State Investment House Inc. vs.

CA
GR No. 101163 January 11, 1993
Bellosillo, J.:

Facts:
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 never sold and the checks are
negotiated without her knowledge and consent. Upon presentment of for payment, the checks were dishonoured for
insufficiency of funds.

Issues:
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

Held:

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 security and not for value. A prima facie presumption exists that a holder of a negotiable instrument is a holder
in due course. Moulic failed to prove the contrary.
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 liable as she has no legal basis to excuse herself from liability on her check to
a holder in due course. Moreover, the fact that the petitioner failed to give notice of dishonor is of no moment. The need
for such notice is not absolute; there are exceptions provided by Sec 114 of NIL.

ROMEO C. GARCIA v. DIONISIO V. LLAMAS

G.R. No. 154127 December 8, 2003
Panganiban, J.

Doctrine:
– Novation cannot be presumed. It must be clearly and unequivocally shown that it indeed took place, either by the
express assent of the parties or by the complete incompatibility between the old and the new agreements.

– An accommodation party is liable for the instrument to a holder for value even if, at the time of its taking, the latter
knew the former to be only an accommodation party. 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 promissor and debtor from the
beginning.

Facts:
Petitioner and Eduardo De Jesus borrowed P400,000.00 from respondent. Both executed a promissory note wherein they
bound themselves jointly and severally to pay the loan on or before 23 January 1997 with a 5% interest per month. The

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loan has long been overdue and, despite repeated demands, both have failed and refused to pay it. Hence, a complaint was
filed against both.

Resisting the complaint, Garcia averred that he assumed no liability because he signed merely as an accommodation party
for De Jesus; and that he is relieved from any liability arising from the note inasmuch as the loan had been paid by De
Jesus by means of a check dated 17 April 1997; and that, in any event, the issuance of the check and respondent’s
acceptance thereof novated or superseded the note.

Respondent answered that there was no novation to speak of because the check bounced.

Issues:
1. Whether or not there was novation in the obligation
2. Whether or not the defense that petitioner was only an accommodation party had any basis

Held:
1. No. In order to change the person of the debtor, the old one must be expressly released from the obligation, and the
third person or new debtor must assume the former’s place in the relation (Reyes v. CA). Well-settled is the rule that
novation is never presumed (Security Bank v. Cuenca). Consequently, that which arises from a purported change in the
person of the debtor must be clear and express. It is thus incumbent on petitioner to show clearly and unequivocally that
novation has indeed taken place. Petitioner failed to do this. In the present case, petitioner has not shown that he was
expressly released from the obligation, that a third person was substituted in his place, or that the joint and solidary
obligation was cancelled and substituted by the solitary undertaking of De Jesus.

Novation is a mode of extinguishing an obligation by changing its objects or principal obligations, by substituting a new
debtor in place of the old one, or by subrogating a third person to the rights of the creditor (Idolor v. CA, February 7,
2001). Article 1293 of the Civil Code defines novation as follows:

“Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may be made even
without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new
debtor gives him rights mentioned in articles 1236 and 1237.”

In general, there are two modes of substituting the person of the debtor: (1) expromision and (2) delegacion. In
expromision, the initiative for the change does not come from — and may even be made without the knowledge of — the
debtor, since it consists of a third person’s assumption of the obligation. As such, it logically requires the consent of the
third person and the creditor. In delegacion, the debtor offers, and the creditor accepts, a third person who consents to the
substitution and assumes the obligation; thus, the consent of these three persons are necessary. Both modes of substitution
by the debtor require the consent of the creditor.

Novation may also be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a
new one that takes the place of the former. It is merely modificatory when the old obligation subsists to the extent that it
remains compatible with the amendatory agreement (Babst v. CA). Whether extinctive or modificatory, novation is made
either by changing the object or the principal conditions, referred to as objective or real novation; or by substituting the
person of the debtor or subrogating a third person to the rights of the creditor, an act known as subjective or personal
novation (Spouses Bautista v. Pilar Development Corporation, 371 Phil. 533, August 17, 1999). For novation to take
place, the following requisites must concur:

1) There must be a previous valid obligation.

