Nego Cases (Part 2 of 2)

Decided Cases on Negotiable Instruments Law based on the outline of Atty. Rene Alexis P.
Villarente (PART 2 of 2)
(See outline of Atty. Villarente for notes)
Section 29 (Accomodation Party)
GARDOSE vs. TARROZA GR No. 1!"#! $ay 19% 199&
'SS(E) What is the relationship of the accommodation party and
the party accommodated?
*E+D) The relationship between an accommodation party and the
party accommodated is in effect one of principal and surety.
'SS(E) What is the difference between a surety and a guaranty?
*E+D) (From redit Trans !ecture of Atty. Sagmit since not stated
in the case )
G(ARANTOR S(RET,
!iability depends on
independent agreement to pay
the principal"s obligation should
he fail to do so
#e assumes liability as a
regular party to the contract
$bligation is secondary $bligation is primary
%nderta&ing is to pay if
principal debtor cannot pay
%nderta&ing is to pay if
principal debtor does not pay
An insurer of the sol'ency of
the debtor
(nsurer of a debt
)ntitled to e*cussion +o e*cussion
'SS(E) What is an accommodation party?
*E+D) An accommodation party is one who has signed the
instrument as ma&er, drawer, indorser, without recei'ing 'alue
therefor and for the purpose of lending his name to some other
person. Such person is liable on the instrument to a holder for
'alue, notwithstanding such holder, at the time of the ta&ing of the
instrument &new him to be only an accommodation party is in
effect a surety for the latter. #e lends his name to enable the
accommodated party to obtain credit or to raise money. #e
recei'es no part of the consideration for the instrument but
assumes liability to the other parties thereto because he wants to
accommodate another.
'SS(E) What is the immediate right of recourse under Section
-.-?
Section -.-. /ights of holder where bill not accepted 0 When a
bill is dishonored by non1acceptance, an immediate right of
recourse against the drawer and indorsers accrues to the holder
and no presentment for payment is necessary.
*E+D) %nder Section -.- of the +egotiable (nstruments !aw,
when a bill is dishonored by non1acceptance, an immediate right of
recourse against the drawers and indorsers accrues to the holder.
The drawer of a negotiable instrument engages that, on due
presentment, the instrument will be accepted or paid, or both, and
if dishonored, he will pay the amount thereof to the holder.
'SS(E) What is the liability of the drawer under Section 2-?
*E+D)
Section 2-. !iability of drawer. 0 The drawer by drawing the
instrument admits the e*istence of the payee and his then
capacity to indorse3 and engages that on due presentment the
instrument will be accepted or paid, or both, according to its
tenor, and if it be dishonored, and the necessary proceedings on
dishonor be duly ta&en, he will pay the amount thereof to the
holder, or to any subse4uent indorser who may be compelled to
pay it. 5ut the drawer may insert in the instrument an e*press
stipulation negati'ing or limiting his own liability to the holder.
AGRO vs. -A GR No. 11#..! Dec. 1&% 2!!!
'SS(E) What is an accommodation ma&er?
*E+D) An accommodation party is a person who has signed the
instrument as ma&er, acceptor, or indorser, without recei'ing 'alue
therefor, and for the purpose of lending his name to some other
person and is liable on the instrument to a holder for 'alue,
notwithstanding such holder at the time of ta&ing the instrument
&new (the signatory) to be an accommodation party. #e has the
right, after paying the holder, to obtain reimbursement from the party
accommodated, since the relation between them has in effect become
one of principal and surety, the accommodation party being the surety.
'SS(E) What is a surety?
*E+D) Suretyship is defined as the relation which e*ists where one
person has underta&en an obligation and another person is also under
the obligation or other duty to the obligee, who is entitled to but one
performance, and as between the two who are bound, one rather than
the other should perform. The surety"s liability to the creditor or
promisee of the principal is said to be direct, primary and absolute3 in
other words, he is directly and e4ually bound with the principal. And
the creditor may proceed against any one of the solidary debtors.
$A/EST'- vs. 0ON'1A-'O GR No. 12#92! A3ri4 % 2!!2
1A-TS) 6etitioner entered into a ontract of !ease with 7apanese
nationals %oyama and Shibutani (the 8lessees9) for the lease of a
condo unit. 5onifacio, the girlfriend of T. Sa&amoto who in turn was
the friend of the lessees, acti'ely participated in negotiating the terms
of the contract of lease because the lessees could hardly spea& )nglish
or Tagalog. %pon re4uest of the lessees, respondent issued in
petitioner"s fa'or a postdated chec& to guarantee the payment of the
rentals for last si* months of the lease.
After : months, petitioner"s counsel recei'ed a letter from
respondent and the lessees that the latter were 'acating the
condominium. /espondent also re4uested that the postdated chec&
which she had earlier issued in petitioner"s fa'or be returned to her
since there was no longer any need for the said chec& to be in
petitioner"s possession. 6etitioner refused to return the chec& and
instead deposited the same in its account. The chec& was later
dishonored. 6etitioner filed with a complaint for collection of sum of
money.
*E+D)
Section ;<. !iability of accommodation party 1 An accommodation
party is one who has signed the instrument as ma&er, drawer,
acceptor, or indorser, without recei'ing 'alue therefor, and for the
purpose of lending his name to some other person. Such a person
is liable on the instrument to a holder for 'alue, notwithstanding
such holder at the time of ta&ing the instrument &new him to be
only an accommodation party.
'SS(E) Why is the accommodation party here not liable?
*E+D) /espondent is an accommodation party and may be held
solidarily liable for the amount of the chec& under Section ;< of the
+egotiable (nstruments !aw, sub=ect to reimbursement from the
lessees. #owe'er, it ruled that the respondent was not under any
obligation to pay the 6-::,>>>.>> corresponding to ad'ance rental
payments for the months of 7uly to ?ecember -<<> because the lease
contract did not authori@e the petitioner as lessor to automatically
forfeit the ad'ance rentals for the last si* months of the lease period
should the lessees terminate the lease before the end of said period.
+'$ vs. SA0AN GR No. 1.#2! Dec. 1.% 2!!2
*E+D) An accommodation party as a person Awho has signed the
negotiable instrument as ma&er, drawer, acceptor or indorser, without
recei'ing 'alue therefor, for the purpose of lending his name to some
other person.A The accommodation party is liable on the instrument to
a holder for 'alue e'en though the holder at the time of ta&ing the
instrument &new him or her to be merely an accommodation party.
The accommodation party may of course see& reimbursement from the
party accommodated.
'SS(E) Bi'e the elements for the e*istence of an accommodation
party.
*E+D) The accommodation party is one who meets all these three
re4uisites, 'i@C (-) he signed the instrument as ma&er, drawer,
acceptor, or indorser3 (;) he did not recei'e 'alue for the signature3
and (D) he signed for the purpose of lending his name to some other
person. (n the case at bar, while !im signed as drawer of the chec&s
she did not satisfy the two other remaining re4uisites.
'SS(E) Was !im an accommodation party to EbaFe@?
Prepared by: Norliza Mamukid, Jazzie Sarona & Hanniyah Sevilla (4-Manresa 2008-2009)
1
Decided Cases on Negotiable Instruments Law based on the outline of Atty. Rene Alexis P. Villarente (PART 2 of 2)
*E+D) +$, !im is not an accommodation party.
The absence of the second re4uisite becomes pellucid when it
is noted at the outset that !im issued the chec&s in 4uestion on
account of her transaction, along with the other purchasers, with
EbaFe@ which was a sale and, therefore, a reciprocal contract.
Specifically, she drew the chec&s in payment of the balance of the
purchase price of the lot sub=ect of the transaction. And she had to
pay the agreed purchase price in consideration for the sale of the
lot to her and her co1'endees. (n other words, the amounts co'ered
by the chec&s form part of the cause or consideration from
EbaFe@"s end, as 'endor, while the lot represented the cause or
consideration on the side of !im, as 'endee. )rgo, !im recei'ed
'alue for her signature on the chec&s.
+either is there any indication that !im issued the chec&s for
the purpose of enabling EbaFe@, or any other person for that
matter, to obtain credit or to raise money, thereby totally
debun&ing the presence of the third re4uisite of an accommodation
party.
ANG vs. ASSO-'ATED GR No. 12."11 Se3t. "% 2!!#
1A-TS) /espondent Associated 5an& (formerly Associated 5an&ing
orporation and now &nown as %nited $'erseas 5an& 6hilippines)
filed a collection suit against Antonio Ang )ng !iong and petitioner
Tomas Ang for the two (;) promissory notes that they e*ecuted as
principal debtor and co1ma&er, respecti'ely.
The trial court rendered =udgment against the ban&, dismissing
the complaint for lac& of cause of action. The ourt of Appeals
re'ersed and set aside the trial courtGs ruling.
'SS(E) What is an accommodation party under Section ;< of the
+(!?
R(+'NG) Section ;< of the +(! defines an accommodation
3arty as a person Awho has signed the instrument as ma&er,
drawer, acceptor, or indorser, without recei'ing 'alue therefor, and
for the purpose of lending his name to some other person.A As
gleaned from the te*t, an accommodation party is one who meets
all the t5ree re67isites, 'i@C (1) 5e m7st 8e a 3arty to t5e
instr7ment% si9nin9 as ma:er% dra;er% acce3tor% or
indorser< (2) 5e m7st not receive va47e t5ere=or< and () 5e
m7st si9n =or t5e 37r3ose o= 4endin9 5is name or credit to
some ot5er 3erson. An accommodation party lends his name to
enable the accommodated party to obtain credit or to raise money3
he recei'es no part of the consideration for the instrument but
assumes liability to the other partyHies thereto. The accommodation
party is liable on the instrument to a holder for 'alue e'en though
the holder, at the time of ta&ing the instrument, &new him or her to
be merely an accommodation party, as if the contract was not for
accommodation.
'SS(E) Were the promissory notes discharged under Section --<
(d) and -;; of the +(!?
R(+'NG) +o. As the 3romissory notes ;ere not disc5ar9ed
or im3aired through any act or omission of the ban&, Sections --<
(d) and -;; of the +(! as well as Art. -;:< of the i'il ode would
necessarily find no application. Again, neither was petitionerGs right
of reimbursement barred nor was the ban&Gs right to proceed
against Antonio Ang )ng !iong e*pressly renounced by the omission
to ser'e notice of appeal and appellantGs brief to a party already
declared in default.
'SS(E) What is the warranty of an accommodation party?
R(+'NG) onse4uently, in issuing the two promissory notes,
petitioner as accommodatin9 3arty ;arranted to t5e 5o4der
in d7e co7rse t5at 5e ;o74d 3ay t5e same accordin9 to its
tenor.
'SS(E) What is the meaning of 8without recei'ing 'alue9 What
about 8recei'ing 'alue9 for lending his name?
R(+'NG) (t is no defense to state on his part that he did not
recei'e any 'alue therefor because the phrase >;it5o7t receivin9
va47e t5ere=or> used in Sec. ;< of the +(! means >;it5o7t
receivin9 va47e 8y virt7e o= t5e instr7ment> and not as it is
a33arent4y s733osed to mean% >;it5o7t receivin9 3ayment
=or 4endin9 5is name.> Stated differently, when a third person
ad'ances the face 'alue of the note to the accommodated party at
the time of its creation, the consideration for the note as regards its
ma&er is the money ad'anced to the accommodated party. (t is
enough that 'alue was gi'en for the note at the time of its creation.
As in the instant case, a sum of money was recei'ed by 'irtue of the
notes, hence% it is immateria4 so far as the ban& is concerned
;5et5er one o= t5e si9ners, particularly petitioner, 5as or 5as not
received anyt5in9 in 3ayment o= t5e 7se o= 5is name.
DE+A RA$A -O vs. AD$'RA+ GR No. 1"2#2! A3ri4 1.% 2!!&
1A-TS) Admiral %nited Sa'ings 5an& (A?I(/A!) e*tended a loan of
Fi'e #undred Thousand 6esos (6.>>,>>>.>>) to petitioner #enry ?ela
/ama o (o), with !eocadio $. (sip ((sip) as co1ma&er. The loan was
e'idenced by 6romissory +ote.
o and (sip failed to pay the loan when it became due and
demandable. onse4uently, A?I(/A! filed a collection case against
o and (sip with the /T. /T rendered a ?ecision dismissing the
complaint on the ground that the obligation had already been paid or
otherwise e*tinguished. The A re'ersed the /T.
o has not denied the authenticity and due e*ecution of the
promissory note. #e, howe'er, asserts that he is not legally bound by
said document because he merely acted as an accommodation party
for I)T/$ /)+T. #e claimed the he signed the note only for the
purpose of lending his name to I)T/$ /)+T, without recei'ing 'alue
therefore.
'SS(E) What is the liability of an accommodation party under Section
;< of the +(!?
R(+'NG) At any rate, o"s assertion that he merely acted as an
accommodation party for I)T/$ /)+T cannot release him from
liability under the note. An accommodation 3arty ;5o 4ends 5is
name to ena84e t5e accommodated 3arty to o8tain credit or
raise money is 4ia84e on t5e instr7ment to a 5o4der =or va47e
even i= 5e receives no 3art o= t5e consideration. #e assumes the
obligation to the other party and binds himself to pay the note on its
due date. 5y signing the note, o thus became liable for the debt
e'en if he had no direct personal interest in the obligation or did not
recei'e any benefit there from.
'SS(E) What is a promissory note?
R(+'NG) A 3romissory note is a so4emn ac:no;4ed9ment o= a
de8t and a =orma4 commitment to re3ay it on t5e date and
7nder t5e conditions a9reed 73on 8y t5e 8orro;er and t5e
4ender. A person who signs such an instrument is bound to honor it as
a legitimate obligation duly assumed by him through the signature he
affi*es thereto as a to&en of his good faith. (f he reneges on his
promise without cause, he forfeits the sympathy and assistance of this
ourt and deser'es instead its sharp repudiation.
'SS(E) Who pro'es payment?
R(+'NG) 7urisprudence is replete with rulings that in ci'il cases, the
party who alleges a fact has the burden of pro'ing it. 5urden of proof
is the duty of a party to present e'idence on the facts in issue
necessary to pro'e the truth of his claim or defense by the amount of
e'idence re4uired by law. Thus% a 3arty ;5o 34eads 3ayment as a
de=ense 5as t5e 87rden o= 3rovin9 t5at s7c5 3ayment 5ad% in
=act% 8een made. When the plaintiff alleges nonpayment, still, the
general rule is that the burden rests on the defendant to pro'e
payment, rather than on the plaintiff to pro'e nonpayment. Verily, o
failed to discharge this burden.
'SS(E) an stipulated interest rates be e4uitably reduced?
R(+'NG) We sustain the interest rate of -JK per annum for being
fair and reasonable. #owe'er, e4uity dictates that we reduce the
ser'ice charge, li4uidated damages and attorney"s fees awarded in
fa'or of A?I(/A!.
'SS(E) What is the basis of such reduction under the i'il ode?
R(+'NG) ourts are empowered to reduce such penalty if the same
is ini4uitous or unconscionable. Artic4e 1229 o= t5e -ivi4 -ode
statesC The =udge shall e4uitably reduce the penalty when the
principal obligation has been partly or irregularly complied with by the
debtor. )'en if there has been no performance, the penalty may also
be reduced by the courts if it is ini4uitous or unconscionable.
This sentiment is echoed in Artic4e 222# of the same odeC
!i4uidated damages, whether intended as an indemnity or a
penalty, shall be e4uitably reduced if they are ini4uitous or
unconscionable.
This ourt finds the award of li4uidated damages and attorney"s
fees by the A e*orbitant. After all, li4uidated damages and attorney"s
fees ser'e the same purpose, that is, as penalty for breach of contract.
2
Accordingly, we reduce the li4uidated damages to 6-.>,>>>.>>, and
attorney"s fees to ->K of the principal loan or 6.>,>>>.>>.
Ne9otiation and 'ndorsements
Section ! (&% 9)% 1% 2% 2!% 2&% 29
0P' vs. -A GR No. 1.2!2 /an. 2"% 2!!#
1A-TS) 6ri'ate respondent Annabelle A. Sala@ar filed an action for
a sum of money with damages against herein petitioner 5an& of the
6hilippine (slands (56() before the /egional Trial ourt (/T).
The /T rendered a decision in fa'or of the pri'ate
respondent and against the petitioner 56(. $n appeal, the ourt of
Appeals (A) affirmed the decision of the /T .
'SS(E) What is the effect of a transfer of an instrument without
indorsement?
R(+'NG) Section 29 o= t5e Ne9otia84e 'nstr7ments +a;
contemplates a situation whereby the payee or indorsee deli'ers a
negotiable instrument for 'alue without indorsing it, thusC
Transfer without indorsement3 effect of1 Where the holder of
an instrument payable to his order transfers it for 'alue without
indorsing it, the transfer 'ests in the transferee such title as the
transferor had therein, and the transferee ac4uires in addition, the
right to ha'e the indorsement of the transferor. 5ut for the purpose
of determining whether the transferee is a holder in due course,
the negotiation ta&es effect as of the time when the indorsement is
actually made.
(t bears stressing that the abo'e transaction is an e4uitable
assignment and the trans=eree ac67ires t5e instr7ment
s78?ect to de=enses and e67ities avai4a84e amon9 3rior
3arties. T57s% i= t5e trans=eror 5ad 4e9a4 tit4e% t5e trans=eree
ac67ires s7c5 tit4e and% in addition% t5e ri95t to 5ave t5e
indorsement o= t5e trans=eror and a4so t5e ri95t% as 5o4der
o= t5e 4e9a4 tit4e% to maintain 4e9a4 action a9ainst t5e ma:er
or acce3tor or ot5er 3arty 4ia84e to t5e trans=eror. The
underlying premise of this pro'ision, howe'er, is that a 'alid
transfer of ownership of the negotiable instrument in 4uestion has
ta&en place.
Transferees in this situation do not en=oy the presumption of
ownership in fa'or of holders since they are neither payees nor
indorsees of such instruments. The weight of authority is that the
mere possession of a negotiable instrument does not in itself
conclusi'ely establish either the right of the possessor to recei'e
payment, or of the right of one who has made payment to be
discharged from liability. Thus, something more than mere
possession by persons who are not payees or indorsers of the
instrument is necessary to authori@e payment to them in the
absence of any other facts from which the authority to recei'e
payment may be inferred.
'SS(E) What is the effect that the chec&s were crossed and the
one year period before Templonue'o demanded reimbursement?
R(+'NG) (n State (n'estment #ouse '. (A, the ourt
enumerated the e==ects o= crossin9 a c5ec:, thusC (1) that the
chec& may not be encashed but only deposited in the ban&3 (2)
that the chec& may be negotiated only once 1 to one who has an
account with a ban&3 and () that the act of crossing the chec&
ser'es as a warning to the holder that the chec& has been issued
for a definite purpose so that such holder must in4uire if the chec&
has been recei'ed pursuant to that purpose.
'SS(E) ?oes a collecting ban&, o'er the ob=ections of its
depositor, ha'e the authority to withdraw unilaterally from such
depositor"s account the amount it had pre'iously paid upon certain
unendorsed order instruments deposited to another account that
was later closed?
R(+'NG) 6etitioner, as the collecting ban&, had the right to debit
Sala@ar"s account for the 'alue of the chec&s it pre'iously credited
in her fa'or. (t is of no moment that the account debited by
petitioner was different from the original account to which the
proceeds of the chec& were credited because both admittedly
belonged to Sala@ar, the former being the account of the sole
proprietorship which had no separate and distinct personality from
her, and the latter being her personal account.
While, howe'er, it is conceded that petitioner had the right of
set1off o'er the amount it paid to Templonue'o against the deposit
of Sala@ar, the issue of whether it acted =udiciously is an entirely
different matter. As businesses affected with public interest, and
because of the nature of their functions, ban&s are under obligation
to treat the accounts of their depositors with meticulous care,
always ha'ing in mind the fiduciary nature of their relationship. (n this
regard, petitioner was clearly remiss in its duty to pri'ate respondent
Sala@ar as its depositor.
Ne9otiation and 'ndorsements
P5i4i33ine -4earin9 *o7se -or3oration (P-*-)
@c4earin9 indorsementA
A++'ED 0ANB'NG vs. -A GR No. 12&#1 A79. 1% 199&
1A-TS) #yatt Terraces 5aguio issued two crossed chec&s drawn
against Allied 5an&ing orp. (A!!()?) in fa'or of appellee Ies@ellen
ommodities Ser'ices, (nc. (I)SL)!!)+). Said chec&s were deposited
on with the now defunct ommercial 5an& and Trust ompany
($IT/%ST). %pon receipt of the abo'e chec&s, $IT/%ST stamped
at the bac& thereof the warranty AAll prior endorsements andHor lac& of
endorsements guaranteed.A After the chec&s were cleared through the
6hilippine learing #ouse orporation (6#), A!!()? 5A+M paid the
proceeds of said chec&s to $IT/%ST as the collecting ban&.
The payee, I)SL)!!)+, sued the drawee, A!!()? 5A+M, for damages
which it allegedly suffered when the 'alueNsO of the chec&s were paid
not to it but to some other person. The ourt rendered the decision
against petitioner Allied 5an&.
'SS(E) What is the mandatory recourse to the 6#?
R(+'NG) %nder the rules and regulations of the 6hilippine learing
#ouse orporation (6#), the mere act of participation of the parties
concerned in its operations in effect amounts to a manifestation of
agreement by the parties to abide by its rules and regulations. As a
conse4uence of such participation, a 3arty cannot invo:e t5e
?7risdiction o= t5e co7rts over dis37tes and controversies
;5ic5 =a44 7nder t5e P-*- R74es and Re974ations ;it5o7t =irst
9oin9 t5ro795 t5e ar8itration 3rocesses 4aid o7t 8y t5e 8ody.
Since claims relating to the regularity of chec&s cleared by ban&ing
institutions are among those claims which should first be submitted for
resolution by the 6#Gs Arbitration ommittee. 6etitioner ban&,
ha'ing 'oluntarily bound itself to abide by such rules and regulations,
is estopped from see&ing relief from the /egional Trial ourt on the
coattails of a pri'ate claim and in the guise of a third party complaint
without first ha'ing obtained a decision ad'erse to its claim from the
said body. (t cannot bypass the arbitration process on the basis of its
a'erment that its third party complaint is ine*tricably lin&ed to the
original complaint in the /egional Trial ourt.
'SS(E) What is the e*haustion of arbitral authority of the 6# in
cases in'ol'ing chec&s cleared under 6# before recourse to a third
party complaint?
R(+'NG) A t5irdC3arty com34aint o= one 8an: a9ainst anot5er
invo4vin9 a c5ec: c4eared t5ro795 t5e P-*- is 7navai4in9%
7n4ess t5e t5irdC3arty c4aimant 5as =irst eD5a7sted t5e ar8itra4
a7t5ority o= t5e P-*- Ar8itration -ommittee and o8tained a
decision =rom said 8ody adverse to its c4aim.
0y 3artici3atin9 in t5e c4earin9 o3erations o= t5e P-*-%
3etitioner a9reed to s78mit dis37tes o= t5is nat7re to
ar8itration. Accordin94y% it cannot invo:e t5e ?7risdiction o=
t5e tria4 co7rts ;it5o7t a 3rior reco7rse to t5e P-*-
Ar8itration -ommittee. #a'ing gi'en its free and 'oluntary consent
to the arbitration clause, petitioner cannot unilaterally ta&e it bac&
according to its whim. (n the world of commerce, especially in the field
of ban&ing, the promised word is crucial. $nce gi'en, it may no longer
be bro&en.
Ri95ts o= *o4ders
Sections 2.% "1% "2% "&
,ANG vs. -A GR No. 1&!#2 A79. 1"% 2!!
1A-TS) Eang and handiramani entered into an agreement whereby
the latter was to gi'e Eang a 6(5 manager"s chec& in the amount of
6:.; million in e*change for ; of Eang"s manager"s chec&s, each in the
amount of 6;.>JP million, both payable to the order of pri'ate
respondent ?a'id. Eang and handiramani agreed that the difference
of 6;2,>>>.>> in the e*change would be their profit to be di'ided
e4ually between them.
Eang and handiramani also further agreed that the former
would secure from F)5T a dollar draft which handiramani would
e*change for another dollar draft in the same amount to be issued by
#ang Seng 5an& !td. of #ong Mong.
Eang ga'e the aforementioned cashier"s chec&s and dollar drafts
to her business associate, !iong, to be deli'ered to handiramani by
!iong"s messenger, /anigo. /anigo was to meet handiramani.
3
handiramani did not appear at the rende@'ous and /anigo
allegedly lost the two cashier"s chec&s and the dollar draft bought
by petitioner. (t transpired, howe'er, that the chec&s and the dollar
draft were not lost, for handiramani was able to get hold of said
instruments, without deli'ering the e*change consideration
consisting of the 6(5 manager"s chec& and the #ang Seng 5an&
dollar draft.
Some two (;) hours after handiramani and /anigo were to
meet in Ia&ati ity, handiramani deli'ered to respondent
Fernando ?a'id ; cashier"s chec&s. (n e*change, handiramani got
%SQD2>,>>>.>> from ?a'id, which handiramani deposited in the
sa'ings account of his wife and his mother.
Eang re4uested F)5T and )4uitable to stop payment on the
instruments she belie'ed to be lost. 5oth ban&s complied with her
re4uest, but upon the representation of 6(5, F)5T subse4uently
lifted the stop payment order.
'SS(E) (s ?a'id a holder in due course?
*E+D) E)S, he is a holder in due course.)'ery holder of a
negotiable instrument is deemed prima facie a holder in due course.
#owe'er, this presumption arises only in fa'or of a person who is a
holder as defined in Section -<- of the +egotiable (nstruments !aw,
meaning a 8payee or indorsee of a bill or note, who is in possession
of it, or the bearer thereof.9
6etitioner admits that ?a'id too& the step of as&ing the
manager of his ban& to 'erify from F)5T and )4uitable as to the
genuineness of the chec&s and only accepted the same after being
assured that there was nothing wrong with said chec&s. At that
time, ?a'id was not aware of any 8stop payment9 order. %nder
these circumstances, ?a'id thus had no obligation to ascertain from
handiramani what the nature of the latter"s title to the chec&s was,
if any, or the nature of his possession. Thus, we cannot hold him
guilty of gross neglect amounting to legal absence of good faith,
absent any showing that there was something amiss about
handiramani"s ac4uisition or possession of the chec&s.
'SS(E) an a payee be considered a holder in due course?
*E+D) (n the present case, it is not disputed that ?a'id was the
payee of the chec&s in 4uestion. The weight of authority sustains
the 'iew that a payee may be a holder in due course. #ence, the
presumption that he is a prima facie holder in due course applies in
his fa'or. #owe'er, said presumption may be rebutted.
'SS(E) (s ?a'id a holder for 'alue?
*E+D) The law itself creates a presumption in ?a'id"s fa'or that
he ga'e 'aluable consideration for the chec&s in 4uestion. (n
alleging otherwise, the petitioner has the onus to pro'e that ?a'id
got hold of the chec&s absent said consideration. (n other words,
the petitioner must present con'incing e'idence to o'erthrow the
presumption. $ur scrutiny of the records, howe'er, shows that the
petitioner failed to discharge her burden of proof. The petitioner"s
a'erment that ?a'id did not gi'e 'aluable consideration when he
too& possession of the chec&s is unsupported, de'oid of any
concrete proof to sustain it.
'SS(E) (s ?a'id in good faith when he did not in4uire as to reason
why the cashier"s chec& was drawn for him especially that, these
were crossed chec&s?
*E+D) E)S, he is in good faith. (n this case, the payee did not
negotiate further the chec&s in 4uestion but promptly deposited
them in his ban& account.
The +egotiable (nstruments !aw is silent with respect to
crossed chec&s, although the ode of ommerce ma&es reference
to such instruments. +onetheless, this ourt has ta&en =udicial
cogni@ance of the practice that a chec& with two parallel lines in the
upper left hand corner means that it could only be deposited and
not con'erted into cash. The effects of crossing a chec&, thus,
relates to the mode of payment, meaning that the drawer had
intended the chec& for deposit only by the rightful person, i.e., the
payee named therein.
There is no dispute that the crossed chec&s were deli'ered and
duly deposited by ?a'id, the payee named therein, in his ban&
account. (n other words, the purpose behind the crossing of the
chec&s was satisfied by the payee.
EE('TA0+E vs. ONG GR No. 1".2!# Se3t. 1"% 2!!.
1A-TS) Sarande deposited in her account a chec&. %pon in4uiry
by on whether the chec& had been cleared, she recei'ed an
affirmati'e answer. /elying on this assurance, she issued ; chec&s
drawn against the proceeds of the said chec&. $ne of these was
issued to $ng. $n the same day, $ng presented re4uested 6( 5an&
to con'ert the proceeds thereof into a manager"s chec&, which the 6(
5an& obliged.
$ng deposited said manager"s chec& in her account with
)4uitable 5an&. After D days, she was informed that 6( 5an& had
stopped the payment of the said chec& on the ground of irregular
issuance. ?espite se'eral demands made by her to 6( 5an& for the
payment of the amount of the manager"s chec&, the same was met
with refusal.
#owe'er, according to 6( 5an&, it immediately ga'e notice to
Sarande and $ng about the return of the chec& Sarande deposited and
re4uested $ng to return 6( 5an& manager"s chec& on the ground that
the account from which it was drawn had already been closed resulted
in a failure or want of consideration.
The trial court ordered 6( 5an& to pay $ng. $n appeal, A
affirmed the decision of the trial court.
'SS(E) Was there un=ust enrichment for transfer of the 'alue of the
maanger"s chec& without consideration?
*E+D) There was no the fundamental doctrine of un=ust enrichment
is the transfer of 'alue without =ust cause or consideration. The
elements of this doctrine areC enrichment on the part of the defendant3
impo'erishment on the part of the plaintiff3 and lac& of cause. The
main ob=ecti'e is to pre'ent one to enrich himself at the e*pense of
another. (t is based on the e4uitable postulate that it is un=ust for a
person to retain benefit without paying for it.
(t is well to stress that the chec& of Sarande had been cleared by
the 6( 5an& for which reason the former issued the chec& to $ng. A
chec& which has been cleared and credited to the account of the
creditor shall be e4ui'alent to a deli'ery to the creditor of cash in an
amount e4ual to the amount credited to his account. #a'ing cleared
the chec& earlier, 6( 5an&, therefore, became liable to $ng and it
cannot allege want or failure of consideration between it and Sarande.
'SS(E) (s $ng pri'y to the transaction between $ng (( thin& 6(5
pasabot sa 4uestion ) and Sarande?
*E+D) +$, $ng is a stranger as regards the transaction between 6(
5an& and Sarande.
'SS(E) What is a holder in due course and holder for 'alue?
*E+D)
Section .;. What constitutes a holder in due course. 0 A holder in
due course is a holder who has ta&en the instrument under the
following conditionsC
(a) That it is complete and regular upon its face3
(b) That he became the holder of it before it was o'erdue, and
without notice it had been pre'iously dishonored,
if such was the fact3
(c) That he too& it in good faith and for 'alue3
(d) That at the time it was negotiated to him, he had no notice
of any infirmity in the instrument or defect in the
title of the person negotiating it.
Section ;2. What constitutes holder for 'alue. 0 Where 'alue has at
any time been gi'en for the instrument, the holder is deemed a
holder for 'alue in respect to all parties who become such prior to
that time.
'SS(E) What is the presumption of consideration?
*E+D)
Section ;:. 6resumption of consideration. 0 )'ery negotiable
instrument is deemed prima facie to ha'e been issued for a 'aluable
consideration3 and e'ery person whose signature appears thereon
to ha'e become a party thereto for 'alue.
'SS(E) What is the effect of want or failure of consideration?
*E+D)
Section ;J. )ffect of want of consideration. 0 Absence or failure of
consideration is a matter of defense as against any person not a
holder in due course3 and partial failure of consideration is a defense
4
pro tanto, whether the failure is an ascertained and li4uidated
amount or otherwise.
'SS(E) What is the effect of a manager"s chec& and certified
chec&?
*E+D) A manager"s chec& stands on the same footing as a
certified chec&. The effect of certification is found in Section -JP,
+egotiable (nstruments !aw.

