G.R. No. 166018 June 4, 2014
THE HONGKONG AND SHANGHAI BANKING CORPORATION
LIMITED-PHILIPPINE BRANCHES, Petitioner, vs.COMMISSIONER OF
INTERNAL REVENUE, Respondent;
x-----------------------x
G.R. No. 167728
THE HONGKONG AND SHANGHAI BANKING CORPORATION
LIMITED-PHILIPPINE BRANCHES, Petitioner, vs. COMMISSIONER OF
INTERNAL REVENUE, Respondent.
NATURE: Petitions for review on certiorari assailing the Decision and
Resolution of the CA. The respective Decisions in the said cases similarly
reversed and set aside the decisions of the CTA and dismissed the petition
of Petitioner HSBC.
FACTS:
1. HSBC performs custodial services on behalf of its investor-clients
with respect to their passive investments in the Philippines,
particularly investments in shares of stocks in domestic
corporations. As a custodian bank, HSBC serves as the
collection/payment agent.
2. HSBC’s investor-clients maintain Philippine peso and/or foreign
currency accounts, which are managed by HSBC through
instructions given through electronic messages. The said
instructions are standard forms known in the banking industry as
SWIFT, or "Society for Worldwide Interbank Financial
Telecommunication." In purchasing shares of stock and other
investment in securities, the investor-clients would send electronic
messages from abroad instructing HSBC to debit their local or
foreign currency accounts and to pay the purchase price therefor
upon receipt of the securities.
3. Pursuant to the electronic messages of its investor-clients, HSBC
purchased and paid Documentary Stamp Tax (DST) from
September to December 1997 and also from January to December
1998 amounting to P19,572,992.10 and P32,904,437.30,
respectively.
4. BIR, thru its then Commissioner, issued BIR Ruling to the effect
that instructions or advises from abroad on the management of
funds located in the Philippines which do not involve transfer of
funds from abroad are not subject to DST. A documentary stamp
tax shall be imposed on any bill of exchange or order for payment
purporting to be drawn in a foreign country but payable in the
Philippines.
a. While the payor is residing outside the Philippines, he
maintains a local and foreign currency account in the
Philippines from where he will draw the money intended
to pay a named recipient. The instruction or order to
pay shall be made through an electronic message.
Consequently, there is no negotiable instrument to be
made, signed or issued by the payee.
b. Such electronic instructions by the non-resident payor
cannot be considered as a transaction per se considering
that the same do not involve any transfer of funds from
abroad or from the place where the instruction originates.
Insofar as the local bank is concerned, such instruction
could be considered only as a memorandum and shall be
entered as such in its books of accounts. The actual
debiting of the payor’s account, local or foreign currency
account in the Philippines, is the actual transaction that
should be properly entered as such. Under the
Documentary Stamp Tax Law, the mere withdrawal of
money from a bank deposit, local or foreign currency
account, is not subject to DST, unless the account so
maintained is a current or checking account, in which case,
the issuance of the check or bank drafts is subject to the
documentary stamp tax.
c. Likewise, the receipt of funds from another bank in the
Philippines for deposit to the payee’s account and thereafter
upon instruction of the non-resident depositor-payor,
through an electronic message, the depository bank to debit
his account and pay a named recipient shall not be subject
to documentary stamp tax. It should be noted that the
receipt of funds from another local bank in the Philippines
by a local depository bank for the account of its client
residing abroad is part of its regular banking transaction
which is not subject to documentary stamp tax.
5. With the above BIR Ruling as its basis, HSBC filed on an
administrative claim for the refund of allegedly representing
erroneously paid DST to the BIR
6. As its claims for refund were not acted upon by the BIR, HSBC
subsequently brought the matter to the CTA, which favored HSBC
and ordered payment of refund or issuance of tax credit.
7. However, the CA reversed decisions of the CTA and ruled that the
electronic messages of HSBC’s investor-clients are subject to DST.
a. DST is levied on the exercise by persons of certain privileges
 conferred by law for the creation, revision, or termination of
specific legal relationships through the execution of specific
instruments, independently of the legal status of the
transactions giving rise thereto.
ISSUE: Whether or not the electronic messages are considered
transactions pertaining to negotiable instruments that warrant the
payment of DST.
HELD: NO.
The Court agrees with the CTA that the DST under Section 181 of the Tax
Code is levied on the acceptance or payment of "a bill of exchange
purporting to be drawn in a foreign country but payable in the Philippines"
and that "a bill of exchange is an unconditional order in writing addressed
by one person to another, signed by the person giving it, requiring the
person to whom it is addressed to pay on demand or at a fixed or
determinable future time a sum certain in money to order or to bearer."
The Court further agrees with the CTA that the electronic messages of
HSBC’s investor-clients containing instructions to debit their respective
local or foreign currency accounts in the Philippines and pay a certain
named recipient also residing in the Philippines is not the transaction
contemplated under Section 181 of the Tax Code as such instructions are
"parallel to an automatic bank transfer of local funds from a savings
account to a checking account maintained by a depositor in one bank."
The Court favorably adopts the finding of the CTA that the electronic
messages "cannot be considered negotiable instruments as they lack the
feature of negotiability, which, is the ability to be transferred" and that the
said electronic messages are "mere memoranda" of the transaction
consisting of the "actual debiting of the [investor-client-payor’s] local or
foreign currency account in the Philippines" and "entered as such in the
books of account of the local bank," HSBC.
The instructions given through electronic messages that are subjected to
DST in these cases are not negotiable instruments as they do not comply
with the requisites of negotiability under Section 1 of the Negotiable
Instruments Law. The electronic messages are not signed by the investor-
clients as supposed drawers of a bill of exchange; they do not contain an
unconditional order to pay a sum certain in money as the payment is
supposed to come from a specific fund or account of the investor-clients;
and, they are not payable to order or bearer but to a specifically designated
third party. Thus, the electronic messages are not bills of exchange. As
there was no bill of exchange or order for the payment drawn abroad and
made payable here in the Philippines, there could have been no acceptance
or payment that will trigger the imposition of the DST under Section 181
of the Tax Code.
In these cases, the electronic messages received by HSBC from its investor-
clients abroad instructing the former to debit the latter's local and foreign
currency accounts and to pay the purchase price of shares of stock or
investment in securities do not properly qualify as either presentment for
acceptance or presentment for payment. There being neither presentment
for acceptance nor presentment for payment, then there was no
acceptance or payment that could have been subjected to DST to speak of.
WHEREFORE, the petitions are hereby GRANTED and the Decisions dated
May 2, 2002 in CTA Case No. 6009 and dated December 18, 2002 in CT A
Case No. 5951 of the Court of Tax Appeals are REINSTATED. SO
ORDERED.
Caltex (Phils.), Inc. vs. Court of Appeals and Security Bank and Trust
Co. G.R. No. 97753, Aug. 10, 1992
FACTS:
Security bank issued Certificates of Time Deposits to Angel dela Cruz. The
same were given by Dela Cruz to Caltex in connection to his purchase of
fuel products of the latter. On a later date, Dela Cruz approached the bank
manager, communicated the loss of the certificates and requested for
a reissuance.
Upon compliance with some formal requirements, he was issued
replacements. Thereafter, he secured a loan from the bank where he
assigned the certificates as security. Here comes the petitioner, averred
that the certificates were not actually lost but were given as security
for payment for fuel purchases.
The bank demanded some proof of the agreement but the petitioner failed
to comply. The loan matured and the time deposits were terminated and
then applied to the payment of the loan.
Petitioner demands the payment of the certificates but to no avail.
ISSUE:
Whether or not the certificates of time deposits (CTDs) are negotiable
instruments?
HELD:
Yes. The Court held that the CTDs are negotiable instruments. The CTDs
in question undoubtedly meet the requirements of the law for negotiability.
The Negotiable Instruments Law provides, an instrument to be negotiable
must conform to certain requirements, hence,
It must be in writing and signed by the maker or drawer;
Must contain an unconditional promise or order to pay a sum certain in
money;
Must be payable on demand, or at a fixed or determinable future time;
Must be payable to order or to bearer; and
Where the instrument is addressed to a drawee, he must be named or
otherwise indicated therein with reasonable certainty.
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.
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.
Rivera vs. Chua
FACTS: The parties were friends and kumpadres for a long time already.
Rivera obtained a loan from the Spouses Chua evidenced by a Promissory
Note. The relevant parts of the note are the following:
(a) FOR VALUE RECEIVED, I, RODRIGO RIVERA promise to pay spouses
SALVADOR C. CHUA and VIOLETA SY CHUA, the sum of One Hundred
Twenty Thousand Philippine Currency (_120,000.00) on December 31,
1995.
(b) It is agreed and understood that failure on my part to pay the amount
of (_120,000.00) One Hundred Twenty Thousand Pesos on December 31,
1995. I agree to pay the sum equivalent to FIVEPERCENT (5%) interest
monthly from the date of default until the entire obligation is fully paid for.
Three years from the date of payment stipulated in the promissory note,
Rivera, issued
and delivered to Spouses Chua two (2) checks drawn against his account
at Philippine Commercial International Bank (PCIB) but upon presentment
for payment, the two checks were dishonored forthe reason “account
closed.” As of 31 May 1999, the amount due the Spouses Chua was pegged
at P366,000.00 covering the principal of P120,000.00 plus five percent
(5%) interest per month from 1 January 1996 to 31 May 1999.
The Spouses Chua alleged that they have repeatedly demanded payment
from Rivera to no avail. Because of Rivera’s unjustified refusal to pay, the
Spouses Chua were constrained to file a suit before the MeTC, Branch 30,
Manila.
The MeTC ruled against Rivera requiring him to pay the spouses Chua
P120,000.00 plus stipulated interest at the rate of 5% per month from 1
January 1996, and legal interest at the rate of 12% percent per annum
from 11 June 1999 and was affirmed by the RTC of Manila. The Court of
Appeals further affirmed the decision upon appeal of the two inferior courts
but with modification of lowering the stipulated interest to 12% per
annum. Hence, a petition at the Supreme Court.
