1.

Philippine Education Co. Inc. vs. Soriano

GR L-22405, 30 June 1971

Facts:

On 18 April 1958 Enrique Montinola sought to purchase from the Manila Post Office 10 money orders of P200.00
each payable to E. P. Montinola with address at Lucena, Quezon. After the postal teller had made out money orders
numbered 124685, 124687-124695, Montinola offered to pay for them with a private check. As private checks
were not generally accepted in payment of money orders, the teller advised him to see the Chief of the Money
Order Division, but instead of doing so, Montinola managed to leave the building with his own check and the 10
money orders without the knowledge of the teller. On the same date, 18 April 1958, upon discovery of the
disappearance of the unpaid money orders, an urgent message was sent to all postmasters, and the following day
notice was likewise served upon all banks. instructing them not to pay anyone of the money orders aforesaid if
presented for payment. The Blank of America received a copy of said notice 3 days later. On 23 April 1958 one of
the above mentioned money orders numbered 124688 was received by Philippine Education Co. as part of its sales
receipts. The following day it deposited the same with the Bank of America, and one day thereafter the latter
cleared it with the Bureau of Posts and received from the latter its face value of P200.00. On 27 September 1961,
Mauricio A. Soriano, Chief of the Money Order Division of the Manila Post Office, acting for and in behalf of Postmaster Enrico Palomar, notified the Bank of America that money order 124688 attached to his letter had been
found to have been irregularly issued and that, in view thereof, the amount it represented had been deducted from
the bank's clearing account. For its part, on August 2 of the same year, the Bank of America debited Philippine
Education Co.'s account with the same amount and gave it advice thereof by means of a debit memo. On 12 October
1961 Philippine Education Co. requested the Postmaster General to reconsider the action taken by his office
deducting the sum of P200.00 from the clearing account of the Bank of America, but his request was denied. So was
Philippine Education Co.'s subsequent request that the matter be referred to the Secretary of Justice for advice.
Thereafter, Philippine Education Co. elevated the matter to the Secretary of Public Works and Communications, but
the latter sustained the actions taken by the postal officers. In connection with the events set forth above,
Montinola was charged with theft in the Court of First Instance of Manila (Criminal Case 43866) but after trial he
was acquitted on the ground of reasonable doubt. On 8 January 1962 Philippine Education Co. filed an action
against Soriano, et al. in the Municipal Court of Manila. On 17 November 1962, after the parties had submitted the
stipulation of facts, the municipal court rendered judgment, ordering Soriano, et al. to countermand the notice
given to the Bank of America on 27 September 1961, deducting from said Bank's clearing account the sum of
P200.00 representing the amount of postal money order 124688, or in the alternative, to indemnify Philippine
Education Co. in the said sum of P200.00 with interest thereon at the rate of 8-1/2% per annum from 27
September 1961 until fully paid; without any pronouncement as to costs and attorney's fees." The case was
appealed to the Court of First Instance of Manila where, after the parties had resubmitted the same stipulation of
facts, the appealed decision dismissing the complaints with costs, was rendered. Philippine Education Co. appealed.

Issue: Whether or not the postal money order is a negotiable instrument.

Held: No. Postal money orders are not negotiable instruments. Philippine postal statutes were patterned after
similar statutes in force in the United States. For this reason, Philippine postal statutes are generally construed in
accordance with the construction given in the United States to their own postal statutes, in the absence of any
special reason justifying a departure from this policy or practice. The weight of authority in the United Status is
that postal money orders are not negotiable instruments, the reason behind this rule being that, 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.

2. CALTEX (PHILIPPINES), INC. , petitioner, vs. COURT OF APPEALS and SECURITY BANK AND TRUST
COMPANY, respondents.

Facts:

On various dates, defendant, a commercial banking institution, through its Sucat Branch issued 280 certificates of
time deposit (CTDs) in favor of one Angel dela Cruz who deposited with herein defendant the aggregate amount of
P1,120,000.00. Angel dela Cruz delivered the said certificates of time deposit (CTDs) to herein plaintiff in
connection with his purchase of fuel products from the latter.

Angel dela Cruz informed Mr. Timoteo Tiangco, the Sucat Branch Manager, that he lost all the certificates of time
deposit in dispute. Mr. Tiangco advised said depositor to execute and submit a notarized Affidavit of Loss. Angel
dela Cruz executed and delivered to defendant bank the required Affidavit of Loss. On the basis of said affidavit of
loss, 280 replacement CTDs were issued in favor of said depositor.

Angel dela Cruz negotiated and obtained a loan from defendant bank. Said depositor executed a notarized Deed of
Assignment of Time Deposit. Which stated, among others, that he (dela Cruz) surrenders to defendant bank `full
control of the indicated time deposits from and after date of the assignment and further authorizes said bank to
pre-terminate, set-off and 'apply the said time deposits to the payment of whatever amount or amounts may be
due' on the loan upon its maturity.

The loan of Angel dela Cruz with the defendant bank matured and fell due and on August 5, 1983, the latter set-off
and applied the time deposits in question to the payment of the matured loan.

Issues:

Whether or not the CTDs were negotiable.

