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Asia Banking Corporation vs.

Javier [GR 19051, 4 April 1923]

First Division, Avancena (J): 4 concur, 1 voted for reversal, 1 took no part

Facts: On 10 May 1920, Salvador B. Chaves drew a check on the Philippine National
Bank (PNB) for P11,000 in favor of La Insular, a concern doing business in this city.
This check was endorsed by the limited partners of La Insular, and then deposited by
Salvador B. Chaves in his current account with Asia Banking Corporation. The deposit
was made on 14 July 1920. On 25 June 1920, Salvador B. Chaves drew another check
for P18,785.30 on PNB, in favor of La Insular. This check was also endorsed by the lim-
ited partners of La Insular, and was likewise deposited by Chaves in his current ac-
count with Asia Banking, on 6 July 1920. The amount represented by both checks was
used by Chaves after they were deposited in Asia Banking, by drawing checks on the
latter. Subsequently these checks were presented by Asia Banking to PNB for pay-
ment, but the latter refused to pay on the ground that the drawer, Chaves, had no
funds therein. Asia Banking brought the action against Juan Javier, as endorser, for the
payment of the value of both checks. The lower court sentenced Javier to pay Asia
Banking P11,000, upon the check of 10 May 1920, with interest thereon at 9% per an-
num from 10 July 1920, and P18,778.34 on the check of 25 June 1920, with interest
thereon at 9% per annum from 5 August 1920. From this judgment the defendant ap-

Issue: Whether Javier’s liability as endorsed of the checks in question was extin-

Held: Section 89 of the Negotiable Instruments Law (Act No. 2031) provides that, when
a negotiable instrument is dishonored for non-acceptance or non-payment, notice
thereof must be given to the drawer and of each of the endorsers, and those who are
not notified that the document was dishonored. Then, under the general principle of the
law of procedure, it will be incumbent upon Asia Banking, who seeks to enforce Javi-
we's liability upon these checks as endorser, to establish said liability by proving that
notice was given to Javier within the time, and in the manner, required by the law that
the checks in question had been dishonored. If these facts are not proven, Asia Bank-
ing has not sufficiently established Javier's liability. There is no proof in the record tend-
ing to show that plaintiff gave any notice whatsoever to the defendant that the checks
in question had been dishonored, and therefore it has not established its cause of ac-
tion. The Supreme Court reversed the judgment appealed from and absolved Javier
from the complaint without special pronouncement as to costs

State Investment House Inc. vs. Court of Appeals [GR 101163, 11 January 1993]

First Division, Bellosillo (J): 2 concur, 1 took no part

Facts: Nora B. Moulic issued to Corazon Victoriano, as security for pieces of jewelry to
be sold on commission, 2 post-dated Equitable Banking Corporation checks in the
amount of P50,000 each, one dated 30 August 1979 and the other, 30 September 1979.
Thereafter, the payee negotiated the checks to the State Investment House Inc. (SIHI).
Moulic failed to sell the pieces of jewelry, so she returned them to the payee before ma-
turity of the checks. The checks, however, could no longer be retrieved as they had al-
ready been negotiated. Consequently, before their maturity dates, Moulic withdrew her
funds from the drawee bank.Upon presentment for payment, the checks were dishon-
ored for insufficiency of funds. On 20 December 1979, SIHI allegedly notified Moulic of
the dishonor of the checks and requested that it be paid in cash instead, although
Moulic avers that no such notice was given her. On 6 October 1983, SIHI sued to re-
cover the value of the checks plus attorney's fees and expenses of litigation. In her An-
swer, Moulic contends that she incurred no obligation on the checks because the jewel-
ry was never sold and the checks were negotiated without her knowledge and consent.
She also instituted a Third-Party Complaint against Corazon Victoriano, who later as-
sumed full responsibility for the checks. On 26 May 1988, the trial court dismissed the
Complaint as well as the Third-Party Complaint, and ordered SIHI to pay Moulic
P3,000.00 for attorney's fees. SIHI elevated the order of dismissal to the Court of Ap-
peals, but the appellate court affirmed the trial court on the ground that the Notice of
Dishonor to Moulic was made beyond the period prescribed by the Negotiable Instru-
ments Law and that even if SIHI did serve such notice on Moulic within the reglemen-
tary period it would be of no consequence as the checks should never have been pre-
sented for payment. SIHI filed the petition for review.

Issue [1]: Whether the alleged issuance of the post-dated checks as security is a ground
for the discharge of the instrument as against a holder in due course.