2) The parties concerned must agree to a new contract.
3) The old contract must be extinguished.
4) There must be a valid new contract (Security Bank v Cuenca, October 3, 2000)

Novation may also be express or implied. It is express when the new obligation declares in unequivocal terms that the old
obligation is extinguished. It is implied when the new obligation is incompatible with the old one on every point (Article
1292, NCC). The test of incompatibility is whether the two obligations can stand together, each one with its own
independent existence (Molino v. Security Diners International Corporation, August 16, 2001).

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2. No. The note was made payable to a specific person rather than to bearer or to order — a requisite for negotiability
under the Negotiable Instruments Law (NIL). Hence, petitioner cannot avail himself of the NIL’s provisions on the
liabilities and defenses of an accommodation party.

Even granting arguendo that the NIL was applicable, still, petitioner would be liable for the promissory note. Under
Article 29 of the NIL, an accommodation party is liable for the instrument to a holder for value even if, at the time of its
taking, the latter knew the former to be only an accommodation party. 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 promissor and debtor
from the beginning.

Travel-On, Inc. vs Court of Appeals

G.R. No. L-56169 June 26, 1992
-accommodation party

FACTS:
Petitioner Travel-On Inc. is a travel agency from which Arturo Miranda procured tickets on behalf of airline passengers
and derived commissions therefrom. Miranda was sued by petitioner to collect on the six postdated checks he issued
which were all dishonored by the drawee banks. Miranda, however, claimed that he had already fully paid and even
overpaid his obligations and that refunds were in fact due to him. He argued that he had issued the postdated checks not
for the purpose of encashment to pay his indebtedness but for purposes of accommodation, as he had in the past accorded
similar favors to petitioner. Petitioner however urges that the postdated checks are per se evidence of liability on the part
of private respondent and further argues that even assuming that the checks were for accommodation, private respondent
is still liable thereunder considering that petitioner is a holder for value.

ISSUE:
Whether Miranda is liable on the postdated checks he issued even assuming that said checks were issued for
accommodation only.

RULING:
There was no accommodation transaction in the case at bar. In accommodation transactions recognized by the Negotiable
Instruments Law, an accommodating party lends his credit to the accommodated party, by issuing or indorsing a check
which is held by a payee or indorsee as a holder in due course, who gave full value therefor to the accommodated party.
The latter, in other words, receives or realizes full value which the accommodated party then must repay to the
accommodating party. But the accommodating party is bound on the check to the holder in due course who is necessarily
a third party and is not the accommodated party. In the case at bar, Travel-On was payee of all six (6) checks, it presented
these checks for payment at the drawee bank but the checks bounced. Travel-On obviously was not an accommodated
party; it realized no value on the checks which bounced. Miranda must be held liable on the checks involved as petitioner
is entitled to the benefit of the statutory presumption that it was a holder in due course and that the checks were supported
by valuable consideration.

**In accommodation transactions recognized by the Negotiable Instruments Law, an accommodating party lends his
credit to the accommodated party, by issuing or indorsing a check which is held by a payee or indorsee as a holder in due
course, who gave full value therefor to the accommodated party. In the case at bar, Travel-On was the payee of all six (6)
checks, it presented these checks for payment at the drawee bank but the checks bounced. Travel-On obviously was not an
accommodated party; it realized no value on the checks which bounced.

Case Digest: Lozano v. Martinez

G.R. No. L-63419, December 18, 1986

Petitioners, charged with Batas Pambansa Bilang 22 (BP 22 for short), popularly known as the Bouncing Check Law,
assail the law's constitutionality.