Whether the CTDs were properly negotiated, and who as between the plaintiff and respondent has a better
right.

Ruling:

Negotiable Instruments Law, enumerates the requisites for an instrument to become negotiable, viz:
a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be name d or otherwise indicated therein with
reasonable certainty.

The accepted rule is that the negotiability or non-negotiability of an instrument is determined from the
writing, that is, from the face of the instrument itself.

The CTDs are negotiable instruments. 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 at the time of presentment.

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.

The next query is whether petitioner can rightfully recover on the CTDs. This time, the answer is in the negative.
Unfortunately for petitioner, although the CTDs are bearer instruments, a valid negotiation thereof for the true
purpose and agreement between it and De la Cruz, as ultimately ascertained, requires both delivery and
indorsement. For, although petitioner seeks to deflect this fact, the CTDs were in reality delivered to it as a security

for De la Cruz' purchases of its fuel products.

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, and a holder may be the
payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof. 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. 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.

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. Consequently, the mere delivery of the CTDs did
not legally vest in petitioner any right effective against and binding upon respondent bank.

On the other hand, the assignment of the CTDs made by Angel de la Cruz in favor of respondent bank was
embodied in a public instrument. Respondent bank duly complied with this statutory requirement. Contrarily,
petitioner, whether as purchaser, assignee or lienholder of the CTDs, neither proved the amount of its credit or the
extent of its lien nor the execution of any public instrument which could affect or bind private respondent.
Necessarily, therefore, as between petitioner and respondent bank, the latter has definitely the better right over
the CTDs in question.

3. Metrobank vs. First National City Bank

Facts:
Eduardo Gomez opened an account with Golden Savings and deposited over a period of two months 38
treasury warrants with a total value of P1,755,228.37. They were all drawn by the Philippine Fish Marketing
Authority and purportedly signed by its General Manager and countersigned by its Auditor. Six of these were
directly payable to Gomez while the others appeared to have been indorsed by their respective payees,
followed by Gomez as second indorser.

All these warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its
Savings Account in the Metrobank in Mindoro branch. More than two weeks after the deposits, Gloria Castillo went
to the Calapan branch several times to ask whether the warrants had been cleared. She was told to wait.
Accordingly, Gomez was meanwhile not allowed to withdraw from his account.

Later, however, "exasperated" over Gloria's repeated inquiries and also as an accommodation for a "valued client,"
Metrobank says it finally decided to allow Golden Savings to withdraw from the proceeds of the warrants.
Withdrawals were made. In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his own
account, eventually collecting the total amount of P1,167,500.00 from the proceeds of the apparently cleared
warrants. Later, Metrobank informed Golden Savings that 32 of the warrants had been dishonored by the Bureau
of Treasury and demanded the refund by Golden Savings of the amount it had previously withdrawn, to make up
the deficit in its account.

Issue: 1. Whether or not Metrobank can demand refund against Golden Savings.
2. Whether or not treasury warrants are negotiable instruments.

Held:
From the above undisputed facts, it would appear to the Court that Metrobank was indeed negligent in giving
Golden Savings the impression that the treasury warrants had been cleared and that, consequently, it was
safe to allow Gomez to withdraw the proceeds thereof from his account with it. Without such assurance, Golden
Savings would not have allowed the withdrawals; with such assurance, there was no reason not to allow
the withdrawal.

It relied on Metrobank to determine the validity of the warrants through its own services. The proceeds of
the warrants were withheld from Gomez until Metrobank allowed Golden Savings itself to withdraw them
from its own deposit. It was only when Metrobank gave the go-signal that Gomez was finally allowed by
Golden Savings to withdraw them from his own account.

There was no question of Gomez's identity or of the genuineness of his signature as checked by Golden Savings. In
fact, the treasury warrants were dishonored allegedly because of the forgery of the signatures of the drawers, not
of Gomez as payee or indorser. Under the circumstances, it is clear that Golden Savings acted with due care and
diligence and cannot be faulted for the withdrawals it allowed Gomez to make. By contrast, Metrobank exhibited
extraordinary carelessness. 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. Its reason? It was
"exasperated" over the persistent inquiries of Gloria Castillo about the clearance and it also wanted to
"accommodate" a valued client. It "presumed" that the warrants had been cleared simply because of "the lapse of
one week." The negligence of Metrobank has been sufficiently established. To repeat for emphasis, it was
the clearance given by it that assured Golden Savings it was already safe to allow Gomez to withdraw the
proceeds of the treasury warrants he had deposited Metrobank misled Golden Savings.

A no less important consideration is the circumstance that the treasury warrants in question are not negotiable
instruments. Clearly stamped on their face is the word "non-negotiable." Moreover, and this is of equal
significance, it is indicated that they are payable from a particular fund. (Fund 501)

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 non-negotiable.

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". 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 amount he has withdrawn must be charged not to Golden Savings but to Metrobank, which must bear
the consequences of its own negligence.

