No

TITLE

FACTS

PHILIPPINE EDUCATION CO.,

INC. vs. MAURICIO A. SORIANO,
ET AL
G.R. No. L-22405 June 30, 1971

Philippine Airlines vs. Court of

Appeals [GR 49188, 30 January
1990]

On April 18, 1958, Enrique Montinola stole 10

money orders worth P200 each from the
Manila Post office. Notices not to pay the
stolen orders were sent to all post masters on
the same day and to all banks, the following
day. Phil Educ Co. accepted 1 of the money
orders and subsequently deposited it w/ the
Bank of America. The Bank cleared the
money order w/ the Bureau of Posts and got
its face value. Later on, the Bureau informed
the Bank that the money order was stolen
and deducted the P200 from the banks
clearing acct. In turn, the bank debited from
Phil Educs acct. Phil Educ filed in Manila
MCTC for the countermand of the deduction it
made to bank of America or in the
alternative, to be reimbursed w/ the P200.
MCTC granted the petition. On appeal, the CFI
reversed.
In 1977, PAL lost a civil case against Amelia
Tan. Upon finality, the court issued a writ of
execution. Deputy Sheriff Emilio Reyes served
the same to PAL. Thereafter, Tan moved for
an issuance of an alias writ of execution since
the 1st writ was not satisfied. PAL countered
that the Deputy Sheriff had already signed
and received cash vouchers in fulfillment of
the writ. The Deputy Sheriff was ordered to
make a return on the 1 st writ but he can no
longer be found. Subsequently, an alias writ
was issued and the bank acct of PAL was
garnished. PAL filed for certiorari stating that
they have already satisfied the 1st writ and it
was the Deputy Sheriff who has not made
any return thereon.

TOPIC

DOCTRINE

Postal money orders not

negotiable

In establishing and operating a postal money order system,

the government is not engaging in commercial transactions
but merely exercises a governmental power for the public
benefit. some of the restrictions imposed upon money orders
by postal laws and regulations are inconsistent with the
character of negotiable instruments. For instance, such laws
and regulations usually provide for not more than one
endorsement; payment of money orders may be withheld
under a variety of circumstances.

Payment by check to the

absconding sheriff is not
tantamount to satisfaction
of judgment.

Under the peculiar circumstances of the case, the payment to

the absconding sheriff by check in his name did not operate
as a satisfaction of the judgment debt. In general, a payment,
in order to be effective to discharge an obligation, must be
made to the proper person. Article 1240 of the Civil Code
provides that "Payment shall be made to the person in whose
favor the obligation has been constituted, or his successor in
interest, or any person authorized to receive it." Further,
Article 1249 of the Civil Code provides that "The payment of
debts in money shall be made in the currency stipulated, and
if it is not possible to deliver such currency, then in the
currency which is legal tender in the Philippines. The delivery
of promissory notes payable to order, or bills of exchange or
other mercantile documents shall produce the effect of
payment only when they have been cashed, or when through
the fault of the creditor they have been impaired. In the
meantime, the action derived from the original obligation shall
be held in abeyance." In the absence of an agreement, either
express or implied, payment means the discharge of a debt or

Metropolitan Bank & Trust

Company, Petitioner,
vs.
Court Of Appeals, Golden
Savings & Loan Association,
Inc., Lucia Castillo, Magno
Castillo And Gloria
Castillo, Respondents

G.R. No. 88866

February 18, 1991

Golden Savings and Loan Association

operates in Calapan Mindoro.
Eduardo
Gomez deposited in his acct several treasury
warrants in 1979, some of which were
payable to him; while some were indorsed to
him. In turn, the treasurer of Golden Savings
deposited w/
Metrobank Calapan the
warrants. The warrants were then transmitted
to Metrobank central office for clearing and to
the Bureau of Treasury for special clearing.
After several attempts to withdraw, the
treasurer, as a valued client, was allowed to
withdraw even w/o the warrants being
cleared. From that money withdrawn from
Metrobank Calapan, Gomez was able to
withdraw from Golden Savings the value of
his treasury warrants. Subsequently, 32
warrants were dishonored. Metrobank debited
from Golden Savings acct the amount of the
warrants and demanded for the return of the
lacking amount. Golden Savings rejected and
demanded that the debited amount be

A bank bears the loss for

its own negligence.

The agent acting in behalf

of the principal is liable.

obligation in money and unless the parties so agree, a debtor

has no rights, except at his own peril, to substitute something
in lieu of cash as medium of payment of his debt.
Consequently, unless authorized to do so by law or by consent
of the obligee, a public officer has no authority to accept
anything other than money in payment of an obligation under
a judgment being executed. Strictly speaking, the acceptance
by the sheriff of PAL's checks does not, per se, operate as a
discharge of the judgment debt. Since a negotiable instrument
is only a substitute for money and not money, the delivery of
such an instrument does not, by itself, operate as payment. A
check, whether a manager's check or ordinary check, is not
legal tender, and an offer of a check in payment of a debt is
not a valid tender of payment and may be refused receipt by
the obligee or creditor. Mere delivery of checks does not
discharge the obligation under a judgment. The obligation is
not extinguished and remains suspended until the payment by
commercial document is actually realized.
Metrobank exhibited extraordinary carelessness. The amount
involved was not trifling more than one and a half million
pesos (and this was 1979). There was no reason why it should
not have waited until the treasury warrants had been cleared;
it would not have lost a single centavo by waiting. Yet, despite
the lack of such clearance and notwithstanding that it had
not received a single centavo from the proceeds of the
treasury warrants, as it now repeatedly stresses it allowed
Golden Savings to withdraw not once, not twice, but thrice
from the uncleared treasury warrants in the total amount of
P968,000.00.
It was not Gloden Savings duty to exercise due diligence as it
was not entering a load arrangement w/ Gomez. Gomez was
only depositing the warrants to Golden for the latter to have it
cleared. In fact, the notice of dishonor did not specify Gomez
as the forger but the makers or drawers.
In stressing that it was acting only as a collecting agent for
Golden Savings, Metrobank seems to be suggesting that as a
mere agent it cannot be liable to the principal. This is not
exactly true. Art. 1909. The agent is responsible not only for

returned. Metrobank sued in the RTC but lost.

On appeal, the decision was affirmed.

CALTEX
(PHILIPPINES),
INC., petitioner,
vs.
COURT
OF
APPEALS
and
SECURITY BANK AND TRUST
COMPANY
G.R. No. 97753 August 10,

Angel dela Cruz secured from Security Bank

Certificates of time Deposit (CTD). He later on
reported to the bank that he lost all the CTDs
and submitted an affidavit of loss. Later on,
he contracted a loan from the bank secured
by the CTDs. Subsequently, Caltex informed
the bank that they are in possession of the

The treasury warrants are

not negotiable instruments
as they are payable out of
a particular funds

The CTDs are NIs

fraud, but also for negligence, which shall be judged 'with

more or less rigor by the courts, according to whether the
agency was or was not for a compensation.
Clearly stamped on the treasury warrants' face is the word
"non-negotiable." Moreover, and this is of equal significance, it
is indicated that they are payable from a particular fund, to
wit, Fund 501. Section 3 (When promise is unconditional)
thereof provides that "An unqualified order or promise to pay
is unconditional within the meaning of this Act though coupled
with (a) An indication of a particular fund out of which
reimbursement is to be made or a particular account to be
debited with the amount; or (b) A statement of the transaction
which gives rise to the instrument. But an order or promise to
pay out of a particular fund is not unconditional." The
indication of Fund 501 as the source of the payment to be
made on the treasury warrants makes the order or promise to
pay "not unconditional" and the warrants themselves nonnegotiable. There should be no question that the exception on
Section 3 of the Negotiable Instruments Law is applicable in
the present case. Metrobank cannot contend that by indorsing
the warrants in general, Golden Savings assumed that they
were "genuine and in all respects what they purport to be," in
accordance with Section 66 of the Negotiable Instruments
Law. The simple reason is that this law is not applicable to the
non-negotiable treasury warrants. The indorsement was made
by Gloria Castillo not for the purpose of guaranteeing the
genuineness of the warrants but merely to deposit them with
Metrobank for clearing. It was in fact Metrobank that made the
guarantee when it stamped on the back of the warrants: "All
prior indorsement and/or lack of endorsements guaranteed,
Metropolitan Bank & Trust Co., Calapan Branch."
The documents provide that the amounts deposited shall be
repayable to the depositor. And who, according to the
document, is the depositor? It is the "bearer." The documents
do not say that the depositor is Angel de la Cruz and that the
amounts deposited are repayable specifically to him. Rather,
the amounts are to be repayable to the bearer of the
documents or, for that matter, whosoever may be the bearer

1992

supposedly lost CTDs and they were given to

them by Dela Cruz as security for the oil that
the latter loaned. The bank insisted that in
view of the issuance of the new CTDs and
the subsequent loan, they cannot honor the
CTDs which Caltex possesses. Caltex sued
but lost. On appeal, Caltex argues that the
CTDs were NIs and the bank could not have
been an HDC. The appeal was dismissed.

Caltex cannot recover the

amount because the there
was
no
transfer
of
ownership of the CTDs

at the time of presentment. While the writing may be read in

the light of surrounding circumstances in order to more
perfectly understand the intent and meaning of the parties,
yet as they have constituted the writing to be the only
outward and visible expression of their meaning, no other
words are to be added to it or substituted in its stead. The
duty of the court in such case is to ascertain, not what the
parties may have secretly intended as contradistinguished
from what their words express, but what is the meaning of the
words they have used. What the parties meant must be
determined by what they said. If it was really the intention of
respondent bank to pay the amount to Angel de la Cruz only,
it could have with facility so expressed that fact in clear and
categorical terms in the documents, instead of having the
word "BEARER" stamped on the space provided for the name
of the depositor in each CTD. On the wordings of the
documents, therefore, the amounts deposited are repayable
to whoever may be the bearer thereof. Thus, petitioner's
aforesaid witness merely declared that Angel de la Cruz is the
depositor "insofar as the bank is concerned," but obviously
other parties not privy to the transaction between them would
not be in a position to know that the depositor is not the
bearer stated in the CTDs. Hence, the situation would require
any party dealing with the CTDs to go behind the plain import
of what is written thereon to unravel the agreement of the
parties thereto through facts aliunde. This need for resort to
extrinsic evidence is what is sought to be avoided by the
Negotiable Instruments Law and calls for the application of the
elementary rule that the interpretation of obscure words or
stipulations in a contract shall not favor the party who caused
the obscurity.

Petitioner's insistence that the CTDs were negotiated to it

begs the question. Under the Negotiable Instruments Law, an
instrument is negotiated when it is transferred from one
person to another in such a manner as to constitute the
transferee the holder thereof, 21 and a holder may be the
payee or indorsee of a bill or note, who is in possession of it,
or the bearer thereof. 22 In the present case, however, there

was no negotiation in the sense of a transfer of the legal title

to the CTDs in favor of petitioner in which situation, for
obvious reasons, mere delivery of the bearer CTDs would have
sufficed. Here, the delivery thereof only as security for the
purchases of Angel de la Cruz (and we even disregard the fact
that the amount involved was not disclosed) could at the most
constitute petitioner only as a holder for value by reason of his
lien. Accordingly, a negotiation for such purpose cannot be
effected by mere delivery of the instrument since, necessarily,
the terms thereof and the subsequent disposition of such
security, in the event of non-payment of the principal
obligation, must be contractually provided for. The pertinent
law on this point is that where the holder has a lien on the
instrument arising from contract, he is deemed a holder for
value to the extent of his lien. 23 As such holder of collateral
security, he would be a pledgee but the requirements therefor
and the effects thereof, not being provided for by the
Negotiable Instruments Law, shall be governed by the Civil
Code provisions on pledge of incorporeal rights, 24 which
inceptively provide: Art. 2095. Incorporeal rights, evidenced
by negotiable instruments, . . . may also be pledged. The
instrument proving the right pledged shall be delivered to the
creditor, and if negotiable, must be indorsed. Art. 2096. A
pledge shall not take effect against third persons if a
description of the thing pledged and the date of the pledge do
not appear in a public instrument.
Aside from the fact that the CTDs were only delivered but not
indorsed, the factual findings of respondent court quoted at
the start of this opinion show that petitioner failed to produce
any document evidencing any contract of pledge or guarantee
agreement between it and Angel de la Cruz. 25 Consequently,
the mere delivery of the CTDs did not legally vest in petitioner
any right effective against and binding upon respondent bank.
The requirement under Article 2096 aforementioned is not a
mere rule of adjective law prescribing the mode whereby
proof may be made of the date of a pledge contract, but a rule
of substantive law prescribing a condition without which the
execution of a pledge contract cannot affect third persons

adversely.

Ang Tek Lian, Petitioner,

vs.
The Court Of Appeals
G.R. No. L-2516
September 25, 1950

Knowing he had no funds therefor, Ang Tek

Lian drew on Saturday, 16 November 1946, a
check upon
the China Banking Corporation for the sum of
P4,000, payable to the order of "cash". He
delivered it to Lee
Hua Hong in exchange for money which the
latter handed in the act. On 18 November
1946, the next business
day, the check was presented by Lee Hua
Hong to the drawee bank for payment, but it
was dishonored for
insufficiency of funds, the balance of the
deposit of Ang Tek Lian on both dates being
P335 only. Ang Tek
Lian was charged and was convicted of estafa
in the Court of First Instance of Manila. The
Court of Appeals
affirmed the verdict.

A check payable to bearer

needs no indorsement.

Ang Tek Lian is guilty of

estafa

Under Section 9(d) of the Negotiable Instruments Law, a check

drawn payable to the order of "cash" is a check payable to
bearer, and the bank may pay it to the person presenting it for
payment without the drawer's indorsement. A check payable
to the order of cash is a bearer instrument. Where a check is
made payable to the order of cash, the word cash does
not purport to be the name of any person, and hence the
instrument is payable to bearer. The drawee bank need not
obtain any indorsement of the check, but may pay it to the
person presenting it without any indorsement." Of course, if
the bank is not sure of the bearer's identity or financial
solvency, it has the right to demand identification and/or
assurance against possible complications, for instance, (a)
forgery of drawer's signature, (b) loss of the check by the
rightful owner, (c) raising of the amount payable, etc. The
bank may therefore require, for its protection, that the
indorsement of the drawer or of some other person known
to it be obtained. But where the Bank is satisfied of the
identity and/or the economic standing of the bearer who
tenders the check for collection, it will pay the instrument
without further question; and it would incur no liability to the
drawer in thus acting. A check payable to bearer is authority
for payment to the holder. Where a check is in the ordinary
form, and is payable to bearer, so that no indorsement is
required, a bank, to which it is presented for payment, need
not have the holder identified, and is not negligent in failing to
do so. Consequently, a drawee bank to which a bearer check
is presented for payment need not necessarily have the
holder identified and ordinarily may not be charged with
negligence in failing to do so. If the bank has no reasonable
cause for suspecting any irregularity, it will be protected in
paying a bearer check, no matter what facts unknown to it
may have occurred prior to the presentment. Although a
bank is entitled to pay the amount of a bearer check without
further inquiry, it is entirely reasonable for the bank to insist
that the holder give satisfactory proof of his identity. Herein
anyway, it is significant, and conclusive, that the form of the
check was totally unconnected with its dishonor. It was

returned unsatisfied because the drawer had insufficient funds

not because the drawer's indorsement was lacking.
It is apparent that Ang Tek Lian employed deceit and fraud in
order to secure funds. Although the check is payable to cash,
since it is a bearer instrument, it needs not indorsement. The
mere delivery of the unfunded check in order to secure a
contract is estafa.

6
REPUBLIC PLANTERS BANK vs.
COURT
OF
APPEALS
and
FERMIN CANLAS
G.R. No. 93073 December 21,
1992

Defendant Shozo Yamaguchi and private

respondent
Fermin
Canlas
were
President/Chief
Operating
Officer
and
Treasurer respectively, of Worldwide Garment
Manufacturing, Inc. They were authorized to
apply for credit facilities with the petitioner
Republic Planters Bank in the forms of export
advances and letters of credit/trust receipts
accommodations. Thus, Planters issued nine
promissory notes, all of which are uniformly
worded ___________, after date, for value
received, I/we, jointly and severaIly promise
to pay to the ORDER of the REPUBLIC
PLANTERS BANK, at its office in Manila,
Philippines, the sum of ___________ PESOS(....)
Philippine Currency.
On the right bottom
margin of the promissory notes appeared the
signatures of Shozo Yamaguchi and Fermin
Canlas above their printed names with the
phrase "and (in) his personal capacity"
typewritten below. At the bottom of the
promissory notes appeared: "Please credit
proceeds of this note to: "________ Savings
Account ______XX Current", "Account No.
1372-00257- 6", and "of WORLDWIDE
GARMENT MFG. CORP." In 1982, Worldwide
changed its name to Pinch Manufacturing. On

Solidary liability
signatory

of

the

Fermin Canlas is solidarily liable on each of the promissory

notes bearing his signature. The promissory notes are
negotiable instruments and must be governed by the
Negotiable
Instruments
Law.
Under
the
Negotiable
lnstruments Law, persons who write their names on the face
of promissory notes are makers and are liable as such. By
signing the notes, the maker promises to pay to the order of
the payee or any holder according to the tenor thereof. there
is no denying that Canlas is one of the co-makers of the
promissory notes. As such, he cannot escape liability arising
therefrom. Where an instrument containing the words "I
promise to pay" is signed by two or more persons, they are
deemed to be jointly and severally liable thereon. An
instrument which begins" with "I" ,We" , or "Either of us"
promise to, pay, when signed by two or more persons, makes
them solidarily liable. The fact that the singular pronoun is
used indicates that the promise is individual as to each other;
meaning that each of the cosigners is deemed to have made
an independent singular promise to pay the notes in full.
Herein, the solidary liability of Canlas is made clearer and
certain, without reason for ambiguity, by the presence of the
phrase "joint and several" as describing the unconditional
promise to pay to the order of Planters. A joint and several
note is one in which the makers bind themselves both jointly
and individually to the payee so that all may be sued together
for its enforcement, or the creditor may select one or more as
the object of the suit. As to whether the interpolation of the

default, Planters filed for sum of money w/

claim for damages and attorneys fees. Only
Canlas filed an Amended Answer wherein he,
denied having issued the promissory notes in
question since according to him, he was not
an officer of Pinch Manufacturing Corporation,
but
instead
of
Worldwide
Garment
Manufacturing, Inc., and that when he issued
said promissory notes in behalf of Worldwide
Garment Manufacturing, Inc., the same were
in blank, the typewritten entries not
appearing therein prior to the time he affixed
his signature.

