Negotiable Instruments Law Case Digests SBCA-SOL 

’14-‘15
Agapay.Albarillo.Ambito.Arevalo.Baguilat.Bunag.Cabrera.Claveria.Escalona.Fernando.Ferrer.Flores.Hernando.Hipolito.Lara.Melgar .Mella.Nasam.Nunez.Retardo.Rodriguez.Soriano.Tamayao.Ubaldo
Negotiability Dela Cruz lost all the CTDs in March 1982 and informed the
Philippine Education v. Soriano manager of Security Bank. The manager arranged for the
GR L-22405, 30 June 1971 || Negotiability replacement of the lost CTDs upon compliance of Dela Cruz to
FACTS: their bank procedure which entails execution of a notarized
Enrique Montinola sought to purchase from the Manila Post Office 10 Affidavit of Loss.
money orders (P200 each), offering to pay for them with a private check. Upon replacement of the allegedly lost CTDs, Dela Cruz obtained a
Montinola was able to leave the building with his check and the 10 money loan of P875,000 from same bank. He then executed a notarized
orders without the knowledge of the teller. Upon discovery, message was Deed of Assignment of Time Deposit, surrendering to the bank full
sent to all postmasters and banks involving the unpaid money orders. One control of the time deposit account, allowing the latter to apply the
of the money orders was received by the Philippine Education Co. as part said time deposits to the payment of whatever amounts may be
of its sales receipt. It was deposited by the company with the Bank of due on the loan upon maturity.
America, which cleared it with the Bureau of Post. The Postmaster, On the other hand, in November 1982, Mr. Aranas, the credit
through the Chief of the Money Order Division of the Manila Post Office manager of Caltex, presented to Security Bank for verification the
informed the bank of the irregular issuance of the money order. The bank CTDs declared lost by Dela Cruz. Aranas claimed that the same
debited the account of the company. The company moved for were  delivered  to  Caltex  “as  security  for  purchases  made”. 
reconsideration. Accordingly, Security Bank rejected Caltex’s  demand  for  the 
payment of the value of the CTDs.
ISSUE: In April 1983, the loan of Dela Cruz with the Security Bank
Whether postal money orders are negotiable instruments matured and the latter applied the time deposits in question as
payment of the matured loan.
HELD: Caltex then filed a complaint demanding payment of the value of
Philippine postal statutes are patterned from those of the United States, the CTDs plus accrued interest and compounded interest.
and the weight of authority in said country is that Postal money orders are The Regional Trial Court dismissed the case. The Court of Appeals
not negotiable instruments inasmuch as the establishment of a postal also dismissed the case.
money order is an exercise of governmental power for the public’s benefit. 
Furthermore, some of the restrictions imposed upon money order by ISSUE(S):
postal laws and regulations are inconsistent with the character of
negotiable instruments. For instance, postal money orders may be 1. Whether or not the subject Certificates of Time Deposit are
withheld under a variety of circumstances, and which are restricted to not negotiable instruments
more than one indorsement. 2. Whether or not Caltex can recover the value of the CTDs

Caltex Philippines vs. Court of Appeals HELD:

212 SCRA 448 G.R. No. 97753 || Negotiability 1. YES. A sample text of the CTD states:  “This is to Certify that B E A
R E R has deposited in this Bank the sum of PESOS: FOUR
FACTS: THOUSAND ONLY, SECURITY BANK SUCAT OFFICE P4,000 & 00
280 Certificates of Time Deposit (CTDs) were issued by the CTS Pesos, Philippine Currency, repayable to said depositor 731
Security Bank and Trust Company in favor of Angel Dela Cruz, who days. After date, upon presentation and surrender of this
deposited a collective amount of Php 1,120,000. Such CTDs were certificate, with interest at the rate of 16% per cent per annum.” 
then delivered by Dela Cruz to Caltex Phils. for the purchase of fuel
products. Section 1 of the NIL requires among others, that for an instrument
to be negotiable, it must be payable to the order or to bearer (par.

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Negotiable Instruments Law Case Digests SBCA-SOL ’14-‘15
Agapay.Albarillo.Ambito.Arevalo.Baguilat.Bunag.Cabrera.Claveria.Escalona.Fernando.Ferrer.Flores.Hernando.Hipolito.Lara.Melgar .Mella.Nasam.Nunez.Retardo.Rodriguez.Soriano.Tamayao.Ubaldo
D). The accepted rule is that the negotiability or non-negotiability Under the NIL, an instrument is negotiated when it is transferred
of an instrument is determined from the writing, that is, from the from one person to another in such a manner as to constitute the
face of the instrument itself. The documents provide that the transferee the holder thereof, and a holder may be the payee or
amounts deposited shall be repayable to the depositor. The court indorsee of a bill or note, who is in possession of it, or the bearer
ruled  that  the  “depositor”  indicated  is  actually  the  “bearer”.  The  thereof. In the present case, however, there was no negotiation in
documents do not say that the depositor is Angel Dela Cruz and the sense of a transfer of a legal title, in which case delivery would
that the amounts deposited are payable only to him. If it was really have sufficed. Here, the delivery of the CTDs was only as security
the intention of the bank to pay the amount to Dela Cruz only, then for the purchases of Dela Cruz. Therefore, Caltex could only have
it could have so expressed in clear and categorical terms instead of been a holder for value by reason of lien. Accordingly, a negotiation
having  the  word  “bearer”  stamped  on  the  space  provided  for  the  for such purpose cannot be effected by mere delivery of the
name of the depositor in each CTD. instrument because the terms thereof and the subsequent
disposition of such security, in the event of non-payment of the
The Security Bank, through its manager, testified that the principal obligation, must be contractually provided for.
depositor referred to is Angel Dela Cruz. However, the court ruled
that the manager merely declared that Dela Cruz is the depositor, Metropolitan Bank vs Court of Appeals
“insofar as the bank is concerned,” but obviously other parties not  194 SCRA 169 || Negotiability
privy to the transaction between them would not know that the FACTS:
depositor is not the bearer stated in the CTDs. Hence, the situation Eduardo Gomez opened an account with Golden Savings and deposited 38
would require any party dealing with the CTDs to go behind the treasury warrants over a period of two months. These warrants were all
plain import of what is written thereon. This need for resort to drawn by the Philippine Fish Marketing Authority and purportedly signed
extrinsic evidence is what is sought to be avoided by the NIL and by its General Manager and counter-signed by its Auditor. Six of these
calls for application of the elementary rule that the interpretation were directly payable to Gomez while the others appeared to have been
of obscure words or stipulations in a contract shall not favor the indorsed by their respective payees, followed by Gomez as second
party who caused the obscurity. indorser.

2. NO. Unfortunately for Caltex, although the CTDs are bearer All these warrants were subsequently indorsed by Gloria Castillo as
instruments, a valid negotiation thereof for the purpose and Cashier of Golden Savings and deposited to its Savings Account in
agreement between it and Dela Cruz, requires both delivery and Metrobank, Calapan branch. The warrants were then sent to the main
indorsement. office of Metrobank and then to the Bureau of Treasury for special
clearing.
As  stated  by  Mr.  Aranas  in  a  letter  addressed  to  the  bank,  “these 
certificates of deposit were negotiated to us by Mr. Dela Cruz to More than two weeks after the deposits, Gloria Castillo went to Metrobank
guarantee  his  purchases  of  fuel  products.”  This admission is several times to ask whether the warrants had been cleared. Later,
conclusive upon Caltex. Under the doctrine of Estoppel, an however, "exasperated" over Gloria's repeated inquiries and also as an
admission is rendered conclusive upon the person making it and accommodation for a "valued client," the Metrobank allowed Golden
cannot be denied against the person relying thereon. If it were Savings to withdraw from the proceeds of the warrants.
true that the CTDs were delivered as payment and not as security,
Aranas  could  have  easily  said  so,  instead  of  using  the  words  “to  Three withdrawal were made by Golden Savings with a total amount of
guarantee.”  P968,000.00 and in turn, Golden Savings allowed Gomez to make
withdrawals from his own account, eventually collecting the total amount
of P1,167,500.00 from the proceeds of the apparently cleared warrants.

2 |C a b u c h a n . N e g o C a s e D i g e s t s
Negotiable Instruments Law Case Digests SBCA-SOL ’14-‘15
Agapay.Albarillo.Ambito.Arevalo.Baguilat.Bunag.Cabrera.Claveria.Escalona.Fernando.Ferrer.Flores.Hernando.Hipolito.Lara.Melgar .Mella.Nasam.Nunez.Retardo.Rodriguez.Soriano.Tamayao.Ubaldo
After the withdrawal of Gomez, Metrobank informed Golden Savings that Sesbreno vs. CA
32 of the warrants had been dishonored by the Bureau of Treasury GR 89252, 24 May 1993
because of the forgery of the signatures of the drawers and demanded the FACTS:
refund of the amount it had previously withdrawn but the demand was On 9 February 1981, Raul Sesbreno made a money market
rejected. placement in the amount of P300,000 with the Philippine Underwriters
Finance Corporation (PhilFinance), with a term of 32 days. PhilFinance
The Regional Trial Court rendered judgment in favor of Golden Savings issued to Sesbreno the Certificate of Confirmation of Sale of a Delta Motor
and on appeal, the decision of the lower court was affirmed. Corporation Promissory Note (2731), the Certificate of Securities Delivery
Receipt indicating the sale of the note with notation that said security was
ISSUES: in the custody of Pilipinas Bank, and postdated checks drawn against the
(1) Whether or not the instruments are negotiable Insular Bank of Asia and America for P304,533.33 payable on 13 March
(2) Whether or not Golden Savings should be held liable for its warranty 1981. The checks were dishonored for having been drawn against
as general indorser insufficient funds.
Pilipinas Bank never released the note, nor any instrument related
HELD: thereto, to Sesbreno; but Sesbreno learned that the security was issued 10
(1)  No.  Clearly  stamped  on  their  face  is  the  word,  “non-negotiable”  and April 1980, maturing on 6 April 1981, has a face value of P2,300,833.33
that they are payable from a particular fund, Fund 501. According to with PhilFinance as payee and Delta Motors as maker; and was stamped
Section 1 and Section 3 of the Negotiable Instruments Law, the indication “non-negotiable”  on  its  face.  As  Sesbreno  was  unable  to  collect  his 
of Fund 501 as the source of payment to me be made on the treasury investment and interest thereon, he filed an action for damages against
warrants makes the order or promise to pay “not unconditional” and the  Delta Motors and Pilipinas Bank.
warrants themselves non-negotiable.
ISSUE:
(2) No. Metrobank cannot also contend that the act of Golden Savings of Whether non-negotiability of a promissory note prevents its assignment.
indorsing  the  warrants  assumed  that  they  were  ‘genuine  in  all  respects 
what  they  purport to’  be  since  according to  Section 66 of the Negotiable HELD:
Instruments Law, it is only applicable to negotiable treasury warrants. Only an instrument qualifying as a negotiable instrument under
The indorsement was made by Gloria Castillo not for the purpose of the relevant statute may be negotiated either by indorsement thereof
guaranteeing the genuineness of the warrants but to deposit them with coupled with delivery, or by delivery alone if it is in bearer form. A
Metrobank for clearing. It was Metrobank that made the guarantee by negotiable instrument, instead of being negotiated, may also be assigned
stamping in the back of the warrants: “All prior indorsement and/or lack  or transferred. The legal consequences of negotiation and assignment of
of endorsements guaranteed, Metropolitan Bank & Trust Co., Calapan the instrument are different. A negotiable instrument may not be
Branch” negotiated but may be assigned or transferred, absent an express
prohibition against assignment or transfer written in the face of the
Further, Metrobank was negligent of giving the clearance and assurance to instrument. herein, there was no prohibition stipulated.
Golden Savings that it was already safe for Gomez to withdraw the
proceeds of the treasury warrants due to it being “exasperated” with the  FIRESTONE TIRE VS CA
continuous inquiry of Gloria Castillo. It is important to note that without GR No. 113236 || Negotiability
such assurance given by Metrobank, Golden Savings would not have
allowed such transaction. FACTS:
Fojas-Arca purchased tires from petitioner with special withdrawal slips
drawn upon Fojas-Arca's special savings account with respondent bank.

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Negotiable Instruments Law Case Digests SBCA-SOL ’14-‘15
Agapay.Albarillo.Ambito.Arevalo.Baguilat.Bunag.Cabrera.Claveria.Escalona.Fernando.Ferrer.Flores.Hernando.Hipolito.Lara.Melgar .Mella.Nasam.Nunez.Retardo.Rodriguez.Soriano.Tamayao.Ubaldo
Petitioner in turn deposited these withdrawal slips with Citibank. The
latter credited the same to petitioner's current account, then presented Payable to Bearer
the slips for payment to respondent bank. This singular circumstance ANG TEK LIAN v. CA
made plaintiff believe and rely on the fact that the succeeding special G.R. No. L-2516 || Payable to Bearer
withdrawal slips drawn upon the defendant would be sufficiently funded. FACTS:
For having issued a rubber check, AngTekLian was convicted of estafa in
Thereafter, Fojas-Arca, again, purchased Firestone products on credit the Court of First Instance of Manila. The Court of Appeals affirmed the
using withdrawal slips. On December 14, 1978, Citibank informed verdict.
petitioner that special withdrawal slips Nos. 42127 and 42129 dated June
15, 1978 and August 15, 1978, respectively, were refused payment by Knowing he had no funds therefor, AngTekLian drew the check upon the
respondent bank due to insufficiency of Fojas-Arca's funds on deposit. China Banking Corporation for the sum of P4,000, payable to the order of
That information came about six months from the time Fojas-Arca "cash". He delivered it to Lee Hua Hong in exchange for money which the
purchased tires from petitioner using the subject withdrawal slips. latter handed in act. On November 18, 1946, the next business day, the
Citibank then debited the amount of these withdrawal slips from check was presented by Lee Hua Hong to the drawee bank for payment,
petitioner's account, causing the alleged pecuniary damage subject of but it was dishonored for insufficiency of funds, the balance of the deposit
petitioner's cause of action. of AngTekLian on both dates being P335 only.