4. Sesbreno vs. Court of Appeals

FACTS:
Petitioner Sesbreno made a money market placement in the amount of P300,000 with the Philippine Underwriters
Finance Corporation (PhilFinance), with a term of 32 days. PhilFinance issued to Sesbreno the Certificate of
Confirmation of Sale of a Delta Motor Corporation Promissory Note, the Certificate of Securities Delivery Receipt
indicating the sale of the note with notation that said security was in the custody of Pilipinas Bank, and postdated
checks drawn against the Insular Bank of Asia and America for P304,533.33 payable on March 13, 1981. The
checks were dishonored for having been drawn against insufficient funds. Pilipinas Bank never released the note,
nor any instrument related thereto, to Sesbreno; but Sesbreno learned that the security which was issued on April
10, 1980, maturing on 6 April 1981, has a face value of P2,300,833.33 with PhilFinance as payee and Delta Motors
as maker; and was stamped non-negotiable on its face. As Sesbreno was unable to collect his investment and
interest thereon, he filed an action for damages against Delta Motors and Pilipinas Bank. Delta Motors contents

that said promissory note was not intended to be negotiated or otherwise transferred by Philfinance as manifested
by the word "non-negotiable" stamped across the face of the Note.

ISSUE:
Whether the non-negotiability of a promissory note prevents its assignment.

RULING:
A negotiable instrument, instead of being negotiated, may also be assigned or transferred. The legal
consequences of negotiation and assignment of the instrument are different. A non-negotiable instrument may
not be negotiated but may be assigned or transferred, absent an express prohibition against assignment or
transfer written in the face of the instrument. The subject promissory note, while marked "nonnegotiable," was not at the same time stamped "non-transferable" or "non-assignable." It contained no
stipulation which prohibited Philfinance from assigning or transferring such note, in whole or in part.

A non-negotiable instrument may not be negotiated but may be assigned or transferred, absent an express prohibition
against assignment or transfer written on the face of the instrument.

5. Firestone Tire vs. CA

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

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

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

6. ANG TEK LIAN vs. THE COURT OF APPEALS

FACTS:
In 1946, Ang Tek Lian approached Lee Hua and asked him if he could give him P4,000.00. He said that he meant to
withdraw from the bank but the banks already closed. In exchange, he gave Lee Hua a check which is payable to
the order of cash. The next day, Lee Hua presented the check for payment but it was dishonored due to
insufficiency of funds. Lee Hua eventually sued Ang Tek Lian for estafa. In his defense, Ang Tek Lian argued that he
did not indorse the check to Lee Hua and that when the latter accepted the check without Ang tek Lians
indorsement, he had done so fully aware of the risk he was running thereby.

ISSUE: Whether or not the contentions of Ang Tek Lian is correct.

RULING:
Under the Negotiable Instruments Law (sec. 9 [d], 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 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 falling 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 holder give satisfactory proof of his identity

It is significant, and conclusive, that the form of the check was totally unconnected with its dishonor. The Court of
Appeals declared that it was returned unsatisfied because the drawer had insufficient funds not because the
drawer's indorsement was lacking.

7. PNB v. Manila Oil Refining
8. Republic Planters Bank v. CA
9. Consolidated Plywood Industries v. IFC

10. FRANCISCO V. CA

FACTS:
Adalia Francisco is the president A. Francisco Realty & Development Corporation (AFRDC) which entered into a
Land Development and Construction Contract with private respondent Herby Commercial & Construction
Corporation (HCCC) as represented by its president and general manager Ong. Such a project was to be funded
primarily by the GSIS. To facilitate payment, AFRDC executed a Deed of Assignment in favor of HCCC to enable the
latter to collect payments directly from the GSIS. Furthermore, the GSIS and AFRDC put up an Executive Committee
Account with the Insular Bank of Asia & America (IBAA) in the amount of P4,000,000.00 from which checks would
be issued and co-signed by petitioner Francisco and the GSIS Vice-President Armando Diaz (Diaz).

However, in 1979, Ong found out that Francisco was allegedly forging the checks issued by the GSIS intended for
HCCC, by making spurious indorsements at the back of the said checks and subsequently indorsing it in her favor
(Francisco's) ; and consequently cashing it in favor of her own account. This led Ong and HCCC to file a suit against
Francisco in order to recover the value of the said checks from her. However, the latter contended that she was
duly authorized by Ong indorse said checks using his name and that such an authorization was duly evinced by a
certification executed by Ong, giving her the authority to collect HCCC's receivables (the said checks) from the GSIS.

ISSUE: Whether or not the Certification executed by Ong in favor of the petitioner, giving her the authority to
collect such checks from the GSIS, made petitioner's 'indorsements' valid

HELD:
The Indorsement by Francisco using Ong's name is invalid. The Negotiable Instruments Law provides that
where any person is under obligation to indorse in a representative capacity, he may indorse in such terms as to
negative personal liability. An agent, when so signing, should indicate that he is merely signing in behalf of

the principal and must disclose the name of his principal; otherwise he shall be held personally liable.
Even assuming that Francisco was authorized by HCCC to sign Ong's name, still, Francisco did not indorse
the instrument in accordance with law. Instead of signing Ong's name, Francisco should have signed her
own name and expressly indicated that she was signing as an agent of HCCC. Thus, the Certification cannot be
used by Francisco to validate her act of forgery.