Section -JP. ertification of chec&3 effect of. 0 Where a chec& is
certified by the ban& on which it is drawn, the certification is
e4ui'alent to an acceptance
A manager"s chec& is one drawn by the ban&"s manager upon
the ban& itself. (t is similar to a cashier"s chec& both as to effect
and use. A cashier"s chec& is a chec& of the ban&"s cashier on his
own or another chec&. (n effect, it is a bill of e*change drawn by
the cashier of a ban& upon the ban& itself, and accepted in ad'ance
by the act of its issuance. (t is really the ban&"s own chec& and
may be treated as a promissory note with the ban& as a ma&er.
The chec& becomes the primary obligation of the ban& which issues
it and constitutes its written promise to pay upon demand. The
mere issuance of it is considered an acceptance thereof.
'SS(E) What is the liability of an acceptor?
*E+D) 5y accepting the chec& issued by Sarande to $ng and
issuing in turn a manager"s chec& in e*change thereof, 6( 5an&
assumed the liabilities of an acceptor under Section 2; of the
+egotiable (nstruments !aw which statesC

Section 2;. !iability of acceptor. 0 The acceptor by accepting the
instruments engages that he will pay it according to the tenor of
his acceptance3 and admits 0
(a) The e*istence of the drawer, the genuineness of his
signature, and his capacity and authority to draw the
instrument3 and
(b) The e*istence of the payee and his then capacity to
indorse.
'SS(E) What is the degree of care re4uired of ban&s?
*E+D) (t is palpable and readily apparent that 6( 5an& failed to
e*ercise the highest degree of care re4uired of it under the law.
The ban&ing system has become an indispensable institution in
the modern world and plays a 'ital role in the economic life of e'ery
ci'ili@ed society. Whether as mere passi'e entities for the safe1
&eeping and sa'ing of money or as acti'e instruments of business
and commerce, ban&s ha'e attained an ubi4uitous presence among
the people, who ha'e come to regard them with respect and e'en
gratitude and, most of all, confidence.
0P' vs. ROFAS GR No. 1"#& Oct. 1"% 2!!#
1A-TS) /espondent Bregorio . /o*as deli'ered stoc&s of
'egetable oil to spouses /odrigo and Iarissa awili. As payment
therefor, spouses awili issued a personal chec& in the amount of
6D:J,J>...>. #owe'er, when respondent tried to encash the
chec&, it was dishonored by the drawee ban&. Spouses awili then
assured him that they would replace the bounced chec& with a
cashier"s chec& from the 5an& of the 6hilippine (slands (56(),
petitioner. The same was dishonored.
/espondent filed with the /egional Trial ourt a complaint for
sum of money against petitioner. The /T rendered a ?ecision
=udgment in fa'or of herein respondent /o*as. $n appeal, the
ourt of Appeals, in its ?ecision, affirmed the trial court"s =udgment.
'SS(E) (s /o*as a holder in due course?
R(+'NG) Section "2 o= t5e Ne9otia84e 'nstr7ments +a;
pro'idesC
Section .;. What constitutes a holder in due course. 0 A holder
in due course is a holder who has ta&en the instrument under the
following conditionsC
(a)That it is complete and regular upon its face3
(b)That he became the holder of it before it was o'erdue
and without notice that it had been pre'iously dishonored, if such
was the fact3
(c)That he too& it in good faith and for 'alue3
(d) That at the time it was negotiated to him, he had
no notice of any infirmity in the instrument or defect in the title
of person negotiating it.
As a general rule, under the abo'e pro'ision, e'ery holder is
presumed prima facie to be a holder in due course. $ne who claims
otherwise has the onus probandi to pro'e that one or more of the
conditions re4uired to constitute a holder in due course are lac&ing.
(n this case, petitioner contends that the element of 8'alue9 is not
present, therefore, respondent could not be a holder in due course.
6etitioner"s contention lac&s merit
'SS(E) What constitutes 'alue?
R(+'NG) Section ;. of the same law statesC
Section ;.. Value, what constitutes. 0 Value is any consideration
sufficient to support a simple contract. An antecedent or pre1e*isting
debt constitutes 'alue3 and is deemed as such whether the instrument
is payable on demand or at a future time.
Ga47e @in 9enera4 terms may 8e some ri95t% interest%
3ro=it or 8ene=it to t5e 3arty ;5o ma:es t5e contract or some
=or8earance% detriment% 4oan% res3onsi8i4ity% etc. on t5e ot5er
side.A #ere, there is no dispute that respondent recei'ed /odrigo
awili"s cashier"s chec& as payment for the former"s 'egetable oil.
The fact that it was /odrigo who purchased the cashier"s chec& from
petitioner will not affect respondent"s status as a holder for 'alue since
the chec& was deli'ered to him as payment for the 'egetable oil he
sold to spouses awili.
+ia8i4ities o= Parties
Sections .1% .2 (1&9)% .2% ."% ..
0P' vs. -A GR No. 11292 1e8. 29% 2!!!
1A-TS) 6ri'ate respondent deposited in his Foreign urrency ?eposit
%nit (F?%) Sa'ings Account a manager"s chec& and duly endorsed by
pri'ate respondent on its dorsal side. The chec& belonged to a certain
#enry han who went to the office of pri'ate respondent and
re4uested him to deposit the chec& in his dollar account by way of
accommodation and for the purpose of clearing the same. 6ri'ate
respondent acceded, and agreed to deli'er to han a signed blan&
withdrawal slip, with the understanding that as soon as the chec& is
cleared, both of them would go to the ban& to withdraw the amount of
the chec& upon pri'ate respondent"s presentation to the ban& of his
passboo&.
%sing the blan& withdrawal slip gi'en by pri'ate respondent to
han, one /uben Bayon, 7r. was able to withdraw from the F?%.
+otably, the withdrawal slip shows that the amount was payable to
/amon A. de Bu@man and Agnes . de Bu@man and was duly initialed
by the branch assistant manager.
6etitioner recei'ed communication from the Wells Fargo 5an&
(nternational of +ew Eor& that the said chec& deposited by pri'ate
respondent was a counterfeit chec&. onse4uently, the manager of
instructed one of its employees, 5en=amin ?. +api@a (V, who is pri'ate
respondent"s son, to inform his father that the chec& bounced. /eyes
himself sent a telegram to pri'ate respondent regarding the dishonor
of the chec&. (n turn, pri'ate respondent"s son wrote to /eyes stating
that the chec& had been assigned Afor encashmentA to /amon A. de
Bu@man andHor Agnes . de Bu@man after it shall ha'e been cleared
upon instruction of han. #e also said that upon learning of the
dishonor of the chec&, his father immediately tried to contact han but
the latter was out of town.
6ri'ate respondent wrote petitioner"s counsel on April ;>, -<J.
stating that he deposited the chec& Afor clearing purposesA only to
accommodate han.
'SS(E) What is the liability of a general indorser?
*E+D)
Section 22. !iability of general indorser. 0 )'ery indorser who
indorses without 4ualification, warrants to all subse4uent holders in
due course 0
(a) The matters and things mentioned in subdi'isions (a), (b),
and (c) of the ne*t preceding section3 and
(b) That the instrument is at the time of his indorsement, 'alid
and subsisting.
And, in addition, he engages that on due presentment, it shall
be accepted or paid, or both, as the case may be, according to its
tenor, and that if it be dishonored, and the necessary proceedings
on dishonor be duly ta&en, he will pay the amount thereof to the
5
holder, or to any subse4uent indorser who may be compelled to
pay it.A
Section 2., on the other hand, pro'ides for the following
warranties of a person negotiating an instrument by deli'ery or by
4ualified indorsementC (a) that the instrument is genuine and in all
respects what it purports to be3 (b) that he has a good title to it,
and (c) that all prior parties had capacity to contract.
'SS(E) (s the liability applicable to +api@a? (s +api@a liable as an
accommodation party?
*E+D) +$, the liability is not applicable to +api@a and he is not
liable as an accommodation party.
(t is thus clear that ordinarily pri'ate respondent may be held
liable as an indorser of the chec& or e'en as an accommodation
party. #owe'er, to hold pri'ate respondent liable for the amount of
the chec& he deposited by the strict application of the law and
without considering the attending circumstances in the case would
result in an in=ustice and in the erosion of the public trust in the
ban&ing system.
To be able to withdraw from the sa'ings account deposit
under the 6hilippine foreign currency deposit system, two re4uisites
must be presented to petitioner ban& by the person withdrawing an
amountC (a) a duly filled1up withdrawal slip, and (b) the depositor"s
passboo&. 6ri'ate respondent admits that he signed a blan&
withdrawal slip in 'iolation of /ule +o. 2 re4uiring that the re4uest
for withdrawal must name the payee, the amount to be withdrawn
and the place where such withdrawal should be made. That the
withdrawal slip was in fact a blan& one with only pri'ate
respondent"s two signatures affi*ed on the proper spaces is
buttressed by petitioner"s allegation in the instant petition that had
pri'ate respondent indicated therein the person authori@ed to
recei'e the money, then /uben Bayon, 7r. could not ha'e
withdrawn any amount. 6etitioner contends that A(i)n failing to do
so (i.e., naming his authori@ed agent), he practically authori@ed any
possessor thereof to write any amount and to collect the same.A
Such contention would ha'e been 'alid if not for the fact that
the withdrawal slip itself indicates a special instruction that the
amount is payable to A/amon A. de Bu@man RHor Agnes . de
Bu@man.A Such being the case, petitioner"s personnel should ha'e
been duly warned that Bayon, who was also employed in
petitioner"s 5uendia A'e. )*tension branch, was not the proper
payee of the proceeds of the chec&.
'SS(E) What is the meaning of depositing a chec& to a collecting
ban&?
*E+D) (n depositing the chec& in his name, pri'ate respondent did
not become the outright owner of the amount stated therein. %nder
the abo'e rule, by depositing the chec& with petitioner, pri'ate
respondent was, in a way, merely designating petitioner as the
collecting ban&. This is in consonance with the rule that a
negotiable instrument, such as a chec&, whether a manager"s chec&
or ordinary chec&, is not legal tender. As such, after recei'ing the
deposit, under its own rules, petitioner shall credit the amount in
pri'ate respondent"s account or infuse 'alue thereon only after the
drawee ban& shall ha'e paid the amount of the chec& or the chec&
has been cleared for deposit. The collecting ban& or last endorser
generally suffers the loss because it has the duty to ascertain the
genuineness of all prior endorsements considering that the act of
presenting the chec& for payment to the drawee is an assertion that
the party ma&ing the presentment has done its duty to ascertain
the genuineness of the endorsements. The rule finds more meaning
in this case where the chec& in'ol'ed is drawn on a foreign ban&
and therefore collection is more difficult than when the drawee
ban& is a local one e'en though the chec& in 4uestion is a
manager"s chec&.
RE,ES vs. -A GR No. 11&292 A797st 1"% 2!!1
1A-TS) 6hilippine /acing lub, (nc. (6/() sent delegates to a
conference in Australia. Bregorio #. /eyes sent Bodofredo /eyes,
the club"s chief cashier, to the respondent ban& to apply for a
foreign e*change demand draft in Australian dollars.
#e was attended to by respondent ban&"s assistant cashier,
Ir. Easis, who at first denied the application for the reason that
respondent ban& did not ha'e an Australian dollar account in any
ban& in Sydney. Easis then informed Bodofredo of a roundabout
way of effecting the re4uested remittance to Sydney thusC the
respondent ban& would draw a demand draft against Westpac 5an&
in Sydney, Australia (Westpac1Sydney) and ha'e the latter
reimburse itself from the %.S. dollar account of the respondent in
Westpac 5an& in +ew Eor&, %.S.A (Westpac1+ew Eor&). This
arrangement has been customarily resorted to. 6/( and the
petitioner Bregorio #. /eyes, acting through Bodofredo, agreed to this
arrangement.
/espondent ban& appro'ed the said application of 6/( and
issued Foreign )*change ?emand ?raft.
%pon due presentment of the foreign e*change demand draft
the same was dishonored. /espondent ban& did not cause an
erroneous transmittal of its SW(FT cable message to Westpac1Sydney.
(t was the erroneous decoding of the cable message on the part of
Westpac1Sydney that caused the dishonor of the sub=ect foreign
e*change demand draft. An employee of Westpac1Sydney in Sydney,
Australia mista&enly read the printed figures in the SW(FT cable
message of respondent ban& as 8ITP<<9 instead of as 8IT-<<9.
6etitioners spouses Bregorio #. /eyes and onsuelo 6uyat1/eyes
left for Australia to attend the said racing conference. When petitioner
Bregorio #. /eyes arri'ed in Sydney, at the registration des&, in the
presence of other delegates from 'arious member countries, he was
told by a lady member of the conference secretariat that he could not
register because the foreign e*change demand draft for his
registration fee had been dishonored for the second time. 6etitioners
filed a complaint for damages,
'SS(E) (s Section 2- (liability of drawer) of the +(! applicable?
*E+D) +$, it is not applicable. onsidering that the dishonor of the
sub=ect foreign e*change demand draft is not attributable to any fault
of the respondent ban&, whereas the petitioners appeared to be under
estoppel as earlier mentioned (ha'ing agreed to that arrangement or
procedure), it is no longer necessary to discuss the alleged application
of Section 2- of the +egotiable (nstruments !aw to the case at bar. (n
any e'ent, it was established that the respondent ban& acted in good
faith and that it did not cause the embarrassment of the petitioners in
Sydney, Australia.
'SS(E) What is the degree of care re4uired of ban&s?
*E+D) The degree of diligence re4uired of ban&s, is more than that
of a good father of a family where the fiduciary nature of their
relationship with their depositors is concerned. 5an&s are duty bound
to treat the deposit accounts of their depositors with the highest
degree of care. 5ut the said ruling applies only to cases where ban&s
act under their fiduciary capacity, that is, as depositary of the deposits
of their depositors. 5ut the same higher degree of diligence is not
e*pected to be e*erted by ban&s in commercial transactions that do
not in'ol'e their fiduciary relationship with their depositors.
The respondent ban& was not re4uired to e*ert more than the
diligence of a good father of a family in regard to the sale and
issuance of the sub=ect foreign e*change demand draft. The case at
bar does not in'ol'e the handling of petitioners" deposit, if any, with
the respondent ban&. (nstead, the relationship in'ol'ed was that of a
buyer and seller, that is, between the respondent ban& as the seller of
the sub=ect foreign e*change demand draft, and 6/( as the buyer of
the same, with the ;>
th
Asian /acing onference Secretariat in Sydney,
Australia as the payee thereof. As earlier mentioned, the said foreign
e*change demand draft was intended for the payment of the
registration fees of the petitioners as delegates of the 6/(.
The e'idence shows that the respondent ban& did e'erything
within its power to pre'ent the dishonor of the sub=ect foreign
e*change demand draft. The erroneous reading of its cable message
to Westpac1Sydney by an employee of the latter could not ha'e been
foreseen by the respondent ban&.
ASSO-'ATED vs. TAN GR No. 1".92! Dec. 12% 2!!2
1A-TS) Tan is a businessman and a regular depositor1creditor of the
Associated 5an& (5A+M). #e deposited a postdated %65 chec& with
the said 5A+M in the amount of 6->-,>>>.>> issued to him by a certain
Willy heng from Tarlac. The chec& was duly entered in his ban&
record. Allegedly, upon ad'ice and instruction of the 5A+M that the
6->-,>>>.>> chec& was already cleared and bac&ed up by sufficient
funds, TA+, on the same date, withdrew the sum of 6;:>,>>>.>>,
lea'ing a balance of 6.P,P<D.:.. A day after, TA+ deposited the
amount of 6.>,>>>.>> ma&ing his e*isting balance in the amount of
6->P,P<D.:., because he has issued se'eral chec&s to his business
partners.
#owe'er, his suppliers and business partners went bac& to him
alleging that the chec&s he issued bounced for insufficiency of funds.
'SS(E) Whether a collecting ban& has the right to debit the account
of its client for a chec& that was dishonored by a drawee? What is the
right of set1off and how should the ban& e*ercise this right? What is
the nature of the obligation of a depository ban&?
6
*E+D) +$, it has no such right.
A ban& generally has a right of setoff o'er the deposits
therein for the payment of any withdrawals on the part of a
depositor. The right of a collecting ban& to debit a client"s account
for the 'alue of a dishonored chec& that has pre'iously been
credited has fairly been established by =urisprudence. To begin
with, Article -<J> of the i'il ode pro'ides that 8NfOi*ed, sa'ings,
and current deposits of money in ban&s and similar institutions shall
be go'erned by the pro'isions concerning simple loan.9
The relationship between ban&s and depositors has been held
to be that of creditor and debtor. Thus, legal compensation under
Article -;PJ of the i'il ode may ta&e place 8when all the
re4uisites mentioned in Article -;P< are present,9 as followsC
(-) That each one of the obligors be bound principally, and that
he be at the same time a principal creditor of the other3
(;) That both debts consist in a sum of money, or if the things due
are consumable, they be of the same &ind, and also of the
same 4uality if the latter has been stated3
(D) That the two debts be due3
(:) That they be li4uidated and demandable3
(.) That o'er neither of them there be any retention or
contro'ersy, commenced by third persons and communicated
in due time to the debtor.9
)'en while the right of setoff is conceded, separate is the
4uestion of whether that remedy has properly been e*ercised.
The determination thereof hinges, in turn, on the ban&"s role
and obligations, first, as respondent"s depositary ban&3 and second,
as collecting agent for the chec& in 4uestion.
'SS(E) Bi'e the nature of the ban&ing business
*E+D) The ban&ing business is impressed with public interest.
onse4uently, the highest degree of diligence is e*pected, and high
standards of integrity and performance are e'en re4uired of it. 5y
the nature of its functions, a ban& is under obligation to treat the
accounts of its depositors with meticulous care.
'SS(E) (s chec& a legal tender?
*E+D) +$, it is not legal tender.
6etitioner allowed the withdrawal of the face 'alue of the