ISSUES:
1. Whether or not the Promissory Note executed as evidence of loan falls
under Negiotiable Instruments Law.
2. Whether or not a demand from spouses Chua is needed to make Rivera
liable.
3. Whether or not the stipulated interest is unconscionable and should
really be lowered.
Held: 1. NO, the Promissory Note executed as evidence of loan does not fall
under Negotiable Instruments Law. The instrument is still governed by the
Civil Code as to interpretation of their obligations. The Supreme Court held
that the Instrument was not able to meet the requisites laid down by
Section 1 of the Negotiable Instruments Law as the instrument was made
out to specific persons, herein respondents, the Spouses Chua, and not to
order or to bearer, or to the order of the Spouses Chua as payees.
cals not a negotiable instrument and therefore outside the coverage of
Section 70 of the NIL which provides that presentment for payment is not
necessary to charge the person liable on the instrument, Rivera is still
liable under the terms of the Promissory Note that he issued. Article 1169
of the Civil Code explicitly provides that the demand by the creditor shall
not be necessary in order that delay may exist when the obligation or the
law expressly so declare. The clause in the Promissory Note containing the
stipulation of interest (letter B in the above facts) which expressly requires
the debtor (Rivera) to pay a 5% monthly interest from the “date of default”
until the entire obligation is fully paid for. Theparties evidently agreed that
the maturity of the obligation at a date certain, 31 December 1995, will
give rise to the obligation to pay interest.
3. YES, the stipulated interest is unconscionable and should really be
lowered. The Supreme Court held that as observed by Rivera, the
stipulated interest of 5% per month or 60% per annum in addition to legal
interests and attorney’s fees is, indeed, highly iniquitous and
unreasonable and stipulated interest rates if illegal and are
unconscionable the Court is allowed to temper interest rates when
necessary. Since the interest rate agreed upon is void, the parties are
considered to have no stipulation regarding the interest rate, thus, the rate
of interest should be 12% per annum computed from the date of judicial
or extrajudicial demand. However, the 12% per annum rate of legal interest
is only applicable until 30 June 2013, before the advent and effectivity of
Bangko Sentral ng Pilipinas (BSP) Circular No. 799, Series of 2013
reducing the rate of legal interest to 6% per annum. Pursuant to our ruling
in Nacar v. Gallery Frames,30 BSP Circular No. 799 is prospectively
applied from 1 July 2013.
ABUBAKAR V. AUDITOR GENERAL
FACTS:
The auditor general refuses to authorize the payment of the treasury
warrant issued in the name of Placido Urbanes, now in the hands
of Benjamin Abubakar. The auditor general refuses to do so because,
first, the money available for redemption of treasury warrants was
appropriated by law and the subject warrant doesn’t fall within the purview
of the law; second, one of the requirements was not complied with, which
is it must be sworn that the holders of the warrant covering payment or
replenishment
of cash advances for official expenditures received them in payment
of definite government obligations.
HELD:
Petitioner holds that he is a holder in good faith and for value of
a negotiable instrument and is entitled to the rights and privileges of a
holder in due course, free from defenses. But this treasury warrant is
within the scope of the Negotiable Instruments Law. For one thing,
the document bearing on its face the words “payable from the
appropriation for food administration”, is actually an order for payment
out of a particular fund, and is not unconditional, and doesn’t fulfill one
of the essential requirements of a negotiable instrument.
Philippines National Bank vs. Erlando T. Rodriguez
Facts: Spouses Rodriguez maintained a savings and demand/checking
accounts with petitioners Philippines National Bank (PNB). They were
engaged in the informal lending business and had a discounting
arrangement with the Philnabank Employees Savings and Loan
Association (PEMSLA), an association of PNB employees, which likewise
maintained current and savings accounts with petitioner bank. PEMSLA
regularly granted loans to its members. Spouses Rodriguez would
rediscount the postdated checks issued to members whenever the
association was short of funds. As was customary, the spouses would
replace the postdated checks with their own checks issued in the name of
the members.
It was PEMSLA’s policy not to approve applications for loans of members
with outstanding debts. To subvert this policy, some PEMSLA officers
devised a scheme to obtain additional loans despite their outstanding loan
accounts. They took out loans in the names of unknowing members,
without the knowledge or consent of the latter. The PEMSLA checks issued
for these loans were then given to the spouses for rediscounting. The
officers carried this out by forging the indorsement of the named payees in
the checks. In return, the spouses issued their personal checks (Rodriguez
checks) in the name of the members and delivered the checks to an officer
of PEMSLA. The PEMSLA checks, on the other hand, were deposited by
the spouses to their account. Meanwhile, the Rodriguez checks were
deposited directly by PEMSLA to its savings account without any
indorsement from the named payees. This usual irregular procedure is
made possible through the facilitation of Edmundo Palermo, Jr., treasurer
of PEMSLA and bank teller in the PNB Branch.
The spouses issued 69 checks, in the total amount of P2,345,804.00,
payable to 47 members of PEMSLA. After finding out such fraudulent act,
PNB closed the current account of PEMSLA. As a result, the PEMSLA
checks deposited by the spouses were returned or dishonored for the
reason “Account Closed.” The corresponding Rodriguez checks, however,
were deposited as usual to the PEMSLA savings account. The amounts
were duly debited from the Rodriguez account. Thus, because the PEMSLA
checks given as payment were returned, spouses Rodriguez incurred
losses from the rediscounting transactions. Spouses Rodriguez sued
PEMSLA and PNB. They contended that because PNB credited the checks
to the PEMSLA account even without indorsements, PNB violated its
contractual obligation to them as depositors. PNB paid the wrong payees,
hence, it should bear the loss. Trial court ruled in favor of spouses and
ordered PNB to pay. CA affirmed the decision. Hence this petition
Issue: Whether or not PNB can be made liable to pay the amount of
checks which were deposited to the PEMSLA savings account.
Held: A bank that regularly processes checks that are neither payable to
the customer nor duly indorsed by the payee is apparently grossly
negligent in its operations. This Court has recognized the unique public
interest possessed by the banking industry and the need for the people to
have full trust and confidence in their banks. For this reason, banks are
minded to treat their customer’s accounts with utmost care, confidence,
and honesty. In a checking transaction, the drawee bank has the duty to
verify the genuineness of the signature of the drawer and to pay the check
strictly in accordance with the drawer’s instructions, i.e., to the named
payee in the check. It should charge to the drawer’s accounts only the
payables authorized by the latter. Otherwise, the drawee will be violating
the instructions of the drawer and it shall be liable for the amount charged
to the drawer’s account. Rodriguez checks are payable to order since the
bank failed to prove that the named payees therein are fictitious. Hence,
the fictitious-payee rule which will make the instrument payable to bearer
does not apply. PNB accepted the 69 checks for deposit to the PEMSLA
account even without any indorsement from the named payees. It bears
stressing that order instruments can only be negotiated with a valid
indorsement.
PNB V. CONCEPCION MINING
FACTS:
A case for collection of a sum of money was filed against defendants
in connection with a promissory note they issued with others.
The defendants move that since their co-makers have died, claim
should be also against the estates of such. This was denied by the court.
HELD:
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. By virtue of this provision found in Section 17, and
as the promissory note was executed jointly and severally by the
parties, the payee of the promissory note had the right to hold any
one of the them responsible for the payment of the amount of the note.
ALVIN PATRIMONIO v. NAPOLEON GUTIERREZ,
FACTS: The petitioner and the respondent Gutierrez entered into a
business venture under the name of Slam Dunk Corporation, a production
outfit that produced mini-concerts and shows related to basketball.
Patrimonio pre-signed several checks to answer for the expenses of Slam
Dunk. Although signed, these checks had no payee’s name, date or
amount. The blank checks were entrusted to Gutierrez with the specific
instruction not to fill them out without previous notification to and
approval by the petitioner.
Without the petitioner’s knowledge and consent, Gutierrez went to
Marasigan to secure a loan in the amount of P200,000.00 on the excuse
that the petitioner needed the money for the construction of his house. In
addition to the payment of the principal, Gutierrez assured Marasigan that
he would be paid an interest of 5% per month.

Marasigan acceded to Gutierrez’ request and gave him P200,000.00.
Gutierrez simultaneously delivered to Marasigan one of the blank checks
the petitioner pre-signed with Pilipinas Bank with the blank portions filled
out with the words “Cash” “Two Hundred Thousand Pesos Only”, and the
amount of “P200,000.00.”
Marasigan deposited the check but it was dishonored for the reason
“ACCOUNT CLOSED.” It was later revealed that petitioner’s account with
the bank had been closed.
Marasigan sought recovery from Gutierrez, to no avail. He thereafter sent
several demand letters to the petitioner asking for the payment of
P200,000.00, but his demands likewise went unheeded. Consequently, he
filed a criminal case for violation of B.P. 22 against the petitioner.
RTC— in favor of Marasigan. It found that the petitioner, in issuing the
pre-signed blank checks, had the intention of issuing a negotiable
instrument, albeit with specific instructions to Gutierrez not to negotiate
or issue the check without his approval. RTC declared Marasigan as a
holder in due course and accordingly dismissed the petitioner’s complaint
for declaration of nullity of the loan. It ordered the petitioner to pay
Marasigan the face value of the check with a right to claim reimbursement
from Gutierrez. CA— affirmed the RTC ruling.
ISSUE: Whether or not Marasigan is a holder in due course thus may hold
Patrimonio liable
HELD: No. Section 14 of the Negotiable Instruments Law provides for when
blanks may be filled. This provision applies to an incomplete but delivered
instrument. Under this rule, if the maker or drawer delivers a pre-signed
blank paper to another person for the purpose of converting it into a
negotiable instrument, that person is deemed to have prima facie authority
to fill it up. It merely requires that the instrument be in the possession of
a person other than the drawer or maker and from such possession,
together with the fact that the instrument is wanting in a material
particular, the law presumes agency to fill up the blanks.