Liability of agent

Sec. 14 inapplicable

phrase "and (in) his personal capacity" below the

signatures of the makers in the notes will affect the liability of
the makers, it is immaterial and will not affect to the liability
of Canlas as a joint and several debtor of the notes. With or
without the presence of said phrase, Canlas is primarily liable
as a co-maker of each of the notes and his liability is that of a
solidary debtor.
As a general rule, officers or directors under the old corporate
name bear no personal liability for acts done or contracts
entered into by officers of the corporation, if duly authorized.
Inasmuch as such officers acted in their capacity as agent of
the old corporation and the change of name meant only the
continuation of the old juridical entity, the corporation bearing
the same name is still bound by the acts of its agents if
authorized by the Board. Under the Negotiable Instruments
Law, the liability of a person signing as an agent is specifically
provided for in Section 20 thereof, which provides that
"Liability of a person signing as agent and so forth. Where the
instrument contains or a person adds to his signature words
indicating that he signs for or on behalf of a principal , or in a
representative capacity, he is not liable on the instrument if
he was duly authorized; but the mere addition of words
describing him as an agent, or as filling a representative
character, without disclosing his principal, does not exempt
him from personal liability. Where the agent signs his name
but nowhere in the instrument has he disclosed the fact that
he is acting in a representative capacity or the name of the
third party for whom he might have acted as agent, the agent
is personally liable to take holder of the instrument and
cannot be permitted to prove that he was merely acting as
agent of another and parol or extrinsic evidence is not
admissible to avoid the agent's personal liability.
The notes in question are stereotype printed form of
promissory notes generally used by commercial banking
institutions to be signed by their clients in obtaining loans.
Such printed notes are incomplete because there are blank
spaces to be filled up on material particulars such as payee's
name, amount of the loan, rate of interest, date of issue and

SPOUSES
EDUARDO
B.
EVANGELISTA and EPIFANIA C.
EVANGELISTA,
vs.
MERCATOR FINANCE CORP.,
LYDIA
P.
SALAZAR,
**
LAMEC'S REALTY
AND
DEVELOPMENT CORP. and the
REGISTER
OF
DEEDS
OF
BULACAN
G.R. No. 148864
August 21, 2003

Petitioners entered into a loan agreement as

officers of Embassy Farms secured by
properties registered under their names.
Upon default, the properties were foreclosed,
sold on public bidding, and subsequently
transferred to Lydia Salazar. Petitioners
alleged that they executed the Real Estate
Mortgage in favor of Mercator Financing
Corporation ("Mercator") only as officers of
Embassy Farms. They did not receive the
proceeds of the loan evidenced by a
promissory note, as all of it went to Embassy
Farms. Thus, they contended that the
mortgage was without any consideration as
to them since they did not personally obtain
any loan or credit accommodations. There

Subrogation;suretyship;soli
dary obligation

the maturity date. The terms and conditions of the loan are
printed on the note for the borrower-debtor's perusal. An
incomplete instrument which has been delivered to the
borrower for his signature is governed by Section 14 of the
Negotiable Instruments Law. Proof that the notes were signed
in blank was only the self-serving testimony of Canlas. The
Court chose to believe the bank's testimony that the notes
were filled up before they were given to Canlas and
Yamaguchi for their signatures as joint and several promissors.
For signing the notes above their typewritten names, they
bound themselves as unconditional makers. The court took
judicial notice of the customary procedure of commercial
banks of requiring their clientele to sign promissory notes
prepared by the banks in printed form with blank spaces
already filled up as per agreed terms of the loan, leaving the
borrowers debtors to do nothing but read the terms and
conditions therein printed and to sign as makers or co-makers.
When the notes were given to Canlas for his signature, the
notes were complete in the sense that the spaces for the
material particular had been filled up by the bank as per
agreement. The notes were not incomplete instruments;
neither were they given to Canlas in blank as he claims. Thus,
Section 14 of the NegotiabIe Instruments Law is not
applicable.
The promissory note and the Continuing Suretyship
Agreement prove that the spouses are solidary obligors with
Embassy Farms. The promissory notes subsequently executed
by the spouses and Embassy Farms, restructuring their loan,
likewise prove that the spouses are solidarily liable with
Embassy Farms. The spouses allege that there is an ambiguity
in the wording of the promissory note and claim that since it
was Mercator who provided the form, then the ambiguity
should be resolved against it. Courts can interpret a contract
only if there is doubt in its letter. But, an examination of the
promissory note shows no such ambiguity. Besides, assuming
arguendo that there is an ambiguity, Section 17 of the
Negotiable Instruments Law states that "Where the language
of the instrument is ambiguous or there are omissions therein,
the following rules of construction apply: (g) Where an
instrument containing the word 'I promise to pay' is signed by

being no principal obligation on which the

mortgage rests, the real estate mortgage is
void.
Mercator
contended
that
since
petitioners and Embassy Farms signed the
promissory note6 as co-makers, aside from
the
Continuing
Suretyship
Agreement7 subsequently
executed
to
guarantee the indebtedness of Embassy
Farms, and the succeeding promissory
notes8 restructuring the loan, then petitioners
are jointly and severally liable with Embassy
Farms. Due to their failure to pay the
obligation, the foreclosure and subsequent
sale of the mortgaged properties are valid.
The LC ruled that petitioners signed the
promissory note not only as officers of
Embassy Farms, Inc. but in their personal
capacity as well(.) Plaintiffs(,) by affixing their
signatures thereon in a dual capacity have
bound themselves as solidary debtor(s) with
Embassy Farms, Inc. to pay defendant
Mercator Finance Corporation the amount of
indebtedness.

two or more persons, they are deemed to be jointly and

severally liable thereon." Further, even if the spouses
intended to sign the note merely as officers of Embassy
Farms, still this does not erase the fact that they subsequently
executed a continuing suretyship agreement. A surety is one
who is solidarily liable with the principal. The spouses cannot
claim that they did not personally receive any consideration
for the contract for well-entrenched is the rule that the
consideration necessary to support a surety obligation need
not pass directly to the surety, a consideration moving to the
principal alone being sufficient. A surety is bound by the same
consideration that makes the contract effective between the
principal parties thereto. Having executed the suretyship
agreement, there can be no dispute on the personal liability of
the spouses.

Ilano vs. Espanol

G.R. No. 161756 December 16,
2005

Amelia Alonzo was a trusted employee of

petitioner. In view of which, she was
entrusted w/ blank checks even as when
petitioner went to USA. Petitioner alleged
that Alonzo was able to secure signed blank
checks and promissory notes, through fraud
and deceit, from her while she was
recovering from illness. Furthermore, the
same were issued for want of consideration,
hence, the same should be cancelled,
revoked or declared null and void. Petitioner
filed in court for cancellation/revocation of PN
and BE. The same was dismissed for lack of
cause of action as the petitioner failed to
provide specific ultimate facts and that the
accounts from w/c the bills are sourced is
already closed.

Cause of action

Negotiability of checks

Case is remanded to the LC for further reception of evidence

for cancellation/revocation of the PN w/ damages only but not
the checks. A cause of action has three elements: (1) the legal
right of the plaintiff, (2) the correlative obligation of the
defendant, and (3) the act or omission of the defendant in
violation of said legal right. In determining the presence of
these elements, inquiry is confined to the four corners of the
complaint6 including its annexes, they being parts thereof. 7 If
these elements are absent, the complaint becomes vulnerable
to a motion to dismiss on the ground of failure to state a
cause of action. Petitioner alleged, among other things, that
respondents, through "deceit," "abuse of confidence"
"machination,"
"fraud,"
"falsification,"
"forgery,"
"defraudation," and "bad faith," and "with malice,
malevolence and selfish intent," succeeded in inducing her to
sign antedated promissory notes and some blank checks, and
"[by taking] undue advantage" of her signature on some other
blank checks, succeeded in procuring them, even if there was
no consideration for all of these instruments on account of
which she suffered "anxiety, tension, sleepless nights,
wounded feelings and embarrassment." While some of the
allegations may lack particulars, and are in the form of
conclusions of law, the elements of a cause of action are
present. For even if some are not stated with particularity,
petitioner alleged 1) her legal right not to be bound by the
instruments which were bereft of consideration and to which
her consent was vitiated; 2) the correlative obligation on the
part of the defendants-respondents to respect said right; and
3) the act of the defendants-respondents in procuring her
signature on the instruments through "deceit," "abuse of
confidence" "machination," "fraud," "falsification," "forgery,"
"defraudation," and "bad faith," and "with malice,
malevolence and selfish intent." Where the allegations of a
complaint are vague, indefinite, or in the form of conclusions,
its dismissal is not proper for the defendant may ask for more
particulars.
With respect to the checks subject of the complaint, it is
gathered that, except for Check No. 0084078,10 they were

drawn all against petitioners Metrobank Account No. 00703955536-7.

Annex "D-8"11 of the complaint, a photocopy of Check No.
0085134, shows that it was dishonored on January 12,
2000 due to "ACCOUNT CLOSED." When petitioner then filed
her complaint on March 28, 2000, all the checks subject
hereof which were drawn against the same closed
account were already rendered valueless or non-negotiable,
hence, petitioner had, with respect to them, no cause of
action.
With respect to above-said Check No. 0084078, however,
which was drawn against another account of petitioner, albeit
the date of issue bears only the year 1999, its validity and
negotiable character at the time the complaint was filed on
March 28, 2000 was not affected. For Section 6 of the
Negotiable Instruments Law provides:
Section 6. Omission; seal; particular money. The validity and
negotiable character of an instrument are not affected by the
fact that
(a) It is not dated; or
(b) Does not specify the value given, or that any value had
been given therefor; or
(c) Does not specify the place where it is drawn or the place
where it is payable; or
(d) Bears a seal; or
(e) Designates a particular kind of current money in which
payment is to be made.
x x x (Emphasis supplied)

However, even if the holder of Check No. 0084078 would have

filled up the month and day of issue thereon to be
"December" and "31," respectively, it would have, as it did,
become stale six (6) months or 180 days thereafter, following
current banking practice.12
It
is,
however,
with
respect
to
the
questioned promissory notes that
the
present
petition
assumes merit. For, petitioners allegations in the complaint
relative thereto, even if lacking particularity, does not as
priorly stated call for the dismissal of the complaint.

10

Dela Victoria vs. Hon. Burgos

G.R. No. 111190 June 27, 1995

Devt. Bank of Rizal vs. Sima

Wei
G.R. No. 85419 March 9, 1993

Asst. City Fiscal Mabanto of Mandaue City lost

in a suit. His salary and RATA were ordered
garnished in lieu of the judgment. The RTC
sent the notice of garnishment to the city
fiscal as the holder of the check which is to
be disbursed to Mabanto as his salary and
RATA. Petitioner raises the following relevant
issues: (1) whether a check still in the hands
of the maker or its duly authorized
representative is owned by the payee before
physical delivery to the latter: and, (2)
whether the salary check of a government
official or employee funded with public funds
can be subject to garnishment.

Complete but undelivered

instrument

In consideration for a loan extended by

petitioner Bank to respondent Sima Wei, the
latter executed and delivered to the former a
promissory note, engaging to pay the
petitioner Bank or order the amount of
P1,820,000.00 on or before June 24, 1983
with interest at 32% per annum. Sima Wei
made partial payments on the note, leaving a
balance of P1,032,450.02. On November 18,
1983, Sima Wei issued two crossed checks
payable to petitioner Bank drawn against
China
Banking
Corporation,
bearing
respectively the serial numbers 384934, for
the amount of P550,000.00 and 384935, for
the amount of P500,000.00. The said checks
were allegedly issued in full settlement of the
drawer's
account
evidenced
by
the
promissory note. These two checks were not
delivered to the petitioner-payee or to any of

Elements
action

Salary of govt employees

are govt property until the
same
is
physically
delivered to him.

of

cause

of

Right to NI is acquired
through delivery

Petition is granted. Garnishment cannot be enforced against

government funds. As Assistant City Fiscal, the source of the
salary of Mabanto, Jr., is public funds. He receives his
compensation in the form of checks from the Department of
Justice through petitioner as City Fiscal of Mandaue City and
head of office. Under Sec. 16 of the Negotiable Instruments
Law, every contract on a negotiable instrument is incomplete
and revocable until delivery of the instrument for the purpose
of giving effect thereto. As ordinarily understood, delivery
means the transfer of the possession of the instrument by the
maker or drawer with intent to transfer title to the payee and
recognize him as the holder thereof.
The salary check of a government officer or employee such
does not belong to him before it is physically delivered to him.
Until that time the check belongs to the government.
Accordingly, before there is actual delivery of the check, the
payee has no power over it; he cannot assign it without the
consent of the Government. The functions and public services
rendered by the State cannot be allowed to be paralyzed or
disrupted by the diversion of public funds from their legitimate
and specific objects, as appropriated by law.
Petition is denied. There is no cause of action. A cause of
action is defined as an act or omission of one party in violation
of the legal right or rights of another. The essential elements
are: (1) legal right of the plaintiff; (2) correlative obligation of
the defendant; and (3) an act or omission of the defendant in
violation of said legal right
A negotiable instrument, of which a check is, is not only a
written evidence of a contract right but is also a species of
property. Just as a deed to a piece of land must be delivered in
order to convey title to the grantee, so must a negotiable
instrument be delivered to the payee in order to evidence its
existence as a binding contract. Section 16 of the Negotiable
Instruments Law, which governs checks, provides in part:
Every contract on a negotiable instrument is incomplete and
revocable until delivery of the instrument for the purpose of
giving effect thereto. . . .
Thus, the payee of a negotiable instrument acquires no
interest with respect thereto until its delivery to him. 3Delivery
of an instrument means transfer of possession, actual or

11

METROPOL (BACOLOD)
FINANCING & INVESTMENT
CORPORATION, plaintiffappellee,
vs.
SAMBOK MOTORS COMPANY
and NG SAMBOK SONS
MOTORS CO., LTD
G.R. No. L-39641 February 28,
1983

its authorized representatives. For reasons

not shown, these checks came into the
possession of respondent Lee Kian Huat, who
deposited the checks without the petitionerpayee's indorsement (forged or otherwise) to
the
account
of
respondent
Plastic
Corporation, at the Balintawak branch,
Caloocan City, of the Producers Bank. Cheng
Uy, Branch Manager of the Balintawak branch
of Producers Bank, relying on the assurance
of respondent Samson Tung, President of
Plastic Corporation, that the transaction was
legal and regular, instructed the cashier of
Producers Bank to accept the checks for
deposit and to credit them to the account of
said Plastic Corporation, inspite of the fact
that the checks were crossed and payable to
petitioner Bank and bore no indorsement of
the latter. Hence, petitioner filed the
complaint as aforestated.
In 1969 Dr. Javier Villaruel executed a
promissory note in favor of Ng Sambok Sons
Motors Co., Ltd., in the amount of P15,939.00
payable in twelve (12) equal monthly
installments, beginning May 18, 1969, with
interest at the rate of one percent per month.
It is further provided that in case on nonpayment of any of the installments, the total
principal sum then remaining unpaid shall
become due and payable with an additional
interest equal to twenty-five percent of the
total amount due.
On the same date, Sambok Motors Company,
a sister company of Ng Sambok Sons Motors
Co., Ltd., and under the same management
as the former, negotiated and indorsed the
note in favor of plaintiff Metropol Financing &
Investment Corporation with the following
indorsement: Pay to the order of Metropol
Bacolod Financing & Investment Corporation

constructive, from one person to another. 4 Without the initial

delivery of the instrument from the drawer to the payee, there
can be no liability on the instrument. Moreover, such delivery
must be intended to give effect to the instrument.