11. Jai-Alai Corporation v. BPI

Facts:
Jai-Alai Corporation, petitioner, deposited in its current account with respondent bank, BPI, several checks with a
total face value of P8,030.58, all acquired from Antonio J. Ramirez, a regular bettor at the jai-alai games and a sale
agent of the Inter-Island Gas Service, Inc., the payee of the checks. The deposits were all temporarily credited to
petitioner's account in accordance with the clause printed on the bank's deposit slip. Subsequently, Ramirez
resigned and after the checks had been submitted to inter-bank clearing, the Inter-Island Gas discovered that all
the indorsement made on the cheeks purportedly by its cashiers, as well as the rubber stamp impression thereon
reading "Inter-Island Gas Service, Inc.", were forgeries. It informed petitioner, the respondent, the drawers and the
drawee banks of the said checks and forgeries and filed a criminal complaint against its former employee. In view
of these circumstances, the respondent Bank debited the petitioner's current account and forwarded to the latter
the checks containing the forged indorsements, which petitioner refused to accept. Later, petitioner drew against
its current account a check for P135,000.00. This check was dishonored by respondent as its records showed that
petitioner's balance after netting out the value of the checks with the forged indorsement, was insufficient to cover
the value of the check drawn. A complaint was filed by petitioner with the Court of First Instance of Manila. The
same was dismissed by the said court after due trial, as well as by the Court of Appeals, on appeal. Hence, this
petition for review.

Issue:
Whether the respondent had the right to debit the petitioners current account?

Held:
The Supreme Court held that the respondent acted within legal bounds when it debited the petitioner's account.
When the petitioner deposited the checks with the respondent, the nature of the relationship created at
that stage was one of agency, that is, the bank was to collect from the drawees of the checks the
corresponding proceeds. It cannot be argued that there is a creditor-debtor relationship created between the
parties as the respondent already collected the proceeds of the checks. A forged signature in a negotiable
instrument is wholly inoperative and no right to discharge it or enforce its payment can be acquired
through or under the forged signature except against a party who cannot invoke the forgery, it stands to
reason, upon the facts of record, that the respondent, as a collecting bank which indorsed the checks to the
drawee-banks for clearing, should be liable to the latter for reimbursement, for, as found by the court, the
indorsements on the checks had been forged prior to their delivery to the petitioner. In legal contemplation,
therefore, the payments made by the drawee-banks to the respondent on account of the said checks were
ineffective; and, such being the case, the relationship of creditor and debtor between the petitioner and the
respondent had not been validly effected, the checks not having been properly and legitimately converted into
cash.

At all events, under Section 67 of the Negotiable Instruments Law, "Where a person places his indorsement on an
instrument negotiable by delivery he incurs all the liability of an indorser," and under Section 66 of the same
statute a general indorser warrants that the instrument "is genuine and in all respects what it purports to be."
Considering that the petitioner indorsed the said checks when it deposited them with the respondent, the
petitioner as an indorser guaranteed the genuineness of all prior indorsements thereon. The respondent
which relied upon the petitioner's warranty should not be held liable for the resulting loss. Under Section
65 of the Negotiable Instrument Law. "Every person negotiating an instrument by delivery . . . warrants (a) that the
instrument is genuine and in all respects what it purports to be." Under that same section this warranty "extends in
favor of no holder other than the immediate transferee," which, in the case at bar, would be the respondent.

12.
REPUBLIC BANK, plaintiff-appellee,
vs.
MAURICIA T. EBRADA, defendant-appellant.

FACTS: On January 15, 1963 the Treasury of the Philippines issued its Check No. BP-508060, payable to the order
of one MARTIN LORENZO, in the sum of P1,246.08, and drawn on the Republic Bank and that the back side of
aforementioned check bears the following signatures, in this order:
1) MARTIN LORENZO;
2) RAMON R. LORENZO;
3) DELIA DOMINGUEZ; and
4) MAURICIA T. EBRADA;

The aforementioned check was delivered to the defendant MAURICIA T. EBRADA by the Third-Party defendant and
Fourth-Party plaintiff ADELAIDA DOMINGUEZ, for the purpose of encashment. The signature of defendant
MAURICIA T. EBRADA was affixed on said check on February 27, 1963 when she encashed it with the plaintiff
Bank. Thereafter, defendant immediately encashed the check and received the cash proceeds of said check in the
sum of P1,246.08 from the plaintiff Bank, and turned over the said amount to the third-party defendant and fourthparty plaintiff ADELAIDA DOMINGUEZ, who in turn handed the said amount to the fourth-party defendant JUSTINA
TINIO on the same date, as evidenced by the receipt signed by her.

Plaintiff Bank was later advised by the said bureau that the alleged indorsement on the reverse side of the
aforesaid check by the payee, "Martin Lorenzo" was a forgery since the latter had allegedly died as of July 14,
1952. Plaintiff Bank was then requested by the Bureau of Treasury to refund the amount of P1,246.08. To recover
what it had refunded to the Bureau of Treasury, plaintiff Bank made verbal and formal demands upon defendant
Ebrada to account for the sum of P1,246.08, but said defendant refused to do so. So plaintiff Bank sued defendant
Ebrada before the City Court of Manila.