Held [1]: Section 119 of the Negotiable Instrument Law outlined the grounds in which an
instrument is discharged. The provision states that "A negotiable instrument is dis-
charged: (a) By payment in due course by or on behalf of the princiWhether the post-
dated checks, issued as security, is a ground for the discharge of the instrument as
against a holder in due course. pal debtor; (b) By payment in due course by the party
accommodated, where the instrument is made or accepted for his accommodation; (c)
By the intentional cancellation thereof by the holder; (d) By any other act which will dis-
charge a simple contract for the payment of money; (e) When the principal debtor be-
comes the holder of the instrument at or after maturity in his own right." Obviously,
MOULIC may only invoke paragraphs (c) and (d) as possible grounds for the discharge
of the instrument. But, the intentional cancellation contemplated under paragraph (c) is
that cancellation effected by destroying the instrument either by tearing it up, burning it,
or writing the word "cancelled" on the instrument. The act of destroying the instrument
must also be made by the holder of the instrument intentionally. Since MOULIC failed to
get back possession of the post-dated checks, the intentional cancellation of the said
checks is altogether impossible. On the other hand, the acts which will discharge a sim-
ple contract for the payment of money under paragraph (d) are determined by other ex-
isting legislations since Section 119 does not specify what these acts are, e.g., Art. 1231
of the Civil Code which enumerates the modes of extinguishing obligations. Again, none
of the modes outlined therein is applicable in the instant case as Section 119 contem-
plates of a situation where the holder of the instrument is the creditor while its drawer is
the debtor. Herein, the payee, Corazon Victoriano, was no longer MOULIC's creditor at
the time the jewelry was returned. Correspondingly, MOULIC may not unilaterally dis-
charge herself from her liability by the mere expediency of withdrawing her funds from
the drawee bank. She is thus liable as she has no legal basis to excuse herself from lia-
bility on her checks to a holder in due course.

Issue [2]: Whether the requirement that SIHI should give Notice of Dishonor to MOULIC
is indispensable.

Held [2]: The need for notice is not absolute; there are exceptions under Section 114 of
the Negotiable Instruments Law. Section 114 (When notice need not be given to drawer)
provides that "Notice of dishonor is not required to be given to the drawer in the follow-
ing cases: (a) Where the drawer and the drawee are the same person; (b) When the
drawee is a fictitious person or a person not having capacity to contract; (c) When the
drawer is the person to whom the instrument is presented for payment; (d) Where the
drawer has no right to expect or require that the drawee or acceptor will honor the in-
strument; (e) Where the drawer had countermanded payment." Indeed, MOULIC'S ac-
tuations leave much to be desired. She did not retrieve the checks when she returned
the jewelry. She simply withdrew her funds from her drawee bank and transferred them
to another to protect herself. After withdrawing her funds, she could not have expected
her checks to be honored. In other words, she was responsible for the dishonor of her
checks, hence, there was no need to serve her Notice of Dishonor, which is simply
bringing to the knowledge of the drawer or indorser of the instrument, either verbally or
by writing, the fact that a specified instrument, upon proper proceedings taken, has not
been accepted or has not been paid, and that the party notified is expected to pay it. In
addition, the Negotiable Instruments Law was enacted for the purpose of facilitating, not
hindering or hampering transactions in commercial paper. Thus, the said statute should
not be tampered with haphazardly or lightly. Nor should it be brushed aside in order to
meet the necessities in a single case. The holder who takes the negotiated paper
makes a contract with the parties on the face of the instrument. There is an implied rep-
resentation that funds or credit are available for the payment of the instrument in the
bank upon which it is drawn. Consequently, the withdrawal of the money from the
drawee bank to avoid liability on the checks cannot prejudice the rights of holders in due
course. Herein, such withdrawal renders the drawer, Moulic, liable to SIHI, a holder in
due course of the checks. SIHI could not expect payment as MOULIC left no funds with
the drawee bank to meet her obligation on the checks, so that Notice of Dishonor would
be futile.
Nora Moulic issued to Corazon Victoriano, as security for pieces of jewellery to be sold on
commission, two postdated checks in the amount of fifty thousand each. Thereafter, Victoriano
negotiated the checks to State Investment House, Inc. When Moulic failed to sell the jewellry,
she returned it to Victoriano before the maturity of the checks. However, the checks cannot be
retrieved as they have been negotiated. Before the maturity date Moulic withdrew her funds from
the bank contesting that she incurred no obligation on the checks because the jewellery was nev-
er sold and the checks are negotiated without her knowledge and consent. Upon presentment of
for payment, the checks were dishonoured for insufficiency of funds.

