DOCTRINES

Prudential Bank vs. Intermediate Appellate Court, 216 SCRA 257

A letter of credit is defined as an engagement by a bank or other person made at the request of a
customer that the issuer will honor drafts or other demands for payment upon compliance with the
conditions specified in the credit. Through a letter of credit, the bank merely substitutes its own promise
to pay for the promise to pay of one of its customers who in return promises to pay the bank the amount
of funds mentioned in the letter of credit plus credit or commitment fees mutually agreed upon. In the
instant case then, the drawee was necessarily the herein petitioner. It was to the latter that the drafts were
presented for payment. In fact, there was no need for acceptance as the issued drafts are sight drafts.
Presentment for acceptance is necessary only in the cases expressly provided for in Section 143 of the
Negotiable Instruments Law (NIL).

Wong vs. Court of Appeals, 351 SCRA 100

There are two (2) ways of violating B.P. Blg. 22: (1) by making or drawing and issuing a check to apply
on account or for value knowing at the time of issue that the check is not sufficiently funded; and (2) by
having sufficient funds in or credit with the drawee bank at the time of issue but failing to keep
sufficient funds therein or credit with said bank to cover the full amount of the check when presented to
the drawee bank within a period of ninety (90) days.

Contrary to petitioners assertions, nowhere in said provision does the law require a maker to maintain
funds in his bank account for only 90 days. Rather, the clear import of the law is to establish a prima
facie presumption of knowledge of such insufficiency of funds under the following conditions (1)
presentment within 90 days from date of the check, and (2) the dishonor of the check and failure of the
maker to make arrangements for payment in full within 5 banking days after the notice thereof. That the
check must be deposited within ninety (90) days is simply one of the conditions for the prima facie
presumption of knowledge of lack of funds to arise. It is not an element of the offense.

International Corporate Bank vs. Gueco, 351 SCRA 516

A stale check is one which has not been presented for payment within a reasonable time after its issue. It
is valueless and, therefore, should not be paid. Under the negotiable instruments law, an instrument not
payable on demand must be presented for payment on the day it falls due. When the instrument is
payable on demand, presentment must be made within a reasonable time after its issue. In the case of a
bill of exchange, presentment is sufficient if made within a reasonable time after the last negotiation
thereof. A check must be presented for payment within a reasonable time after its issue, and in
determining what is a reasonable time, regard is to be had to the nature of the instrument, the usage of
trade or business with respect to such instruments, and the facts of the particular case.

A managers check is one drawn by the banks manager upon the bank itself, and it is similar to a
cashiers check both as to effect and use. A cashiers check is a check of the banks cashier on his own
or another checkit is a bill of exchange drawn by the cashier of a bank upon the bank itself, and
accepted in advance by the act of its issuance.
PRUDENTIAL BANK VS. IAC
216 SCRA 257

FACTS: Philippine Rayon Mills, Inc. entered into a contract with Nissho Co., Ltd. of Japan for the
importation of textile machineries under a five-year deferred payment plan. To effect payment for said
machineries, Philippine Rayon Mills opened a commercial letter of credit with the Prudential Bank and
Trust Company in favor of Nissho. Against this letter of credit, drafts were drawn and issued by Nissho,
which were all paid by the Prudential Bank through its correspondent in Japan. Two of these drafts
were accepted by Philippine Rayon Mills while the others were not.

Petitioner instituted an action for the recovery of the sum of money it paid to Nissho as
Philippine Rayon Mills was not able to pay its obligations arising from the letter of credit. Respondent
court ruled that with regard to the ten drafts which were not presented and accepted, no valid demand for
payment can be made.

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

RULING: No.

A letter of credit is defined as an engagement by a bank or other person made at the request of a
customer that the issuer will honor drafts or other demands for payment upon compliance with the
conditions specified in the credit. Through a letter of credit, the bank merely substitutes its own promise
to pay for one of its customers who in return promises to pay the bank the amount of funds mentioned in
the letter of credit plus credit or commitment fees mutually agreed upon.