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BP 22 punishes a person "who makes or draws and issues any check on account or for value, knowing at the time of issue
that he does not have sufficient funds in or credit with the drawee bank for the payment of said check in full upon
presentment, which check is subsequently dishonored by the drawee bank for insufficiency of funds or credit or would
have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop
payment." The penalty prescribed for the offense is imprisonment of not less than 30 days nor more than one year or a fine
or not less than the amount of the check nor more than double said amount, but in no case to exceed P200,000.00, or both
such fine and imprisonment at the discretion of the court.

The statute likewise imposes the same penalty on "any person who, having sufficient funds in or credit with the drawee
bank when he makes or draws and issues a check, shall fail to keep sufficient funds or to maintain a credit to cover the full
amount of the check if presented within a period of ninety (90) days from the date appearing thereon, for which reason it
is dishonored by the drawee bank.

An essential element of the offense is "knowledge" on the part of the maker or drawer of the check of the insufficiency of
his funds in or credit with the bank to cover the check upon its presentment. Since this involves a state of mind difficult to
establish, the statute itself creates a prima facie presumption of such knowledge where payment of the check "is refused
by the drawee because of insufficient funds in or credit with such bank when presented within ninety (90) days from the
date of the check. To mitigate the harshness of the law in its application, the statute provides that such presumption shall
not arise if within five (5) banking days from receipt of the notice of dishonor, the maker or drawer makes arrangements
for payment of the check by the bank or pays the holder the amount of the check.

Another provision of the statute, also in the nature of a rule of evidence, provides that the introduction in evidence of the
unpaid and dishonored check with the drawee bank's refusal to pay "stamped or written thereon or attached thereto, giving
the reason therefor, "shall constitute prima facie proof of "the making or issuance of said check, and the due presentment
to the drawee for payment and the dishonor thereof ... for the reason written, stamped or attached by the drawee on such
dishonored check."

The presumptions being merely prima facie, it is open to the accused of course to present proof to the contrary to
overcome the said presumptions.

ISSUE: Whether or not (W/N) BP 22 violates the constitutional provision forbidding imprisonment for debt.

HELD: No.
The gravamen of the offense punished by BP 22 is the act of making and issuing a worthless check or a check that is
dishonored upon its presentation for payment. It is not the non-payment of an obligation which the law punishes. The law
is not intended or designed to coerce a debtor to pay his debt. The thrust of the law is to prohibit, under pain of penal
sanctions, the making of worthless checks and putting them in circulation. Because of its deleterious effects on the public
interest, the practice is proscribed by the law. The law punishes the act not as an offense against property, but an offense
against public order.

The effects of the issuance of a worthless check transcends the private interests of the parties directly involved in the
transaction and touches the interests of the community at large. The mischief it creates is not only a wrong to the payee or
holder, but also an injury to the public. The harmful practice of putting valueless commercial papers in circulation,
multiplied a thousand fold, can very wen pollute the channels of trade and commerce, injure the banking system and
eventually hurt the welfare of society and the public interest.

The enactment of BP 22 is a declaration by the legislature that, as a matter of public policy, the making and issuance of a
worthless check is deemed public nuisance to be abated by the imposition of penal sanctions.

ISSUE: W/N BP 22 impairs the freedom to contract.

HELD: No. The freedom of contract which is constitutionally protected is freedom to enter into "lawful" contracts.
Contracts which contravene public policy are not lawful. Besides, we must bear in mind that checks can not be
categorized as mere contracts. It is a commercial instrument which, in this modem day and age, has become a convenient
substitute for money; it forms part of the banking system and therefore not entirely free from the regulatory power of the
state.

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ISSUE: W/N it violates the equal protection clause.
HELD: No. Petitioners contend that the payee is just as responsible for the crime as the drawer of the check, since without
the indispensable participation of the payee by his acceptance of the check there would be no crime. This argument is
tantamount to saying that, to give equal protection, the law should punish both the swindler and the swindled. Moreover,
the clause does not preclude classification of individuals, who may be accorded different treatment under the law as long
as the classification is no unreasonable or arbitrary.