In order however that one who is not a holder in due course can enforce
the instrument against a party prior to the instrument’s completion, two
requisites must exist: (1) that the blank must be filled strictly in
accordance with the authority given; and (2) it must be filled up within a
reasonable time. If it was proven that the instrument had not been filled
up strictly in accordance with the authority given and within a reasonable
time, the maker can set this up as a personal defense and avoid liability.
Section 52(c) of the NIL states that a holder in due course is one who takes
the instrument “in good faith and for value.” It also provides in Section
52(d) that in order that one may be a holder in due course, it is necessary
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.
Acquisition in good faith means taking without knowledge or notice of
equities of any sort which could beset up against a prior holder of the
instrument. It means that he does not have any knowledge of fact which
would render it dishonest for him to take a negotiable paper. The absence
of the defense, when the instrument was taken, is the essential element of
good faith.
In order to show that the defendant had “knowledge of such facts that his
action in taking the instrument amounted to bad faith,” it is not necessary
to prove that the defendant knew the exact fraud that was practiced upon
the plaintiff by the defendant’s assignor, it being sufficient to show that
the defendant had notice that there was something wrong about his
assignor’s acquisition of title, although he did not have notice of the
particular wrong that was committed. In the present case, Marasigan’s
knowledge that the petitioner is not a party or a privy to the contract of
loan, and correspondingly had no obligation or liability to him, renders
him dishonest, hence, in bad faith.
Yet, it does not follow that simply because he is not a holder in due course,
Marasigan is already totally barred from recovery.
Notably, Gutierrez was only authorized to use the check for business
expenses; thus, he exceeded the authority when he used the check to pay
the loan he supposedly contracted for the construction of petitioner’s
house. This is a clear violation of the petitioner’s instruction to use the
checks for the expenses of Slam Dunk. It cannot therefore be validly
concluded that the check was completed strictly in accordance with the
authority given by the petitioner.
Crisologo-Jose vs Court of Appeals
Facts: Plaintiff Ricardo S. Santos, Jr. was the vice-president of Mover
Enterprises, Inc. in-charge of marketing and sales; and the president of
the said corporation was Atty. Oscar Z. Benares. Atty. Benares, in
accommodation of his clients, the spouses Jaime and Clarita Ong, issued
check against Traders Royal Bank, payable to defendant Ernestina
Crisologo-Jose. Since the check was under the account of Mover
Enterprises, Inc., the same was to be signed by its president, Atty. Oscar
Z. Benares, and the treasurer of the said corporation. However, since at
that time, the treasurer of Mover Enterprises was not available, Atty.
Benares prevailed upon the plaintiff, Ricardo S. Santos, Jr., to sign the
aforesaid check. The check was issued to defendant Ernestina Crisologo-
Jose in consideration of the waiver or quitclaim by said defendant over a
certain property which the Government Service Insurance System (GSIS)
agreed to sell to the spouses Jaime and Clarita Ong, with the
understanding that upon approval by the GSIS of the compromise
agreement with the spouses Ong, the check will be encashed accordingly.
Since the compromise agreement was not approved within the expected
period of time, the aforesaid check was replaced by Atty. Benares. This
replacement check was also signed by Atty. Oscar Z. Benares and by the
plaintiff Ricardo S. Santos, Jr. When defendant deposited this replacement
check with her account at Family Savings Bank, Mayon Branch, it was
dishonored for insufficiency of funds. The petitioner filed an action against
the corporation for accommodation party.
Issue: WON the corporation can be held liable as accommodation party?
Held: No. 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 party, does not include nor apply to
corporations which are accommodation parties. This is because the issue
or indorsement of negotiable paper by a corporation without consideration
and for the accommodation of another is ultra vires. 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. 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.
Samsung Construction v. Far East Bank and Trust Company
FACTS:
A certain Roberto Gonzaga presented for payment FEBTC Check No.
432100 to the bank’s branch in Bel-Air, Makati. The check, payable to
cash and drawn against Samsung Construction’s current account, was in
the amount of P999,500.00. The bank teller, Cleofe Justiani, checked the
balance of the account. After ascertaining there were enough funds, and
after comparing the signature in the check and that of the specimen on
record, Justiani was satisfied as to the authenticity of the signature on the
check.
Gonzaga presented 3 identification cards to the bank officers.
Justiani forwarded the check to the branch Senior Assistant Cashier
Gemma Velez for approval. Velez too concluded that the check was indeed
signed by the company’s Project Manager Jong Kyu Lee.
The check was also forwarded to Shirley Syfu, another bank officer for
approval. Syfu then noticed that Jose Sempio III (Sempio), the assistant
accountant of Samsung Construction, was also in the bank. Syfu showed
the check to Sempio, who vouched for the genuineness of Jong’s signature.
Satisfied with the genuineness of the signature of Jong, Syfu authorized
the banks encashment of the check to Gonzaga.
The following day, the company’s accountant, Kyu Yong Lee discovered
that a check had been encashed. Aware that he had not prepared such a
check for Jong’s signature, Kyu found that the last blank check was
missing.
Jong learned of the encashment of the check, and realized that his
signature had been forged.
Samsung Construction filed a Complaint for violation of Section 23 of the
NIL, and prayed for the payment of the amount debited as a result of the
questioned check plus interest, and attorneys fees.
The RTC held that Jong’s signature on the check was forged and
accordingly directed the bank to pay or credit back to Samsung
Constructions account the said amount.
On appeal, the CA reversed the RTC Decision and absolved FEBTC from
any liability.
ISSUE:
Whether or not FEBTC is liable to Samsung Construction in paying the
forged check.
RULING:
Section 23 of the Negotiable Instruments Law states:
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 therefore, 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.
The general rule is to the effect that a forged signature is wholly
inoperative, and payment made through or under such signature is
ineffectual or does not discharge the instrument. If payment is made, the
drawee cannot charge it to the drawers account. The traditional
justification for the result is that the drawee is in a superior position to
detect a forgery because he has the makers signature and is expected to
know and compare it. The rule has a healthy cautionary effect on banks
by encouraging care in the comparison of the signatures against those on
the signature cards they have on file.
Quite palpably, the general rule remains that the drawee who has paid
upon the forged signature bears the loss. The exception to this rule arises
only when negligence can be traced on the part of the drawer whose
signature was forged, and the need arises to weigh the comparative
negligence between the drawer and the drawee to determine who should
bear the burden of loss.
We recognize that Section 23 of the Negotiable Instruments Law bars a
party from setting up the defense of forgery if it is guilty of negligence. Yet,
we are unable to conclude that Samsung Construction was guilty of
negligence in this case.
Given the circumstances, extraordinary diligence dictates that FEBTC
should have ascertained from Jong personally that the signature in the
questionable check was his.
Still, even if the bank performed with utmost diligence, 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. After all, Section
23 of the Negotiable Instruments Law plainly states that no right to enforce
the payment of a check can arise out of a forged signature. Since 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.
Ting Ting Pua vs. Sps. Benito Lo Bun Tiong And Caroline Siok Ching
Teng
Facts: The controversy arose from a Complaint for a Sum of Money filed
by petitioner Pua against respondent-spouses Benito Lo Bun Tiong Benito)
and Caroline Siok Ching Teng Caroline). During trial, petitioner Pua
clarified that the PhP 8,500,000 check was given by respondents to pay
the loans they obtained from her under a compounded interest agreement
on various dates in 1988. In all, respondents issued 17 checks for a total
amount of PhP 1,975,000. These checks were dishonored upon
presentment to the drawee bank.
As a result of the dishonor, petitioner demanded payment. Respondents,
however, pleaded for more time because of their financial difficulties.
Petitioner Pua obliged and simply reminded the respondents of their
indebtedness from time to time. Sometime in September 1996, when their
financial situation turned better, respondents called and asked petitioner
Pua for the computation of their loan obligations. Hence, petitioner handed
them a computation dated which showed that, at the agreed 2%
compounded interest rate per month, the amount of the loan payable to
petitioner rose to PhP 13,218,544.20. On receiving the computation, the
respondents asked petitioner to reduce their indebtedness to PhP
8,500,000.13 Wanting to get paid the soonest possible time, petitioner Pua
agreed to the lowered amount.
Respondents then delivered to petitioner Asiatrust Check bearing the
reduced amount of PhP 8,500,000. In turn, respondents demanded the
return of the previously dishonored checks. Petitioner, however, refused
to return the bad checks and advised respondents that she will do so only
after the encashment.
Like the 17 checks, however, it was also dishonored when it was presented
by petitioner to the drawee bank. Hence, as claimed by petitioner, she
decided to file a complaint to collect the money owed her by respondents.
For the defense, both respondents Caroline and Benito testified along with
Rosa Dela Cruz Tuazon (Tuazon), who was the OIC-Manager of Asiatrust-
Binondo Branch in 1997. Respondents categorically denied obtaining a
loan from petitioner. Respondent Caroline, in particular, narrated that, in
August 1995, she and petitioner’s sister, Lilian, forged a partnership that
operated a mahjong business.
In March 1996, however, respondent Caroline and Lilian had a serious
disagreement that resulted in the dissolution of their partnership and the
cessation of their business. In the haste of the dissolution and as a result
of their bitter separation, respondent Caroline alleged that she forgot about
the five (5) pre-signed checks she left with Lilian.
After trial, the RTC issued its Decision dated January 31, 2006 in favor of
petitioner. In holding thus, the RTC stated that the possession by
petitioner of the checks signed by Caroline, under the Negotiable
Instruments Law, raises the presumption that they were issued and
delivered for a valuable consideration. On the other hand, the court a quo
discounted the testimony for the defense completely denying respondents’
loan obligation to Pua.
Issue:
WON Respondents should be held liable
WON the said checks are covered by the Negotiable Instruments Law
Held:
Yes. In Pacheco v. Court of Appeals, this Court has expressly recognized
that a check “constitutes an evidence of indebtedness”and is a veritable
“proof of an obligation.” Hence, it can be used “in lieu of and for the same
purpose as a promissory note.”In fact, in the seminal case of Lozano v.