deposited chec& prior to its clearing. That act certainly disregarded
the clearance re4uirement of the ban&ing system. Such a practice
is unusual, because a chec& is not legal tender or money3 and its
'alue can properly be transferred to a depositor"s account only after
the chec& has been cleared by the drawee ban&.
'SS(E) What is the relation of payee or holder of a commercial
paper and the collecting ban&?
*E+D) The relationship between the payee or holder of a
commercial paper and the collecting ban& is that of principal and
agent. %nder Article -<>< of the i'il ode, such ban& could be
held liable not only for fraud, but also for negligence.
'SS(E) Whose negligence was the pro*imate cause of the loss?
*E+D) The negligence of the ban& employees was the pro*imate
cause of the loss.
A ban& is liable for the wrongful or tortuous acts and
declarations of its officers or agents within the course and scope of
their employment. ?ue to the 'ery nature of their business, ban&s
are e*pected to e*ercise the highest degree of diligence in the
selection and super'ision of their employees. The lac& of diligence
of a ser'ant is imputed to the negligence of the employer, when the
negligent or wrongful act of the former pro*imately results in an
in=ury to a third person3 in this case, the depositor.
The ban&"s premature authori@ation of the withdrawal by
respondent triggered 11 in rapid succession and in a natural
se4uence 11 the debiting of his account, the fall of his account
balance to insufficient le'els, and the subse4uent dishonor of his
own chec&s for lac& of funds. (t cannot be denied that it was
Npetitioner"sO fault which allowed NrespondentO to withdraw a huge
sum which he belie'ed was already his.
'SS(E) (s there a need for the ban& to gi'e notice to Tan?
*E+D) Ees, there is a need to gi'e notice.
+otice was proper and ought to be e*pected. 5y the ban&
manager"s account, respondent was considered a 8'alued client9
whose chec&s had always been sufficiently funded from -<JP to
-<<>, until the $ctober imbroglio. Thus, he deser'ed nothing less
than an official notice of the precarious condition of his account.
'SS(E) What is the basis for such notice re4uirement? What is the
applicability of Sections 22 and J< of the +(! to this case?
*E+D) %nder the pro'isions of the +egotiable (nstruments !aw
regarding the liability of a general indorser and the procedure for a
notice of dishonor, it was incumbent on the ban& to gi'e proper notice
to respondent.
A general indorser of a negotiable instrument engages that if the
instrument 0 the chec& in this case 0 is dishonored and the necessary
proceedings for its dishonor are duly ta&en, he will pay the amount
thereof to the holder (Sec. 22) +otice of dishonor is necessary to
charge an indorser and that the right of action against him does not
accrue until the notice is gi'en.
Section J<. To whom notice of dishonor must be gi'en. )*cept as
herein otherwise pro'ided, when a negotiable instrument has been
dishonored by non1accpetance or non1payment, notice of dishonor
must be gi'en to the drawer and each indorser, and any drawer or
indorser to whom such notice is not gi'en is discharged.
SO+'D0ANB vs. SPS ARR'ETA GR No. 1"2#2! 1e8. 1#% 2!!"
1A-TS) armen Arrieta is a ban& depositor of Solidban&. She issued
a chec& in payment of her purchases from a department store. 5ut
the same was dishonored due to SAccount losed" despite the fact that
at the time the chec& was presented for payment, armen"s chec&ing
account was still acti'e and bac&ed up by a deposit of 6-,;P..;>.
The store sent her a demand letter threatening her with criminal
prosecution. To a'oid criminal prosecution, armen paid 6DD>.>> in
cash to the store, plus a surcharge of 6DD.>> for the bouncing chec&
armen filed a complaint against Solidban& orporation for
damages
'SS(E) (s the drawee ban& who did not accept (dishonor a chec&)
liable for damages in a suit filed by the drawer?
*E+D) E)S, it is liable for damages.
The fact that another chec& armen had issued was pre'iously
dishonored does not necessarily imply that the dishonor of a
succeeding chec& can no longer cause moral in=ury and personal hurt
for which the aggrie'ed party may claim damages. Such prior
occurrence does not pro'e that respondent does not ha'e a good
reputation that can be besmirched. The reasons for and the
circumstances surrounding the pre'ious issuance and e'entual dishonor
of hec& +o. >;<D<JD are totally separate. #er in=ury arose from the
gross negligence of petitioner in dishonoring her well1funded chec&.
T(AZON vs. *E'RS O1 RA$OS GR No. 1".2.2 /74y 12% 2!!"
1A-TS) The present case in'ol'es the collection of a sum of money.
Specifically, this case arose from the failure of petitioners to pay
respondents" predecessor1in1interest. This fact was shown by the non1
encashment of chec&s issued by a third person, but indorsed by herein
6etitioner Iaria Tua@on in fa'or of the said predecessor. %nder these
circumstances, to enable respondents to collect on the indebtedness,
the chec& drawer need not be impleaded in the omplaint. Thus, the
suit is directed, not against the drawer, but against the debtor who
indorsed the chec&s in payment of the obligation.
'SS(E) What is the nature of a contract of agency and does it apply
in this case?
*E+D) (n a contract of agency, one binds oneself to render some
ser'ice or to do something in representation or on behalf of another,
with the latter"s consent or authority. The following are the elements
of agencyC (-) the parties" consent, e*press or implied, to establish the
relationship3 (;) the ob=ect, which is the e*ecution of a =uridical act in
relation to a third person3 (D) the representation, by which the one
who acts as an agent does so, not for oneself, but as a representati'e3
(:) the limitation that the agent acts within the scope of his or her
authority. As the basis of agency is representation, there must be, on
the part of the principal, an actual intention to appoint, an intention
naturally inferable from the principal"s words or actions. (n the same
manner, there must be an intention on the part of the agent to accept
the appointment and act upon it. Absent such mutual intent, there is
generally no agency.
(n this case, petitioners were the rice buyers themsel'es3 they
were not mere agents of respondents in their rice dealership. The
4uestion of whether a contract is one of sale or of agency depends on
the intention of the parties. The declarations of agents alone are
generally insufficient to establish the fact or e*tent of their authority.
The law ma&es no presumption of agency3 pro'ing its e*istence,
nature and e*tent is incumbent upon the person alleging it. (n the
7
present case, petitioners raise the fact of agency as an affirmati'e
defense, yet fail to pro'e its e*istence.
6etitioners, on their own behalf, sued )'angeline Santos for
collection of the amounts represented by the bounced chec&s, in a
separate ci'il case that they sought to be consolidated with the
current one. (f, as they claim, they were mere agents of
respondents, petitioners should ha'e brought the suit against
Santos for and on behalf of their alleged principal. Their filing a suit
against her in their own names negates their claim that they acted
as mere agents in selling the rice obtained from 5artolome /amos.
'SS(E) (s the drawer an indispensable party in a suit instituted by
the holder when chec&s were dishonored?
*E+D) +$, the drawer is not an indispensable party.
As indorser, 6etitioner Iaria Tua@on warranted that upon due
presentment, the chec&s were to be accepted or paid, or both,
according to their tenor3 and that in case they were dishonored, she
would pay the corresponding amount. After an instrument is
dishonored by nonpayment, indorsers cease to be merely
secondarily liable3 they become principal debtors whose liability
becomes identical to that of the original obligor. The holder of a
negotiable instrument need not e'en proceed against the ma&er
before suing the indorser. learly, )'angeline Santos 11 as the
drawer of the chec&s 11 is not an indispensable party in an action
against Iaria Tua@on, the indorser of the chec&s.
G'++AN(EGA vs. N'TE GR No. 12&211 /74y 2"% 2!!.
1A-TS) /espondent allegedly too& out a loan from petitioner. To
secure the loan, respondent issued petitioner an Asian 5an&
orporation (A5) chec& dated February J, -<<:. The date was
later changed to 7une J, -<<: with the consent and concurrence of
petitioner.
The chec& was, howe'er, dishonored due to a material
alteration when petitioner deposited the chec& on due date.
/espondent, through her representati'e, remitted 6;D.,>>> to
petitioner as partial payment of the loan. The balance of 6-P:, >>>
was due on or before ?ecember J, -<<:.
$n August ;:, -<<:, howe'er, petitioner filed an action for a
sum of money and damages against A5 for the full amount of the
dishonored chec&.
'SS(E) (f the drawee ban& dishonors a chec& can payee1holder
due the ban&?
*E+D) (f a ban& refuses to pay a chec& (notwithstanding the
sufficiency of funds), the payee1holder cannot, in 'iew of the cited
sections, sue the ban&. The payee should instead sue the drawer
who might in turn sue the ban&. Section -J< is sound law based on
logic and established legal principlesC no pri'ity of contract e*ists
between the drawee1ban& and the payee. (ndeed, in this case,
there was no such pri'ity of contract between A5 and petitioner.
6etitioner should not ha'e sued A5. ontracts ta&e effect
only between the parties, their assigns and heirs, e*cept in cases
where the rights and obligations arising from the contract are not
transmissible by their nature, or by stipulation or by pro'ision of
law. +one of the foregoing e*ceptions to the relati'ity of contracts
applies in this case.
'SS(E) (s the drawer an indispensable party in a suit initiated by
the payee1holder against the drawee ban&?
*E+D) E)S, the drawer is an indispensable party.
The contract of loan was between petitioner and respondent.
+o collection suit could prosper without respondent who was an
indispensable party.
GONZA+ES vs. R-0- GR No. 1".292 Nov. 29% 2!!.
1A-TS) Bon@ales was an employee of /5 as +ew Accounts ler&
in the /etail 5an&ing ?epartment at its #ead $ffice.
A foreign chec& was drawn by ?r. ?on Lapanta against the
drawee ban& Wilshire enter 5an&, +.A., of !os Angeles, alifornia,
%.S.A., and payable to Bon@ales" mother, defendant )'a Al'iar.
Al'iar then endorsed this chec&. Since /5 gi'es special
accommodations to its employees to recei'e the chec&"s 'alue
without awaiting the clearing period, Bon@ales presented the foreign
chec& to $li'ia Bome@, the /5"s #ead of /etail 5an&ing. Bome@
re4uested Bon@ales to endorse it which she did. Bome@ then
ac4uiesced to the early encashment of the chec& and signed the
chec& but indicated thereon her authority of 8up to 6-P,.>>.>>
only9. Bome@ directed Bon@ales to present the chec& to /5
employee arlos /amos and procure his signature. /amos also signed
it with an 8o&9 annotation. After getting the said signatures Bon@ales
presented the chec& to /olando Lornosa, Super'isor of the /emittance
section of the Foreign ?epartment of the /5 #ead $ffice, who after
scrutini@ing the entries and signatures therein authori@ed its
encashment. Bon@ales then recei'ed its peso e4ui'alent.
/5 then tried to collect the amount of the chec& with the
drawee ban& by the latter through its correspondent ban&, the First
(nterstate 5an& of alifornia, on two occasions dishonored the chec&
because of 8)+?. (//)B9 or irregular indorsement. (nsisting, /5
again sent the chec& to the drawee ban&, but this time the chec& was
returned due to 8account closed9. %nable to collect, /5 demanded
from Bon@ales the payment of the peso e4ui'alent of the chec& that
she recei'ed. Bon@ales settled the matter by agreeing that payment be
made thru salary deduction.
The deductions was implemented starting $ctober -<JP. $n
Iarch P, -<JJ /5 sent a demand letter to Al'iar. A letter was sent
to Bon@ales reminding her of her liability as an indorser of the sub=ect
chec& and that for her to a'oid litigation she has to fulfill her
commitment to settle her obligation as assured in her said letter. $n
7uly -<JJ Bon@ales resigned from /5. What had been deducted
from her salary was only 6-;,J;;.;> co'ering ten months.
'SS(E) ?oes a subse4uent party which caused the defect in the
instrument ha'e any recourse against prior endorsers in good faith?
*E+D) A subse4uent party which caused the defect in the instrument
cannot ha'e any recourse against any of the prior endorsers in good
faith.
The foreign drawee ban& refused to pay the bearer of this dollar1
chec& drawn by ?on Lapanta because of the defect introduced by
/5, through its employee, $li'ia Bome@. (t is, therefore, a useless
piece of paper if returned in that state to its original payee, )'a Al'iar.
The warranties for which Al'iar and Bon@ales are liable as general
endorsers in fa'or of subse4uent endorsers e*tend only to the state of
the instrument at the time of their endorsements, specifically, that the
instrument is genuine and in all respects what it purports to be3 that
they ha'e good title thereto3 that a44 3rior parties had capacity to
contract3 and that the instrument, at t5e time o= t5eir
endorsements, is 'alid and subsisting. This pro'ision, howe'er,
cannot be used by the party which introduced a defect on the
instrument, such as respondent /5 in this case, which 4ualifiedly
endorsed the same, to hold prior endorsers liable on the instrument
because it results in the absurd situation whereby a subse4uent party
may render an instrument useless and inutile and let innocent parties
bear the loss while he himself gets away scot1free. (t cannot be o'er1
stressed that had it not been for the 4ualified endorsement (8up to
6-P,.>>.>> only9) of $li'ia Bome@, who is the employee of /5,
there would ha'e been no reason for the dishonor of the chec&, and
full payment by drawee ban& therefor would ha'e ta&en place as a
matter of course.
(n this case, /5 should bear the loss. /elati'e to the
petitioner"s counterclaim against /5 for the amount of 6-;,J;;.;>
which it admittedly deducted from petitioner"s salary, the ourt must
order the return thereof to the petitioner, with legal interest.
'+AGAN vs. PEOP+E GR No. 1..&# A3ri4 2#% 2!!#
S, vs. PEOP+E GR No. 1.&!.9 A3ri4 2#% 2!!#
TAN vs. PEOP+E GR No. 1.&"2 A3ri4 2#% 2!!#
1A-TS) The accused1petitioners Alberto ordero Sy (Sy) and 7aime
Tan (Tan) repaired to 6ri'ate complainant /osita Tan (/osita)
residenceHoffice address at 5inondo for the purpose of encashing the
sub=ect four (:) post1dated chec&s which had a total amount of
6:<>,D.> issued by petitioner Bemma (lagan (Bemma) payable to the
order of 7a@shirt Trading, of which petitioner Sy is the registered
owner and petitioner Tan is the general manager.
Agreeing to accommodate petitioners because of their 8promise
that the chec&s will be good on due date and during that time they will
ha'e money9 and they being her relati'es, /osita as&ed them to
return. For the purpose of encashing the chec&s, she immediately
borrowed money from her friend 7uanito Tan after which she ad'ised
petitioner Tan to go bac& to her address.
$n their respecti'e dates of maturity, the first three chec&s were,
on presentment, dishonored due to 8Account losed.9 The fourth
chec& was dishonored due to 8?A(F9 or 8?rawn Against (nsufficiency
of Funds.9
As despite se'eral demands, petitioners failed to settle their
obligation, /osita filed the complaint for estafa under Article D-.
paragraph ; (d). /T con'icted petitioners. $n appeal, the ourt of
Appeals a==irmed the trial court"s decision.
'SS(E) (s there a necessity of &nowledge on the part of indorser
(Tan) that Bemma (drawer) has no sufficient funds?
8
R(+'NG) Ees. Bi'en the admitted pre'ious :1year period of
8rediscounting9 transactions between /osita and petitioner Tan, if
he indeed assured her that the chec&s in 4uestion would be
sufficiently funded on maturity, the same was unnecessary to
con'ince her to change them with cash. (n other words, any such
assurance was not the efficient cause which induced /osita to
change the chec&s with cash. (t is in this light that this ourt
credits the disclaimer of petitioner Sy of ha'ing gone with petitioner
Tan to /osita"s house to negotiate the chec&s and assure her that
they would be sufficiently funded on maturity.
At a44 events% t5ere ;as no 3roo= t5at 3etitioner Tan
5ad 97i4ty :no;4ed9e t5at Ht5eI 3etitioner Gemma% t5e
iss7er o= t5e c5ec:s% 5ad no =7nds in t5e 8an:. 6etitioners"
ac4uittal of the crime charged is thus in order.
'SS(E) What is deceit in estafa?
R(+'NG) ?eceit and damage are the essential elements of estafa.
Deceit to constit7te esta=a under Article D-. ;(d) of the /e'ised
6enal ode must be the efficient cause of the defraudation. There
must be concomitanceC t5e iss7ance o= t5e c5ec: s5o74d 8e
t5e means to o8tain money or 3ro3erty =rom t5e 3ayer.
Notice o= Dis5onor
Section &9% 112
+'$ +AO vs. -A GR No. 1191#& /7ne 2!% 199#
'SS(E) What are the elements of 56 ;;?
*E+D) This ourt listed the elements of the offense penali@ed
under 5.6. ;;, as followsC A(-) the ma&ing, drawing and issuance of
any chec& to apply to account or for 'alue3 (;) the &nowledge of
the ma&er, drawer or issuer that at the time of issue he does not
ha'e sufficient funds in or credit with the drawee ban& for the
payment of such chec& in full upon its presentment3 and (D)
subse4uent dishonor of the chec& by the drawee ban& for
insufficiency of funds or credit or dishonor for the same reason had
not the drawer, without any 'alid cause, ordered the ban& to stop
payment.A
7ustice !uis 5. /eyes, an eminent authority in criminal law,
also enumerated the elements of the offense defined in the first
paragraph of Section - of 5.6. ;;, thusC
-. That a person ma&es or draws and issues any chec&.
;. That the chec& is made or drawn and issued to apply on
account or for 'alue.
D. That the person who ma&es or draws and issues the chec&
&nows at the time of issue that he does not ha'e sufficient
funds in or credit with the drawee ban& for the payment of
such chec& in full upon its presentment.
:. That the chec& is subse4uently dishonored by the drawee ban&
for insufficiency of funds or credit, or would ha'e been
dishonored for the same reason had not the drawer, without
any 'alid reason, ordered the ban& to stop payment.
'SS(E) What constitutes &nowledge of insufficiency of funds?
*E+D) Mnowledge of insufficiency of funds or credit in the drawee
ban& for the payment of a chec& upon its presentment is an
essential element of the offense. There is a prima facie presumption
of the e*istence of this element from the fact of drawing, issuing or