1. Whether or not State Investment House inc. was a holder of the check in due course
2. Whether or not Moulic can set up against the petitioner the defense that there was failure or
absence of consideration


Yes, Section 52 of the NIL provides what constitutes a holder in due course. The evidence shows
that: on the faces of the post dated checks were complete and regular; that State Investment
House Inc. bought the checks from Victoriano before the due dates; that it was taken in good
faith and for value; and there was no knowledge with regard that the checks were issued as secu-
rity and not for value. A prima facie presumption exists that a holder of a negotiable instrument is
a holder in due course. Moulic failed to prove the contrary.
No, Moulic can only invoke this defense against the petitioner if it was a privy to the purpose for
which they were issued and therefore is not a holder in due course.

No, Section 119 of NIL provides how an instruments be discharged. Moulic can only invoke
paragraphs c and d as possible grounds for the discharge of the instruments. Since Moulic failed
to get back the possession of the checks as provided by paragraph c, intentional cancellation of
instrument is impossible. As provided by paragraph d, the acts which will discharge a simple
contract of payment of money will discharge the instrument. Correlating Article 1231 of the Civil
Code which enumerates the modes of extinguishing obligation, none of those modes outlined
therein is applicable in the instant case. Thus, Moulic may not unilaterally discharge herself from
her liability by mere expediency of withdrawing her funds from the drawee bank. She is thus li-
able as she has no legal basis to excuse herself from liability on her check to a holder in due
course. Moreover, the fact that the petitioner failed to give notice of dishonor is of no moment.
The need for such notice is not absolute; there are exceptions provided by Sec 114 of NIL.
FACTS: Corazon Victoriano provided pieces of jewelry to Nora Moulic so that the latter
may sell the same. As security for the jewelries, Moulic issued to Victoriano two post-
dated checks in the aggregate amount of P100,000.00. Moulic was not able to sell the
jewelries so she returned the same to Victoriano. Victoriano was however unable to re-
turn the checks hence Moulic withdrew all her funds from the bank.
Apparently, the checks were negotiated by Victoriano to State Investment House, Inc.
So when the checks were dishonored, State Investment demanded Moulic to pay.
Moulic refused to pay because she said the checks were merely used as security for the
jewelry. Moulic further averred that she received no notice of dishonor.

ISSUE: Whether or not State Investment House is entitled to be paid.

HELD: Yes. State Investment is a holder in due course as it met all the requirements to
be one pursuant to Section 52 of the Negotiable Instruments Law. In particular, it is
clearly shown that: (a) on their faces the post-dated checks were complete and regular:
(b) State Investment bought these checks from Victoriano, before their due dates;   (c)
State Investment took these checks in good faith and for value, (d) State Investment
 was never informed nor made aware that these checks were merely issued to Victori-
ano as security and not for value.
Further, there is no need to issue a notice of dishonor to Moulic. After Moulic withdrew
her funds, she could not have expected her checks to be honored. It would only be futile
for State Investment to be sending her notices of dishonor for the two checks.
88 PHIL 178

Ramos, as a disbursing officer of an army division of the USAFE, made cash advance-
ments  w/  the  Provincial  Treasurer  of  Lanao.  In  exchange,  the Prov’l Treasurer of
Lanao gave him a P500,000 check.  Thereafter, Ramos presented  the  check  to  Laya 
for  encashment.    Laya  in  his  capacity  as Provincial  Treasurer  of  Misamis  Orien-
tal  as  drawer,  issued  a  check  to Ramos in the sum of P100000, on the Philippines
National Bank as drawee; the P400000 value of the check was paid in military notes.  

Ramos  was  unable  to  encash  the  said  check  for  he  was  captured  by  the Ja-
panese.  But after his release, he sold P30000 of the check to Montinola for P90000
Japanese Military notes, of which only P45000 was paid by the latter.  The  writing 
made  by  Ramos  at  the  back  of  the  check  was  to  the effect that he was assign-
ing only P30000 of the value of the document with an instruction to the bank to pay
P30000 to Montinola and to deposit the balance  to  Ramos's  credit.  This  writing 
was,  however,  mysteriously obliterated and in its place, a supposed indorsement ap-
pearing on the back of the check was made for the whole amount of the check. At the
time of the  transfer  of  this  check  to  Montinola,  the  check  was  long  overdue  by
about 2-1/2 years.

Montinola instituted an action against the PNB and the Provincial Treasurer of  Mis-
amis  Oriental  to  collect  the  sum  of  P100,000,  the  amount  of  the aforesaid
check.  There now appears on the face of said check the words in parenthesis 
"Agent,  Phil.  National  Bank"  under  the  signature  of  Laya purportedly showing that
Laya issued the check as agent of the Philippine National Bank.