Qualified indorsement

Appeal is dismissed. Sambok is not a qualified indorser, hence

solidarily liable. A qualified indorsement constitutes the
indorser a mere assignor of the title to the instrument. It may
be made by adding to the indorser's signature the words
"without recourse" or any words of similar import. 2 Such an
indorsement relieves the indorser of the general obligation to
pay if the instrument is dishonored but not of the liability
arising from warranties on the instrument as provided in
Section 65 of the Negotiable Instruments Law already
mentioned herein. However, appellant Sambok indorsed the
note "with recourse" and even waived the notice of demand,
dishonor, protest and presentment. "Recourse" means resort
to a person who is secondarily liable after the default of the
person who is primarily liable. 3 Appellant, by indorsing the
note "with recourse" does not make itself a qualified indorser
but a general indorser who is secondarily liable, because by
such indorsement, it agreed that if Dr. Villaruel fails to pay the
note, plaintiff-appellee can go after said appellant. The effect
of such indorsement is that the note was indorsed without
qualification. A person who indorses without qualification

12

G.R. No. L-15126

November 30, 1961
VICENTE R. DE OCAMPO &
CO., plaintiff-appellee,
vs.
ANITA GATCHALIAN, ET AL.,

with recourse. Notice of Demand; Dishonor;

Protest; and Presentment are hereby waived.
Upon default of Dr. Villaruel, Metropol
presented the PN to Sambok. Thereafter,
plaintiff filed a complaint for collection of a
sum of money before the Court of First
Instance of Iloilo, Branch I. Sambok did not
deny its liability but contended that it could
not be obliged to pay until after its codefendant Dr. Villaruel has been declared
insolvent. Pending trial, Villaruel died. The
trial court granted the sum of money.
Appellant Sambok argues that by adding the
words "with recourse" in the indorsement of
the note, it becomes a qualified indorser that
being a qualified indorser, it does not warrant
that if said note is dishonored by the maker
on presentment, it will pay the amount to the
holder; that it only warrants the following
pursuant to Section 65 of the Negotiable
Instruments Law: (a) that the instrument is
genuine and in all respects what it purports
to be; (b) that he has a good title to it; (c)
that all prior parties had capacity to contract;
(d) that he has no knowledge of any fact
which would impair the validity of the
instrument or render it valueless.
In 1953, Anita Gatchalian was looking for a
car that she could buy. Manuel Gonzales
presented himself as an authorized agent of
De Ocampo clinic and offered its car. As the
two agreed on the price, Gatchalian asked
that the car be brought the following day so
her husband could see it. In turn, Gonzales
asked that a check be issued. This check will
be shown to the owner as evidence of buyer's
good faith in the intention to purchase the
said car, the said check to be for safekeeping
only of Manuel Gonzales and to be returned
to defendant Anita C. Gatchalian the

Default of primary debtor

makes
the
indorser
primarily liable

engages that on due presentment, the note shall be accepted

or paid, or both as the case may be, and that if it be
dishonored, he will pay the amount thereof to the
holder. 4 Appellant Sambok's intention of indorsing the note
without qualification is made even more apparent by the fact
that the notice of demand, dishonor, protest and presentment
were an waived. The words added by said appellant do not
limit his liability, but rather confirm his obligation as a general
indorser.
After an instrument is dishonored by non-payment, the person
secondarily liable thereon ceases to be such and becomes a
principal debtor. 5 His liabiliy becomes the same as that of the
original obligor. 6 Consequently, the holder need not even
proceed against the maker before suing the indorser

Holder in due course

Appeal is dismissed. De Ocampo cannot recover the amount

of the check. De Ocampo is not a holder in due course.
Section 52 of NIL provides:
A holder in due course is a holder who has taken the
instrument under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and
without notice that it had been previously dishonored, if such
was the fact;

following day when Manuel Gonzales brings

the car and the certificate of registration, but
which facts were not known to plaintiff De
Ocampo. When Gonzales did not bring the
car, Gatchalian ordered stop payment to the
bank. It turned out that Gonzales paid to De
Ocampo the check for his debt for his wifes
hospitalization.
defendants-appellants
contend that the check is not a negotiable
instrument,
under
the
facts
and
circumstances stated in the stipulation of
facts, and that plaintiff is not a holder in due
course. In support of the first contention, it is
argued that defendant Gatchalian had no
intention to transfer her property in the
instrument as it was for safekeeping merely
and, therefore, there was no delivery required
by law (Section 16, Negotiable Instruments
Law); that assuming for the sake of argument
that delivery was not for safekeeping merely,
delivery was conditional and the condition
was not fulfilled. appellant argues that
plaintiff-appellee cannot be a holder in due
course because there was no negotiation
prior to plaintiff-appellee's acquiring the
possession of the check; that a holder in due
course presupposes a prior party from whose
hands negotiation proceeded, and in the case
at bar, plaintiff-appellee is the payee, the
maker and the payee being original parties. It
is also claimed that the plaintiff-appellee is
not a holder in due course because it
acquired the check with notice of defect in
the title of the holder, Manuel Gonzales, and
because under the circumstances stated in
the
stipulation
of
facts
there
were
circumstances that brought suspicion about
Gonzales' possession and negotiation, which
circumstances should have placed the
plaintiff-appellee under the duty, to inquire

(c) That he took it in good faith and for value;

(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.

When
there
is
an
indication of bad faith in
the acquisition of an NI,
the presumption of good
faith is rebutted and the
burden of proof is on the
holder to disprove bad
faith

The stipulation of facts expressly states that plaintiff-appellee

was not aware of the circumstances under which the check
was delivered to Manuel Gonzales, but we agree with the
defendants-appellants that the circumstances indicated by
them in their briefs, such as the fact that appellants had no
obligation or liability to the Ocampo Clinic; that the amount of
the check did not correspond exactly with the obligation of
Matilde Gonzales to Dr. V. R. de Ocampo; and that the check
had two parallel lines in the upper left hand corner, which
practice means that the check could only be deposited but
may not be converted into cash all these circumstances
should have put the plaintiff-appellee to inquiry as to the why
and wherefore of the possession of the check by Manuel
Gonzales, and why he used it to pay Matilde's account. It was
payee's duty to ascertain from the holder Manuel Gonzales
what the nature of the latter's title to the check was or the
nature of his possession. Having failed in this respect, we
must declare that plaintiff-appellee was guilty of gross neglect
in not finding out the nature of the title and possession of
Manuel Gonzales, amounting to legal absence of good faith,
and it may not be considered as a holder of the check in good
faith. It is sufficient that the buyer of a note had notice or
knowledge that the note was in some way tainted with fraud.
It is not necessary that he should know the particulars or even
the nature of the fraud, since all that is required is knowledge
of such facts that his action in taking the note amounted bad
faith.

In the case at bar the rule that a possessor of the instrument

is prima faciea holder in due course does not apply because
there was a defect in the title of the holder (Manuel Gonzales),

into the title of the holder.

because the instrument is not payable to him or to bearer. On
the other hand, the stipulation of facts indicated by the
appellants in their brief, like the fact that the drawer had no
account with the payee; that the holder did not show or tell
the payee why he had the check in his possession and why he
was using it for the payment of his own personal account
show that holder's title was defective or suspicious, to say the
least. As holder's title was defective or suspicious, it cannot be
stated that the payee acquired the check without knowledge
of said defect in holder's title, and for this reason the
presumption that it is a holder in due course or that it
acquired the instrument in good faith does not exist. And
having presented no evidence that it acquired the check in
good faith, it (payee) cannot be considered as a holder in due
course. In other words, under the circumstances of the case,
instead of the presumption that payee was a holder in good
faith, the fact is that it acquired possession of the instrument
under circumstances that should have put it to inquiry as to
the title of the holder who negotiated the check to it. The
burden was, therefore, placed upon it to show that
notwithstanding the suspicious circumstances, it acquired the
check in actual good faith.

13
[G.R. No. 138074. August
15, 2003]

CELY YANG, petitioner,

vs. HON. COURT OF
APPEALS, PHILIPPINE
COMMERCIAL
INTERNATIONAL BANK, FAR
EAST BANK & TRUST
CO., EQUITABLE BANKING
CORPORATION,

On or before December 22, 1987,

petitioner Cely Yang and private respondent
Prem
Chandiramani
entered
into
an
agreement whereby the latter was to give
Yang a PCIB managers check in the amount
of P4.2 million in exchange for two (2) of
Yangs managers checks, each in the amount
of P2.087 million, both payable to the order
of private respondent Fernando David. Yang
and Chandiramani agreed that the difference
of P26,000.00 in the exchange would be their
profit to be divided equally between them.
Yang and Chandiramani also further agreed
that the former would secure from FEBTC a

Presumption
consideration

of

Appeal is denied. David is entitled to the amount and tfor

damages. We find that the petitioners challenge to Davids
status as a holder in due course hinges on two arguments: (1)
the lack of proof to show that David tendered any valuable
consideration for the disputed checks; and (2) Davids failure
to inquire from Chandiramani as to how the latter acquired
possession of the checks, thus resulting in Davids intentional
ignorance tantamount to bad faith. In sum, petitioner posits
that the last two requisites of Section 52 are missing, thereby
preventing David from being considered a holder in due
course. Unfortunately for the petitioner, her arguments on this
score are less than meritorious and far from persuasive.
First, with respect to consideration, Section 24 [18] of the
Negotiable Instruments Law creates a presumption that every

PREM CHANDIRAMANI and

FERNANDO
DAVID, respondents.

dollar draft in the amount of US$200,000.00,

payable to PCIB FCDU Account No. 419501165-2,
which
Chandiramani
would
exchange for another dollar draft in the same
amount to be issued by Hang Seng Bank Ltd.
of Hong Kong. Chandiramani did not appear
at the rendezvous and Ranigo allegedly lost
the two cashiers checks and the dollar draft
bought by petitioner. Ranigo reported the
alleged loss of the checks and the dollar draft
to Liong at half past four in the afternoon of
December 22, 1987. Liong, in turn, informed
Yang, and the loss was then reported to the
police. It transpired, however, that the checks
and the dollar draft were not lost, for
Chandiramani was able to get hold of said
instruments, without delivering the exchange
consideration
consisting
of
the
PCIB
managers check and the Hang Seng Bank
dollar draft. some two (2) hours after
Chandiramani and Ranigo were to meet in
Makati City, Chandiramani delivered to
respondent Fernando David at China Banking
Corporation branch in San Fernando City,
Pampanga, the following: (a) FEBTC Cashiers
Check No. 287078, dated December 22,
1987, in the sum of P2.087 million; and (b)
Equitable Cashiers Check No. CCPS 14009467, dated December 22, 1987, also in
the amount of P2.087 million. In exchange,
Chandiramani got US$360,000.00 from
David, which Chandiramani deposited in the
savings account of his wife, Pushpa
Chandiramani;
and
his
mother,
Rani
Reynandas, who held FCDU Account No. 124
with the United Coconut Planters Bank
branch in Greenhills, San Juan, Metro Manila.
Chandiramani also deposited FEBTC Dollar
Draft No. 4771, dated December 22, 1987,

David is an HDI

party to an instrument acquired the same for a

consideration[19] or for value.[20] Thus, the law itself creates a
presumption in Davids favor that he gave valuable
consideration for the checks in question. In alleging otherwise,
the petitioner has the onus to prove that David got hold of the
checks absent said consideration. In other words, the
petitioner must present convincing evidence to overthrow the
presumption. Our scrutiny of the records, however, shows that
the petitioner failed to discharge her burden of proof. The
petitioners averment that David did not give valuable
consideration when he took possession of the checks is
unsupported, devoid of any concrete proof to sustain it. Note
that both the trial court and the appellate court found that
David did not receive the checks gratis, but instead gave
Chandiramani US$360,000.00 as consideration for the said
instruments. Factual findings of the Court of Appeals are
conclusive on the parties and not reviewable by this Court;
they carry great weight when the factual findings of the trial
court are affirmed by the appellate court.
petitioner fails to point any circumstance which should have
put David on inquiry as to the why and wherefore of the
possession of the checks by Chandiramani. David was not
privy to the transaction between petitioner and Chandiramani.
Instead, Chandiramani and David had a separate dealing in
which it was precisely Chandiramanis duty to deliver the
checks to David as payee. The evidence shows that
Chandiramani performed said task to the letter. Petitioner
admits that David took the step of asking the manager of his
bank to verify from FEBTC and Equitable as to the
genuineness of the checks and only accepted the same after
being assured that there was nothing wrong with said checks.
At that time, David was not aware of any stop payment order.
Under these circumstances, David thus had no obligation to
ascertain from Chandiramani what the nature of the latters
title to the checks 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 Chandiramanis acquisition or
possession of the checks. David did not close his eyes
deliberately to the nature or the particulars of a fraud

drawn upon the Chemical Bank, New York for

US$200,000.00 in PCIB FCDU Account No.
4195-01165-2 on the same date. Meanwhile,
Yang requested FEBTC and Equitable to stop
payment on the instruments she believed to
be lost. Yang lodged a Complaint [4] for
injunction and damages against Equitable,
Chandiramani, and David, with prayer for a
temporary restraining order, with the
Regional Trial Court of Pasay City. The trial
court decided that David was an HDC and is
entitled to the amounts. On appeal, CA
affirmed.

Crossed checks
deposit only

are

for

allegedly committed by Chandiramani upon the petitioner,

absent any knowledge on his part that the action in taking the
instruments amounted to bad faith.
The Negotiable Instruments Law is silent with respect to
crossed checks, although the Code of Commerce[23] makes
reference to such instruments. Nonetheless, this Court has
taken judicial cognizance of the practice that a check with two
parallel lines in the upper left hand corner means that it could
only be deposited and not converted into cash.[24] The effects
of crossing a check, thus, relates to the mode of payment,
meaning that the drawer had intended the check for deposit
only by the rightful person, i.e., the payee named therein.
In Bataan Cigar, the rediscounting of the check by the payee
knowingly violated the avowed intention of crossing the
check. Thus, in accepting the cross checks and paying cash
for them, despite the warning of the crossing, the subsequent
holder could not be considered in good faith and thus, not a
holder in due course. Our ruling in Bataan Cigar reiterates that
in De Ocampo & Co. v. Gatchalian.[25]
The factual circumstances in De Ocampo and in Bataan
Cigar are not present in this case. For here, there is no dispute
that the crossed checks were delivered and duly deposited by
David, the payee named therein, in his bank account. In other
words, the purpose behind the crossing of the checks was
satisfied by the payee.

14

G.R. No. 70145 November 13,

1986

MARCELO
A.
MESINA, petitioner,
vs.
THE
HONORABLE
INTERMEDIATE
APPELLATE
COURT, HON. ARSENIO M.
GONONG, in his capacity as
Judge of Regional Trial Court
Manila (Branch VIII), JOSE GO,

In December of 1983, Jose Go bought from

Associated
Bank
a
Cashiers
check.
Unfortunately, he left said check at the bank.
The bank manager entrusted the check for
safekeeping to a bank official, a certain Albert
Uy, who had then a visitor in the person of
Alexander Lim. Apparently, Lim stole the
check. Subsequently, Go filed a police report
and a stop payment to the bank. Associated
Bank received the lost check for clearing on
December 31, 1983, coming from Prudential
Bank, Escolta Branch. The check was
immediately dishonored by Associated Bank
by sending it back to Prudential Bank, with

Holder in due course

The appeal is dismissed. Mesina is not HIDC. Petitioner failed

to substantiate his claim that he is a holder in due course and
for consideration or value as shown by the established facts of
the case. Admittedly, petitioner became the holder of the
cashier's check as endorsed by Alexander Lim who stole the
check. He refused to say how and why it was passed to him.
He had therefore notice of the defect of his title over the
check from the start. The holder of a cashier's check who is
not a holder in due course cannot enforce such check against
the issuing bank which dishonors the same. If a payee of a
cashier's check obtained it from the issuing bank by fraud, or
if there is some other reason why the payee is not entitled to
collect the check, the respondent bank would, of course, have

and ALBERT UY, respondents

15

G.R. No. 80599 September 15,

1989
ERNESTINA
CRISOLOGOJOSE, petitioner,
vs.
COURT
OF
APPEALS
and

the words "Payment Stopped" stamped on it.

However, the same was again returned to
Associated Bank on January 4, 1984 and for
the second time it was dishonored. Several
days later, respondent Associated Bank
received a letter, dated January 9, 1984, from
a certain Atty. Lorenzo Navarro demanding
payment on the cashier's check in question,
which was being held by his client. He
however refused to reveal the name of his
client and threatened to sue, if payment is
not made. Respondent bank, in its letter,
dated January 20, 1984, replied saying the
check belonged to Jose Go who lost it in the
bank and is laying claim to it. On February 1,
1984, police sent a letter to the Manager of
the
Prudential
Bank,
Escolta
Branch,
requesting assistance in Identifying the
person who tried to encash the check but
said bank refused saying that it had to
protect its client's interest and the Identity
could only be revealed with the client's
conformity. Unsure of what to do on the
matter, respondent Associated Bank on
February 2, 1984 filed an action for
Interpleader naming as respondent, Jose Go
and one John Doe, Atty. Navarro's then
unnamed client. On even date, Associated
bank received a summons for damages filed
by one Marcelo Mesina. According to him, Uy
paid the said check to him for a transaction.
Both the courts hearing the Interpleader and
the damages cases decided against Mesina.
On appeal, the decisions were affirmed.
In 1980, plaintiff Ricardo Santos in this
complaint for consignation signed a check in
accommodation of company clients spouses
Ong drawn against Traders Royal Bank
payable to Jose. Atty. Benares was the
president of Mover Enterprises and an

the right to refuse payment of the check when presented by

the payee, since respondent bank was aware of the facts
surrounding the loss of the check in question. Moreover, there
is no similarity in the cases cited by petitioner since
respondent bank did not issue the cashier's check in payment
of its obligation. Jose Go bought it from respondent bank for
purposes of transferring his funds from respondent bank to
another bank near his establishment realizing that carrying
money in this form is safer than if it were in cash. The check
was Jose Go's property when it was misplaced or stolen, hence
he stopped its payment. At the outset, respondent bank knew
it was Jose Go's check and no one else since Go had not paid
or indorsed it to anyone. The bank was therefore liable to
nobody on the check but Jose Go. The bank had no intention
to issue it to petitioner but only to buyer Jose Go. When
payment on it was therefore stopped, respondent bank was
not the one who did it but Jose Go, the owner of the check.
Respondent bank could not be drawer and drawee for clearly,
Jose Go owns the money it represents and he is therefore the
drawer and the drawee in the same manner as if he has a
current account and he issued a check against it; and from the
moment said cashier's check was lost and/or stolen no one
outside of Jose Go can be termed a holder in due course
because Jose Go had not indorsed it in due course. The check
in question suffers from the infirmity of not having been
properly negotiated and for value by respondent Jose Go who
as already been said is the real owner of said instrument.

