check was made as payment to FCC. Metrobank, upon accepting the
check, stamped on the checks all prior indorsement / lack of indorsement guaranteed. When the check
was presented to Allied, it immediately paid the amount without ascertaining the genuiness of Lims
signature.

27

Lim sought to recover the amount from Allied, but to no avail. Hence the complaint filed by Lim against
Allied. The trial court ruled in favor of Lim, ordering Allied to pay the amount. Upon appeal, the CA
modified the decision, holding that Allied is liable partly for 60%, and that Metrobank is liable for the
40%.
The petitioner appealed with the SC.

ISSUE/S: WON Allied (issuing bank) and Metrobank (collecting bank) should be solely liable to Lim Sio
Wan.
HELD: YES, they are both liable for their negligence. Producers Bank must be held liable to Allied and
Metrobank for the amount of the check which Allied and Metrobank are adjudged to pay Lim Sio Wan
based on a proportion of 60:40.
The warranty that the instrument is genuine and in all respects what it purports to be covers all the
defects in the instrument affecting the validity thereof, including a forged indorsement. Thus, the last
indorser will be liable for the amount indicated in the negotiable instrument even if a previous
indorsement was forged. The SC has held in a line of cases that a collecting bank which indorses a
check bearing a forged indorsement and presents it to the drawee bank guarantees all prior
indorsements, including the forged indorsement itself, and ultimately should be held liable therefor.
However, this general rule is subject to exceptions. One such exception is when the issuance of the
check itself was attended with negligence. Thus, in the cases cited above where the collecting bank is
generally held liable, in two of the cases where the checks were negligently issued, the Court held the
institution issuing the check just as liable as or more liable than the collecting bank.
Allied is negligent in issuing the manager's check and in transmitting it to Santos without even a written
authorization by Lim. In fact Allied did not even exert any earnest effort to ascertain that such order of
pretermination was that of Lim Sio Wan.
Allied's negligence must be considered as the proximate cause of the resulting loss. Metrobank is also
liable as it indorsed the check without verifying the authenticity of Lim Sio Wan's indorsement and it
accepted the checks despite the fact that it was cross-checked payable to payee's account only.
Had Allied exercised the diligence due from a financial institution, the check would not have been issued
and no loss of funds would have resulted. In fact, there would have been no issuance of indorsement
had there been no check in the first place.

25. Lopez v. People of the Phils; G.R. No. 166810, June 26, 2008 C
ARIAGA, Lovely Nikki Alfar
DOCTRINE/S: Section 114 (d) of the Negotiable Instruments Law provides: Sec. 114 When notice
need not be given to drawer. Notice of dishonor is not required to be given to the drawer in either of the
following cases: Xxx d. Where the drawer has no right to expect or require that the drawee or acceptor
will honor the check.
FACTS: An Information for estafa was filed against herein petitioner Lopez.
That on or about March 23, 1998, xxx the above-named accused, with intent to defraud, did then and
there, willfully, unlawfully and feloniously, make, draw, and issue to apply on account and/or for value
received a DBP Check No. 0859279 payable to EFREN R. ABLES in the amount of TWENTY
THOUSAND PESOS (P20,000.00), knowing fully well that at the time of issue, accused did not have
sufficient fund and/or his account is already closed with the drawee bank and that upon presentment

28

of the check for payment on May 27, 1998, the same was dishonored and/or refused payment by the
drawee bank for the reason that the account of the said accused is already closed and/or without
sufficient fund and despite repeated demands after receipt of notice of said dishonor and thereafter
made by Efren R. Ables, accused refused and still refuses to pay the latter, to his damage and
prejudice.
The trial court convicted the accused (herein petitioner) of the crime of estafa.
Petitioner moved for MR but it was denied by the trial court.
Petitioner appealed to the CA. The CA rendered its Decision affirming in toto the decision of the trial
court. Thus, this petition.