Martinez, We pointed out that a check functions more than a promissory
note since it not only contains an undertaking to pay an amount of money
but is an “order addressed to a bank and partakes of a representation that
the drawer has funds on deposit against which the check is drawn,
sufficient to ensure payment upon its presentation to the bank.”This Court
reiterated this rule in the relatively recent Lim v. Mindanao Wines and
Liquour Galleria stating that “a check, the entries of which are in writing,
could prove a loan transaction.”This very same principle underpins Section
24 of the Negotiable Instruments Law (NIL):
Section 24. Presumption of consideration. – Every negotiable instrument
is deemed prima facie to have been issued for a valuable consideration;
and every person whose signature appears thereon to have become a party
for value.
The 17 original checks, completed and delivered to petitioner, are sufficient
by themselves to prove the existence of the loan obligation of the
respondents to petitioner. Sec. 16 of the NIL provides that when an
instrument is no longer in the possession of the person who signed it and
it is complete in its terms “a valid and intentional delivery by him is
presumed until the contrary is proved.
FIDELIZA J. AGLIBOT, Petitioner, v. INGERSOL L. SANTIA
Facts:
Private respondent-complainant Engr. Ingersol L. Santia (Santia) loaned
the amount of P2,500,000.00 to Pacific Lending & Capital Corporation
(PLCC), through its Manager, petitioner Fideliza J. Aglibot (Aglibot). The
loan was evidenced by a Promissory Note dated July 1,... 2003, issued by
Aglibot in behalf of PLCC, payable in one year subject to interest at 24%
per annum.
Allegedly as a guaranty or security for the payment of the note, Aglibot also
issued and delivered to Santia eleven (11) post-dated personal checks
drawn from her... own demand account maintained at Metrobank,
Camiling Branch.
Aglibot is a major stockholder of PLCC
Upon presentment of the aforesaid checks for payment, they were
dishonored by the bank for having been drawn against insufficient funds
or closed account.
Consequently, eleven (11) Informations for violation of Batas Pambansa
Bilang 22 (B.P. 22)
Issues:
Still maintaining that she was a mere guarantor of the said debt of PLCC
when she agreed to issue her own checks, Aglibot insists that Santia failed
to exhaust all means to collect the debt from PLCC, the principal debtor,
and therefore he cannot now be permitted to go after her... subsidiary
liability.
Ruling:
Aglibot cannot invoke the benefit of excussion
The Court must, however, reject Aglibot's claim as a mere guarantor of the
indebtedness of PLCC to Santia for want of proof, in view of Article 1403(2)
of the Civil Code, embodying the Statute of Frauds, which provides:
Art. 1403. The following contracts are unenforceable, unless they are
ratified:
(2) Those that do not comply with the Statute of Frauds as set forth in this
number. In the following cases an agreement hereafter made shall be
unenforceable by action, unless the same, or some note or memorandum
thereof, be in writing, and subscribed by the party charged, or... by his
agent; evidence, therefore, of the agreement cannot be received without the
writing, or a secondary evidence of its contents:
A special promise to answer for the debt, default, or miscarriage of another;
Under the above provision, concerning a guaranty agreement, which is a
promise to answer for the debt or default of another,[17] the law clearly
requires that it, or some note or memorandum thereof, be in writing.
Otherwise, it would be unenforceable unless... ratified,[18] although under
Article 1358[19] of the Civil Code, a contract of guaranty does not have to
appear in a public document.
On the other hand, Article 2055 of the Civil Code also provides that a
guaranty is not presumed, but must be express, and cannot extend to
more than what is stipulated therein. This is the obvious rationale why a
contract of guarantee is unenforceable unless made in... writing or
evidenced by some writing.
Aglibot is an accommodation party... and therefore liable to Santia
It noted that she could have issued PLCC's checks, but instead she chose
to issue her own checks, drawn against her personal account with
Metrobank.
It concluded that Aglibot intended to personally assume the repayment of
the loan, pointing out that in her
Counter-Affidavit, she even admitted that she was personally indebted to
Santia, and only raised payment as her defense, a clear admission of her
liability for the said loan.
The facts below present a clear situation where Aglibot, as the manager of
PLCC, agreed to accommodate its loan to Santia by issuing her own post-
dated checks in payment thereof.
She is what the Negotiable Instruments Law calls an accommodation
party.
Sec. 29. Liability of an accommodation party. 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.
An accommodation party is one who has signed the instrument as maker,
drawer, indorser, without receiving value therefor and for the purpose of
lending his name to some other person. Such person is liable on the
instrument to a holder for value, notwithstanding... such holder, at the
time of the taking of the instrument knew him to be only an
accommodation party. In lending his name to the accommodated party,
the accommodation party is in effect a surety for the latter. He lends his
name to enable the accommodated party to... obtain credit or to raise
money.
The relation between an accommodation party and the party
accommodated is, in effect, one of principal and surety the accommodation
party being the surety. It is a settled rule that a surety is bound equally
and absolutely with the principal and is deemed an original... promisor
and debtor from the beginning. The liability is immediate and direct.
Moreover, it was held in Aruego that unlike in a contract of suretyship, the
liability of the accommodation party remains not only primary but also
unconditional to a holder for value, such that 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 co-debtor.
Prudencio V. CA
FACTS:
Oct 7 1954: Eulalio and Elisa Prudencios, registered owners of a parcel of
land mortgaged to Philippine National Bank (PNB) to guarantee a loan of
P1,000.00 extended to Domingo Prudencio
1955: Concepcion & Tamayo Construction Company (Concepcion) had a
pending contract with the Bureau of Public Works (Bureau) for the
construction of the municipal building in Puerto Princess, Palawan
amounting to P36,800.00
In need of funds, Jose Toribio, Concepcions' relative, and attorney-in-fact
of the Company, approached PNB to mortgage their property to secure the
loan of P10,000.00 w/ PNB.
The terms and conditions of the original mortgage for Pl,000.00 were made
integral part of the new mortgage for P10,000.00 and both documents were
registered with the Register of Deeds
Dec 23 1955:
promissory note covering the loan of P10,000.00 dated Dec 29 1955,
maturing on Apr 27 1956, was signed by Jose Toribio, as attorney-in-fact
of the Company, and by the Prudencios'
Deed of Assignment assigning all payments to be made by the Bureau to
the Co. on account of the contract for the construction in favor of the PNB.
PNB approved the Bureau's release of 3 payments directly to Concepcion
for material and labor instead of paying the same to the Bank on account
of the contract price totalling P11,234.40 without the knowledge of the
Prudencios'
PNB did not apply the initial and subsequent payments to the Prudencios'
debt as provided for in the deed of assignment
Jun 30 1956: Concepcion abandoned their work so Bureau rescinded the
construction contract and assumed the work of completing
Jun 27 1959: Concepcion filed to cancelled their mortgage
complaint was amended to exclude the Company as defendant, it having
been shown that its life as a partnership had already expired and, in lieu
thereof, Ramon Concepcion and Manuel M. Tamayo, partners of the
defunct Company, were impleaded in their private capacity as defendants.
CA affirmed RTC: Denied
no stipulation in the deed making it obligatory on the part of the PNB to
notify the petitioners everytime it authorizes payment to the Company
Prudencios' contend that as accommodation makers, the nature of their
liability is only that of mere sureties instead of solidary co-debtors such
that "a material alteration in the principal contract, effected by the creditor
without the knowledge and consent of the sureties, completely discharges
the sureties from all liability on the contract of suretyship.
ISSUE:
W/N the Prudencios' as accomodating party are liable as solidary debtors
so real estate mortgage executed by them CANNOT be cancelled
W/N PNB was a holder in due course
HELD: Petition is Granted. CA reversed.
1. YES
Section 29 of the Negotiable Instrument Law
Liability of accommodation party. —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.
Philippine Bank of Commerce v. Aruego: liability of the accommodation
party remains not only primary but also unconditional to a holder for value
remedy is a matter of concern exclusively between accommodation
indorser and accommodated party
2. NO
payee PNB is an immediate party and, therefore, is NOT a holder in due
course and stands on no better footing than a mere assignee
holder in due course - payee either acquired the note from another holder
or has not directly dealt with the maker thereof
PNB, in effect, waived payments of the first three releases
PNB can not be regarded as having acted in good faith which is also one of
the requisites of a holder in due course under Section 52 of the Negotiable
Instruments Law
It was only when the deed of assignment was shown to the spouses that
they consented to the mortgage and signed the promissory note in the
Bank's favor.
CHAN WAN vs. TAN KIM
Facts: Eleven checks payable to “cash or bearer” and drawn by
defendant Tan upon the Equitable Banking Corporation, were all
presented for payment by Chan Wan to the drawee bank, but they “were
all dishonored and returned to him unpaid due to insufficient funds
and/or causes attributable to the drawer.”
The drawer in drawing the check engaged that “on due presentment, the
check would be paid, and that if it be dishonored . . . he will pay the
amount thereof to the holder”.
On the backs of the checks, endorsements which apparently show they
had been deposited with the China Banking Corporation and were, by the
latter, presented to the drawee bank for collection.
The court declined to order payment for two principal reasons: (a) plaintiff
failed to prove he was a holder in due course, and (b) the checks being
crossed checks should not have been deposited instead with the bank
mentioned in the crossing.
Issue: WON a holder who is not a holder in due course may recover on the
checks?
Held: YES. The Negotiable Instruments Law does not provide that a holder
who is not a holder in due course, may not in any case, recover on the
instrument. If B purchases an overdue negotiable promissory note signed
by A, he is not a holder in due course; but he may recover from A, if the
latter has no valid excuse for refusing payment. The only disadvantage of
holder who is not a holder in due course is that the negotiable instrument
is subject to defense as if it were non- negotiable.
ROBERT DINO v. MARIA LUISA JUDAL-LOOT,
Dino was swindled by a group of people into issuing 3 Metrobank checks.
He was only able to stop payment on one of the checks, which had been
indorsed to Labitana, who subsequently indorsed it in favour of the Loots.
The Loots had checked if the check was funded with Metrobank, who
assured them that it was. However, the check was dishonoured because
the payment had been stopped. The Loots filed a collection suit against
Dino, claiming that they were holders in due course. The RTC and CA ruled
in their favour.