Consignation is proper

Remanded to LC for hearing on the Consignation. The decision

of CA is affirmed with modification that its findings that
criminal liability does not attach when the deposit was, made
was stricken off. It cannot pre-empt the findings of the
criminal case since payment and this matters are matters of
fact which is proper in the LC.

RICARDO S. SANTOS, JR. in his

own behalf and as VicePresident for Sales of Mover
Enterprises, Inc.

authorized signatory of company checks.

Since the treasurer, the other signatory, was
not available at that time, Santos, as VP,
signed the check. Said check was for the
payment to the defendant Ernestina Jose for
her quitclaim in a property sold by GSIS.
Spouses Ong were Atty. Benarez clients.
However, since the GSIS did not approve
timely the compromise agreement by virtue
of that quitclaim, the check needed to be
replaced. Said replacement check, signed by
Benarez and Santos, was deposited by Santos
in her account at Family Savings Bank. It
bounced. BP 22 case was filed against
Benares and Santos in QC RTC. During PI, the
two tried to pay the defendant but she
refused. They deposited in w/ the COC to
apply as payment. LC denied consignation
believing that Art. 1256 of the NCC is
inapplicable. The CA reversed. Thus, this
certiorari. Jose posits that Santos is an
accommodation party and is thus, liable
solidarily. On the other hand, Santos avers
that the company is the accommodation
party and not him.

Santos
is
liable
accommodation party

as

Elements
of
accommodation party

an

Consideration
defense

not

Corporations cannot be
held
liable
as
accommodation parties

As previously discussed, however, respondent Santos is an

accommodation party and is, therefore, liable for the value of
the check. The fact that he was only a co-signatory does not
detract from his personal liability. A co-maker or co-drawer
under the circumstances in this case is as much an
accommodation party as the other co-signatory or, for that
matter, as a lone signatory in an accommodation instrument.
Under the doctrine in Philippine Bank of Commerce vs.
Aruego, supra, he is in effect a co-surety for the
accommodated party with whom he and his co-signatory, as
the other co-surety, assume solidary liability ex lege for the
debt involved. With the dishonor of the check, there was
created a debtor-creditor relationship, as between Atty.
Benares and respondent Santos, on the one hand, and
petitioner, on the other. This circumstance enables respondent
Santos to resort to an action of consignation where his tender
of payment had been refused by petitioner.
Consequently, to be considered an accommodation party, a
person must (1) be a party to the instrument, signing as
maker, drawer, acceptor, or indorser, (2) not receive value
therefor, and (3) sign for the purpose of lending his name for
the credit of some other person.
Based on the foregoing requisites, it is not a valid defense that
the accommodation party did not receive any valuable
consideration when he executed the instrument. From the
standpoint of contract law, he differs from the ordinary
concept of a debtor therein in the sense that he has not
received any valuable consideration for the instrument he
signs. Nevertheless, he is liable to a holder for value as if the
contract was not for accommodation 5 in whatever capacity
such accommodation party signed the instrument, whether
primarily or secondarily. Thus, it has been held that in lending
his name to the accommodated party, the accommodation
party is in effect a surety for the latter.
The aforequoted provision of the Negotiable Instruments Law
which holds an accommodation party liable on the instrument
to a holder for value, although such holder at the time of
taking the instrument knew him to be only an accommodation

Corporate officers who

sign as accommodation
parties
are
personally
liable

party, does not include nor apply to corporations which are

accommodation parties. 7 This is because the issue or
indorsement of negotiable paper by a corporation without
consideration and for the accommodation of another is ultra
vires. 8 Hence, one who has taken the instrument with
knowledge of the accommodation nature thereof cannot
recover against a corporation where it is only an
accommodation party. If the form of the instrument, or the
nature of the transaction, is such as to charge the indorsee
with knowledge that the issue or indorsement of the
instrument by the corporation is for the accommodation of
another, he cannot recover against the corporation thereon.
By way of exception, an officer or agent of a corporation shall
have the power to execute or indorse a negotiable paper in
the name of the corporation for the accommodation of a third
person only if specifically authorized to do so. 10 Corollarily,
corporate officers, such as the president and vice-president,
have no power to execute for mere accommodation a
negotiable instrument of the corporation for their individual
debts or transactions arising from or in relation to matters in
which the corporation has no legitimate concern. Since such
accommodation paper cannot thus be enforced against the
corporation, especially since it is not involved in any aspect of
the corporate business or operations, the inescapable
conclusion in law and in logic is that the signatories thereof
shall be personally liable therefor, as well as the
consequences arising from their acts in connection therewith.
The fact that for lack of capacity the corporation is not bound
by an accommodation paper does not thereby absolve, but
should render personally liable, the signatories of said
instrument where the facts show that the accommodation
involved was for their personal account, undertaking or
purpose and the creditor was aware thereof.
Petitioner, as hereinbefore explained, was evidently charged
with the knowledge that the cheek was issued at the instance
and for the personal account of Atty. Benares who merely
prevailed upon respondent Santos to act as co-signatory in
accordance with the arrangement of the corporation with its
depository bank. That it was a personal undertaking of said

16

G.R. No. L-17845

April
27, 1967
INTESTATE ESTATE OF VICTOR
SEVILLA. SIMEON
SADAYA, petitioner,
vs.
FRANCISCO
SEVILLA, respondent.

In 1949, Victor Sevilla, Oscar Varona and

Simeon Sadaya executed, jointly and
severally, in favor of the BPI or its order, a
promissory note for P15,000.00 with interest
at 8% per annum, payable on demand. The
entire, amount of P15,000.00, proceeds of
the promissory note, was received from the
bank by Oscar Varona alone. Victor Sevilla
and Simeon Sadaya signed the promissory
note as co-makers only as a favor to Oscar
Varona. Upon default of Varona in 1952, BPI
collected from Sadaya principal with interest
amounting to P5,416.12. Varona failed to
reimburse
Sadaya
despite
repeated
demands. Sevilla died. Intestate estate
proceedings were instituted. Francisco Sevilla
was named administrator. Sadaya filed a
creditor's claim for the above sum of
P5,746.12, plus attorneys fees in the sum of
P1,500.00. The administrator resisted the
claim upon the averment that the deceased
Victor Sevilla "did not receive any amount as
consideration for the promissory note," but
signed it only "as surety for Varona". In 1957,
the trial court issued an order admitting the
claim of Simeon Sadaya in the amount of
P5,746.12, and directing the administrator to
pay the same from any available funds
belonging to the estate of the deceased
Victor Sevilla. On appeal, CA reversed. Is the
estate of Sevilla liable?

Liability of co-surety, when

arises?

Sevilla
and
Sadayas
obligation are joint and
several as accommodation
parties

corporate officers was apparent to petitioner by reason of her

personal involvement in the financial arrangement and the
fact that, while it was the corporation's check which was
issued to her for the amount involved, she actually had no
transaction directly with said corporation.
There should be no legal obstacle, therefore, to petitioner's
claims being directed personally against Atty. Oscar Z.
Benares and respondent Ricardo S. Santos, Jr., president and
vice-president, respectively, of Mover Enterprises, Inc.
The estate is not liable. The decision of CA is affirmed. All of
the foregoing postulate the following rules: (1) A joint and
several accommodation maker of a negotiable promissory
note may demand from the principal debtor reimbursement
for the amount that he paid to the payee; and (2) a joint and
several accommodation maker who pays on the said
promissory note may directly demand reimbursement from his
co-accommodation maker without first directing his action
against the principal debtor provided that (a) he made the
payment by virtue of a judicial demand, or (b) a principal
debtor is insolvent.
The Court of Appeals found that Sadaya's payment to the
bank "was made voluntarily and without any judicial demand,"
and that "there is an absolute absence of evidence showing
that Varona is insolvent". This combination of fact and lack of
fact epitomizes the fatal distance between payment by
Sadaya and Sadaya's right to demand of Sevilla "the share
which is proportionately owing from him."

That Victor Sevilla and Simeon Sadaya were joint and several
accommodation makers of the 15,000.00-peso promissory
note in favor of the Bank of the Philippine Islands, need not be
essayed. As such accommodation the makers, the individual
obligation of each of them to the bank is no different from,
and no greater and no less than, that contract by Oscar
Varona. For, while these two did not receive value on the
promissory note, they executed the same with, and for the
purpose of lending their names to, Oscar Varona. Their liability

Co-accomodation makers
are in pari passu and have
rights
to
collect
contribution

Suppletory application of
the NCC

to the bank upon the explicit terms of the promissory note is

joint and several.2 Better yet, the bank could have pursued its
right to collect the unpaid balance against either Sevilla or
Sadaya. And the fact is that one of the last two, Simeon
Sadaya, paid that balance.
On principle, a solidary accommodation maker who made
payment has the right to contribution, from his coaccommodation maker, in the absence of agreement to the
contrary between them, and subject to conditions imposed by
law. This right springs from an implied promise between the
accommodation makers to share equallythe burdens that may
ensue from their having consented to stamp their signatures
on the promissory note.5 For having lent their signatures to
the principal debtor, they clearly placed themselves in so
far as payment made by one may create liability on the other
in the category of mere joint grantors of the former. 6 This is
as it should be. Not one of them benefited by the promissory
note. They stand on the same footing. In misfortune, their
burdens should be equally spread.
By Article 18 of the Civil Code in matters not covered by the
special laws, "their deficiency shall be supplied by the
provisions of this Code". Nothing extant in the Negotiable
Instruments Law would define the right of one accommodation
maker to seek reimbursement from another. Perforce, we
must go to the Civil Code.1wph1.t
Because Sevilla and Sadaya, in themselves, are but coguarantors of Varona, their case comes within the ambit of
Article 2073 of the Civil Code which reads:
ART. 2073. When there are two or more guarantors of the
same debtor and for the same debt, the one among them who
has paid may demand of each of the others the share which is
proportionally owing from him.
If any of the guarantors should be insolvent, his share shall be
borne by the others, including the payer, in the same
proportion.
The provisions of this article shall not be applicable, unless
the payment has been made in virtue of a judicial demand or
unless the principal debtor is insolvent.

`1
7

TOMAS ANG vs. ASSOCIATED

BANK AND
ANTONIO
ANG
ENG
LIONG, Promulgated:
Respondents.
G.R. No. 146511

In October 1978, Antonio Ang Eng

Liong obtained from the bank 80k loan
secured by 2 PNs. Said PNs were payable in
December 1978 and in January 1979. Tomas
Ang signed as co-maker. On default, the bank
demanded more than 500k due to 14%
annual interest, attorneys fees, service
charge and overdue charge as of July 31,
1990. Liong did not deny indebtedness but
only demanded for a fair computation of the
loan. For his part, petitioner Tomas Ang filed
an Answer with Counterclaim and Crossclaim.[8] He
interposed
the
affirmative
defenses that: the bank is not the real party
in interest as it is not the holder of the
promissory notes, much less a holder for
value or a holder in due course; the bank
knew that he did not receive any valuable
consideration for affixing his signatures on
the notes but merely lent his name as an
accommodation party; he accepted the
promissory notes in blank, with only the
printed provisions and the signature of
Antonio Ang Eng Liong appearing therein; it
was the bank which completed the notes
upon
the
orders,
instructions,
or
representations of his co-defendant; PN-No.
DVO-78-382 was completed in excess of or
contrary to the authority given by him to his
co-defendant who represented that he would
only borrow P30,000 from the bank; his
signature in PN-No. DVO-78-390 was procured
through fraudulent means when his codefendant claimed that his first loan did not
push through; the promissory notes did not
indicate in what capacity he was intended to
be bound; the bank granted his co-defendant
successive extensions of time within which to
pay, without his (Tomas Ang) knowledge and
consent; the bank imposed new and

Asso. Bank was not the

real party in interest, but
such defect was cured

Accommodation
defined

party

Liability of accommodation

Appeal is dismissed. Decision is affirmed. Respondent Bank

does not appear to be the real party in interest when it
instituted the collection suit on August 28, 1990 against
Antonio Ang Eng Liong and petitioner Tomas Ang. At the time
the complaint was filed in the trial court, it was the Asset
Privatization Trust which had the authority to enforce its
claims against both debtors. In fact, during the pre-trial
conference, Atty. Roderick Orallo, counsel for the bank, openly
admitted that it was under the trusteeship of the Asset
Privatization Trust.[57] The Asset Privatization Trust, which
should have been represented by the Office of the
Government Corporate Counsel, had the authority to file and
prosecute the case. The foregoing notwithstanding, this Court
can not, at present, readily subscribe to petitioners insistence
that the case must be dismissed. Significantly, it stands
without refute, both in the pleadings as well as in the
evidence presented during the trial and up to the time this
case reached the Court, that the issue had been rendered
moot with the occurrence of a supervening event the buyback of the bank by its former owner, Leonardo Ty, sometime
in October 1993. By such re-acquisition from the Asset
Privatization Trust when the case was still pending in the lower
court, the bank reclaimed its real and actual interest over the
unpaid promissory notes; hence, it could rightfully qualify as a
holder[58] thereof under the NIL.
Notably, Section 29 of the NIL defines an accommodation
party as a person "who has signed the instrument as maker,
drawer, acceptor, or indorser, without receiving value
therefor, and for the purpose of lending his name to some
other person." As gleaned from the text, an accommodation
party is one who meets all the three requisites, viz: (1) he
must be a party to the instrument, signing as maker, drawer,
acceptor, or indorser; (2) he must not receive value therefor;
and (3) he must sign for the purpose of lending his name or
credit to some other person.[59] An accommodation party lends
his name to enable the accommodated party to obtain credit
or to raise money; he receives no part of the consideration for
the instrument but assumes liability to the other party/ies
thereto.[60] The accommodation party is liable on the
instrument to a holder for value even though the holder, at

additional stipulations on interest, penalties,

services charges and attorneys fees more
onerous than the terms of the notes, without
his knowledge and consent, in the absence of
legal and factual basis and in violation of the
Usury Law; the bank caused the inclusion in
the promissory notes of stipulations such as
waiver of presentment for payment and
notice of dishonor which are against public
policy; and the notes had been impaired
since they were never presented for payment
and demands were made only several years
after they fell due when his co-defendant
could no longer pay them. Regarding his
counterclaim, Tomas Ang argued that by
reason of the banks acts or omissions, it
should be held liable for the amount
of P50,000 for attorneys fees and expenses of
litigation. Furthermore, on his cross-claim
against Antonio Ang Eng Liong, he averred
that he should be reimbursed by his codefendant any and all sums that he may be
adjudged liable to pay, plus P30,000, P20,000
and P50,000 for moral and exemplary
damages, and attorneys fees, respectively. In
its Reply,[9] respondent Bank countered that it
is the real party in interest and is the holder
of the notes since the Associated Banking
Corporation and Associated Citizens Bank are
its predecessors-in-interest. The fact that
Tomas Ang never received any moneys in
consideration of the two (2) loans and that
such was known to the bank are immaterial
because, as an accommodation maker, he is
considered as a solidary debtor who is
primarily liable for the payment of the
promissory notes. Citing Section 29 of the
Negotiable Instruments Law (NIL), the bank
posited
that
absence
or
failure
of
consideration is not a matter of defense;

party

Rights and obligations of

accommodation party

Ang is an accommodation
party

the time of taking the instrument, knew him or her to be

merely an accommodation party, as if the contract was not for
accommodation.
As petitioner acknowledged it to be, the relation between an
accommodation party and the accommodated party is one of
principal and surety the accommodation party being the
surety.[62] As such, he is deemed an original promisor and
debtor from the beginning;[63] he is considered in law as the
same party as the debtor in relation to whatever is adjudged
touching the obligation of the latter since their liabilities are
interwoven as to be inseparable. [64] Although a contract of
suretyship is in essence accessory or collateral to a valid
principal obligation, the surety's liability to the creditor
is immediate, primary and absolute;
he
[65]
is directly and equally bound with the principal.
As an
equivalent of a regular party to the undertaking, a surety
becomes liable to the debt and duty of the principal obligor
even without possessing a direct or personal interest in the
obligations nor does he receive any benefit therefrom.
In the instant case, petitioner agreed to be jointly and
severally liable under the two promissory notes that he cosigned with Antonio Ang Eng Liong as the principal debtor.
This being so, it is completely immaterial if the bank would
opt to proceed only against petitioner or Antonio Ang Eng
Liong or both of them since the law confers upon the creditor
the prerogative to choose whether to enforce the entire
obligation against any one, some or all of the debtors.
Nonetheless, petitioner, as an accommodation party, may
seek reimbursement from Antonio Ang Eng Liong, being the
party accommodated.
As the promissory notes were not discharged or impaired
through any act or omission of the bank, Sections 119 (d)
[77]
and 122[78] of the NIL as well as Art. 1249 [79] of the Civil
Code would necessarily find no application. Again, neither was
petitioners right of reimbursement barred nor was the banks
right to proceed against Antonio Ang Eng Liong expressly
renounced by the omission to serve notice of appeal and
appellants brief to a party already declared in default.
Consequently, in issuing the two promissory notes, petitioner
as accommodating party warranted to the holder in due

neither is the fact that the holder knew him

to be only an accommodation party. Lastly,
the bank contended that the provisions on
presentment for payment and notice of
dishonor were expressly waived by Tomas
Ang and that such waiver is not against
public policy pursuant to Sections 82 (c) and
109 of the NIL. In fact, there is even no
necessity therefor since being a solidary
debtor he is absolutely required to pay and
primarily liable on both promissory notes. The
LC granted the sum of money against Liong
but reduced the amount for being usurious.
Subsequently, the LC dismissed the case
against Ang for lack of cause of action. It
would readily appear that at the time this suit
for Sum of Money was filed which was on
August [28], 1990, the notes were held by
the Asset Privatization Trust by virtue of the
Deeds of Transfer and Trust Agreement,
which was empowered to bring suit to
enforce
payment
of
the
obligations.
Consequently, defendant Tomas Ang has
sufficiently established that plaintiff at the
time this suit was filed was not the holder of
the notes to warrant the dismissal of the
complaint. On appeal, CA reversed. In
answering the lone issue, the Court of
Appeals held that the bank is a holder under
Sec. 191 of the NIL. It concluded that despite
the execution of the Deeds of Transfer and
Trust Agreement, the Asset Privatization Trust
cannot be declared as the holder of the
subject promissory notes for the reason that
it is neither the payee or indorsee of the
notes in possession thereof nor is it the
bearer of said notes. The Court of Appeals
observed that the bank, as the payee, did not
indorse the notes to the Asset Privatization
Trust despite the execution of the Deeds of