Cely Yang vs. Court of Appeals, et, al. - GR No. 138074 Case Digest

Facts:
Petitioner Cely Yang agreed with private respondent Prem Chandiramani to procure from Equitable Banking Corp. and
Far east Bank and Trust Company (FEBTC) two cashier’s checks in the amount of P2.087 million each, payable to
Fernando david and FEBTC dollar draft in the amount of US$200,000.00 payable to PCIB FCDU account No. 4195-
01165-2. Yang gave the checks and the draft to Danilo Ranigo to be delivered to Chandiramani. Ranigo was to meet
Chandiramani to turn over the checks and the dollar draft, and the latter would in turn deliver to the former Phil.

Commercial International Bank (PCIB) manager’s check in the sum of P4.2 million and the dollar draft in the same
amount to be issued by Hang Seng Bank Ltd. of HongKong. But Chandiramani did not appear at the rendezvous and
Ranigo allegedly lost the two cashier’s checks and the dollar draft.

The loss was then reported to the police. It transpired, however that the checks and the dollar draft were never lost, for
Chandiramani was able to get hold of them without delivering the exchange consideration consisting of PCIB Manager’s
checks. Two hours after Chandiramani was able to meet Ranigo, the former delivered to David the two cashier’s checks of
Yang and, in exchange, got US $360,000 from David, who in turn deposited them. Chandiramani also deposited the dollar
draft in
PCIG FCDU No. 4194-0165-2.

Meanwhile, Yang requested FEBTC and Equitable to stop payment on the instruments she believed to be lost. Both Banks
complied with her request, but upon the representation of PCIB, FEBTC subsequently lifted the stop payment order on
FEBTC Dollar Draft No. 4771, thus, enabling the holder PCIB FCDU Account No. 4194-0165-2 to received the amount
of US $ 200, 000.

Issue:
(1) Whether or not David may be considered a holder in due course.
(2) Whether or not the presumption that every party to an instrument acquired the same for a consideration is applicable in
this case.

Held:
(1) Every holder of a negotiable instrument is deemed prima facie a holder in due course. However, this presumption
arises only in favor of a person who is a holder as defined in Section 191 of the Negotiable Instruments Law, meaning a
“payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof.”

In the present case, it is not disputed that David was the payee of the checks in question. The weight of authority sustains
the view that a payee may be a holder in due course. Hence, the presumption that he is a prima facie holder in due course
applies in his favor.

(2) The presumption is that every party to an instrument acquired the same for a consideration. However, said
presumption may be rebutted. Hence, what is vital to the resolution of this issue is whether David took possession of the
checks under the conditions provided for in Section 52 of the Negotiable Instruments Law. All the requisites provided for
in Section 52 must concur in David’s case, otherwise he cannot be deemed a holder in due course.

Section 24 of the Negotiable Instruments Law creates a presumption that every party to an instrument acquired the same
for a consideration or for value. Thus, the law itself creates a presumption in David’s favor that he gave valuable
consideration for the checks in question. In alleging otherwise, the petitioner has the onus to prove that David got hold of

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the checks absent said consideration. However, petitioner failed to discharge her burden of proof. The petitioner’s
averment that David did not give valuable consideration when he took possession of the checks is unsupported, devoid of
any concrete proof to sustain it. Note that both the trial court and the appellate court found that David did not receive the
checks gratis, but instead gave Chandiramani US$ 360,000 as consideration for the said instruments.