In the case at bar, the drawee was necessarily the herein petitioner. It was to the latter that the
drafts were presented for payment. There was in fact no need for acceptance as the issued drafts are
sight drafts. Presentment for acceptance is necessary only in the cases expressly provided for in Section
143 of the Negotiable Instruments Law (NIL). The said section provides that presentment for
acceptance must be made:

(a) Where the bill is payable after sight, or in any other case, where presentment for acceptance is
necessary in order to fix the maturity of the instrument; or
(b) Where the bill expressly stipulates that it shall be presented for acceptance; or
(c) Where the bill is drawn payable elsewhere than at the residence or place of business of the
drawee.

In no other case is presentment for acceptance necessary in order to render any party to the bill
liable. Obviously then, sight drafts do not require presentment for acceptance. Our own reading of the
questioned solidary guaranty clause yields no other conclusion than that the obligation of Chi is only
that of a guarantor. However, Chi's liability is limited to the principal obligation in the trust receipt plus
all the accessories thereof including judicial costs; with respect to the latter, he shall only be liable for
those costs incurred after being judicially required to pay.
WONG VS. COURT OF APPEALS
351 SCRA 100

FACTS: Luis Wong is a collector of Limtong Press, Inc., a company which prints calendars. Wong was
assigned to collect check payments from LPI clients. One time, six of LPIs clients were not able to
give the check payments to Wong. Wong then made arrangements with LPI so that for the meantime,
Wong can use his personal checks to guarantee the calendar orders of the LPIs clients. LPI however has
a policy of not accepting personal checks of its agents. LPI instead proposed that the personal checks
should be used to cover Wongs debt with LPI which arose from unremitted checks by Wong in the past.
Wong agreed. So he issued 6 checks dated December 30, 1985.
Before the maturity of the checks, Wong persuaded LPI not to deposit the checks because he said
hell be replacing them within 30 days. LPI complied however Wong reneged on the payment. 157 days
from date of issue, LPI presented the check to RCBC but the checks were dishonored (account closed).
On June 20, 1986, LPI sent Wong a notice of dishonor. Wong failed to make good the amount of the
checks within five banking days from his receipt of the notice. LPI then sued Wong for violations of
Batas Pambansa Blg. 22.
Among others, Wong argued that hes not guilty of the crime of charged because one of the
elements of the crime is missing, that is, prima facie presumption of knowledge of lack of funds
against the drawer. According to Wong, this element is lost by reason of the belated deposit of the
checks by LPI which was 157 days after the checks were issued; that he is not expected to keep his bank
account active beyond the 90-day period 90 days being the period required for the prima facie
presumption of knowledge of lack of fund to arise.

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

HELD: Yes. Wong is guilty of violating BP 22. The elements of violation of BP 22 pertinent to this
case are:
1. The making, drawing and issuance of any check to apply for account or for value;
2. The knowledge of the maker, drawer, or issuer that at the time of issue he does not have sufficient
funds in or credit with the drawee bank for the payment of such check in full upon its presentment; and
3. The subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or
dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to stop
payment.
Under the second element, the presumption of knowledge of the insufficiency arises if the check
is presented within 90 days from the date of issue of the check. This presumption is lost, as in the case at
bar, by failure of LPI to present it within 90 days. But this does not mean that the second element was
not attendant with respect to Wong. The presumption is lost but knowledge can still be proven, LPI did
not deposit the checks because of the reassurance of Wong that he would issue new checks.
Upon his failure to do so, LPI was constrained to deposit the said checks. After the checks were
dishonored, Wong was duly notified of such fact but failed to make arrangements for full payment
within five (5) banking days thereof. There is, on record, sufficient evidence that Wong had knowledge
of the insufficiency of his funds in or credit with the drawee bank at the time of issuance of the checks.
 The Supreme Court also noted that under Section 186 of the Negotiable Instruments Law, a
check must be presented for payment within a reasonable time after its issue or the drawer will be
discharged from liability thereon to the extent of the loss caused by the delay. By current banking
practice, a check becomes stale after more than six (6) months, or 180 days. LPI deposited the checks
157 days after the date of the check. Hence said checks cannot be considered stale.