ma&ing a chec&, the payment of which was subse4uently refused
for insufficiency of funds. (t is important to stress, howe'er, that
this is not a conclusi'e presumption that forecloses or precludes the
presentation of e'idence to the contrary.
(n the present case, the fact alone that petitioner was a
signatory to the chec&s that were subse4uently dishonored merely
engenders the prima facie presumption that she &new of the
insufficiency of funds, but it does not render her automatically
guilty under 5.6. ;;. The prosecution has a duty to pro'e all the
elements of the crime, including the acts that gi'e rise to the prima
facie presumption3 petitioner, on the other hand, has a right to
rebut the prima facie presumption. Therefore, if such &nowledge of
insufficiency of funds is pro'en to be actually absent or non1
e*istent, the accused should not be held liable for the offense
defined under the first paragraph of Section - of 5.6. ;;. Although
the offense charged is a malum prohibitum, the prosecution is not
thereby e*cused from its responsibility of pro'ing beyond
reasonable doubt all the elements of the offense, one of which is
&nowledge of the insufficiency of funds.
6etitioner !ina !im !ao did not ha'e actual &nowledge of the
insufficiency of funds in the corporate accounts at the time she
affi*ed her signature to the chec&s in'ol'ed in this case, at the time
the same were issued, and e'en at the time the chec&s were
subse4uently dishonored by the drawee ban&.
'SS(E) What is the need for notice of dishonor? To whom must
notice be gi'en?
*E+D) There can be no prima facie e'idence of &nowledge of
insufficiency of funds in the instant case because no notice of dishonor
was actually sent to or recei'ed by the petitioner.
The notice of dishonor may be sent by the offended party or the
drawee ban&. The trial court itself found absent a personal notice of
dishonor to 6etitioner !ina !im !ao by the drawee ban& based on the
unrebutted testimony of $campo A(t)hat the chec&s bounced when
presented with the drawee ban& but she did not inform anymore the
5inondo branch and !ina !im !ao as there was no need to inform them
as the corporation was in distress.A The ourt of Appeals affirmed this
factual finding. 6ursuant to pre'ailing =urisprudence, this finding is
binding on this ourt.
The records show that the notice of dishonor was addressed to
6remiere Financing orporation and sent to its main office in ubao,
Tue@on ity. Furthermore, the same had not been transmitted to
6remiereGs 5inondo $ffice where petitioner had been holding office.
!i&ewise no notice of dishonor from the offended party was
actually sent to or recei'ed by 6etitioner !ao.
5ecause no notice of dishonor was actually sent to and recei'ed
by the petitioner, the prima facie presumption that she &new about the
insufficiency of funds cannot apply. Section ; of 5.6. ;; clearly
pro'ides that this presumption arises not from the mere fact of
drawing, ma&ing and issuing a bum chec&3 there must also be a
showing that, within fi'e ban&ing days from receipt of the notice of
dishonor, such ma&er or drawer failed to pay the holder of the chec&
the amount due thereon or to ma&e arrangement for its payment in
full by the drawee of such chec&.
The absence of a notice of dishonor necessarily depri'es an
accused an opportunity to preclude a criminal prosecution.
Accordingly, procedural due process clearly en=oins that a notice of
dishonor be actually ser'ed on petitioner. 6etitioner has a right to
demand and the basic postulates of fairness re4uire that the notice of
dishonor be actually sent to and recei'ed by her to afford her the
opportunity to a'ert prosecution under 5.6. ;;.
6remiere has no obligation to forward the notice addressed to it
to the employee concerned, especially because the corporation itself
incurs no criminal liability under 5.6. ;; for the issuance of a bouncing
chec&. /esponsibility under 5.6. ;; is personal to the accused3 hence,
personal &nowledge of the notice of dishonor is necessary.
onse4uently, constructi'e notice to the corporation is not enough to
satisfy due process. Ioreo'er, it is petitioner, as an officer of the
corporation, who is the latterGs agent for purposes of recei'ing notices
and other documents, and not the other way around. (t is but
a*iomatic that notice to the corporation, which has a personality
distinct and separate from the petitioner, does not constitute notice to
the latter.
B'NG vs. PEOP+E GR No. 11"2! Dec. 2% 1999
1A-TS) 6etitioner maintains that she merely signed the 4uestioned
chec&s without indicating therein the date and the amount in'ol'ed.
She adds that they were improperly filled up by )ileen Fernande@.
Thus, she concludes, she did not AissueA the dishonored chec&s in the
conte*t of the +egotiable (nstruments !aw, which defines AissueA as
the Afirst deli'ery of the instrument complete in form to a person who
ta&es it as a holder.A
'SS(E) What is the meaning of the term 8issue9?
*E+D) 6etitionerGs contentions are not meritorious. The 4uestioned
chec&s contained the date of issue and the amount in'ol'ed. (n fact,
petitioner e'en admitted that she signed those chec&s. $n the other
hand, no proof was adduced to show that petitioner merely signed
them in blan&, or that complainant filled them up in 'iolation of the
formerGs instructions or their pre'ious agreement. The e'idence on
record is clear that petitioner issued ele'en chec&s, all of which were
duly filled up and signed by her.
'SS(E) What is the reason of the need for notice of dishonor in 56
;;?
*E+D) The absence of a notice of dishonor necessarily depri'es an
accused an opportunity to preclude a criminal prosecution.
Accordingly, procedural due process clearly en=oins that a notice of
dishonor be actually ser'ed on petitioner.
GREAT AS'AN vs. -A GR No. 1!"##2 A3ri4 2"% 2!!2
9
'SS(E) What is the nature of a deed of assignment with recourse?
*E+D) 5y e*press pro'ision in the ?eeds of Assignment, Breat
Asian unconditionally obligated itself to pay 5ancasia the full 'alue
of the dishonored chec&s. (n short, Breat Asian sold the postdated
chec&s on with recourse basis against itself. This is an obligation
that Breat Asian is bound to faithfully comply because it has the
force of law as between Breat Asian and 5ancasia. Article --.< of
the i'il ode further pro'ides that 1
A$bligations arising from contracts ha'e the force of law
between the contracting parties and should be complied
with in good faith.A
Breat Asian and 5ancasia agreed on this specific with recourse
stipulation, despite the fact that the recei'ables were negotiable
instruments with the endorsement of Arsenio. The contracting
parties had the right to adopt the with recourse stipulation which is
separate and distinct from the warranties of an endorser under the
+egotiable (nstruments !aw. Article -D>2 of the i'il ode pro'ides
thatC
AThe contracting parties may establish such
stipulations, clauses, terms and conditions as they may
deem con'enient, pro'ided they are not contrary to law,
morals, good customs, public order, or public policy.A
The e*plicit with recourse stipulation against Breat Asian
effecti'ely enlarges, by agreement of the parties, the liability of
Breat Asian beyond that of a mere endorser of a negotiable
instrument. Thus, whether or not 5ancasia gi'es notice of dishonor
to Breat Asian, the latter remains liable to 5ancasia because of the
with recourse stipulation which is independent of the warranties of
an endorser under the +egotiable (nstruments !aw.
There is nothing in the +egotiable (nstruments !aw or in the
Financing ompany Act (old or new), that prohibits Breat Asian and
5ancasia parties from adopting the with recourse stipulation
uniformly found in the ?eeds of Assignment. (nstead of being
negotiated, a negotiable instrument may be assigned. Assignment
of a negotiable instrument is actually the principal mode of
con'eying accounts recei'able under the Financing ompany Act.
Since in discounting of recei'ables the assignee is subrogated as
creditor of the recei'able, the endorsement of the negotiable
instrument becomes necessary to enable the assignee to collect
from the drawer. This is particularly true with chec&s because
collecting ban&s will not accept chec&s unless endorsed by the
payee. The purpose of the endorsement is merely to facilitate
collection of the proceeds of the chec&s.
'SS(E) (n such case, what is the purpose of an indorsement?
*E+D) The purpose of the endorsement is not to ma&e the
assignee finance company a holder in due course because policy
considerations militate against according finance companies the
rights of a holder in due course. $therwise, consumers who
purchase appliances on installment, gi'ing their promissory notes or
chec&s to the seller, will ha'e no defense against the finance
company should the appliances later turn out to be defecti'e. Thus,
the endorsement does not operate to ma&e the finance company a
holder in due course. For its own protection, therefore, the finance
company usually re4uires the assignor, in a separate and distinct
contract, to pay the finance company in the e'ent of dishonor of
the notes or chec&s.
'SS(E) What is the effect of absence of notice of dishonor? When
notice of dishonor need not be gi'en (Section --:)?
Section --:. When notice need not be gi'en to drawer. 0 +otice
of dishonor is not re4uired to be gi'en to the drawer in either of
the following casesC
(a) Where the drawer and the drawee are the same person.
(b) When the drawee is fictitious person or a person not ha'ing
capacity to contract.
(c) When the drawer is the person to whom the instrument is
presented for payment.
(d) Where the drawer has no right to e*pect or re4uire that the
drawee or acceptor will honor the instrument.
(e) Where the drawer has countermanded payment.
*E+D) The e*ercise by 5ancasia of its option to sue for breach of
contract under the i'il ode will not lea'e Breat Asian holding an
empty bag. Breat Asian, after paying 5ancasia, is subrogated bac&
as creditor of the recei'ables. Breat Asian can then proceed against
the drawers who issued the chec&s. )'en if 5ancasia failed to gi'e
timely notice of dishonor, still there would be no pre=udice whate'er
to Breat Asian. %nder the +egotiable (nstruments !aw, notice of
dishonor is not re4uired if the drawer has no right to e*pect or
re4uire the ban& to honor the chec&, or if the drawer has
countermanded payment. (n the instant case, all the chec&s were
dishonored for any of the following reasonsC Aaccount closedA,
Aaccount under garnishmentA, insufficiency of fundsA, or Apayment
stoppedA. (n the first three instances, the drawers had no right to
e*pect or re4uire the ban& to honor the chec&s, and in the last
instance, the drawers had countermanded payment.
'SS(E) What is the effect of delay in gi'ing notice of dishonor? What
law applies on matters not co'ered by the +(! (Section -<2)?
*E+D) ?elay in notice of dishonor, where such notice is re4uired,
discharges the drawer only to the e*tent of the loss caused by the
delay. This rule finds application in this =urisdiction pursuant to Section
-<2 of the +egotiable (nstruments !aw which states, AAny case not
pro'ided for in this Act shall be go'erned by the pro'isions of e*isting
legislation, or in default thereof, by the rules of the !aw Ierchant.A
'SS(E) What does delay in Section -J2 of the +(! refer to?
*E+D) %nder Section -J2 of the +egotiable (nstruments !aw, delay in
the presentment of chec&s discharges the drawer. #owe'er, Section
-J2 refers only to delay in presentment of chec&s but is silent on delay
in gi'ing notice of dishonor. onse4uently, the common law or !aw
Ierchant can supply this gap in accordance with Section -<2 of the
'SS(E) What is the difference between rediscounting and loan
accommodation?
*E+D) There is indeed a fine distinction between a discounting line
and a loan accommodation. (f the accounts recei'able, li&e postdated
chec&s, are sold for a consideration less than their face 'alue, the
transaction is one of discounting, and is sub=ect to the pro'isions of
the Financing ompany Act. The assignee is immediately subrogated
as creditor of the accounts recei'able. #owe'er, if the accounts
recei'able are merely used as collateral for the loan, the transaction is
only a simple loan, and the lender is not subrogated as creditor until
there is a default and the collateral is foreclosed.
S'A vs. PEOP+E GR No. 129.9" A3ri4 2&% 2!!2
'SS(E) What is the prima facie presumption of 8&nowledge9 of
insufficiency of funds?
*E+D) Section ; of 5.6. 5lg. ;; created a prima facie presumption of
&nowledge on the part of the drawer or ma&er of the chec& of the
insufficiency of his fund in the drawee ban&, thusC
S). ;. )'idence of &nowledge of insufficient funds.1The
ma&ing, drawing and issuance of a chec& payment of which
is refused by the drawee because of insufficient funds in or
credit with such ban&, when presented within ninety (<>)
days from the date of the chec&, shall be prima facie
e'idence of &nowledge of such insufficiency of funds or
credit unless such ma&er or drawer pays the holder thereof
the amount due thereon, or ma&es arrangements for
payment in full by the drawee of such chec& within fi'e (.)
ban&ing days after recei'ing notice that such chec& has not
been paid by the drawee.
#owe'er, for the presumption to arise, the prosecution must
adduce e'idence to pro'e the factual basis for its onset, namely, (a)
the chec& is presented within ninety (<>) days from the date of the
chec&3 (b) the drawer or ma&er of the chec& recei'es notice that such
chec& has not been paid by the drawer3 and, (c) the drawer or ma&er
of the chec& fails to pay the holder of the chec& the amount due
thereon, or ma&es arrangements for payment in full within fi'e (.)
ban&ing days after recei'ing notice that such chec& has not been paid
by the drawer. With the onset of the presumption, the burden of
e'idence is shifted on the drawerHma&er of the chec& to pro'e that,
when he issued the sub=ect chec&, he had no &nowledge that he had
insufficient funds in the drawee ban& to answer for the amount due.
The notice of dishonor may be sent to the drawer or ma&er by the
drawee ban&, the holder of the chec&, or the offended party, either by
personal deli'ery or by registered mail. The drawer or ma&er of a
chec& has a right, under the law, to demand that a written notice of
dishonor be sent to and recei'ed by him to enable him to a'oid
indictment for 'iolation of 5.6. 5lg. ;;.
'SS(E) Iust the notice of dishonor be in writing?
*E+D) The notice of dishonor of a chec& to the ma&er must be in
;ritin9. A mere oral notice to the drawer or ma&er of the dishonor of
his chec& is not enough
10
'SS(E) What is the need that such notice to be in writing?
*E+D) %nless and until the drawer or ma&er of the chec& recei'es
a written notice of dishonor of the chec&, or where there is no proof
as to when such notice of dishonor was recei'ed by the drawer or
ma&er, the fi'e1day period within which the drawer or ma&er has to
pay the amount due or made arrangements with the drawee ban&
for the payment of the chec&, cannot be determined. (n such case,
the prima facie presumption cannot arise.
'SS(E) What is the effect of payment?
*E+D) (f the ma&er or drawer pays, or ma&es arrangements with
the drawee ban& for the payment of the amount due within the
fi'e1day period from notice of the dishonor gi'en to the drawer, it is
a complete defense3 the accused may no longer be indicted for
'iolation of Section -, 5.6. 5lg. ;;. (f he is so indicted, he may set
up the payment of the amount due as a complete defense.
R'GOR vs. PEOP+E GR No. 122&&# Nov. 1#% 2!!2
'SS(E) (s there presumption of 8&nowledge9 of insufficiency of
funds when chec& is presented ninety (<>) days from its due date?
*E+D) +$, there no such presumption.
The prima facie presumption of &nowledge re4uired in Sec. ;
of 56 ;; does not apply because (a) the chec& was presented for
payment only on Iay ;., -<<> or beyond the <>1day period, which
e*pired on Iay -2, -<<>, counted from the maturity date of the
chec& on February -2, -<<> and (b) an actually admitted
&nowledge of a fact needs no presumption.
'SS(E) What is the effect of admission of /igor?
*E+D) While it is true that if a chec& is presented beyond ninety
(<>) days from its due date, there is no more presumption of
&nowledge by the drawer that at the time of issue his chec& has no
sufficient funds, the presumption in this case is supplanted by
appellant"s own admission that he did not hide the fact that he had
no sufficient funds for the chec&. (n fact, it appears that when he
authori@ed /5S7 to date his chec& on February -2, -<<>, his current
account was already closed two wee&s earlier, on February ;, -<<>.
'SS(E) (s the &nowledge of the payee that the funds are
insufficient material in 56 ;;?
*E+D) (t is immaterial.
Assuming arguendo that the payee had &nowledge that he had
insufficient funds at the time he issued the chec&, such &nowledge
by the payee is immaterial as deceit is not an essential element of
the offense under 5atas 6ambansa 5ilang ;;. The gra'amen of the
offense is the issuance of a bad chec&3 hence, malice and intent in
the issuance thereof are inconse4uential.
'SS(E) #ow is notice of dishonor made in 56 ;;?
*E+D) The notice of dishonor of a chec& may be sent to the
drawer or ma&er by the drawee ban&, the holder of the chec&, or
the offended party either by personal deli'ery or by registered mail.
The notice of dishonor to the ma&er of a chec& must be in writing.
(n this case, prosecution witness )dmarcos 5asangan testified
that after petitioner"s chec& was dishonored, he and co1employee
arlos Barcia went to petitioner"s residence in Tarlac to inform him
about it. Thereafter, petitioner wrote a letter dated 7une ;J, -<<>
to Atty. 7oselito !im, /5S7 chairman of the 5oard of ?irectors,
proposing a manner of paying the loan. The letter was referred to
the ban& manager who sent petitioner another demand letter dated
September -P, -<<> through registered mail.
The transcript of records shows that petitioner admitted
&nowledge of the dishonor of his chec& through a demand letter
sent to him. #ence, petitioner cannot pretend that he did not
recei'e a notice of dishonor of his chec&.
SGENDSEN vs. PEOP+E GR No. 1#"&1 1e8. 2.% 2!!&
1A-TS) ristina /eyes (ristina) e*tended a loan to petitioner in
the amount of 6;>>,>>>, to bear interest at ->K a month. After
petitioner had partially paid his obligation, he failed to settle the
balance thereof which had reached 6DJ>,>>> inclusi'e of interest.
ristina thus filed a collection suit against petitioner, which
was e'entually settled when petitioner paid her 6;>>,>>>

