Cases:

1. Phil. Educ Co Inc vs Soriano

Philippine Education Co. vs. Soriano

L-22405 June 30, 1971
Dizon, J.:

Facts:

Enrique Montinola sought to purchase from Manila Post Office ten money orders of 200php each
payable to E. P. Montinola. Montinola offered to pay with the money orders with a private check. Private check
were not generally accepted in payment of money orders, the teller advised him to see the Chief of the Money
Order Division, but instead of doing so, Montinola managed to leave the building without the knowledge of the
teller. Upon the disappearance of the unpaid money order, a message was sent to instruct all banks that it
must not pay for the money order stolen upon presentment. The Bank of America received a copy of said
notice. However, The Bank of America received the money order and deposited it to the appellant’s account
upon clearance. Mauricio Soriano, Chief of the Money Order Division notified the Bank of America that the
money order deposited had been found to have been irregularly issued and that, the amount it represented
had been deducted from the bank’s clearing account. The Bank of America debited appellant’s account with
the same account and give notice by mean of debit memo.

Issue:

Whether or not the postal money order in question is a negotiable instrument

Held:

No. It is not disputed that the Philippine postal statutes were patterned after similar statutes in force in United
States. The Weight of authority in the United States is that postal money orders are not negotiable instruments,
the reason being that in establishing and operating a postal money order system, the government is not
engaged in commercial transactions but merely exercises a governmental power for the public benefit.
Moreover, some of the restrictions imposed upon money orders by postal laws and regulations are inconsistent
with the character of negotiable instruments. For instance, such laws and regulations usually provide for not
more than one endorsement; payment of money orders may be withheld under a variety of circumstances.

2. Metropolitan Bank and Trust Company vs CA

Metropolitan Bank & Trust Company vs. Court of Appeals

G.R. No. 88866 February, 18, 1991
Cruz, J.:

Facts:

Eduardo Gomez opened an account with Golden Savings and deposited 38 treasury warrants. All
warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its
Savings account in Metrobank branch in Calapan, Mindoro. They were sent for clearance. Meanwhile, Gomez
is not allowed to withdraw from his account, later, however, “exasperated” over Floria repeated inquiries and
also as an accommodation for a “valued” client Metrobank decided to allow Golden Savings to withdraw from
proceeds of the warrants. In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his
own account. Metrobank informed Golden Savings that 32 of the warrants had been dishonored by the Bureau
of Treasury and demanded the refund by Golden Savings of the amount it had previously withdrawn, to make
up the deficit in its account. The demand was rejected. Metrobank then sued Golden Savings.

Issue:

1. Whether or not Metrobank can demand refund agaist Golden Savings with regard to the amount withdraws
to make up with the deficit as a result of the dishonored treasury warrants.

2. Whether or not treasury warrants are negotiable instruments

Held:

No. Metrobank is negligent in giving Golden Savings the impression that the treasury warrants had
been cleared and that, consequently, it was safe to allow Gomez to withdraw. Without such assurance, Golden
Savings would not have allowed the withdrawals. Indeed, Golden Savings might even have incurred liability for
its refusal to return the money that all appearances belonged to the depositor, who could therefore withdraw it
anytime and for any reason he saw fit.

It was, in fact, to secure the clearance of the treasury warrants that Golden Savings deposited them to its
account with Metrobank. Golden Savings had no clearing facilities of its own. It relied on Metrobank to
determine the validity of the warrants through its own services. The proceeds of the warrants were withheld
from Gomez until Metrobank allowed Golden Savings itself to withdraw them from its own deposit.

Metrobank cannot contend that by indorsing the warrants in general, Golden Savings assumed that they were
genuine and in all respects what they purport to be,” in accordance with Sec. 66 of NIL. The simple reason that
NIL is not applicable to non negotiable instruments, treasury warrants.

No. The treasury warrants are not negotiable instruments. Clearly stamped on their face is the word:
non negotiable.” Moreover, and this is equal significance, it is indicated that they are payable from a particular
fund, to wit, Fund 501. An instrument to be negotiable instrument must contain an unconditional promise or
orders to pay a sum certain in money. As provided by Sec 3 of NIL an unqualified order or promise to pay is
unconditional though coupled with: 1st, an indication of a particular fund out of which reimbursement is to be
made or a particular account to be debited with the amount; or 2nd, a statement of the transaction which give
rise to the instrument. But an order to promise to pay out of particular fund is not unconditional. The indication
of Fund 501 as the source of the payment to be made on the treasury warrants makes the order or promise to
pay “not conditional” and the warrants themselves non-negotiable. There should be no question that the
exception on Section 3 of NIL is applicable in the case at bar.

3. Ang Tek Lian vs CA

Ang Tek Lian vs. Court of Appeals

L-2516 September, 1950
Bengzon, J.:

Facts:

Ang Tek Lian knowing that he had no funds therefor, drew a check upon China Banking Corporation
payable to the order of “cash”. He delivered it toLee Hua Hong in exchange for money. The check was
presented by Lee Hua hong to the drawee bank for payment, but it w3as dishonored for insufficiency of funds.
With this, Ang Tek Lian was convicted of estafa.

Issue:

Whether or not the check issued by Ang Tek Lian that is payable to the order to “cash” and not have
been indorsed by Ang Tek Lian, making him not guilty for the crime of estafa.

Held:

No.Under Sec. 9 of NIL a check drawn payable to the order of “cash” is a check payable to bearer and
the bank may pay it to the person presenting it for payment without the drawer’s indorsement. However, if the
bank is not sure of the bearer’s identity or financial solvency, it has the right to demand identification or
assurance against possible complication, such as forgery of drawer’s signature, loss of the check by the
rightful owner, raising of the amount payable, etc. But where the bank is satisfied of the identity or economic
standing of the bearer who tenders the check for collection, it will pay the instrument without further question;
and it would incur no liability to the drawer in thus acting.
4. PNB vs Rodriguez

PNB v. Rodriguez
GR No. 170325
Justice Reyes

Facts: Respondents-Spouses Erlando and Norma Rodriguez were clients of petitioner Philippine National
Bank (PNB), Amelia Avenue Branch, Cebu City. They maintained savings and demand/checking accounts,
namely, PNBig Demand Deposits (Checking/Current Account No. 810624-6 under the account name Erlando
and/or Norma Rodriguez), and PNBig Demand Deposit (Checking/Current Account No. 810480-4 under the
account name Erlando T. Rodriguez).

The spouses were engaged in the informal lending business. In line with their business, they had a
discounting arrangement with the Philnabank Employees Savings and Loan Association (PEMSLA), an
association of PNB employees. Naturally, PEMSLA was likewise a client of PNB Amelia Avenue Branch. The
association 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 was an irregular procedure made possible through the
facilitation of Edmundo Palermo, Jr., treasurer of PEMSLA and bank teller in the PNB Branch. It appears that
this became the usual practice for the parties. For the period November 1998 to February 1999, the spouses
issued sixty nine (69) checks, in the total amount ofP2,345,804.00. These were payable to forty seven (47)
individual payees who were all members of PEMSLA.

Petitioner PNB eventually found out about these fraudulent acts. To put a stop to this
scheme, 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.

Issue: Whether the subject checks are payable to order or to bearer and who bears the loss?

Held: In the case at bar, respondents-spouses were the bank’s depositors. The checks were drawn against
respondents-spouses’ accounts. PNB, as the drawee bank, had the responsibility to ascertain the regularity of
the indorsements, and the genuineness of the signatures on the checks before accepting them for
deposit. Lastly, PNB was obligated to pay the checks in strict accordance with the instructions of the
drawers. Petitioner miserably failed to discharge this burden.

The checks were presented to PNB for deposit by a representative of PEMSLA absent any type of
indorsement, forged or otherwise. The facts clearly show that the bank did not pay the checks in strict
accordance with the instructions of the drawers, respondents-spouses. Instead, it paid the values of the
checks not to the named payees or their order, but to PEMSLA, a third party to the transaction between the
drawers and the payees.

Moreover, PNB was negligent in the selection and supervision of its employees. The trustworthiness of
bank employees is indispensable to maintain the stability of the banking industry. Thus, banks are enjoined to
be extra vigilant in the management and supervision of their employees.
5. Republic Planters Bank vs CA

Republic Planters Bank vs. CA

GR 93073, 21 December 1992
Second Division, Campos Jr. (J)

Facts: Republic Planters Bank issued 9 promissory notes signed by Shozo Yamaguchi (President) and
Fermin Canlas (Treasurer) of Worldwide Garment Manufacturing Inc. Yamaguchi and Canlas were authorized
by the corporation to apply for credit facilities with the bank in form of export advances and letters of credit or
trust receipts accommodations. Three years after, the bank filed an action to recover the sums of money
covered by the promissory notes. Worldwide Garment Manufacturing changed its name to Pinch
Manufacturing Corp. Canlas alleged he was not liable personally for the corporate acts that he performed, and
that the notes were still blank when he signed them.

Issue: Whether the corporate treasurer is liable for the amounts in the promissory notes.

Held: Canlas is a co-maker of the promissory notes, under the law, and cannot escape liability arising
therefrom. Inasmuch as the instrument contained the words “I promise to pay” and is signed by two or more
persons, said persons are deemed to be jointly and severally liable thereon. As the promissory notes are
stereotype ones issued by the bank in printed form with blank spaces filled up as per agreed terms of the loan,
following customary procedures, leaving the debtors to do nothing but read the terms and conditions therein
and to sign as makers or co-makers. Section 14 of the Negotiable Instruments Law, therefore, does not apply.
Canlas is solidarily liable with the corporation for the amount of the 9 promissory notes.

Yes, where an instrument containing the words “I promise to pay” is signed by two or more persons,
they are deemed to be jointly and severally liable thereon. An instrument which begins with “I”. “We”, or “Either
of us” promise to pay, when signed by two or more persons, makes them solidarily liable. The fact that the
singular pronoun is used indicates that the promise is individual as to each other; meaning that each of the co-
signers is deemed to have made an independent singular promise to pay the notes in full.