ISSUE:
ISSUE: WoN the check in question need endorsement considering that it is made
Whether or not respondent bank should be held liable for damages payable to the order of “cash”
suffered by petitioner, due to its allegedly belated notice of non-payment
of the subject withdrawal slips HELD:
It depends upon the circumstances of each transaction.Under the
HELD: Negotiable Instruments Law (sec. 9 [d], a check drawn payable to the
No, respondent bank should not be held liable. Petitioner admitted that order of "cash" is a check payable to bearer, and the bank may pay it to the
the withdrawal slips in question were non-negotiable. Hence, the rules person presenting it for payment without the drawer's indorsement.
governing the giving of immediate notice of dishonor of negotiable
instruments do not apply in this case. Thus, respondent bank was under A check payable to the order of cash is a bearer instrument. Where a check
no obligation to give immediate notice that it would not make payment on is made payable to the order of "cash", the word cash "does not purport to
the subject withdrawal slips. The essence of negotiability which be the name of any person", and hence the instrument is payable to
characterizes a negotiable paper as a credit instrument lies in its freedom bearer. The drawee bank need not obtain any indorsement of the check,
to circulate freely as a substitute for money. The withdrawal slips in but may pay it to the person presenting it without any indorsement.
question lacked this character.
Of course, if the bank is not sure of the bearer's identity or financial
Citibank should have known that withdrawal slips were not negotiable solvency, it has the right to demand identification and /or assurance
instruments. Citibank was not bound to accept the withdrawal slips as a against possible complications, — for instance, (a) forgery of drawer's
valid mode of deposit. But having erroneously accepted them as such, signature, (b) loss of the check by the rightful owner, (c) raising of the
Citibank — and petitioner as account-holder — must bear the risks amount payable, etc. The bank may therefore require, for its protection,
attendant to the acceptance of these instruments. Petitioner and Citibank that the indorsement of the drawer — or of some other person known to
could not now shift the risk and hold private respondent liable for their it — be obtained. But where the Bank is satisfied of the identity and /or
admitted mistake. the economic standing of the bearer who tenders the check for collection,

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Negotiable Instruments Law Case Digests SBCA-SOL ’14-‘15
Agapay.Albarillo.Ambito.Arevalo.Baguilat.Bunag.Cabrera.Claveria.Escalona.Fernando.Ferrer.Flores.Hernando.Hipolito.Lara.Melgar .Mella.Nasam.Nunez.Retardo.Rodriguez.Soriano.Tamayao.Ubaldo
it will pay the instrument without further question; and it would incur no evidence its existence as a binding contract. Section 16 of the Negotiable
liability to the drawer in thus acting. Instruments Law, which governs checks, provides in part that "Every
contract on a negotiable instrument is incomplete and revocable until
Petition dismissed. CA’s decision affirmed. delivery of the instrument for the purpose of giving effect thereto."
Therefore, the payee of a negotiable instrument acquires no interest with
respect thereto until its delivery to him. Delivery of an instrument means
Complete but Undelivered transfer of possession, actual or constructive, from one person to another.
Development Bank of Rizal vs. Sima Wei Without the initial delivery of the instrument from the drawer to the
GR 85419 || Complete but undelivered. (Section 16 of Negotiable payee, there can be no liability on the instrument. Moreover, such delivery
Instruments Law) must be intended to give effect to the instrument. The two (2) China Bank
Facts: checks were not delivered to the payee, DBR. Without the delivery of said
Sima We executed and delivered to the Development Bank of Rizal(DBR) a checks to DBR, the former did not acquire any right or interest therein and
promissory note, engaging to pay DBR or order the amount of cannot therefore assert any cause of action, founded on said checks,
P1,820,000.00 with interest at 32% per annum. Sima Wei made partial whether against the drawer Sima Wei or against the Producers Bank or
payments on the note, leaving a balance of P1,032,450.02. Sima Wei any of the other respondents. Since DBR never received the checks on
issued two crossed checks payable to DBR drawn against China Banking which it based its action against said respondents, it never owned them
Corporation, bearing respectively the serial numbers 384934, for the (the checks) nor did it acquire any interest therein. Thus, anything which
amount of P550,000.00 and 384935, for the amount of P500,000.00. The the respondents may have done with respect to said checks could not
said checks were allegedly issued in full settlement of the drawer's have prejudiced DBR. It had no right or interest in the checks which could
account evidenced by the promissory note. These two checks were not have been violated by said respondents. DBR has therefore no cause of
delivered to DBR or to any of its authorized representatives. For reasons action against said respondents, in the alternative or otherwise. If at all, it
not shown, these checks came into the possession of Lee Kian Huat, who is Sima Wei, the drawer, who would have a cause of action against her co-
deposited the checks without DBR's indorsement (forged or otherwise) to respondents, if the allegations in the complaint are found to be true.
the account of the Asian Industrial Plastic Corporation, at the Balintawak
branch, Caloocan City, of the Producers Bank. Cheng Uy, Branch Manager *A cause of action is defined as an act or omission of one party in violation
of the Balintawak Branch of Producers Bank, relying on the assurance of of the legal right or rights of another. The essential elements are: (1) legal
Samson Tung, President of Plastic Corporation, that the transaction was right of the plaintiff; (2) correlative obligation of the defendant; and (3) an
legal and regular, instructed the cashier of Producers Bank to accept the act or omission of the defendant in violation of said legal right.
checks for deposit and to credit them to the account of said Plastic
Corporation, inspite of the fact that the checks were crossed and payable Liability of Persons Signing
to DBR and bore no indorsement of the latter. Philippine Bank of Commerce vs. Aruego
GR L-25836-37 || Liability of persons signing as agent. (Section 20)
Issue:
Whether DBR, as the intended payee of the instrument, has a cause of FACTS;
action against any or all of the defendants, in the alternative or otherwise On December 1, 1959, the Philippine Bank of Commerce instituted against
Jose M. Aruego Civil Case No. 42066 for the recovery of the total sum of
Held: about P35,000.00 with daily interest thereon from November 17, 1959
No. A negotiable instrument, of which a check is, is not only a written until fully paid and commission equivalent to 3/8% for every thirty (30)
evidence of a contract right but is also a species of property. Just as a deed days or fraction thereof plus attorney's fees equivalent to 10% of the total
to a piece of land must be delivered in order to convey title to the grantee, amount due and costs. The complaint filed by the Philippine Bank of
so must a negotiable instrument be delivered to the payee in order to Commerce contains twenty-two (22) causes of action referring to twenty-

5 |C a b u c h a n . N e g o C a s e D i g e s t s
Negotiable Instruments Law Case Digests SBCA-SOL ’14-‘15
Agapay.Albarillo.Ambito.Arevalo.Baguilat.Bunag.Cabrera.Claveria.Escalona.Fernando.Ferrer.Flores.Hernando.Hipolito.Lara.Melgar .Mella.Nasam.Nunez.Retardo.Rodriguez.Soriano.Tamayao.Ubaldo
two (22) transactions entered into by the said Bank and Aruego on the instrument contains or a person adds to his signature words
different dates covering the period from August 28, 1950 to March 14, indicating that he signs for or on behalf of a principal or in a
1951. The sum sought to be recovered represents the cost of the printing representative capacity, he is not liable on the instrument if he was duly
of "World Current Events," a periodical published by the defendant. To authorized; but the mere addition of words describing him as an agent or
facilitate the payment of the printing the defendant obtained a credit as filing a representative character, without disclosing his principal, does
accommodation from the plaintiff. Thus, for every printing of the "World not exempt him from personal liability."An inspection of the drafts
Current Events," the printer, Encal Press and Photo Engraving, collected accepted by the defendant shows that nowhere has he disclosed that he
the cost of printing by drawing a draft against the plaintiff, said draft being was signing as a representative of the Philippine Education Foundation
sent later to the defendant for acceptance. As an added security for the Company.  He  merely  signed  as  follows:  “JOSE  ARUEGO  (Acceptor)  (SGD) 
payment of the amounts advanced to Encal Press and Photo-Engraving, JOSE ARGUEGO For failure to disclose his principal, Aruego is personally
the plaintiff bank also required defendant Aruego to execute a trust liable for the drafts he accepted.
receipt in favor of said bank wherein said defendant undertook to hold in
trust for plaintiff the periodicals and to sell the same with the promise to
turn over to the plaintiff the proceeds of the sale of said publication to FRANSISCO V. COURT OF APPEALS
answer for the payment of all obligations arising from the draft. 319 SCRA 354 || Section 20
FACTS:
Defendant filed an answer interposing for his defense that he signed the A. Fransisco Realty and Development and Herby Commercial and
drafts in a representative capacity, that he signed only as accommodation Construction Corporation entered into a Land Development and
party and that the drafts signed by him were not really bills of exchange Construction Contract. Fransisco was the president of AFRDC while
but mere pieces of evidence of indebtedness because payments were Ong was the president of HCCC. It was agreed upon that HCCC
made before acceptance. would undertake the construction of housing units and the development
of a large parcel of land. The payment would be on a turnkey basis. To
ISSUE: facilitate the payment, AFDRC executed a Deed of Assignment to
1. WHether the drafts Aruego signed were bills of exchange? enable the HCCC to collect payments from the GSIS. Further, they
2. Whether Aruego can be held liable by the petitioner although he signed opened an account with a bank from which checks would be issued by
the supposed bills of exchange only as an agent of Philippine Education Fransisco and the GSIS president.
Foundation Company. HCCC later on filed a complaint for the unpaid balance in pursuance to its
agreement with AFRDC. However, an amicable settlement ensued, which
RULING: was embodied in a Memorandum of Agreement. It was embodied in said
1. YES. Under the Negotiable Instruments Law, a bill of exchange is an agreement that GSIS recognizes its indebtedness to HCCC and that HCCC
unconditional order in writting addressed by one person to another, would also pay its obligations to AFRDC. A year later, it was found out
signed by the person giving it, requiring the person to whom it is that Diaz and Fransisco had drawn checks payable to Ong. Ong denied
addressed to pay on demand or at a fixed or determinable future time a accepting said checks and it was further found out that Diaz entrusted
sum certain in money to order or to bearer. As long as a commercial paper the checks to Fransisco who later forged the signature of Ong, showing
conforms with the definition of a bill of exchange, that paper is considered that he indorsed the checks to her and then she deposited the checks to
a bill of exchange. The nature of acceptance is important only in the her personal savings account. This incident prompted Ong to file a
determination of the kind of liabilities of the parties involved, but not in complaint against Fransisco.
the determination of whether a commercial paper is a bill of exchange or
not. HELD:
Ong’s  signature  was  found  to  be  forged  by  Fransisco.  Fransisco’s  
2. Yes. Section 20 of the Negotiable Instruments Law provides that "Where contention  that  he  was  authorized  to  sign  Ong’s  name  in  her favor 

6 |C a b u c h a n . N e g o C a s e D i g e s t s
Negotiable Instruments Law Case Digests SBCA-SOL ’14-‘15
Agapay.Albarillo.Ambito.Arevalo.Baguilat.Bunag.Cabrera.Claveria.Escalona.Fernando.Ferrer.Flores.Hernando.Hipolito.Lara.Melgar .Mella.Nasam.Nunez.Retardo.Rodriguez.Soriano.Tamayao.Ubaldo
giving her authority to collect all the receivables of HCCC from GSIS. This respondent bank, petitioner is deemed to have given the warranty
contention is bereft of any merit. The Negotiable Instruments Law prescribed in Section 66 of the NIL that every single one of those checks "
provides that when a person is under obligation to indorse in a is genuine and in all respects what it purports to be."
representative capacity, he may indorse in such terms as to negative
personal liability. An agent, when so signing, should indicate that he is Republic Bank v. Ebrada
merely signing as an agent in behalf of the principal and must disclose 65 SCRA 680 || Forgery
the name of his principal. Otherwise, he will be held liable FACTS:
personally. And assuming she was indeed authorized, she didn't On January 15, 1963, the Bureau of Treasury issued a back pay
comply  with  the  requirements  of  the  law.    Instead  of  signing Ong’s  check to Martin Lorenzo in the amount of P1,246.08. The drawee named
name, she should have signed in her own name as agent of HCCC. Thus, therein is Republic Bank. The check was subsequently indorsed to Ramon
her contentions cannot support or validate her acts of forgery. Lorenzo, then to Delia Dominguez and then to Mauricia Ebrada. Ebrada
encashed the check with the Republic Bank. Republic Bank paid the
Forgery amount of the check to Ebrada. Ebrada, upon receiving the cash, gave it to
Jai-Alai Corp. of the Phil. vs. Bank of the Phil. Islands Dominguez; Dominguez in turn gave the cash to Ramon Lorenzo.
G.R. No. L-29432 || Forgery Later, the Bureau of Treasury notified that the check was a forgery
FACTS: because the payee named therein (Martin Lorenzo) was actually dead 11
Petitioner deposited 10 checks in its current account with BPI. The checks years ago before the check was issued. Republic Bank refunded the
which were acquired by petitioner from Ramirez, a sales agent of the amount to the Bureau of Treasury. The bank then demanded Ebrada to
Inter-Island Gas were all payable to Inter-Island Gas Service, Inc. or refund them.
order. After the checks had been submitted to Inter-bank clearing, Inter-
Island Gas discovered that all the indorsements made on the checks ISSUE:
purportedly by its cashiers were forgeries. BPI thus debited the value of Whether or not the bank can recover from the last indorser.
the checks against petitioner's current account and forwarded to the latter
the checks containing the forged indorsements which petitioner refused HELD:
to accept. According to Section 23 of the Negotiable Instruments Law, where
the signature on a negotiable instrument is forged, the negotiation of the
check is without force or effect. However, following the ruling in Beam vs.
ISSUE: Farrel (US case), where a check has several indorsements on it, only the
Whether BPI had the right to debit from petitioner's current account the negotiation based on the forged or unauthorized signature which is
value of the checks with the forged indorsements inoperative. The last indorser, Ebrada, was duty-bound to ascertain
whether the check was genuine before presenting it to the bank for
RULING: payment. Her failure to do so makes her liable for the loss and the Bank
BPI acted within legal bounds when it debited the petitioner's may recover from her the money she received for the check. Had she
account. Having indorsed the checks to respondent bank, petitioner is performed her duty, the forgery would have been detected and fraud
deemed to have given the warranty prescribed in Section 66 of the NIL defeated. Even if she turned over the amount to Dominguez immediately
that every single one of those checks "is genuine and in all respects what it after receiving the cash proceeds of the check, she is liable as an
purports to be." Respondent which relied upon the petitioner's warranty accommodation party under Section 29 of the Negotiable Instruments
should not be held liable for the resulting loss. Law.

The depositor of a check as indorser warrants that it is genuine and in all

respects what it purports to be. Having indorsed the checks to

7 |C a b u c h a n . N e g o C a s e D i g e s t s
Negotiable Instruments Law Case Digests SBCA-SOL ’14-‘15
Agapay.Albarillo.Ambito.Arevalo.Baguilat.Bunag.Cabrera.Claveria.Escalona.Fernando.Ferrer.Flores.Hernando.Hipolito.Lara.Melgar .Mella.Nasam.Nunez.Retardo.Rodriguez.Soriano.Tamayao.Ubaldo
MWSS vs. Court of Appeals We cannot fault the respondent drawee Bank for not having detected the
143 SCRA 20||Forgery fraudulent encashment of the checks because the printing of the
FACTS: petitioner’s personalized checks was not done under the supervision and
Metropolitan Waterworks and Sewerage System (hereinafter referred to control of the Bank. There is no evidence on record indicating that
as MWSS) is a government owned and controlled corporation created because of this private printing the petitioner furnished the respondent
under Republic Act No. 6234 as the successor-in- interest of the defunct Bank with samples of checks, pens, and inks or took other precautionary
NWSA. The Philippine National Bank (PNB for short), on the other hand, is measures with the PNB to safeguard its interests.
the depository bank of MWSS and its predecessor-in-interest NWSA. Under the circumstances, therefore, the petitioner was in a better position
When it was still called NAWASA, MWSS made a special arrangement with to detect and prevent the fraudulent encashment of its checks.
PNB so that it may have personalized checks to be printed Mesina
Enterprises. These personalized checks are the ones being used by MWSS The Supreme Court further emphasized that forgery cannot be presumed.
in its business transactions. It must be established by clear, positive, and convincing evidence. This
was not done in the present case.
From March to May 1969, MWSS issued 23 checks to various payees in the
aggregate amount of P320,636.26. During the same months, another set of Banco De Oro vs Equitable Banking Corporation
23 checks containing the same check numbers earlier issued were forged. 157 SCRA 189 || Forgery
The aggregate amount of the forged checks amounted to P3,457,903.00. FACTS:
This amount was distributed to the bank accounts of three persons: Banco de Oro (BDO), through its Visa Card Department, drew six
Arturo Sison, Antonio Mendoza, and Raul Dizon. crossed Manager’s check with the total amount of P45,982.23 payable to
certain member establishments of Visa Card. The checks were deposited
MWSS then demanded PNB to restore the amount of P3,457,903.00. PNB with Equitable Bank to the credit of its depositor, Aida Trencio.
refused. The trial court ruled in favor of MWSS but the Court of Appeals
reversed the trial court’s decision. After stamping at the back of the checks the usual endorsements,
“All prior and/or lack of endorsement guarantee”, the defendant sent the 
ISSUE: checks for clearing to Philippine Clearing House Corporation (PCHC).
Whether or not PNB should restore the said amount
BDO paid the checks and its clearing account was debited for the
HELD: value of the checks and Equitable Bank’s clearing account was debited for 
No. MWSS is precluded from setting up the defense of forgery. It has been the same amount.
proven that MWSS has been negligent in supervising the printing of its
personalized checks. It failed to provide security measures and coordinate Thereafter, BDO discovered that the endorsements at the back of
the same with PNB. Further, the signatures in the forged checks appear to the checks and purporting to be that of the payees were forged and/or
be genuine as reported by the National Bureau of Investigation so much so unauthorized or otherwise, belonging to persons other than the payees.
that the MWSS itself cannot tell the difference between the forged
signature and the genuine one. The records likewise show that MWSS BDO then presented the checks directly to Equitable Bank for the
failed to provide appropriate security measures over its own records purpose of claiming reimbursement from the latter. However, Equitable
thereby laying confidential records open to unauthorized persons. Even if Bank refused to accept such direct presentation and to reimburse BDO for
the twenty-three (23) checks in question are considered forgeries, the value of the checks.
considering the MWSS’s gross negligence, it is barred from setting up the 
defense of forgery under Section 23 of the Negotiable Instruments Law. In accordance with the rules of the Clearing House, the dispute
was presented for Arbitration. The Arbiter rendered decision in favor of