CITIBANK vs. SABENIANO

G.R.No. 156132, October 16, 2006

FACTS: Petitioner Citibank is a banking corporation duly authorized under the laws of the USA to do commercial
banking activities n the Philippines. Sabeniano was a client of both Petitioners Citibank and FNCB Finance. Respondent
filed a complaint against petitioners claiming to have substantial deposits, the proceeds of which were supposedly
deposited automatically and directly to respondent’s account with the petitioner Citibank and that allegedly petitioner
refused to despite repeated demands. Petitioner alleged that respondent obtained several loans from the former and in
default, Citibank exercised its right to set-off respondent’s outstanding loans with her deposits and money. RTC declared
the act illegal, null and void and ordered the petitioner to refund the amount plus interest, ordering Sabeniano, on the other
hand to pay Citibank her indebtedness. CA affirmed the decision entirely in favor of the respondent.

ISSUE: Whether petitioner may exercise its right to set-off respondent’s loans with her deposits and money in Citibank-
Geneva

RULING: Petition is partly granted with modification.

1. Citibank is ordered to return to respondent the principal amount of P318,897.34 and P203,150.00 plus 14.5% per
annum
2. The remittance of US $149,632.99 from respondent’s Citibank-Geneva account is declared illegal, null and void, thus
Citibank is ordered to refund said amount in Philippine currency or its equivalent using exchange rate at the time of
payment.
3. Citibank to pay respondent moral damages of P300,000, exemplary damages for P250,000, attorney’s fees of P200,000.
4. Respondent to pay petitioner the balance of her outstanding loans of P1,069,847.40 inclusive off interest.

Firestone Tire & rubber Co. vs. Court of Appeals

GR No. 113236 March 5, 2001
Quisumbing, J.:

Facts:
Forjas-Arca Enterprise Company is maintaining a special savings account with Luzon Development Bank, the latter
authorized and allowed withdrawals of funds though the medium of special withdrawal slips. These are supplied by Fojas-
Arca. Fojas-Arca purchased on credit with FirestoneTire & Rubber Company, in payment Fojas-Arca delivered a 6
special withdrawal slips. In turn, these were deposited by the Firsestone to its bank account in Citibank. With this, relying
on such confidence and belief Firestone extended to Fojas-Arca other purchase on credit of its products but several
withdrawal slips were dishonored and not paid. As a consequence, Citibank debited the plaintiff’s account representing
the aggregate amount of the two dishonored special withdrawal slips. Fojas-Arca averred that the pecuniary losses it
suffered are a caused by and directly attributes to defendant’s gross negligence as a result Fojas-Arca filed a complaint.

Issue:
Whether or not the acceptance and payment of the special withdrawal slips without the presentation of the depositor’s
passbook thereby giving the impression that it is a negotiable instrument like a check.

Held:
No. Withdrawal slips in question were non negotiable instrument. Hence, the rules governing the giving immediate notice
of dishonor of negotiable instrument do not apply. The essence of negotiability which characterizes a negotiable paper as
a credit instrument lies in its freedom to circulate freely as a substitute for money. The withdrawal slips in question lacked
this character.

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Dev't Bank of Rizal vs Sima Wei
DEVELOPMENT BANK OF RIZAL vs. SIMA WEI, ET AL.
G.R. No. 85419 March 9, 1993
--complete undelivered

FACTS:
Respondent Sima Wei executed and delivered to petitioner Bank a promissory note engaging to pay the petitioner Bank or
order the amount of P1,820,000.00. Sima Wei subsequently issued two crossed checks payable to petitioner Bank drawn
against China Banking Corporation in full settlement of the drawer's account evidenced by the promissory note. These
two checks however were not delivered to the petitioner-payee or to any of its authorized representatives but instead came
into the possession of respondent Lee Kian Huat, who deposited the checks without the petitioner-payee's indorsement to
the account of respondent Plastic Corporation with Producers Bank. Inspite of the fact that the checks were crossed and
payable to petitioner Bank and bore no indorsement of the latter, the Branch Manager of Producers Bank authorized the
acceptance of the checks for deposit and credited them to the account of said Plastic Corporation.

ISSUE:
Whether petitioner Bank has a cause of action against Sima Wei for the undelivered checks.