ISSUE/S: Based on the facts, is petitioner Lopez entitled to be given a notice of dishonor?
HELD: NO. The receipt by the drawer of the notice of dishonor is not an element of the offense. The
presumption only dispenses with the presentation of evidence of deceit if such notification is received
and the drawer of the check failed to deposit the amount necessary to cover his check within three (3)
days from receipt of the notice of dishonor of the check. The presumption indulged in by law does not
preclude the presentation of other evidence to prove deceit. It is not disputed by petitioner that, as found
by the CA, respondent Ables called up petitioner to inform him of the dishonor of the check. Moreover,
when petitioner issued the check in question on March 23, 1998, he knew that his current account with
the DBP was a closed account as early as January 27, 1998.
Petitioner disclaim employing deceit by asserting that respondent knew that petitioner had no funds with
the bank, as he was so informed by the petitioner himself at the time of the issuance of the check.
Assuming that petitioner did so, petitioner could not escape culpability because he was not in a position
to make good the check at any time since his current account was already closed. This fact petitioner
failed to disclose to respondent.
The absence of proof as to receipt of the written notice of dishonor notwithstanding, the evidence shows
that petitioner had actual notice of the dishonor of the check because he was verbally notified by the
respondent and notice whether written or verbal was a surplusage and totally unnecessary considering
that almost two (2) months before the issuance of the check, petitioners current account was already
closed. Under these circumstances, the notice of dishonor would have served no useful purpose as no
deposit could be made in a closed bank account.
Pertinently, Section 114 (d) of the Negotiable Instruments Law provides: Sec. 114 When notice need
not be given to drawer. Notice of dishonor is not required to be given to the drawer in either of the
following cases: Xxx d. Where the drawer has no right to expect or require that the drawee or acceptor
will honor the check.
Since petitioners bank account was already closed even before the issuance of the subject check, he
had no right to expect or require the drawee bank to honor his check. By virtue of the aforequoted
provision of law, petitioner is not entitled to be given a notice of dishonor.

26. SBTC v. RCBC; G.R. No. 170984, June 30, 2009 C

HING, Tiffany Kimberly Dy Tan
DOCTRINE/S:
Managers check is one drawn by a banks manager upon the bank itself and in the same footing as a
certified check which is deemed to have been accepted by the bank that certified it.

29

Liability of drawer: by drawing the instrument, it admits the existence of the payee and his then capacity
to indorse; and engages that on due presentment, the instrument will be accepted, or paid, or both,
according to its tenor.

FACTS:
Security Bank (SBTC) issued a managers check for P8M, payable to "CASH," as proceeds of the loan
granted to Guidon Construction and Development Corporation (GCDC) deposited by Continental
Manufacturing Corporation (CMC) in its Current Account with RCBC. Immediately, RCBC honored the
P8M check and allowed CMC to withdraw. Later, GCDC issued a "Stop Payment Order" to SBTC
claiming that the P8M check was released to a 3rd party by mistake, so SBTC dishonored and returned
the managers check to RCBC. Thus, RCBC filed a complaint for damages against SBTC with RTC.
RTC in favor of RCBC and CA affirmed with modification RTCs decision by adding interest.
RCBC avers that the managers check issued by SBTC is substantially as good as the money it
represents because by its peculiar character, its issuance has the effect of an advance acceptance.
RCBC also claims that it is a holder in due course when it credited the P8M managers check to CMCs
account.
On the other hand, SBTC contends that RCBC violated Monetary Board Resolution No. 2202 of the
Central Bank of the Philippines mandating all banks to verify the genuineness and validity of all checks
before allowing drawings of the same. SBTC insists that RCBC should bear the consequences of
allowing CMC to withdraw the amount of the check before it was cleared.

ISSUE: WON SBTC should be held liable for its manager's check.
HELD: YES
The questioned check issued by SBTC is not just an ordinary check but a managers check. Managers
check is one drawn by a banks manager upon the bank itself and in the same footing as a
certified check which is deemed to have been accepted by the bank that certified it. As the
banks own check, a managers check becomes the primary obligation of the bank and is accepted in
advance by the act of its issuance.
RCBC, in immediately crediting the amount of P8 million to CMCs account, relied on the integrity and
honor of the check as it is regarded in commercial transactions. Where the questioned check, which was
payable to Cash, appeared regular on its face, and the bank found nothing unusual in the transaction,
as the drawer usually issued checks in big amounts made payable to cash, RCBC cannot be faulted in
paying the value of the questioned check.
In a July 9, 1980 Memorandum, banks were given the discretion to allow immediate drawings on
uncollected deposits of managers checks, among others. Consequently, RCBC, in allowing the
immediate withdrawal against the subject managers check, only exercised a prerogative expressly
granted to it by the Monetary Board. Moreover, neither Monetary Board Resolution No. 2202 nor the
July 9, 1980 Memorandum alters the extraordinary nature of the managers check and the relative rights
of the parties thereto. SBTCs liability as drawer remains the same by drawing the instrument, it
admits the existence of the payee and his then capacity to indorse; and engages that on due
presentment, the instrument will be accepted, or paid, or both, according to its tenor