THE INTERNATIONAL CORP. BANK VS. SPS. GUECO

351 SCRA 516
FACTS: The respondents Gueco Spouses obtained a loan from petitioner International Corporate Bank
(now Union Bank of the Philippines) to purchase a car a Nissan Sentra. In consideration thereof, the
Spouses executed promissory notes which were payable in monthly installments and chattel mortgage
over the car to serve as security for the notes. The Spouses defaulted in payment of
installments. Consequently, the Bank filed civil action docketed for Sum of Money with Prayer for a
Writ of Replevin. Dr. Francis Gueco was served summons and was fetched by the sheriff and
representative of the bank for a meeting in the bank premises. As a result of the non-payment of the
amount on that date, the car was detained inside the banks compound.
Dr. Gueco delivered a managers check in the amount of P150,000.00 but the car was not released
because of his refusal to sign the Joint Motion to Dismiss. It is the contention of the Gueco spouses and
their counsel that Dr. Gueco need not sign the motion for joint dismissal considering that they had not
yet filed their Answer. Petitioner, however, insisted that the joint motion to dismiss is standard operating
procedure in their bank to effect a compromise and to preclude future filing of claims, counterclaims or
suits for damages.
After several demand letters and meetings with bank representatives, the respondents Gueco
spouses initiated a civil action for damages which was dismissed. On appeal to the Regional Trial Court,
Branch 227 of Quezon City, the decision of the Metropolitan Trial Court was reversed. In its decision,
the RTC held that there was a meeting of the minds between the parties as to the reduction of the amount
of indebtedness and the release of the car but said agreement did not include the signing of the joint
motion to dismiss as a condition sine qua non for the effectivity of the compromise. The petitioner
comes to this Court by way of petition for review on certiorari under Rule 45 of the Rules of Court.

ISSUE: Whether the CA erred in holding that the petitioner return the subject car to the respondents
without making any provision for the issuance of the new check by respondents in lieu of the original
check that already became stale.

HELD: No. Respondents would make us hold that petitioner should return the car or its value and that
the latter, because of its own negligence, should suffer the loss occasioned by the fact that the check had
become stale. A stale check is one which has not been presented for payment within a reasonable time
after its issue. It is valueless and, therefore, should not be paid. Under the negotiable instruments law, an
instrument not payable on demand must be presented for payment on the day it falls due. When the
instrument is payable on demand, presentment must be made within a reasonable time after its issue. In
the case of a bill of exchange, presentment is sufficient if made within a reasonable time after the last
negotiation thereof.
 In the case at bar, however, the check involved is not an ordinary bill of exchange but a managers
check. A managers check is one drawn by the banks manager upon the bank itself. It is similar to a
cashiers check both as to effect and use. In effect, it is a bill of exchange drawn by the manager of a
bank upon the bank itself, and accepted in advance by the act of its issuance. It is really the banks own
check and may be treated as a promissory note with the bank as a maker. The check becomes the
primary obligation of the bank which issues it and constitutes its written promise to pay upon
demand. The mere issuance of it is considered an acceptance thereof.
Even assuming that presentment is needed, failure to present for payment within a reasonable time
will result to the discharge of the drawer only to the extent of the loss caused by the delay. Failure to
present on time, thus, does not totally wipe out all liability.
It has been held that, if the check had become stale, it becomes imperative that the circumstances
that caused its non-presentment be determined. In the case at bar, there is no doubt that the petitioner
bank held on the check and refused to encash the same because of the controversy surrounding the
signing of the joint motion to dismiss. We see no bad faith or negligence in this position taken by the
Bank.