The words "Agent, Phil. National Bank" now appearing on  the face of the check  were 
added  or  placed  in  the  instrument  after  it  was  issued  by  the Provincial  Treasur-
er  Laya  to  Ramos.  The  check  was  issued  by  only  as Provincial Treasurer and as
an official of the Government, which was under obligation  to  provide  the  USAFE 
with  advance  funds,  and not  as  agent  of the bank, which had no such obligation. 
The addition of those words was made  after  the  check  had  been  transferred  by 
Ramos  to  Montinola.  The insertion  of  the  words  "Agent,  Phil.  National  Bank," 
which  converts  the bank from a mere drawee to a drawer and therefore  changes its
liability, constitutes  a  material  alteration  of  the  instrument  without  the  consent  of
the parties liable thereon, and so discharges the instrument

Philippine National Bank vs. Court of Appeals [GR 107508, 25 April 1996]

First Division, Kapunan (J): 4 concur

Facts: A check with serial number 7-3666-223-3, dated 7 August 1981 in the amount of
P97,650.00 was issued by the Ministry of Education Culture (now Department of Edu-
cation, Culture and Sports [DECS]) payable to F. Abante Marketing. This check was
drawn against Philippine National Bank (PNB). On 11 August 1981, Abante Marketing,
a client of Capitol City Development Bank (Capitol), deposited the questioned check in
its savings account with said bank. In turn, Capitol deposited the same in its account
with the Philippine Bank of Communications (PBCom) which, in turn, sent the check to
PNB for clearing. PNB cleared the check as good and thereafter, PBCom credited
Capitol's account for the amount stated in the check. However, on 19 October 1981,
PNB returned the check to PBCom and debited PBCom's account for the amount cov-
ered by the check, the reason being that there was a "material alteration" of the check
number. PBCom, as collecting agent of Capitol, then proceeded to debit the latter's
account for the same amount, and subsequently, sent the check back to petitioner.
PNB, however, returned the check to PBCom. On the other hand, Capitol could not in
turn, debit Abante Marketing's account since the latter had already withdrawn the
amount of the check as of 15 October 1981. Capitol sought clarification from PBCom
and demanded the re- crediting of the amount. PBCom followed suit by requesting an
explanation and re-crediting from PNB. Since the demands of Capitol were not heed-
ed, it filed a civil suit with the Regional trial Court of Manila against PBCom which in
turn, filed a third-party complaint against PNB for reimbursement/indemnity with re-
spect to the claims of Capitol. PNB, on its part, filed a fourth-party complaint against
Abante Marketing. On 3 October 1989; the Regional Trial Court rendered its decision,
ordering PBCom to re-credit or reimburse Capitol the amount of P97,650.00, plus in-
terest of 12% thereto from 19 October 1981 until the amount is fully paid; PNB to reim-
burse and indemnify PBCom for whatever amount PBCom pays to Capitol; F. Abante
Marketing to reimburse and indemnify PNB for whatever amount PNB pays to PBCom.
On attorney's fees, the trial court ordered PBCom to pay Capitol attorney's fees in the
amount of P10,000.00; but that PBCom is entitled to reimburse/indemnify from PNB;
and PNB to be, in turn, reimbursed or indemnified by F. Abante Marketing for the same
amount. The court dismissed the counterclaims of PBCom and PNB; without pro-
nouncement as to costs. An appeal was interposed before the Court of Appeals which
rendered its decision on 29 April 1992, which modified the appealed judgment by ex-
empting PBCom from liability to Capitol for attorney's fees and ordering PNB to honor
the check for P97,650.00, with interest as declared by the trial court, and pay Capitol
attorney's fees of P10,000.00. After the check shall have been honored by PNB, the
court ordered PBCom to re-credit Capitol's account with it the amount; without pro-
nouncement as to costs. A motion for reconsideration of the decision was denied by
the appellate Court in its resolution dated 16 September 1992 for lack of merit. PNB
filed the petition for review on certiorari.

Issue: Whether the change in the serial number of the check may be considered a
change that alters the effect of the instrument, and thus is a material alteration.