27. Equitable Banking Corp. v. Special Steel Products; G.R. No. 175350, June 13, 2012 DORIA,
Arniebelle Mangaron

30

DOCTRINE/S: A crossed check with the notation "account payee only" can only be deposited in the
named payees account. It is gross negligence for a bank to ignore this rule solely on the basis of a third
partys oral representations of having a good title thereto.
FACTS:
Special Steel Products, Inc. (SSPI) sold welding electrodes to International Copra Export Corporation
(Interco). As payment, Interco issued 3 checks payable to the order of SSPI, drawn against Equitable
Bank. Each check was crossed with the notation "account payee only".
For some undisclosed reason, Jose Isidoro Uy, an Interco employee, came into possession of the
checks. He then presented the checks to Equitable and demanded that they be deposited in his
personal accounts. Relying on his status as a valued client, Equitable acceded to Uys demands on the
assumption that, as the son-in-law of Intercos majority stockholder, Uy acted pursuant to Intercos
orders. Uy then withdrew the proceeds of the check.
When SSPI reminded Interco of the unpaid balance, Interco said that it already issued 3 checks. SSPI
filed a complaint for damages against Uy and Equitable Bank. Equitable contends that SSPI cannot
assert a right against it based on the undelivered checks. It argues that a payee, who did not receive the
check, cannot require the drawee bank to pay it the sum thereon.

ISSUE/S: Whether Equitable can be held liable? YES

HELD:
Equitable did not observe the required degree of diligence expected of a banking institution, and for that,
it should be held liable. SSPIs cause of action is not based on the 3 checks but on a quasi-delict (an act
or omission, there being fault or negligence, which causes damage to another).
The checks were all crossed, made payable to SSPIs order, and annotated "account payee only." This
creates an expectation that the payee alone would receive the proceeds. Based on banking practice,
crossed checks are intended for deposit in the named payees account only and no other. The nature of
crossed checks should place a bank on notice that it should exercise more caution or expend more than
a cursory inquiry to ascertain whether the payee has authorized the holder to deposit the same.
The fact that a person, other than the named payee of the crossed check, was presenting it for deposit
should have alarmed Equitable. It should have verified if SSPI authorized Uy, or indorsed the check to
him. The bank relied solely on Uys word that he had good title to the checks. Such misplaced reliance is
tantamount to gross negligence.

28. Citytrust v. Cruz; G.R. No. 157049, August 11, 2010 F

ERNANDEZ, Gil Aldrick Sy
DOCTRINE/S: It is never overemphasized that the public always relies on a banks profession of
diligence and meticulousness in rendering irreproachable service. Its failure to exercise diligence and
meticulousness warranted its liability for exemplary damages and for reasonable attorneys fees.
FACTS: The respondent, an architect and businessman, maintained savings and checking accounts at
the petitioners Loyola Heights Branch. The savings account was considered closed due to the oversight
committed by one of the latters tellers.
RTC and CA ruled that petitioners liable for moral and exemplary damages and attorneys fees
Petitioner contend there were situations showing excusable negligence and good faith that did not justify
the award of moral and exemplary damages and attorneys fees

31

ISSUE/S: WON the petitioner bank should be liable moral and exemplary damages? yes
HELD:The petitioner, being a banking institution, had the direct obligation to supervise very closely the
employees handling its depositors accounts, and should always be mindful of the fiduciary nature of its
relationship with the depositors. Such relationship required it and its employees to record accurately
every single transaction, and as promptly as possible, considering that the depositors accounts should
always reflect the amounts of money the depositors could dispose of as they saw fit, confident that, as a
bank, it would deliver the amounts to whomever they directed. If it fell short of that obligation, it should
bear the responsibility for the consequences to the depositors, who, like the respondent, suffered
particular embarrassment and disturbed peace of mind from the negligence in the handling of the
accounts.
It is never overemphasized that the public always relies on a banks profession of diligence and
meticulousness in rendering irreproachable service. Its failure to exercise diligence and meticulousness
warranted its liability for exemplary damages and for reasonable attorneys fees.