8 |C a b u c h a n . N e g o C a s e D i g e s t s
Negotiable Instruments Law Case Digests SBCA-SOL ’14-‘15
Agapay.Albarillo.Ambito.Arevalo.Baguilat.Bunag.Cabrera.Claveria.Escalona.Fernando.Ferrer.Flores.Hernando.Hipolito.Lara.Melgar .Mella.Nasam.Nunez.Retardo.Rodriguez.Soriano.Tamayao.Ubaldo
plaintiff. Upon motion for reconsideration, the Board of Directors of the Gempesaw vs CA
PCHC affirmed the decision of the Arbiter. A petition for review was filed GR. 92244 || Forgery
in the Regional Trial Court of Quezon city which also affirmed in toto the FACTS:
decision. NatividadGempesaw owns and operates four grocery stores in Caloocan
City. She maintains a checking account with respondent drawee Phil. Bank
ISSUE: of Communications to issue checks to her suppliers. Alicia Galang, her
Whether or not Banco De Oro could collect reimbursement from Equitable bookkeeper, makes the checks and petitioner signs them, without
Bank verifying the accuracy of each, since she trusted Galang. Petitioner never
bothered to verify the correctness of the returned checks. In 2 years, a
HELD total of 82 checks were issued, most of them in excess of her actual
Yes. The petitioner is estopped from raising the non-negotiability obligations to the various payees, all crossed checks with forged
of the checks in question since it stamped its guarantee on the back of the indorsement signatures. Petitioner completed the checks by signing them
checks and subsequently presented the checks for clearing. On the basis of as drawer and thereafter authorized her employee Alicia Galang to deliver
these indorsements by the petitioner, the proceeds were credited in its the eighty-two (82) checks to their respective payees. Instead of issuing
clearing account. the checks to the payees as named in the checks, Alicia Galang delivered
A commercial bank cannot escape the liability of an endorser of a them to the Ernest Boon, Chief Accountant of PBCOM Buendia branch.
check and which may turn out to be forged documents. Whenever any Signatures of the first payees as first indorsers were forged. The checks
bank treats the signature at the back of the checks as endorsements and were then indorsed a 2nd time with the names of Alfredo Romero and
guarantees the same, there can be no doubt said bank has considered the Benito Lam and donated to their respective accounts. It was only after 2
checks as negotiable. years that petitioner found out about the fraudulent transactions.
Petitioner then demanded respondent drawee Bank to credit her account
The Court also emphasizes that the collecting bank or last with the money value of the 82 checks for having been wrongfully charged
endorser generally suffers the loss because it has the duty to ascertain the against her account. Respondent drawee Bank refused to grant
genuineness of all prior endorsements. petitioner's demand.

Section  66  of  the  Negotiable  Instruments  Law  says  that  ‘every  ISSUE:
indorser who indorses without qualification, warrants to all subsequent WON Petitioner can claim the value of the 82 checks debited against her
holders in due course: a) that the instrument is genuine and in all respects account since there was forgery
what it purports to be; b) that he has good title to it; c) that all prior
parties have capacity to contract; d) that the instrument is at the time of HELD:
his indorsement valid and subsisting.’ No. While forgery is a real or absolute defense by the party whose
signature is forged, it is not applicable to the case at bar. A party whose
Thus, the drawer also owes no duty of diligence to the collecting bank, signature to an instrument was forged was never a party and never gave
since the law imposes a duty of diligence on the collecting bank to his consent to the contract which gave rise to the instrument. In the case
scrutinize checks deposited with it for the purpose of determining the at bar, petitioner admitted that the checks were filled up and completed
genuineness and regularity. The collecting bank, being primarily engaged by her trusted employee, Alicia Galang, and were given to her for her
in banking holds itself out to the public as the expert and the law holds it signature. Her signing the checks made the negotiable instrument
to a high standard of conduct. complete. Prior to signing the checks, there was no valid contract yet. As a
rule, a drawee bank who has paid a check on which an indorsement has
been forged cannot charge the drawer's account for the amount of said
check. An exception to this rule is where the drawer is guilty of such

9 |C a b u c h a n . N e g o C a s e D i g e s t s
Negotiable Instruments Law Case Digests SBCA-SOL ’14-‘15
Agapay.Albarillo.Ambito.Arevalo.Baguilat.Bunag.Cabrera.Claveria.Escalona.Fernando.Ferrer.Flores.Hernando.Hipolito.Lara.Melgar .Mella.Nasam.Nunez.Retardo.Rodriguez.Soriano.Tamayao.Ubaldo
negligence which causes the bank to honor such a check or checks. In the ISSUE:
case at bar, the petitioner relied implicitly upon the honesty and loyalty of What are the liabilities of each party?
her bookkeeper, and did not even verify the accuracy of amounts of the
checks she signed against the invoices attached thereto. Furthermore, HELD:
although she regularly received her bank statements, she apparently did The checks involved in this case are order instruments. Liability of
not carefully examine the same nor the check stubs and the returned Associated Bank. Where the instrument is payable to order at the time of
checks,  and  did  not  compare  them  with  the  same  invoices.  Petitioner’s  the forgery, such as the checks in this case, the signature of its rightful
negligence was the proximate cause of her loss. And since it was her holder, the payee hospital, is essential to transfer title to the same
negligence which caused the respondent drawee Bank to honor the forged instrument. When the holder’s indorsement is forged, all parties prior to 
checks or prevented it from recovering the amount it had already paid on the forgery may raise the real defense of forgery against all parties
the checks, petitioner cannot now complain should the bank refuse to subsequent thereto.
recredit her account with the amount of such checks. Under Section 23 of A collecting bank, Associated Bank, where a check is deposited and which
the NIL, she is now precluded from using the forgery to prevent the bank's indorses the check upon presentment with the drawee bank, PNB, is such
debiting of her account. But petitioner can claim for damages under an indorser. So even if the indorsement on the check deposited by the
Article 1170 of NCC since the respondent drawee Bank did not discover banks’s client is forged, Associated Bank is bound by its warranties as an 
the irregularity with respect to the acceptance of checks with second indorser and cannot set up the defense of forgery as against the PNB.
indorsement for deposit even without the approval of the branch manager Exception: If it can be shown that the drawee bank, PNB, unreasonably
despite periodic inspection conducted by a team of auditors from the main delayed in notifying the collecting bank which is the Associated Bank, of
office constitutes negligence on the part of the bank in carrying out its the fact of the forgery so much so that the latter can no longer collect
obligations to its depositors. reimbursement from the depositor-forger.
Liability of PNB. The bank on which a check is drawn, known as the
Associated Bank v. Court of Appeals drawee bank (PNB), is under strict liability to pay the check to the order of
252 SCRA 620 || Forgery the payee, Provincial Government of Tarlac. Payment under a forged
FACTS: indorsement  is  not  to the  drawer’s  order.  When  the  drawee  bank  pays  a 
The Province of Tarlac was disbursing funds to Concepcion Emergency person other than the payee, it does not comply with the terms of the
Hospital through checks drawn against its account with the Philippine check  and  violates  its  duty  to  charge  its  customer’s,  the  drawer,  account 
National Bank (PNB). These checks were drawn payable to the order of only for properly payable items. Since the drawee bank did not pay a
Concepcion Emergency Hospital. Fausto Pangilinan was the cashier of holder or other person entitled to receive payment, it has no right to
Concepcion Emergency Hospital in Tarlac until his retirement in 1978. He reimbursement from the drawer. The general rule then is that the drawee
used to handle checks issued by the provincial government of Tarlac to bank  may  not  debit  the  drawer’s  account  and  is  not  entitled  to 
the said hospital. However, after his retirement, the provincial indemnification from the drawer. The risk of loss must perforce fall on the
government still delivered checks to him until its discovery of this drawee bank.
irregularity in 1981 by forging the signature of the chief payee of the Exception: If the drawee bank, PNB, can prove a failure by the
hospital, Dr. Adena Canlas. Pangilinan was able to deposit 30 checks customer/drawer (Tarlac Province) to exercise ordinary care that
amounting to P203,000.00 to his account with the Associated Bank. substantially contributed to the making of the forged signature, the
When the province of Tarlac discovered this irregularity, it demanded drawer is precluded from asserting the forgery.
PNB to reimburse the said amount. PNB in turn demanded Associated In  sum,  by  reason  of  Associated  Bank’s  indorsement  and  warranties  of 
Bank to reimburse said amount. PNB averred that Associated Bank is prior indorsements as a party after the forgery, it is liable to refund the
liable to reimburse because of its indorsement borne on the face of the amount to PNB. The Province of Tarlac can ask reimbursement from PNB
checks. because the Province is a party prior to the forgery. Hence, the instrument
is inoperative. However, it has been proven that the Provincial

10 |C a b u c h a n . N e g o C a s e D i g e s t s
Negotiable Instruments Law Case Digests SBCA-SOL ’14-‘15
Agapay.Albarillo.Ambito.Arevalo.Baguilat.Bunag.Cabrera.Claveria.Escalona.Fernando.Ferrer.Flores.Hernando.Hipolito.Lara.Melgar .Mella.Nasam.Nunez.Retardo.Rodriguez.Soriano.Tamayao.Ubaldo
Government of Tarlac has been negligent in issuing the checks especially Cunanan & Company, together with the monthly statement of the
when it continued to deliver the checks to Pangilinan even when he company's account with FNCB.
already retired. Due to this contributory negligence, PNB is only ordered
to pay 50% of the amount or half of P203, 000.00. notified FNCB that the check had been altered
But then again, since PNB can pass its loss to Associated Bank by reason of
Associated Bank’s warranties, PNB can ask the 50% reimbursement from  actual amount of P50.00 was raised to P50,000.00
Associated Bank. Associated Bank can ask reimbursement from Pangilinan
but unfortunately in this case, the court did not acquire jurisdiction over name of the payee, Manila Polo Club, was superimposed the word CASH.
him.
September 10, 1964: FNCB wrote Metro Bank asking for reimbursement
METRO BANK VS FIRST NATIONAL CITY BANK
118 scra 537|| FORGERY June 29, 1965: FNCB filed for recovery

FACTS: CA affirmed Trial Court: Metro Bank to reimburse FNCB

August 25, 1964: Check dated July 8, 1964 for P50,000.00, payable to
CASH, drawn by Joaquin Cunanan & Company on First National City Bank ISSUE:
(FNCB) was deposited with Metropolitan Bank and Trust Company (Metro Whether or not Metrobank should reimsburse FNCB for the altered
Bank) by Salvador Sales. amount as indorser

Earlier that day, Sales had opened a current account with Metro Bank HELD:
depositing P500.00 in cash NO. FNCB liable. Under the procedure prescribed, the drawee bank
receiving the check for clearing from the Central Bank Clearing House
Metro Bank immediately sent the cash check to the Clearing House of the must return the check to the collecting bank within the 24-hour period if
Central Bank with the following words stamped at the back of the check: the check is defective for any reason. - FNCB failed to do so
indorsement must be read together with the 24-hour regulation on
Metropolitan Bank and Trust Company Cleared (illegible) office All prior clearing House Operations of the Central Bank
endorsements and/or Lack of endorsements Guaranteed.
Metro Bank can not be held liable for the payment of the altered check.
The check was cleared the same day. Private respondent paid petitioner
through clearing the amount of P50,000.00, and Sales was credited with Moreover, FNCB did not deny the allegation of Metro Bank that before it
the said amount in his deposit with Metro Bank. allowed the withdrawal of the balance of P17,920.00 by Salvador Sales,
Metro Bank withheld payment and first verified, through its Assistant
August 26, 1964: Sales made his 1st withdrawal of P480.00 from his Cashier Federico Uy, the regularity and genuineness of the check deposit
current account from Marcelo Mirasol, Department Officer of FNCB, because its (Metro
Bank) attention was called by the fast movement of the account.
August 28, 1964: he withdrew P32,100.00

August 31, 1964: he withdrew the balance of P17,920 and closed his
account with Metro Bank

September 3, 1964: FNCB returned cancelled Check to drawer Joaquin

11 |C a b u c h a n . N e g o C a s e D i g e s t s
Negotiable Instruments Law Case Digests SBCA-SOL ’14-‘15
Agapay.Albarillo.Ambito.Arevalo.Baguilat.Bunag.Cabrera.Claveria.Escalona.Fernando.Ferrer.Flores.Hernando.Hipolito.Lara.Melgar .Mella.Nasam.Nunez.Retardo.Rodriguez.Soriano.Tamayao.Ubaldo
Republic Bank vs. Court of Appeals check to the collecting bank within the 24-hour clearing period, the
GR No. 42725 April 22, 1991 || Forgery collecting bank is absolved from liability.
FACTS: Every bank that issues checks for the use of its customers should
On January 25, 1966, drawer San Miguel Corporation (SMC), drew know whether or not the drawer’s signature thereon is genuine, whether 
a dividend Check No. 108854 for Php240 on its account in the respondent there are sufficient funds in the drawers account to cover checks issued,
First National City Bank (FNCB) in favor of J. Roberto C. Delgado, a and it should be able to detect alterations, erasures, superimpositions or
stockholder. After the check had been delivered to Delgado, the amount on intercalations thereon, for these instruments are prepared, printed and
its face was fraudulently and without authority of SMC, altered by issued by itself, it has control of the drawer’s account, and it is supposed 
increasing it from P240 to P9,240. On March 14, 1966, the check was to be familiar  with  the  drawer’s  signature.  Unless  an  alteration  is 
indorsed and deposited by Delgado in his account with the petitioner attributable to the fault or negligence of the drawer himself, such as when
Republic Bank, who accepted the said check without ascertaining its he leaves spaces on the check which would allow the fraudulent insertion
genuineness and regularity. Republic endorsed it to FNCB by stamping on of additional numerals in the amount appearing thereon, the remedy of
the back of the check "all prior and/or lack of indorsement guaranteed" the drawee bank that negligently clears a forged and/or altered check for
and presented it to FNCB for. Believing the check was genuine, and relying payment is against the party responsible for the forgery or alteration,
on the guaranty and endorsement, FNCB paid P9,240 to Republic March otherwise, it bears the loss.
15, 1966. SMC then notified FNCB on on April 19, 1966 of the material
alteration in the amount of the check in question. Thereafter, FNCB Philippine Commercial International Bank v. CA
informed Republic in writing of the alteration and the forgery of the G.R. No. 121413 || FORGERY
endorsement of Delgado, who by then had already withdrawn his account FACTS:
from Republic. These consolidated petitions involve several fraudulently negotiated
FNCB demanded that Republic refund the P9,240 on August 15, checks
1966  on  the  basis  of  the  latter’s  endorsement  and  guaranty. Republic In October 1977, Ford Philippines drew a Citibank check in the amount of
refused, claiming there was delay in giving it notice of the alteration and P4,746,114.41 in favor of the Commissioner of the Internal Revenue (CIR).
that it was not negligent and SMC’s faulted in drawing the check in such a  The check represents Ford’s tax payment for the third quarter of 1977. On 
way as to permit the insertion of numerals increasing the amount. the face of the check was written “Payee’s account only” which means that 
the check cannot be encashed and can only be deposited with the CIR's
ISSUE: savings account with Metrobank. The said check was however presented
Whether or not Republic, as the collecting bank, is protected, by the 24- to PCIB and PCIB accepted the same. PCIB then indorsed the check for
hour clearing house rule, found in CB Circular No. 9, as amended, from clearing to Citibank. Citibank cleared the check and paid PCIB
liability to refund the amount paid by FNCB, as drawee of the SMC P4,746,114.41.CIR later informed Ford that it never received the tax
dividend check payment. It was later discovered that Ford’s accountant Godofredo Rivera, 
when the check was deposited with PCIB, recalled the check since there
HELD: was allegedly an error in the computation of the tax to be paid. PCIB, as
Yes. Under the 24-hour clearing house rule embodied in Section instructed by Rivera, replaced the check with two of its manager’s checks.
4(c) of Central Bank Circular No. 9, as amended, such rule is a valid rule It was further discovered that Rivera was actually a member of a
applicable to commercial banks. It is true that when an endorsement is syndicate and the manager’s checks were subsequently deposited with the 
forged, the collecting bank or last endorser, as a general rule, bears the Pacific Banking Corporation by other members of the syndicate.
loss. But the unqualified endorsement of the collecting bank on the check Thereafter, Rivera and the other members became fugitives of justice.
should be read together with the 24-hour regulation on clearing house In July 1978 and in April 1979, Ford drew two checks in the amounts of
operation. Thus, when the drawee bank fails to return a forged or altered P5,851,706.37 and P6,311,591.73 respectively. Both checks are again for
tax payments. Both checks are for “Payee’s account only” or for the CIR’s 