However, the SC held that they were not holders in due course. Because
the subject check had been crossed, the Loots had been grossly negligent
in not ascertaining Labitana’s title. As such, they were not the holders in
due course. In turn, the presentment was not proper, and Dino could not
be held liable as drawer. Neither could he be held liable on the instrument,
even as non-negotiable, because, there being no loan as result of the
swindle, there was no consideration.
Gempesaw V. CA
FACTS:
 Gempesaw owns and operates four grocery stores
 to pay their debts of her supplies, she draws checks against her
account
 she signed each and every crossed 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.
 although the Bank notified her of all checks presented to and
paid by the bank, petitioner did not verify he correctness of the
returned checks, much less check if the payees actually
received the checks in payment for the supplies she received
 It was only after the lapse of more 2 years that petitioner found
out about the fraudulent manipulations of her bookkeeper
 November 7, 1984: Gempesaw made a written demand on
respondent drawee Bank to credit her account with the money
value of the 82 checks totalling P1,208.606.89 for having been
wrongfully charged against her account
 January 23, 1985: Gempesaw filed against Philippine Bank of
Communications (drawee Bank) for recovery of the money value of 82
checks charged against the Gempesaw's account on the ground that the
payees' indorsements were forgeries
 RTC: dismissed the complaint
 CA: affirmed
 Gempesaw gross negligence = promixate cause of the
loss
ISSUE: W/N Gempesaw has a right to recover the amount
attributable to the forgeries
HELD: NO. REMANDED to the trial court for the reception of
evidence to determine the exact amount of loss suffered by the
petitioner, considering that she partly benefited from the issuance
of the questioned checks since the obligation for which she issued
them were apparently extinguished, such that only the excess
amount over and above the total of these actual obligations must
be considered as loss of which one half must be paid by respondent
drawee bank to herein petitioner.
 Petitioner completed the checks by signing them as drawer and
thereafter authorized her employee Alicia Galang to deliver to
payees
 GR: drawee bank who has paid a check on which an
indorsement has been forged cannot charge the drawer's
account for the amount of said check
 EX: where the drawer is guilty of such negligence which causes
the bank to honor such a check or checks.
 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.
Sec. 36. When indorsement restrictive. - An indorsement is
restrictive which either chanrobles virtual law library
(a) Prohibits further negotiation of the instrument; or
xxx xxx xxx
 In this kind of restrictive indorsement, the prohibition to
transfer or negotiate must be written in express words at 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.
 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
 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
METROPOLITAN BANK AND TRUST COMPANY (formerly ASIANBANK
CORPORATION) V. BA FINANCE CORPORATION and MALAYAN
INSURANCE CO. INC.
FACTS:
Lamberto Bitanga (Bitanga) obtained from respondent BA Finance
Corporation (BA Finance) a loan to secure which, he mortgaged his car to
respondent BA Finance. Bitanga thus had the mortgaged car insured by
respondent Malayan Insurance Co., Inc. (Malayan Insurance). The car was
stolen. On Bitangas claim, Malayan Insurance issued a check payable to
the order of B.A. Finance Corporation and Lamberto Bitanga for P224,500,
drawn against China Banking Corporation (China Bank). The check was
crossed with the notation For Deposit Payees Account Only.
Without the indorsement or authority of his co-payee BA Finance,
Bitanga deposited the check to his account with the Asianbank
Corporation (Asianbank), now merged with petitioner Metropolitan Bank
and Trust Company (Metrobank). Bitanga subsequently withdrew the
entire proceeds of the check.
In the meantime, Bitangas loan became past due, but despite
demands, he failed to settle it. BA Finance thereupon demanded the
payment of the value of the check from Asianbank but to no avail,
prompting it to file a complaint for sum of money and damages against
Asianbank and Bitanga alleging that, inter alia, it is entitled to the entire
proceeds of the check.
On the issue of whether or not BA Finance has a cause of action,
Metrobank contends that Bitanga is authorized to indorse the check as
the drawer names him as one of the payees. Moreover, his signature is not
a forgery nor has he or anyone forged the signature of the representative
of BA Finance Corporation. No unauthorized indorsement appears on the
check. Absent the indispensable fact of forgery or unauthorized
indorsement, the payee may not recover from the collecting bank.
ISSUE 1:
Whether BA Finance has a cause of action against Metrobank even
if the subject check had not been delivered to BA Finance by the issuer
itself?
HELD:
YES. Section 41 of the Negotiable Instruments Law provides:
Where an instrument is payable to the order of two or more payees
or indorsees who are not partners, all must indorse unless the one
indorsing has authority to indorse for the others.
Bitanga alone endorsed the crossed check, and petitioner allowed
the deposit and release of the proceeds thereof, despite the absence of
authority of Bitangas co-payee BA Finance to endorse it on its behalf.
Petitioners argument that since there was neither forgery, nor
unauthorized indorsement because Bitanga was a co-payee in the subject
check, the dictum in Associated Bank v. CA does not apply in the present
case fails. The payment of an instrument over a missing indorsement is
the equivalent of payment on a forged indorsement or an unauthorized
indorsement in itself in the case of joint payees.
Accordingly, one who credits the proceeds of a check to the
account of the indorsing payee is liable in conversion to the non-indorsing
payee for the entire amount of the check.
ISSUE 2:
Is Metrobank liable to BA Finance for the full value of the check,
under the Negotiable Instruments Law?
HELD:
YES. Section 68 of the Negotiable Instruments Law instructs that
joint payees who indorse are deemed to indorse jointly and severally. When
the maker dishonors the instrument, the holder thereof can turn to those
secondarily liable the indorser for recovery.
A collecting bank, Asianbank in this case, where a check is
deposited and which indorses the check upon presentment with the
drawee bank, is an indorser. his is because in indorsing a check to the
drawee bank, a collecting bank stamps the back of the check with the
phrase all prior endorsements and/or lack of endorsement guaranteed
and, for all intents and purposes, treats the check as a negotiable
instrument, hence, assumes the warranty of an indorser.
Petitioner, as the collecting bank or last indorser, generally suffers
the loss because it has the duty to ascertain the genuineness of all prior
indorsements considering that the act of presenting the check for payment
to the drawee is an assertion that the party making the presentment has
done its duty to ascertain the genuineness of prior indorsements.
PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly INSULAR
BANK OF ASIA AND AMERICA) V. COURT OF APPEALS and FORD
PHILIPPINES, INC. and CITIBANK, N.A.
FACTS:
These consolidated petitions arose from the action filed by BIR against
Citibank and PCIBank for the recovery of the amount of Citibank Check
Numbers SN-10597 and 16508. Said checks, both crossed checks were
alleged to have been negotiated fraudulently by an organized syndicate
between and among two employees of Ford (General Ledger Accountant
and his assistant), and PCIBank officers.
It was established that instead of paying the crossed checks, containing
two diagonal lines on its upper left corner between which were written the
words payable to the payees account only, to the CIR for the settlement of
the appropriate quarterly percentage taxes of Ford, the checks were
diverted and encashed for the eventual distribution among the members
of the syndicate. Citibank Check No. SN-10597 amounted to
P5,851,706.37, while Citibank Check No. SN-16508 amounted to
P6,311,591.73.
It was found that the pro-manager of San Andres Branch of PCIBank,
Remberto Castro, received Citibank Check Numbers SN 10597 and 16508.
He passed the checks to a co-conspirator, an Assistant Manager of
PCIBanks Meralco Branch, who helped Castro open a Checking account
of a fictitious person named Reynaldo Reyes. Castro deposited a worthless
Bank of America Check in exactly the same amount of Ford checks. The
syndicate tampered with the checks and succeeded in replacing the
worthless checks and the eventual encashment of Citibank Check Nos. SN
10597 and 16508. The PCIBank Pro-manager, Castro, and his co-
conspirator Assistant Manager apparently performed their activities using
facilities in their official capacity or authority but for their personal and
private gain or benefit.
The trial court and the Court of Appeals found that PCIBank had no official
act in the ordinary course of business that would attribute to it the case
of the embezzlement of Citibank Check Numbers SN-10597 and 16508,
because PCIBank did not actually receive nor hold the two Ford checks at
all. Neither is there any proof that defendant PCIBank contributed any
official or conscious participation in the process of the embezzlement. The
Court is convinced that the switching operation (involving the checks while
in transit for clearing) were the clandestine or hidden actuations performed
by the members of the syndicate in their own personal, covert and private
capacity and done without the knowledge of the defendant PCIBank.
The evidence on record shows that Citibank as drawee bank was likewise
negligent in the performance of its duties. Citibank failed to establish that
its payment of Fords checks were made in due course and legally in order.
It likewise appears that although the employees of Ford initiated the
transactions attributable to an organized syndicate, their actions were not
the proximate cause of encashing the checks.
ISSUE:
Has petitioner Ford the right to recover from the collecting bank (PCIBank)
and the drawee bank (Citibank) the value of the checks intended as
payment to the Commissioner of Internal Revenue?
HELD:
YES. The mere fact that the forgery was committed by a drawer-payors
confidential employee or agent, who by virtue of his position had unusual
facilities for perpetrating the fraud and imposing the forged paper upon
the bank, does NOT entitle the bank to shift the loss to the drawer-payor,
in the absence of some circumstance raising estoppel against the drawer.
This rule likewise applies to the checks fraudulently negotiated or diverted
by the confidential employees who hold them in their possession.
In this case, there was no evidence presented confirming the conscious
participation of PCIBank in the embezzlement. As a general rule, however,
a banking corporation is liable for the wrongful or tortuous acts and
declarations of its officers or agents within the course and scope of their
employment. A bank will be held liable for the negligence of its officers or
agents when acting within the course and scope of their employment. It
may be liable for the tortuous acts of its officers even as regards that
species of tort of which malice is an essential element. In this case, we find
a situation where the PCIBank appears also to be the victim of the scheme
hatched by a syndicate in which its own management employees had
participated.