Insolvency of the principal

debtor not a defense.

course that he would pay the same according to its tenor. [80] It
is no defense to state on his part that he did not receive any
value therefor[81] because the phrase "without receiving value
therefor" used in Sec. 29 of the NIL means "without receiving
value by virtue of the instrument" and not as it is apparently
supposed to mean, "without receiving payment for lending his
name."[82] Stated differently, when a third person advances the
face value of the note to the accommodated party at the time
of its creation, the consideration for the note as regards its
maker is the money advanced to the accommodated party. It
is enough that value was given for the note at the time of its
creation.[83] As in the instant case, a sum of money was
received by virtue of the notes, hence, it is immaterial so far
as the bank is concerned whether one of the signers,
particularly petitioner, has or has not received anything in
payment of the use of his name. [84] Under the law, upon the
maturity of the note, a surety may pay the debt, demand the
collateral security, if there be any, and dispose of it to his
benefit, or, if applicable, subrogate himself in the place of the
creditor with the right to enforce the guaranty against the
other signers of the note for the reimbursement of what he is
entitled to recover from them.[85] Regrettably, none of these
were prudently done by petitioner. When he was first notified
by the bank sometime in 1982 regarding his accountabilities
under the promissory notes, he lackadaisically relied on
Antonio Ang Eng Liong, who represented that he would take
care of the matter, instead of directly communicating with the
bank for its settlement.[86] Thus, petitioner cannot now claim
that he was prejudiced by the supposed extension of time
given by the bank to his co-debtor. Furthermore, since the
liability
of
an
accommodation
party
remains
not
only primary but also unconditional to a holder for value, even
if the accommodated party receives an extension of the
period
for
payment
without
the
consent
of
the
accommodation party, the latter is still liable for the whole
obligation and such extension does not release him because
as far as a holder for value is concerned, he is a solidary codebtor
Neither can petitioner benefit from the alleged insolvency of
Antonio Ang Eng Liong for want of clear and convincing

Transfer and Trust Agreement and that the

notes continued to remain with the bank until
the institution of the collection suit. On
appeal to the SC, Petitioner allegedly learned
after the promulgation of the Court of
Appeals decision that, pursuant to the parties
agreement on the compounding of interest
with the principal amount (per month in case
of default), the interest on the promissory
notes as of July 31, 1990 should have been
only P81,647.22 for PN No. DVO-78-382
(instead ofP203,538.98) and P49,618.33 for
PN No. DVO-78-390 (instead of P125,334.41)
while the principal debt as of said date should
increase
to P647,566.75
(instead
of P539,638.96). He submits that the bank
carefully and shrewdly hid the fact by
describing the amounts as interest instead of
being part of either the principal or penalty in
order to pay a lesser amount of docket fees.
According to him, the total fees that should
have been paid at the time of the filing of the
complaint on August 28, 1990 was P2,216.30
and not P614.00 or a shortage of 71%.
Petitioner contends that the bank may not
now pay the deficiency because the last
demand
letter
sent
to
him
was
dated September 9, 1986, or more than
twenty years have elapsed such that
prescription had already set in. Consequently,
the banks claim must be dismissed as the
trial court loses jurisdiction over the case.
Petitioner also argues that the Court of
Appeals should not have assigned its own
error and raised it as an issue of the case,
contending that no question should be
entertained on appeal unless it has been
advanced in the court below or is within the
issues made by the parties in the pleadings.

evidence proving the same. Assuming it to be true, he also did

not exercise diligence in demanding security to protect
himself from the danger thereof in the event that he
(petitioner) would eventually be sued by the bank. Further,
whether petitioner may or may not obtain security from
Antonio Ang Eng Liong cannot in any manner affect his
liability to the bank; the said remedy is a matter of concern
exclusively between themselves as accommodation party and
accommodated party. The fact that petitioner stands only as a
surety in relation to Antonio Ang Eng Liong is immaterial to
the claim of the bank and does not a whit diminish nor defeat
the rights of the latter as a holder for value. To sanction his
theory is to give unwarranted legal recognition to the patent
absurdity of a situation where a co-maker, when sued on an
instrument by a holder in due course and for value, can
escape liability by the convenient expedient of interposing the
defense that he is a merely an accommodation party.

At any rate, he opines that the appellate

courts decision that the bank is the real party
in interest because it is the payee named in
the note or the holder thereof is too simplistic
since: (1) the power and control of Asset
Privatization Trust over the bank are clear
from the explicit terms of the duly certified
trust documents and deeds of transfer and
are confirmed by the newspaper clippings; (2)
even under P.D. No. 902-A or the General
Banking Act, where a corporation or a bank is
under
receivership,
conservation
or
rehabilitation, it is only the representative
(liquidator, receiver, trustee or conservator)
who may properly act for said entity, and, in
this case, the bank was held by Asset
Privatization Trust as trustee; and (3) it is not
entirely accurate to say that the payee who
has not indorsed the notes in all cases is the
real party in interest because the rights of the
payee may be subject of an assignment of
incorporeal rights under Articles 1624 and
1625 of the Civil Code.
Lastly, petitioner maintains that when
respondent Bank served its notice of appeal
and appellants brief only on him, it rendered
the judgment of the trial court final and
executory with respect to Antonio Ang Eng
Liong, which, in effect, released him (Antonio
Ang Eng Liong) from any and all liability
under the promissory notes and, thereby,
foreclosed petitioners cross-claims. By such
act, the bank, even if it be the holder of the
promissory notes, allegedly discharged a
simple contract for the payment of money
(Sections 119 [d] and 122, NIL [Act No.
2031]), prevented a surety like petitioner
from being subrogated in the shoes of his
principal (Article 2080, Civil Code), and

impaired the notes, producing the effect of

payment (Article 1249, Civil Code).

18

G.R. No. 107508 April 25,

1996
PHILIPPINE
NATIONAL
BANK, petitioner,
vs.
COURT
OF
APPEALS,
CAPITOL
CITY
DEVELOPMENT
BANK,
PHILIPPINE
BANK
OF
COMMUNICATIONS, and F.
ABANTE
MARKETING, respondents

A PNB check in the amount of P97,650.00

was issued by the Sec of DECS payable to F.
Abante Marketing. On August 11, 1981, F.
Abante Marketing, a client of Capitol City
Development Bank (Capitol), deposited the
questioned check in its savings account with
said bank. In turn, Capitol deposited the
same in its account with the Philippine Bank
of Communications (PBCom) which, in turn,
sent the check to PNB for clearing. PNB
cleared the check as good and, thereafter,
PBCom credited Capitol's account for the
amount stated in the check. However, on
October 19, 1981, petitioner returned the
check to PBCom and debited PBCom's
account for the amount covered by the
check, the reason being that there was a
"material alteration" of the check number.
PBCom, as collecting agent of Capitol, then
proceeded to debit the latter's account for
the same amount, and subsequently, sent
the check back to petitioner. Petitioner,
however, returned the check to PBCom. On
the other hand, Capitol could not, in turn,
debit F. Abante Marketing's account since the
latter had already withdrawn the amount of
the check as of October 15, 1981. Capitol
sought
clarification
from
PBCom
and
demanded the re-crediting of the amount.
PBCom followed suit by requesting an
explanation and re-crediting from petitioner.
Since the demands of Capitol were not
heeded, it filed a civil suit with the Regional
Trial Court of Manila against PBCom which, in

What constitutes material

alteration

Alteration must pertain to

those mentioned in Sec. 1
to affect negotiability

Appeal is denied. Sec. 125. What constitutes a material

alteration. Any alteration which changes:
(a) The date;
(b) The sum payable, either for principal or interest;
(c) The time or place of payment;
(d) The number or the relations of the parties;
(e) The medium or currency in which payment is to be made;
(f) Or 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.
An alteration is said to be material if it alters the effect of the
instrument. 7 It means an unauthorized change in an
instrument that purports to modify in any respect the
obligation of a party or an unauthorized addition of words or
numbers or other change to an incomplete instrument relating
to the obligation of a party. 8 In other words, a material
alteration is one which changes the items which are required
to be stated under Section 1 of the Negotiable Instruments
Law.
The case at bench is unique in the sense that what was
altered is the serial number of the check in question, an item
which, it can readily be observed, is not an essential requisite
for negotiability under Section 1 of the Negotiable Instruments
Law. The aforementioned alteration did not change the
relations between the parties. The name of the drawer and
the drawee were not altered. The intended payee was the
same. The sum of money due to the payee remained the
same.
Petitioner postulates that the check is rendered nonnegotiable because of the alteration in the serial number
because it becomes unidentifiable from which agency it came
from. Petitioner's arguments fail to convince. The check's
serial number is not the sole indication of its origin.. As

turn, filed a third-party complaint against

petitioner for reimbursement/indemnity with
respect to the claims of Capitol. Petitioner, on
its part, filed a fourth-party complaint against
F. Abante Marketing. The LC decided that
PBCom must reimburse Central Devt Bank.
But PBCom must be reimbursed by PNB w/
whatever it may have paid. PNB is, however,
entitled to indemnity from F. Abante. On
appeal, the CA ordered absolved PBCom of
any liability and ordered PNB to honor the
check and pay costs.

19
G.R. No. 107382/G.R. No.
107612
January 31,
1996
ASSOCIATED
BANK, petitioner,
vs.
HON. COURT OF APPEALS,
PROVINCE OF TARLAC and
PHILIPPINE
NATIONAL
BANK, respondents.

Tarlac deposits the provincial funds in an

account in PNB. Some funds were allocated to
the provincial hospital. In January 1981, the
books of account of the Provincial Treasurer
were post-audited by the Provincial Auditor. It
was then discovered that the hospital did not
receive several allotment checks drawn by
the Province. After the checks were returned,
it was discovered that some 203k were
withdrawn by one Fausto Pangilinan. It turned
out
that
Pangilinan,
who
was
the
administrative officer and cashier of payee
hospital until his retirement on February 28,
1978, collected the questioned checks from
the office of the Provincial Treasurer.
Pangilinan sought to encash the first
check 4 with Associated Bank. However, the
manager refused and suggested that
Pangilinan deposit the check in his personal
savings account with the same bank.
Pangilinan was able to withdraw the money
when the check was cleared and paid by the
drawee bank, PNB. Pangilinan forged the

Serial number is not the

only identifying mark in a
check

Recoverability beyond 24
hrs
Tarlac is negligent and
must bear some loss.

Collecting
bank
is
precluded from setting up
the defense of forgery
since it is an indorser

Responsibilities
of
parties to a check

the

succinctly found by the Court of Appeals, the name of the

government agency which issued the subject check was
prominently printed therein. The check's issuer was therefore
sufficiently identified, rendering the referral to the serial
number redundant and inconsequential. The genuineness of
the amount and the signatures therein of then Deputy Minister
of Education Hermenegildo C. Dumlao and of the resident
Auditor, Penomio C. Alvarez are not challenged. Neither is the
authenticity of the different codes appearing therein
questioned
Anent the third issue whether or not the drawee bank may
still recover the value of the check from the collecting bank
even if it failed to return the check within the twenty-four (24)
hour clearing period because the check was tampered
suffice it to state that since there is no material alteration in
the check, petitioner has no right to dishonor it and return it to
PBCom, the same being in all respects negotiable.
Tarlac was equally negligent and should, therefore, share the
burden of loss from the checks bearing a forged indorsement.
Tarlac permitted Fausto Pangilinan to collect the checks when
the latter, having already retired from government service,
was no longer connected with the hospital.
An indorser of an order instrument warrants "that the
instrument is genuine and in all respects what it purports to
be; that he has a good title to it; that all prior parties had
capacity to contract; and that the instrument is at the time of
his indorsement valid and subsisting." 23 He cannot interpose
the defense that signatures prior to him are forged. A
collecting bank where a check is deposited and which indorses
the check upon presentment with the drawee bank, is such an
indorser. So even if the indorsement on the check deposited
by the banks's client is forged, the collecting bank is bound by
his warranties as an indorser and cannot set up the defense of
forgery as against the drawee bank.
The bank on which a check is drawn, known as the drawee
bank, is under strict liability to pay the check to the order of
the payee. The drawer's instructions are reflected on the face
and by the terms of the check. Payment under a forged
indorsement is not to the drawer's order. When the drawee
bank pays a person other than the payee, it does not comply

signature of the hospital deirector on all

checks. All the checks bore the stamp of
Associated Bank which reads "All prior
endorsements
guaranteed
ASSOCIATED
BANK." According to the bank manager,
although the checks were payable to the
hospital, Pangilinan made it appear that it
was a payment for a construction. The
managers wife and Pangilinan were cousins.
Tarlac sued PNB which in turn sued
Associated and Pangilinan as 3 rd and 4th party
complaints, respectively. The LC ruled that
PNB must pay Tarlac, Associated must pay
PNB and the other other complaints were
dismissed. On appeal, the decision was
affirmed. Associated contends that PNB, the
drawee bank, is estopped from asserting the
defense of guarantee of prior indorsements
against Associated Bank, the collecting bank.
In stamping the guarantee (for all prior
indorsements),
it
merely
followed
a
mandatory requirement for clearing and had
no choice but to place the stamp of
guarantee; otherwise, there would be no
clearing. The bank will be in a "no-win"
situation and will always bear the loss as
against the drawee bank. Associated Bank
also claims that since PNB already cleared
and paid the value of the forged checks in
question, it is now estopped from asserting
the defense that Associated Bank guaranteed
prior indorsements. The drawee bank
allegedly has the primary duty to verify the
genuineness of payee's indorsement before
paying the check.

Drawee bank is not liable

on forged indorsements
but the collecting bank or
the forger

with the terms of the check and violates its duty to charge its
customer's (the drawer) account only for properly payable
items. Since the drawee bank did not pay a holder or other
person entitled to receive payment, it has no right to
reimbursement from the drawer. 24 The general rule then is
that the drawee bank may not debit the drawer's account and
is not entitled to indemnification from the drawer. 25 The risk
of loss must perforce fall on the drawee bank.
However, if the drawee bank can prove a failure by the
customer/drawer to exercise ordinary care that substantially
contributed to the making of the forged signature, the drawer
is precluded from asserting the forgery.
If at the same time the drawee bank was also negligent to the
point of substantially contributing to the loss, then such loss
from the forgery can be apportioned between the negligent
drawer and the negligent bank. 26
In cases involving a forged check, where the drawer's
signature is forged, the drawer can recover from the drawee
bank. No drawee bank has a right to pay a forged check. If it
does, it shall have to recredit the amount of the check to the
account of the drawer. The liability chain ends with the drawee
bank whose responsibility it is to know the drawer's signature
since the latter is its customer
In cases involving checks with forged indorsements, such as
the present petition, the chain of liability does not end with
the drawee bank. The drawee bank may not debit the account
of the drawer but may generally pass liability back through
the collection chain to the party who took from the forger and,
of course, to the forger himself, if available. 28 In other words,
the drawee bank canseek reimbursement or a return of the
amount
it
paid
from
the
presentor
bank
or
person. 29 Theoretically, the latter can demand reimbursement
from the person who indorsed the check to it and so on. The
loss falls on the party who took the check from the forger, or
on the forger himself.
In this case, the checks were indorsed by the collecting bank
(Associated Bank) to the drawee bank (PNB). The former will
necessarily be liable to the latter for the checks bearing
forged indorsements. If the forgery is that of the payee's or
holder's indorsement, the collecting bank is held liable,

Collecting
banks
general indorsers

Responsibilities
collecting
and
banks

are

of
drawee

without prejudice to the latter proceeding against the forger.

