MYRON C. PAPA, Administrator of the Testate Estate of Angela M.

Butte, petitioner, vs. A. U. VALENCIA and CO. INC., FELIX PEARROYO,

SPS. ARSENIO B. REYES & AMANDA SANTOS, and DELFIN
JAO, respondents.
[G.R. No. 105188. January 23, 1998]

FACTS: Myron Papa, acting as attorney-in-fact of Angela Butte, allegedly sold a
parcel of land in La Loma, Quezon City to Felix Penarroyo. However, prior to the
alleged sale, the land was mortgaged by Butte to Associated Banking Corporation
along with other properties and after the alleged sale but prior to the propertys
release by delivery, Butte died. The Bank refused to release the property despite
Penarroyos unless and until the other mortgaged properties by Butte have been
redeemed and because of this Penarroyo settled to having the title of the property
annotated.

It was later discovered that the mortgage rights of the Bank were transferred to
one Tomas Parpana, administrator of the estate of Ramon Papa Jr. and his since
then been collecting rents. Despite repeated demands of Penarroyo and Valencia,
Papa refused to deliver the property which led to a suit for specific performance.
The trial court ruled in favor of Penarroyo and Valencia.

On appeal to the CA, and ultimately in relation to negotiable instruments, Papa
averred that the sale of the property was not consummated since the PCIB check
issued by Penarroyo for payment worth 40000 pesos was not encashed by him.
However, the CA saw the contrary and that Papa in fact encashed the check by
means of a receipt.

Finally on appeal to the SC, Papa cited that according to Art 1249 of the Civil Code,
payment of checks only produce effect once they have been encashed and he
insists that he never encashed the check. He further alleged that if check was
encashed, it should have been stamped as such or at least a microfilm copy. It
must be noted that the check was in possession of Papa for ten (10) years from the
time payment was made to him.

ISSUE: Whether or not the check was encashed and can be considered effective as
payment

HELD: YES. The Court held that acceptance of a check implies an undertaking of
due diligence in presenting it for payment, and if he from whom it is received
sustains loss by want of such diligence, it will be held to operate as actual payment
of the debt or obligation for which it is given. In this case, granting that check was
never encashed, Papas failure to do so for more than ten (10) years undoubtedly
resulted in the impairment of the check through his unreasonable and unexplained
delay.

After more than ten (10) years from the payment in part by cash and in part by
check, the presumption is that the check had been encashed.

G.R. No. 121413 January 29, 2001
PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly INSULAR
BANK OF ASIA AND AMERICA),petitioner,
vs.
COURT OF APPEALS and FORD PHILIPPINES, INC. and CITIBANK,
N.A., respondents.

G.R. No. 121479 January 29, 2001
FORD PHILIPPINES, INC., petitioner-plaintiff,
vs.
COURT OF APPEALS and CITIBANK, N.A. and PHILIPPINE COMMERCIAL
INTERNATIONAL BANK,respondents.

G.R. No. 128604 January 29, 2001
FORD PHILIPPINES, INC., petitioner,
vs.
CITIBANK, N.A., PHILIPPINE COMMERCIAL INTERNATIONAL BANK and
COURT OF APPEALS,respondents.
There are three cases consolidated here: G.R. No. 121413 (PCIB vs CA and
Ford and Citibank), G.R. No. 121479 (Ford vs CA and Citibank and PCIB),
and G.R. No. 128604 (Ford vs Citibank and PCIB and CA).
G.R. No. 121413/G.R. No. 121479