A bank holding out its officers and agents as worthy of confidence will not
be permitted to profit by the frauds these officers or agents were enabled
to perpetrate in the apparent course of their employment; nor will it be
permitted to shirk its responsibility for such frauds, even though no benefit
may accrue to the bank therefrom. For the general rule is that a bank is
liable for the fraudulent acts or representations of an officer or agent acting
within the course and apparent scope of his employment or authority. And
if an officer or employee of a bank, in his official capacity, receives money
to satisfy an evidence of indebtedness lodged with his bank for collection,
the bank is liable for his misappropriation of such sum.
Citibank must likewise answer for the damages incurred by Ford on
Citibank Checks Numbers SN 10597 and 16508, because of the
contractual relationship existing between the two. Citibank, as the drawee
bank breached its contractual obligation with Ford and such degree of
culpability contributed to the damage caused to the latter.
PCIBank and Citibank are thus liable for and must share the loss,
(concerning the proceeds of Citibank Check Numbers SN 10597 and 16508
totaling P12,163,298.10) on a fifty-fifty ratio.
Ang Tiong V. Ting
FACTS:
 August 15, 1960: Lorenzo Ting issued Philippine Bank of
Communications check K-81618, w/ sum of P4,000, payable to "cash
or bearer"
 With Felipe Ang's signature (indorsement in blank) at the back thereof,
the instrument was received by the Ang Tiong who presented it to the
drawee bank for payment but it was dishonored
 Ting made a written demand to both Ting and Ang to no avail
 March 6, 1962: Municipal Court of Manila favored Tiong against Ting
and Ang
 CA: ordered Ang to pay with interest
 Ang contends that he is an accomodating indorser
ISSUE: W/N Ang is an accomodating indorser and not a general indorser a
HELD: NO. Affirmed
 Section 63 of the Negotiable Instruments Law: a person placing his
signature upon an instrument otherwise than as maker, drawer or
acceptor = a general indorser, — unless he clearly indicates plaintiff
appropriate words his intention to be bound in some other capacity
 warrants:
 (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 have capacity to contract; and
 (d) that the instrument is at the time of his indorsement valid and
subsisting
 Even on the assumption that the appellant is a mere accommodation
party, as he professes to be, he is by the clear mandate of section 29 of
the Negotiable Instruments Law, "liable on the instrument to a holder
for value, notwithstanding that such holder at the time of taking the
instrument knew him to be only an accommodation party."
 It is not a valid defense that the accommodation party did not receive
any valuable consideration when he executed the instrument.
 Nor is it correct to say that the holder for value is not a holder in due
course merely because at the time he acquired the instrument, he knew
that the indorser was only an accommodation party.
 assuming him to be an accommodation indorser, may obtain security
from the maker to protect himself against the danger of insolvency of
the latter, cannot in any manner affect his liability to the Tiong, as the
said remedy is a matter of concern exclusively between
accommodation indorser and accommodated party.
 The liability of the appellant remains primary and unconditional.
Bank of America, NT and SA vs. Associated Citizens Bank
Facts: BA-Finance Corporation (BA Finance) and Miller Offset Press, Inc.
(Miller) entered into a credit line facility agreement whereby Miller can
discount and assign its trade receivables with the BA Finance. At the same
time, Uy Kiat Chung, Ching Uy Seng, and Uy Chung Guan Seng, acting for
Miller, executed a Continuing Suretyship Agreement with BA-Finance.
Under the agreement, they jointly and severally guaranteed the full and
prompt payment of any and all indebtedness which Miller may incur with
BA-Finance.
Miller discounted and assigned several trade receivables to BA-Finance by
executing Deeds of Assignment in favor of the latter. In consideration
thereof, BA-Finance issued four checks payable to the order of Miller with
the notation “For Payee’s Account Only.” These checks were drawn against
Bank of America. The four checks were deposited by Ching Uy Seng in
Associated Citizens Bank with his joint account with Uy Chung Seng.
Associated Bank stamped the checks and guaranteed all prior
endorsements and/or lack of endorsements and sent them through
clearing. Later, Bank of America as drawee bank honored the checks and
paid the proceeds to Associated Bank as the collecting bank. When Miller
failed to deliver to BA-Finance the proceeds of the assigned trade
receivables, BA-Finance filed a collection suit against Miller and impleaded
the three representative of the latter.
Bank of America filed a third party complaint against Associated Bank. In
its answer to the third party complaint, Associated Bank admitted having
received the four checks for deposit in the joint account of Ching Uy Seng
and Uy Chung Guan Seng, but alleged that Ching Uy Seng, being one of
the corporate officers of Miller, was duly authorized to act for and on behalf
of Miller.
Issues: Whether or not Bank of America is liable to pay BA-Finance and
whether or not Associated Bank should reimburse Bank of America the
amount of the four checks.
Held: The bank on which a check is drawn, known as the drawee bank,
is under strict liability, based on the contract between the bank and its
customer (drawer), to pay the check only to the payee or the payee’s order.
The drawer’s instructions are reflected on the face and by the terms of the
check. When the drawee bank pays a person other than the payee named
on the check, it does not comply with the terms of the check and violates
its duty to charge the drawer’s account only for properly payable items.
On the part of Associated Bank, the law imposes a duty of diligence on the
collecting bank to scrutinize checks deposited with it for the purpose of
determining their genuineness and regularity. The collecting bank being
primarily engaged in banking holds itself out to the public as the expert
and the law holds it to a high standard of conduct. In presenting the
checks for clearing and for payment, the defendant [collecting bank] made
an express guarantee on the validity of “all prior endorsements.” Thus,
stamped at the back of the checks are the defendant’s clear warranty. As
the warranty has proven to be false and inaccurate, Associated Bank is
liable for any damage arising out of the falsity of its representation.
Held: A bank that regularly processes checks that are neither payable to
the customer nor duly indorsed by the payee is apparently grossly
negligent in its operations. This Court has recognized the unique public
interest possessed by the banking industry and the need for the people to
have full trust and confidence in their banks. For this reason, banks are
minded to treat their customer’s accounts with utmost care, confidence,
and honesty. In a checking transaction, the drawee bank has the duty to
verify the genuineness of the signature of the drawer and to pay the check
strictly in accordance with the drawer’s instructions, i.e., to the named
payee in the check. It should charge to the drawer’s accounts only the
payables authorized by the latter. Otherwise, the drawee will be violating
the instructions of the drawer and it shall be liable for the amount charged
to the drawer’s account. Rodriguez checks are payable to order since the
bank failed to prove that the named payees therein are fictitious.
Hence, the fictitious-payee rule which will make the instrument payable to
bearer does not apply. PNB accepted the 69 checks for deposit to the
PEMSLA account even without any indorsement from the named payees.
It bears stressing that order instruments can only be negotiated with a
valid indorsement.
Allied Banking Corp. V. CA
FACTS:
 January 6, 1981: Allied Bank (Allied) purchased Export Bill of
$20,085 from G.G. Sportswear Mfg. Corporation (GGS)
 The bill, drawn under a letter of credit covered Men's Valvoline
Training Suit that was in transit to West Germany
 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 bill amounting to P151,474.52
 Nari Gidwani and Alcron International Ltd. (Alcron) executed
their respective Letters of Guaranty, holding themselves liable
 on the export bill if it should be dishonored or retired by the
drawee for any reason.
 spouses Leon and Leticia de Villa and Nari Gidwani also
executed a Continuing Guaranty/Comprehensive Surety
(surety), guaranteeing payment of any and all such credit
accommodations which ALLIED may extend to GGS
 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.
 ALLIED demanded payment
 GGS and Nari Gidwani: 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.
 spouses de Villa: 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
 Alcron: foreign corporation doing business in the Philippines, its
branch in the Philippines is merely a liaison office; neither its
liaison office in the Philippines nor its then representative,
Hans-Joachim Schloer, had the authority to issue Letters of
Guaranty for and in behalf of local entities and persons
 RTC: in favor of Allied
 CA: modified holding GGS liable to reimburse Allied, but it
exonerated the guarantors from their liabilities under the
Letters of Guaranty
ISSUE: W/N Gidwani, Alcron and Spouses Villa can be held jointly
and severally liable becuase of their capacity as guarantors and
surety in the absence of protest on the bill in accordance with
Section 152 of the Negotiable Instruments Law?
HELD: YES. CA modified. Nari Gidwani, and Spouses Leon and
Leticia de Villa are jointly and severally liable together with G.G.
Sportswear
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.
 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 called a suretyship.
 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
 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. 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 surety's liability.
 Therefore, no protest on the export bill is necessary to charge
all the respondents jointly and severally liable
 having affixed their consenting signatures in several documents
executed at different times, it is safe to presume that they had
full knowledge of its terms and conditions, hence, they are
 precluded from asserting ignorance of the legal effects of the
undertaking they assumed thereunder
STATE INVESTMENT HOUSE V. CA
FACTS:
Moulic issued checks as security to Victoriano, for pieces of jewelry to be
sold on commission. Moulic failed to sell the pieces of jewelry, so
she returned them to Victoriano. The checks however could not be
recovered by Moulic as these have been discounted already in favor
of petitioner. Consequently, before the maturity dates, Moulic withdrew
her funds from her account. Thereafter, petitioner presented the checks
for payment but these were dishonored. This prompted the petitioner to
initiate an action
against Moulic.
HELD:
A prima facie presumption exists that a holder of a negotiable instrument
is a holder in due course. The burden of proving that State is not a holder
in due course is upon Moulic. In this regard, she failed to do so.
The evidence shows that the dated checks were complete and regular;
petitioner bought the checks from Victoriano before their due dates; it took
the checks in good faith and for value; and it was never informed nor made
aware that these checks were merely issued to payee as security.
Consequently, State is a holder in due course. Moulic cannot set
up the defense that there was failure or want of consideration. It can only
invoke the defense if State was a privy to the purpose for which they were
issued and therefore is not a holder in due course.
Furthermore, the mere fact that the checks were issued as security is not
sufficient ground to discharge the instrument as against a holder in
due course.
And also, Moulic was responsible for the dishonor of her checks.
She withdrew her funds from her account and could not have
expected her checks to be honored by then.