6. SPS. Evangelista vs Mercator Finance Corp

SPS EDUARDO & EPIFANIA EVANGELISTA vs. MERCATOR FINANCE CORP. LYDIA P. SALAZAR,
LAMECS REALTY & DEV’T CORP. and the REGISTER OF DEEDS OF BULACAN
G.R. No. 148864 August 21, 2003

Facts:

Spouses Eduardo B. Evangelista and Epifania C. Evangelista filed a complaint for annulment of titles against
Mercator Finance Corp. Lydia P. Salazar, Lamecs Realty and Development Corporation, and the Register of
Deeds of Bulacan. The spouses Evangelista claimed being the registered owners of 5 parcels of land
contained in the Real Estate Mortgage executed by them and Embassy Farms, Inc. They alleged that they
executed the Real Estate Mortgage in favor of Mercator only as officers of Embassy Farms. They did not
receive the proceeds of the loan evidenced by a promissory note, as all of it went to Embassy Farms. Thus,
they contended that the mortgage was without any consideration as to them since they did not personally
obtain any loan or credit accommodations. There being no principal obligation on which the mortgage rests,
the real estate mortgage is void. With the void mortgage, they assailed the validity of the foreclosure
proceedings conducted by Mercator, the sale to it as the highest bidder in the public auction, the issuance of
the transfer certificates of title to it, the subsequent sale of the same parcels of land to Lydia P. Salazar, and
the transfer of the titles to her name, and lastly, the sale and transfer of the properties to respondent Lamecs
Realty & Development Corporation. Mercator admitted that the spouses Evangelista were the owners of the
subject parcels of land. It, however, contended that on 16 February 1982, the spouses executed a Mortgage in
favor of Mercator for and in consideration of certain loans, and/or other forms of credit accommodations
obtained from the Mortgagee (Mercator) amounting to P844,625.78 and to secure the payment of the same
and those others that the Mortgagee may extend to the mortgagor. It contended that since the spouses and
Embassy Farms signed the promissory note as co-makers, aside from the Continuing Suretyship Agreement
subsequently executed to guarantee the indebtedness of Embassy Farms, and the succeeding promissory
notes restructuring the loan, then the spouses are jointly and severally liable with Embassy Farms. Due to their
failure to pay the obligation, the foreclosure and subsequent sale of the mortgaged properties are valid.
Salazar and Lamecs asserted that they are innocent purchasers for value and in good faith, relying on the
validity of the title of Mercator. Lamecs admitted the prior ownership of the spouses of the subject parcels of
land, but alleged that they are the present registered owner. Salazar and Lamecs likewise assailed the long
silence and inaction by the spouses as it was only after a lapse of almost 10 years from the foreclosure of the
property and the subsequent sales that they made their claim. Thus, Salazar and Lamecs averred that
petitioners are in estoppel and guilty of laches. After pre-trial, Mercator moved for summary judgment on the
ground that except as to the amount of damages, there is no factual issue to be litigated. Mercator argued that
petitioners had admitted in their pre-trial brief the existence of the promissory note, the continuing suretyship
agreement and the subsequent promissory notes restructuring the loan, hence, there is no genuine issue
regarding their liability. The mortgage, foreclosure proceedings and the subsequent sales are valid and the
complaint must be dismissed. The spouses opposed the motion for summary judgment claiming that because
their personal liability to Mercator is at issue, there is a need for a full-blown trial. The RTC granted the motion
for summary judgment and dismissed the complaint. The spouses’ motion for reconsideration was denied for
lack of merit. Thus, the spouses went up to the Court of Appeals, but again were unsuccessful. A motion for
reconsideration by the spouses was likewise denied for lack of merit. The spouses filed the Petition for Review
on Certiorari. The spouses allege, inter alia, that there is an ambiguity in the wording of the promissory note
and claim that since it was Mercator who provided the form, then the ambiguity should be resolved against it.

Issue:

Whether the spouses are solidarily liable with Embassy Farms, in light of the promissory note signed by them.

Held:

The promissory note and the Continuing Suretyship Agreement prove that the spouses are solidary obligors
with Embassy Farms. The promissory notes subsequently executed by the spouses and Embassy Farms,
restructuring their loan, likewise prove that the spouses are solidarily liable with Embassy Farms. The spouses
allege that there is an ambiguity in the wording of the promissory note and claim that since it was Mercator who
provided the form, then the ambiguity should be resolved against it. Courts can interpret a contract only if there
is doubt in its letter. But, an examination of the promissory note shows no such ambiguity. Besides, assuming
arguendo that there is an ambiguity, Section 17 of the Negotiable Instruments Law states that "Where the
language of the instrument is ambiguous or there are omissions therein, the following rules of construction
apply: (g) Where an instrument containing the word 'I promise to pay' is signed by two or more persons, they
are deemed to be jointly and severally liable thereon." Further, even if the spouses intended to sign the note
merely as officers of Embassy Farms, still this does not erase the fact that they subsequently executed a
continuing suretyship agreement. A surety is one who is solidarily liable with the principal. The spouses cannot
claim that they did not personally receive any consideration for the contract for well-entrenched is the rule that
the consideration necessary to support a surety obligation need not pass directly to the surety, a consideration
moving to the principal alone being sufficient. A surety is bound by the same consideration that makes the
contract effective between the principal parties thereto. Having executed the suretyship agreement, there can
be no dispute on the personal liability of the spouses.

7. Ilano vs Hon. Espanol

G. R. No. 161756 December 16, 2005

Victoria J. Ilano
v.
Hon. Dolores L. Español, Et Al.
Ponente: Carpio Morales J

Facts of the case:

Amelia Alonzo is a trusted employee of Victoria Ilano.During those times that Ilano is in the United States of
America for medical check-up; Alonzo was entrusted with Ilano’s Metrobank Check Book which contains both
signed and unsigned blank checks.

A Complaint for Revocation/Cancellation of Promissory Notes and Bills of Exchange (Cheques) with Damages
and Prayer for Preliminary Injunction or Temporary Restraining Order (TRO) against Alonzo et al. before the
Regional Trial Court of Cavite. Ilano contends that Alonzo, by means of deceit and abuse of confidence
succeeded in procuring Promissory Notes and signed blank cheques. Alonzo likewise succeeded in inducing
Ilano to sign antedated Promissory Notes. The RTC rendered a decision dismissing the complaint for lack of
cause of action and failure to allege the ultimate facts of the case. On appeal, the Court of Appeals affirmed
the dismissal of the complaint.

Key dates to note:

Second week of December 1999- Alonzo by means of deceit and abuse of confidence succeeded in procuring
Promissory Notes and signed blank cheques from Ilano while recuperating from illness.

Antedated Promissory notes June 8, 1999 and another promissory note dated March 1999

January 12, 2000 Cheque No. 0085134 was dishonored due to “Account Closed”

Issue:

Whether or Not the Court erred in dismissing the complaint

Supreme Court Ruling:

Petition was Partly Granted

The March 21, 2003 decision of the appellate court affirming the October 12, 2000 Order of the trial court
Branch 20 of the RTC of Imus Cavite is affirmed with modifications.

The Trial Court is Directed to Reinstate Civil Case No. 2079-00 to its docket and take further proceedings
thereon only insofar as the complaint seeks the revocation and cancellation of the subject promissory notes
and damages.

Held:

While some of the allegations my lack particulars, and are in the form of conclusions of law, the elements of a
cause of action are present. For even if some are not stated with particularity, Ilano alleged

1.) Her legal right not to be bound by the instruments which were bereft of consideration and to which her
consent was vitiated
2.) The correlative obligation on the part of the defendants-respondents to respect said right
3.) The act of the defendant-respondents in procuring her signature on the instruments through “deceit”, “
abuse of confidence”, “machination” “fraud”, “falsification”, “forgery”, “defraudation”, and “bad faith” and
“with malice, malevolence and selfish intent”

NIL Section 6 Omissions, seal particular money – The validity and negotiable character of an instrument are
not affected by the fact that –

a. It is not dated; or
b. Does not specify the value given, or that any value had been given therefore ; or
c. Does not specify the place where it is drawn or the place where it is payable; or
d. Bears a seal; or
e. Designates a particular kind of current money in which payment is to be made.

8. Consolidated Plywood vs IFC Leasing

Consolidated Plywood, et. al. vs. IFC Leasing , G.R. No. 72593, April 30, 1987

Facts: Consolidated Plywood Industries Inc. (CPII) is a corporation engaged in the logging business. It had for
its program of logging activities for the year 1978 the opening of additional roads, and simultaneous logging
operations along the route of said roads, in its logging concession area at Baganga, Manay, and Caraga,
Davao Oriental.

For this purpose, it needed 2 additional units of tractors. Cognizant of CPII’s need and purpose, Atlantic Gulf &
Pacific Company of Manila, through its sister company and marketing arm, Industrial Products Marketing
(IPM), a corporation dealing in tractors and other heavy equipment business, offered to sell to CPII 2 “Used”
Allis Crawler Tractors, 1 an HD-21-B and the other an HD-16-B. After conducting said inspection, IPM assured
CPII that the “Used” Allis Crawler Tractors which were being offered were fit for the job, and gave the
corresponding warranty of 90 days performance of the machines and availability of parts. With said assurance
and warranty, and relying on the IPM’s skill and judgment, CPII through Henry Wee and Rodolfo T. Vergara,
president and vice-president, respectively, agreed to purchase on installment said 2 units of “Used” Allis
Crawler Tractors. It also paid the down payment of P210,000.00. On 5 April 1978, IPM issued the sales invoice
for the 2 units of tractors. At the same time, the deed of sale with chattel mortgage with promissory note was
executed.

Barely 14 days had elapsed after their delivery when one of the tractors broke down and after another 9 days,
the other tractor likewise broke down. IPM sent to the jobsite its mechanics to conduct the necessary repairs,
but the tractors did not come out to be what they should be after the repairs were undertaken because the
units were no longer serviceable. Because of the breaking down of the tractors, the road building and
simultaneous logging operations of CPII were delayed and Vergara advised IPM that the payments of the
installments as listed in the promissory note would likewise be delayed until IPM completely fulfills its obligation
under its warranty.