12 |C a b u c h a n . N e g o C a s e D i g e s t s
Negotiable Instruments Law Case Digests SBCA-SOL ’14-‘15
Agapay.Albarillo.Ambito.Arevalo.Baguilat.Bunag.Cabrera.Claveria.Escalona.Fernando.Ferrer.Flores.Hernando.Hipolito.Lara.Melgar .Mella.Nasam.Nunez.Retardo.Rodriguez.Soriano.Tamayao.Ubaldo
bank savings account only with Metrobank. Again, these checks never Ramon Ilusorio vs CA
reached the CIR. In an investigation, it was found that these checks were GR no. 139130 II FORGERY
embezzled by the same syndicate to which Rivera was a member. FACTS:
Ramon Ilusorio (petitioner) is a prominent businessman who, at
ISSUE: the time material to this case, was the Managing Director of Multinational
Whether Ford has the right to recover from the collecting bank (PCI Bank) Investment Bancorporation and the Chairman and/or President of several
and/or the drawee bank (Citibank) the value of the checks other corporations. He was a depositor in good standing of respondent
bank, the Manila Banking Corporation. As he was then running about 20
HELD: corporations, and was going out of the country a number of times,
Yes, both are liable for the loss of the proceeds of said checks issued by petitioner entrusted to his secretary, Katherine E. Eugenio, his credit
Ford in favor of the CIR. The mere fact that forgery was committed by a cards and his checkbook with blank checks. It was also Eugenio who
drawer-payor’s  confidential  employee or agent, who by virtue of his verified and reconciled the statements of said checking account.
position had unusual facilities to perpetrate the fraud and imposing the Eugenio was able to encash and deposit to her personal account
forged paper upon the bank, does not entitle the bank to shift the loss to about seventeen (17) checks drawn against the account of the petitioner
the drawer-payor, in the absence of some circumstance raising estoppel at the respondent bank, with an aggregate amount of P119,634.34.
against the drawer. The rule applies to checks fraudulently negotiated or Petitioner did not bother to check his statement of account until a
diverted by the confidential employees who hold them in their possession. business partner apprised him that he saw Eugenio use his credit cards.
In GRs 121413 and 121479, PCIBank failed to verify the authority of Mr. Petitioner fired Eugenio immediately, and instituted a criminal action
Rivera to negotiate the checks. Furthermore,  PCIBank’s  clearing  stamp  against her for estafa thru falsification before the Office of the Provincial
which guarantees prior or lack of indorsements render PCIB liable as it Fiscal of Rizal. Private respondent, through an affidavit executed by its
allowed Citibank without any other option but to pay the checks. PCIB, employee, Mr. Dante Razon, also lodged a complaint for estafa thru
being a depository / collecting bank of the BIR, had the responsibility to falsification of commercial documents against Eugenio on the basis of
make sure  that  the  crossed  checks  were  deposited  in  “Payee’s  account  petitioner’s statement that his signatures in the checks were forged.
only” as found in the instrument. 
ISSUES:
In GR 128604, on the other hand, the switching operation involving the (1) whether or not petitioner has a cause of action against private
checks, while in transit for clearing, were the clandestine or hidden respondent; and
actuations performed by the members of the syndicate in their own (2) whether or not private respondent, in filing an estafa case against
personal, covert and private capacity; without the knowledge nor official petitioner’s  secretary, is barred from raising the defense that the fact of
or conscious participation of PCIB in the process of embezzlement. Central forgery was not established.
Bank Circular 580 (1977), however, provides that any theft affecting items
in transit for clearing are for the account of the sending bank (herein HELD:
PCIBank). Still, Citibank was likewise negligent in the performance of its 1. Petitioner has no cause of action against Manila Bank. To be
duties as it failed to establish its payment of Ford’s checks were made in  entitled to damages, petitioner has the burden of proving
due course and legally in order. The fact that drawee bank did not negligence on the part of the bank for failure to detect the
discover the irregularity seasonably constitutes negligence in carrying out discrepancy in the signatures on the checks. It is incumbent
the bank’s duty to its depositors. upon petitioner to establish the fact of forgery, i.e., by
submitting his specimen signatures and comparing them with
those on the questioned checks. Curiously though, petitioner
failed to submit additional specimen signatures as requested
by the National Bureau of Investigation from which to draw a

13 |C a b u c h a n . N e g o C a s e D i g e s t s
Negotiable Instruments Law Case Digests SBCA-SOL ’14-‘15
Agapay.Albarillo.Ambito.Arevalo.Baguilat.Bunag.Cabrera.Claveria.Escalona.Fernando.Ferrer.Flores.Hernando.Hipolito.Lara.Melgar .Mella.Nasam.Nunez.Retardo.Rodriguez.Soriano.Tamayao.Ubaldo
conclusive finding regarding forgery. The Court of Appeals Samsung Construction v. Far East Bank
found that petitioner, by his own inaction, was precluded from G.R. No. 129015, August 13, 2004ll Forgery
setting up forgery. FACTS:
Petitioner’s failure to examine his bank statements appears as  Samsung Construction held an account with Far East Bank. One day a
the proximate cause of his own damage. The bank was not check worth (P999,500.00), payable to cash, was presented by
shown to be remiss in its duty of sending monthly bank one Roberto Gonzaga in the Makati Branch of Far East Bank. The
statements to petitioner so that any error or discrepancy in check was certified to be true by Jose Sempio III, the assistant
the entries therein could be brought to the bank’s attention at  accountant of Samsung, who was also present during the time the
the earliest opportunity. But, petitioner failed to examine these check was cashed. Later however it was discovered that no such check
bank statements not because he was prevented by some cause was ever approved by the Samsung’s head accountant, the president of the
in not doing so, but because he did not pay sufficient attention company also never signed any such check.
to the matter. Had he done so, he could have been alerted to
any anomaly committed against him. In view of Article 2179 of ISSUE:
the New Civil Code, when  the  plaintiff’s  own  negligence  was  Whether or not Far East Bank is liable to reimburse Samsung for cashing
the immediate and proximate cause of his injury, no recovery out the forged check, which was drawn from the account of Samsung
could be had for damages.
Petitioner further contends that under Section 23 of the HELD:
Negotiable Instruments Law a forged check is inoperative, Far East Bank is liable for reimbursement. Sec. 23 of the Negotiable
and that Manila Bank had no authority to pay the forged Instrument Law states that a forged signature makes the instrument
checks. True, it is a rule that when a signature is forged or “wholly  inoperative”.  If  payment  is  made  the  drawee  (Far  East) cannot
made without the authority of the person whose signature charge  it  to  the  drawer’s  account  (Samsung).  The  fact  that  the  forgery  is 
it purports to be, the check is wholly inoperative. No right clever is immaterial. The forged signature may so closely resemble the
to retain the instrument, or to give a discharge therefore, genuine as to defy detection by the depositor himself. And yet, if the bank
or to enforce payment thereof against any party, can be pays the check, it is paying out with its own money and not of the
acquired through or under such signature. However, the depositor’s.  This  rule  of  liability  can  be  stated  briefly  in  these  words:  “A 
rule does provide for an exception, namely: "unless the bank  is  bound  to  know  its  depositor’s  signature.”  The  accusation  of 
party against whom it is sought to enforce such right is negligence on the part of Samsung was not clearly proven. Absence of
precluded from setting up the forgery or want of proof to the contrary, the presumption is that the ordinary course of
authority." In the instant case, it is the exception that business was followed.
applies. Petitioner is precluded from setting up the forgery,
assuming there is forgery, due to his own negligence in Material Alteration
entrusting to his secretary his credit cards and checkbook Philippine National Bank v. CA
including the verification of his statements of account. 256 SCRA 491 || Sections 124 &125
The fact that Manila Bank had filed a case for estafa against Eugenio would FACTS:
not estop it from asserting the fact that forgery has not been clearly A check with a specific serial number (7-3666-223-3)was issued
established. Petitioner cannot hold private respondent in estoppel for the Department of Education Culture and Sports (DECS) in the amount of
latter is not the actual party to the criminal action. P97,650.00 payable to F. Abante Marketing. This check was drawn against
petitioner PNB.

F. AbanteMarketing, deposited the questioned check in its savings account

with Capitol City Development Bank (Capitol). In turn, Capitol deposited

14 |C a b u c h a n . N e g o C a s e D i g e s t s
Negotiable Instruments Law Case Digests SBCA-SOL ’14-‘15
Agapay.Albarillo.Ambito.Arevalo.Baguilat.Bunag.Cabrera.Claveria.Escalona.Fernando.Ferrer.Flores.Hernando.Hipolito.Lara.Melgar .Mella.Nasam.Nunez.Retardo.Rodriguez.Soriano.Tamayao.Ubaldo
the same in its account with the Philippine Bank of Communications The case at bench is unique in the sense that what was altered is the serial
(PBCom) which, in turn, sent the check to petitioner for clearing. number of the check in question, it can is not an essential requisite for
negotiability under Section 1 of the Negotiable Instrument Law. The
Petitioner cleared the check as good and, thereafter, PBCom credited aforementioned alteration did not change the relations between the
Capitol’s  account for the amount stated in the check. Petitioner returned parties. The name of the drawer and the drawee were not altered. The
the check to PBCom and debited PBCom’s account for the amount covered  intended payee was the same. The sum of money due to the payee
by the check, the reason being that there was a “material alteration” of the  remained the same.  The check’s serial number is not the sole indication of 
check number. its origin. As succinctly found by the Court of Appeals, the name of the
government agency which issued the subject check was prominently
PBCom, as collecting agent of Capitol, then proceeded to debit the latter’s  printed  therein.    The  check’s  issuer  was  therefore  sufficiently  identified, 
account for the same amount, and subsequently, sent the check back to rendering the referral to the serial number redundant and
petitioner. Petitioner, however, returned the check to PBCom. inconsequential. Petitioner, thus cannot refuse to accept the check in
question on the ground that the serial number was altered, the same being
On the other hand, Capitol could not, debit F. Abante Marketing’s account  an immaterial or innocent one.
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- ENRIQUE P MONTINOLA VS THE PHILIPPINE NATIONAL BANK
crediting from petitioner. G.R. NO L-2861 || SECTION 124 & 125
Since the demands of Capitol were not heeded, it filed a civil suit with the FACTS:
Regional Trial Court of Manila against PBCom which, in turn, filed a third- On April 30, 1942, M. V.Ramos, as a disbursing officer of an army
party complaint against petitioner for reimbursement/indemnity with division of the USAFE, went to the neighboring Province Lanao to procure
respect to the claims of Capitol a cash advance in the amount of P800,000 for the use of the USAFFE in
Cagayan de Misamis. Pedro Encarnacion, Provincial Treasurer of Lanao
Petitioner claims that an change in the serial number of the check is a did not have that amount in cash. So, he gave Ramos P300,000 in
material alteration under Section 125(f) of the NIL. emergency notes and a check for P500,000. On May 2, 1942 Ramos went
to the office of Provincial Treasurer Laya at Misamis Oriental to encash
ISSUE: the check for P500,000 which he had received from the Provincial
WHETHER OR NOT AN ALTERATION OF THE SERIAL NUMBER OF A Treasurer of Lanao. Laya did not have enough cash to cover the check so
CHECK IS A MATERIAL ALTERATION UNDER THE NEGOTIABLE he gave Ramos P400,000.00 in emergency notes and a check No. 1382 for
INSTRUMENTS LAW P100,000.00 drawn on the Philippine National Bank. According to Laya he
had previously deposited P500,000.00 emergency notes in the Philippine
National Bank branch in Cebu and he expected to have the check issued by
HELD: him cashed in Cebu against said deposit.
No. An alteration is said to be material if it alters the effect of the Ramos was unable to encash the said check for he was captured by
instrument. It means an unauthorized change in an instrument that the Japanese. But after his release, he sold P30,000.00 of the check to
purports to modify in any respect the obligation of a party or an Enrique P. Montinola for P850,000.00 Japanese Military notes, of which
unauthorized addition of words or numbers or other change to an only P45000 was paid by the latter. The writing made by Ramos at the
incomplete instrument relating to the obligation of a party. In other back of the check was to the effect that he was assigning only
words, a material alteration is one which changes the items which are P30,000.00 of the value of the document with an instruction to the bank to
required to be stated under Section 1 of the Negotiable Instrument Law. pay P30,000.00 to Montinola and to deposit the balance to Ramos's
credit. This writing was, however, mysteriously obliterated and in its

15 |C a b u c h a n . N e g o C a s e D i g e s t s
Negotiable Instruments Law Case Digests SBCA-SOL ’14-‘15
Agapay.Albarillo.Ambito.Arevalo.Baguilat.Bunag.Cabrera.Claveria.Escalona.Fernando.Ferrer.Flores.Hernando.Hipolito.Lara.Melgar .Mella.Nasam.Nunez.Retardo.Rodriguez.Soriano.Tamayao.Ubaldo
place, a supposed endorsement appearing on the back of the check was Accomodation Party
made for the whole amount of the check. At the time of the transfer of Intestate Estate of Victor Sevilla v. Francisco Sevilla
this check to Montinola, the check was long overdue by about 2-1/2 G.R. No. L-17845 April 27, 1967 || Accommodation Party
years. FACTS:
Sevilla, Varona and Sadaya executed, jointly and severally, in favor
Montinola instituted an action against the PNB and the Provincial of the Bank of the Philippine Islands (BPI), or its order, a promissory note
Treasurer of Misamis Oriental to collect the sum of P100,000, the for P15,000 with interest at 8% per annum, payable on demand. Varona
amount of the aforesaid check. There now appears on the face of said was the only one who received the proceeds of the note. Sevilla and
check the words in parenthesis "Agent, Phil. National Bank" under Sadaya signed the note as co-makers to accommodate Varona. Payments
the signature of Laya purportedly showing that Laya issued the check as were made on account but with an outstanding balance of P4,850.
agent of the Philippine National Bank. BPI then collected from Sadaya the balance with interest.
However, Varona failed to reimburse Sadaya despite repeated demands.
ISSUE: Sevilla died which led to naming Francisco Sevilla (Administrator)
Whether or not the subject check is a negotiable instrument. as administrator. Sadaya then filed a creditor's claim on his estate for the
payment made on the note. Administrator resisted the claim on the
HELD: ground that the deceased Sevilla "did not receive any amount as
No. It was not negotiated according to the Negotiable Instruments consideration for the promissory note," but signed it only "as surety for
Law (NIL) hence it is not a negotiable instrument. There was only a partial Varona".
indorsement and not a negotiation contemplated under the NIL. Only RTC ruled in favour of Sadaya and directed Administrator to pay
P30k of the P100k amount of the check was indorsed. This merely the same from the estate of the deceased Sevilla. CA reversed the decision
makeMontinola a mere assignee – and this is the clear intent of Ramos. and disallowed Sadaya’s claim against the intestate estate.
Ramos was merely assigning P30k to Montinola. Montinola may therefore
not be regarded as an indorsee and PNB has all the right to dishonor the ISSUE:
check. As mere assignee, he is subject to all defenses available to the Whether or not Sadaya can claim against estate of Sevilla as co-
drawer Provincial Treasurer of Misamis Oriental and against Ramos. accommodation party when Verona as principal debtor is not yet
Anent the issue of alteration, the apparent purpose of which is to make the insolvent
drawee (PNB) the drawer against which Montinola can recover from
directly. Such material alteration which was done by Montinola without HELD:
the consent of the parties liable thereon discharges the instrument, NO, CA decision affirmed. The SC held that since Varona received
pursuant to Sec. 124 of the NIL. full value of the promissory note while Sadaya received nothing
Montinola cannot be said to be a holder. He is an assignee. And even if he therefrom, the former is bound by the obligation to reimburse the latter.
is a holder, he is not in good faith because he did not pay the full amount A solidary accommodation maker — who made payment — has
of the consideration for which the P30k was issued to him – he only paid the right to contribution, from his co-accommodation maker, in the
45k Japanese notes out of the 90k Japanese notes consideration. absence of agreement to the contrary between them, and subject to
At any rate, even assuming that there is proper negotiation, Montinola can conditions imposed by law.
no longer encash said check because when he sought to have it encashed Consequently, according to Art. 2073, the requisites before one
in January 1945, it is already stale there being two and half years pass accommodation maker can seek reimbursement from a co-
since its time of issuance. accommodation maker shall not be applicable, unless the payment has
been made in virtue of a judicial demand or unless the principal debtor is
insolvent.
The following are the rules:

16 |C a b u c h a n . N e g o C a s e D i g e s t s
Negotiable Instruments Law Case Digests SBCA-SOL ’14-‘15
Agapay.Albarillo.Ambito.Arevalo.Baguilat.Bunag.Cabrera.Claveria.Escalona.Fernando.Ferrer.Flores.Hernando.Hipolito.Lara.Melgar .Mella.Nasam.Nunez.Retardo.Rodriguez.Soriano.Tamayao.Ubaldo
(1) A joint and several accommodation maker of a negotiable payable to the defendant Jose. This replacement check was also signed by
promissory note may demand from the principal debtor Atty. Oscar Z. Benares and by the plaintiff Ricardo S. Santos, Jr. When
reimbursement for the amount that he paid to the payee; and defendant deposited this replacement check with her account at Family
(2) a joint and several accommodation maker who pays on the Savings Bank, Mayon Branch, it was dishonored for insufficiency of funds.
said promissory note may directly demand reimbursement from This prompted the petitioner to file a case against Atty. Bernares and
his co-accommodation maker without first directing his action Santos for violation of BP22. Meanwhile, during the preliminary
against the principal debtor provided that (a) he made the investigation, Santos tried to tender a cashier’s check for the value of
payment by virtue of a judicial demand, or (b) a principal debtor is the dishonored check but petitioner refused to accept such. This was
insolvent. consigned by Santos with the clerk of court and he instituted charges
In this case, Sadaya's payment to BPI "was made voluntarily and against petitioner.
without any judicial demand," and that "there is an absolute absence of
evidence showing that Varona is insolvent". Hence, Sadaya cannot claim RTC Ruling:The Trial Court held that the consignation was not applicable
from Sevilla’s estate. in the case at bar.
CA Ruling:Reversed and set aside the RTC's judgment of dismissal
ErnesitaCrisologo - Jose (petitioner) vs CA and Ricardo Santos, VP for
Salses of Mover Enterprises(respondents) ISSUE:
177 SCRA 594 || Section 29 Whether or not Mover Enterprises may be held liable on the
Ponente: Regalado. J accommodation instrument, that is, the check issued in favor of herein
petitioner.
FACTS:
Ricardo S. Santos, Jr. was the vice-president of Mover Enterprises, HELD:
Inc. in-charge of marketing and sales; and the president of the said SC modified the decision of respondent court in CA by setting
corporation was Atty. Oscar Z. Benares. Atty. Benares issued Check No. aside and declaring without force and effect its pronouncements and
093553 drawn against Traders Royal Bank, dated June 14, 1980, in the findings insofar as the merits of Criminal Case and the liability of the
amount of P45,000.00 (Exh. '1') payable to defendant Ernestina Crisologo- accused therein are concerned.
Jose. Since the check was under the account of Mover Enterprises, Inc., the Affirmed the CA decision.
same was to be signed by its president, Atty. Oscar Z. Benares, and the Section 29 of the Negotiable Instruments Law which holds an
treasurer of the said corporation. However, since at that time, the accommodation party liable on the instrument to a holder for value,
treasurer of Mover Enterprises was not available, Atty. Benares prevailed although such holder at the time of taking the instrument knew him to be
upon the plaintiff, Ricardo S. Santos, Jr., to sign the aforesaid check as an only an accommodation party, does not include nor apply to corporations
alternate signatory. Plaintiff Ricardo S. Santos, Jr. did sign the check. which are accommodation parties. This is because the issue or
The check was issued to defendant Ernestina Crisologo-Jose in indorsement of negotiable paper by a corporation without consideration
consideration of the waiver or quitclaim by said defendant over a certain and for the accommodation of another is ultra vires. Hence, one who has
property which the Government Service Insurance System (GSIS) agreed taken the instrument with knowledge of the accommodation nature
to sell to the clients(Ong Spouses) of Atty. Oscar Benares, with the thereof cannot recover against a corporation where it is only an
understanding that upon approval by the GSIS of the compromise accommodation party. If the form of the instrument, or the nature of the
agreement with the spouses Ong, the check will be encashed accordingly. transaction, is such as to charge the indorsee with knowledge that the
However, since the compromise agreement was not approved within the issue or indorsement of the instrument by the corporation is for the
expected period of time, the aforesaid check for P45,000.00 was replaced accommodation of another, he cannot recover against the corporation
by Atty. Benares with another Traders Royal Bank check bearing No. thereon.
379299 dated August 10, 1980, in the same amount of P45,000.00 , also

17 |C a b u c h a n . N e g o C a s e D i g e s t s
Negotiable Instruments Law Case Digests SBCA-SOL ’14-‘15
Agapay.Albarillo.Ambito.Arevalo.Baguilat.Bunag.Cabrera.Claveria.Escalona.Fernando.Ferrer.Flores.Hernando.Hipolito.Lara.Melgar .Mella.Nasam.Nunez.Retardo.Rodriguez.Soriano.Tamayao.Ubaldo
By way of exception, an officer or agent of a corporation shall have accommodation, "only as guaranty but not to pay for anything." Why the
the power to execute or indorse a negotiable paper in the name of the check was made out in the amount of P126,129.86 is not explained.
corporation for the accommodation of a third person only if specifically Anyway, the check was actually issued in said amount of P126,129.86, and
authorized to do so. Corollarily, corporate officers, such as the president as already stated, was given by R.Y. Lim to Armstrong, Industries, in
and vice-president, have no power to execute for mere accommodation a payment of an obligation. When the latter deposited the check at its bank,
negotiable instrument of the corporation for their individual debts or it was dishonored because "drawn against insufficient funds." When so
transactions arising from or in relation to matters in which the deposited, the check bore two (2) indorsements, that of "RYL
corporation has no legitimate concern. Since such accommodation paper Construction," followed by that of "Armstrong Industries." On account of
cannot thus be enforced against the corporation, especially since it is not the dishonor of Metrobank Check No. 765380, and on complaint of
involved in any aspect of the corporate business or operations, the Armstrong Industries (through a Mr. Young), Rafael Limson and Artemio
inescapable conclusion in law and in logic is that the signatories thereof Torres were charged in the Regional Trial Court of Manila with a violation
shall be personally liable therefor, as well as the consequences arising of Batas Pambansa Bilang 22. They were acquitted in a decision "on the
from their acts in connection therewith. The fact that for lack of capacity ground that the check in question was not issued by the drawer 'to apply
the corporation is not bound by an accommodation paper does not on account for value,' it being merely for accommodation
thereby absolve, but should render personally liable, the signatories of purposes."|Thereafter a complaint was filed by petitioner against RYL and
said instrument where the facts show that the accommodation involved Steelweld for the recovery of sum of money in payment of the steel bars
was for their personal account, undertaking or purpose and the creditor ordered. RYL was nowhere to be found that is why the proceedings
was aware thereof. commenced as against Steelweld only. The trial court decided in favor of
petitioner but this was reversed by the CA.
Stelco Marketing v. CA
210 SCRA 51 || Accomodation Party ISSUE:
FACTS: Whether Steelweld as an accommodating party can be held liable by
Stelco Marketing Corporation is engaged in the distribution and sale to the Stelco for the dishonored check
public of structural steel bars. On seven (7) different occasions it sold to
RYL Construction, Inc. quantities of steel bars of various sizes and rolls of RULING:
G.I. wire. These bars and wire were delivered at different places at the Under the Negotiable Instruments Law an accommodation party is liable.
indication of RYL Construction, Inc. The aggregate price for the purchases 'SEC. 29.Liability of an accommodation party. — An accommodation party
was P126,859.61. Although the corresponding invoices issued by STELCO is one who has signed the instrument as maker, drawer, acceptor, or
stipulated that RYL would pay "COD" (cash on delivery), the latter made indorser, without receiving value therefor, and for the purpose of lending
no payments for the construction materials thus ordered and delivered his name to some other person. Such a person is liable on the instrument
despite insistent demands for payment by the former. to a holder for value notwithstanding such holder at the time of taking the
instrument knew him to be only an accommodation party.' " It is
On April 4, 1981, RYL gave to Armstrong Industries — described by noteworthy that the Trial Court's pronouncement containing reference to
STELCO as its "sister corporation" and "manufacturing arm" — a check said Section 29 did not specify to whom STEELWELD, as accommodation
drawn against Metrobank in the amount of P126,129.86, numbered party, is supposed to be liable; and certain it is that neither said
765380 and dated April 4, 1981. That check was a company check of pronouncement nor any other part of the judgment of acquittal declared it
another corporation, Steelweld Corporation of the Philippines, signed by liable to STELCO. To be sure, as regards an accommodation party (such as
its President, Peter Rafael Limson, and its Vice-President, Artemio Torres. STEELWELD), lack of notice of any infirmity in the instrument or defect in
The check was issued by Limson at the behest of his friend, Romeo Y. Lim, title of the persons negotiating it, has no application. This is because
President of RYL. Romeo Lim had asked Limson for financial assistance, Section 29 of the law above quoted preserves the right of recourse of a
and the latter had agreed to give Lim a check only by way of "holder for value" against the accommodation party notwithstanding that

18 |C a b u c h a n . N e g o C a s e D i g e s t s
Negotiable Instruments Law Case Digests SBCA-SOL ’14-‘15
Agapay.Albarillo.Ambito.Arevalo.Baguilat.Bunag.Cabrera.Claveria.Escalona.Fernando.Ferrer.Flores.Hernando.Hipolito.Lara.Melgar .Mella.Nasam.Nunez.Retardo.Rodriguez.Soriano.Tamayao.Ubaldo
"such holder, at the time of taking the instrument, knew him to be only an evidence of indebtedness of private respondent. The appellate court
accommodation  party”.  As  far  as  Steelweld  is  concerned,  there  was  no  erred in considering only the statements of account in determining
commercial transaction between said appellant and appellee. Moreover, whether private respondent was indebted to petitioner under the checks.
there is no evidence that appellee Stelco Marketing became a holder for It failed to give due importance to the most telling piece of evidence of
value. Nowhere in the check itself does the name of Stelco Marketing private respondent’s indebtedness --- the checks. The Court stressed that
appear as payee, indorsee or depositor thereof. Finally, appellee's “a check which is regular on its face is deemed prima facie to have
complaint is for the collection of the unpaid accounts for delivery of steel been issued for a valuable consideration and every person whose
bars and construction materials. It having been established that appellee signature appears thereon is deemed to have become a party thereto
had no commercial transaction with appellant Stelco, appellee had no for value” -- Sec. 24 of NIL. And the mere introduction of the instrument
cause of action against said appellant. sued on in evidence prima facie entitles the plaintiff to recovery.

Travel-On v. CA While the Negotiable Instruments Law does refer to accommodation

210 SCRA 352 || Accomodation Party transactions, no such transaction was here shown.
FACTS:
Travel-On (petitioner) is an agency selling airline tickets on commission Sec. 29. Liability of accommodation party. — An accommodation party
basis and Arturo S. Miranda (respondent) procures tickets from Travel-on is one who has signed the instrument as maker, drawer, acceptor, or
on behalf of airline passengers also for a commission. indorser, without receiving value therefor, and for the purpose of lending
his name to some other person. Such a person is liable on the instrument
On June 1972, Travel-on files a suit against Miranda to collect for 6 checks to a holder for value, notwithstanding such holder, at the time of taking
issued by the latter with a total face amount of P115,000. The said checks the instrument, knew him to be only an accommodation party.
were presented by Travel-on and all dishonoured by the drawee bank.
Miranda claimed that he had already paid all his dues to Travel-on and Having issued or indorsed the check, the accommodating party has
that the checks were issued just to accommodate the manager of Travel- warranted to the holder in due course that he will pay the same according
on to show its Board of Directors that Travel-on’s  accounts  receivables  to its tenor. Travel-On obviously was not an accommodated party; it
were somehow still good. The manager denied this explanation of realized no value on the checks which bounced.
Miranda.
BPI vs. Court of Appeals
Both the trial and appellate courts had rejected the checks as evidence of 326 SCRA 641|| Accommodation Party
indebtedness on the ground that the various statements of account FACTS:
prepared by petitioner did not show that Private respondent had an Henry  Chan  owned  a  Continental  Bank  Manager’s  Check  payable 
outstanding balance of P115,000.00 which is the total amount of the to "cash" in the amount of Two Thousand Five Hundred Dollars
checks he issued. ($2,500.00). In 1987, Chan went to the office of Benjamin Napiza and
requested him to deposit the check in his dollar account by way of
ISSUE: accommodation and for the purpose of clearing the same. Private
WON the respondent is liable for the 6 checks he issued because there is respondent Napiza acceded, and agreed to deliver to Chan a signed blank
no accommodation transaction withdrawal slip, with the understanding that as soon as the check is
cleared, both of them would go to the bank to withdraw the amount of the
HELD: check  upon  private  respondent’s  presentation  to  the  bank  of  his 
passbook. Napiza thus endorsed the check and deposited it in a Foreign
The Supreme Court held that the private respondent must be held liable Currency Deposit Unit (FCDU) Savings Account he maintained with
on the six checks he issued, as those checks in themselves constituted BPI. Using the blank withdrawal slip given by private respondent to Chan,

19 |C a b u c h a n . N e g o C a s e D i g e s t s
Negotiable Instruments Law Case Digests SBCA-SOL ’14-‘15
Agapay.Albarillo.Ambito.Arevalo.Baguilat.Bunag.Cabrera.Claveria.Escalona.Fernando.Ferrer.Flores.Hernando.Hipolito.Lara.Melgar .Mella.Nasam.Nunez.Retardo.Rodriguez.Soriano.Tamayao.Ubaldo
one Ruben Gayon, Jr. was able to withdraw the amount of $2,541.67 from give the certificate of registration unless there is a showing that a party is
Napiza's FCDU account. It turned out that said check deposited by private interested in the purchase of the car. Gatchalian subsequently issued a
respondent was a counterfeit check. When petitioner BPI demanded the check together with the assurance that Gonzales will only be for
return of $2,500.00, private respondent claimed that he deposited the safekeepimg, and to be returned the following day, which the car and the
check "for clearing purposes" only to accommodate Chan. Petitioner certificate of registration will be delivered. When Gonzales failed to
claims that private respondent, having affixed his signature at the dorsal deliver the same, Gatchalian issued a Stop Payment Order, and the same
side of the check, should be liable for the amount stated therein in was issued without notice to any of the parties. Meanwhile spouses
accordance with the provision of the Negotiable Instruments Law on the Manuel and Matilde Gonzales used the check for payment of the
liability of a general indorser (Sec. 66). indebtedness of Matilde to De Ocampo Clinic. De Ocampo in turn failed to
encash the check due to the Stop Payment Order. Gatchalian claims that
ISSUE: De Ocampo is not entitled to payment because there was no valid
Whether private respondent is obliged to return the money paid indorsement. De Ocampo argued that he is a holder in due course, and is
out by BPI on a counterfeit check even if he deposited the check "for deemed entitled to such payment.
clearing purposes" only to accommodate Chan
ISSUE:
HELD: Whether or not De Ocampo is a holder in due course
No. The Supreme Court ruled that ordinarily, Napiza would have
been liable because he is an accommodation indorser. But due to the HELD:
attendant circumstances, Napiza is discharged from liability. No. The Supreme Court stated that the rule that a possessor of the
The withdrawal slip indicates as well as the rules promulgated by BPI that instrument is a prima facie holder in due course does not apply because
withdrawal from the bank should be accompanied by the presentment of there was a defect in the title of Manuel Gonzales (holder), because the
the account holder’s (Napiza’s) savings bankbook. This was not done so in  instrument is not payable to him or to bearer. As holders title was
the case at bar because Gayon was able to withdraw without it. Further, defective of suspicious, it cannot be stated that De Ocampo (payee)
BPI allowed the withdrawal even before the check cleared. BPI already acquired  the  check  without  knowledge  of  the  defect  of  the  holder’s  title, 
credited the $2,500.00 to Napiza’s account even without the drawee bank and for this reason the presumption that it is a holder in due course or
clearing the check. This is contrary to common banking practices and that it acquired the instrument in good faith does not exist. The Supreme
because of such negligence and lack of diligence, BPI, as the collecting Court further stated that De Ocampo was not in good faith, and that he
bank, shall suffer the loss. should have inquired as to the legal title of the check. The fact that there
was no obligation between Gatchalian and De Ocampo yet the latter was
Agro Conglomerates Inc. v. CA still named the payee should have been sufficient cause to inquire as to
GR No. 117660 || Accommodation Party the title of the check.