and
issued in her fa'or an (nternational )*change 5an& chec& postdated
(chec&) in the amount of 6-2>,>>> representing interest. The chec&
was co1signed by one Wilhelm 5olton. When the chec& was
presented for payment it was dishonored for ha'ing been ?rawn
Against (nsufficient Funds (?A(F).
+o settlement ha'ing been made by petitioner, ristina filed a
complaint against him and his co1signatory to the chec&, 5olton, for
'iolation of 5.6. 5lg. ;; IeT found petitioner guilty as charged. /T
affirmed the IeT =udgment and the ourt of Appeals denied
petitioner"s appeal.
'SS(E) Are notice of dishonor re4uired under 56 ;;, and how it is
made?
R(+'NG) Ees. (n recent cases, we had the occasion to emphasi@e
that not only must t5ere 8e a ;ritten notice o= dis5onor or
demand 4etters act7a44y received 8y t5e dra;er o= a
dis5onored c5ec:% but there must also be 3roo= o= recei3t t5ereo=
t5at is 3ro3er4y a7t5enticated, and not mere registered receipt
andHor return receipt.
While Section ; of 5.6. ;; indeed does not state that the notice of
dishonor be in writing, this must be ta&en in con=unction with Section D
of the law, i.e., That ;5ere t5ere are no s7==icient =7nds in or
credit ;it5 s7c5 dra;ee 8an:% s7c5 =act s5a44 a4;ays 8e
eD34icit4y stated in t5e notice o= dis5onor or re=7sa4.. A mere
oral notice or demand to pay would appear to be insufficient for
con'iction under the law. (n our 'iew, both the spirit and letter of the
5ouncing hec&s !aw re4uire for the act to be punished there under
not only that the acc7sed iss7ed a c5ec: t5at is dis5onored% 87t
a4so t5at t5e acc7sed 5as act7a44y 8een noti=ied in ;ritin9 o=
t5e =act o= dis5onor. This is consistent with the rule that penal
statues must be construed strictly against the state and liberally in
fa'or of the accused.
(n fine, the failure of the prosecution to pro'e the e*istence and
receipt by petitioner of the re4uisite written notice of dishonor and that
he was gi'en at least fi'e ban&ing days within which to settle his
account constitutes sufficient ground for his ac4uittal.
'SS(E) Are unconscionable interest rates still allowed e'en when the
%sury !aw was already repealed?
R(+'NG) +$. While the %sury !aw ceiling on interest rates was lifted
by entral 5an& ircular +o. <>., not5in9 t5erein 9rants 4enders
carte 84anc5e to raise interest rates to 4eve4s ;5ic5 ;i44 eit5er
ens4ave t5eir 8orro;ers or 4ead to a 5emorr5a9in9 o= t5eir
assets. Sti374ations a7t5oriJin9 s7c5 interest are contra 8onos
mores% i= not a9ainst t5e 4a;. T5ey are% 7nder Artic4e 12!9