Since the tractors were no longer serviceable, on 7 April 1979, Wee asked IPM to pull out the units and have
them reconditioned, and thereafter to offer them for sale. The proceeds were to be given to IFC Leasing and
the excess, if any, to be divided between IPM and CPII which offered to bear 1/2 of the reconditioning cost. No
response to this letter was received by CPII and despite several follow-up calls, IPM did nothing with regard to
the request, until the complaint in the case was filed by IFC Leasing against CPII, Wee, and Vergara. The
complaint was filed by IFC Leasing against CPII, et al. for the recovery of the principal sum of P1,093,789.71,
accrued interest of P151,618.86 as of 15 August 1979, accruing interest there after at the rate of 12% per
annum, attorney’s fees of P249,081.71 and costs of suit.

CPII, et al. filed their amended answer praying for the dismissal of the complaint. In a decision dated 20 April
1981, the trial court rendered judgment, ordering CPII, et al. to pay jointly and severally in their official and
personal capacities

On 17 July 1985, the Intermediate Appellate Court issued the decision affirming in toto the decision of the trial
court.

Issue: Whether the promissory note in question is a negotiable instrument.

Held: No. The pertinent portion of the note provides that “”FOR VALUE RECEIVED, I/we jointly and severally
promise to pay to the INDUSTRIAL PRODUCTS MARKETING, the sum of P1,093,789.71, Philippine
Currency, the said principal sum, to be payable in 24 monthly installments starting July 15, 1978 and every
15th of the month thereafter until fully paid.” Considering that paragraph (d), Section 1 of the Negotiable
Instruments Law requires that a promissory note “must be payable to order or bearer,” it cannot be denied that
the promissory note in question is not a negotiable instrument.

The instrument in order to be considered negotiable must contain the so called “words of negotiability” — i.e.,
must be payable to “order” or “bearer.” These words serve as an expression of consent that the instrument
may be transferred. This consent is indispensable since a maker assumes greater risk under a negotiable
instrument than under a non- negotiable one. Without the words “or order” or “to the order of,” the instrument is
payable only to the person designated therein and is therefore non-negotiable. Any subsequent purchaser
thereof will not enjoy the advantages of being a holder of a negotiable instrument, but will merely “step into the
shoes” of the person designated in the instrument and will thus be open to all defenses available against the
latter.

Therefore, considering that the subject promissory note is not a negotiable instrument, it follows that IFC
Leasing can never be a holder in due course but remains a mere assignee of the note in question. Thus, CPII
may raise against IFC Leasing all defenses available to it as against IPM. This being so, there was no need for
CPII to implead IPM when it was sued by IFC Leasing because CPII’s defenses apply to both or either of them.
9. De La Victoria vs Hon. Burgos

De La Victoria vs. Burgos - JANINE BOLLOSA

G.R. No. 111190. June 27, 1995
Bellosillo, J.

Assistant City Fiscal Bienvenido N. Mabanto was ordered to pay herein private respondent Raul Sesbreño
P11,000.00 as damages. A notice of garnishment was served on herein petitioner Loreto D. de la Victoria as
City Fiscal of Mandaue City where Mabanto was detailed. V was directed not to disburse, transfer, release or
convey to any other person except to the deputy sheriff concerned the salary checks or other checks, monies,
or cash due or belonging to Mabanto, Jr., under penalty of law. Later, V was directed to submit his report
showing the amount of the garnished salaries. V moved to quash the notice of garnishment claiming that he
was not in possession of any money, funds, credit, property or anything of value belonging to Mabanto, Jr.,
except his salary and RATA checks, but that said checks were not yet properties of Mabanto, Jr., until
delivered to him. He further claimed that, as such, they were still public funds which could not be subject to
garnishment.

ISSUE: W/N a check still in the hands of the maker or its duly authorized representative is owned by the payee
before physical delivery to the latter.

RULING:

As Assistant City Fiscal, the source of the salary of Mabanto, Jr., is public funds. He receives his compensation
in the form of checks from the DOJ through V as City Fiscal of Mandaue City and head of office. Under Sec. 16
of the Negotiable Instruments Law, every contract on a negotiable instrument is incomplete and revocable until
delivery of the instrument for the purpose of giving effect thereto. As ordinarily understood, delivery means the
transfer of the possession of the instrument by the maker or drawer with intent to transfer title to the payee and
recognize him as the holder thereof.

Inasmuch as said checks had not yet been delivered to Mabanto, Jr., they did not belong to him and still had
the character of public funds. The salary check of a government officer or employee does not belong to him
before it is physically delivered to him. Until that time the check belongs to the government. Accordingly, before
there is actual delivery of the check, the payee has no power over it; he cannot assign it without the consent of
the Government. Being public fund, the checks may not be garnished to satisfy the judgment in consideration
of public policy.

10. Development Bank of Rizal vs Sima Wei

GR 85419
Development Bank of Rizal vs. Sima Wei
9 March 1993

Facts:

In consideration for a loan extended by the Development Bank of Rizal (DBR) to Sima Wei, the latter executed
and delivered to the former a promissory note, engaging to pay DBR or order the amount of P1,820,000.00 on
or before 24 June 1983 with interest at 32% per annum. Sima Wei made partial payments on the note, leaving
a balance of P1,032,450.02. On 18 November 1983, Sima Wei issued two crossed checks payable to DBR
drawn against China Banking Corporation, bearing respectively the serial numbers 384934, for the amount of
P550,000.00 and 384935, for the amount of P500,000.00. The said checks were allegedly issued in full
settlement of the drawer's account evidenced by the promissory note. These two checks were not delivered to
DBR or to any of its authorized representatives. For reasons not shown, these checks came into the
possession of Lee Kian Huat, who deposited the checks without DBR's indorsement (forged or otherwise) to
the account of the Asian Industrial Plastic Corporation, at the Balintawak branch, Caloocan City, of the
Producers Bank. Cheng Uy, Branch Manager of the Balintawak Branch of Producers Bank, relying on the
assurance of Samson Tung, President of Plastic Corporation, that the transaction was legal and regular,
instructed the cashier of Producers Bank to accept the checks for deposit and to credit them to the account of
said Plastic Corporation, inspite of the fact that the checks were crossed and payable to DBR and bore no
indorsement of the latter. On 5 July 1986, DBR filed the complaint for a sum of money against Sima Wei and/or
Lee Kian Huat, Mary Cheng Uy, Samson Tung, Asian Industrial Plastic Corporation and the Producers Bank of
the Philippines, on two causes of actionL (1) To enforce payment of the balance of P1,032,450.02 on a
promissory note executed by Sima Wei on 9 June 1983; and (2) To enforce payment of two checks executed
by Sima Wei, payable to DBR, and drawn against the China Banking Corporation, to pay the balance due on
the promissory note. Except for Lee Kian Huat, Sima Wei, et al. filed their separate Motions to Dismiss alleging
a common ground that the complaint states no cause of action. The trial court granted the Motions to Dismiss.
The Court of Appeals affirmed the decision, to which DBR, represented by its Legal Liquidator, filed the
Petition for Review by Certiorari.

Issue:

Whether DBR, as the intended payee of the instrument, has a cause of action against any or all of the
defendants, in the alternative or otherwise.

Held:

The normal parties to a check are the drawer, the payee and the drawee bank. Courts have long recognized
the business custom of using printed checks where blanks are provided for the date of issuance, the name of
the payee, the amount payable and the drawer's signature. All the drawer has to do when he wishes to issue a
check is to properly fill up the blanks and sign it. However, the mere fact that he has done these does not give
rise to any liability on his part, until and unless the check is delivered to the payee or his representative. A
negotiable instrument, of which a check is, is not only a written evidence of a contract right but is also a
species of property. Just as a deed to a piece of land must be delivered in order to convey title to the grantee,
so must a negotiable instrument be delivered to the payee in order to evidence its existence as a binding
contract. Section 16 of the Negotiable Instruments Law, which governs checks, provides in part that "Every
contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose
of giving effect thereto." Thus, the payee of a negotiable instrument acquires no interest with respect thereto
until its delivery to him. Delivery of an instrument means transfer of possession, actual or constructive, from
one person to another. Without the initial delivery of the instrument from the drawer to the payee, there can be
no liability on the instrument. Moreover, such delivery must be intended to give effect to the instrument. Herein,
the two (2) China Bank checks, numbered 384934 and 384935, were not delivered to the payee, DBR. Without
the delivery of said checks to DBR, the former did not acquire any right or interest therein and cannot therefore
assert any cause of action, founded on said checks, whether against the drawer Sima Wei or against the
Producers Bank or any of the other respondents. Since DBR never received the checks on which it based its
action against said respondents, it never owned them (the checks) nor did it acquire any interest therein. Thus,
anything which the respondents may have done with respect to said checks could not have prejudiced DBR. It
had no right or interest in the checks which could have been violated by said respondents. DBR has therefore
no cause of action against said respondents, in the alternative or otherwise. If at all, it is Sima Wei, the drawer,
who would have a cause of action against her co-respondents, if the allegations in the complaint are found to
be true.

11. Metropol Financing vs Sambok Motors Co, et al

GR L-39641
Metropol (Bacolod) Financing & Investment Corporation vs. Sambok Motors Co.
28 February 1983

Facts:

On 15 April 1969 Dr. Javier Villaruel executed a promissory note in favor of Ng Sambok Sons Motors Co., Ltd.,
in the amount of P15,939.00 payable in 12 equal monthly installments, beginning 18 May 1969, with interest at
the rate of 1% per month. It is further provided that in case on non-payment of any of the installments, the total
principal sum then remaining unpaid shall become due and payable with an additional interest equal to 25% of
the total amount due. On the same date, Sambok Motors Company, a sister company of Ng Sambok Sons
Motors Co., Ltd., and under the same management as the former, negotiated and indorsed the note in favor of
Metropol Financing & Investment Corporation with the following indorsement: "Pay to the order of Metropol
Bacolod Financing & Investment Corporation with recourse. Notice of Demand; Dishonor; Protest; and
Presentment are hereby waived. SAMBOK MOTORS CO. (BACOLOD) By: RODOLFO G. NONILLO, Asst.
General Manager." The maker, Dr. Villaruel defaulted in the payment of his installments when they became
due, so on 30 October 1969, Metropol formally presented the promissory note for payment to the maker. Dr.
Villaruel failed to pay the promissory note as demanded, hence Metropol notified Sambok as indorsee of said
note of the fact that the same has been dishonored and demanded payment. Sambok failed to pay, so on 26
November 1969 Metropol filed a complaint for collection of a sum of money before the Court of First Instance
of Iloilo, Branch I. Sambok did not deny its liability but contended that it could not be obliged to pay until after
its co-defendant Dr. Villaruel, has been declared insolvent. During the pendency of the case in the trial court,
Dr. Villaruel died, hence, on 24 October 1972 the lower court, on motion, dismissed the case against Dr.
Villaruel pursuant to Section 21, Rule 3 of the Rules of Court. On Metropol's motion for summary judgment, the
trial court rendered its decision dated 12 September 1973, ordering Sambok to pay to Metropol the sum of
P15,939.00 plus the legal rate of interest from 30 October 1969; the sum equivalent to 25% of P15,939.00 plus
interest thereon until fully paid; and to pay the cost of suit. Not satisfied with the decision, Samboc appealed.
Sambok argue that by adding the words "with recourse" in the indorsement of the note, it becomes a qualified
indorser; that being a qualified indorser, it does not warrant that if said note is dishonored by the maker on
presentment, it will pay the amount to the holder; that it only warrants the following pursuant to Section 65 of
the Negotiable Instruments Law: (a) that the instrument is genuine and in all respects what it purports to be; (b)
that he has a good title to it; (c) that all prior parties had capacity to contract; (d) that he has no knowledge of
any fact which would impair the validity of the instrument or render it valueless.