On July 11, 1966, defendant Ebrada in her answer, alleged that she was a holder in due course of the check in
question, or at the very least, has acquired her rights from a holder in due course and therefore entitled to the
proceeds thereof.

RULING: It is admitted that defendant-appellant was the last indorser of the said check. As such indorser, she was
supposed to have warranted that she has good title to said check; for under Section 65 of the Negotiable
Instruments Law: 6
Every person negotiating an instrument by delivery or by qualified indorsement, warrants:
(a) That the instrument is genuine and in all respects what it purports to be.
(b) That she has good title to it.
xxx xxx xxx
and under Section 65 of the same Act:
Every indorser who indorses without qualification warrants to all subsequent holders in due
course:
(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding
sections;
(b) That the instrument is at the time of his indorsement valid and subsisting.

It turned out, however, that the signature of the original payee of the check, Martin Lorenzo was a forgery because
he was already dead 7 almost 11 years before the check in question was issued by the Bureau of Treasury. Under
action 23 of the Negotiable Instruments Law (Act 2031):
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 instruments, or to give a discharge 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.

It is clear from the provision that where the signature on a negotiable instrument if forged, the negotiation of the
check is without force or effect. However, in the case of Beam vs. Farrel, 135 Iowa 670, 113 N.W. 590, 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 did not
know of the forgery, should be considered valid and enforceable, barring any claim of forgery.

What happens then, if, after the drawee bank has paid the amount of the check to the holder thereof, it was
discovered that the signature of the payee was forged? Can the drawee bank recover from the one who encashed
the check?
In the case of State v. Broadway Mut. Bank, 282 S.W. 196, 197, it was held that 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. 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.

We are to concede that 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 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, defendant-appellant immediately turned over said amount to Adelaida Dominguez (Third-Party
defendant and the Fourth-Party 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.


13. MWSS v. CA

14. GEMPESAW VS. CA 218 SCRA 682

FACTS:
Petitioner is an owner of a grocery store in Caloocan City who maintains an account with private
respondent Phil. Bank of Communications.
To pay her suppliers, she usually issues checks prepared by her bookkeeper, Alicia Galang wherein she
need only to affix her signature on the checks.

Petitioner admitted that she did not make any verification as to whether or not the checks were delivered
to their respective payees.
Although the respondent drawee Bank notified her of all checks presented to and paid by the bank,
petitioner did not verify the correctness of the returned checks, much less check if the payees actually
received the checks in payment for the supplies she received.
After two years, and after issuing a total of 82 checks, she discovered that most of the aforementioned
checks were for amounts in excess of her actual obligations to the various payees as shown in their
corresponding invoice.
All the eighty-two (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 Alfredo Y. Romero and
Benito Lam.
The team of auditors from the main office of the respondent drawee Bank which conducted periodic
inspection of the branches' operations failed to discover, check or stop the unauthorized acts of Ernest L.
Boon. 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.
About thirty (30) of the payees whose names were specifically written on the checks testified that they did
not receive nor even see the subject checks and that the indorsements appearing at the back of the checks
were not theirs.
Because of this circumstance, petitioner demanded from respondent bank that it credit the money value of
the 82 checks to her account. The bank refused to do so which prompted him to file a case in the RTC. Said
court ruled in favor of the respondent. She appealed the case to the CA which affirmed the decision of the
RTC ratiocinating that her negligence already precluded her from claiming the amount from the bank.

ISSUE:

Whether or not petitioner may no longer recover the money value of the 82 checks due to her negligence


RULING:

Under the Negotiable Instruments Law, she is already precluded from recovering the amount. Section 23 of
the NIL provides:
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

While there is no duty resting on the depositor 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. For 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. In other words, he is precluded from using
forgery as a basis for his claim for re-crediting of his account. Although a depositor owes a duty to his
drawee bank to examine his cancelled checks for forgery of his own signature, he has no similar duty as to
forged indorsements.
Thus, even if petitioner may not claim the return of the money value of the checks under the NIL, she may
however buttress her claim 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.

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.
Premises considered, respondent drawee Bank is adjudged liable to share the loss with the petitioner on a
fifty-fifty ratio in accordance with Article 172 which provides:
Responsibility arising from negligence in the performance of every kind of obligation is also
demandable, but such liability may be regulated by the courts according to the circumstances.

15. ASSOCIATED BANK, vs. HON. COURT OF APPEALS, PROVINCE OF TARLAC and PHILIPPINE NATIONAL
BANK, respondents.

Facts:
The provincial funds of the Province of Tarlac are deposited with the Philippine National Bank (PNB). A portion of
the funds of the province is allocated to the Concepcion Emergency Hospital. The allotment checks for said
government hospital are drawn to the order of "Concepcion Emergency Hospital, Concepcion, Tarlac" or "The
Chief, Concepcion Emergency Hospital, Concepcion, Tarlac. The checks are released by the Office of the Provincial
Treasurer and received for the hospital by its administrative officer and cashier.