Held: The present case is unique in the sense that what was altered is the serial num-
ber of the check in question, an item which, it can readily be observed, is not an essen-
tial requisite for negotiability under Section 1 of the Negotiable Instruments Law. The
aforementioned alteration did not change the relations between the parties. The name
of the drawer and the drawee were not altered. The intended payee was the same. The
sum of money due to the payee remained the same. The check's serial number is not
the sole indication of its origin. The name of the government agency which issued the
subject check was prominently printed therein. The check's issuer was therefore insuf-
ficiently identified, rendering the referral to the serial number redundant and inconse-
quential. If the purpose of the serial number is merely to identify the issuing govern-
ment office or agency, its alteration had no material effect whatsoever on the integrity
of the check. The identity of the issuing government office or agency was not changed
thereby and the amount of the check was not charged against the account of the an-
other government office or agency which had no liability under the check. The owner
issuer of the check is boldly and clearly printed on its face, second line from the top:
"MINISTRY OF EDUCATION AND CULTURE," and below the name of the payee are the
rubber-stamped words: "Ministry of Educ. & Culture." These words are not alleged to
have been falsely or fraudulently intercalated into the check. The ownership of the
check is established without the necessity of recourse to the serial number. Neither is
there any proof that the amount of the check was erroneously charged against the ac-
count of a government office or agency other than the Ministry of Education and Cul-
ture. Hence, the alteration in the number of the check did not affect or change the lia-
bility of the Ministry of Education and Culture under the check and, therefore, is imma-
terial. The genuineness of the amount and the signatures therein of then Deputy Minis-
ter of Education Hermenegildo C. Dumlao and of the resident Auditor, Penomio C. Al-
varez are not challenged. Neither is the authenticity of the different codes appearing
therein questioned. PNB, thus cannot refuse to accept the check in question on the
ground that the serial number was altered, the same being an immaterial or innocent

FACTS: In May 1942, Ubaldo Laya, as provincial treasurer of Misamis Oriental issued a
P100,000.00 Philippine National Bank (PNB) check to Mariano Ramos. The said check
was to be used by Ramos, as disbursing officer of the US forces at that time, for military
purposes.  Before Ramos can encash the check, he was made a prisoner of war by the
invading Japanese forces. When he got free in December 1944, he needed some cash
for himself and so he went to a certain Enrique Montinola and made arrangements.
On the back of the check, Ramos wrote:
Pay to the order of Enrique P. Montinola P30,000 only. The balance to be deposited in
the Philippine National Bank to the credit of M. V. Ramos.
In consideration thereof, Montinola promised to pay 85,000 in Japanese notes (that time
peso notes are valued higher). However, he was only able to pay 45k in Japanese notes
to Ramos.
Later, Montinola sought to have the check encashed but PNB dishonored the check. It
appears that there was an insertion made. Under the signature of Laya, the words
“Agent, Philippine National Bank” was inserted, thus making it appear that Laya dis-
bursed the check as an agent of PNB and not as provincial treasurer of Misamis Orien-
tal (NOTE: at that time, a provincial treasurer is an ex officio agent of the government’s
ISSUE: Whether or not the subject check is a negotiable instrument.
HELD: No. It was not negotiated according to the Negotiable Instruments Law (NIL)
hence it is not a negotiable instrument. There was only a partial indorsement and not a
negotiation contemplated under the NIL. Only P30k of the P100k amount of the check
was indorsed. This merely make Montinola a mere assignee – and this is the clear in-
tent of Ramos. Ramos was merely assigning P30k to Montinola. Montinola may there-
fore not be regarded as an indorsee and PNB has all the right to dishonor the check. As
mere assignee, he is subject to all defenses available to the drawer Provincial Treasurer
of Misamis Oriental and against Ramos.
Anent the issue of alteration, the apparent purpose of which is to make the drawee
(PNB) the drawer against which Montinola can recover from directly. Such material al-
teration which was done by Montinola without the consent of the parties liable thereon
discharges the instrument, pursuant to Sec. 124 of the NIL.
Montinola cannot be said to be a holder. He is an assignee. And even if he is a holder,
he is not in good faith because he did not pay the full amount of the consideration  for
which the P30k was issued to him – he only paid 45k Japanese notes out of the 90k Ja-
panese notes consideration.
At any rate, even assuming that there is proper negotiation, Montinola can no longer
encash said check because when he sought to have it encashed in January 1945, it is
already stale there being two and half years passing since its time of issuance
DECS  issued  a  check  in  favor  of  Abante  Marketing  containing  a  specific serial
number, drawn against PNB.  The check was deposited by Abante in its  account  with 
Capitol  and  the  latter  consequently  deposited  the  same with  its  account  with 
PBCOM  which  later  deposited  it  with  petitioner  for

clearing.  The check was thereafter cleared.  However, on a relevant date, petitioner 
PNB  returned  the  check  on  account  that  there  had  been  a material alteration on
it.  Subsequent debits were made but Capitol cannot debit the account of Abante any
longer for the latter had withdrawn all the money  already  from  the  account.      This 
prompted  Capitol  to  seek reclarification  from  PBCOM  and  demanded  the  recred-
iting  of  its  account.  PBCOM followed suit by doing the same against PNB.  De-
mands unheeded,

it filed an action against PBCOM and the latter filed a third-party complaint against pe-

An alteration is said to be material if it alters the effect of the instrument.  It means an
unauthorized change in the instrument that purports to modify in  any  respect  the 
obligation  of  a  party  or  an  unauthorized  addition  of words or numbers or other
change to an incomplete instrument relating to the  obligation  of  the  party.    In  other 
words,  a  material  alteration  is  one which changes the items which are required to be
stated under Section 1 of the NIL.   