Issue:

Whether Sambok is a qualified indorser of the subject promissory note.

Held:

A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. It may be made
by adding to the indorser's signature the words "without recourse" or any words of similar import. Such an
indorsement relieves the indorser of the general obligation to pay if the instrument is dishonored but not of the
liability arising from warranties on the instrument as provided in Section 65 of the Negotiable Instruments Law.
However, Sambok indorsed the note "with recourse" and even waived the notice of demand, dishonor, protest
and presentment. "Recourse" means resort to a person who is secondarily liable after the default of the person
who is primarily liable. Sambok, by indorsing the note "with recourse" does not make itself a qualified indorser
but a general indorser who is secondarily liable, because by such indorsement, it agreed that if Dr. Villaruel
fails to pay the note, Metropol can go after Sambok. The effect of such indorsement is that the note was
indorsed without qualification. A person who indorses without qualification engages that on due presentment,
the note shall be accepted or paid, or both as the case may be, and that if it be dishonored, he will pay the
amount thereof to the holder. Sambok's intention of indorsing the note without qualification is made even more
apparent by the fact that the notice of demand, dishonor, protest and presentment were all waived. The words
added by Sambok do not limit his liability, but rather confirm his obligation as a general indorser. Further, after
an instrument is dishonored by non-payment, the person secondarily liable thereon ceases to be such and
becomes a principal debtor. His liability becomes the same as that of the original obligor. Consequently, the
holder need not even proceed against the maker before suing the indorser.

12. De Ocampo vs Gatchalian

VICENTE R. DE OCAMPO & CO. v. ANITA GATCHALIAN.

G.R. No. L-15126. November 30, 1961.

FACTS:

Herein respondent, Anita Gatchalian was interested in buying a car. Manuel Gonzales offered to her a car
owned by Ocampo Clinic. Gonzales claimed that he was authorized by the plaintiff to sell the car. Gonzales
order defendant to issue a check to comply on showing interest in buying the car. Gonzales promised to return
the check worth P 600 the next day.

When Gonzales failed to return the check or present the certificate of registration of the car, defendant issue a
stop payment order on the check. She found out that Gonzales used the check as payment to plaintiff's clinic
for his wife's fees. Plaintiff now demands defendant for payment of the check, in which defendant refused citing
that plaintiff is a not a holder in due course.

The lower court held that defendant should pay the plaintiff.

ISSUE:
Whether or not De Ocampo is a holder in due course?

RULING:

The Supreme Court ruled that the plaintiff is a not a holder in due course.

Section 52, Negotiable Instruments Law, defines holder in due course, thus:

A holder in due course is a holder who has taken the instrument under the following conditions:

(a) That it is complete and regular upon its face;

(b) That he became the holder of it before it was overdue, and without notice that it had been previously
dishonored, if such was the fact;

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

(d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect
in the title of the person negotiating it.

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 case at bar as the payee acquired the check under circumstances which should have put it to inquiry,
why the holder had the check and used it to pay his own personal account, the duty devolved upon it, plaintiff-
appellee, to prove that it actually acquired said check in good faith. The stipulation of facts contains no
statement of such good faith.

13. Yang vs CA

GR 138074
Yang vs. Court of Appeals
15 August 2003

Facts:

On or before 22 December 1987, Cely Yang and Prem Chandiramani entered into an agreement whereby the
latter was to give Yang a Philippine Commercial International Bank (PCIB) manager's check in the amount of
P4.2 million in exchange for 2 of Yang's manager's checks, each in the amount of P2.087 million, both payable
to the order of Fernando David. Yang and Chandiramani agreed that the difference of P26,000.00 in the
exchange would be their profit to be divided equally between them. Yang and Chandiramani also further
agreed that the former would secure from Far East Bank & Trust Company (FEBTC) a dollar draft in the
amount of US$200,000.00, payable to PCIB FCDU Account 4195-01165-2, which Chandiramani would
exchange for another dollar draft in the same amount to be issued by Hang Seng Bank Ltd. of Hong Kong.
Accordingly, on December 22, 1987, Yang procured (a) Equitable Banking Corporation [ECB] Cashier's Check
CCPS 14-009467 in the sum of P2,087,000.00, dated 22 December 1987, payable to the order of Fernando
David; (b) FEBTC Cashier's Check 287078, in the amount of P2,087,000.00, dated 22 December 1987,
likewise payable to the order of Fernando David; and (c) FEBTC Dollar Draft 4771, drawn on Chemical Bank,
New York, in the amount of US$200,000.00, dated 22 December 1987, payable to PCIB FCDU Account 4195-
01165-2. At about 1:00 p.m. of the same day, Yang gave the aforementioned cashier's checks and dollar drafts
to her business associate, Albert Liong, to be delivered to Chandiramani by Liong's messenger, Danilo Ranigo.
Ranigo was to meet Chandiramani at Philippine Trust Bank, Ayala Avenue, Makati City, Metro Manila where
he would turn over Yang's cashier's checks and dollar draft to Chandiramani who, in turn, would deliver to
Ranigo a PCIB manager's check in the sum of P4.2 million and a Hang Seng Bank dollar draft for
US$200,000.00 in exchange. Chandiramani did not appear at the rendezvous and Ranigo allegedly lost the
two cashier's checks and the dollar draft bought by Yang. Ranigo reported the alleged loss of the checks and
the dollar draft to Liong at 4:30 p.m. of 22 December 1987. Liong, in turn, informed Yang, and the loss was
then reported to the police. It transpired, however, that the checks and the dollar draft were not lost, for
Chandiramani was able to get hold of said instruments, without delivering the exchange consideration
consisting of the PCIB manager's check and the Hang Seng Bank dollar draft. At 3:00 p.m. or some 2 hours
after Chandiramani and Ranigo were to meet in Makati City, Chandiramani delivered to David at China
Banking Corporation branch in San Fernando City, Pampanga, the (a) FEBTC Cashier's Check 287078, and
the (b) Equitable Cashier's Check CCPS 14-009467. In exchange, Chandiramani got US$360,000.00 from
David, which Chandiramani deposited in the savings account of his wife, Pushpa Chandiramani; and his
mother, Rani Reynandas, who held FCDU Account 124 with the United Coconut Planters Bank (UCPB) branch
in Greenhills, San Juan, Metro Manila. Chandiramani also deposited FEBTC Dollar Draft 4771, in PCIB FCDU
Account 4195-01165-2 on the same date. Meanwhile, Yang requested FEBTC and ECB to stop payment on
the instruments she believed to be lost. Both banks complied with her request, but upon the representation of
PCIB, FEBTC subsequently lifted the stop payment order on FEBTC Dollar Draft 4771, thus enabling the
holder of PCIB FCDU Account 4195-01165-2 to receive the amount of US$200,000.00. On 28 December
1987, Yang lodged a Complaint for injunction and damages against ECB, Chandiramani, and David, with
prayer for a temporary restraining order, with the Regional Trial Court of Pasay City (Civil Case 5479). The
Complaint was subsequently amended to include a prayer for Equitable to return to Yang the amount of
P2.087 million, with interest thereon until fully paid. On 12 January 1988, Yang filed a separate case for
injunction and damages, with prayer for a writ of preliminary injunction against FEBTC, PCIB, Chandiramani
and David, with the RTC of Pasay City, docketed as Civil Case No. 5492. This complaint was later amended to
include a prayer that FEBTC et al return to Yang the amount of P2.087 million, the value of FEBTC Dollar Draft
4771, with interest at 18% annually until fully paid. On 9 February 1988, upon the filing of a bond by Yang, the
trial court issued a writ of preliminary injunction in Civil Case No. 5479. A writ of preliminary injunction was
subsequently issued in Civil Case 5492 also. Meanwhile, David moved for dismissal of the cases against him
and for reconsideration of the Orders granting the writ of preliminary injunction, but these motions were denied.
David then elevated the matter to the Court of Appeals in a special civil action for certiorari (CA-GR SP 14843),
which was dismissed by the appellate court. As Civil Cases 5479 and 5492 arose from the same set of facts,
the two cases were consolidated. The trial court then conducted pre-trial and trial of the two cases, but the
proceedings had to be suspended after a fire gutted the Pasay City Hall and destroyed the records of the
courts. After the records were reconstituted, the proceedings resumed and the parties agreed that the money
in dispute be invested in Treasury Bills to be awarded in favor of the prevailing side, and limiting the issues in
the case. On 4 July 1995, the trial court handed down its decision in Civil Cases 5479 and 5492, in favor of
David declaring him entitled to the proceeds of the 2 cashier's checks, together with the earnings derived
therefrom pendente lite; ordering Yang to pay David moral damages in the amount of P100,000.00; attorney's
fees in the amount of P100,000.00 and to pay the costs. The trial court dismissed the complaint against
FEBTC, PCIB and EBC; without prejudice to whatever action Yang will file against Chandiramani for
reimbursement of the amounts received by him from David. Yang then moved for reconsideration of the RTC
judgment, but the trial court denied her motion in its Order of 20 September 1995. Yang seasonably filed an
appeal with the Court of Appeals (CA-GR CV 52398). On 25 March 1999, the appellate court affirmed the
decision of the trial court with modification and ordered Yang to pay PCIB the amount of P25,000.00, as
attorney's fees. Yang filed the petition for review on certiorari.