o=
t5e Ne; -ivi4 -ode% ineDistent and void =rom t5e 8e9innin9.
The interest rate of ->K per month agreed upon by the parties in
this case being clearly e*cessi'e, ini4uitous and unconscionable cannot
thus be sustained.
'SS(E) What is absence of consideration under Section ;:?
R(+'NG) (n any e'ent, the presentation of the promissory note may
be dispensed with in a prosecution for 'iolation of 5.6. 5lg. ;; as the
purpose for the issuance of such chec& is irrele'ant in the
determination of the accused"s criminal liability. (t is for the purpose of
determining his ci'il liability that the document bears significance.
+otably, howe'er, Section 22 o= t5e Ne9otia84e 'nstr7ments
+a; pro'ides that )'ery negotiable instrument is deemed prima facie
to ha'e been issued for a 'aluable consideration, and e'ery person
whose signature appears thereon to ha'e become a party thereto for
'alue. (t was incumbent then on petitioner to pro'e that the chec& was
not for a 'aluable consideration. This he failed to discharge.
Disc5ar9e o= Ne9otia84e 'nstr7ments (Section 119)
TAN vs. P-'0 GR No. 1"2... A3ri4 2% 2!!&
1A-TS) Iaster Tours and Tra'el (ITT), of which petitioner was
e*ecuti'e 'ice1president, applied for a D2>1day %sance !etter of redit
(!) with respondent 6hilippine ommercial (nternational 5an& (6(5)
for the importation of four tourist buses

from ?aewoo orporation of
Seoul, Morea (the supplier).
ITT issued se'eral chec&s. 6(5 thereupon issued the %sance !
in fa'or of the supplier. The tourist buses were deli'ered to ITT,
co'ered by Trust /eceipts with 6(5 as entruster and ITT as
entrustee. $n presentment, some of the chec&s were dishonored.
6(5 soon demanded settlement of this dishonored chec& from
ITT. ITT surrendered the buses to 6(5 which accepted them in mid
-<<- and Iarch -<<;.
6(5 subse4uently filed a criminal complaint against petitioner for
'iolation of 5.6. 5lg. ;;. /T con'icted petitioner. $n petitioner"s
appeal, the ourt of Appeals affirmed the trial court"s decision.
11
'SS(E) What is the element of 8&nowledge of insufficient fund9 in
56 ;;?
R(+'NG) %nless the following elements are shown to ha'e been
pro'en by the prosecution, an accused will not be con'icted for
'iolation of 5.6. 5lg. ;;C
-. The accused ma&es, draws or issues any chec& to apply to
account or for 'alue3
;. T5e acc7sed :no;s at t5e time o= t5e iss7ance t5at 5e or
s5e does not 5ave s7==icient =7nds in% or credit ;it5% t5e
dra;ee 8an: =or t5e 3ayment o= t5e c5ec: in =744 73on its
3resentment< and
D. The chec& is subse4uently dishonored by the drawee ban& for
insufficiency of funds or credit, or it would ha'e been dishonored for
the same reason had not the drawer, without any 'alid reason,
ordered the ban& to stop payment.
/especting the second element of the crime, the prosecution
must pro'e that the accused &new, at the time of issuance, that he
does not ha'e sufficient funds or credit for the full payment of the
chec& upon its presentment.
The element of 8&nowledge9 in'ol'es a state of mind that
ob'iously would be difficult to establish, hence, the statute creates
a prima facie presumption of &nowledge on the insufficiency of
funds or credit coincidental with the attendance of the two other
elements.
'SS(E) #ow does the 56 ;; create the presumption of
&nowledge?
R(+'NG)
)'idence of &nowledge of insufficient funds.0 The ma&ing,
drawing and issuance of a chec& payment of which is
refused by the drawee because of insufficient funds in or
credit with such ban&, when presented within ninety (<>)
days from the date of the chec&, shall be 3rima =acie
evidence o= :no;4ed9e o= s7c5 ins7==iciency o=
=7nds or credit 7n4ess s7c5 ma:er or dra;er 3ays
t5e 5o4der t5ereo= t5e amo7nt d7e t5ereon% or
ma:es arran9ements =or 3ayment in =744 8y t5e
dra;ee o= s7c5 c5ec: ;it5in =ive (") 8an:in9 days
a=ter receivin9 notice t5at s7c5 c5ec: 5as not 8een
3aid 8y t5e dra;ee.
(n order to create such presumption, it m7st 8e s5o;n t5at
t5e dra;er or ma:er received a notice o= dis5onor and%
;it5in =ive 8an:in9 days t5erea=ter% =ai4ed to satis=y t5e
amo7nt o= t5e c5ec: or arran9e =or its 3ayment. The abo'e1
4uoted pro'ision creates a presumption =uris tantum that the
second element prima facie e*ists when the first and third elements
of the offense are present.
'SS(E) What is the remedy for the person liable to escape
liability?
R(+'NG) The presumption is not conclusi'e, howe'er, as it may
be rebutted by full payment.
I
'= t5e ma:er or dra;er 3ays% or
ma:es arran9ement ;it5 t5e dra;ee 8an: =or t5e 3ayment
o= t5e amo7nt d7e ;it5in t5e =iveCday 3eriod =rom notice o=
t5e dis5onor% 5e or s5e may no 4on9er 8e indicted =or s7c5
vio4ation. (t is a complete defense that would lie regardless of the
strength of the e'idence presented by the prosecution. (n essence,
the law affords the drawer or ma&er the opportunity to a'ert
prosecution by performing some acts that would operate to
preempt the criminal action, which opportunity ser'es to mitigate
the harshness of the law in its application.
(t is a general rule that only a full payment at t5e time o=
its 3resentment or d7rin9 t5e =iveCday 9race 3eriod could
e*onerate one from criminal liability under 5.6. 5lg. ;; and that
subse4uent payments can only affect the ci'il, but not the criminal,
liability.
'SS(E) Was payment made when the buses were surrendered?
?oes payment obliterate criminal liability?
R(+'NG)

(n the present case, 6(5 already e*acted its pro'erbial
pound of flesh by recei'ing and &eeping in possession the four
buses1trust properties surrendered by petitioner in about mid -<<-
and Iarch -<<; pursuant to Section P of the Trust /eceipts !aw. (t
thus appears that the tota4 amo7nt o= t5e dis5onored c5ec:s,
the undisputed claim of petitioner of a mista&en agreement to pay
the e*change differential (which the same chec&s represented)
aside, was more than fully satisfied 3rior to t5e transmitta4 and
recei3t o= t5e 4etter o= demand. (n &eeping with =urisprudence,
the ourt then considers such 3ayment o= t5e dis5onored
c5ec:s to 5ave o84iterated t5e crimina4 4ia8i4ity o=
3etitioner.
$ateria4 A4teration (Sections 122 and 12")
PN0 vs. -A GR No. 1!#"!& A3ri4 2"% 199.
1A-TS) The serial number in the chec& was altered. The chec& was
returned the reason being that there was a Amaterial alterationA of the
chec& number.
'SS(E) What is an alteration under Section -;.?
*E+D)
Sec. -;.. What constitutes a material alteration. Any alteration
which changesC
(a) The date3
(b) The sum payable, either for principal or interest3
(c) The time or place of payment3
(d) The number or the relations of the parties3
(e) The medium or currency in which payment is to be made3
(f) $r which adds a place of payment where no place of payment is
specified, or any other change or addition which alters the effect of
the instrument in any respect, is a material alteration.
'SS(E) What is the meaning of Section -;. (f)? What is the relation
of Section -;. to Section -?
*E+D) Section -;. does not refer to any change that alters the effect
of the instrument is a material alteration.
An alteration is said to be material if it alters the effect of the
instrument.

(t means an unauthori@ed change in an instrument that
purports to modify in any respect the obligation of a party or an
unauthori@ed addition of words or numbers or other change to an
incomplete instrument relating to the obligation of a party.

(n other
words, a material alteration is one which changes the items which are
re4uired to be stated under Section - of the +egotiable (nstruments
!aw.
Sec. -. Form of negotiable instruments. An instrument to be
negotiable must conform to the following re4uirementsC
(a) (t must be in writing and signed by the ma&er or drawer3
(b) Iust contain an unconditional promise or order to pay a sum
certain in money3
(c) Iust be payable on demand, or at a fi*ed or determinable future
time3
(d) Iust be payable to order or to bearer3 and
(e) Where the instrument is addressed to a drawee, he must be
named or otherwise indicated therein with reasonable certainty.
/eproduced hereunder are some e*amples of material and immaterial
alterationsC
A. Iaterial AlterationsC
(-) Substituting the words Aor bearerA for Aorder.A
(;) Writing Aprotest wai'edA abo'e blan& indorsements.
(D) A change in the date from which interest is to run.
(:) A chec& was originally drawn as followsC A(ron ounty 5an&, rystal
Falls, Iich. Aug. ., -<>-. 6ay to B.!. or order Q< fifty cents T/A The
insertion of the figure . before the figure <, the instrument being
otherwise unchanged.
(.) Adding the words Awith interestA with or without a fi*ed rate.
(2) An alteration in the maturity of a note, whether the time for
payment is thereby curtailed or e*tended.
(P) An instrument was payable AFirst +atGl 5an&A the plaintiff added the
word AIarion.A
(J) 6laintiff, without consent of the defendant, struc& out the name of
the defendant as payee and inserted the name of the ma&er of the
original note.
(<) Stri&ing out the name of the payee and substituting that of the
person who actually discounted the note.
(->) Substituting the address of the ma&er for the name of a co1
ma&er.