RULING:
No. A negotiable instrument must be delivered to the payee in order to evidence its existence as a binding contract.
Section 16 of the NIL provides that every contract on a negotiable instrument is incomplete and revocable until delivery
of the instrument for the purpose of giving effect thereto. Thus, the payee of a negotiable instrument acquires no interest
with respect thereto until its delivery to him. Without the initial delivery of the instrument from the drawer to the payee,
there can be no liability on the instrument. Petitioner however has a right of action against Sima Wei for the balance due
on the promissory note.

LUIS WONG vs. CA

Posted on November 24, 2012
G.R. No. 117857

February 2, 2001

FACTS:

Wong was an agent of Limtong Press Inc. (LPI), a manufacturer of calendars. However, petitioner had a history of
unremitted collections. Hence, petitioner’s customers were required to issue postdated checks before LPI would accept
their purchase orders.

In early December 1985, Wong issued 6 postdated checks totaling P18,025, all dated December 30, 1985 and drawn
payable to the order of LPI. The checks were drawn against Allied Banking Corporation.

The checks were initially intended to guarantee the calendar orders of customers who failed to issue post-dated checks.
However, following company policy, LPI refused to accept the checks as guarantees. Instead, the parties agreed to apply
the checks to the payment of petitioner’s unremitted collections for 1984 amounting to P18,077.07. LPI waived the
P52.07 difference.

Before the maturity of the checks, petitioner prevailed upon LPI not to deposit the checks and promised to replace them
within 30 days. However, petitioner reneged on his promise. Hence, on June 5, 1986, LPI deposited the checks with Rizal
Commercial Banking Corporation (RCBC). The checks were returned for the reason “account closed.”

On June 20, 1986, complainant notified the petitioner of the dishonor. However, petitioner failed to make arrangements
for payment within 5 banking days.

On November 6, 1987, petitioner was charged with 3 counts of violation of B.P. Blg. 22 under 3 separate Informations for
the 3 checks amounting to P5,500.00, P3,375.00, and P6,410.00.

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Petitioner was similarly charged in Criminal Case No. 12057 for ABC Check No. 660143463 in the amount of P3,375.00,
and in Criminal Case No. 12058 for ABC Check No. 660143464 for P6,410.00. Both cases were raffled to the same trial
court.

The version of the defense is that petitioner issued the 6 checks to guarantee the 1985 calendar bookings of his customers,
not as payment for any obligation. In fact, the face value of the 6 postdated checks tallied with the total amount of the
calendar orders of the 6 customers of the accused. Although these customers had already paid their respective orders,
petitioner claimed LPI did not return the said checks to him.

On August 30, 1990, the trial court found petitioner guilty beyond reasonable doubt with 3 counts of Violations of Sec.1
of B.P. Blg. 22.

Petitioner appealed his conviction to the CA. However, it affirmed the trial court’s decision in toto on October 28, 1994.

ISSUES:
1. Whether the checks were issued merely as guarantee or for payment of petitioner’s unremitted collections.
2. WON the prosecution was able to establish beyond reasonable doubt all the elements of the offense penalized under
B.P. Blg. 22.
3. WON petitioner’s penalty may be modified to only payment of fine.

HELD:
1.This is a factual issue involving as it does the credibility of witnesses. Said factual issue has been settled by the trial
court and CA. Its findings of fact are generally conclusive, and there is no cogent reason to depart from such. In cases
elevated from the CA, the SC’s review is confined to alleged errors of law. Absent any showing that the findings by the
respondent court are entirely devoid of any substantiation on record, the same must stand. The lack of accounting between
the parties is not the issue in this case. As repeatedly held, the SC is not a trier of facts.

2. There are 2 ways of violating B.P. Blg. 22:

(a) 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
(b) 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 90 days.

The elements of B.P. Blg. 22 under the 1st situation, pertinent to the present case, are:
(a) The making, drawing & issuance of any check to apply for account or for value;
(b) 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
(c) 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.