Issue:

Whether David was a holder in due course.

Held:

Every holder of a negotiable instrument is deemed prima facie a holder in due course. However, this
presumption arises only in favor of a person who is a holder as defined in Section 191 of the Negotiable
Instruments Law, meaning a "payee or indorsee of a bill or note, who is in possession of it, or the bearer
thereof." Herein, it is not disputed that David was the payee of the checks in question. The weight of authority
sustains the view that a payee may be a holder in due course. Hence, the presumption that he is a prima facie
holder in due course applies in his favor. However, said presumption may be rebutted. Hence, what is vital to
the resolution of this issue is whether David took possession of the checks under the conditions provided for in
Section 52 of the Negotiable Instruments Law. All the requisites provided for in Section 52 must concur in
David's case, otherwise he cannot be deemed a holder in due course. Yang's challenge to David's status as a
holder in due course hinges on two arguments: (1) the lack of proof to show that David tendered any valuable
consideration for the disputed checks; and (2) David's failure to inquire from Chandiramani as to how the latter
acquired possession of the checks, thus resulting in David's intentional ignorance tantamount to bad faith. In
sum, Yang posits that the last two requisites of Section 52 are missing, thereby preventing David from being
considered a holder in due course. Unfortunately for Yang, her arguments on this score are less than
meritorious and far from persuasive.

Issue [a]:

Whether there is lack of proof to show that David tendered any valuable consideration for the disputed checks.

Held [a]:

With respect to consideration, Section 24 of the Negotiable Instruments Law creates a presumption that every
party to an instrument acquired the same for a consideration or for value. Thus, the law itself creates a
presumption in David's favor that he gave valuable consideration for the checks in question. In alleging
otherwise, Yang has the onus to prove that David got hold of the checks absent said consideration. In other
words, Yang must present convincing evidence to overthrow the presumption. The records, however, shows
that Yang failed to discharge her burden of proof. Yang's averment that David did not give valuable
consideration when he took possession of the checks is unsupported, devoid of any concrete proof to sustain
it. Note that both the trial court and the appellate court found that David did not receive the checks gratis, but
instead gave Chandiramani US$360,000.00 as consideration for the said instruments. Factual findings of the
Court of Appeals are conclusive on the parties and not reviewable by the Supreme Court; they carry great
weight when the factual findings of the trial court are affirmed by the appellate court.

Issue [b]:

Whether David's failure to inquire from Chandiramani as to how the latter acquired possession of the checks,
resulted in David's intentional ignorance tantamount to bad faith

Held [b]:

Yang fails to point any circumstance which should have put David on inquiry as to the why and wherefore of
the possession of the checks by Chandiramani. David was not privy to the transaction between Yang and
Chandiramani. Instead, Chandiramani and David had a separate dealing in which it was precisely
Chandiramani's duty to deliver the checks to David as payee. The evidence shows that Chandiramani
performed said task to the letter. Yang admits that David took the step of asking the manager of his bank to
verify from FEBTC and Equitable as to the genuineness of the checks and only accepted the same after being
assured that there was nothing wrong with said checks. At that time, David was not aware of any "stop
payment" order. Under these circumstances, David thus had no obligation to ascertain from Chandiramani
what the nature of the latter's title to the checks was, if any, or the nature of his possession. Thus, he cannot
be held guilty of gross neglect amounting to legal absence of good faith, absent any showing that there was
something amiss about Chandiramani's acquisition or possession of the checks. David did not close his eyes
deliberately to the nature or the particulars of a fraud allegedly committed by Chandiramani upon Yang, absent
any knowledge on his part that the action in taking the instruments amounted to bad faith.

Issue [c]:
Whether David should at least have inquired as to whether he was acquiring said checks for the purpose for
which they were issued, pursuant to Bataan Cigar & Cigarette Factory, Inc. v. Court of Appeals.

Held [c]:

Yang's reliance on the Bataan Cigar case, however, is misplaced. The facts in the case are not on all fours
with Bataan Cigar. In the latter case, the crossed checks were negotiated and sold at a discount by the payee,
while herein, the payee did not negotiate further the checks in question but promptly deposited them in his
bank account. The Negotiable Instruments Law is silent with respect to crossed checks, although the Code of
Commerce makes reference to such instruments. Nonetheless, the Court has taken judicial cognizance of the
practice that a check with two parallel lines in the upper left hand corner means that it could only be deposited
and not converted into cash. The effects of crossing a check, thus, relates to the mode of payment, meaning
that the drawer had intended the check for deposit only by the rightful person, i.e., the payee named therein. In
Bataan Cigar, the rediscounting of the check by the payee knowingly violated the avowed intention of crossing
the check. Thus, in accepting the cross checks and paying cash for them, despite the warning of the crossing,
the subsequent holder could not be considered in good faith and thus, not a holder in due course. The ruling in
Bataan Cigar reiterates that in De Ocampo & Co. v. Gatchalian. The factual circumstances in De Ocampo and
in Bataan Cigar are not present herein. For here, there is no dispute that the crossed checks were delivered
and duly deposited by David, the payee named therein, in his bank account. In other words, the purpose
behind the crossing of the checks was satisfied by the payee.

14. Mesina vs IAC

G.R. No. 70145

Mesina v. Intermediate Appellate Court
13 November 1986

FACTS:
Jose Go maintains an account with Associated Bank. He needed to transfer P800,000.00 from Associated
Bank to another bank but he realized that he does not want to be carrying that cash so he bought a cashier’s
check from Associated Bank worth P800,000.00. Associated Bank then issued the check but Jose Go forgot to
get the check so it was left on top of the desk of the bank manager. The bank manager, when he found the
check, entrusted it to Albert Uy for the later to safe keep it. The check was however stolen from Uy by a certain
Alexander Lim.

Jose Go learned that the check was stolen son he made a stop payment order against the check. Meanwhile,
Associated Bank received the subject check from Prudential Bank for clearing. Apparently, the check was
presented by a certain Marcelo Mesina for payment. Associated Bank dishonored the check.

When asked how Mesina got hold of the check, he merely stated that Alfredo Lim, who’s already at large, paid
the check to him for “a certain transaction”.

ISSUE:
Whether or not Mesina is a holder in due course.

HELD:
No. Admittedly, Mesina became the holder of the cashier’s check as endorsed by Alexander Lim who stole the
check. Mesina however refused to say how and why it was passed to him. Mesina had therefore notice of the
defect of his title over the check from the start. The holder of a cashier’s check who is not a holder in due
course cannot enforce such check against the issuing bank which dishonors the same. The check in question
suffers from the infirmity of not having been properly negotiated and for value by Jose Go who is the real
owner of said instrument.
15. Astro Electonics vs Roxas

ASTRO ELECTRONIC CORP. & ROXAS VS. PHIL. EXPORT &FOREIGN LOAN GUARANTEE CORP.
G.R. No. 136729. September 23, 2003

Facts: Astro Electronic Corp. (Astro) was granted several loans by Phil. Trust Co. (Phil Trust) amounting to Php 3,000.00
with interest and secured by three promissory notes. In each note, it appears that Roxas signed twice as president of Astro
and in his personal capacity. Thereafter, Philippine Export & Foreign Guarantee Corp. (Phil Guarantee), with the consent
of Astro, guaranteed in favor of Phil Trust the payment of 70% of Astro’s loan. Upon the latter’s failure to pay its loan
obligation, despite demands, Phil Guarantee paid 70% of the guaranteed loan. The Phil Trust and Phil Guarantee
subsequently filed against astro and Roxas a complaint for sum of money. The Regional Trial Court rendered its decision
ordering Astro & Roxas to pay jointly and severally Phil Guarantee the sum of Php 3, 621, 187.52 with interest and cost.

Issue: Whether or not Roxas should be jointly and severally liable with Astro for the sum awarded by the RTC.

Held: By signing twice, as president of Astro and in his personal capacity, Roxas became a co-maker of the notes and
cannot escape any liability arising from it. Under the NIL, persons who write their names on the face of the note as
makers, promising that they will pay to the order of the payee or any holder according to its tenor will be liable as such.
Roxas is primarily liable as a joint and several debtor considering that his intention to be liable is manifested by the fact
that he affixed his signature twice in each of the three promissory notes which necessarily would imply that he is
undertaking the obligation in two different capacities, official and personal.

16. Garcia vs Dionisio

ROMEO GARCIA VS. DIONISIO LLAMAS - CHRISTIAN LABAJOY

SYLLABUS - PROMISSORY NOTE
G.R. No. 154127. December 8, 2003
Facts: A complaint for sum of money was filed by respondent Dionisio Llamas against Petitioner Romeo
Garcia and Eduardo de Jesus alleging that the two borrowed Php 400, 000 from him. They bound themselves
jointly and severally to pay the loan on or before January 23, 1997 with a 15% interest per month. The loan
remained unpaid despite repeated demands by respondent.
Petitioner resisted the complaint alleging that he signed the promissory note merely as an accommodation
party for de Jesus and the latter had already paid the loan by means of a check and that the issuance of the
check and acceptance thereof novated or superseded the note.
The trial court rendered a judgment on the pleadings in favor of the respondent and directed petitioner to pay
jointly and severally respondent the amounts of Php 400, 000 representing the principal amount plus interest at
15% per month from January 23, 1997 until the same shall have been fully paid, less the amount of Php
120,000 representing interests already paid.
The Court of Appeals ruled that no novation, express or implied, had taken place when respondent accepted
the check from de Jesus. According to the CA, the check was issued precisely to pay for the loan that was
covered by the promissory note jointly and severally undertaken by petitioner and de Jesus.
Respondent’s acceptance of the check did not serve to make de Jesus the sole debtor because first, the
obligation incurred by him and petitioner was joint and several; and second, the check which had beenintended
to extinguish the obligation bounced upon its presentment.
Issue: WON by its terms, the note was made payable to a specific person rather than bearer to or order.
Ruling: A requisite for negotiability. Hence, petitioner cannot avail himself of the NIL’s provisions on the
liabilities and defenses of an accommodation party. Besides, a non-negotiable note is merely a simple contract
in writing and evidence of such intangible rights as may have been created by the assent of the parties. The
promissory note is thus covered by the general provisions of the Civil Code, not by the NIL.
Even granting that the NIL was applicable, still petitioner would be liable for the note. An accommodation party
is liable for the instrument to a holder for value even if, at the time of its taking, the latter knew theformer to be
only an accommodation party. The relation between an accommodation party and the party accommodated is,
in effect, one of principal and surety. It is a settled rule that a surety is bound equally and absolutely with the
principal and is deemed an original promissory debtor from the beginning. The liability is immediate and direct.
17. Sadaya vs Sevilla

SADAYA V. SEVILLA
19 SCRA 924

FACTS:

Victor Sevilla, Oscar Varona and Simeon Sadaya executed, jointly and severally, in favor of the Bank of the
Philippine Islands, or its order, a promissory note for P15,000.00 with interest at 8% per annum, payable on
demand.