Holders in Due Course Mesina v. Intermediate Appellate Court

De Ocampo v. Gatchalian G.R. No. 70145 (1986) || Holder in Due Course
3 SCRA 596 || Holders in due course FACTS
FACTS: Respondent Jose Go, on December 29, 1983, purchased from Associated
Manuel Gonzales represented himself to Anita Gatchalian as the agent of Bank Cashier's Check No. 011302 for P800,000.00. Unfortunately, Jose Go
the owner of the car, De Ocampo Clinic. Upon finding the price of the car left said check on the top of the desk of the bank manager when he left the
quoted by Manuel Gonzales, Anita Gatchalian requested that the car be bank. The bank manager entrusted the check for safekeeping to a bank
brought the following day together with the certificate of registration. official, a certain Albert Uy, who had then a visitor in the person of
However, Gonzales advised that the owner of the car will not be willing to Alexander Lim, Uy had to answer a phone call on a nearby telephone after

20 |C a b u c h a n . N e g o C a s e D i g e s t s
Negotiable Instruments Law Case Digests SBCA-SOL ’14-‘15
Agapay.Albarillo.Ambito.Arevalo.Baguilat.Bunag.Cabrera.Claveria.Escalona.Fernando.Ferrer.Flores.Hernando.Hipolito.Lara.Melgar .Mella.Nasam.Nunez.Retardo.Rodriguez.Soriano.Tamayao.Ubaldo
which he proceeded to the men's room. When he returned to his desk, his without considering other things. Petitioner failed to substantiate his
visitor Lim was already gone. When Jose Go inquired for his cashier's claim that he is a holder in due course and for consideration or value as
check from Albert Uy, the check was not in his folder and nowhere to be shown by the established facts of the case. Admittedly, petitioner became
found. The latter advised Jose Go to go to the bank to accomplish a "STOP the holder of the cashier's check as endorsed by Alexander Lim who stole
PAYMENT" order, which suggestion Jose Go immediately followed. He also the check. He refused to say how and why it was passed to him. He had
executed an affidavit of loss. Albert Uy went to the police to report the loss therefore notice of the defect of his title over the check from the start. The
of the check, pointing to the person of Alexander Lim as the one who could holder of a cashier's check who is not a holder in due course cannot
shed light on it. enforce such check against the issuing bank which dishonors the same. If a
The records of the police show that Associated Bank received the lost payee of a cashier's check obtained it from the issuing bank by fraud, or if
check for clearing on December 31, 1983, coming from Prudential Bank, there is some other reason why the payee is not entitled to collect the
Escolta Branch. The check was immediately dishonored by Associated check, the respondent bank would, of course, have the right to refuse
Bank by sending it back to Prudential Bank, with the words "Payment payment of the check when presented by the payee, since respondent
Stopped" stamped on it. However, the same was again returned to bank was aware of the facts surrounding I he loss of the check in question.
Associated Bank on January 4, 1984 and for the second time it was Moreover, there is no similarity in the cases cited by petitioner since
dishonored. Several days later, respondent Associated Bank received a respondent bank did not issue the cashier's check in payment of its
letter, dated January 9, 1984, from a certain Atty. Lorenzo Navarro obligation. Jose Go bought it from respondent bank for purposes of
demanding payment on the cashier's check in question, which was being transferring his funds from respondent bank to another bank near his
held by his client. He however refused to reveal the name of his client and establishment realizing that carrying money in this form is safer than if it
threatened to sue, if payment is not made. Respondent bank, in its letter, wherein cash. The check was Jose Go's property when it was misplaced or
dated January 20, 1984, replied saying the check belonged to Jose Go who stolen hence he stopped its payment. At the outset, respondent bank knew
lost it in the bank and is laying claim to it. it was Jose Go's check and no one else since Go had not paid or indorsed it
Respondent Associated Bank on February 2, 1984 filed an action for to anyone. The bank was therefore liable to nobody on the check but Jose
Interpleader naming as respondent, Jose Go and one John Doe, Atty. Go. The bank had no intention to issue it to petitioner but only to buyer
Navarro's then unnamed client. On even date, respondent bank received Jose Go. When payment on it was therefore stopped, respondent bank was
summons and copy of the complaint for damages of a certain Marcelo A. not the one who did it but Jose Go, the owner of the check. Respondent
Mesina. Simultaneously, respondent bank, thru representative Albert Uy, bank could not be drawer and drawee for clearly, Jose Go owns the money
informed Cpl. Gimao of the Western Police District that the lost check of it represents and he is therefore the drawer and the drawee in the same
Jose Go is in the possession of Marcelo Mesina, herein petitioner. When manner as if he has a current account and he issued a check against it; and
Cpl. Gimao went to Marcelo Mesina to ask how he came to possess the from the moment said cashier's check was lost and or stolen no one
check, he said it was paid to him by Alexander Lim in a "certain outside of Jose Go can be termed a holder in due course because Jose Go
transaction" but refused to elucidate further. had not indorsed it in due course. The check in question suffers from the
infirmity of not having been properly negotiated and for value by
ISSUE respondent Jose Go who as already been said is the real owner of said
Whether Mesina is a holder in due course instrument.

HELD Liability of the General Indorser

Petitioner's allegations hold no water. Theories and examples advanced METROPOL v. SAMBOK MOTORS COMPANY
by petitioner on causes and effects of a cashier's check such as 1) it cannot G.R. No. L-39641 | LIABILITY OF THE GENERAL INDORSER
be countermanded in the hands of a holder in due course and 2) a FACTS:
cashier's check is a bill of exchange drawn by the bank against itself — are One Dr. Javier Villaruel executed a promissory note in the amount of P15,
general principles which cannot be aptly applied to the case at bar, 939.00 in favor of Ng Sambok Sons Motors Co, LTD. It was agreed that it

21 |C a b u c h a n . N e g o C a s e D i g e s t s
Negotiable Instruments Law Case Digests SBCA-SOL ’14-‘15
Agapay.Albarillo.Ambito.Arevalo.Baguilat.Bunag.Cabrera.Claveria.Escalona.Fernando.Ferrer.Flores.Hernando.Hipolito.Lara.Melgar .Mella.Nasam.Nunez.Retardo.Rodriguez.Soriano.Tamayao.Ubaldo
was payable in twelve (12) equal monthly installments with interest rate qualification. A person who indorses without qualification engages that on
at one percent per month. And in case on non-payment of any of the due presentment, the note shall be accepted or paid, or both as the case
installments, the total principal sum then remaining unpaid shall become maybe, and that if it be dishonored, he will pay the amount thereof to the
due and payable with an additional interest of 25 percent of the total holder. The words added by Sambok do not limit his liability, but rather
amount due. A sister of Ng Sambok Sons Motors Co., LTD., Sambok Motors confirm his obligation as general indorser.
Company, negotiated and indorsed the promissory note in favor of
Metropol Financing & Investment Corporation. Dr. Villaruel defaulted in Maralit v. Imperial
the payment of the installements and thus, the promissory note was 301 SCRA 605 (1999) || Liability of General Indorser
presented to him. He failed to pay the promissory note as demanded, thus, FACTS:
Ng Sambok Sons Motors Co., Ltd. notified Sambok as an indorsee that the Petitioner Ester B. Maralit filed three complaints for estafa through
promissory note has been dishonored and demanded payment. Ng falsification of commercial documents through reckless imprudence
Sambok Sons filed a complaint for the collection of sum of money due to against respondent Jesusa Corazon L. Imperial. Maralit alleged that she
the failure of Sambok to pay. During the pendency of the case Villaruel was assistant manager of the Naga City branch of the Philippine National
died and the lower court dismissed the case against said defendant Bank (PNB); that on May 20, 1992, June 1, 1992, and July 1, 1992
Villaruel. ApellantSambok dissatisfied with the decision, appealed and Imperial separately deposited in her savings account at the PNB three
contested that by adding the words “with recourse” in the indorsement, it  United States treasury warrants and on the same days respectively
becomes a qualified indorser. Therefore, it does not warrant that in case withdrew their peso equivalent; and that the treasury warrants were
that the maker defaulted to pay upon presentment it will pay the amount subsequently returned one after the other by the United States Treasury,
to the holder. through the Makati branch of the Citibank, on the ground that the
amounts thereof had been altered. Maralit claimed that, as a consequence,
ISSUE: she was held personally liable by the PNB for the total amount
Whether or not respondent Sambok Motors Company is a qualified of P320,287.30.
indorser and thus, is not liable upon the failure of payment of the maker Imperial claimed that she merely helped a relative encash the
treasury warrants; that she deposited the same in her savings account and
HELD: then withdrew their peso equivalent with the approval of Maralit; that she
The court held that respondent Sambok Motors Company is not a qualified gave the money to her relative; that she did not know that the amounts on
indorser. A qualified indorserment constitutes the indorser a mere the treasury warrants had been altered nor did she represent to petitioner
assignor of the title to the instrument. It may be made by adding to the that the treasury warrants were genuine; and that upon being informed of
indorser’s signature the words “without recourse” or any words of similar  the dishonor of the warrants she immediately contacted her relative and
import. Such indorsement relieves the indorser of the general obligation signed an acknowledgment of debt promising to pay the total amount of
to pay if the instrument is dishonored but not of the liability arising from the treasury warrants.
warranties on the instrument as provided by section 65 of NIL. However, After preliminary investigation, the City Prosecutor of Naga City filed
Sambok indorsed the note “with recourse” and even waived the notice of  three informations against Imperial in the Trial Court who acquitted her
demand, dishonor, protest and presentment. from criminal liability but found her civilly liable as indorser of the checks
which is the subject matter of the criminal action. Accordingly, the sheriff
Recourse means resort to a person who is secondarily liable after the served a notice of garnishment on the PNB. Later, she moved to quash the
default of the person who is primarily liable. Sambok by indorsing the writ  of  execution  on  the  ground  “that  the  judgment  did  not  order  the 
note  “with  recourse”  does  not  make  itself  a  qualified  indorser  but  a  accused to pay a specific amount of money to a particular person as it
general indorser who is secondarily liable, because by such indorsement, merely adjudicated the criminal aspect but not the civil aspect. Imperial
it agreed that if Villaruel fails to pay the not the holder can go after it. The then filed a petition for certiorari and prohibition in the Regional Trial
effect of such indorsement is that the note was indorsed witout Court who held that the MTC decision did not really find Imperial civilly

22 |C a b u c h a n . N e g o C a s e D i g e s t s
Negotiable Instruments Law Case Digests SBCA-SOL ’14-‘15
Agapay.Albarillo.Ambito.Arevalo.Baguilat.Bunag.Cabrera.Claveria.Escalona.Fernando.Ferrer.Flores.Hernando.Hipolito.Lara.Melgar .Mella.Nasam.Nunez.Retardo.Rodriguez.Soriano.Tamayao.Ubaldo
liable because in fact it was Maralit who was found responsible for making aspect  of  Sapiera’s  case.  The  Court  of  Appeals  held  Sapiera  liable  for  the 
the defraudation possible. civil aspect and was ordered to pay Sua.

ISSUE: ISSUE:
Whether or not Imperial is civilly liable as indorser of the Whether or not Sapiera is civilly liable although there was an acquittal on
checks subject matter of a criminal action the criminal aspect of the charges against her

HELD: HELD:
Yes. The RTC was REVERSED. The decision of the MTC was an Petitioner is liable for the value of the checks. Under the Negotiable
adjudication of both the criminal and civil liability of Imperial inasmuch as Instruments law, Sapiera is considered to be am indorser of check, and
it does not appear that Maralit instituted a separate civil action or under Section 66, she would be held liable to pay the holder who may be
reserved or waived the right to bring such action. compelled to pay the instrument. As provided for by law, every indorser
The Court symphatizes with the complainant that there was indeed who indorses without qualification, engages that on due presentment, it
damage and loss, but said loss is chargeable to the Imperial who upon her shall be accepted of paid or both, as the case may be, and that if it be
indorsements warrant that the instrument is genuine in all respect what it dishonored and the necessary proceedings on dishonor be duly taken, he
purports to be and that she will pay the amount thereof in case of will pay the amount thereof to the holder or to any subsequent indorser
dishonor. (Sec. 66 Negotiable Instrument Law) who may be compelled to pay it.
In  this  case,  to  affirm  the  RTC’s  decision  would  be  to  hold 
that Imperial was absolved from both criminal and civil liability by the
MTC. Such reading of the MTC decision will not, however, bear analysis. BPI v. CA and Napiza
For one, the dispositive portion of the decision of the MTC expressly GR No. 11239 || Liability of General Indorser
declares respondent to be “civilly liable as indorser of the checks which is  FACTS:
[sic] the subject matter of the criminal action.” To find therefore that there  September 3, 1987: Bejanmin Napiza deposited in Foreign Currency
is no declaration of civil liability of respondent would be to disregard the Deposit Unit (FCDU) Savings Account which he maintained in BPI a
judgment of the MTC. Worse, it would be to amend a final and executory Continental Bank Manager's Check dated August 17, 1984, payable to
decision of a court. "cash" $2,500.00

Sapiera v. CA check belonged to Henry who went to the office of Napiza and requested
301 SCRA 605 (1999) || Liability of General Indorser him to deposit the check in his dollar account by way of accommodation
FACTS: and for the purpose of clearing the same.
On Several occasions, Remedios Sapiera, a sari-sari store owner
purchased from Monrico Mart certain grocery items, and paid for them Napiza acceded, and agreed to deliver to Chan a signed blank withdrawal
with checks issued by Arturo de Guzman. These checks were signed at the slip, with the understanding that as soon as the check is cleared, both of
back by the Sapiera. When presented for payment, the checks were them would go to the bank to withdraw
dishonored because the drawer’s account was already closed. Private
respondent Ramon Sua informed Arturo de Guzman and petitioner about October 23, 1984: Using the blank withdrawal slip given by Napiza to
the dishonor. As a result, Remedios Sapiera and Arturo de Guzman were Chan, Ruben Gayon, Jr. was able to withdraw
charged with estafa. The RTC acquitted Sapiera of all charges of estafa but
did not rule on the civil aspect of the case. Arturo de Guzman was held the withdrawal slip shows that the amount was payable to Ramon A. de
liable for the two BP 22 cases and was ordered to pay Sua for civil Guzman and Agnes C. de Guzman and was duly initialed by the branch
indemnity and was sentenced for imprisonment. Sua appealed the civil assistant manager, Teresita Lindo

23 |C a b u c h a n . N e g o C a s e D i g e s t s
Negotiable Instruments Law Case Digests SBCA-SOL ’14-‘15
Agapay.Albarillo.Ambito.Arevalo.Baguilat.Bunag.Cabrera.Claveria.Escalona.Fernando.Ferrer.Flores.Hernando.Hipolito.Lara.Melgar .Mella.Nasam.Nunez.Retardo.Rodriguez.Soriano.Tamayao.Ubaldo
Lower Court dismissed the complaint.
November 20, 1984: BPI received communication from the Wells Fargo
Bank International of New York that check deposited by Napiza was a Having admitted that it committed a "mistake" in not waiting for the
counterfeit check because it was "not of the type or style of checks issued clearance of the check before authorizing the withdrawal of its value or
by Continental Bank International." proceeds, BPI should suffer the resultant loss.