As to the 1st element, the RTC & CA have both ruled that the checks were in payment for unremitted collections, and not
as guarantee. What B.P. Blg. 22 punishes is the issuance of a bouncing check, and not the purpose for which it was issued
nor the terms and conditions relating to its issuance.

As to the 2nd element, B.P. Blg. 22 creates a presumption juris tantum that the 2nd element prima facie exists when the
1st & 3rd elements of the offense are present. Thus, the maker’s knowledge is presumed from the dishonor of the check
for insufficiency of funds.

An essential element of the offense is “knowledge” on the part of the maker/drawer of the check of the insufficiency of his
funds in, or credit with, the bank to cover the check upon its presentment. Since this involves a state of mind difficult to
establish, the statute itself creates a prima facie presumption of such knowledge where payment of the check “is refused
by the drawee because of insufficient funds in, or credit with, such bank when presented within 90 days from the date of

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the check.” The statute provides that such presumption shall not arise if within 5 banking days from receipt of the notice
of dishonor, the maker/drawer makes arrangements for payment of the check by the bank or pays the holder the amount of
the check.

Nowhere in the 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
& failure of the maker to make arrangements for payment in full within 5 banking days after notice thereof. That the
check must be deposited within 90 days is simply one of the conditions for the prima facie presumption of knowledge of
lack of funds to arise. It is not an element of the offense. Neither does it discharge petitioner from his duty to maintain
sufficient funds in the account within a reasonable time thereof. Under Sec. 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 6 months (180 days).

Private respondent herein deposited the checks 157 days after the date of the check. Hence said checks cannot be
considered stale. Only the presumption of knowledge of insufficiency of funds was lost, but such knowledge could still be
proven by direct or circumstantial evidence. As found by the RTC, private respondent did not deposit the checks because
of the reassurance of petitioner 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, petitioner was duly notified of such fact but failed to make
arrangements for full payment within 5 banking days thereof. There is, on record, sufficient evidence that petitioner had
knowledge of the insufficiency of his funds in or credit with the drawee bank at the time of issuance of the checks. And
despite petitioner’s insistent plea of innocence, the respondent court is not in error for affirming his conviction by the trial
court for violations of the Bouncing Checks Law.

3. Pursuant to the policy guidelines in Administrative Circular No. 12-2000, which took effect on November 21, 2000, the
penalty imposed on petitioner should now be modified to a fine of not less than but not more than double the amount of
the checks that were dishonored. The penalty imposed on him is modified so that the sentence of imprisonment is deleted.

THE INTERNATIONAL CORPORATE BANK V. SPOUSES GUECO

351 SCRA 516

FACTS:
Gueco spouses obtained a loan from ICB (now Union Bank) to purchase a car. In consideration thereof, the debtors
executed PNs, and a chattel mortgage was made over the car. As the usual story goes, the spouses defaulted in
payment of their obligations and despite the lowering of the amount to be paid, they still failed to pay.
Thereafter, they tendered a manager’s check in favor of the bank. Nonetheless, the car was still detained for the
spouses refused to sign the joint motion to dismiss. The bank averred that the joint motion to dismiss is part of
standard office procedure to preclude the filing of other claims. Because of this, the spouses filed an action for
damages against the bank. And by the time the case was instituted, the check had become stale in the hands of the bank.

HELD:
The main issue though unrelated to Negotiable Instruments Law in this case was whether or not the signing of the joint
motion to dismiss a part of the compromise agreement between the spouses and the bank. The answer is no, it is not a
part of the compromise agreement entered by the parties. And thus, the signing is dispensible in releasing the car to the
spouses. And on the ancillary issue of the case, which is the relevant issue for the subject, whether or not the spouses
should replace the check they paid to the bank after it became stale, the answer is yes. It appeared that the check
has not been encashed. The delivery of the manager’s check did not constitute payment. The original obligation to pay
still exists. Indeed, the circumstances that caused the non-presentment of the check should be considered to
determine who should bear the loss. In this case, ICB held on the check and refused to encash the same because of the
controversy surrounding the signing of the joint motion to dismiss. There is no bad faith or negligence on the part of ICB.