The entire, amount of P15,000.00, proceeds of the promissory note, was received from the bank by Oscar
Varona alone. Victor Sevilla and Simeon Sadaya signed the promissory note as co-makers only as a favor to
Oscar Varona.

Payments were made on account. As of June 15, 1950, the outstanding balance stood P4,850.00. No payment
thereafter made. On October 6, 1952, the bank collected from Sadaya the foregoing balance which, together
with interest, totaled P5,416.12. Varona failed to reimburse Sadaya despite repeated demands.

Victor Sevilla died. Intestate estate proceedings were started in the Court of First Instance of Rizal, Special
Proceeding No. 1518. Francisco Sevilla was named administrator.

In Special Proceeding, Sadaya filed a creditor's claim for the above sum of P5,746.12, plus attorney’s fees in
the sum of P1,500.00. The administrator resisted the claim upon the averment that the deceased Victor Sevilla
"did not receive any amount as consideration for the promissory note," but signed it only "as surety for Oscar
Varona".

On June 5, 1957, the trial court issued an order admitting the claim of Simeon Sadaya in the amount of
P5,746.12, and directing the administrator to pay the same from any available funds belonging to the estate of
the deceased Victor Sevilla.

The Court of Appeals, in a decision promulgated, voted to set aside the order appealed from and to disapprove
and disallow "appellee's claim of P5,746.12 against the intestate estate."

Issue: Whether or not Sadaya can claim against the estate of Sevilla as co-accommodation party when
Verona as principal debtor is not yet insolvent.

HELD:

Sadaya could have sought reimbursement from Varona, which is right and
just as the latter was the only one who received value for the note executed. There is an implied
contract of indemnity between Sadaya and Varona upon the former’s payment of the obligation to the bank.

Surely enough, the obligations of Varona and Sevilla to Sadaya cannot be joint and several. For indeed, had
payment been made by Varona, Varona couldn't had reason to seek reimbursement from either Sadaya or
Sevilla. After all, the proceeds of the loan went to Varona alone.

On principle, a solidary accommodation maker—who made payment—has the right to contribution, from
his co-accomodation maker, in the absence of agreement to the contrary between them, subject to conditions
imposed by law. This right springs from an implied promise to share equally the
burdens thay may ensue from their having consented to stamp their signatures on the promissory note.

The following are the rules:

1. A joint and several accommodation maker of a negotiable

promissory note may demand from the principal debtor reimbursement for the amount that he paid to
the payee

2. A joint and several accommodation maker who pays on the said promissory note may directly
demand reimbursement from his co-accommodation maker without first directing his action against the
principal debtor provided that
a. He made the payment by virtue of a judicial demand
b. A principal debtor is insolvent.
It was never shown that there was a judicial demand on Sadaya to pay the obligation and also, it was never
proven that Varona was insolvent. Thus, Sadaya cannot proceed against Sevilla for reimbursement.

18. Travel-On vs CA

Travel-On, Inc. vs Court of Appeals

G.R. No. L-56169 June 26, 1992
-accommodation party

FACTS:

Petitioner Travel-On Inc. is a travel agency from which Arturo Miranda procured tickets on behalf of airline
passengers and derived commissions therefrom. Miranda was sued by petitioner to collect on the six
postdated checks he issued which were all dishonored by the drawee banks. Miranda, however, claimed that
he had already fully paid and even overpaid his obligations and that refunds were in fact due to him. He argued
that he had issued the postdated checks not for the purpose of encashment to pay his indebtedness but for
purposes of accommodation, as he had in the past accorded similar favors to petitioner. Petitioner however
urges that the postdated checks are per se evidence of liability on the part of private respondent and further
argues that even assuming that the checks were for accommodation, private respondent is still liable
thereunder considering that petitioner is a holder for value.

ISSUE:

Whether Miranda is liable on the postdated checks he issued even assuming that said checks were issued for
accommodation only.

RULING:

There was no accommodation transaction in the case at bar. In accommodation transactions recognized by
the Negotiable Instruments Law, an accommodating party lends his credit to the accommodated party, by
issuing or indorsing a check which is held by a payee or indorsee as a holder in due course, who gave full
value therefor to the accommodated party. The latter, in other words, receives or realizes full value which the
accommodated party then must repay to the accommodating party. But the accommodating party is bound on
the check to the holder in due course who is necessarily a third party and is not the accommodated party. In
the case at bar, Travel-On was payee of all six (6) checks, it presented these checks for payment at the
drawee bank but the checks bounced. Travel-On obviously was not an accommodated party; it realized no
value on the checks which bounced. Miranda must be held liable on the checks involved as petitioner is
entitled to the benefit of the statutory presumption that it was a holder in due course and that the checks were
supported by valuable consideration.

**In accommodation transactions recognized by the Negotiable Instruments Law, an accommodating party lends his
credit to the accommodated party, by issuing or indorsing a check which is held by a payee or indorsee as a holder in due
course, who gave full value therefor to the accommodated party. In the case at bar, Travel-On was the payee of all six (6)
checks, it presented these checks for payment at the drawee bank but the checks bounced. Travel-On obviously was not an
accommodated party; it realized no value on the checks which bounced.
19. Ang vs Associated Bank

Negotiable Instruments Case Digest: Ang v. Associated Bank (2007)

G.R. No. 146511 September 5, 2007
Lessons Applicable: Consideration and Accommodation (Negotiable Instruments)

FACTS:

August 28, 1990: Associated Bank (formerly Associated Banking Corporation and now known as United
Overseas Bank Philippines) filed a collection suit against Antonio Ang Eng Liong (principal debtor) and
petitioner Tomas Ang (co-maker) for the 2 promissory notes

October 3 and 9, 1978: obtained a loan of P50,000 and P30,000 evidenced by promissory note payable, jointly
and severally, on January 31, 1979 and December 8, 1978

Despite repeated demands for payment, the latest on September 13, 1988 and September 9, 1986, they failed
to settle their obligations totalling to P539,638.96 as of July 31, 1990

Antonio Ang Eng Liong only admitted to have secured a loan amounting to P80,000

Tomas Ang: bank is not the real party in interest as it is not the holder of the promissory notes, much less a
holder for value or a holder in due course; the bank knew that he did not receive any valuable consideration for
affixing his signatures on the notes but merely lent his name as an accommodation party

bank granted his co-defendant successive extensions of time within which to pay, without his knowledge and
consent

the bank imposed new and additional stipulations on interest, penalties, services charges and attorney's fees
more onerous than the terms of the notes, without his knowledge and consent

he should be reimbursed by his co-defendant any and all sums that he may be adjudged liable to pay, plus
P30,000, P20,000 and P50,000 for moral and exemplary damages, and attorney's fees, respectively.

October 19, 1990: RTC held Antonio Ang Eng Liong was ordered to pay the principal amount of P80,000 plus
14% interest per annum and 2% service charge per annum

Lower Court: Granted against the bank, dismissing the complaint for lack of cause of action.

CA: ordered Ang to pay the bank - bank is a holder

CA observed that the bank, as the payee, did not indorse the notes to the Asset Privatization Trust despite the
execution of the Deeds of Transfer and Trust Agreement and that the notes continued to remain with the bank
until the institution of the collection suit.

With the bank as the "holder" of the promissory notes, the Court of Appeals held that Tomas Ang is
accountable therefor in his capacity as an accommodation party.

Tomas Ang cannot validly set up the defense that he did not receive any consideration therefor as the fact that
the loan was granted to the principal debtor already constitutes a sufficient consideration.

ISSUE: W/N Ang is liable as accomodation party even without consideration and his co-accomodation party
was granted accomodation w/o his knowledge

HELD: CA AFFIRMED

At the time the complaint was filed in the trial court, it was the Asset Privatization Trust which had the authority
to enforce its claims against both debtors

accommodation party as a person "who has signed the instrument as maker, drawer, acceptor, or indorser,
without receiving value therefor, and for the purpose of lending his name to some other person." As gleaned
from the text, an accommodation party is one who meets all the three requisites, viz: (1) he must be a party to
the instrument, signing as maker, drawer, acceptor, or indorser; (2) he must not receive value therefor; and (3)
he must sign for the purpose of lending his name or credit to some other person
petitioner signed the promissory note as a solidary co-maker and not as a guarantor. This is patent even from
the first sentence of the promissory note which states as follows:

"Ninety one (91) days after date, for value received, I/we, JOINTLY and SEVERALLY promise to pay to the
PHILIPPINE BANK OF COMMUNICATIONS at its office in the City of Cagayan de Oro, Philippines the sum of
FIFTY THOUSAND ONLY (P50,000.00) Pesos, Philippine Currency, together with interest x x x at the rate of
SIXTEEN (16) per cent per annum until fully paid."

immaterial so far as the bank is concerned whether one of the signers, particularly petitioner, has or has not
received anything in payment of the use of his name.

since the liability of an accommodation party remains not only primary but also unconditional to a holder for
value, even if the accommodated party receives an extension of the period for payment without the consent of
the accommodation party, the latter is still liable for the whole obligation and such extension does not release
him because as far as a holder for value is concerned, he is a solidary co-debtor.