Later on, in a post-audit made by the Provincial Auditor, it was then discovered that the hospital did not receive
several allotment checks drawn by the Province. It turned out that Fausto Pangilinan, who was the administrative
officer and cashier of payee hospital until his retirement collected the questioned checks from the office of the
Provincial Treasurer. The manager of Associated Bank, to which Pangilinan encashed the said checks, testified that
Pangilinan made it appear that the checks were paid to him for certain projects with the hospital.

The Provincial Treasurer wrote the manager of the PNB seeking the restoration of the various amounts debited
from the current account of the Province. In turn, the PNB manager demanded reimbursement from the
Associated Bank. As both banks resisted payment, the Province of Tarlac brought suit against PNB which, in turn,
impleaded Associated Bank as third-party defendant.

PNB contends that the Province of Tarlac is not exempt from liability because it was negligent when it delivered
and released the questioned checks to Fausto Pangilinan who was then already retired as the hospital's cashier and
administrative officer. Also, it maintains its innocence and alleges that as between two innocent persons, the one
whose act was the cause of the loss, in this case the Province of Tarlac, bears the loss. Associated Bank, on the other
hand, argues that the order of liability should be totally reversed, with the drawee bank (PNB) solely and
ultimately bearing the loss 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.

Issue:
Where checks bearing forged indorsements are paid, who bears the loss, the drawer, the drawee bank or the
collecting bank?

SCs ruling:
The checks involved in this case are order instruments.

Liability of Associated Bank

Where the instrument is payable to order at the time of the forgery, such as the checks in this case, the
signature of its rightful holder (here, the payee hospital) is essential to transfer title to the same
instrument. When the holders indorsement is forged, all parties prior to the forgery may raise the real defense of
forgery against all parties subsequent thereto.

A collecting bank (in this case Associated Bank) where a check is deposited and which indorses the check upon
presentment with the drawee bank (PNB), is such an indorser. So even if the indorsement on the check deposited
by the bankss client is forged, Associated Bank is bound by its warranties as an indorser and cannot set up the
defense of forgery as against the PNB.

EXCEPTION: If it can be shown that the drawee bank (PNB) unreasonably delayed in notifying the collecting bank
(Associated Bank) of the fact of the forgery so much so that the latter can no longer collect reimbursement from the
depositor-forger.

Liability of PNB
The bank on which a check is drawn, known as the drawee bank (PNB), is under strict liability to pay the check to
the order of the payee (Provincial Government of Tarlac). Payment under a forged indorsement is not to the
drawers order. When the drawee bank pays a person other than the payee, it does not comply with the terms of
the check and violates its duty to charge its customers (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. The general rule then is that the drawee bank may not debit the drawers account and is
not entitled to indemnification from the drawer. The risk of loss must perforce fall on the drawee bank.

EXCEPTION: If the drawee bank (PNB) can prove a failure by the customer/drawer (Tarlac Province) to exercise
ordinary care that substantially contributed to the making of the forged signature, the drawer is precluded from
asserting the forgery.

In sum, by reason of Associated Banks indorsement and warranties of prior indorsements as a party after
the forgery, it is liable to refund the amount to PNB. The Province of Tarlac can ask reimbursement from
PNB because the Province is a party prior to the forgery. Hence, the instrument is inoperative. HOWEVER, it
has been proven that the Provincial Government of Tarlac has been negligent in issuing the checks especially when
it continued to deliver the checks to Pangilinan even when he already retired. Due to this contributory negligence,
PNB is only ordered to pay 50% of the amount or half of P203 K.

BUT THEN AGAIN, since PNB can pass its loss to Associated Bank (by reason of Associated Banks warranties), PNB
can ask the 50% reimbursement from Associated Bank. Associated Bank can ask reimbursement from Pangilinan
but unfortunately in this case, the court did not acquire jurisdiction over him.

16. REPUBLIC BANK, petitioner, vs. COURT OF APPEALS and FIRST NATIONAL CITY BANK, respondents.

Facts:
On January 25, 1966, San Miguel Corporation (SMC), drew a dividend Check No. 108854 for P240, on its account in
the respondent First National City Bank (FNCB) in favor of J. Roberto C. Delgado, a stockholder. The amount on its
face was fraudulently and without authority of the drawer, SMC, altered by Delgado, increasing it from P240 to
P9,240. The check was indorsed and deposited on March 14, 1966 by Delgado in his account with the petitioner
Republic Bank (Republic).

Republic accepted the check for deposit without ascertaining its genuineness and regularity. Later, Republic
endorsed the check to FNCB by stamping on the back of the check "all prior and/or lack of indorsement
guaranteed" and presented it to FNCB for payment through the Central Bank Clearing House. Believing the check
was genuine, and relying on the guaranty and endorsement of Republic appearing on the back of the check, FNCB
paid P9,240 to Republic through the Central Bank Clearing House on March 15, 1966.

On April 19, 1966, SMC notified FNCB of the material alteration in the amount of the check in question. FNCB lost
no time in recrediting P9,240 to SMC. On May 19, 1966, FNCB informed Republic in writing of the alteration and
the forgery of the endorsement of J. Roberto C. Delgado. By then, Delgado had already withdrawn his account from
Republic.