In this case, the alleged material alteration was the alteration of the serial number  of 
the  check  in  issue—which  is  not  an  essential  element  of  a negotiable instrument
under Section 1.  PNB alleges that the alteration was material  since  it  is  an  accept-
ed  concept  that  a  TCAA  check  by  its  very

nature  is  the  medium  of  exchange  of  governments,  instrumentalities  and agen-
cies.      As  a  safety  measure,  every  government  office  or  agency  is assigned
checks bearing different serial numbers.   

But this contention has to fail.  The check’s serial number is not the sole indicia of its
origin.  The name of the government agency issuing the check is clearly stated therein. 
Thus, the check’s drawer is sufficiently identified, rendering redundant the referral to its
serial number.  

Therefore, there being no material alteration in the check committed, PNB could not
return the check to PBCOM.  It should pay the same

G.R. No. 74886 December 8, 1992,  216 scra 257
--presentment for payment
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 Philip-
pine Rayon Mills while the others were not. Petitioner instituted an action for the recov-
ery of the sum of money it paid to Nissho as Philippine Rayon Mills was not able to pay
its obligations arising from the letter of credit. Respondent court ruled that with regard
to the ten drafts which were not presented and accepted, no valid demand for payment
can be made. Petitioner however claims that the drafts were sight drafts which did not
require presentment for acceptance to Philippine Rayon.

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

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.
G.R. No. 78860, May 28, 1990, 185 SCRA 741

Milagros Cayas was the registered owner of a Mazda bus, insured with Perla Compania
de Seguros, Inc. (PCSI) under a policy issued on February 3, 1978. The bus encoun-
tered an accident. One victim sued while the others entered into a settlement. He won
P32, 000. Cayas filed a complaint for a sum of money and damages against
PCSI in the Court of First Instance of Cavite. The court eventually dismissed. She filed a
MFR. She filed a motion to declare PCSI in default for its failure to file an answer. The
court ordered ordering PCSI to pay Cayas P50, 000 as compensation. PCSI appealed
to the Court of Appeals, which affirmed the lower court's decision. Its motion for recon-
sideration having been denied, PCSI filed this petition.

Whether PCSI’s liability is limited only to the payment made by private respondent to
the victim and only up to the amount of P12, 000 or not

Yes, petition dismissed. The insurance policy involved explicitly limits petitioner's liability
to P12, 000 per person and to P50, 000 per accident. Stokes vs. Malayan - terms of the
contract constitute the measure of the insurer's liability and compliance is a condition
precedent to the insured's right of recovery from the insurer.The insurance policy placed
liability for all damages arising out of death or bodily injury sustained by one person
as a result of any one accident at P12, 000. Section 377 of Presidential Decree No. 612,
which provided that the liability of land transportation vehicle operators for bodily injuries
sustained by a passenger arising out of the use of their vehicles shall
not be less than P12, 000. Minimum liability is P12, 000 per passenger. Not contrary to
law, morals, good customs, public order or public policy, said stipulation must be upheld
as effective, valid and binding as between the parties. In like manner, we rule as valid
and binding upon private respondent the condition requiring her to secure the written
permission of petitioner before effecting any payment in settlement of any claim against
her. This was designed to safeguard the insurer's interest against collusion between the
insured and the claimants. It being specifically required that petitioner's written consent
be first secured before any payment in settlement of any claim could be made. Cayas is
precluded from seeking reimbursement of the payments made to the three
other passengers in view of her failure to comply with the condition contained in the in-
surance policy. Clearly, the fundamental principle that contracts are respected as the
law between the contracting parties finds application in the present case.
In Phil. American General Insurance Co., Inc vs. Mutuc, we ruled that contracts which
are the private laws of the contracting parties should be fulfilled according to the literal
sense of their stipulations, if their terms are clear and leave no room for doubt as to the
intention of the contracting parties, for contracts are obligatory, no matter what form they
may be, whenever the essential requisites for their validity are present.Although Mila-
gros Cayas was able to prove a total loss of only P44, 000, petitioner was made liable
for the amount of P50, 000, the maximum liability. This was wrong. An insurance indem-
nity, being merely an assistance or restitution insofar as can be fairly ascertained, can-
not be availed of by any accident victim or claimant as an instrument of enrichment.