5. (mmaterial AlterationsC
(-) hanging A( promise to payA to AWe promise to payA, where there
are two ma&ers.
(;) Adding the word AannualA after the interest clause.
(D) Adding the date of maturity as a marginal notation.
(:) Filling in the date of actual deli'ery where the ma&ers of a note
ga'e it with the date in blan&, A7uly UUUU.A
(.) An alteration of the marginal figures of a note where the sum
stated in words in the body remained unchanged.
(2) The insertion of the legal rate of interest where the note had a
pro'ision for Ainterest at UUUUUUU per cent.A
12
(P) A printed form of promissory note had on the margin the
printed words, A)*tended to UUUUUUUU.A The holder on or after
maturity wrote in the blan& space the words AIay -, -<-D,A as a
reference memorandum of a promise made by him to the principal
ma&er at the time the words were written to e*tend the time of
payment.
(J) Where there was a blan& for the place of payment, filling in the
blan& with the place desired.
(<) Adding to an indorseeGs name the abbre'iation AashA when it
had been agreed that the draft should be discounted by the trust
company of which the indorsee was cashier.
(->) The indorsement of a note by a stranger after its deli'ery to
the payee at the time the note was negotiated to the plaintiff.
(--) An e*tension of time gi'en by the holder of a note to the
principal ma&er, without the consent of a surety co1ma&er.

'SS(E) What is spoliation?
*E+D) Spoliation is an alterationsdone by a stranger and will not
a'oid the instrument, but the holder may enforce it only according
to its original tenor.
'SS(E) (s the change in the serial number material alteration?
*E+D) +$, it is not a material alteration.
The case at bench is uni4ue in the sense that what was
altered is the serial number of the chec& in 4uestion, an item which,
it can readily be obser'ed, is not an essential re4uisite for
negotiability under Section - of the +egotiable (nstruments !aw.
The aforementioned alteration did not change the relations between
the parties. The name of the drawer and the drawee were not
altered. The intended payee was the same. The sum of money due
to the payee remained the same.
The chec&Gs serial number is not the sole indication of its
origin. The name of the go'ernment agency which issued the
sub=ect chec& was prominently printed therein. The chec&Gs issuer
was therefore sufficiently identified, rendering the referral to the
serial number redundant and inconse4uential.
6etitioner, thus cannot refuse to accept the chec& in 4uestion
on the ground that the serial number was altered, the same being
an immaterial or innocent one.
'NTK+ -ORP 0ANB vs. -A GR No. 122991! Se3t. "% 2!!.
1A-TS) The Iinistry of )ducation and ulture issued -. chec&s
drawn against respondent which petitioner accepted for deposit on
'arious dates. After ;: hours from submission of the chec&s to
respondent for clearing, petitioner paid the 'alue of the chec&s and
allowed the withdrawals of the deposits. #owe'er, on -: $ctober
-<J-, respondent returned all the chec&s to petitioner without
clearing them on the ground that they were materially altered.
Thus, petitioner instituted an action for collection of sums of money
against respondent to reco'er the 'alue of the chec&s.
The alterations in the chec&s were made on their serial
numbers.
'SS(E) What is material alteration and whether or not the chec&s
were materially altered?
*E+D) An alteration is said to be material if it alters the effect of
the instrument. (t means an unauthori@ed change in an instrument
that purports to modify in any respect the obligation of a party or
an unauthori@ed addition of words or numbers or other change to
an incomplete instrument relating to the obligation of a party. (n
other words, a material alteration is one which changes the items
which are re4uired to be stated under Section - of the +egotiable
(nstrumentNsO !aw.
6etitioner, thus cannot refuse to accept the chec& in 4uestion
on the ground that the serial number was altered, the same being
an immaterial or innocent one.
(n the present case the alterations of the serial numbers do
not constitute material alterations on the chec&s.
$ETRO0ANB vs. -A0'+ZO GR No. 1"22.9 Dec. .% 2!!.
1A-TS) /espondent /enato abil@o issued a Ietroban& hec&
payable to 8AS#9 and postdated on ;: +o'ember -<<: in the
amount of One T5o7sand Pesos (P1%!!!.!!). The chec& was
drawn against abil@o"s Account with Ietroban& and was paid by
abil@o to a certain Ir. Iar4ue@, as his sales commission.
Subse4uently, the chec& was presented to Westmont 5an& for
payment. Westmont 5an&, in turn, indorsed the chec& to
Ietroban& for appropriate clearing. After the entries thereon were
e*amined, including the a'ailability of funds and the authenticity of
the signature of the drawer, Ietroban& cleared the chec& for
encashment in accordance with the 6hilippine learing #ouse
orporation (6#) /ules.
%pon receipt of the chec&, abil@o disco'ered that Ietroban&
hec& which he issued on -; +o'ember -<<: in the amount of
P1%!!!.!! was altered to P91%!!!.!! and the date 22 Novem8er
1992 was changed to 12 Novem8er 1992.
abil@o, thru counsel, sent a letter1demand to Ietroban& for the
payment of 6<>,>>>.>>, after deducting the original 'alue of the chec&
in the amount of 6-,>>>.>>. Such written demand notwithstanding,
Ietroban& still failed or refused to comply with its obligation.
onse4uently, abil@o instituted a ci'il action for damages against
Ietroban&. /T rendered a ?ecision in fa'or of abil@o. The ourt of
Appeals affirmed with modification the ?ecision of the court a 4uo.
'SS(E) What is material alteration?
R(+'NGC An alteration is said to be material if it changes the effect of
the instrument. (t means that an unauthori@ed change in an
instrument that purports to modify in any respect the obligation of a
party or an unauthori@ed addition of words or numbers or other
change to an incomplete instrument relating to the obligation of a
party. (n other words, a material alteration is one which changes the
items which are re4uired to be stated under Section - of the
(n the case at bar, the chec& was altered so that the amount was
increased from P1%!!!.!! to P91%!!!.!! and the date was
changed from 22 Novem8er 1992 to 12 Novem8er 1992.
Apparently, since the entries altered were among those enumerated
under Section - and -;., namely, the sum of money payable and the
date of the chec&, the instant contro'ersy therefore s4uarely falls
within the pur'iew of material alteration.
'SS(E) What is the effect of payment made under a material altered
instrument?
R(+'NG)
Section -;:. Alteration of instrument3 effect of. 0 Where a
negotiable instrument is materially altered without the assent of all
parties liable thereon, it is avoided% e*cept as against a party who
has himself made% a7t5oriJed% and assented to t5e a4teration
and s78se67ent indorsers.
5ut when the instrument has been materially altered and is in
the hands of a holder in due course not a party to the alteration, he
may enforce the payment thereof according to its original tenor.
The ban& on which the chec& is drawn, &nown as the drawee
ban&, is under strict liability to pay to the order of the payee in
accordance with the drawer"s instructions as reflected on the face and
by the terms of the chec&. Payment made 7nder materia44y
a4tered instr7ment is not 3ayment done in accordance ;it5
t5e instr7ction o= t5e dra;er.
When the drawee ban& pays a materially altered chec&, it 'iolates
the terms of the chec&, as well as its duty to charge its client"s account
only for bona fide disbursements he had made. Since t5e dra;ee
8an:% in t5e instant case% did not 3ay accordin9 to t5e ori9ina4
tenor o= t5e instr7ment% as directed 8y t5e dra;er% t5en it 5as
no ri95t to c4aim reim87rsement =rom t5e dra;er% m7c5 4ess%
t5e ri95t to ded7ct t5e erroneo7s 3ayment it made =rom t5e
dra;erKs acco7nt ;5ic5 it ;as eD3ected to treat ;it5 7tmost
=ide4ity.
'SS(E) What is the doctrine of e4uitable estoppel?
R(+'NG) Verily, Ietroban& cannot lightly impute that abil@o was
negligent and is therefore pre'ented from asserting his rights under
the doctrine of e4uitable estoppel when the facts on record are bare of
e'idence to support such conclusion. T5e doctrine o= e67ita84e
esto33e4 states t5at ;5en one o= t5e t;o innocent 3ersons%
eac5 97i4t4ess o= any intentiona4 or mora4 ;ron9% m7st s7==er a
4oss% it m7st 8e 8orne 8y t5e one ;5ose erroneo7s cond7ct%
eit5er 8y omission or commission% ;as t5e ca7se o= in?7ry.
Ietroban&"s reliance on this dictum, is misplaced. For one,
Ietroban&"s representation that it is an innocent party is flimsy and
e'idently, misleading. At the same time, Ietroban& cannot asse'erate
that abil@o was negligent and this negligence was the pro*imate
cause of the loss in the absence of e'en a scintilla proof to buttress
such claim. +egligence is not presumed but must be pro'en by the
one who alleges it.
'SS(E) What is the degree of diligence re4uired of a ban&?
13
R(+'NG) The point is that as a business affected with public
interest and because of the nature of its functions, the ban& is
under obligation to treat the accounts of its depositors with
meticulous care, always ha'ing in mind the fiduciary nature of their
relationship. T5e a33ro3riate de9ree o= di4i9ence re67ired o=
a 8an: m7st 8e a 5i95 de9ree o= di4i9ence, if not the utmost
diligence.
The reliance made by Ietroban& on Westmont 5an&"s
indorsement is clearly inconsistent, if not totally offensi'e to the
dictum that being impressed with public interest, 8an:s s5o74d
eDercise t5e 5i95est de9ree o= di4i9ence% i= not 7tmost
di4i9ence in dea4in9 ;it5 t5e acco7nts o= its o;n c4ients. (t
owes the highest degree fidelity to its clients and should not
therefore lightly rely on the =udgment of other ban&s on occasions
where its clients money were in'ol'e, no matter how small or
substantial the amount at sta&e.
Protest (Section 1"2)
A++'ED vs. -A GR No. 12"&"1 /74y 11% 2!!.
1A-TS) 6etitioner Allied 5an&, Ianila (A!!()?) purchased )*port
5ill from respondent B.B. Sportswear Ifg. orporation (BBS). The
bill, drawn under a letter of credit co'ered Ien"s Val'oline Training
Suit that was in transit to West Bermany (%niger 'ia /otterdam).
The e*port bill was issued by he&iang First 5an& !td., #ong&ong
/espondents +ari Bidwani and Alcron (nternational !td.
(Alcron) e*ecuted their respecti'e !etters of Buaranty, holding
themsel'es liable on the e*port bill if it should be dishonored or
retired by the drawee for any reason.
Subse4uently, the spouses !eon and !eticia de Villa and +ari
Bidwani also e*ecuted a ontinuing BuarantyHomprehensi'e
Surety (surety, for bre'ity), guaranteeing payment of any and all
such credit accommodations which A!!()? may e*tend to BBS.
When A!!()? negotiated the e*port bill to he&iang, payment was
refused due to some material discrepancies in the documents
submitted by BBS relati'e to the e*portation co'ered by the letter
of credit. onse4uently, A!!()? demanded payment from all the
respondents based on the !etters of Buaranty and Surety e*ecuted
in fa'or of A!!()?. #owe'er, respondents refused to pay,
prompting A!!()? to file an action for a sum of money.
The trial court dismissed the complaint. $n appeal, the ourt
of Appeals modified the ruling of the trial court holding respondent
BBS liable to reimburse petitioner A!!()? the peso e4ui'alent of
the e*port bill, but it e*onerated the guarantors from their liabilities
under the !etters of Buaranty.
'SS(E) an respondents, in their capacity as guarantors and
surety, be held =ointly and se'erally liable under the !etters of
Buaranty and Surety, in the absence of protest on the bill in
accordance with Section -.; of the +(!?
R(+'NG) Ees. (n this case, the !etters of Buaranty and Surety
clearly show that respondents undertoo& and bound themsel'es as
guarantors and surety to pay the full amount of the e*port bill.
Section -.; of the +egotiable (nstruments !aw pertaining to
indorsers, relied on by respondents, is not pertinent to this case.
There are well1defined distinctions between the contract of an
indorser and that of a guarantorHsurety of a commercial paper,
which is what is in'ol'ed in this case. The contract o=
indorsement is primarily that of transfer, while the contract o=
97aranty is that of personal security. The liability of a
guarantorHsurety is broader than that of an indorser. %nless the bill
is promptly presented for payment at maturity and due notice of
dishonor gi'en to the indorser within a reasonable time, he will be
discharged from liability thereon. $n the other hand, e*cept where
re4uired by the pro'isions of the contract o= s7retys5i3, a
demand or notice of default is not re4uired to fi* the surety"s
liability. #e cannot complain that the creditor has not notified him
in the absence of a special agreement to that effect in the contract
of suretyship. T5ere=ore% no 3rotest on t5e eD3ort 8i44 is
necessary to c5ar9e a44 t5e res3ondents ?oint4y and
severa44y 4ia84e ;it5 G.G. S3orts;ear since t5e res3ondents
5e4d t5emse4ves 4ia84e 73on demand in case t5e instr7ment
;as dis5onored and on t5e s7rety% t5ey even ;aived notice
o= dis5onor as sti374ated in t5eir +etters o= G7arantee.
Promissory Notes and -5ec:s
Sections 1&2% 1&"% 19. 1&9
P-'0 vs. -A GR No. 12121 /an7ary 29% 2!!1
1ORD P*'+ vs. -A GR No. 1212#9 /an7ary 29% 2!!1
1ORD P*'+ vs. -'T'0ANB GR No. 12&.!2 /an7ary 29% 2!!1
onsolidated casesC
i. GR 12121 and 1212#9)
1A-TSC F drew and issued a itiban& cross chec& in fa'or of 5(/. The
chec& was deposited with 6(5an& and was subse4uently cleared by
entral 5an&. %pon presentment with itiban&, the proceeds was paid
to 6(5an& as collecting or depository 5an&. (nstead of remitting the
proceeds to the 5(/, 6(5an& prepared two of its IanagerGs chec&,
allegedly on the instructions of one Ir. /i'era, and therefore enabled
syndicates to encash the same. The proceeds howe'er was ne'er paid
nor recei'ed by 5(/
'SS(ESC
-. What is the relationship of the payee1holder and the collecting
ban&?
;. What is a crossed chec& and the corresponding duty of the
collecting ban&?
D. What is the re4uirement of ban&ing business on the one who first
cashes or negotiates a chec&?
*E+DC
-. Since the 4uestioned crossed chec& was deposited with (5AA Nnow
6(5an&O, which claimed to be a depositoryHcollecting ban& of the 5(/,
it has the responsibility to ma&e sure that the chec& in 4uestion is
deposited in 6ayeeGs account only. As agent of the 5(/ (the payee of
the chec&), defendant (5AA should recei'e instructions only from its
principal 5(/ and not from any other person especially so when that
person is not &nown to the defendant.
't is a ;e44Csett4ed r74e t5at t5e re4ations5i3 8et;een t5e
3ayee or 5o4der o= commercia4 3a3er and t5e 8an: to ;5ic5 it
is sent =or co44ection is% in t5e a8sence o= an a9reement to t5e
contrary% t5at o= 3rinci3a4 and a9ent. A 8an: ;5ic5 receives
s7c5 3a3er =or co44ection is t5e a9ent o= t5e 3ayee or 5o4der.
;. The crossing of the chec& with the phrase A6ayeeGs Account $nly,A is
a warning that the chec& should be deposited only in the account of
the (/ Thus, it is the duty of the collecting ban& 6(5an& to ascertain
that the chec& be deposited in payeeGs account only. Therefore, it is
the collecting ban& (6(5an&) which is bound to scrutini@e the chec&
and to &now its depositors before it could ma&e the clearing
indorsement Aall prior indorsements andHor lac& of indorsement
guaranteedA.
D. !astly, ban&ing business re4uires that the one who first cashes and
negotiates the chec& must ta&e some precautions to learn whether or
not it is genuine. And if the one cashing the chec& through indifference
or other circumstance assists the forger in committing the fraud, he
should not be permitted to retain the proceeds of the chec& from the
drawee whose sole fault was that it did not disco'er the forgery or the
defect in the title of the person negotiating the instrument before
paying the chec&. For this reason, a ban& which cashes a chec& drawn
upon another ban&, without re4uiring proof as to the identity of
persons presenting it, or ma&ing in4uiries with regard to them, cannot
hold the proceeds against the drawee when the proceeds of the
chec&s were afterwards di'erted to the hands of a third party. (n such
cases the drawee ban& has a right to belie'e that the cashing ban& (or
the collecting ban&) had, by the usual proper in'estigation, satisfied
itself of the authenticity of the negotiation of the chec&s. Thus, one
who encashed a chec& which had been forged or di'erted and in turn
recei'ed payment thereon from the drawee, is guilty of negligence
which pro*imately contributed to the success of the fraud practiced on
the drawee ban&. The latter may reco'er from the holder the money
paid on the chec&.
ii. G.R. 12&.!2
1A-TSC F drew two itiban& crossed chec&s in payment of its ta*
obligations. The proceeds of both chec&s were ne'er recei'ed by the
payee. (t appeared that A, an employee of F, drew the chec&. (nstead
of deli'ering the chec& to the payee, A passed the chec& to 5,
managerof 6(5an&. 5 thereafter opened a chec&ing account with a
fictitious name with the help of , also another employee of 6(5an&.
5 then would deposit a worthless chec& in e*actly the same amount as
that drawn by F. While the worthless chec& was coursed through
6(5Gs main office for clearing, other conspirators would replace this
14
worthless chec& with FGs chec& thereby crediting the fictitious
account with the proceeds of the chec&.
'SS(ESC
-. What is the liability of 6(5 relati'e to the acts of its ees?
;. (s the doctrine of contributory negligence applicable?
D. What is the liability of the drawer to the drawee?
:. What is the nature of the ban&ing functions?
.. What is comparati'e negligence?
+ote that in these cases, the chec&s were drawn against the
drawee ban&, but the title of the person negotiating the same was
allegedly defecti'e because the instrument was obtained by fraud
and unlawful means, and the proceeds of the chec&s were not
remitted to the payee. (t was established that instead of paying the
chec&s to the (/, for the settlement of the appropriate 4uarterly
percentage ta*es of Ford, the chec&s were di'erted and encashed
for the e'entual distribution among the members of the syndicate.
As to the unlawful negotiation of the chec& the applicable law is
Section .. of the +egotiable (nstruments !aw (+(!), which
pro'idesC
AWhen title defecti'e V The title of a person who negotiates an
instrument is defecti'e within the meaning of this Act when he
obtained the instrument, or any signature thereto, by fraud, duress,
or force and fear, or other unlawful means, or for an illegal
consideration, or when he negotiates it in breach of faith or under
such circumstances as amount to a fraud.A
6ursuant to this pro'ision, it is 'ital to show that the negotiation is
made by the perpetrator in breach of faith amounting to fraud. The
person negotiating the chec&s must ha'e gone beyond the
authority gi'en by his principal. (f the principal could pro'e that
there was no negligence in the performance of his duties, he may
set up the personal defense to escape liability and reco'er from
other parties who, through their own negligence, allowed the
commission of the crime.
#)!?C
-. (n this case, there was no e'idence presented confirming the
conscious participation of 6(5an& in the embe@@lement. As a
general rule, howe'er, a ban&ing corporation is liable for the
wrongful or tortuous acts and declarations of its officers or agents
within the course and scope of their employment. A ban& will be
held liable for the negligence of its officers or agents when acting
within the course and scope of their employment. (t may be liable
for the tortuous acts of its officers e'en as regards that species of
tort of which malice is an essential element. (n this case, we find a
situation where the 6(5an& appears also to be the 'ictim of the
scheme hatched by a syndicate in which its own management
employees had participated.
A ban& holding out its officers and agents as worthy of confidence
will not be permitted to profit by the frauds these officers or agents
were enabled to perpetrate in the apparent course of their
employment3 nor will it be permitted to shir& its responsibility for
such frauds, e'en though no benefit may accrue to the ban&
therefrom. For the general rule is that a ban& is liable for the
fraudulent acts or representations of an officer or agent acting
within the course and apparent scope of his employment or
authority. And if an officer or employee of a ban&, in his official
capacity, recei'es money to satisfy an e'idence of indebtedness
lodged with his ban& for collection, the ban& is liable for his
misappropriation of such sum.
5ut in this case, responsibility for negligence does not lie on
6(5an&Gs shoulders alone.
;. itiban& must li&ewise answer for the damages incurred by Ford
on itiban& hec&s +umbers S+ ->.<P and -2.>J, because of the
contractual relationship e*isting between the two. itiban&, as the
drawee ban& breached its contractual obligation with Ford and such
degree of culpability contributed to the damage caused to the
latter. $n this score, we agree with the respondent courtGs ruling.
(See Sec. 2;)
The fact that the drawee ban& did not disco'er the irregularity
seasonably, in our 'iew, constitutes negligence in carrying out the
ban&Gs duty to its depositors. The point is that as a business
affected with public interest and because of the nature of its
functions, the ban& is under obligation to treat the accounts of its
depositors with meticulous care, always ha'ing in mind the
fiduciary nature of their relationship.
D. Thus, in'o&ing the doctrine of comparati'e negligence, we are of
the 'iew that both 6(5an& and itiban& failed in their respecti'e
obligations and both were negligent in the selection and super'ision of
their employees resulting in the encashment of itiban& hec& +os. S+
->.<P and -2.>J. Thus, we are constrained to hold them e4ually
liable for the loss of the proceeds of said chec&s issued by Ford in
fa'or of the (/.
,( O* vs. -A GR No. 12"29# /7ne .% 2!!
1A-TSC A purchased se'eral pcs of =ewelry from 5. Failing to pay the
purchase price, the two entered into a compromise agreements
wherein A would issue << postdated chec&s for 6.>,>>> each dated
e'ery -.th and D>th of the month. A issued -> postdated chec&s
drawn against her )5 account. Said chec&s were dishonored upon
deposit by 5 for the reason of account closed.
'SS(EC
-. What is the scope of the tem Ainsufficient fundA as ground for
dishonor in 56 ;;?
;.What is the meaning of chec& under 56 ;; especially so that here,
the chec& is not payable on demand as defined by Sec. -J.?
D.(s the re4uirement of notice of dishonor in 56 ;; mandatory?
*E+DC
-. The gra'amen of the offense punished by 5.6. 5lg. ;; is the act of
ma&ing and issuing a worthless chec& or a chec& that is dishonored
upon its presentation for payment .The thrust of the law is to prohibit,
under pain of penal sanctions, the ma&ing or worthless chec&s and
putting them in circulation. 5ecause of its deleterious effects on the
public interest, the practice is proscribed by law. The law punished the
act not as an offense against property, but an offense against public
order.
(n /ecuerdo 's. 6eople, this ourt also held that the terms and
conditions surrounding the issuance of the chec&s are irrele'ant since
its primordial intention is to ensure the stability and commercial 'alue
of chec&s as being 'irtual substitutes for currency.
6etitionerGs claim that cases of Aclosed accountsA are not included in
the co'erage of 5.6. 5lg. ;; has no merit considering the clear intent
of the law, which is to discourage the issuance of worthless chec&s due
to its harmful effect to the public. This ourt, in !o@ano 's. Iartine@,
was e*plicit in ruling that the language of 5.6. 5lg. ;; is broad enough
to co'er all &inds of chec&s, whether present dated or postdated, or
whether issued in payment of pre1e*isting obligations or gi'en in
mutual or simultaneous e*change for something of 'alue.
;. 5.6. 5lg. ;; does not distinguish but merely pro'ides that ANaOny
person who ma&es or draws and issues any chec& &nowing at the time
of issue that he does not ha'e sufficient funds in or credit with the
drawee ban& which chec& is subse4uently dishonored shall be
punished by imprisonment . %bi le* non distinguit nec nos distinguere
debemus.
5ut e'en if We retrace the enactment of the A5ouncing hec& !awA to
determine the parameters of the concept of Achec&A, we can easily
glean that the members of the then 5atasang 6ambansa intended it to
be comprehensi'e as to include all chec&s drawn against ban&s.
(n this light, it is easy to see that the claim of petitioner that 5.6. 5lg.
;; does not include Gpostdated chec&sG and cases of Gclosed accountsG
has no leg to stand on. The term Aclosed accountsA is within the
meaning of the phrase Adoes not ha'e sufficient funds in or credit with
the drawee ban&A.
D. To be con'icted under 56 ;;, the ff. elements must be pro'edC
-.The accused ma&es, draws or issues any chec& to apply to account
or for 'alue3
;.The accused &nows at the time of the issuance that he or she does
not ha'e sufficient funds in, or credit with, the drawee ban& for the
payment of the chec& in full upon its presentment3 and
D.The chec& is subse4uently dishonored by the drawee ban& for
insufficiency of funds or credit or it would ha'e been dishonored for
the same reason had not the drawer, without any 'alid reason,
ordered the ban& to stop payment.
Since the second element in'ol'es a state of mind which is difficult to
establish, Section ; of 5.6. 5lg. ;; created a prima facie presumption
of such &nowledge. 5ased on this section, the presumption that the
issuer had &nowledge of the insufficiency of funds is brought into
e*istence only after it is pro'ed that the issuer had recei'ed a notice of
15
dishonor and that within fi'e days from receipt thereof, he failed to
pay the amount of the chec& or to ma&e arrangement for its
payment. The presumption or prima facie e'idence as pro'ided in
this section cannot arise, if such notice of non1payment by the
drawee ban& is not sent to the ma&er or drawer, or if there is no
proof as to when such notice was recei'ed by the drawer, since
there would simply be no way of rec&oning the crucial .1day period.
Thus, (n cases for 'iolation of 5.6. 5lg. ;;, it is necessary that the
prosecution pro'e that the issuer had recei'ed a notice of dishonor.
*S0- vs. -ATA+AN GR No. 1"9"9! Oct. 1&% 2!!2
*S0- vs. -ATA+AN GR No. 1"9"91 Oct. 1&% 2!!2
*S0- vs. -ATA+AN GR No. 1"9"9! A3ri4 2"% 2!!"
1A-TSC A filed a case against #S5 for refusing to pay the chec&s
issued by 5. #S5 returned the chec&s deposited for the reason of
payment stopped pending confirmation. 5 then called #S5
confirming the chec&s he issued and re4uesting its clearance.
#owe'er, #S5 still did not pay prompting A to institute a suit
based on Art. -< of the
'SS(ESC
-. What is the effect that this suit is under Art. -< of the ?
;. What about Sec. -J< and -:P of the +(!
*E+DC
#S5A+M claims that atalan has no cause of action because under
Section -J< of the +egotiable (nstruments !aw, Aa chec& of itself
does not operate as an assignment of any part of the funds to the
credit of the drawer with the ban&, and the ban& is not liable to the
holder unless and until it accepts or certifies it.A #owe'er, #S5A+M
is not being sued on the 'alue of the chec& itself but for how it
acted in relation to atalanGs claim for payment despite the
repeated directi'es of the drawer Thomson to recogni@e the chec&
the latter issued. atalan may ha'e prayed that she be paid the
'alue of the chec&s but it is a*iomatic that what determines the
nature of an action, as well as which court has =urisdiction o'er it,
are the allegations of the complaint, irrespecti'e of whether or not
the plaintiff is entitled to reco'er upon all or some of the claims
asserted therein.
(n this instance, after carefully e*amining the amended complaint,
we are con'inced that the allegations therein are in the nature of
an action based on tort under Article -< of the i'il ode.
+(ZON DEGKT vs. -ONE('++A GR No. 1.& Se3t. 21%
2!!"
'SS(ESC
-. What is a promissory note?
;. (s a promissory note proof of identity of parties?
*E+DC E)S
/espondents argue that there is no identity of parties between the
First ase and the Third ase. The party in the First ase was
olumbia ollege, (nc., represented by Feliciano S. on4uilla3N while
the parties in the Third ase were Feliciano S. on4uilla, 5enedicto
. on4uilla, ornelio . on4uilla, and ?orotea . $rcine. The
parties in the latter case were the registered owners of the
mortgaged properties.
(t is a*iomatic that to in'o&e res =udicata, absolute identity of
parties is not re4uired. A substantial identity of parties is sufficient.
There is substantial identity of parties when there is a community of
interest between a party in the first case and that in the second
one, e'en if the latter party was not impleaded in the first case.N
(n the instant contro'ersy, the omplaint alleged that olumbia
ollege, (nc., was the only debtor. 5ut the A found that the
6romissory +ote gi'en to petitioner contained the signatures of all
the four registered owners, without any 4ualification. A 6romissory
+ote is defined as 8an unconditional promise in writing made by
one person to another, signed by the ma&er, engaging to pay on
demand, or at a fi*ed or determinable future time, a sum certain in
money to order or to bearer.9 This definition shows that the ma&ers
or signatories of a promissory note ha'e the duty to pay the
amount stated on it.
Therefore, it is only logical that the present respondents were
debtors, together with olumbia ollege, (nc. This fact e*plains why
they are also claiming the balance of the loan, instead of merely
as&ing for the nullification of the foreclosure of their property.W
Together with olumbia ollege, (nc., they are interested in annulling
the contracted loan and in pre'enting the foreclosure of the properties.
Ioreo'er, we find that olumbia ollege, (nc. claimed that it had
mortgaged its properties to petitioner ban& and e*ecuted the
6romissory +ote. /econciling this fact with the finding of the A that
respondents were the mortgagors,N we can only come to the
conclusion that they and olumbia ollege were not only common
debtors3 all of them were also mortgagors.
Therefore, they were all parties to the same ontract, protecting the
same interests, and see&ing the same relief. learly, the actions were
instituted for the protection of the common interest of respondents in
the loan and the mortgage. They shared an identity of interest from
which flowed an identity of relief sought3 that is, to ha'e the
foreclosure nullified. Their identity of interest in the loan and the
mortgaged property is enough to hold them pri'y1in1law3 this fact
meets the substanti'e re4uisite of identity of parties.
'+ANO vs. ESPALO+ GR No. 1.1#". Dec. 1.% 2!!"
'SS(ESC
-. What is the effect as to the negotiability of the chec& drawn against
a closed account?
;. What will happen to the chec&s that are not dated?
D. What is a stale chec&?
:. what is the ban&ing practice on stale chec&s
*E+DC
Anne* 8?1J9 of the complaint, a photocopy of hec& +o. >>J.-D:,
shows that it was dishonored on 7anuary -;, ;>>> due to 8A$%+T
!$S)?.9 When petitioner then filed her complaint on Iarch ;J,
;>>>, all the chec&s sub=ect hereof which were drawn against the
same closed account were already rendered 'alueless or non1
negotiable, hence, petitioner had, with respect to them, no cause of
action.
With respect to abo'e1said hec& +o. >>J:>PJ, howe'er, which was
drawn against another account of petitioner, albeit the date of issue
bears only the year 1 -<<<, its 'alidity and negotiable character at the
time the complaint was filed on Iarch ;J, ;>>> was not affected. For
Section 2 of the +egotiable (nstruments !aw pro'idesC