29. PNB v. Spouses Cheah Chee Chong; G.R. Nos. 170865 & 170892, April 25, 2012 FRANCISCO,
Marvin Parinas
DOCTRINE/S:
See Held
FACTS:
Ofelia Cheah agreed to accommodate her friends (Adelina) friend (Filipina) using their (spouses
Cheah) joint dollar savings account to help collect the proceeds of a foreign check.
PNB accepted the check for collection and immediately credited the proceeds thereof to the
spouses joint dollar account even before the lapse of the clearing period.
And just when the money had been withdrawn and distributed among different beneficiaries, it was
discovered that all along, to the horror of Ofelia whose intention to accommodate a friend's friend
backfired, Ofelia and PNB had dealt with a rubber check.
ISSUE/S:
1. Whether PNB should be held liable. YES. PNB and spouses Cheah were equally liable.
2. Who should return the money? As PNBs client, Ofelia was the one who dealt with PNB
and negotiated the check such that its value was credited in her and her husbands
account. Being the ones in privity with PNB, the spouses Cheah are therefore the persons
who should return to PNB the money released to them.
HELD:
PNBs act of releasing the proceeds of the check prior to the lapse of the 15-day clearing period was
the proximate cause of the loss.
Ofelia deposited the subject check on November 4, 1992. Hence, the 15th banking day from the
date of said deposit should fall on November 25, 1992. However, what happened was that PNB
Buendia, upon calling up Ofelia that the check had been cleared, allowed the proceeds thereof to be
withdrawn on November 17 and 18, 1992, a week before the lapse of the standard 15-day clearing
period.
SC already held that the payment of the amounts of checks without previously clearing them with
the drawee bank especially so where the drawee bank is a foreign bank and the amounts involved
were large is contrary to normal or ordinary banking practice (DOCTRINE/S). Also, in Associated
Bank v. Tan, 446 SCRA 282 (2004), wherein the bank allowed the withdrawal of the value of a
check prior to its clearing, we said that [b]efore the check shall have been cleared for deposit, the
collecting bank can only assume at its own risk x x xthat the check would be cleared and paid out.
The delay in the receipt by PNB Buendia Branch of the November 13, 1992 SWIFT message
notifying it of the dishonor of the subject check is of no moment, because had PNB Buendia Branch

32

waited for the expiration of the clearing period and had never released during that time the proceeds
of the check, it would have already been duly notified of its dishonor. Clearly, PNBs disregard of its
preventive and protective measure against the possibility of being victimized by bad checks had
brought upon itself the injury of losing a significant amount of money.
The spouses Cheah are guilty of contributory negligence and are bound to share the loss with the
bank. "Contributory negligence is conduct on the part of the injured party, contributing as a legal
cause to the harm he has suffered, which falls below the standard to which he is required to
conform for his own protection."
All told, the Court concurs with the findings of the CA that PNB and the spouses Cheah are equally
negligent and should therefore equally suffer the loss. The two must both bear the consequences of
their mistakes.

30. PNB v. Tria; G.R. No. 193250, April 25, 2012 G

ATCHALIAN, Andrea Mae Dizon
DOCTRINE/S: A Managers Check stands on the same footing as a certified check, which is deemed to
have been accepted by the bank that certified it, as it is an order of the bank to pay, drawn upon itself,
committing in effect its total resources, integrity and honor behind its issuance. It is regarded
substantially to be as good as the money it represents.
FACTS: (Criminal case)
Respondent Amelio Tria was a former Branch Manager of Petitioner PNB MWSS Branch. MWSS
opened a Current Account (C/A) which later on became dormant with a balance of PhP 5,397,154.07.
The C/A was reactivated when PNB-MWSS received a letter-request from MWSS instructing the
deduction of PhP 5,200,000 from its C/A and the issuance of the corresponding managers check in the
same amount payable to a certain Atty. Rodrigo A. Reyes. After the presentation of the required
documents, the manger check was issued.
On April 2004 although PNB-MWSS received cash delivery from PNBs Cash Center in the amount of
PhP 8,660,000, Respondent Tria accompanied Atty. Reyes in presenting the managers check PNB
Quezon City Circle Branch (PNB-Circle) for encashment and told PNB-Circles Sales and Service
Officer, George Flandez, that PNB-MWSS had no available cash to pay the amount indicated.
Eventually, the check was encashed. In November 2004, Tria retired and was replaced by Veniegas.
Zaida Pulida, the MWSS employee in charge of C/A inquired about the accounts outstanding balance.
Pulida notified Veniegas that MWSS did not apply for the issuance of the managers check payable to
Atty. Reyes. Upon verification with the IBP, it was discovered that there was no Rodrigo A. Reyes
included in its membership roster.
Respondent Tria was charged with qualified theft. However, in the preliminary investigation the
Prosecutor recommended the dismissal of the charge which was later on affirmed by the DOJ and the
Court of Appeals.