PUZON, JR., Respondent.
Delivery in relation to sec 16 - Delivery when effectual, when

Bartolome V. Puzon, Jr., was a dealer of beer products of petitioner San Miguel Corpo-
(SMC). Puzon purchased SMC products on credit. To ensure payment and as a busi-
ness practice, SMC
required him to issue postdated checks equivalent to the value of the products pur-
chased on credit before
the same were released to him. Said checks were returned to Puzon when the transac-
tions covered by
these checks were paid or settled in full.
On December 2000, Puzon purchased products on credit and issued two BPI checks. to
cover the said
transaction. Check Nos. 27904 (for P309,500.00) and 27903 (forP11,510,827.00)
On January 23, 2001, Puzon, together with his accountant, visited the SMC Sales Office
to reconcile his
account with SMC. During that visit Puzon allegedly requested to see BPI Check No.
17657. However,
when he got hold of BPI Check No. 27903 which was attached to a bond paper together
with BPI Check
No. 17657 he allegedly immediately left the office with his accountant, bringing the
checks with them.
SMC sent a letter to Puzon demanding the return of the said checks. Puzon ignored the
demand hence
SMC filed a complaint against him for theft with the City Prosecutor’s Office of
Parañaque City.
OWNERSHIP OVER THE CHECKS (so as to make Puzon liable for theft, an element of
which consists
the taking of personal property belonging to another)


No, the delivery of the checks did not make SMC the owner thereof. The check was not
given as
payment, there being no intent to give effect to the instrument,then ownership of the
check was not
transferred to SMC.
Sec 12 of the Negotiable Instruments Law provides: Sec. 12. Antedated and postdated
– The instrument
is not invalid for the reason only that it is antedated or postdated, provided this is not
done for an illegal or
fraudulent purpose. The person to whom an instrument so dated is delivered acquires
the title
thereto as of the date of delivery
Note however that delivery as the term is used in the aforementioned provision means
that the
party delivering did so for the purpose of giving effect thereto. Otherwise, it cannot be
said that
there has been delivery of the negotiable instrument. Once there is delivery, the person
to whom
the instrument is delivered gets the title to the instrument completely and irrevocably.
Not really quoted in the case: SEC. 16. Every contract on a negotiable instrument is in-
complete and
revocable until delivery of the instrument for the purpose of giving effect thereto xxxxxxx
The evidence of SMC failed to establish that the check was given in payment of the
obligation of
Puzon. There was no provisional receipt or official receipt issued for the amount of the
check. What was
issued was a receipt for the document, a "POSTDATED CHECK SLIP." The petitioner's
demand letter
sent to respondent states "As per company policies on receivables, all issuances are to
be covered by
post-dated checks. However, you have deviated from this policy by forcibly taking away
the check you
have issued to us to cover the December issuance." Notably, the term "payment" was
not used
instead the terms "covered" and "cover" were used. The affidavit of petitioner’s witness
reveals that the term "cover" was not meant to be used interchangeably with "payment."
In said affidavit paragraph 8 clearly shows that partial payment is expected to be made
by the return of beer empties, and
not by the deposit or encashment of the check.
When taken in conjunction with the counter-affidavit of Puzon – where he states that "As
the [liquid beer]
contents are paid for, SMC return[s] to me the corresponding PDCs or request[s] me to
replace them with
whatever was the unpaid balance." – it becomes clear that both parties did not intend
for the check
to pay for the beer products. The evidence proves that the check was accepted, not as
but in accordance with the long-standing policy of SMC to require its dealers to issue
checks to cover its receivables. The check was only meant to cover the transaction and
in the
meantime Puzon was to pay for the transaction by some other means other than the
check. This
being so, title to the check did not transfer to SMC; it remained with Puzon. The second
element of
the felony of theft was therefore not established. Petitioner was not able to show that
Puzon took a check
that belonged to another

Chan Wan v. Tan Kim Chen So


Chan Wan collected its bearer instruments in the form

of eleven checks from Equitable Banking Corporation, but
were dishonoured due to insufficient funds. As such, she
filed this collection suit. In court, Tan Kim declared that the
checks had been issued to Pinong and Muy for some shoes,
however, was only ‘intended as mere receipts’. The court
declined to order payment as Tan Kim was not a holder in
due course, and the cross checks was deposited in the bank
not mentioned in the crossing. The bank mentioned in the
crossing is China Banking Corporation.
1. Whether Chan Wan is a holder in due course. NO.
2. Whether Chan Wan has the right to collect against the
eleven checks. YES, however, the case was dismissed in
the interest of justice due to incompleteness of details on
the circumstances of the said transaction.