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. A check should be presented for payment within a reasonable time
after its issue. Here, what is involved is a manager’s check, which is essentially a bank’s own check and may be

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treated as a PN with the bank as a maker. 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—but here there is no loss sustained. Still, such failure to present on time does not wipe out liability.

PHILIPPINE NATIONAL BANK VS. COURT OF APPEALS

GR. NO. 107508 April 25, 1996
1st Division Kapunan

FACTS:
Ministry of Education Culture issued a check payable to Abante Marketing and drawn against Philippine National Bank
(PNB). Abante Marketing, deposited the questioned check in its savings account with Capitol City Development Bank
(CAPITOL). 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, PNB returned the check to PBCom and debited PBCom's
account for the amount covered 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. 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 heeded, it filed a civil suit against PBCom
which in turn, filed a third-party complaint against PNB for reimbursement/indemnity with respect to the claims of
Capitol. PNB, on its part, filed a fourth-party complaint against Abante Marketing.
The Trial Court rendered its decision, ordering PBCom to re-credit or reimburse; PNB to reimburse and indemnify
PBCom for whatever amount PBCom pays to Capitol; Abante Marketing to reimburse and indemnify PNB for whatever
amount PNB pays to PBCom. The court dismissed the counterclaims of PBCom and PNB. The appellate court modified
the appealed judgment by ordering PNB to honor the check. After the check shall have been honored by PNB, the court
ordered PBCom to re-credit Capitol's account with it the amount. PNB filed the petition for review on certiorari averring
that under Section 125 of the NIL, any change that alters the effect of the instrument is a material alteration.
ISSUE:
WON an alteration of the serial number of a check is a material alteration under the NIL.
HELD:
NO, alteration of a serial number of a check is not a material alteration contemplated under Sec. 125 of the NIL.
RATIO:
An alteration is said to be material if it alters the effect of the instrument. It means an unauthorized change in an
instrument that purports to modify in any respect the obligation of a party or an unauthorized addition of words or
numbers or other change to an incomplete instrument relating to the obligation of a party. In other words, a material
alteration is one which changes the items which are required to be stated under Section 1 of the Negotiable Instruments
Law.
In the present case what was altered is the serial number of the check in question, an item which is not an essential
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 insufficiently identified, rendering the referral to the serial number redundant and
inconsequential.

TRADERS ROYAL BANK V. RPN

390 SCRA 608

FACTS:
RPN, IBC and BBC were all assessed for tax by the BIR. To pay the assessed taxes, they bought manager’s
checks from petitioner bank. None of these checks were paid to the BIR. They were found to have been
deposited in the account of a third person in Security Bank. As the taxes remained unpaid, the BIR issued a levy, distraint
and garnishment against the three networks. An action was filed wherein it was decided that the networks should

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be reimbursed for the amounts of the checks by petitioner bank and the latter in turn, must be reimbursed by Security
Bank. In the appellate court, it was held that Traders Bank should be the only bank liable.

HELD:
Petitioner ought to have known that where a check is drawn payable to the order of one person and is presented for
payment by another and purports upon its face to have been duly indorsed by the payee of the check, it is the primary
duty of the petitioner to know that the check was duly indorsed by the original payee, and it pays the amount of the
check to the third person, who has forged the signature of the payee, the loss falls upon the petitioner who cashed the
check. Its only remedy is against the person
to whom it paid the money.

It should be further noted that one of the checks was a crossed check. The crossing of the check should have put
petitioner on guard; it was duty-bound to ascertain the indorser’s title to the check or the nature of his
possession.

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