ISSUE/S: Whether an Information charging Tria of qualified theft should be filed? YES (focus on the
fourth element)
HELD:
Requisites of Qualified Theft
1.
2.
3.

Taking of personal property; - Money involved is a personal property

That the said property belongs to another; - Money belongs to PNB (Banks acquire ownership of the
money deposited by its clients)
That the said taking be done with intent to gain; - Misrepresentation that Atty. Reyes is a valued
client and the revision of his functions to make it appear that he is authorized to accompany clients
to QC Branch for encashment.

33

4. That it be done without the owner/s consent;

A managers check is one drawn by a banks manager, Tria in this case, upon the bank itself. It
stands on the same footing as a certified check, which is deemed to have been accepted by the
bank that certified it, as it is an order of the bank to pay, drawn upon itself, committing in effect its
total resources, integrity and honor behind its issuance. A managers check is regarded substantially
to be as good as the money it represents. In fact, it is obvious from the PNB affidavits that the
MWSS C/A was deducted upon the issuance of the managers check and not upon its encashment.
Indeed, as the banks own check, a managers check becomes the primary obligation of the bank
and is accepted in advance by the act of its issuance.
PNB was deprived of the discretion to withhold its consent since, as the circumstances establish,
the very person responsible for the custody and the issuance of the check is the one guilty for its
felonious issuance and encashment, its former branch manager Tria.
The pretense made in PNB-MWSS that led to the issuance of the Managers Check cannot be
imputed on anyone other than Tria. His role as the branch manager of PNB-MWSS who had the
responsibility over the functions of the employees of PNB-MWSS cannot be overlooked. As branch
manager, Tria signs managers checks. He serves as the last safeguard against any pretense
resorted to for an illicit claim over the banks money. The acts of the other bank officials in the
MWSS branch in processing the managers checks pass through the supervision and approval of
Tria. Thus, the processing and approval of the check are the responsibility of Tria.
5.
6.

That it be accomplished without the use of violence or intimidation against persons, nor of force
upon things; and
That it be done with grave abuse of confidence. . A bank employees are entrusted with the
possession of money of the bank due to the confidence reposed in them and as such they occupy
positions of confidence

31. Salazar v. JY Bros; G.R. No. 171998, October 20, 2010 I TARALDE, Mark Dean Del Rosario
DOCTRINE/S: The obligation to pay a sum of money is not novated by an instrument that expressly
recognizes the old, changes only the terms of payment, adds other obligations not incompatible with the
old ones or the new contract merely supplements the old one.
FACTS: Salazar as sales agent accompanied Calleja and Kallos to buy 300 cavans of rice from J.Y
Brothers. As payment for the rice, Salazar negotiated and indorsed a Prudential Bank (PB) check issued
by Nena Timario. The PB Check was dishonored due to closed account upon presentment. With JY
Brothers informing Calleja Kallos and Salazar of the dishonor, the latter replaced the PB check with a
Solid Bank (SB) crossed-check issued again by Nena Timario. SB check also bounced due to
insufficient funds. Charged with estafa, Salazar was acquitted but ordered to pay the value of 300
cavans of rice. Salazar argued that the issuance of SB check as replacement for PB check amounted to
novation. Salazar contended, among others that the acceptance of the SB check, a non-negotiable
check being a crossed check, which replaced the dishonored PB check, a negotiable check, is a new
obligation in lieu of the old obligation arising from the issuance of the Prudential Bank check, since there
was an essential change in the circumstance of each check.
ISSUE: Whether the replacement of PB Check with SB Check amounted to novation; and whether
Salazar should be held liable as accommodation indorser of the bounced checks.
HELD: Yes. There was no valid novation in this case, so that Salazar as accommodation indorser
remains liable to the value of the check. The obligation to pay a sum of money is not novated by an
instrument that expressly recognizes the old, changes only the terms of payment, adds other obligations
not incompatible with the old ones or the new contract merely supplements the old one.