The Negotiable Instruments Law regulating the

issuance of negotiable checks, the rights and the liabilities
arising therefrom, does not mention "crossed checks". Art.
541 of the Code of Commerce refers to such instruments. In
another case decided upon by this court, said Bills of
Exchange Act because the Negotiable Law, originating from
England and codified in the United States, permits resort
thereto in matters not covered by it and local legislation.
Eight of the checks here in question bear across their face
two parallel transverse lines between which these words are
written: non-negotiable — China Banking Corporation. These
checks have, therefore, been crossed specially to the China
Banking Corporation, and should have been presented for
payment by China Banking, and not by Chan Wan. Inasmuch
as Chan Wan did present them for payment himself — the
Manila court said — there was no proper presentment, and
the liability did not attach to the drawer.
1. On the back of the said checks, endorsements were
shown that it had been deposited and presented to China
bank for collection. All the crossed checks have the
“clearance” endorsements of China Bank. But as the Chan
Kim has no funds they were unpaid and returned, some of
them has a stamp of “account closed”. How they reach
Tan Kim’s hands, it did not indicate as the trial court
surmised – not a finding of fact – that he got them after
returned, as he did not explained such circumstance to
the Court. As such, the lower court held him not to be a
holder in due course under the circumstances, since he
knew, upon taking them up, that the checks had already
been dishonored.
2. Simply because he was not a holder in due course
Chan Wan could not recover on the checks. 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 holder who is not a holder in due
course is that the negotiable instrument is subject to
defense as if it were non- negotiable. Tan Kim
admitted on cross-examination either that the checks
had been issued as evidence of debts to Pinong and
Muy, and/or that they had been issued in payment of
shoes which Pinong had promised to make for her.
Seeming to imply that Pinong had to make the shoes,
she asserted Pinong had "promised to pay the checks
for me". However, the facts was not completely aired
out. Needless to say, if it were true that the checks
had been issued in payment for shoes that were never
made and delivered, Tan Kim would have a good
defense as against a holder who is not a holder in due
Considering the deficiency of important details on
which a fair adjudication of the parties' right depends,
we think the record should be and is hereby returned,
in the interest of justice, to the court below for
additional evidence, and such further proceedings as
are not inconsistent with this opinion. With the
understanding that, as defendants did not appeal, their counterclaim must be and is
hereby definitely dismissed.



COURT OF APPEALS. G.R. No. 93048. March 3, 1994.


Bataan Cigar & Cigarette Factory, Inc. (BCCFI), engaged with King Tim Pua
George, to deliver 2,000 bales of tobacco leaf. BCCFI issued post dated
crossed checks in exchange. Trusting King's words, BCCFI issued another
post-dated cross check for another purchase of tobacco leaves.
During these time, King was dealing with State Investment House Inc.. On
two separate occasions King sold the post-dated cross checks to SIHI, that
was drawn by BCCFI in favor of King.

Because King failed to deliver the leaves, BCFI issued a stop payment to all
the checks, including those sold to SIHI.

The RTC held that SIHI had a valid claim of being a holder in due course
and to collect the 
checks issued by BCCFI.

ISSUE: Whether SIHI is a holder in due course.


The SC held that SIHI is not a holder in due course thus granting the peti-
tion of BCCFI. The purpose of cross checks is to avoid those bouncing or
encashing of forged checks. Cross checks have the following effects: it can-
not be encashed but only deposited in a bank; it can only be negotiated on
its respective bank once; it serves as a warning to the hiolder that it has
been issued for a defienite purpose thus making SIHI not a holder in due

Still, SIHI can collect from the immediate indorser, in this case, George
Philippine National Bank
vs Benito Seeto
In 1948, Gan Yek Kiao drew a check in the amount of P5,000.00
payable to cash or to bearer. The check was delivered to Benito Seeto.
Seeto presented the check to Philippine National Bank for payment.
PNB gave Seeto the amount of the check. The check was later dishon-
ored. PNB asked Seeto to refund the amount given to him but Seeto re-
fused because he said the cause of the dishonor was PNB’s unreason-
able delay in encashing it. PNB invoked Section 84 of the Negotiable In-
struments Law which states:

SEC. 84.    Liability of person secondarily liable, when instrument dis-

honored. – Subject to the provisions of this Act, when the instrument is
dishonored by nonpayment, an immediate right of recourse to all parties
secondarily liable thereon accrues to the holder.

ISSUE: Whether or not PNB is correct.

HELD: No. Section 84 of the Negotiable Instruments Law must be

coupled with Section 186 of the same law which states:

SEC. 186.    Within what time a check must be presented. – 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.
In effect, Seeto was discharged from liability as a secondary party.
Section 186 expressly requires that a check must be presented for
payment within a reasonable time after issue. It has been ruled in a lot
of cases that unreasonable delay in the presentment of a negotiable
instrument discharges a drawer only to the extent of the loss caused
thereby but an indorser is wholly discharged thereby irrespective of
any question of loss or injury. Only when there is affirmative proof that
the indorser knew when he cashed the check that there would be no
funds in the bank to meet it can this rule be avoided.