On August 15, 1966, FNCB demanded that Republic refund the P9,240 on the basis of the latter's endorsement and
guaranty. Republic refused, claiming there was delay in giving it notice of the alteration; that it was not guilty of
negligence; that it was the drawer's (SMC's) fault in drawing the check in such a way as to permit the insertion of
numerals increasing the amount; that FNCB, as drawee, was absolved of any liability to the drawer (SMC), thus,
FNCB had no right of recourse against Republic.

The trial court rendered judgment ordering Republic to pay P9,240 to FNCB with 6% interest per annum from
February 27, 1967 until fully paid, plus P2,000 for attorney's fees and costs of the suit. The Court of Appeals
affirmed that decision, but modified the award of attorney's fees by reducing it to P1,000 without pronouncement
as to costs.

Issue:
Whether or not Republic, as the collecting bank, is protected, by the 24-hour clearing house rule, from liability to
refund the amount paid by FNCB, as drawee of the SMC dividend check.

Held:
The 24-hour clearing house rule is a valid rule applicable to commercial banks. It is true that when an
endorsement is forged, the collecting bank or last endorser, as a general rule, bears the loss. But the
unqualified endorsement of the collecting bank on the check should be read together with the 24-hour
regulation on clearing house operation. Thus, when the drawee bank fails to return a forged or altered
check to the collecting bank within the 24-hour clearing period, the collecting bank is absolved from
liability.

Every bank that issues checks for the use of its customers should know whether or not the drawer's signature
thereon is genuine, whether there are sufficient funds in the drawer's account to cover checks issued, and it should
be able to detect alterations, erasures, superimpositions or intercalations thereon, for these instruments are
prepared, printed and issued by itself, it has control of the drawer's account, and it is supposed to be familiar with
the drawer's signature. It should possess appropriate detecting devices for uncovering forgeries and/or alterations
on these instruments. Unless an alteration is attributable to the fault or negligence of the drawer himself, such as
when he leaves spaces on the check which would allow the fraudulent insertion of additional numerals in the
amount appearing thereon, the remedy of the drawee bank that negligently clears a forged and/or altered check
for payment is against the party responsible for the forgery or alteration, otherwise, it bears the loss. It may not
charge the amount so paid to the account of the drawer, if the latter was free from blame, nor recover it from the
collecting bank if the latter made payment after proper clearance from the drawee.

WHEREFORE, the petition for review is granted. The decision of the Court of Appeals is hereby reversed and set
aside, and another is entered absolving the petitioner Republic Bank from liability to refund to the First National
City Bank the sum of P9,240, which the latter paid on the check in question.
17. PCIB vs. CA
18. Ramon Ilusurio v. CA
19. SAMSUNG CONSTRUCTION COMPANY PHILIPPINES, INC., petitioner, vs. FAR EAST BANK AND TRUST
COMPANY AND COURT OF APPEALS, respondents.
FACTS
A check with forged signature payable to cash was drawn against petitioners account. Petitioner demands credit of
the amount debited by encashment.

ISSUE
Whether or not petitioner may recover from the drawee bank.
RULING
YES. The drawer whose signature was forged may still recover from the bank as long as he or she is not precluded
from setting up the defense of forgery. Here, the drawer, Samsung Construction, is not precluded by negligence
from setting up the forgery. The general rule should apply. Consequently, if a bank pays a forged check, it must be
considered as paying out of its funds and cannot charge the amount so paid to the account of the depositor. A bank
is liable, irrespective of its good faith, in paying a forged check
20. Areza v. Express Savings Bank
21. (PNB vs CA)

FACTS: Ministry of Education and Culture (now Department of Education, Culture and Sports
[DECS]) issued a check in favor of Abante Marketing containing a specific serial number, drawn against
PNB. The
check
was
deposited
by
Abante
in
its account with Capitol and the latter
consequently deposited the same with its account with PBCOM which later deposited it with petitioner for
clearing. The check was thereafter cleared.
However, on October 19, 1981, petitioner PNB returned the check on account that there had been a material
alteration on it. Subsequent debits were made but Capitol cannot debit the account of Abante any longer for the
latter had withdrawn all the money already from the account.
This prompted a
chain
reaction
that
Capitol to seek
reclarification from PBCOM and demanded the recrediting of its account. PBCOM followed suit by doing the
same
against
PNB.
Demands
unheeded,
it filed an action against PBCOM and the latter filed a third-party complaint against petitioner.

ISSUE:
WHETHER OR NOT AN ALTERATION OF THE SERIAL NUMBER OF A CHECK IS A MATERIAL ALTERATION
UNDER THE NEGOTIABLE INSTRUMENTS LAW.
PETITIONER allegations:
Petitioner anchors its position on Section 125 of the Negotiable Instruments Law (ACT No. 2031) 5 which
provides:Sec. 225. What constitutes a material alteration. Any alteration which changes: DaSuT RelCur
(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.

Petitioner alleges that there is no hard and fast rule in the interpretation of the aforequoted provision of the
Negotiable Instruments Law. It (Petitioner) maintains that under Section 125(f), any change that alters the
effect of the instrument is a material alteration.

SC HELD:
NO. An alteration is said to be material if it alters the effect of the instrument. It means an unauthorized
change in an instrument that purports to modify in any respect the obligation of a party or an unauthorized
addition of words or numbers or other change to an incomplete instrument relating to the obligation of a party. In
other words, a material alteration is one which changes the items which are required to be stated under
Section 1 of the Negotiable Instruments Law.