FACTS: In October 1977, Ford Philippines drew a Citibank check in the amount of
P4,746,114.41 in favor of the Commissioner of the Internal Revenue (CIR). The
check represents Fords tax payment for the third quarter of 1977. On the face of
the check was written Payees account only which means that the check cannot
be encashed and can only be deposited with the CIRs savings account (which is
with Metrobank). The said check was however presented to PCIB and PCIB
accepted the same. PCIB then indorsed the check for clearing to Citibank. Citibank
cleared the check and paid PCIB P4,746,114.41. CIR later informed Ford that it
never received the tax payment.
An investigation ensued and it was discovered that Fords accountant Godofredo
Rivera, when the check was deposited with PCIB, recalled the check since there was
allegedly an error in the computation of the tax to be paid. PCIB, as instructed by
Rivera, replaced the check with two of its managers checks.
It was further discovered that Rivera was actually a member of a syndicate and the
managers checks were subsequently deposited with the Pacific Banking
Corporation by other members of the syndicate. Thereafter, Rivera and the other
members became fugitives of justice.
G.R. No. 128604
In July 1978 and in April 1979, Ford drew two checks in the amounts of
P5,851,706.37 and P6,311,591.73 respectively. Both checks are again for tax
payments. Both checks are for Payees account only or for the CIRs bank savings
account only with Metrobank. Again, these checks never reached the CIR.
In an investigation, it was found that these checks were embezzled by the same
syndicate to which Rivera was a member. It was established that an employee of
PCIB, also a member of the syndicate, created a PCIB account under a fictitious
name upon which the two checks, through high end manipulation, were deposited.
PCIB unwittingly endorsed the checks to Citibank which the latter cleared. Upon
clearing, the amount was withdrawn from the fictitious account by syndicate
members.
ISSUE: What are the liabilities of each party?
HELD: G.R. No. 121413/G.R. No. 121479
PCIB is liable for the amount of the check (P4,746,114.41). PCIB, as a collecting
bank has been negligent in verifying the authority of Rivera to negotiate the check.
It failed to ascertain whether or not Rivera can validly recall the check and have
them be replaced with PCIBs managers checks as in fact, Ford has no knowledge
and did not authorize such. A bank (in this case PCIB) which cashes a check drawn
upon another bank (in this case Citibank), without requiring proof as to the identity
of persons presenting it, or making inquiries with regard to them, cannot hold the
proceeds against the drawee when the proceeds of the checks were afterwards
diverted to the hands of a third party. Hence, PCIB is liable for the amount of the
embezzled check.
G.R. No. 128604
PCIB and Citibank are liable for the amount of the checks on a 50-50 basis.
As a general rule, a bank is liable for the negligent or tortuous act of its employees
within the course and apparent scope of their employment or authority. Hence,
PCIB is liable for the fraudulent act of its employee who set up the savings account
under a fictitious name.
Citibank is likewise liable because it was negligent in the performance of its
obligations with respect to its agreement with Ford. The checks which were drawn
against Fords account with Citibank clearly states that they are payable to the CIR
only yet Citibank delivered said payments to PCIB. Citibank however argues that
the checks were indorsed by PCIB to Citibank and that the latter has nothing to do
but to pay it. The Supreme Court cited Section 62 of the Negotiable Instruments
Law which mandates the Citibank, as an acceptor of the checks, to engage in
paying the checks according to the tenor of the acceptance which is to deliver the
payment to the payees account only.
But the Supreme Court ruled that in the consolidated cases, that PCIB and Citibank
are not the only negligent parties. Ford is also negligent for failing to examine its
passbook in a timely manner which could have avoided further loss. But this
negligence is not the proximate cause of the loss but is merely contributory.
Nevertheless, this mitigates the liability of PCIB and Citibank hence the rate of
interest, with which PCIB and Citibank is to pay Ford, is lowered from 12% to 6%
per annum.

PNB V. NATIONAL CITY BANK OF NY
63 PHIL 711


FACTS:
Unknown persons negotiated with Motor Services Company checks, which were part
of the stipulation in payment of automobile tires purchased from the latters
store. It purported to have been issued by Pangasinan Transportation
Company. The said checks were indorsed at the back by said unknown
persons, the Motor company believing at that time that the signatures contained
therein were genuine. The checks were later deposited with the companys
account in National City Bank of NY. The said checks were consequently
cleared and PNB credited National City Bank with the amounts. Thereafter,
PNB discovered that the signatures were forged and it demanded the
reimbursement of the amounts for which it credited the other bank.


HELD:
A check is a bill of exchange payable on demand and only the rules
governing bills of exchanges payable on demand are applicable to it. in
view of the fact that acceptance is a step necessary insofar as negotiable
instruments are concerned, it follows that the provisions relative to
acceptance are without application to checks. Acceptance implies
subsequent negotiation of the instrument, which is not true in the case of checks
because from the moment it is paid, it is withdrawn from circulation. When
the drawee banks cashes or pays a check, the cycle of negotiation is terminated
and it is illogical thereafter to speak of subsequent holders who can invoke the
warrant against the drawee.

Further, in determining the relative rights of a drawee who under a mistake of fact,
has paid, a holder who has received such payment, upon a check to which the
name of the drawer has been forged, it is only fair to consider the question of
diligence and negligence of the parties in respect thereto. The responsibility of
the drawee who pays a forged check, for the genuineness of the drawers
signature is absolute only in favor of one who has not, by his own fault or
negligence, contributed to the success of the
fraud or to mislead the drawee.

According to the undisputed facts, National City Bank in purchasing the
papers in question from unknown persons without making any inquiry as to the
identity and authority of said persons negotiating and indorsing them, acted
negligently and contributed to the constructive loss of PNB in failing to detect the
forgery. Under the circumstances of the case, if the appellee bank is allowed to
recover, there will be no change in position as to the injury or prejudice of
the appellant.

G.R. No. 93048 March 3, 1994
BATAAN CIGAR AND CIGARETTE FACTORY, INC., petitioner,
vs.
THE COURT OF APPEALS and STATE INVESTMENT HOUSE,
INC., respondents.
Teresita Gandiongco Oledan for petitioner.
Acaban & Sabado for private respondent.