Section 2. $mission3 seal3 particular money. 0 The 'alidity and
negotiable character of an instrument are not affected by the fact that
0
(a) (t is not dated3 or
(b) ?oes not specify the 'alue gi'en, or that any 'alue had been gi'en
therefor3 or
(c) ?oes not specify the place where it is drawn or the place where it
is payable3 or
(d) 5ears a seal3 or
(e) ?esignates a particular &ind of current money in which payment is
to be made.
#owe'er, e'en if the holder of hec& +o. >>J:>PJ would ha'e filled
up the month and day of issue thereon to be 8?ecember9 and
8D-,9respecti'ely, it would ha'e, as it did, become stale si* (2) months
or -J> days thereafter, following current ban&ing practice
1+ORES vs. 1A+-OTE+O A$ No PC!"C2!& /an7ary 2"% 2!!.
'SS(E) #eldC
/espondent e*plains that the pre'ailing party in the ci'il case initially
sought to ha'e the chec& made payable to ?i'ina /emollino, president
of plaintiff 6olilio Shipping !ines. #owe'er, since the notice of
garnishment did not specify to whom it shall be issued, the ban& did
not directly issue a chec& in the name of said pre'ailing party and
instead issued a chec& to the order of A/T 5r. ;P2 Iuntinlupa thru
Feli* Falcotelo, Sheriff (V.A
While such e*planation may dispel any ill moti'e on the part of the
sheriff, still, his act cannot be allowed to go unpunished for he failed to
strictly obser'e the rules in implementing money =udgments.
/espondent allowed a chec& to be made payable through him despite
the clear intent of the rules proscribing sheriffs from ha'ing chec&s
made payable to them. #e li&ewise attempted to deposit the chec& in
his personal account despite the clear mandate of the rules directing
sheriffs to deli'er sums of money intended for =udgment creditors to
the cler&s of court or deposit the same to a fiduciary account.
16
(n case where the =udgment obligor 'oluntarily pays in cash or
certified chec& the =udgment debt and the =udgment obligee is not
present, Section < of /ule D< re4uires the sheriff to recei'e the
payment. #owe'er, the sheriff must turn o'er the amount within
the same day to the cler& of court. (f it is not practicable to deli'er
the amount to the cler& of court within the same day, the sheriff
shall deposit the amount in a fiduciary account with the nearest
go'ernment depository ban&. The cler& of court then deli'ers the
amount to the =udgment obligee in satisfaction of the =udgment.
(ndeed, issuing chec&s in the name of sheriffs is fraught with
danger. (n 6hilippine Airlines, (nc. 's. ourt of Appeals,where the
=udgment debtor issued a chec& in the name of the sheriff who later
absconded with the money, the ourt e*plained why chec&s should
not be made payable through sheriffsC
(t is, indeed, out of the ordinary that chec&s intended for a
particular payee are made out in the name of another. Ia&ing the
chec&s payable to the =udgment creditor would ha'e pre'ented the
encashment or the ta&ing of undue ad'antage by the sheriff, or any
person into whose hands the chec&s may ha'e fallen, whether
wrongfully or in behalf of the creditor. The issuance of the chec&s in
the name of the sheriff clearly made possible the misappropriation
of the funds that were withdrawn.
The pernicious effects of issuing chec&s in the name of a person
other than the intended payee, without the latterGs agreement or
consent, are as many as the ways that an artful mind could concoct
to get around the safeguards pro'ided by the law on negotiable
instruments.
+oteC There was no mention as to what the safeguards pro'ided by
+(! were 'iolated
$'RANDA vs. PD'- GR No. 1.92 Se3t. &% 2!!.
1A-TSC 6etitioner !eticia B. Iiranda was a depositor of 6rime
Sa'ings 5an&, Santiago ity 5ranch. $n 7une D, -<<<, she
withdrew substantial amounts from her account, but instead of cash
she opted to be issued a crossed cashier"s chec&. She was thus
issued cashier"s chec& no. >>>>>>>.-J in the sum of 6;,.>>,>>>.>>
and cashier"s chec& no. >>>>>>>.-: in the amount of
6D,>>;,>>>.>>.
6etitioner deposited the two chec&s into her account in another
ban& on the same day, howe'er, 5ang&o Sentral ng 6ilipinas (5S6)
suspended the clearing pri'ileges of 6rime Sa'ings 5an& effecti'e
;C>> p.m. of 7une D, -<<<. The two chec&s of petitioner were
returned to her unpaid.
$n 7une :, -<<<, 6rime Sa'ings 5an& declared a ban& holiday. $n
7anuary P, ;>>>, the 5S6 placed 6rime Sa'ings 5an& under the
recei'ership of the 6hilippine ?eposit (nsurance orporation (6?().
6etitioner filed a ci'il action for sum of money in the /egional Trial
ourt of Santiago ity, (sabela to reco'er the funds from her unpaid
chec&s against 6rime Sa'ings 5an&, 6?( and the 5S6.
'SS(ESC
-. ?o chec&s operate as an assignment of funds in the hands of
Iiranda?
;. Was the claim of Iiranda a disputed claim under Sec. D> of /A
P2.D and thus under the =urisdiction of the li4uidation court?
D. Are the respondents solidarily liable to Iiranda?
*E+DC
-. Anent the first issue, the two cashier"s chec&s issued by 6rime
Sa'ings 5an& do not constitute an assignment of funds in the hands
of the petitioner as there were no funds to spea& of in the first
place. The ban& was financially insol'ent for sometime, e'en
before the issuance of the chec&s on 7une D, -<<<. As the ourt of
Appeals correctly ruled, the issuance of the cashier"s chec&s
to petitioner did not constitute an assignment of funds, of
which there was practically none at the time these were issued, as
the ban& was in dire financial straits for some time.
;. As regards the second issue, the claim lodged by the petitioner
4ualifies as a disputed claim sub=ect to the =urisdiction of the
li4uidation court. /egular courts do not ha'e =urisdiction o'er
actions filed by claimants against an insol'ent ban&, unless there is
a clear showing that the action ta&en by the 5S6, through the
Ionetary 5oard in the closure of financial institutions was in e*cess of
=urisdiction, or with gra'e abuse of discretion.
The power and authority of the Ionetary 5oard to close ban&s and
li4uidate them thereafter when public interest so re4uires is an
e*ercise of the police power of the State. 6olice power, howe'er, is
sub=ect to =udicial in4uiry. (t may not be e*ercised arbitrarily or
unreasonably and could be set aside if it is either capricious,
discriminatory, whimsical, arbitrary, un=ust, or is tantamount to a
denial of due process and e4ual protection clauses of the onstitution.
8?isputed claims9 refer to all claims, whether they be against the
assets of the insol'ent ban&, for specific performance, breach of
contract, damages, or whate'er.N 6etitioner"s claim which in'ol'ed the
payment of the two cashier"s chec&s that were not honored by 6rime
Sa'ings 5an& due to its closure falls within the ambit of a claim against
the assets of the insol'ent ban&. The issuance of the cashier"s chec&s
by 6rime Sa'ings 5an& to the petitioner created a debtorHcreditor
relationship between them. This disputed claim should therefore be
lodged in the li4uidation proceedings by the petitioner as creditor,
since the closure of 6rime Sa'ings 5an& has rendered all claims
subsisting at that time moot which can best be threshed out by the
li4uidation court and not the regular courts.
D. /egarding the third issue, it is only 6rime Sa'ings 5an& that is liable
to pay for the amount of the two cashier"s chec&s. Solidary liability
cannot attach to the 5S6, in its capacity as go'ernment regulator of
ban&s, and the 6?( as statutory recei'er under /.A. +o. P2.D,
because they are the principal go'ernment agencies mandated by law
to determine the financial 'iability of ban&s and 4uasi1ban&s, and
facilitate recei'ership and li4uidation of closed financial institutions,
upon a factual determination of the latter"s insol'ency.
As correctly pointed out by the ourt of Appeals, the 5S6 should not
be held liable on the crossed cashier"s chec&s for it was not a party to
the issuance of the same3 nor can it be held liable for imposing the
sanctions on 6rime Sa'ings 5an& which indirectly affected Iiranda,
since it is mandated under Sec. DP of /.A. +o. P2.D to act accordingly.
(n the absence of fraud, the purchase of a cashier"s chec&, li&e the
purchase of a draft on a correspondent ban&, creates the relation of
creditor and debtor, not that of principal and agent, with the result
that the purchaser or holder thereof is not entitled to a preference
o'er general creditors in the assets of the ban& issuing the chec&,
when it fails before payment of the chec&. #owe'er, in a situation
in'ol'ing the element of fraud, where a cashier"s chec& is purchased
from a ban& at a time when it is insol'ent, as its officers &now or are
bound to &now by the e*ercise of reasonable diligence, it has been
held that the purchase is entitled to a preference in the assets of the
ban& on its li4uidation before the chec& is paid.
-'T'0ANB vs. SA0EN'ANO GR No. 1".12 Oct. 1.% 2!!.
'SS(ESC
-. Are managerGs chec&s proof of receipt of loan proceeds?
;. What is the significance of 56(Gs clearance indorsement?
D. What is a crossed chec&?
:. What is the liability of the indorser?
.. (s a collecting ban& an indorser?
2. Are chec&s legal tender?
1A-TSC /espondent was a client of petitioners. She had se'eral
deposits and mar&et placements with petitioners, among which were
her sa'ings account with the local branch of petitioner itiban&
(itiban&1Ianila )3 money mar&et placements with petitioner F+5
Finance3 and dollar accounts with the Bene'a branch of petitioner
itiban& (itiban&1Bene'a). At the same time, respondent had
outstanding loans with petitioner itiban&, incurred at itiban&1Ianila,
the principal amounts aggregating to 6-,<;>,>>>.>>, all of which had
become due and demandable by Iay -<P<. ?espite repeated demands
by petitioner itiban&, respondent failed to pay her outstanding loans.
Thus, petitioner itiban& used respondentGs deposits and money
mar&et placements to off1set and li4uidate her outstanding obligations.
*E+DC
-. IGs may be proof of receipt of loan proceeds. The second set of
6+s is a mere renewal of the prior loans originally co'ered by the first
set of 6+s, e*cept for 6+ +o. D:.D:. The first set of 6+s is supported,
in turn, by the e*istence of the Is that represent the proceeds
thereof recei'ed by the respondent.
(t bears to emphasi@e that the proceeds of the loans were paid to
respondent in Is, with the respondent specifically named as payee.
Is chec&s are drawn by the ban&Gs manager upon the ban& itself and
17
regarded to be as good as the money it represents. Ioreo'er, the
Is were crossed chec&s, with the words A6ayeeGs Account $nly.A
;. (n general, a crossed chec& cannot be presented to the drawee
ban& for payment in cash. (nstead, the chec& can only be deposited
with the payeeGs ban& which, in turn, must present it for payment
against the drawee ban& in the course of normal ban&ing hours.
The crossed chec& cannot be presented for payment, but it can only
be deposited and the drawee ban& may only pay to another ban& in
the payeeGs or indorserGs account. The effect of crossing a chec&C
NTOhe crossing of a chec& with the phrase A6ayeeGs Account $nlyA is
a warning that the chec& should be deposited in the account of the
payee. Thus, it is the duty of the collecting ban& 6( 5an& to
ascertain that the chec& be deposited in payeeGs account only. (t is
bound to scrutini@e the chec& and to &now its depositors before it
can ma&e the clearing indorsement Aall prior indorsements andHor
lac& of indorsement guaranteed.
The crossed Is presented by petitioner 5an& were indeed
deposited in se'eral different ban& accounts and cleared by the
learing $ffice of the entral 5an& of the 6hilippines, as e'idenced
by the stamp mar&s and notations on the said chec&s. The crossed
Is are already in the possession of petitioner itiban&, the drawee
ban&, which was ultimately responsible for the payment of the
amount stated in the chec&s. Bi'en that a chec& is more than =ust
an instrument of credit used in commercial transactions for it also
ser'es as a receipt or e'idence for the drawee ban& of the
cancellation of the said chec& due to payment,J; then, the
possession by petitioner itiban& of the said Is, duly stamped
A6aidA gi'es rise to the presumption that the said Is were already
paid out to the intended payee, who was in this case, the
respondent.
D. 56( further stamped its guarantee on the bac& of the chec&s to
the effect that, AAll prior endorsement andHor !ac& of endorsement
guaranteed.A Thus, 56( became the indorser of the Is, and
assumed all the warranties of an indorser, specifically, that the
chec&s were genuine and in all respects what they purported to be3
that it had a good title to the chec&s3 that all prior parties had
capacity to contract3 and that the chec&s were, at the time of their
indorsement, 'alid and subsisting.<; So e'en if the Is deposited
by 56(Gs client, whether it be by respondent herself or some other
person, lac&ed the necessary indorsement, 56(, as the collecting
ban&, is bound by its warranties as an indorser and cannot set up
the defense of lac& of indorsement as against petitioner itiban&,
the drawee ban&.
:. A chec&, whether an I or an ordinary chec&, is not legal tender
and, therefore, cannot constitute 'alid tender of payment. (n
6hilippine Airlines, (nc. '. ourt of Appeals, ->> this ourt
elucidated that Since a negotiable instrument is only a substitute for
money and not money, the deli'ery of such an instrument does not,
by itself, operate as payment . A chec&, whether a managerGs chec&
or ordinary chec&, is not legal tender, and an offer of a chec& in
payment of a debt is not a 'alid tender of payment and may be
refused receipt by the obligee or creditor. Iere deli'ery of chec&s
does not discharge the obligation under a =udgment. The obligation
is not e*tinguished and remains suspended until the payment by
commercial document is actually reali@ed.
*'C-E$ENT vs. 'NS(+AR GR No. 122! Se3t. 2&% 2!!#
ET *ENR, vs. 'NS(+AR GR No. 12219 Se3t. 2&% 2!!#
1 A-TS) /espondent (nsular 5an& of Asia and America (later 6(5
and now )4uitable 6(15an&) granted ).T. #enry a credit facility
&nown as 86urchase of Short Term /ecei'ables.9 Through this
arrangement, ).T. #enry was able to encash, with pre1deducted
interest, the postdated chec&s of its clients. (n other words, ).T.
#enry and respondent were into 8re1discounting9 of chec&s.
For e'ery transaction, respondent re4uired ).T. #enry to
e*ecute a promissory note and a deed of assignment bearing the
conformity of the client to the re1discounting.
;> chec&s of #i1ement (which were crossed and which bore
the restriction 8deposit to payee"s account only9) were dishonored.
So were the chec&s of /i'erside and Manebo.
/espondent filed a complaint for sum of money in the then
ourt of First (nstance of /i@al against herein petitioners. The trial
court rendered a decision in fa'or of respondent. $nly petitioners
appealed the decision to the A which affirmed it in toto.
'SS(E) What are crossed chec&s and how will these chec&s affect
holders in due course?
R(+'NG) T5e 5o4der o= crossed c5ec:s ;as not a 5o4der in d7e
co7rse. (n order to preser'e the credit worthiness of chec&s,
=urisprudence has pronounced that crossin9 o= a c5ec: s5o74d
5ave t5e =o44o;in9 e==ects) (a) the chec& may not be encashed
but only deposited in the ban&3 (8) the chec& may be negotiated on4y
once 0 to one who has an account with a ban& NandO3 (c) the act of
crossing the chec&s ser'es as ;arnin9 to the holder that the chec&
has been issued =or a de=inite 37r3ose so that he must in4uire if he
has recei'ed the chec& pursuant to that purpose, otherwise, he is not
a 5o4der in d7e co7rse.
'SS(E) Are crossed chec&s similar to restricti'e indorsements?
R(+'NG) /espondent was all too aware that s78?ect c5ec:s ;ere
crossed and 8ore restrictions t5at t5ey ;ere =or de3osit to
3ayeeMs acco7nt on4y< 5ence% t5ey co74d not 8e =7rt5er
ne9otiated to it. The records li&ewise re'eal that respondent
completely disregarded a telling sign of irregularity in the re1
discounting of the chec&s when the general manager did not ac4uiesce
to it as only the treasurerGs signature appeared on the deed of
assignment. As a ban&ing institution, it behoo'ed respondent to act
with e*traordinary diligence in e'ery transaction. (ts business is
impressed with public interest, thus, it was not e*pected to be careless
and negligent, specially so where the chec&s it dealt with were
crossed.
'SS(E) Are holders ()16() re4uired to ascertain indorser"s title on
crossed chec&s?
R(+'NG) Ees. 't is t5en sett4ed t5at crossin9 o= c5ec:s s5o74d
37t t5e 5o4der on in67iry and 73on 5im devo4ves t5e d7ty to
ascertain t5e indorserKs tit4e to t5e c5ec: or t5e nat7re o= 5is
3ossession. 1ai4in9 in t5is res3ect% t5e 5o4der is dec4ared 97i4ty
o= 9ross ne94i9ence amo7ntin9 to 4e9a4 a8sence o= 9ood =ait5X
and as suchN,O the consensus of authority is to the effect that the
holder of the chec& is not a holder in due course
'SS(E) What is solidary liability and relati'ity of contracts (Section
-P, Articles -;>P and -;>J of the i'il ode)?
R(+'NG) #i1ement could not also be made solidarily liable with
/i'erside and Manebo for the face 'alue of their chec&s. #i1ement
had nothing to do with the chec&s of these two corporations.
Furthermore, so4idary 4ia8i4ity cannot 8e 3res7med 87t
m7st 8e esta84is5ed 8y 4a; or contract. +either is present here.
Articles -;>P and -;>J of the i'il ode pro'ideC
Art. 12!#. The concurrence of two or more debtors in one and the
same obligation does not imply that each one of the former has a right
to demand, or that each one of the latter is bound to render, entire
compliance with the presentation. T5ere is so4idary 4ia8i4ity on4y
;5en t5e o84i9ation eD3ress4y so states% or ;5en t5e
o84i9ation re67ires so4idarity.
Art. 12!&. (f from the law, or the nature of the wording of the
obligations to which the preceding article refers to the contrary does
not appear, the credit or debt shall be presumed to be di'ided into as
many e4ual shares as there are creditors or debtors, the credits or
debts being considered distinct from one another, sub=ect to the /ules
go'erning the multiplicity of suits.
At any rate, the issue has become moot in 'iew of our ruling that
#i1ement is not liable for the chec&s.
$ETRO0ANB vs. P0-O$ GR No. 1212!& Oct. 1&% 2!!#
SO+'D 0ANB vs. 1'+'P'NAS GR No. 121229 Oct. 1&% 2!!#
1A-TS) %nder the chec& discounting agreement between 6ipe Iaster
and Filipinas $rient, Eu Mio (6resident of 6ipe Iaster) sold to Filipinas
$rient four Ietropolitan 5an& and Trust ompany (Ietro 5an&)
chec&s. (n e*change for the four Ietro 5an& chec&s, Filipinas $rient
issued to Eu Mio four 6hilippine 5an& of ommunications (65om)
crossed c5ec:s, payable to 6ipe Iaster with the statement 8for
payee"s account only.9
%pon his receipt of the four 65om chec&s, Eu Mio indorsed and
deposited in the Ietro 5an&, in his personal account, three of the
chec&s. As to the remaining chec&, he deposited it in the Solid 5an&
orporation (Solid 5an&), also in his personal account. )'entually,
65om paid Ietro 5an& and Solid 5an& the amounts of the chec&s. (n
18
turn, Ietro 5an& and Solid 5an& credited the 'alue of the chec&s to
the personal accounts of Eu Mio.
Subse4uently, when Filipinas $rient presented the four Ietro
5an& chec&s it recei'ed from Eu Mio, they were dishonored by the
drawee ban&. 6ipe Iaster, the drawer, refused to pay the amounts
of the chec&s, claiming that it ne'er recei'ed the proceeds of the
65om chec&s as they were deli'ered and paid to the wrong party,
Eu Mio, who was not the named payee.
Filipinas $rient then demanded that 65om restore to its
(Filipinas $rient"s) account the 'alue of the 65om chec&s. (n turn,
65om sought reimbursement from Ietro 5an& and Solid 5an&,
being the collecting ban&s, but they refused.
Filipinas $rient filed with the /egional Trial ourt (/T), a
complaint for a sum of money against 6ipe Iaster, Tan 7uan !ian
andHor 65om. The /T rendered a ?ecision against Ietro 5an&
and Solid 5an&. $n appeal, the appellate court affirmed in toto the
?ecision of the trial court.
'SS(E) Whether or not Ietro 5an& and Solid 5an& are liable to
respondent Filipinas $rient for accepting the 65om crossed chec&s
payable to 6ipe Iaster
R(+'NG) Ees. As what transpired in this case, petitioner ban&s
accommodated Eu Mio, being a 'alued client and the president of
6ipe Iaster, and accepted the crossed chec&s. They stamped at
the bac& thereof that 8all prior indorsements andHor lac& of
indorsements are guaranteed.9 (n so doing, they became general
endorsers. %nder Section .. o= t5e Ne9otia84e 'nstr7ments
+a;% an endorser warrants 8that the instrument is genuine and in
all respects what it purports to be3 that he has a good title to it3
that all prior parties had capacity to contract3 and that the
instrument is at the time of his indorsement 'alid and subsisting.9
-4ear4y% 3etitioner 8an:s% 8ein9 endorsers% cannot deny
4ia8i4ity.
'SS(E) What are crossed chec&s?
R(+'NG) A c5ec: is defined by law as a bill of e*change drawn
on a ban& payable on demand. The +egotiable (nstruments !aw is
silent with respect to crossed chec&s. +onetheless, this ourt has
ta&en =udicial cogni@ance of the practice that a c5ec: ;it5 t;o
3ara44e4 4ines on t5e 733er 4e=t 5and corner means t5at it
co74d on4y 8e de3osited and not converted into cas5. The
crossin9 o= a c5ec: ;it5 t5e 35rase @PayeeKs Acco7nt On4yA
is a ;arnin9 t5at t5e c5ec: s5o74d 8e de3osited in t5e
acco7nt o= t5e 3ayee.
'SS(E) What are liabilities of the collecting ban&?
R(+'NG) The collecting ban& or last endorser generally suffers the
loss 8eca7se it 5as t5e d7ty to ascertain t5e 9en7ineness o=
a44 3rior indorsements and is 3rivy to t5e de3ositor ;5o
ne9otiated t5e c5ec:.
'SS(E) What is a clearing indorsement?
R(+'NG) (t is the collecting ban& which is bound to scrutini@e the
chec& and to &now its depositors before it can ma&e the c4earin9
indorsement% @a44 3rior indorsements andNor 4ac: o=
indorsement 97aranteed.A
Ot5er Re4ated To3ics
+'$ vs. PEOP+E GR No. 1292#. Se3t. 2#% 2!!2
1A-TS) The constitutionality of 6? J-J, a decree which amended
Article D-. of the /e'ised 6enal ode by increasing the penalties
for estafa committed by means of bouncing chec&s, is being
challenged in this petition for certiorari, for being 'iolati'e of the
due process clause, the right to bail and the pro'ision against cruel,
degrading or inhuman punishment enshrined under the
onstitution.
'SS(E) WH+ 6? J-J is constitutional
*E+D) E)S.
learly, the increase in the penalty, far from being cruel and
degrading, was moti'ated by a laudable purpose, namely, to
effectuate the repression of an e'il that undermines the countryGs
commercial and economic growth, and to ser'e as a necessary
precaution to deter people from issuing bouncing chec&s. The fact
that 6? J-J did not increase the amounts corresponding to the new
penalties only pro'es that the amount is immaterial and
inconse4uential. What the law sought to a'ert was the proliferation of
estafa cases committed by means of bouncing chec&s. Ta&ing into
account the salutary purpose for which said law was decreed, we
conclude that 6? J-J does not 'iolate Section -< of Article ((( of the
onstitution.
REP(0+'- vs. E(GEN'O GR No. 1#2.29 1e8. 12% 2!!&
1A-TS) The Anti1Ioney !aundering ouncil (AI!) issued
/esolution, whereby the ouncil resol'ed to authori@e the )*ecuti'e
?irector of the AI! 8to sign and 'erify an application to in4uire into
andHor e*amine the NdepositsO or in'estments of pri'ate respondents
6antaleon Al'are@, Wilfredo Trinidad, Alfredo !iongson, and heng
Eong, and their related web of accounts where'er these may be found
and to authori@e the AI! Secretariat 8to conduct an in4uiry into
sub=ect accounts once the /egional Trial ourt grants the application
to in4uire into andHor e*amine the ban& accounts9 of those four
indi'iduals.
%nder the authority granted by the /esolution, the AI! filed an
application to in4uire into or e*amine the deposits or in'estments of
pri'ate respondents before the /T. The Ia&ati /T rendered an
$rder granting the AI! the authority to in4uire and e*amine the
sub=ect ban& accounts of pri'ate respondents.
6ri'ate respondent Al'are@ sought that the AI! be immediately
ordered to refrain from enforcing the Ianila /T ban& in4uiry order.
The Ianila /T, acting on Al'are@"s latest motion, issued an $rder
directing the AI! 8to refrain from enforcing the order.
6ri'ate /espondent !ilia heng filed with the ourt of Appeals a
6etition for ertiorari, 6rohibition and Iandamus with Application for
T/$ andHor Writ of 6reliminary (n=unction directed against the
/epublic of the 6hilippines through the AI!, Ianila /T 7udge and
Ia&ati /T 7udge. ourt of Appeals, acting on !ilia heng"s petition,
issued a Temporary /estraining $rder.
'SS(E) Are chec&s confidential communications (especially in the
light of %.S 's. Iiller)?
R(+'NG) $ne might assume that the constitutional dimension of the
right to pri'acy, as applied to ban& deposits, warrants our present
in4uiry. We decline to do so. Admittedly, that 4uestion has pro'ed
contro'ersial in American =urisprudence. +otably, the %nited States
Supreme ourt in %.S. '. Iiller held that t5ere ;as no 4e9itimate
eD3ectation o= 3rivacy as to t5e 8an: records o= a de3ositor.
Ioreo'er, the te*t of our onstitution has not bothered with the
tri'iality of allocating specific rights peculiar to ban& deposits.
'SS(E) Are ban& deposits co'ered by the right of pri'acy? (f so, what
is the basis of such pri'acy in the 6hilippine setting?
R(+'NG) Ees. We can assert t5ere is a ri95t to 3rivacy
9overnin9 8an: acco7nts in t5e P5i4i33ines% and that such right
finds application to the case at bar. The source of such right is
statutory, e*pressed as it is in /.A. +o. -:>. otherwise &nown as the
5an& Secrecy Act of -<... The right to pri'acy is enshrined in Section
; of that law, to witC
S)T($+ ;. A44 de3osits o= ;5atever nat7re ;it5 8an:s or
8an:in9 instit7tions in t5e P5i4i33ines inc47din9 investments
in 8onds iss7ed 8y t5e Government o= t5e P5i4i33ines% its
3o4itica4 s78divisions and its instr7menta4ities% are 5ere8y
considered as o= an a8so47te4y con=identia4 nat7re and may not
be e*amined, in4uired or loo&ed into by any person, go'ernment
official, bureau or office, e*cept upon written permission of the
depositor, or in cases of impeachment, or upon order of a competent
court in cases of bribery or dereliction of duty of public officials, or in
cases where the money deposited or in'ested is the sub=ect matter of
the litigation.
0eca7se o= t5e 0an: Secrecy Act% t5e con=identia4ity o=
8an: de3osits remains a 8asic state 3o4icy in t5e P5i4i33ines.
Subse4uent laws, including the AI!A, may ha'e added e*ceptions to
the 5an& Secrecy Act, yet the secrecy of ban& deposits still lies as the
general rule. (t falls within the @ones of pri'acy recogni@ed by our
laws. The framers of the -<JP onstitution li&ewise recogni@ed that
ban& accounts are not co'ered by either the right to information under
Section P, Article ((( or under the re4uirement of full public
disclosure under Section ;J, Article ((. %nless the 5an& Secrecy Act
is repealed or amended, t5e 4e9a4 order is o84i9ed to conserve
t5e a8so47te4y con=identia4 nat7re o= P5i4i33ine 8an: de3osits.
19
I've learned that you shouldn't go through life with a
catcher's mitt on both hands; you need to be able to
throw something back.
- Maya Angelou
20

Nego Cases (Part 2 of 2)

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Nego Cases (Part 2 of 2)

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Decided Cases on Negotiable Instruments Law based on the outline of Atty. Rene Alexis P.

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