20. Gonzales vs Philippine Commercial & International Bank

GONZALES VS PHILIPPINE COMMERCIAL AND INTERNATIONAL BANK

FACTS:

Eusebio Gonzales was a client of PCIB. He was granted a credit line by the bank through a Credit-On-Hand-
Loan Agreement (COHLA). He drew from the credit line through a check and said credit line was secured by a
collateral in the form of his accounts with PCIB which was a foreign currency deposit worth USD 8000.

He obtained below loans from PCIB:

1. obtained with his wife – P500K

2. obtained with spouses Panlilio – P1M, P300K

the above loans (total: 1.8M) were covered by 3 promissory notes and were secured by a real estage
mortgage on a land co owned by Gonzales and spouses Panlilio. the promissory notes states the solidary
liability of Gonzales andspouses Panlilio. However, it was the spouses Panlilio who received the proceeds of
1.8M. The monthly interest dues were paid by the spouses Panlilio through auto debit from their PCIB account.
however, they defaulted in the payment because their PCIB account had insufficient deposits.

Gonzales issued a check to Rene Unson worth 250K drawn against his credit line but said check was
subsequently dishonored due to termination of gonzales’ credit line because of the unpaid period interest dues
from the loans. PCIB also froze the foreign currency deposit account of Gonzales.

ISSUE:

W/N Gonzales is liable for the three promissory notes covering PHP1.8M loan he made with spouses Panlilio?

HELD:

Yes. Gonzales was an accommodation party of the loan. An accommodation party is one who meets all the
three requisites according to Sec 29 of NIL:

1. he must be a party to the instrument, signing as a maker, drawer, acceptor, or indorser

2. he must not receive value therefor

3. he must sign for the purpose of lending his name or credit to some other person.

An accommodation party lends his name to enable the accommodated partyy to obtain credit or raise money.
he receives no part but assumed liability.

The relation between an accommodation party is one of principal and surety, the AP being the surety. As such,
he is deemed an original promisor and debtor from the beginning. he is considered in law as the same party as
the debtor in relation to whatever is adjudged toruching the obligation of the latter since their liabilities are
interwoven.
Lastly, the solidary nature of the loan was expressly stated in the promissory notes which state:

“…the undersigned JOINTLY AND SEVERALLY promise to pay xx”.

21. Republic vs Ebrada

Republic vs. Ebrada

(Republic Bank vs. Mauricia T. Ebrada, 65 SCRA 680, July 31, 1975)

FACTS:
Mauricia T. Ebrada (Ebrada) encashed a back pay check issued by the Bureau of Treasury in the
amount of Php1,246.08 at the Republic Bank in Escolta, Manila. The Bureau of Treasury later advised the
Republic Bank that the alleged indorsement on the reverse side of the check was a forgery because the payee,
MARTIN LORENZO, already died more than 11 years ago. The Bureau of Treasury requested the Republic
Bank to refund the amount of P1,246.08 which the latter complied and granted. To recover the said amount it
refunded to the Bureau of Treasury, the Republic Bank demanded from Ebrada to account for the Php1,246.08
but Ebrada refused.
The sequence of indorsements on the check was as follows:

MARTIN LORENZO (the original payee whose signature was forged)

RAMON LORENZO
DELIA DOMINGUEZ
MAURICIA EBRADA (the defendant-appellant)

The Republic Bank sued Ebrada at the City Court of Manila which rendered judgment for Republic
Bank against Ebrada. Ebrada appealed the case at the Court of First Instance (CFI) of Manila, Branch XXIII,
which decided and ordered Ebrada to pay the Republic Bank the amount of Php1,246.08. Thereafter, Ebrada
appealed to the Highest Court on a question of law of the decision of the CFI of Manila.

ISSUE:
Whether or not the drawee-bank, after its discovery that the signature of the payee was forged and
after it has paid the amount of the check to the holder thereof, can recover the amount paid from the said
holder.

HELD:
Yes. The Supreme Court speaking through Hon. Justice Martin held that, one who purchases a check
or draft is bound to satisfy himself that the paper is genuine and that by indorsing it or presenting it for payment
or putting it into circulation before presentation he impliedly asserts that he has performed his duty and the
drawee who has paid the forged check, without actual negligence on his part may recover the money paid from
such negligent purchasers. In such cases the recovery is PERMITTED because although the drawee was in a
way negligent in failing to detect the forgery, yet if the encasher of the check had performed his duty, the
forgery would in all probability, have been detected and the fraud defeated. Similarly, in the case before Us,
Ebrada, upon receiving the check in question from Adelaida Dominguez, was duty-bound to ascertain whether
the check in question was genuine before presenting it to the Republic Bank for payment. Her failure to do so
makes her liable for the loss and the Republic Bank may RECOVER from her the money she received for the
check.
It can safely be concluded that it is only the negotiation predicated on the forged indorsement that
should be declared inoperative. This means that the negotiation of the check in question from MARTIN
LORENZO, the original payee, to RAMON R. LORENZO, the second indorsee, should be declared of no
effect, but the negotiation of the aforementioned check from RAMON R. LORENZO to ADELAIDA
DOMINGUEZ, the third indorsee, and from ADELAIDA DOMINGUEZ to MAURICIA T. EBRADA who did not
know of the forgery, should be considered valid and enforceable, barring any claim of forgery.
The fact that immediately after receiving the cash proceeds of the check in question, Ebrada
immediately turned over said amount to Adelaida Dominguez who in turn handed the amount to Justinia Tinio
on the same date would not exempt her form liability because by doing so, she acted as an accommodation
party to the check for which she is also liable under Section 29 of the Negotiable Instruments Law.
(Judgment appealed from is affirmed in toto with costs against defendant-appellant.)
22. Gempesaw vs CA

NATIVIDAD GEMPESAW VS COURT OF APPEALS

G.R. No. 92244, February 9, 1993
Campos, Jr., J.

TOPIC: Liabilities of Parties

DOCTRINE:

As a rule, a 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. An exception to this rule is where the drawer is guilty of such
negligence which causes the bank to honor such a check or checks.

FACTS:

 Natividad Gempesaw (Gempesaw/petitioner) owns and operates four grocery stores located along
Rizal Avenue Extension and Second Avenue, Caloocan.
 She maintains a checking account with the private respondent, Philippine National Bank (PNB).
 Her customary practice of issuing checks in payment of her suppliers was to have the checks prepared
with all necessary details by her trusted bookkeeper of 8 years, Alicia Galang (Galang). After the
checks are prepared, Galang, then, submits it to petitioner for signing, together with the corresponding
invoice receipts which indicate the correct obligations due and payable to her suppliers.
 Petitioner signs the checks without verifying the accuracy of the information stated in the invoice
because of her full trust to Galang.
 The issuance and delivery of said checks to the suppliers were left in the hands of Galang.
 Although PNB notified her of all the checks, petitioner did not bother to make verification as to whether
or not the checks were received by the respective payees.
 In a span of two years, the customary of issuing checks as stated above was followed with a total of 82
checks.
 All the checks were also crossed checks.
 All checks with forged signature of the payees were brought to Ernest Boon, Chief Accountant of PNB
at the Buendia Branch, who, without authority, accepted the said checks to be deposited at the
accounts of Alfredo Romero and Benito Lam.
 About 30 of the payees named in the checks testified that they did not receive the said checks and that
the indorsements appearing at the back of the checks were not theirs.
 The team of auditors of the main branch of PNB failed to discover and stop the unauthorized acts of
Boon. For under their rules, only the branch manager may accept a second indorsement of checks for
deposit.
 It was only after the lapse of more than two years that petitioner found out about the fraudulent
manipulations of her bookkeeper.
 [November 7, 1984] Petitioner made a written demand on PNB to credit her account with the value of
the 82 checks totaling to P1,208,606.89 for having been wrongfully charged against her account.
 [January 23, 1985] Gempesaw filed a complaint against PNB for recovery of the money-value of 82
checks charged against her account on the ground that the payee’s indorsements were forgeries.
 [November 17, 1987] The RTC of Caloocan City dismissed the complaint of herein petitioner.
 [February 22, 1990] The CA affirmed the decision of the RTC based on two grounds, namely: (1) that
Gempesaw’s gross negligence in issuing the checks was the proximate cause of the loss and (2)
assuming that the bank was also negligent, the loss must nevertheless be borne by the party whose
negligence was the proximate cause of the loss.
 [March 5, 1990] Gempesaw filed a petition under Rule 45 of the Rules of Court at the SC.
ISSUE:

WON Gempesaw may rightfully recover from the drawee bank who pays a check with a forged indorsement of
the payee. – NOT FULLY.

HELD:

 The SC held that in the case at bar, petitioner admitted that the checks were filled up and completed by
her trusted employee, Alicia Galang, and were later given to her for her signature. Her signing the
checks made the negotiable instrument complete. Prior to signing the checks, there was no valid
contract yet.
The negligence of a depositor which will prevent recovery of an unauthorized payment is based on
failure of the depositor to act as a prudent businessman would under the circumstances. In the case at
bar, the petitioner relied implicitly upon the honesty and loyalty of her bookkeeper, and did not even
verify the accuracy of the amounts of the checks she signed against the invoices attached thereto.
Furthermore, although she regularly received her bank statements, she apparently did not carefully
examine the same nor the check stubs and the returned checks, and did not compare them with the
sales invoices. Otherwise, she could have easily discovered the discrepancies between the checks and
the documents serving as bases for the checks. With such discovery, the subsequent forgeries would
not have been accomplished. It was not until two years after the bookkeeper commenced her
fraudulent scheme that petitioner discovered that eighty-two (82) checks were wrongfully charged to
her account, at which time she notified the respondent drawee Bank.

It is highly improbable that in a period of two years, not one of petitioner's suppliers complained of non-
payment. Assuming that even one single complaint had been made, petitioner would have been duty-
bound, as far as the respondent drawee Bank was concerned, to make an adequate investigation on
the matter. Had this been done, the discrepancies would have been discovered, sooner or later.
Petitioner's failure to make such adequate inquiry constituted negligence which resulted in the bank's
honoring of the subsequent checks with forged indorsements. On the other hand, since the record
mentions nothing about such a complaint, the possibility exists that the checks in question covered
inexistent sales. But even in such a case, considering the length of a period of two (2) years, it is hard
to believe that petitioner did not know or realize that she was paying much more than she should for the
supplies she was actually getting. A depositor may not sit idly by, after knowledge has come to her that
her funds seem to be disappearing or that there may be a leak in her business, and refrain from taking
the steps that a careful and prudent businessman would take in such circumstances and if taken, would
result in stopping the continuance of the fraudulent scheme. If she fails to take such steps, the facts
may establish her negligence, and in that event, she would be estopped from
recovering from the bank.