Mr. Ariel Reyes, manager of BPI, instructed one of its employees, Benjamin CA: Affirmed the lower courts decision
D. Napiza IV, who is Napiza's son, to inform his father that the check
bounced. BPI committed "clears gross negligence" in allowing Ruben Gayon, Jr. to
withdraw the money without presenting BPI's passbook and, before the
Reyes himself sent a telegram to Napiza regarding the dishonor of the check was cleared and in crediting the amount indicated therein in
check Napiza's account.

Napiza's son told Reyes that: BPI claims that Napiza, having affixed his signature at the dorsal side of
the check, should be liable in accordance to Sec. 66 of the Negotiable
check been assigned "for encashment" to Ramon A. de Guzman and/or Instrument Law and sec 65.
Agnes C. de Guzman after it shall have been cleared upon instruction of
Chan ISSUE:
Whether or not Napiza can be held liable as an indorser or
his father immediately tried to contact Chan but Chan was out of town accommodation party

Napiza's son undertook to return the amount of $2,500.00 to BPI HELD:

NO.
August 12, 1986: BPI filed a complaint against Napiza for the return of ordinarily Napiza may be held liable as an indorser of the check or even as
$2,500.00 or the prevailing peso equivalent plus legal interest, attorney's an accommodation party
fees, and litigation and/or costs of suit
However, to hold Napiza liable for the amount of the check he deposited
Napiza: by the strict application of the law and without considering the attending
circumstances in the case would result in an injustice and in the erosion of
admitting that he indeed signed a "blank" withdrawal slip with the the public trust in the banking system.
understanding that the amount deposited would be withdrawn only after
the check in question has been cleared. The interest of justice thus demands looking into the events that led to the
encashment of the check.
However, without his knowledge, it was withdrawn through collusion
with one of BPI's employees. under the Philippine foreign currency deposit system, two requisites must
be presented to petitioner bank by the person withdrawing an amount:
BPI aslo filed a motion for admission of a third party complaint against
Chan. He alleged that "thru strategem and/or manipulation," Chan was (a) a duly filled-up withdrawal slip, and
able to withdraw the amount of $2,500.00 even without Napiza's
passbook. Napiza signed a blank deposit slip

24 |C a b u c h a n . N e g o C a s e D i g e s t s
Negotiable Instruments Law Case Digests SBCA-SOL ’14-‘15
Agapay.Albarillo.Ambito.Arevalo.Baguilat.Bunag.Cabrera.Claveria.Escalona.Fernando.Ferrer.Flores.Hernando.Hipolito.Lara.Melgar .Mella.Nasam.Nunez.Retardo.Rodriguez.Soriano.Tamayao.Ubaldo
BUT withdrawal slip itself indicates a special instruction that the amount and Trust Company in favor of Nissho. Against this letter of credit, drafts
is payable to "Ramon A. de Guzman &/or Agnes C. de Guzman." were drawn and issued by Nissho, which were all paid by the Prudential
Bank through its correspondent in Japan. Two of these drafts were
(b) the depositor's passbook 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
In depositing the check in his name, Napiza did not become the outright as Philippine Rayon Mills was not able to pay its obligations arising from
owner of the amount stated therein. By depositing the check with BPI, he the letter of credit. The lower court ordered PRMI to pay for the 2 drafts
was, in a way, merely designating BPI as the collecting bank. which were accepted the 10 were not yet accepted and for Chi it was
dismissed. The Respondent court ruled that with regard to the ten drafts
This is in consonance with the rule that a negotiable instrument, such as a which were not presented and accepted, no valid demand for payment can
check, whether a manager's check or ordinary check, is not legal tender be made. Petitioner however claims that the drafts were sight drafts which
did not require presentment for acceptance to Philippine Rayon.
Negligence is the omission to do something which a reasonable man,
guided by those considerations which ordinarily regulate the conduct of ISSUE:
human affairs, would do, or the doing of something which a prudent and Whether presentment for acceptance of the drafts was indispensable to
reasonable man would do make Philippine Rayon liable thereon

While it is true that Napiza's having signed a blank withdrawal slip set in RULING:
motion the events that resulted in the withdrawal and encashment of the NO. Petition GRANTED. Philippine Rayon Mills, Inc. liable on the
counterfeit check, the negligence of BPI's personnel was the proximate 12 drafts. Anacleto R. Chi (as guarantor) secondarily liable on the trust
cause of the loss that petitioner sustained. receipt. In the case at bar, the drawee was necessarily the herein
petitioner. It was to the latter that the drafts were presented for
Proximate cause, which is determined by a mixed consideration of logic, payment. There was in fact no need for acceptance as the issued drafts
common sense, policy and precedent, is "that cause, which, in natural and are sight drafts. Presentment for acceptance is necessary only in the
continuous sequence, unbroken by any efficient intervening cause, cases expressly provided for in Section 143 of the Negotiable Instruments
produces the injury, and without which the result would not have Law (NIL). The said section provides that presentment for acceptance
occurred." must be made:

The proximate cause = disregard of its own rules and the clearing (a) Where the bill is payable after sight, or in any other case, where
requirement in the banking system 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
Presentment for Payment/Acceptance acceptance; or
PRUDENTIAL BANK vs. INTERMEDIATE APPELLATE COURT, (c) Where the bill is drawn payable elsewhere than at the residence
PHILIPPINE RAYON MILLS, INC. and ANACLETO R. CHI or place of business of the drawee.
G.R. No. 74886 December 8, 1992 || (Presentment for acceptance)
FACTS: In no other case is presentment for acceptance necessary in order
Philippine Rayon Mills, Inc. entered into a contract with Nissho Co., to render any party to the bill liable. Obviously then, sight drafts do not
Ltd. of Japan for the importation of textile machineries under a five-year require presentment for acceptance.
deferred payment plan. To effect payment for said machineries, Philippine
Rayon Mills opened a commercial letter of credit with the Prudential Bank

25 |C a b u c h a n . N e g o C a s e D i g e s t s
Negotiable Instruments Law Case Digests SBCA-SOL ’14-‘15
Agapay.Albarillo.Ambito.Arevalo.Baguilat.Bunag.Cabrera.Claveria.Escalona.Fernando.Ferrer.Flores.Hernando.Hipolito.Lara.Melgar .Mella.Nasam.Nunez.Retardo.Rodriguez.Soriano.Tamayao.Ubaldo
Wong vs. CA June 5, 1986, or 157 days after the December 30, 1985 maturity date, the
G.R. No. 117857 February 2, 2001 || PRESENTMENT FOR presumption of knowledge of lack of funds under Section 2 of B.P. Blg. 22
PAYMENT/ACCEPTANCE should not apply to him. Under Section 186 of the Negotiable Instruments
FACTS: Law,  “a  check  must  be  presented  for  payment  within  a  reasonable  time 
Petitioner Wong was an agent of Limtong Press. Inc. (LPI), a manufacturer 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 
of calendars. LPI would print sample calendars, then give them to agents
check becomes stale after more than six (6) months, or 180 days. Private
to present to customers. The agents would get the purchase orders of respondent herein deposited the checks 157 days after the date of the
customers and forward them to LPI. After printing the calendars, LPI check. Hence said checks cannot be considered stale. As found by the trial
would ship the calendars directly to the customers. Thereafter, the agents court, private respondent did not deposit the checks because of the
would come around to collect the payments. Petitioner, however, had a reassurance of petitioner that he would issue new checks. Upon his failure
history of unremitted collections, which he duly acknowledged in a to do so, LPI was constrained to deposit the said checks. After the checks
confirmation receipt he co-signed  with  his  wife.  Hence,  petitioner’s  were dishonored, petitioner was duly notified of such fact but failed to
customers were required to issue postdated checks before LPI would make arrangements for full payment within five (5) banking days thereof.
There is, on record, sufficient evidence that petitioner had knowledge of
accept their purchase orders. In early December 1985, Wong issued six
the insufficiency of his funds in or credit with the drawee bank at the time
(6) postdated checks totaling P18,025.00, all dated December 30, 1985 of issuance of the checks.
and drawn payable to the order of LPI. These checks were initially
intended to guarantee the calendar orders of customers who failed to The International Corporate Bank v. Sps. Gueco
issue post-dated checks. However, following company policy, LPI refused GR No. 141968 || Presentment for Payment
to accept the checks as guarantees. Instead, the parties agreed to apply the Facts:
checks  to  the  payment  of  petitioner’s  unremitted collections for 1984 Spouses Francis S. Gueco and Ma. Luz E. Gueco obtained a loan from
amounting to P18,077.07. LPI waived the P52.07 difference. Before the petitioner InternationalCorporate Bank (now Union Bank of the
maturity of the checks, petitioner prevailed upon LPI not to deposit the Philippines) to purchase a car — a Nissan Sentra 1600 4DR,
checks and promised to replace them within 30 days. However, petitioner 1989Model. In consideration thereof, the Spouses executed
reneged on his promise. Hence, on June 5, 1986, LPI deposited the checks promissory notes which were payable in monthlyinstallments and
with Rizal Commercial Banking Corporation (RCBC). The checks were chattel mortgage over the car to serve as security for the notes. The
returned  for the  reason  “account  closed.”  On  June  20,  1986,  complainant  Spouses defaulted inpayment of installments.Consequently, the
through counsel notified the petitioner of the dishonor. Petitioner failed to Bank filed on 7 August 1995 a civil action (Civil Case 658-95)for
"Sum of Money with Prayer for a Writ of Replevin" before the
make arrangements for payment within five (5) banking days. On
Metropolitan Trial Court of Pasay City. Desi Tomas, the Bank's
November 6, 1987, petitioner was charged with three (3) counts of
Assistant VicePresident demanded payment of the amount of
violation of B.P. Blg. 224. The trial court found him guilty and the Court of
P184,000.00 which represents the unpaid balance for the carloan.
Appeals affirmed the decision. Hence, the present petition.
After some negotiations and computation, the amount was lowered
to P154,000.00, However, as a resultof the non-payment of the
ISSUE:
reduced amount on that date, the car was detained inside the bank's
Whether or not LPI deposited the checks within reasonable time.
compound.
HELD:
In the meeting of 29 August 1995, Dr. Gueco delivered a manager's
Yes. Petitioner avers that since the complainant deposited the checks on

26 |C a b u c h a n . N e g o C a s e D i g e s t s
Negotiable Instruments Law Case Digests SBCA-SOL ’14-‘15
Agapay.Albarillo.Ambito.Arevalo.Baguilat.Bunag.Cabrera.Claveria.Escalona.Fernando.Ferrer.Flores.Hernando.Hipolito.Lara.Melgar .Mella.Nasam.Nunez.Retardo.Rodriguez.Soriano.Tamayao.Ubaldo
check representing thereduced amount of P150,000.00. Said check years was considered a stale check. Failure of a payee to encash
was given to Mr. Rivera, a representative of the bank However,since acheck for more than 10 years undoubtedly resulted in the check
Dr. Gueco refused to sign the joint motion to dismiss, he was made becoming stale. Thus, even a delay of 1 week or two (2) days, under
to execute a statement to the effectthat he was withholding the the specific circumstances of the certain cases constituted
payment of the check. Subsequently, in a letter addressed to Ms. unreasonable time as amatter of law. Herein, the check involved is
Desi Tomas, vicepresident of the bank, dated 4 September 1995, Dr. not an ordinary bill of exchange but a manager's check. A manager's
Gueco instructed the bank to disregard the "hold order"letter and check is one drawn by the bank's manager upon the bank itself. It is
demanded the immediate release of his car, to which the former similar to a cashier's checkboth as to effect and use. A cashier's
replied that the condition of signing the joint motion to dismiss check is a check of the bank's cashier on his own or another check.
must be satisfied and that they had kept the check which could be Ineffect, it is a bill of exchange drawn by the cashier of a bank upon
claimed by Dr.Gueco anytime. While there is controversy as to the bank itself, and accepted in advance bythe act of its issuance. It
whether the document evidencing the order to hold payment of the is really the bank's own check and may be treated as a promissory
check was formally offered as evidence by the bank, it appears from note with the bankas a maker. The check becomes the primary
the pleadings that said check has not been encashed. obligation of the bank which issues it and constitutes its
writtenpromise to pay upon demand. The mere issuance of it is
Issue: considered an acceptance thereof. If treated aspromissory note, the
Whether the bank was negligent in opting not to deposit or use the drawer would be the maker and in which case the holder need not
manager’s check prove presentment forpayment or present the bill to the drawee for
acceptance. Even assuming that presentment is needed, failure
Held: topresent for payment within a reasonable time will result to the
NO. A stale check is one which has not been presented for payment discharge of the drawer only to the extent ofthe loss caused by the
within a reasonable time after its issue. It is valueless and, delay. Failure to present on time, thus, does not totally wipe out all
therefore, should not be paid. Under the negotiable instruments liability. In fact, thelegal situation amounts to an acknowledgment
law, an instrument not payable on demand must be presented for of liability in the sum stated in the check. In this case, theGueco
payment on the day it falls due. When the instrument is payableon spouses have not alleged, much less shown that they or the bank
demand, presentment must be made within a reasonable time after which issued the manager's check hassuffered damage or loss
its issue. In the case of a bill of exchange, presentment is sufficient if caused by the delay or non-presentment. Definitely, the original
made within a reasonable time after the last negotiation thereof. A obligation to paycertainly has not been erased. It has been held that,
check must be presented for payment within a reasonable time after if the check had become stale, it becomes imperative thatthe
its issue, and in determining what is a "reasonable time," regard is circumstances that caused its non-presentment be determined.
to be had to the nature of the instrument, the usage of trade or Herein, the bank held on the check andrefused to encash the same
business with respect to such instruments, and the facts of the because of the controversy surrounding the signing of the joint
particular case. The test is whether the payee employed such motion to dismiss. The Court saw no bad faith or negligence in this
diligence as a prudent man exercises in his own affairs. This is position taken by the Bank.
because the nature and theory behind the use of a check points to
its immediate use and payability. In a case, a check payable on
demand which was long overdue by about two and a half (2-1/2)

27 |C a b u c h a n . N e g o C a s e D i g e s t s
Negotiable Instruments Law Case Digests SBCA-SOL ’14-‘15
Agapay.Albarillo.Ambito.Arevalo.Baguilat.Bunag.Cabrera.Claveria.Escalona.Fernando.Ferrer.Flores.Hernando.Hipolito.Lara.Melgar .Mella.Nasam.Nunez.Retardo.Rodriguez.Soriano.Tamayao.Ubaldo
Checks that these checks were merely issued to payee as security and not for
State Investment House Inc., v. Court of Appeals value.
GR No. 101163 || Checks Consequently, petitioner is indeed a holder in due course. As such,
FACTS: it holds the instruments free from any defect of title of prior parties, and
Private respondent, Nora B. Moulic issued to Corazon Victoriano, from defenses available to prior parties among themselves; it may,
as security for pieces of jewelry to be sold on commission, two (2) post- therefore, enforce full payment of the checks.
dated Equitable Banking Corporation checks in the amount P50,000.00 Since she was responsible for the dishonor of her checks, there was no
each, one dated 30 August 1979 and the other, 30 September 1979. need to serve her Notice of Dishonor, which is simply bringing to the
Thereafter, the payee negotiated the checks to petitioner State Investment knowledge of the drawer or indorser of the instrument, either verbally or
House. Inc. by writing, the fact that a specified instrument, upon proper proceedings
Moulic failed to sell the pieces of jewelry so she returned them to taken, has not been accepted or has not been paid, and that the party
the payee before the maturity dates of the checks. However, the checks notified is expected to pay it.
could no longer be retrieved as they had already been negotiated. Moulic, as drawer, is liable for the value of the checks she issued to
Consequently, Moulic withdrew her funds from the drawee bank. the holder in due course, State Investment, without prejudice to any
Upon presentment for payment, the checks were dishonored for action for recompense she may pursue against Victoriano as Third-Party
insufficiency of funds so State Investment notified Moulic of the dishonour Defendants who had already been declared as in default.
of the checks, which Moulic denied receiving notice thereof. State
Investment then sued to recover the value of the checks. However, Moulic BATAAN CIGAR AND CIGARETTE FACTORY, INC. vs. THE COURT OF
contends that she incurred no obligation on the checks because the APPEALS and STATE INVESTMENT HOUSE, INC.
jewelry was never sold and the checks were negotiated without her G.R. No. 93048. March 3, 1994 || Section 185
knowledge and consent. NOCON, J p:

ISSUE: FACTS:
Whether or not petitioner is a holder in due course therefore Petitioner, Bataan Cigar & Cigarette Factory, Inc. (BCCFI), a corporation
making Moulic liable for the value of the checks she issued. involved in the manufacturing of cigarettes, engaged one of its suppliers,
King Tim Pua George (herein after referred to as George King), to deliver
HELD: 2,000 bales of tobacco leaf starting October 1978. In consideration
Sec. 52 of the Negotiable Instruments Law states: A holder in due thereof, BCCFI, on July 13, 1978 issued crossed checks post dated
course is a holder who has taken the instrument under the following sometime in March 1979 in the total amount of P820,000.00. Relying on
conditions: (a) That it is complete and regular upon its face; (b) That he the supplier's representation that he would complete delivery within
became the holder of it before it was overdue, and without notice that it three months from December 5, 1978, petitioner agreed to purchase
was previously dishonored, if such was the fact; (c) That he took it in good additional 2,500 bales of tobacco leaves, despite the supplier's failure to
faith and for value; (d) That at the time it was negotiated to him he had no deliver in accordance with their earlier agreement. Again petitioner issued
notice of any infirmity in the instrument or defect in the title of the person postdated crossed checks in the total amount of P1,100,000.00, payable
negotiating it. sometime in September 1979.
With that, evidence clearly shows that: (a) on their faces the post-
dated checks were complete and regular: (b) petitioner bought these During these times, George King was simultaneously dealing with private
checks from the payee, Corazon Victoriano, before their due dates;(c) respondent State Investment House, Inc (SIHI). On July 19, 1978, he sold
petitioner took these checks in good faith and for value, albeit at a at a discount check TCBT 551826 5 bearing an amount of P164,000.00,
discounted price; and, (d) petitioner was never informed nor made aware post dated March 31, 1979, drawn by petitioner, naming George King as
payee to SIHI. On December 19 and 26, 1978, he again sold to respondent

28 |C a b u c h a n . N e g o C a s e D i g e s t s
Negotiable Instruments Law Case Digests SBCA-SOL ’14-‘15
Agapay.Albarillo.Ambito.Arevalo.Baguilat.Bunag.Cabrera.Claveria.Escalona.Fernando.Ferrer.Flores.Hernando.Hipolito.Lara.Melgar .Mella.Nasam.Nunez.Retardo.Rodriguez.Soriano.Tamayao.Ubaldo
checks TCBT Nos. 608967 & 608968, 6 both in the amount of P100,000.00, across its face or across a corner thereof. It may be crossed generally or
post dated September 15 & 30, 1979 respectively, drawn by petitioner in specially.
favor of George King. In as much as George King failed to deliver the bales
of tobacco leaf as agreed despite petitioner's demand, BCCFI issued on A check is crossed specially when the name of a particular banker or a
March 30, 1979, a stop payment order on all checks payable to George company is written between the parallel lines drawn. It is crossed
King, including check TCBT 551826. Subsequently, stop payment was also generally when only the words "and company" are written or nothing is
ordered on checks TCBT Nos. 608967 & 608968 on September 14 & 28, written at all between the parallel lines. It may be issued so that
1979, respectively, due to George King's failure to deliver the tobacco presentment can be made only by a bank. Veritably the Negotiable
leaves. Efforts of SIHI to collect from BCCFI having failed, it instituted the Instruments Law (NIL) does not mention "crossed checks," although
present case, naming only BCCFI as party defendant. The trial court Article 541 9 of the Code of Commerce refers to such instruments.
pronounced SIHI as having a valid claim being a holder in due course. It
further said that the non-inclusion of King Tim Pua George as party Sps. George and Librada Moran v. Court of Appeals and Citytrust
defendant is immaterial in this case, since he, as payee, is not an Banking Corporation
indispensable party. GR No. 105836 || Section 185
FACTS:
RTC ruling: Ruled in favor of SIHI George and Librada Moran are the owners of the Wack-Wack Petron
CA Ruling: affirmed RTC Ruling. Gasoline station in Mandaluyong. They regularly purchased for bulk fuel
and other related products from Petrophil Corporation on COD basis. The
ISSUE: orders for bulk fuel and other products were made by telephone and
whether or not SIHI, a second indorser, a holder of crossed checks, is a payments were effected by personal checks upon delivery. They had
holder in due course, to be able to collect from the drawer, BCCFI several accounts with Citytrust. Petitioners, through Librada Moran, drew
two checks payable to Petrophil Corporation. Petrophil deposited the
HELD: checks to its account with PNB, who in turn PNB presented them for
No. The Supreme Court reversed the decision of Court of Appeals. SIHI clearing on the same day. Records show that on that day, their current
cannot collect from BCCFI, because SIHI cannot be considered as a holder account had a zero balance. The next day, George Librada transferred the
in due course. BCCFI's defense in stopping payment is as good to SIHI as it amount of the checks from their savings account with Citytrust to their
is to George King. Because, really, the checks were issued with the current account with the same bank. George was informed by Librada that
intention that George King would supply BCCFI with the bales of tobacco Petrophil refused to deliver their orders on a credit basis because the two
leaf. There being failure of consideration, SIHI is not a holder in due checks the had previously issued were dishonored due to insufficiency of
course. funds. The non-delivery of gasoline forced petitioners to temporarily stop
Consequently, BCCFI cannot be obliged to pay the checks. The foregoing business operations. In addition, Petrophil cancelled their credit
does not mean, however, that respondent could not recover from the accommodation, forcing them to pay for their purchases in cash. It turned
checks. The only disadvantage of a holder who is not a holder in due out that it was dishonored due to operational error to which the branch
course is that the instrument is subject to defenses as if it were non- manager acted on and personally present the checks in payment for the
negotiable. 14 Hence, respondent can collect from the immediate indorser, two dishonored checks to Petrophil. Months after, George Moran learned
in this case, George King. that Petrophil had received from Citytrust notifying them that the two
checks were inadvertently dishonored due to operational error.
(Section 185) A check is defined by law as a bill of exchange drawn on a Petitioners filed a complaint for damages against Citytrust claiming that
bank payable on demand. There are a variety of checks, the more popular the bank’s dishonor of the checks  caused them besmirched business and 
of which are the memorandum check, cashier's check, traveler's check and personal reputation, shame and anxiety.
crossed check. Crossed check is one where two parallel lines are drawn

29 |C a b u c h a n . N e g o C a s e D i g e s t s
Negotiable Instruments Law Case Digests SBCA-SOL ’14-‘15
Agapay.Albarillo.Ambito.Arevalo.Baguilat.Bunag.Cabrera.Claveria.Escalona.Fernando.Ferrer.Flores.Hernando.Hipolito.Lara.Melgar .Mella.Nasam.Nunez.Retardo.Rodriguez.Soriano.Tamayao.Ubaldo
RTC Ruling: dismissed the complaint; Citytrust cannot be liable in his account with RCBC. On the same day, RCBC erroneously sent the
CA Ruling: affirmed the decision of the RTC; Citytrust not liable same cashier’s check for clearing to the Central Bank which was returned
for having been “misspent” or “misrouted. The next day, RCBC debited the 
ISSUE: amount  covered  by  the  same  cashier’s  check  from  the  account  of  the 
Whether or not Citytrust should be held liable for the dishonor of the petitioner. Respondent bank did not inform the petitioner of its action to
checks which he only learned of the claims 42 days after. Relying on common
knowledge  that  a  cashier’s  check  was  as  good  as  cash,  petitioner  issued 
HELD: two personal checks in the name of Go Lac, without awaiting any
The court held that Citytrust should not be held liable. A check is a bill of notification if it was cleared, which was returned twice for insufficiency of
exchange drawn on a bank payable on demand. Thus, a check is a written funds. Tan filed a complaint against RCBC for damages. Tan contends that
order addressed to a bank or persons carrying on the business of banking, there was negligence on the part of RCBC, therefore they should be held
by a party having money in their hands, requesting them to pay on liable. RCBC contended that it was merely acting as petitioner’s collecting
presentment, to a person named therein or to bearer or order, a named agent and it assumed no responsibility beyond care in selecting
sum of money. Where the bank possesses funds of a depositor, it is bound correspondents under the theory that where a check is deposited with a
to honor his checks to the extent of the amount of his deposits. The failure collecting bank the relationship created is that of agency and not creditor-
of a bank to pay the check of a merchant or a trader, when the deposit is debtor, thus it cannot be held liable.
sufficient, entitles the drawer to substantial damages without any proof of
actual damages. Conversely, a bank is not liable for its refusal to pay a Trial Court Ruling: Ruled against RCBC and made them liable for moral
check on account of insufficient funds, notwithstanding the fact that a damages and exemplary damages but not for actual damages because Tan
deposit may be made later in the day. Before a bank depositor may failed to prove by any receipt or writing to underpin it.
maintain a suit to recover a specific amount from his bank, he must first
show that he had on deposit sufficient funds to meet his demand. Court of Appeals: Reversed the decision of the Trial court in that it was
Petitioner had no reason to complain, for they alone were at fault. A the fault of Tan which led to his loss. First, it was the Tan who filled up the
drawer must remember his responsibilities every time he issues a check. wrong deposit slip which led to the sending of the check to the Central
He must personally keep track of his available balance in the bank and not Bank when the clearing should have been made elsewhere. Second, the
rely on the bank to notify him of the necessity to fund certain check she bank actually tried to advise Tan that the check was misspent, but the
previously issued. A check, as distinguished from an ordinary bill of telephone number was no longer active. It was Tan who was under
exchange, is supposed to be drawn against a previous deposit of funds for obligation to inform RCBC of any changes in the telephone numbers to be
it is ordinarily intended for immediately payment. Legally, the bank had contacted. Third, the refusal of RCBC to credit the amount of P30,000.00 is
all the right to dishonor the checks because there were no sufficient funds consistent with the accepted banking practice. It is clear that immediate
to speak of in the first place. If the demand is by check, a drawer must payment  without  awaiting  clearance  of  a  cashier’s  check  is 
have to his credit enough to cover the demand. If his credit with the bank discretionary with the bank to whom the check is presented and
is less than the amount on the face of the check, the bank may lawfully such being the case, the refusal to allow it as in this case is not to be
refuse payment. equated with negligence in the basic perception that discretion is not
demandable as a right.
Ramon Tan v. CA & Rizal Commercial Banking
GR No. 108555 (December 20, 1994) || Section 189 ISSUE:
FACTS: Whether or not RCBC should bear the loss
Petitioner Ramon Tan had maintained an account with respondent bank’s 
Binondo  branch.  He  secured  a  Cashier’s  Check  from  the  Philippine  HELD:
Commercial Industrial Bank payable to his order. He deposited the check

30 |C a b u c h a n . N e g o C a s e D i g e s t s
Negotiable Instruments Law Case Digests SBCA-SOL ’14-‘15
Agapay.Albarillo.Ambito.Arevalo.Baguilat.Bunag.Cabrera.Claveria.Escalona.Fernando.Ferrer.Flores.Hernando.Hipolito.Lara.Melgar .Mella.Nasam.Nunez.Retardo.Rodriguez.Soriano.Tamayao.Ubaldo
The court held that RCBC should bear the loss. RCBC insists that MC Papa vs AU Valencia and Penarroyo
immediate payment without awaiting clearance of a cashier's check is 284 SCRA 643 || Section 124
discretionary with the bank to whom the check is presented and such FACTS:
being the case, its refusal to immediately pay the cashier's check in this Respondents A.U. Valencia and Penarroyo filed a complaint for
case is not to be equated with negligence on its part. We find this specific performance against Myron Papa, administrator of the
disturbing and unfortunate.
testate estate of Angela M. Butte.
An ordinary check is not a mere undertaking to pay an amount of money.
There is an element of certainty or assurance that it will be paid upon On 15 June 1973, Papa, acting as attorney-in-fact of Angela Butte,
presentation that is why it is perceived as a convenient substitute for sold to Penarroyo, through Valencia, a parcel of land; that prior the
currency in commercial and financial transactions. The basis of the alleged sale, said property together with several other parcels of
perception being confidence. Any practice that destroys that confidence land likewise owned by Butte, had been mortgaged by her to the
will impair the usefulness of the check as a currency substitute and create Associated Banking Corporation (now Associated Citizens Bank);
havoc in trade circles and the banking community. that after the alleged sale, but before the title had been released,
Angela Butte passed away. Despite the representations made by
Now, what was presented for deposit in the instant cases was not just an respondents, the bank refused to release the title unless and until all
ordinary check but a cashier's check payable to the account of the mortgaged properties were redeemed.
depositor himself. A cashier's check is a primary obligation of the issuing
bank and accepted in advance by its mere issuance. By its very nature, a
cashier's check is the bank's order to pay drawn upon itself, committing in Sometime in April 1977, Respondents discovered that the mortgage
effect its total resources, integrity and honor behind the check. A cashier's rights were assigned to Tomas Parpana, as special administrator;
check by its peculiar character and general use in the commercial world is and that he had been collecting monthly rentals of P800.00, despite
regarded substantially to be as good as the money which it represents. In knowing that the property were sold to respondents. Papa refused
this case, therefore, PCIB by issuing the check created an unconditional and failed to deliver the title even after repeated demands from
credit in favor of any collecting bank. respondents.

All these considered, petitioner's reliance on the layman's perception that RTC allowed Papa to redeem from the Reyes spouses, who bought
a cashier's check is as good as cash is not entirely misplaced, as it is rooted the land at a public auction because of tax delinquency and ordered
in practice, tradition, and principle. We see no reason thus why this so-
Papa to execute a Deed of Absolute Sale in favor of Penarroyo.
called discretion was not exercised in favor of petitioner, specially since
PCIB and RCBC are members of the same clearing house group relying on
each other's solvency. RCBC could surely rely on the solvency of PCIB Petitioner appealed. He alleged that the sale was never
when the latter issued its cashier's check. “consummated”  as  he  did  not  encash  the  check,  amounting  to 
P40,000.00, as payment for the subject lot. He maintained that what
said respondents had actually paid was only the amount of
P5,000.00 (in cash) as earnest money.

ISSUE:

31 |C a b u c h a n . N e g o C a s e D i g e s t s
Negotiable Instruments Law Case Digests SBCA-SOL ’14-‘15
Agapay.Albarillo.Ambito.Arevalo.Baguilat.Bunag.Cabrera.Claveria.Escalona.Fernando.Ferrer.Flores.Hernando.Hipolito.Lara.Melgar .Mella.Nasam.Nunez.Retardo.Rodriguez.Soriano.Tamayao.Ubaldo
Whether or not there was valid payment even though Papa failed to
encash the check

HELD:
The Court ruled that there was valid payment. After more than 10
years from the payment in part by cash and in part by check, the
presumption is that the check had been encashed.

Granting that the petitioner had never encashed the check, his
failure to do so for more that 10 years undoubtedly resulted in the
impairment of the check through his unreasonable and unexplained
delay.

While it is true that the delivery of a check produces the effect of payment
only when it is encashed, pursuant to Art. 1249 NCC, the rule is otherwise
if the debtor is prejudiced by the creditor’s unreasonable delay in 
presentment. THe acceptance of a check implies an undertaking of due
diligence in presenting it for payment, and if he from whom it is received
sustains loss by want of such diligence, it will be held to operate as actual
payment of the debt or obligation for which it was given.

32 |C a b u c h a n . N e g o C a s e D i g e s t s