FACTS: Bataan Cigar & Cigarette Factory, Inc. (BCCFI), a corporation involved in
the manufacturing of cigarettespurchased from King Tim Pua George (George King)
2,000 bales of tobacco leaf to be delivered starting October 1978.
July 13, 1978: it issued crossed checks post dated sometime in March 1979 in the
total amount of P820K
George represented that he would complete delivery w/in 3 months from Dec 5
1978 so BCCFI agreed to purchase additional 2,500 bales of tobacco leaves, despite
the previous failure in delivery
It issued post dated crossed checks in the total amount of P1.1M payable sometime
in September 1979.
July 19, 1978: George sold to SIHI at a discount check amounting to P164K, post
dated March 31, 1979, drawn by BCCFI w/ George as payee.
December 19 and 26, 1978: George sold 2 checks both in the amount of P100K,
post dated September 15 & 30, 1979 respectively, drawn by BCCFI w/ George as
payee
Upon failure to deliver, BCCFI issued on March 30, 1979 and September 14 & 28,
1979 a stop payment order for all checks
SIHI failing to claim, filed a claim against BCCFI
RTC: SIHI = holder in due course. Non-inclusion of Gearoge as party is immaterial
to the case

ISSUE: W/N SIHI is a holder in due course beign a second indorser and a holder of
crossed checks

HELD: YES. GRANTED. RTC reversed.
Sec. 52
That it is complete and regular upon its face
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
That he took it in good faith and for value
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
Sec. 59
every holder is deemed prima facie a holder in due course
However, when it is shown that the title of any person who has negotiated the
instrument was defective, the burden is on the holder to prove that he or some
person under whom he claims, acquired the title as holder in due course.
effect of crossing of a check

check may not be encashed but only deposited in the bank
check may be negotiated only once to one who has an account with a bank
act of crossing the check serves as warning to the holder that the check has been
issued for a definite purpose - he must inquire if he has received the
check pursuant to that purpose, otherwise, he is not a holder in due course
crossing of checks should put the holder on inquiry and upon him devolves the duty
to ascertain the indorser's title to the check or the nature of his possession - failure
= guilty of gross negligence amounting to legal absence of good faith, contrary to
Sec. 52(c) of the Negotiable Instruments Law
SIHI is not a holder in due course. Consequently, BCCFI cannot be obliged to pay
the checks. However, that SIHI could not recover from the checks. The only
disadvantage of a holder who is not a holder in due course is that the instrument is
subject to defenses as if it were non-negotiable. Hence, SIHI can collect from the
immediate indorser, George

NATIVIDAD GEMPESAW, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and PHILIPPINE BANK OF
COMMUNICATIONS, respondents.
G.R. No. 92244 February 9, 1993
FACTS: Natividad Gempesaw is a businesswoman who entrusted to her
bookkeeper, Alicia Galang, the preparation of checks about to be issued in the
course of her business transactions. From 1984 to 1986, 82 checks amounting to
P1,208,606.89, were prepared and were supposed to be delivered to Gempesaws
clients as payees named thereon. However, through Galang, these checks were
never delivered to the supposed payees. Instead, the checks were fraudulently
indorsed to Alfredo Romero and Benito Lam.
ISSUE: Whether or not the bank should refund the money lost by reason of the
forged indorsements.
HELD: No. Gempesaw cannot set up the defense of forgery by reason of her
negligence. As a rule, a drawee bank (in this case the Philippine Bank of
Communications) who has paid a check on which an indorsement has been forged
cannot charge the drawers (Gempesaws) account for the amount of said check. An
exception to this rule is where the drawer is guilty of such negligence which causes
the bank to honor such a check or checks. If a check is stolen from the payee, it is
quite obvious that the drawer cannot possibly discover the forged indorsement by
mere examination of his cancelled check. A different situation arises where the
indorsement was forged by an employee or agent of the drawer, or done with the
active participation of the latter.
The negligence of a depositor which will prevent recovery of an unauthorized
payment is based on failure of the depositor to act as a prudent businessman would
under the circumstances. In the case at bar, Gempesaw relied implicitly upon the
honesty and loyalty of Galang, and did not even verify the accuracy of amounts of
the checks she signed against the invoices attached thereto. Furthermore, although
she regularly received her bank statements, she apparently did not carefully
examine the same nor the check stubs and the returned checks, and did not
compare them with the same invoices. Otherwise, she could have easily discovered
the discrepancies between the checks and the documents serving as bases for the
checks. With such discovery, the subsequent forgeries would not have been
accomplished. It was not until two years after Galang commenced her fraudulent
scheme that Gempesaw discovered that eighty-two (82) checks were wrongfully
charged to her account, at which she notified the Philippine Bank of
Communications.