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.

Furthermore, If the purpose of the serial number is merely to identify the issuing government office or agency, its
alteration in this case had no material effect whatsoever on the integrity of the check. The owner and issuer of the
check are boldly and clearly printed on its face, second line from the top: "MINISTRY OF EDUCATION AND
CULTURE," and below the name of the payee are the rubber-stamped words: "Ministry of Educ. & Culture."

22. FAR EAST BANK VS GOLD PALACE JEWELLRY

FACTS:

A foreigner, Samuel Tagoe, purchased from Gold Palace Jewellery several pieces of jewelry amounting to
P258,000.00.
In payment of the said amount, he gave Foreign Draft No. M-069670 issued by the United Overseas Bank
(Malaysia) BHD Medan Pasar, Kuala Lumpur Branch (UOB), addressed to the Land Bank of the Philippines,
Manila (LBP), and payable to the Gold Palace for P380,000.00.
Before receiving draft, the assistant manager of the store inquired with Far East Banks teller who informed
her that it is similar to a managers check. The teller further advised her to with hold release of the jewelry
until the draft has cleared.
Gold Palace deposited the draft with Far East Bank who in turn presented the draft for clearing to LBP, the
drawee bank who cleared the draft.
UOBs account with LBP was debited and Gold Palaces account with Far East was credited with the amount
stated in the draft.
Thus Gold Palace released to the customer the jewelry and even issued as change, a check amounting to
P122,000.00 which was later on presented for encashment in Far East Bank.
After 3 weeks, LBP informed Far East Bank that the draft has been altered to P380,000 from P300 and that
they are returning it.
Intending to debit the amount from respondents account, Far East subsequently refunded the P380,000.00
earlier paid by LBP.
Far East was able to debit only P168,053.36 due to insufficient fund. Gold Palace was only notified through
phone and no prior written notice.
Far East demanded later the balance which was denied by Gold Palace prompting Far East to file a petition
for collection of sum of money with damages.

Petitioners Contention:
On the basis of its warranties as a general indorser, Gold Palace was liable to Far East

Respondents Contention:
The complaint states no cause of action the subject foreign draft having been cleared and the respondent
not being the party who made the material alteration.

Further counter-claimed for damages

ISSUE:
Whether or not Gold Palace can be held liable as indorser of the subsequently dishonored draft?

RULING:
RTC:
Ruled that, on the basis of its warranties as a general indorser, Gold Palace was liable to Far East
Gold Palace ordered to pay the balance and attorneys fees.

CA:
That Far East failed to undergo the proceedings on the protest of the foreign draft or to notify Gold Palace
of the drafts dishonor; thus, Far East could not charge Gold Palace on its secondary liability as an indorser
thedrawee bank had cleared the check, and its remedy should be against the party responsible for the
alteration
Gold Palace neither altered the draft nor knew of the alteration, it could not be held liable
Awarded Gold palace actual damages, exemplary damages and attorneys fees.
SC HELD:

Section 62 of Negotiable Instruments Law (NIL) , explicitly provides that the acceptor, by accepting the
instrument, engages that he will pay it according to the tenor of his acceptance.
Actual payment by the drawee is greater than his acceptance, which is merely a promise in writing to pay
The drawee bank cleared and paid the subject foreign draft and forwarded the amount thereof to
the collecting bank. The latter then credited to Gold Palaces account the payment it received. Following
the plain language of the law, the drawee, by the said payment, recognized and complied with its
obligation to pay in accordance with the tenor of his acceptance.
LBP was liable on its payment of the check according to the tenor of the check at the time of payment,
which was the raised amount.
Further, LBP could no longer repudiate the payment it erroneously made to a due course holder.
When Gold Palace deposited the check with Far East, the latter, under the terms of the deposit and the
provisions of the NIL, became an agent of the former for the collection of the amount in the draft
As the transaction in this case had been closed and the principal-agent relationship between the payee and
the collecting bank had already ceased, the latter in returning the amount to the drawee bank was already
acting on its own and should now be responsible for its own actions. Neither can petitioner be considered
to have acted as the representative of the drawee bank when it debited respondents account, because the
drawee bank had no right to recover what it paid.
Far East cannot invoke the warranty of the payee/depositor who indorsed the instrument for
collection to shift the burden it brought upon itself because the said indorsement is only for
purposes of collection which, under Section 36 of the NIL, is a restrictive indorsement . It did not in
any way transfer the title of the instrument to the collecting bank. Far East did not own the draft, it
merely presented it for payment.
Considering that the warranties of a general indorser as provided in Section 66 of the NIL are based upon a
transfer of title and are available only to holders in due course,[ these warranties did not attach to the
indorsement for deposit and collection made by Gold Palace to Far East.
Far Easts remedy under the law is not against Gold Palace but against the drawee-bank or the person
responsible for the alteration.
Far East Bank could not debit the amount from Gold Palace but likewise not liable for damages as no
damages can be charged to those who exercise such precious right in good faith, even if done
erroneously.