More importantly, by reason of the statutory warranty of a
general indorser in section 66 of the Negotiable Instruments
Law, a collecting bank which indorses a check bearing a
forged indorsement and presents it to the drawee bank
guarantees all prior indorsements, including the forged
indorsement. It warrants that the instrument is genuine, and
that it is valid and subsisting at the time of his indorsement.
Because the indorsement is a forgery, the collecting bank
commits a breach of this warranty and will be accountable to
the drawee bank. This liability scheme operates without
regard to fault on the part of the collecting/presenting bank.
Even if the latter bank was not negligent, it would still be
liable to the drawee bank because of its indorsement.
The drawee bank is not similarly situated as the collecting
bank because the former makes no warranty as to the
genuineness. of any indorsement. 32 The drawee bank's duty
is but to verify the genuineness of the drawer's signature and
not of the indorsement because the drawer is its client.
Moreover, the collecting bank is made liable because it is
privy to the depositor who negotiated the check. The bank
knows him, his address and history because he is a client. It
has taken a risk on his deposit. The bank is also in a better
position to detect forgery, fraud or irregularity in the
indorsement.
Hence, the drawee bank can recover the amount paid on the
check bearing a forged indorsement from the collecting bank.
However, a drawee bank has the duty to promptly inform the
presentor of the forgery upon discovery. If the drawee bank
delays in informing the presentor of the forgery, thereby
depriving said presentor of the right to recover from the
forger, the former is deemed negligent and can no longer
recover from the presentor. If PNB negligently delayed in
informing Associated Bank of the forgery, thus depriving the
latter of the opportunity to recover from the forger, it forfeits
its right to reimbursement and will be made to bear the loss.
The stamp guaranteeing prior indorsements is not an empty
rubric which a bank must fulfill for the sake of convenience. A
bank is not required to accept all the checks negotiated to it.
It is within the bank's discretion to receive a check for no

PNB was not negligent

20

G.R. No. L-40796 July 31,

1975
REPUBLIC
BANK, plaintiffappellee,
vs.
MAURICIA
T.
EBRADA, defendantappellant.

Mauricia Ebrada encashed a backpay check

at Republic Bank. Said check was issued by
the Bureau of Treasury. Later on, the BOT
claimed that the indorsement was forged
since the payee was already dead. BOT was
refunded the amount of the check. Ebrada
did not want to reimburse to the bank the
amount the latter returned to the BOT. the
bank sued Ebrada. Ebrada denied all the
allegations and posited that she was and HDI
and that the bank was stopped by its own

Only the forged signature

has no effect, not the
subsequent negotiations

banking institution would consciously or deliberately accept a

check bearing a forged indorsement. When a check is
deposited with the collecting bank, it takes a risk on its
depositor. It is only logical that this bank be held accountable
for checks deposited by its customers.
Even if PNB did not return the questioned checks to
Associated Bank within twenty-four hours, as mandated by the
rule, PNB did not commit negligent delay. Under the
circumstances, PNB gave prompt notice to Associated Bank
and the latter bank was not prejudiced in going after Fausto
Pangilinan. After the Province of Tarlac informed PNB of the
forgeries, PNB necessarily had to inspect the checks and
conduct its own investigation. Thereafter, it requested the
Provincial Treasurer's office on March 31, 1981 to return the
checks for verification. The Province of Tarlac returned the
checks only on April 22, 1981. Two days later, Associated Bank
received the checks from PNB. 36
Associated Bank was also furnished a copy of the Province's
letter of demand to PNB dated March 20, 1981, thus giving it
notice of the forgeries. At this time, however, Pangilinan's
account with Associated had only P24.63 in it. 37Had
Associated Bank decided to debit Pangilinan's account, it
could not have recovered the amounts paid on the questioned
checks. In addition, while Associated Bank filed a fourth-party
complaint against Fausto Pangilinan, it did not present
evidence against Pangilinan and even presented him as its
rebuttal witness. 38 Hence, Associated Bank was not
prejudiced by PNB's failure to comply with the twenty-fourhour return rule.
where a check has several indorsements on it, it was held that
it is only the negotiation based on the forged or unauthorized
signature which is inoperative. Applying this principle to the
case before Us, it can be safely concluded that it is only the
negotiation predicated on the forged indorsement that should
be declared inoperative. This means that the negotiation of
the check in question from Martin Lorenzo, the original payee,
to Ramon R. Lorenzo, the second indorser, should be declared
of no affect, but the negotiation of the aforesaid check from
Ramon R. Lorenzo to Adelaida Dominguez, the third indorser,
and from Adelaida Dominguez to the defendant-appellant who

negligence. She filed party complaints

against the other indorsers. Ebrada lost. She
appealed. Again, she lost but w/o prejudice to
the claims she may have against the other
defendants.

No duty of the drawee to

check genuineness of the
indorsements

The duty is on the indorser

The bank bears the loss

but
with
right
of
reimbursement from the
holder

did not know of the forgery, should be considered valid and

enforceable, barring any claim of forgery.
The drawee of a check can recover from the holder the money
paid to him on a forged instrument. It is not supposed to be its
duty to ascertain whether the signatures of the payee or
indorsers are genuine or not. This is because the indorser is
supposed to warrant to the drawee that the signatures of the
payee and previous indorsers are genuine, warranty not
extending only to holders in due course. One who purchases a
check or draft is bound to satisfy himself that the paper is
genuine and that by indorsing it or presenting it for payment
or putting it into circulation before presentation he impliedly
asserts that he has performed his duty and the drawee who
has paid the forged check, without actual negligence on his
part, may recover the money paid from such negligent
purchasers. In such cases the recovery is permitted because
although the drawee was in a way negligent in failing to
detect the forgery, yet if the encasher of the check had
performed his duty, the forgery would in all probability, have
been detected and the fraud defeated.
The defendant-appellant, upon receiving the check in question
from Adelaida Dominguez, was duty-bound to ascertain
whether the check in question was genuine before presenting
it to plaintiff Bank for payment. Her failure to do so makes her
liable for the loss and the plaintiff Bank may recover from her
the money she received for the check. As reasoned out above,
had she performed the duty of ascertaining the genuineness
of the check, in all probability the forgery would have been
detected and the fraud defeated.
the plaintiff Bank should suffer the loss when it paid the
amount of the check in question to defendant-appellant, but it
has the remedy to recover from the latter the amount it paid
to her. Although the defendant-appellant to whom the plaintiff
Bank paid the check was not proven to be the author of the
supposed forgery, yet as last indorser of the check, she has
warranted that she has good title to it 10 even if in fact she did
not have it because the payee of the check was already dead
11 years before the check was issued. The fact that
immediately after receiving title cash proceeds of the check in
question in the amount of P1,246.08 from the plaintiff Bank,

21

G.R. No. 92244 February 9,

1993
NATIVIDAD
GEMPESAW, petitioner,
vs.
THE HONORABLE COURT OF
APPEALS and PHILIPPINE
BANK OF
COMMUNICATIONS, respond
ents.

Gempesaw owned 4 stores in Caloocan. She

used to pay her obligations via checks. The
checks were prepared and filled up as to all
material
particulars
by
her
trusted
bookkeeper, Alicia Galang, an employee for
more than 8 years. After the bookkeeper
prepared the checks, the completed checks
were submitted to the petitioner for her
signature, together with the corresponding
invoice receipts which indicate the correct
obligations due and payable to her suppliers.
Petitioner signed each and every check
without bothering to verify the accuracy of
the checks against the corresponding
invoices because she reposed full and implicit
trust and confidence on her bookkeeper.
Practically, all the checks issued and honored
by the respondent drawee bank were crossed
checks. PBC sent daily notice and monthly
statements to Gempesaw. All the 82 checks
with forged signatures of the payees were
brought to Ernest L. Boon, Chief Accountant
of respondent drawee Bank at the Buendia
branch, who, without authority therefor,
accepted them all for deposit at the Buendia
branch to the credit and/or in the accounts of

Cut off rule

Negligence as preclusion
to set up forgery as a
defense

defendant-appellant immediately turned over said amount to

Adelaida Dominguez (Third-Party defendant and the FourthParty plaintiff) who in turn handed the amount to Justina Tinio
on the same date would not exempt her from liability because
by doing so, she acted as an accommodation party in the
check for which she is also liable under Section 29 of the
Negotiable Instruments Law (Act 2031), thus: .An
accommodation party is one who has signed the instrument
as maker, drawer, acceptor, or indorser, without receiving
value therefor, and for the purpose of lending his name to
some other person. Such a person is liable on the instrument
to a holder for value, notwithstanding such holder at the time
of taking the instrument knew him to be only an
accommodation party.
When a signature is forged or made without the authority of
the person whose signature it purports to be, it is wholly
inoperative, and no right to retain the instrument, or to give a
discharge therefor, or to enforce payment thereof against any
party thereto, can be acquired through or under such
signature, unless the party against whom it is sought to
enforce such right is precluded from setting up the forgery or
want of authority. he forged signature of the payee or indorsee
of a note or check. Since under said provision a forged
signature is "wholly inoperative", no one can gain title to the
instrument through such forged indorsement. Such an
indorsement prevents any subsequent party from acquiring
any right as against any party whose name appears prior to
the forgery. Although rights may exist between and among
parties subsequent to the forged indorsement, not one of
them can acquire rights against parties prior to the forgery.
Such forged indorsement cuts off the rights of all subsequent
parties as against parties prior to the forgery. However, the
law makes an exception to these rules where a party is
precluded from setting up forgery as a defense.
(1) where forgery was accomplished by a person not
associated with the drawer for example a mail robbery; and
(2) where the indorsement was forged by an agent of the
drawer. This difference in situations would determine the
effect of the drawer's negligence with respect to forged
indorsements. While there is no duty resting on the depositor

Alfredo Y. Romero and Benito Lam. Ernest L.

Boon was a very close friend of Alfredo Y.
Romero. Under the rules of the respondent
drawee Bank, only a Branch Manager and no
other official of the respondent drawee bank,
may accept a second indorsement on a check
for deposit. In the case at bar, all the deposit
slips of the eighty-two (82) checks in question
were initialed and/or approved for deposit by
Ernest L. Boon. The Branch Managers of the
Ongpin and Elcao branches accepted the
deposits made in the Buendia branch and
credited the accounts of Alfredo Y. Romero
and Benito Lam in their respective branches.
In 1987, Gempesaw filed for recovery of more
than 1.2M against PBC (drawee bank) for the
82 checks w/ forged indorsements. The
complaint was dismissed. On appeal, same
result. According to CA, (1) Gempresaw is
guilty of gross negligence in issuing the
checks was the proximate cause of the loss
and (2) assuming that the bank was also
negligent, the loss must nevertheless be
borne by the party whose negligence was the
proximate cause of the loss.

Depositors
investigate

duty

to

Gempesaw is precluded to
set up the defense of
forgery

to look for forged indorsements on his cancelled checks in

contrast to a duty imposed upon him to look for forgeries of
his own name, a depositor is under a duty to set up an
accounting system and a business procedure as are
reasonably calculated to prevent or render difficult the forgery
of indorsements, particularly by the depositor's own
employees. And if the drawer (depositor) learns that a check
drawn by him has been paid under a forged indorsement, the
drawer is under duty promptly to report such fact to the
drawee bank. 5For his negligence or failure either to discover
or to report promptly the fact of such forgery to the drawee,
the drawer loses his right against the drawee who has debited
his account under a forged indorsement. 6 In other words, he
is precluded from using forgery as a basis for his claim for recrediting of his account.
It is highly improbable that in a period of two years, not one of
Petitioner's suppliers complained of non-payment. Assuming
that even one single complaint had been made, petitioner
would have been duty-bound, as far as the respondent drawee
Bank was concerned, to make an adequate investigation on
the matter. Had this been done, the discrepancies would have
been discovered, sooner or later. Petitioner's failure to make
such adequate inquiry constituted negligence which resulted
in the bank's honoring of the subsequent checks with forged
indorsements. On the other hand, since the record mentions
nothing about such a complaint, the possibility exists that the
checks in question covered inexistent sales. But even in such
a case, considering the length of a period of two (2) years, it is
hard to believe that petitioner did not know or realize that she
was paying more than she should for the supplies she was
actually getting. A depositor may not sit idly by, after
knowledge has come to her that her funds seem to be
disappearing or that there may be a leak in her business, and
refrain from taking the steps that a careful and prudent
businessman would take in such circumstances and if taken,
would result in stopping the continuance of the fraudulent
scheme. If she fails to take steps, the facts may establish her
negligence, and in that event, she would be estopped from
recovering from the bank.
One thing is clear from the records that the petitioner failed

More than 1 indorsement

does not invalidate the
check

to examine her records with reasonable diligence whether

before she signed the checks or after receiving her bank
statements. Had the petitioner examined her records more
carefully, particularly the invoice receipts, cancelled checks,
check book stubs, and had she compared the sums written as
amounts payable in the eighty-two (82) checks with the
pertinent sales invoices, she would have easily discovered
that in some checks, the amounts did not tally with those
appearing in the sales invoices. Had she noticed these
discrepancies, she should not have signed those checks, and
should have conducted an inquiry as to the reason for the
irregular entries. Likewise had petitioner been more vigilant in
going over her current account by taking careful note of the
daily reports made by respondent drawee Bank in her issued
checks, or at least made random scrutiny of cancelled checks
returned by respondent drawee Bank at the close of each
month, she could have easily discovered the fraud being
perpetrated by Alicia Galang, and could have reported the
matter to the respondent drawee Bank. The respondent
drawee Bank then could have taken immediate steps to
prevent further commission of such fraud. Thus, petitioner's
negligence was the proximate cause of her loss. And since it
was her negligence which caused the respondent drawee
Bank to honor the forged checks or prevented it from
recovering the amount it had already paid on the checks,
petitioner cannot now complain should the bank refuse to
recredit her account with the amount of such checks. 10 Under
Section 23 of the NIL, she is now precluded from using the
forgery to prevent the bank's debiting of her account.
The banking rule banning acceptance of checks for deposit or
cash payment with more than one indorsement unless cleared
by some bank officials does not invalidate the instrument;
neither does it invalidate the negotiation or transfer of the
said check. In effect, this rule destroys the negotiability of
bills/checks by limiting their negotiation by indorsement of
only the payee. Under the NIL, the only kind of indorsement
which stops the further negotiation of an instrument is a
restrictive indorsement which prohibits the further negotiation
thereof. In this kind of restrictive indorsement, the prohibition
to transfer or negotiate must be written in express words at

PBC is partly guilty

the back of the instrument, so that any subsequent party may

be forewarned that ceases to be negotiable. However, the
restrictive indorsee acquires the right to receive payment and
bring any action thereon as any indorser, but he can no longer
transfer his rights as such indorsee where the form of the
indorsement does not authorize him to do so.
under Section 196 of the NIL, any case not provided for in the
Act shall be governed by the provisions of existing legislation.
Under the laws of quasi-delict, she cannot point to the
negligence of the respondent drawee Bank in the selection
and supervision of its employees as being the cause of the
loss because negligence is the proximate cause thereof and
under Article 2179 of the Civil Code, she may not be awarded
damages. However, under Article 1170 of the same Code the
respondent drawee Bank may be held liable for damages. The
article provides
Those who in the performance of their obligations are guilty of
fraud, negligence or delay, and those who in any manner
contravene the tenor thereof, are liable for damages.
There is no question that there is a contractual relation
between petitioner as depositor (obligee) and the respondent
drawee bank as the obligor. In the performance of its
obligation, the drawee bank is bound by its internal banking
rules and regulations which form part of any contract it enters
into with any of its depositors. When it violated its internal
rules that second endorsements are not to be accepted
without the approval of its branch managers and it did accept
the same upon the mere approval of Boon, a chief accountant,
it contravened the tenor of its obligation at the very least, if it
were not actually guilty of fraud or negligence.
Furthermore, the fact that the respondent drawee Bank did
not discover the irregularity with respect to the acceptance of
checks with second indorsement for deposit even without the
approval of the branch manager despite periodic inspection
conducted by a team of auditors from the main office
constitutes negligence on the part of the bank in carrying out
its obligations to its depositors. Article 1173 provides
The fault or negligence of the obligor consists in
the omission of that diligence which is required
by the nature of the obligation and corresponds

22

No cause of action
[G.R. No. 139130.
November 27, 2002]
RAMON K.
ILUSORIO, petitioner, vs.
HON. COURT OF APPEALS,
and THE MANILA BANKING
CORPORATION,
respondents.

Ilusorio manages about 20 corporations.

When goes abroad, he entrusted to his
secretary, Katherine[2] E. Eugenio, his credit
cards and his checkbook with blank checks. It
was also Eugenio who verified and reconciled
the statements of said checking account. She
was able to deposit 17 checks to her personal
acct. Ilosorio did not scrutinize his bank
statement until a business partner told him
that eugenio used his credit cards. A case for
estafa was then filed. Ilosorio now seeks
reimbursement from the bank. During the
trial, MB sought expertise from NBI in
determining
the
genuineness
of
the
signatures
appearing
on
the
checks. However, in a letter dated March 25,
1987, the NBI informed the trial court that
they could not conduct the desired
examination for the reason that the standard
specimens submitted were not sufficient for
purposes
of
rendering
a
definitive
opinion. The NBI then suggested that
petitioner be asked to submit seven (7) or
more additional standard signatures executed

with the circumstance of the persons, of the

time and of the place. . . .
We hold that banking business is so impressed with public
interest where the trust and confidence of the public in
general is of paramount importance such that the appropriate
standard of diligence must be a high degree of diligence, if not
the utmost diligence. Surely, respondent drawee Bank cannot
claim it exercised such a degree of diligence that is required of
it. There is no way We can allow it now to escape liability for
such negligence. Its liability as obligor is not merely vicarious
but primary wherein the defense of exercise of due diligence
in the selection and supervision of its employees is of no
moment.
PBC is adjudged to shoulder half of the loss. Remanded back
to the RTC for determination of the amount.
To be entitled to damages, petitioner has the burden of
proving negligence on the part of the bank for failure to detect
the discrepancy in the signatures on the checks. It is
incumbent upon petitioner to establish the fact of forgery, i.e.,
by submitting his specimen signatures and comparing them
with those on the questioned checks. Curiously though,
petitioner failed to submit additional specimen signatures as
requested by the National Bureau of Investigation from which
to draw a conclusive finding regarding forgery. The Court of
Appeals found that petitioner, by his own inaction, was
precluded from setting up forgery. The evidence further shows
that the appellee, as soon as it was informed by the appellant
about his questioned signatures, sought to borrow the
questioned checks from the appellant for purposes of analysis
and examination (Exhibit 9), but the same was denied by the
appellant. It was also the former which sought the assistance
of the NBI for an expert analysis of the signatures on the
questioned checks, but the same was unsuccessful for lack of
sufficient specimen signatures.