Cesar V. Areza And Lolita B. Areza V. Express
Facts:
Petitioners Cesar V. Areza and Lolita B. Areza have two bank deposits with
respondent Express Savings Bank. They were engaged in the business of
“buy and sell” of brand new and second-hand motor vehicles. On May 2,
2000, they received an order from a certain Gerry Mambuay for the
purchase of a second-hand Mitsubishi Pajero and a brand-new Honda
CRV.
The buyer, Mambuay, paid petitioners with nine (9) Philippine Veterans
Affairs Office (PVAO) checks payable to different payees and drawn against
the Philippine Veterans Bank, each valued at Two Hundred Thousand
Pesos (P200,000.00) for a total of One Million Eight Hundred Thousand
Pesos (P1,800,000.00).
Michael Potenciano, the branch manager of Express Savings Bank, was
present during the transaction and immediately offered the services of the
bank for the processing and eventual crediting of the checks to the account
of the petitioners because the Arezas were valued clients of the bank.
The petitioners then deposited the checks to Express Savings Bank which
in turn deposited the checks with its depository bank, Equitable-PCI Bank.
Equitable-PCI Bank then presented the checks to the drawee bank,
Philippine Veterans Bank, which honoured the checks.
Sometime in July 2000, the checks were returned by PVAO to the drawee
on the ground that the amount on the face of the checks was altered from
the original amount of P4,000.00 to P200,000.00. The drawee bank, in
turn, returned the checks to Equitable-PCI Bank. Equitable-PCI Bank then
informed Express Savings Bank that the drawee dishonored the checks on
the ground of material alterations. It also debited the deposit account of
Express Savings Bank in the amount of P1,800,000.00. Express Savings
Bank insisted that it informed the petitioners of what happened to the
checks. On the other hand, the petitioners maintained that the said bank
never informed them of the said progress.
The petitioners then issued a check in the amount of P500,000.00 but it
was dishonored. They demanded the bank to honor the check but it
refused. Instead, it closed the Special Savings Account of the petitioners
with a balance of P1,179,659.69 and transferred said amount to their
savings account. Express Savings Bank then withdrew the amount of
P1,800,000.00 representing the returned checks from petitioners’ savings
account.
The petitioners filed a Complaint for Sum of Money with Damages against
Express Savings Bank and Potenciano for the alleged arbitrary and
groundless dishonouring of their checks and the unlawful and unilateral
withdrawal from their savings account.
The RTC, through Judge Antonio S. Pozas, initially ruled in favor of the
petitioners but the same court, through Pairing Judge Romeo C. De Leon,
eventually granted the Motion for Reconsideration filed by the respondents
and set aside the Pozas Decision. On appeal, the Court of Appeals affirmed
the ruling of the RTC. Hence, this petition for review on certiorari.
Issues:
I. Whether or not the drawee bank is liable for the altered tenor of
acceptance in case the negotiable instrument is altered before acceptance.
II. Whether or not the respondent bank has the right to debit
P1,800,000.00 from the petitioners’ accounts.
Ruling:
I.
Section 63 of Act No. 2031 or the Negotiable Instruments Law provides
that the acceptor, by accepting the instrument, engages that he will pay it
according to the tenor of his acceptance. The acceptor is a drawee who
accepts the bill. In Philippine National Bank v. Court of Appeals, the
payment of the amount of a check implies not only acceptance but also
compliance with the drawee’s obligation.
In case the negotiable instrument is altered before acceptance, is the
drawee liable for the original or the altered tenor of acceptance? There are
two divergent intepretations proffered by legal analysts. The first view is
that the obligation of the acceptor should be limited to the tenor of the
instrument as drawn by the maker, as was the rule at common law, but
that it should be enforceable in favor of a holder in due course against the
acceptor according to its tenor at the time of its acceptance or certification.
The second view is that the acceptor/drawee despite the tenor of his
acceptance is liable only to the extent of the bill prior to alteration. This
view appears to be in consonance with Section 124 of the Negotiable
Instruments Law which states that a material alteration avoids an
instrument except as against an assenting party and subsequent
indorsers, but a holder in due course may enforce payment according to
its original tenor. Thus, when the drawee bank pays a materially altered
check, it violates the terms of the check, as well as its duty to charge its
client’s account only for bona fide disbursements he had made. If the
drawee did not pay according to the original tenor of the instrument, as
directed by the drawer, then it has no right to claim reimbursement from
the drawer, much less, the right to deduct the erroneous payment it made
from the drawer’s account which it was expected to treat with utmost
fidelity. The drawee, however, still has recourse to recover its loss. It may
pass the liability back to the collecting bank which is what the drawee
bank exactly did in this case. It debited the account of Equitable-PCI Bank
for the altered amount of the checks.
II.
No. The Bank cannot debit the savings account of petitioners. A
depositary/collecting bank may resist or defend against a claim for breach
of warranty if the drawer, the payee, or either the drawee bank or
depositary bank was negligent and such negligence substantially
contributed to the loss from alteration. In the instant case, no negligence
can be attributed to petitioners. We lend credence to their claim that at the
time of the sales transaction, the Bank’s branch manager was present and
even offered the Bank’s services for the processing and eventual crediting
of the checks. True to the branch manager’s words, the checks were
cleared three days later when deposited by petitioners and the entire
amount of the checks was credited to their savings account.
Moreover, the Bank cannot set-off the amount it paid to Equitable-PCI
Bank with petitioners’ savings account. Under Art. 1278 of the New Civil
Code, compensation shall take place when two persons, in their own right,
are creditors and debtors of each other. It is well-settled that the
relationship of the depositors and the Bank or similar institution is that of
creditor-debtor. But as previously discussed, petitioners are not liable for
the deposit of the altered checks. The Bank, as the depositary and
collecting bank ultimately bears the loss. Thus, there being no
indebtedness to the Bank on the part of petitioners, legal compensation
cannot take place.
To recap, the drawee bank, Philippine Veterans Bank in this case, is only
liable to the extent of the check prior to alteration. Since Philippine
Veterans Bank paid the altered amount of the check, it may pass the
liability back as it did, to Equitable-PCI Bank, the collecting bank. The
collecting banks, Equitable-PCI Bank and Express Savings Bank, are
ultimately liable for the amount of the materially altered check. It cannot
further pass the liability back to the petitioners absent any showing in the
negligence on the part of the petitioners which substantially contributed
to the loss from alteration.
Based on the foregoing, the SC granted the petition and affirmed the Pozas
decision only insofar as it ordered respondents to jointly and severally pay
petitioners P1,800,000.00, representing the amount withdrawn from the
latter’s account.
Metropolitan Bank and Trust Company vs Cabilzo
Facts: Petitioner Metrobank is a banking institution duly organized and
existing as such under Philippine laws. Respondent Renato D. Cabilzo
(Cabilzo) was one of Metrobank’s clients who maintained a current account
with Metrobank Pasong Tamo Branch. On 12 November 1994, Cabilzo
issued a Metrobank Check No. 985988, payable to “CASH” and postdated
on 24 November 1994 in the amount of One Thousand Pesos (P 1,000.00).
The check was drawn against Cabilzo’s Account with Metrobank Pasong
Tamo Branch under Current Account No. 618044873-3 and was paid by
Cabilzo to a certain Mr. Marquez, as his sales commission. Subsequently,
the check was presented to Westmont Bank for payment. Westmont Bank,
in turn, indorsed the check to Metrobank for appropriate clearing. After
the entries thereon were examined, including the availability of funds and
the authenticity of the signature of the drawer, Metrobank cleared the
check for encashment in accordance with the Philippine Clearing House
Corporation (PCHC) Rules. On 16 November 1994, Cabilzo’s
representative was at Metrobank Pasong Tamo Branch to make some
transaction when he was asked by a bank personnel if Cabilzo had issued
a check in the amount of P 91,000.00 to which the former replied in the
negative. On the afternoon of the same date, Cabilzo himself called
Metrobank to reiterate that he did not issue a check in the amount of P
91,000.00 and requested that the questioned check be returned to him for
verification, to which Metrobank complied. 1,000.00 was altered to P Upon
receipt of the check, Cabilzo discovered that Metrobank Check No. 985988
which he issued on 12 November 1994 in the amount of P 91,000.00 and
the date 24 November 1994 was changed to 14 November 1994.
Issue: Whether or not the alteration made in the subject check is a material
alteration.
Held: Yes. An alteration is said to be material if it changes the effect of the
instrument. It means that 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.
Section 125. What constitutes 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 relation of the
parties; (e) The medium or currency in which payment is to be made; 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.
In the case at bar, the check was altered so that the amount was increased
from P 1,000.00 to P91,000.00 and the date was changed from 24
November 1994 to 14 November 1994. Apparently, since the entries altered
were among those enumerated under Section 1 and 125, namely, the sum
of money payable and the date of the check, the instant controversy
therefore squarely falls within the purview of material alteration.
Now, having laid the premise that the present petition is a case of material
alteration, it is now necessary for us to determine the effect of a materially
altered instrument, as well as the rights and obligations of the parties
thereunder. The following provision of the Negotiable Instrument Law will
shed us some light in threshing out this issue:
Section 124. Alteration of instrument; effect of. – Where a negotiable
instrument is materially altered without the assent of all parties liable
thereon, it is avoided, except as against a party who has himself made,
authorized, assented to the alteration and subsequent indorsers . and But
when the instrument has been materially altered and is in the hands of a
holder in due course not a party to the alteration, he may enforce the
payment thereof according to its original tenor.
Indubitably, Cabilzo was not the one who made nor authorized the
alteration. Neither did he assent to the alteration by his express or implied
acts. There is no showing that he failed to exercise such reasonable degree
of diligence required of a prudent man which could have otherwise
prevented the loss. As correctly ruled by the appellate court, Cabilzo was
never remiss in the preparation and issuance of the check, and there were
no indicia of evidence that would prove otherwise. Indeed, Cabilzo placed
asterisks before and after the amount in words and figures in order to
forewarn the subsequent holders that nothing follows before and after the
amount indicated other than the one specified between the asterisks.