34

Sec. 119 of the NIL in relation to Art. 1231 of the NCC allows novation as mode of discharging a
negotiable instrument by way of novation. The only two ways which indicate the presence of novation,
producing the effect of extinguishing an obligation: 1) novation must be explicitly stated as novation is
never presumed; and 2, the old and the new obligations must be incompatible on every point. The test
of incompatibility is whether or not the two obligations can stand together, each one having its
independent existence. If they cannot, they are incompatible and the latter obligation novates the first. In
this case, SB check replacing the PB Check did not result to novation as there was no express
agreement to establish that Salazar was already discharged from his liability to pay respondent the
value of the PB check as payment for the cavans of rice. Also, the acceptance of the SB check did not
result to any incompatibility as both checks were precisely for the purpose of paying the same credit.
The effect of crossing a check relates to the mode of payment, meaning that the drawer had intended
the check for deposit only by the rightful person, i.e., the payee named therein. The change in the mode
of paying the obligation was not a change in any of the objects or principal condition of the contract for
novation to take place.

32. PCIB v. Balmaceda; G.R. No. 158143, September 21, 2011 L

IM, Frederick Xavier Ramos
DOCTRINE/S:
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;
and (c) the act of crossing the check serves as a warning to the holder that the check has been issued
for a definite purpose and he must inquire if he received the check pursuant to this purpose; otherwise,
he is not a holder in due course.
In other words, the crossing of a check is a warning that the check should be deposited only in the
account of the payee. When a check is crossed, it is the duty of the collecting bank to ascertain that the
check is only deposited to the payees account.

FACTS:
Petitioner bank filed a case against the respondent Balmaceda, one of its branch managers in Sta.
Cruz, Manila. Respondent allegedly fraudulently obtained and encashed 31 manager's checks by taking
advantage of his position as branch manager. The checks amounted to P10,782,150.00.
Petitioner also sought to implead Ramos, a local businessman, as one of the beneficiaries of the
fraudulent checks.
Balmaceda accomplished the crime by claiming that he had been instructed by one of the Banks
corporate clients to purchase Managers checks on its behalf, with the value of the checks to be debited
from the clients corporate bank account. First, he would instruct the Bank staff to prepare the
application forms for the purchase of Managers checks, payable to several persons. Then, he would
forge the signature of the clients authorized representative on these forms and sign the forms as PCIBs
approving officer. Finally, he would have an authorized officer of PCIB issue the Managers checks.
Balmaceda would subsequently ask his subordinates to release the Managers checks to him, claiming
that the client had requested that he deliver the checks. After receiving the Managers checks, he
encashed them by forging the signatures of the payees on the checks.
In ruling that Ramos acted in collusion with Balmaceda, the RTC noted that although the Managers
checks payable to Ramos were crossed checks, Balmaceda was still able to encash the checks.After
Balmaceda encashed three of these Managers checks, he deposited most of the money into Ramos
account.
The CA dismissed the complaint against Ramos, holding that no sufficient evidence existed to prove
that Ramos colluded with Balmaceda in the latters fraudulent manipulations. According to the CA, the

35

mere fact that Balmaceda made Ramos the payee in some of the Managers checks does not suffice to
prove that Ramos was complicit in Balmacedas fraudulent scheme. It observed that other persons were
also named as payees in the checks that Balmaceda acquired and encashed, and PCIB only chose to
go after Ramos. With PCIBs failure to prove Ramos actual participation in Balmacedas fraud, no legal
and factual basis exists to hold him liable.

ISSUE/S:
W/N Ramos may be held liable. (No. Not related to NIL. Essentially affirmed CA decision.)
W/N PCIB is also liable for allowing the fraud to happen in the first place. (Yes)
HELD:
PCIB is negligent as it allowed Balmaceda to encash the Managers checks that were plainly crossed
checks. A crossed check is one where two parallel lines are drawn across its face or across its corner.
Based on jurisprudence, 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; and (c) the act of crossing the check serves as a warning to the holder that
the check has been issued for a definite purpose and he must inquire if he received the check pursuant
to this purpose; otherwise, he is not a holder in due course. In other words, the crossing of a check is a
warning that the check should be deposited only in the account of the payee. When a check is crossed,
it is the duty of the collecting bank to ascertain that the check is only deposited to the payees account.
In complete disregard of this duty, PCIBs systems allowed Balmaceda to encash 26 Managers checks
which were all crossed checks, or checks payable to the payees account only.

36