Bank was not negligent

Consistently, the CA and the RTC found that Manila Bank
employees exercised due diligence in cashing the checks. The
banks employees in the present case did not have a hint as to
Eugenios modus operandi because she was a regular
customer of the bank, having been designated by petitioner

before or about, and immediately after the

dates of the questioned checks. Petitioner,
however, failed to comply with this request.
The complaint was denied in the RTC. Same
on appeal as held that petitioners own
negligence was the proximate cause of his
loss. Essentially the issues in this case
are: (1) whether or not petitioner has a cause
of action against private respondent; and (2)
whether or not private respondent, in filing
an estafa case against petitioners secretary,
is barred from raising the defense that the
fact of forgery was not established.Petitioner
contends that Manila Bank is liable for
damages for its negligence in failing to detect
the discrepant checks. He adds that as a
general rule a bank which has obtained
possession of a check upon an unauthorized
or forged endorsement of the payees
signature and which collects the amount of
the check from the drawee is liable for the
proceeds thereof to the payee. Petitioner
invokes the doctrine of estoppel, saying that
having itself instituted a forgery case against
Eugenio, Manila Bank is now estopped from
asserting that the fact of forgery was never
proven.For its part, Manila Bank contends
that respondent appellate court did not
depart from the accepted and usual course of
judicial proceedings, hence there is no reason
for the reversal of its ruling. Manila Bank
additionally points out that Section 23 [13] of
the
Negotiable
Instruments
Law
is
inapplicable, considering that the fact of
forgery was never proven. Lastly, the bank
negates petitioners claim of estoppel.

Ilosorio was negligent

Filing of estafa by the bank

is not preclusion

himself to transact in his behalf. According to the appellate

court, the employees of the bank exercised due diligence in
the performance of their duties. Its first verified the drawers
signatures thereon as against his specimen signature cards,
and when in doubt, the verifier went further, such as by
referring to a more experienced verifier for further
verification. In some instances the verifier made a
confirmation by calling the depositor by phone. It is only after
taking such precautionary measures that the subject checks
were given to the teller for payment. Of course it is possible
that the verifiers of TMBC might have made a mistake in
failing to detect any forgery -- if indeed there was. However, a
mistake is not equivalent to negligence if they were honest
mistakes. In the instant case, we believe and so hold that if
there were mistakes, the same were not deliberate, since the
bank took all the precautions.

Negligence is the omission to do something which a

reasonable man, guided by those considerations which
ordinarily regulate the conduct of human affairs, would do, or
the doing of something which a prudent and reasonable man
would do.[17] In the present case, it appears that petitioner
accorded his secretary unusual degree of trust and
unrestricted access to his credit cards, passbooks, check
books, bank statements, including custody and possession of
cancelled checks and reconciliation of accounts. Moreover,
the appellant had introduced his secretary to the bank for
purposes of reconciliation of his account, through a letter
dated July 14, 1980 (Exhibit 8). Thus, the said secretary
became a familiar figure in the bank. What is worse, whenever
the bank verifiers call the office of the appellant, it is the same
secretary who answers and confirms the checks. The trouble
is, the appellant had put so much trust and confidence in the
said secretary, by entrusting not only his credit cards with her
but also his checkbook with blank checks. He also entrusted to
her the verification and reconciliation of his account. Further
adding to his injury was the fact that while the bank was

sending him the monthly Statements of Accounts, he was not

personally checking the same. His testimony did not indicate
that he was out of the country during the period covered by
the checks. Thus, he had all the opportunities to verify his
account as well as the cancelled checks issued thereunder -month after month. But he did not, until his partner asked him
whether he had entrusted his credit card to his secretary
because the said partner had seen her use the same. It was
only then that he was minded to verify the records of his
account.
Manila Bank had filed a case for estafa against Eugenio would
not estop it from asserting the fact that forgery has not been
clearly established.Petitioner cannot hold private respondent
in estoppel for the latter is not the actual party to the criminal
action. In a criminal action, the State is the plaintiff, for the
commission of a felony is an offense against the State.
[25]
Thus, under Section 2, Rule 110 of the Rules of Court the
complaint or information filed in court is required to be
brought in the name of the People of the Philippines. Further,
as petitioner himself stated in his petition, respondent bank
filed the estafa case against Eugenio on the basis of
petitioners own affidavit,[27] but without admitting that he had
any personal knowledge of the alleged forgery. It is, therefore,
easy to understand that the filing of the estafa case by
respondent bank was a last ditch effort to salvage its ties with
the petitioner as a valuable client, by bolstering
the estafa case which he filed against his secretary.
23

G.R. No. 117857

2001

February 2,

LUIS S. WONG, petitioner,

vs.
COURT OF APPEALS and
PEOPLE OF THE
PHILIPPINES, respondents.

Petitioner Wong was an agent of Limtong Press.

Inc. (LPI), a manufacturer of calendars. LPI would
print sample calendars, then give them to agents to
present to customers. The agents would get the
purchase orders of customers and forward them to
LPI. After printing the calendars, LPI would ship the
calendars directly to the customers. Thereafter, the
agents would come around to collect the payments.
Petitioner, however, had a history of unremitted

The case involves finding

of facts.

Appeal is denied. However, pursuant to the policy guidelines

in Administrative Circular No. 12-2000, which took effect on November
21, 2000, the penalty imposed on petitioner should now be modified to
a fine of not less than but not more than double the amount of the
checks that were dishonoredThe issue as to whether the checks were
issued merely as guarantee or for payment of petitioners unremitted
collections is a factual issue involving as it does the credibility of
witnesses. Said factual issue has been settled by the trial court and
Court of Appeals. Although initially intended to be used as guarantee
for the purchase orders of customers, they found the checks were

collections, which he duly acknowledged in a

confirmation receipt he co-signed with his
wife.2 Hence, petitioners customers were required
to issue postdated checks before LPI would accept
their purchase orders. In early December 1985,
Wong issued six (6) postdated checks totaling
P18,025.00, all dated December 30, 1985 and
drawn payable to the order of LPI. Instead of
applying the amount in case of default of a client,
LPI and Wong applied the same to past unremitted
amounts. Before the maturity of the checks,
petitioner prevailed upon LPI not to deposit the
checks and promised to replace them within 30
days. However, upon presentment, the acct in
RCBC was already closed. Upon notice of dishonor
to Wong, he failed to pay in 5 days, Thus, 3 counts
of BP 22 cases were filed. The version of the
defense is that petitioner issued the six (6) checks
to guarantee the 1985 calendar bookings of his
customers. Petitioner insists that the checks were
issued as guarantees for the 1985 purchase orders
(POs) of his customers. He contends that private
respondent is not a "holder for value" considering
that the checks were deposited by private
respondent after the customers already paid their
orders. Instead of depositing the checks, private
respondent should have returned the checks to him.
Petitioner further assails the credibility of
complainant considering that his answers to crossexamination questions included: "I cannot recall,
anymore" and "We have no more record." The RTC
convicted Wong. Same goes on appeal.

Elements of BP22

eventually used to settle the remaining obligations of petitioner with

LPI. Although Manuel Limtong was the sole witness for the
prosecution, his testimony was found sufficient to prove all the
elements of the offense charged.13 We find no cogent reason to depart
from findings of both the trial and appellate courts. In cases elevated
from the Court of Appeals, our review is confined to allege errors of
law. Its findings of fact are generally conclusive. Absent any showing
that the findings by the respondent court are entirely devoid of any
substantiation on record, the same must stand.14 The lack of
accounting between the parties is not the issue in this case. As
repeatedly held, this Court is not a trier of facts. 15 Moreover,
in Llamado v. Court of Appeals,16 we held that "[t]o determine the
reason for which checks are issued, or the terms and conditions for
their issuance, will greatly erode the faith the public reposes in the
stability and commercial value of checks as currency substitutes, and
bring about havoc in trade and in banking communities. So what the
law punishes is the issuance of a bouncing check and not the purpose
for which it was issued nor the terms and conditions relating to its
issuance. The mere act of issuing a worthless check is malum
prohibitum." Nothing herein persuades us to hold otherwise.
There are two (2) ways of violating B.P. Blg. 22: (1) by making or
drawing and issuing a check to apply on account or for value knowing
at the time of issue that the check is not sufficiently funded; and (2) by
having sufficient funds in or credit with the drawee bank at the time of
issue but failing to keep sufficient funds therein or credit with said bank
to cover the full amount of the check when presented to the drawee
bank within a period of ninety (90) days.17
The elements of B.P. Blg. 22 under the first situation, pertinent to the
present case, are:18
"(1) The making, drawing and issuance of any check to apply for
account or for value;
(2) The knowledge of the maker, drawer, or issuer that at the time of
issue he does not have sufficient funds in or credit with the drawee
bank for the payment of such check in full upon its presentment; and
(3) The subsequent dishonor of the check by the drawee bank for
insufficiency of funds or credit or dishonor for the same reason had not
the drawer, without any valid cause, ordered the bank to stop
payment."
Petitioner contends that the first element does not exist because the
checks were not issued to apply for account or for value. He attempts

1st element present

2nd element present

to distinguish his situation from the usual "cut-and-dried" B.P. 22 case

by claiming that the checks were issued as guarantee and the
obligations they were supposed to guarantee were already paid. This
flawed argument has no factual basis, the RTC and CA having both
ruled that the checks were in payment for unremitted collections, and
not as guarantee. Likewise, the argument has no legal basis, for what
B.P. Blg. 22 punishes is the issuance of a bouncing check and not the
purpose for which it was issued nor the terms and conditions relating to
its issuance.
As to the second element, B.P. Blg. 22 creates a presumption juris
tantum that the second element prima facieexists when the first and
third elements of the offense are present. 20 Thus, the makers
knowledge is presumed from the dishonor of the check for insufficiency
of funds.21
Petitioner avers that since the complainant deposited the checks on
June 5, 1986, or 157 days after the December 30, 1985 maturity date,
the presumption of knowledge of lack of funds under Section 2 of B.P.
Blg. 22 should not apply to him. He further claims that he should not be
expected to keep his bank account active and funded beyond the
ninety-day period.
Section 2 of B.P. Blg. 22 provides: Evidence of knowledge of
insufficient funds. The making, drawing and issuance of a check
payment of which is refused by the drawee because of insufficient
funds in or credit with such bank, when presented within ninety (90)
days from the date of the check, shall be prima facie evidence of
knowledge of such insufficiency of funds or credit unless such maker or
drawer pays the holder thereof the amount due thereon, or makes
arrangements for payment in full by the drawee of such check within
five (5) banking days after receiving notice that such check has not
been paid by the drawee. An essential element of the offense is
"knowledge" on the part of the maker or drawer of the check of the
insufficiency of his funds in or credit with the bank to cover the check
upon its presentment. Since this involves a state of mind difficult to
establish, the statute itself creates a prima facie presumption of such
knowledge where payment of the check "is refused by the drawee
because of insufficient funds in or credit with such bank when
presented within ninety (90) days from the date of the check." To
mitigate the harshness of the law in its application, the statute provides
that such presumption shall not arise if within five (5) banking days
from receipt of the notice of dishonor, the maker or drawer makes

24

G.R. No. 125851

July 11, 2006
ALLIED BANKING
CORPORATION
Vs.
COURT OF APPEALS, G.G.
SPORTSWEAR

On January
6,
1981,
petitioner
Allied
Bank, Manila (ALLIED) purchased Export Bill
No. BDO-81-002 in the amount of US
$20,085.00 from respondent G.G. Sportswear
Mfg. Corporation (GGS). The bill, drawn under
a letter of credit No. BB640549 covered Mens
Valvoline Training Suit that was in transit

Discounting of export bill

arrangements for payment of the check by the bank or pays the holder
the amount of the check. Contrary to petitioners assertions, nowhere
in said provision does the law require a maker to maintain funds in his
bank account for only 90 days. Rather, the clear import of the law is to
establish a prima facie presumption of knowledge of such insufficiency
of funds under the following conditions (1) presentment within 90 days
from date of the check, and (2) the dishonor of the check and failure of
the maker to make arrangements for payment in full within 5 banking
days after notice thereof. That the check must be deposited within
ninety (90) days is simply one of the conditions for the prima
facie presumption of knowledge of lack of funds to arise. It is not an
element of the offense. Neither does it discharge petitioner from his
duty to maintain sufficient funds in the account within a reasonable time
thereof. Under Section 186 of the Negotiable Instruments Law, "a
check must be presented for payment within a reasonable time after its
issue or the drawer will be discharged from liability thereon to the
extent of the loss caused by the delay." By current banking practice, a
check becomes stale after more than six (6) months, 23 or 180 days.
Private respondent herein deposited the checks 157 days after the
date of the check. Hence said checks cannot be considered stale. Only
the presumption of knowledge of insufficiency of funds was lost, but
such knowledge could still be proven by direct or circumstantial
evidence. As found by the trial court, private respondent did not deposit
the checks because of the reassurance of petitioner that he would
issue new checks. Upon his failure to do so, LPI was constrained to
deposit the said checks. After the checks were dishonored, petitioner
was duly notified of such fact but failed to make arrangements for full
payment within five (5) banking days thereof. There is, on record,
sufficient evidence that petitioner had knowledge of the insufficiency of
his funds in or credit with the drawee bank at the time of issuance of
the checks. And despite petitioners insistent plea of innocence, we find
no error in the respondent courts affirmance of his conviction by the
trial court for violations of the Bouncing Checks Law.
Appeal
is
granted.
Alcron International
Ltd.
is subsidiarily liable, while respondents Nari Gidwani, and
Spouses Leon and Leticia de Villa are jointly and severally
liable together with G.G. Sportswear What transpired in this
case is a discounting arrangement of the subject export bill,
between petitioner ALLIED and respondent GGS.Previously, we
ruled that in a letter of credit transaction, once the credit is

MANUFACTURING
CORPORATION, NARI
GIDWANI, SPOUSES LETICIA
AND LEON DE VILLA AND
ALCRON
INTERNATIONAL LTD.,

to West
Germany (Uniger
viaRotterdam)
under Cont. #73/S0299. The export bill was
issued by Chekiang First Bank Ltd.,
Hongkong. With the purchase of the bill,
ALLIED credited GGS the peso equivalent of
the
aforementioned
bill
amounting
to P151,474.52
and
guaranteed
by
respondents Nari Gidwani and Alcron. The
surety also contained a clause whereby said
sureties waive protest and notice of dishonor
of any and all such instruments, loans,
advances, credits and/or obligations.[10] These
letters of guaranty and surety are now the
basis of the petitioners action. When ALLIED
negotiated the export bill to Chekiang,
payment was refused due to some material
discrepancies in the documents submitted by
GGS relative to the exportation covered by
the letter of credit. Upon demand for
payment, respondents did not pay. Thus, a
case for sum of money. GGS and Nari Gidwani
admitted the due execution of the export bill
and the Letters of Guaranty in favor of
ALLIED, but claimed that they signed blank
forms of the Letters of Guaranty and the
Surety, and the blanks were only filled up by
ALLIED after they had affixed their
signatures. They also added that the
documents did not cover the transaction
involving the subject export bill. Meanwhile,
respondents, spouses de Villa, claimed that
they were not aware of the existence of the
export bill; they signed blank forms of the
surety; and averred that the guaranty was
not meant to secure the export bill.
Respondent Alcron, for its part, alleged that
as a foreign corporation doing business in the
Philippines, its branch in the Philippines is
merely a liaison office. GGS and Nari Gidwani
filed a Motion for Summary Judgment on the

Art. 2047 of the NCC is

applicable

established, the seller ships the goods to the buyer and in the
process secures the required shipping documents of title. To
get paid, the seller executes a draft and presents it together
with the required documents to the issuing bank. The issuing
bank redeems the draft and pays cash to the seller if it finds
that the documents submitted by the seller conform with what
the letter of credit requires. The bank then obtains possession
of the documents upon paying the seller. The transaction is
completed when the buyer reimburses the issuing bank and
acquires the documents entitling him to the goods.
[6]
However, in most cases, instead of going to the issuing
bank to claim payment, the buyer (or the beneficiary of the
draft) may approach another bank, termed the negotiating
bank, to have the draft discounted. [7] While the negotiating
bank owes no contractual duty toward the beneficiary of the
draft to discount or purchase it, it may still do so. Nothing can
prevent the negotiating bank from requiring additional
requirements, like contracts of guaranty and surety, in
consideration of the discounting arrangement. In this case,
respondent GGS, as the beneficiary of the export bill, instead
of going to Chekiang First Bank Ltd. (issuing bank), went to
petitioner ALLIED, to have the export bill purchased or
discounted. Before ALLIED agreed to purchase the subject
export bill, it required respondents Nari Gidwani and Alcron to
execute Letters of Guaranty, holding them liable on
demand, in case the subject export bill was dishonored or
retired for any reason.
Art. 2047. By guaranty a person, called the guarantor,
binds himself to the creditor to fulfill the obligation of
the principal debtor in case the latter should fail to do
so.