The degree of diligence required of a reasonable man in the exercise of his
tasks and the performance of his duties has been faithfully complied with
by Cabilzo. In fact, he was wary enough that he filled with asterisks the
spaces between and after the amounts, not only those stated in words, but
also those in numerical figures, in order to prevent any fraudulent
insertion, but unfortunately, the check was still successfully altered,
indorsed by the collecting bank, and cleared by the drawee bank, and
encashed by the perpetrator of the fraud, to the damage and prejudice of
Cabilzo.
Verily, Metrobank cannot lightly impute that Cabilzo was negligent and is
therefore prevented from asserting his rights under the doctrine of
equitable estoppel when the facts on record are bare of evidence to support
such conclusion. The doctrine of equitable estoppel states that when one
of the two innocent persons, each guiltless of any intentional or moral
wrong, must suffer a loss, it must be borne by the one whose erroneous
conduct, either by omission or commission, was the cause of injury.
Metrobank’s reliance on this dictum, is misplaced. For one, Metrobank’s
representation that it is an innocent party is flimsy and evidently,
misleading. At the same time, Metrobank cannot asseverate that Cabilzo
was negligent and this negligence was the proximate cause of the loss in
the absence of even a scintilla proof to buttress such claim. Negligence is
not presumed but must be proven by the one who alleges it.

When the drawee bank pays a materially altered check, it violates the
terms of the check, as well as its duty to charge its client’s account only
for bona fide disbursements he had made. Since the drawee bank, in the
instant case, did not pay according to the original tenor of the instrument,
as directed by the drawer, then it has no right to claim reimbursement
from the drawer, much less, the right to deduct the erroneous payment it
made from the drawer’s account which it was expected to treat with utmost International Corporate Bank vs. CA
fidelity.

FACTS
 The Ministry of Education and Culture issued 15 checks drawn
against PNB which International Corp. Bank (Int'l) accepted for
deposit on various dates.

 After 24 hours from submission of the checks to Int'l for

clearing, it paid the value of the checks and allowed the
withdrawals of the deposits

 October 14, 1981, PNB returned all the checks to Int'l without
clearing them on the ground that they were materially altered.

 Int'l instituted an action for collection of sums of money against

respondent to recover the value of the checks.

 RTC: dismissed

 CA: Reversed

 materially altered shall be returned within 24 hours after

discovery of the alteration.
 C.B. Circular does not provide the drawee bank the license to be
grossly negligent on the one hand nor does it preclude the
collecting bank from raising available defenses even if the check
is properly returned within the 24-hour period after discovery of
the material alteration
ISSUES: W/N PNB should be liable for not returning the check with
material alteration w/in the 24-hour period
HELD: NO. CA set aside
 Alteration of Serial Number Not Material
 The Court will not rule on the proper application of Central Bank
Circular No. 580 in this case since there were no material
alterations on the checks, PNB as drawee bank has no right to
dishonor them and return them to petitioner, the collecting
bank
International Corporate Bank vs. Sps. Gueco
FACTS:
Gueco spouses obtained a loan from ICB (now Union Bank) to purchase a
car. In consideration thereof, the debtors executed PNs, and a chattel
mortgage was made over the car. As the usual story goes, the
spouses defaulted in payment of their obligations and despite the
lowering of the amount to be paid, they still failed to pay. Thereafter,
they tendered a manager’s check in favor of the bank. Nonetheless,
the car was still detained for the spouses refused to sign the joint motion
to dismiss. The bank averred that the joint motion to dismiss is part
of standard office procedure to preclude the filing of other claims.
Because of this, the spouses filed an action for damages against the
bank. And by the time the case was instituted, the check had become stale
in the hands of the bank.
HELD:
The main issue though unrelated to Negotiable Instruments Law in this
case was whether or not the signing of the joint motion to dismiss a part
of the compromise agreement between the spouses and the bank. The
answer is no, it is not a part of the compromise agreement entered by the
parties. And thus, the signing is dispensible in releasing the car to the
spouses. And on the ancillary issue of the case, which is the relevant issue
for the subject, whether or not the spouses should replace the check they
paid to the bank after it became stale, the answer is yes. It appeared
that the check has not been encashed. The delivery of the manager’s check
did not constitute payment. The original obligation to pay still exists.
Indeed, the circumstances that caused the non-presentment of the
check should be considered to determine who should bear the loss. In
this case, ICB held on the check and refused to encash the same because
of the controversy surrounding the signing of the joint motion to dismiss.
There is no bad faith
or negligence on the part of ICB.
A stale check is one which has not been presented for payment
within a reasonable time after its issue. It is valueless and, therefore,
should not be paid. A check should be presented for payment within
a reasonable time after its issue. Here, what is involved is a manager’s
check, which is
essentially a bank’s own check and may be treated as a PN with the bank
as a maker. 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—but here
there is
no loss sustained. Still, such failure to present on time does not wipe out
liability.
BATAAN CIGAR AND CIGARETTE FACTORY, INC. v. THE COURT OF
APPEALS
Facts: Petitioner, Bataan Cigar & Cigarette Factory, Inc. (BCCFI), a corporation
involved in the manufacturing of cigarettes, engaged one of its suppliers, King Tim
Pua George (herein after referred to as George King), to deliver 2,000 bales of
tobacco leaf starting October 1978. In consideration thereof, BCCFI, on July 13, 1978
issued crossed checks post dated sometime in March 1979 in the total amount of
P820,000.00. Petitioner agreed to purchase additional 2,500 bales of tobacco leaves,
despite the supplier's failure to deliver in accordance with their earlier agreement.
Again petitioner issued post dated crossed checks in the total amount of
P1,100,000.00, payable sometime in September 1979.
During these times, George King sold at a discount the checks drawn by petitioner to
private respondent SIHI. In as much as George King failed to deliver the bales of
tobacco leaf as agreed despite petitioner's demand, BCCFI issued on March 30, 1979,
a stop payment order on all checks payable to George King. Efforts of SIHI to
collect from BCCFI having failed, it instituted the present case, naming only BCCFI as
party defendant. The trial court pronounced SIHI as having a valid claim being a
holder in due course.
Issue: Whether or not SIHI, a second indorser, a holder of crossed checks, is a
holder in due course, to be able to collect from the drawer, BCCFI.
Held: YES. As preliminary, a check is defined by law as a bill of exchange drawn
on a bank payable on demand. There are a variety of checks, the more popular of
which are the memorandum check, cashier's check, traveler's check and crossed
check. Crossed check is one where two parallel lines are drawn across its face
or across a corner thereof. It may be crossed generally or specially. According
to commentators, the negotiability of a check is not affected by its being
crossed, whether specially or generally. It may legally be negotiated from one
person to another as long as the one who encashes the check with the drawee bank
is another bank, or if it is specially crossed, by the bank mentioned between the
parallel lines.
In order to preserve the credit worthiness of checks, jurisprudence has pronounced
that crossing of a check should have the following effects: (a) the check may not
be encashed but only deposited in the bank; (b) the check may be negotiated
only once — to one who has an account with a bank; (c) and the act of crossing the
check serves as warning to the holder that the check has been issued for a definite
purpose so that he must inquire if he has received the check pursuant to that
purpose, otherwise, he is not a holder in due course.
It is then settled that 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. There being failure of consideration, SIHI is not a holder
in due course. Consequently, BCCFI cannot be obliged to pay the checks.
WHEREFORE, finding that the court a quo erred in the application of law, the
instant petition is hereby GRANTED. The decision of the Regional Trial Court as
affirmed by the Court of Appeals is hereby REVERSED.
Metropolitan Bank and Trust Company vs. Wilfred N. Chiok
Doctrine: While manager’s and cashier’s checks are still subject to
clearing, they cannot be countermanded for being drawn against a closed
account, for being drawn against insufficient funds, or for similar reasons
such as a condition not appearing on the face of the check.
Facts: On July 5, 1995, respondent Wilfred N. Chiok (Chiok) bought
US$1,022,288.50 dollars from Gonzalo B. Nuguid (Nuguid) where Chiok
deposited the three manager’s checks (Asian Bank MC Nos. 025935 and
025939, and Metrobank CC No. 003380), with an aggregate value
of ₱26,068,350.00 in Nuguid’s account with petitioner Bank of the
Philippine Islands (BPI). Nuguid, however, failed to deliver the dollar
equivalent of the three checks as agreed upon, prompting Chiok to request
that payment on the three checks be stopped. On the following day, July
6, 1995, Chiok filed a Complaint for damages with application for ex parte
restraining order and/or preliminary injunction with the Regional Trial
Court (RTC) of Quezon City against the spouses Gonzalo and Marinella
Nuguid, and the depositary banks, Asian Bank and Metrobank. On July
25, 1995, the RTC issued an Order directing the issuance of a writ of
preliminary prohibitory injunction. When checks were presented for
payment, Asian Bank refused to honor MC Nos. 025935 and 025939 in
deference to the TRO.
Issue: Whether or not payment of manager’s and cashier’s checks are
subject to the condition that the payee thereof should comply with his
obligations to the purchaser of the checks.
Held: No. A manager’s check, like a cashier’s check, is an order of the bank
to pay, drawn upon itself, committing in effect its total resources, integrity,
and honor behind its issuance. By its peculiar character and general use
in commerce, a manager’s check or a cashier’s check is regarded
substantially to be as good as the money it represents. While manager’s
and cashier’s checks are still subject to clearing, they cannot be
countermanded for being drawn against a closed account, for being drawn
against insufficient funds, or for similar reasons such as a condition not
appearing on the face of the check. Long standing and accepted banking
practices do not countenance the countermanding of manager’s and
cashier’s checks on the basis of a mere allegation of failure of the payee to
comply with its obligations towards the purchaser. Therefore, when
Nuguid failed to deliver the agreed amount to Chiok, the latter had a cause
of action against Nuguid to ask for the rescission of their contract; but,
Chiok did not have a cause of action against Metrobank and Global Bank
that would allow him to rescind the contracts of sale of the manager’s or
cashier’s checks, which would have resulted in the crediting of the
amounts thereof back to his accounts.