Sec
152
of
inapplicable

NIL

If a person binds himself solidarily with the principal

debtor, the provisions of Section 4, Chapter 3, Title I of
this Book shall be observed. In such case the contract
is is called a suretyship.
In this case, the Letters of Guaranty and Surety clearly show

ground that since the plaintiff admitted not

having protested the dishonor of the export
bill, it thereby discharged GGS from
liability. But the trial court denied the
motion. After the presentation of evidence by
the petitioner, only the spouses de Villa
presented
their
evidence. The
other
respondents did not. The trial court dismissed
the complaint. On appeal, the Court of
Appeals modified the ruling of the trial court
holding respondent GGS liable to reimburse
petitioner ALLIED the peso equivalent of the
export bill, but it exonerated the guarantors
from their liabilities under the Letters of
Guaranty
since
what
the
guarantors
guaranteed in the instant case was the bill
which had been discharged. Consequently,
the guarantors should be correspondingly
released. The main issue raised before us
is: Can respondents, in their capacity as
guarantors and surety, be held jointly and
severally liable under the Letters of Guaranty
and
Continuing
Guaranty/Comprehensive
Surety, in the absence of protest on the bill in
accordance with Section 152 of the
Negotiable Instruments Law?

that respondents undertook and bound themselves as

guarantors and surety to pay the full amount of the export bill.

Respondents claim that the petitioner did not protest[13] upon

dishonor of the export bill by Chekiang First Bank,
Ltd. According to respondents, since there was no protest
made upon dishonor of the export bill, all of them, as
indorsers were discharged under Section 152 of the
Negotiable Instruments Law.
Difference
between
indorser
and
guarantor/surety

On the issue
documents

of

blank

Sec. 152. In what cases protest necessary. - Where a

foreign bill appearing on its face to be such is
dishonored by nonacceptance, it must be duly
protested for nonacceptance, by nonacceptance is
dishonored and where such a bill which has not
previously been dishonored by nonpayment, it must be
duly protested for nonpayment. If it is not so
protested, the drawer and indorsers are discharged.
Where a bill does not appear on its face to be a foreign
bill, protest thereof in case of dishonor is unnecessary.

Section 152 of the Negotiable Instruments Law pertaining to

indorsers, relied on by respondents, is not pertinent to this
case. There are well-defined distinctions between the contract
of an indorser and that of a guarantor/surety of a commercial
paper, which is what is involved in this case. The contract of
indorsement is primarily that of transfer, while the contract of
guaranty is that of personal security. [14] The liability of a
guarantor/surety is broader than that of an indorser. Unless
the bill is promptly presented for payment at maturity and due
notice of dishonor given to the indorser within a reasonable
time, he will be discharged from liability thereon. [15] On the
other hand, except where required by the provisions of the
contract of suretyship, a demand or notice of default is not
required to fix the suretys liability. [16] He cannot complain that
the creditor has not notified him in the absence of a special
agreement to that effect in the contract of suretyship.

[17]

Therefore, no protest on the export bill is necessary to

charge all the respondents jointly and severally liable with
G.G. Sportswear since the respondents held themselves liable
upon demand in case the instrument was dishonored and on
the surety, they even waived notice of dishonor as stipulated
in their Letters of Guarantee.

Re laches

Respondents stance lacks merit. Under Section 3 (d), Rule 131

of the Rules of Court, it is presumed that a person takes
ordinary care of his concerns. Hence, the natural presumption
is that one does not sign a document without first informing
himself of its contents and consequences. Said presumption
acquires greater force in the case at bar where not only one
document but several documents were executed at different
times and at different places by the herein respondent
guarantors and sureties.
Last, we find the defense of laches unavailing. The question of
laches is addressed to the sound discretion of the court and
since laches is an equitable doctrine, its application is
controlled
by
equitable
considerations.[23] Respondents,
however, failed to show that the collection suit against them
as sureties was inequitable. Remedies in equity address only
situations tainted with inequity, not those expressly governed
by statutes.
25

G.R. No. 142641

July 17, 2006
PACIFICO B. ARCEO, JR.,
Vs.
PEOPLE OF THE PHILIPPINES,
Respondent

In March 1991, Arceo loaned from Cenizal

150k. In turn, Arceo issued a post dated
check for the said amount. Upon maturity,
Cenizal did not immediately presented the
checks for payment since Arceo promised to
replace the check w/ cash. Arceo defaulted 7
times thus prompting Cenizal to present the
check to BPI. It bounced and a notice of
dishonor was issued. Cenizal went to Arceos
house to demand payment but he already left
his place. Hence, a case for estafa and BP22
were filed. Howver, due to a fire occurred
near Arceos house, he lost the check and the
return slip. Cenizal executed an Affidavit of

SIGNIFICANCE OF
90-DAY PERIOD

THE

Appeal is denied. Decision is affirmed. Section 1 of BP 22

provides:
SECTION 1. Checks without sufficient funds. Any person
who makes or draws and issues any check to apply on
account or for value, knowing at the time of issue that he
does not have sufficient funds in or credit with
the drawee bank for the payment of such check in full
upon its presentment, which check is subsequently
dishonored by the draweebank for insufficiency of funds
or credit or would have been dishonored for the same
reason had not the drawer, without any valid reason,
ordered the bank to stop payment, shall be punished by
imprisonment of not less than thirty days but not more

Loss regarding the loss of the check in

question and the return slip. Arceo was
convicted both in the original and the
appellate court. Petitioner claims that the
trial and appellate courts erred in convicting
him despite the failure of the prosecution to
present the dishonored check during the trial.
He also contends that he should not be held
liable for the dishonor of the check because it
was presented beyond the 90-day period
provided under the law. Petitioner further
questions his conviction since the notice
requirement was not complied with and he
was given only three days to pay, not five
banking days as required by law. Finally,
petitioner asserts that he had already paid
his obligation to Cenizal.

than one (1) year or by a fine of not less than but not
more than double the amount of the check which fine
shall in no case exceed Two Hundred Thousand Pesos, or
both such fine and imprisonment at the discretion of the
court.
The same penalty shall be imposed upon any person who,
having sufficient funds in or credit with the drawee bank
when he makes or draws and issues a check, shall fail to
keep sufficient funds or to maintain a credit to cover the
full amount of the check if presented within a period of
ninety (90) days from the date appearing thereon, for
which reason it is dishonored by the drawee bank.
Where the check is drawn by a corporation, company or
entity, the person or persons who actually signed the
check in behalf of such drawer shall be liable under this
Act.

BEST

EVIDENCE

RULE

the 90-day period provided in the law is not an element of the

offense. Neither does it discharge petitioner from his duty to
maintain sufficient funds in the account within a reasonable
time from the date indicated in the check.According to current
banking practice, the reasonable period within which to
present a check to the drawee bank is six months. Thereafter,
the check becomes stale and the drawer is discharged from
liability thereon to the extent of the loss caused by the delay.
Thus, Cenizals presentment of the check to the drawee bank
120 days (four months) after its issue was still within the
allowable period. Petitioner was freed neither from the
obligation to keep sufficient funds in his account nor from
liability resulting from the dishonor of the check.
Petitioners insistence on the presentation of the check in
evidence as a condition sine qua non for conviction under BP
22 is wrong. Petitioner anchors his argument on Rule 130,
Section 3, of the Rules of Court, otherwise known as the best
evidence rule. However, the rule applies only where the
content of the document is the subject of the inquiry. Where
the issue is the execution or existence of the document or the

circumstances surrounding its execution, the best evidence

rule does not apply and testimonial evidence is admissible. [5]
The gravamen of the offense is the act of drawing and issuing
a worthless check.[6] Hence, the subject of the inquiry is the
fact of issuance or execution of the check, not its content.

ALL ELEMENTS ARE PRESENT

NO

PROOF

OF

PROOF OF NOTICE

PAYMENT;

Here, the due execution and existence of the check were

sufficiently established. Cenizal testified that he presented the
originals of the check, the return slip and other pertinent
documents before the Office of the City Prosecutor
of Quezon City when he executed his complaint-affidavit
during the preliminary investigation. The City Prosecutor
found a prima facie case against petitioner for violation of BP
22 and filed the corresponding information based on the
documents. Although the check and the return slip were
among the documents lost by Cenizal in a fire that occurred
near his residence on September 16, 1992, he was
nevertheless able to adequately establish the due execution,
existence and loss of the check and the return slip in an
affidavit of loss as well as in his testimony during the trial of
the case.
Moreover, petitioner himself admited that he issued the
check. He never denied that the check was presented for
payment to the drawee bank and was dishonored for having
been drawn against insufficient funds.
The elements of B.P. Blg. 22 under the first situation, pertinent
to the present case, are:18
"(1) The making, drawing and issuance of any check to apply
for account or for value;
(2) The knowledge of the maker, drawer, or issuer that at the
time of issue he does not have sufficient funds in or credit
with the drawee bank for the payment of such check in full
upon its presentment; and
(3) The subsequent dishonor of the check by the drawee bank
for insufficiency of funds or credit or dishonor for the same
reason had not the drawer, without any valid cause, ordered
the bank to stop payment."
Both the trial and appellate courts found that petitioner issued
BPI check no. 163255 postdated August 4, 1991 in the amount

of P150,000 in consideration of a loan which he obtained

from Cenizal. When the check was deposited, it was
dishonored by the drawee bank for having been drawn against
insufficient funds. There was sufficient evidence on record that
petitioner knew of the insufficiency of his funds in
the draweebank at the time of the issuance of the check. In
fact, this was why, on maturity date, he requested the payee
not to encash it with the promise that he would replace it with
cash. He made this request and assurance seven times but
repeatedly failed to make good on his promises despite the
repeated accommodation granted him by the payee, Cenizal.
Petitioner cannot claim that he was deprived of the period of
five banking days from receipt of notice of dishonor within
which to pay the amount of the check. [9] While petitioner may
have been given only three days to pay the value of the
check, the trial court found that the amount due thereon
remained unpaid even after five banking days from his receipt
of the notice of dishonor. This negated his claim that he had
already paid Cenizal and should therefore be relieved of any
liability. Moreover, petitioners claim of payment was nothing
more than a mere allegation. He presented no proof to
support it. If indeed there was payment, petitioner should
have redeemed or taken the check back in the ordinary course
of business.[10] Instead, the check remained in the possession
of the payee who demanded the satisfaction of petitioners
obligation when the check became due as well as when the
check was dishonored by the drawee bank.
26
G.R. No.
141968
2001

February 12,

THE INTERNATIONAL
CORPORATE BANK (now
UNION BANK OF THE
PHILIPPINES), petitioner,
vs.
SPS. FRANCIS S. GUECO
and MA. LUZ E.
GUECO, respondents

In 1995, spouses Gueco availed of car

financing of Union Bank secured by a
promissory note and a chattel mortgage.
Upon default in monthly installment, the bank
filed for sum of money and replevin. From
184k, the amount was lowered to 150k after
a meeting. Since the spouses could not pay,
the car was withheld inside the bank
premises. On August 29, 1995, Dr. Gueco
delivered a manager's check in amount of
P150,000.00 but the car was not released
because of his refusal to sign the Joint Motion

The motion to dismiss was

not part of the agreement

Appeal is granted. Respondents are further ordered to pay the

original obligation amounting to P150,000.00 to the petitioner
upon surrender or cancellation of the manager's check in the
latter's possession, afterwhich, petitioner is to return the
subject motor vehicle in good working condition. The issue as
to what constitutes the terms of the oral compromise or any
subsequent novation is a question of fact that was resolved by
the Regional Trial Court and the Court of Appeals in favor of
respondents. It is well settled that the findings of fact of the
lower court, especially when affirmed by the Court of Appeals,
are binding upon this Court. 7 While there are exceptions to
this rule,8 the present case does not fall under anyone of

to Dismiss. It is the contention of the Gueco

spouses and their counsel that Dr. Gueco
need not sign the motion for joint dismissal
considering that they had not yet filed their
Answer. Petitioner, however, insisted that the
joint motion to dismiss is standard operating
procedure in their bank to effect a
compromise and to preclude future filing of
claims, counterclaims or suits for damages.
After several demand letters and meetings
with bank representatives, the respondents
Gueco spouses initiated a civil action for
damages before the Metropolitan Trial Court
of Quezon City, Branch 33. The Metropolitan
Trial Court dismissed the complaint for lack of
merit. On appeal to the Regional Trial Court,
Branch 227 of Quezon City, the decision of
the Metropolitan Trial Court was reversed. In
its decision, the RTC held that there was a
meeting of the minds between the parties as
to the reduction of the amount of
indebtedness and the release of the car but
said agreement did not include the signing of
the joint motion to dismiss as a condition sine
qua non for the effectivity of the compromise.
On appeal to the CA, the decision was
affirmed.

Fraud
not
present;
damages
cannot
be
claimed

them, the petitioner's claim to the contrary, notwithstanding.

Being an affirmative allegation, petitioner has the burden of
evidence to prove his claim that the oral compromise entered
into by the parties on August 28, 1995 included the stipulation
that the parties would jointly file a motion to dismiss. This
petitioner failed to do. Notably, even the Metropolitan Trial
Court, while ruling in favor of the petitioner and thereby
dismissing the complaint, did not make a factual finding that
the compromise agreement included the condition of the
signing of a joint motion to dismiss. Considering the effect of
the signing of the Joint Motion to Dismiss on the appellants'
substantive right, it is more in accord with human experience
to expect Dr. Gueco, upon being shown the Joint Motion to
Dismiss, to refuse to pay the Manager's Check and for the
bank to refuse to accept the manager's check. The only logical
explanation for this inaction is that Dr. Gueco was not shown
the Joint Motion to Dismiss in the meeting of August 28, 1995,
bolstering his claim that its signing was never put into
consideration in reaching a compromise.'
Fraud has been defined as the deliberate intention to cause
damage or prejudice. It is the voluntary execution of a
wrongful act, or a willful omission, knowing and intending the
effects which naturally and necessarily arise from such act or
omission; the fraud referred to in Article 1170 of the Civil Code
is the deliberate and intentional evasion of the normal
fulfillment of obligation.11 We fail to see how the act of the
petitioner bank in requiring the respondent to sign the joint
motion to dismiss could constitute as fraud. True, petitioner
may have been remiss in informing Dr. Gueco that the signing
of a joint motion to dismiss is a standard operating procedure
of petitioner bank. However, this can not in anyway have
prejudiced Dr. Gueco. The motion to dismiss was in fact also
for the benefit of Dr. Gueco, as the case filed by petitioner
against it before the lower court would be dismissed with
prejudice. The whole point of the parties entering into the
compromise agreement was in order that Dr. Gueco would pay
his outstanding account and in return petitioner would return
the car and drop the case for money and replevin before the

Managers check

Metropolitan Trial Court. The joint motion to dismiss was but a

natural consequence of the compromise agreement and
simply stated that Dr. Gueco had fully settled his obligation,
hence, the dismissal of the case. Petitioner's act of requiring
Dr. Gueco to sign the joint motion to dismiss can not be said
to be a deliberate attempt on the part of petitioner to renege
on the compromise agreement of the parties. It should,
likewise, be noted that in cases of breach of contract, moral
damages may only be awarded when the breach was
attended by fraud or bad faith.12 The law presumes good faith.
Dr. Gueco failed to present an iota of evidence to overcome
this presumption. In fact, the act of petitioner bank in lowering
the debt of Dr. Gueco from P184,000.00 to P150,000.00 is
indicative of its good faith and sincere desire to settle the
case. If respondent did suffer any damage, as a result of the
withholding of his car by petitioner, he has only himself to
blame. Necessarily, the claim for exemplary damages must
fait. In no way, may the conduct of petitioner be characterized
as "wanton, fraudulent, reckless, oppressive or malevolent."
In the case at bar, however, the check involved is not an
ordinary bill of exchange but a manager's check. A manager's
check is one drawn by the bank's manager upon the bank
itself. It is similar to a cashier's check both as to effect and
use. A cashier's check is a check of the bank's cashier on his
own or another check. In effect, it is a bill of exchange drawn
by the cashier of a bank upon the bank itself, and accepted in
advance by the act of its issuance.29 It is really the bank's own
check and may be treated as a promissory note with the bank
as a maker.30The check becomes the primary obligation of the
bank which issues it and constitutes its written promise to pay
upon demand. The mere issuance of it is considered an
acceptance thereof. If treated as promissory note, the drawer
would be the maker and in which case the holder need not
prove presentment for payment or present the bill to the
drawee for acceptance.31
Even assuming that presentment is needed, failure to present
for payment within a reasonable time will result to the

discharge of the drawer only to the extent of the loss caused

by the delay.32 Failure to present on time, thus, does not
totally wipe out all liability. In fact, the legal situation amounts
to an acknowledgment of liability in the sum stated in the
check. In this case, the Gueco spouses have not alleged, much
less shown that they or the bank which issued the manager's
check has suffered damage or loss caused by the delay or
non-presentment. Definitely, the original obligation to pay
certainly has not been erased.
It has been held that, if the check had become stale, it
becomes imperative that the circumstances that caused its
non-presentment be determined.33 In the case at bar, there is
no doubt that the petitioner bank held on the check and
refused to encash the same because of the controversy
surrounding the signing of the joint motion to dismiss. We see
no bad faith or negligence in this position taken by the Bank.1