Thus, petitioner's negligence was the proximate cause of her loss. And since it was her negligence
which caused the respondent drawee Bank to honor the forged checks or prevented it from recovering
the amount it had already paid on the checks, petitioner cannot now complain should the bank refuse to
recredit her account with the amount of such checks. Under Section 23 of the NIL, she is now
precluded from using the forgery to prevent the bank's debiting of her account.
Furthermore, the fact that the PNB 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 PNB in carrying out its obligations to its depositors.

We hold that banking business is so impressed with public interest where the trust and confidence of
the public in general is of paramount importance such that the appropriate standard of diligence must
be a high degree of diligence, if not the utmost diligence. Surely, respondent drawee Bank cannot claim
it exercised such a degree of diligence that is required of it. There is no way We can allow it now to
escape liability for such negligence.

Premises considered, respondent drawee Bank is adjudged liable to share the loss with the petitioner
on a fifty-fifty ratio in accordance with Article 1172.

The SC hereby ordered the case 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.
23. PCIB vs CA

PCIB V. CA
350 SCRA 446

FACTS:

Ford Philippines filed actions to recover from the drawee bank Citibank and
collecting bank PCIB the value of several checks payable to the Commissioner of Internal Revenue which were
embezzled allegedly by an organized syndicate. What prompted this action was the drawing of a
check by Ford, which it deposited to PCIB as payment and was debited from their Citibank account. It later on
found out that the payment wasn’t received by the Commissioner. Meanwhile, according to the NBI report, one of
the checks issued by petitioner was withdrawn from PCIB for alleged mistake in the amount to be paid. This was
replaced with manager’s check by PCIB, which were allegedly stolen by the syndicate and deposited in their own
account.

The trial court decided in favor of Ford.

ISSUE:

Has Ford the right to recover the value of the checks intended as payment to CIR?

HELD:

The checks were drawn against the drawee bank but the title of the person negotiating the same was allegedly defective
because the instrument was obtained by fraud and unlawful means, and the proceeds of the checks were not
remitted to the payee. It was established that instead paying the
Commissioner, the checks were diverted and encashed for the eventual distribution among members of the
syndicate.

Pursuant to this, it is vital to show that the negotiation is made by the perpetrator in breach of faith amounting
to fraud. The person negotiating the checks must have gone beyond the authority given by his principal. If the principal
could prove that there was no negligence in the performance
of his duties, he may set up the personal defense to escape liability and recover from other parties who, through
their own negligence, allowed the commission of the crime.

It should be resolved if Ford is guilty of the imputed contributory negligence that would defeat its claim for
reimbursement, bearing in mind that its employees were among the members of the syndicate. It appears
although the employees of Ford initiated the transactions attributable to
the organized syndicate, their actions were not the proximate cause of
encashing the checks payable to CIR. The degree of Ford’s negligence couldn’t be characterized as the
proximate cause of the injury to parties. The mere fact that the forgery was committed by a drawer-payor’s
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, doesn’t entitle the bank to shift the loss to the drawer-payor, in the absence
of some circumstance raising estoppel against the drawer.

Note: not only PCIB but also Citibank is responsible for negligence. Citibank was negligent in the performance of its
duties as a drawee bank. It failed to establish its payments of Ford’s checks were made in due course and legally
in order.
24. Metrobank vs BA Finance Corporation

METROPOLITAN BANK AND TRUST COMPANY vs.

BA FINANCE CORPORATION and MALAYAN INSURANCE CO., INC.
G.R. No. 179952. December 4, 2009.

FACTS: Lamberto Bitanga obtained from respondent BA Finance Corporation a loan, to secure which, he
mortgaged his car to respondent BA Finance. Bitanga had the mortgaged car insured by respondent Malayan
Insurance. The car was stolen. On Bitanga’s claim, Malayan Insurance issued a check payable to the order of
"B.A. Finance Corporation and Lamberto Bitanga", drawn against China. 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, now merged with herein petitioner
Metrobank. Bitanga subsequently withdrew the entire proceeds of the check. In the meantime, Bitanga’s loan
became past due, but despite demands, he failed to settle it. BA Finance eventually learned of the loss of the
car and of Malayan Insurance’s issuance of a crossed check payable to it and Bitanga, and of Bitanga’s
depositing it in his account at Asianbank and withdrawing the entire proceeds thereof. BA Finance thereupon
demanded the payment of the value of the check from Asianbank but to no avail, prompting it to file a
complaint before the RTC for sum of money and damages against Asianbank and Bitanga, alleging that, inter
alia, it is entitled to the entire proceeds of the check. The trial court, holding that Asianbank was negligent in
allowing Bitanga to deposit the check to his account and to withdraw the proceeds thereof, without his co-
payee BA Finance having either indorsed it or authorized him to indorse it in its behalf, found Asianbank and
Bitanga jointly and severally liable to BA Finance following Section 41 of the Negotiable Instruments Law. The
appellate court, affirming the trial court’s decision, held that BA Finance has a cause of action against [it] even
if the subject check had not been delivered to BA Finance by the issuer itself. Hence, the present Petition for
Review on Certiorari filed by Metrobank to which Asianbank was, as earlier stated, merged, faulting the
appellate court.

ISSUE: WON the petitioner is liable for the full value of the check?

HELD: Yes. Affirming the decision of the CA, the SC held that 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 Bitanga’s co-payee BA Finance to endorse it on its behalf. 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. Clearly, petitioner, through its employee, was
negligent when it allowed the deposit of the crossed check, despite the lone endorsement of Bitanga,
ostensibly ignoring the fact that the check did not, it bears repeating, carry the indorsement of BA Finance.

25. Far East Realty Investment Inc vs CA

FAR EAST REALTY INVESTMENT INC. v. CA

G.R. No. L-36549 October 5, 1988
Paras, J.

Doctrine:
• Where the instrument is not payable on demand, presentment must be made on the day it falls due. Where it is
payable on demand, presentment must be made within a reasonable time after issue, except that in the case of a bill of
exchange, presentment for payment will be sufficient if made within a reasonable time after the last negotiation
thereof.

• Reasonable Time has been defined as so much time as is necessary under the circumstances for a reasonable prudent
and diligent man to do, conveniently, what the contract or duty requires should be done, having a regard for the rights,
and possibility of loss, if any, to the other party.

• No hard and fast demarcation line can be drawn between what may be considered as a reasonable or an unreasonable
time, because “reasonable time” depends upon the peculiar facts and circumstances in each case.

Facts:
Private respondents asked the petitioner to extend an accommodation loan in the sum of P4,500.00. Respondents
delivered to the petitioner a check for P4,500.00, drawn by Dy Hian Tat, and signed by them at the back of said check,
with the assurance that after one month from September 13, 1960, the said check would be redeemed by them by
paying cash in the sum of P4,500.00, or the said check can be presented for payment on or immediately after one
month. Petitioner agreed and extended an accommodation loan
The aforesaid check was presented for payment to the China Banking Corporation, but said check bounced and was not
cashed by said bank, for the reason that the current account of the drawer thereof had already been closed. Petitioner
demanded payment from the private but the latter failed and refused to pay notwithstanding repeated demands.

Both private respondents raised the defense that both have been wholly discharged by delay in presentment of the
check for payment.
The Lower Court ruled in favor of the petitioner. However, this was reversed by the CA upon appeal by the respondents,
ruling that the check was not given as collateral to guarantee a loan secured since the check passed through other hands
before reaching the petitioner and the said check was not presented within a reasonable time. Hence this petition.

Petitioner argues that presentment for payment and notice of dishonor are not necessary as when funds are insufficient
to meet a check, thus the drawer is liable, whether such presentment and notice be totally omitted or merely delayed.

Issues:
1. Whether or not presentment for payment can be dispensed with
2. Whether or not presentment for payment and notice of dishonor of the questioned check were made within
reasonable time

Held:
1. No. Where the instrument is not payable on demand, presentment must be made on the day it falls due. Where it is
payable on demand, presentment must be made within a reasonable time after issue, except that in the case of a bill of
exchange, presentment for payment will be sufficient if made within a reasonable time after the last negotiation thereof
(Section 71, Negotiable Instruments Law).

2. No. It is obvious in this case that presentment and notice of dishonor were not made within a reasonable time.

“Reasonable time” has been defined as so much time as is necessary under the circumstances for a reasonable prudent
and diligent man to do, conveniently, what the contract or duty requires should be done, having a regard for the rights,
and possibility of loss, if any, to the other party (Citizens’ Bank Bldg. v. L & E. Wertheirmer 189 S.W. 361, 362, 126 Ark,
38, Ann. Cas. 1917 E, 520).

Notice may be given as soon as the instrument is dishonored; and unless delay is excused must be given within the time
fixed by the law (Section 102, Negotiable Instruments Law).

In the instant case, the check in question was issued on September 13, 1960, but was presented to the drawee bank only
on March 5, 1964, and dishonored on the same date. After dishonor by the drawee bank, a formal notice of dishonor
was made by the petitioner through a letter dated April 27, 1968. Under these circumstances, the petitioner
undoubtedly failed to exercise prudence and diligence on what he ought to do al. required by law. The petitioner
likewise failed to show any justification for the unreasonable delay.

No hard and fast demarcation line can be drawn between what may be considered as a reasonable or an unreasonable
time, because “reasonable time” depends upon the peculiar facts and circumstances in each case (Tolentino,
Commentaries and Jurisprudence on Commercial Laws of the Philippines, Vol. I, Eighth Edition, p. 327)

26. State Investment House vs CA

State Investment House Inc. vs. CA

GR No. 101163 January 11, 1993
Bellosillo, J.:

Facts:
Nora Moulic issued to Corazon Victoriano, as security for pieces of jewellery to be sold on commission, two
postdated checks in the amount of fifty thousand each. Thereafter, Victoriano negotiated the checks to State Investment
House, Inc. When Moulic failed to sell the jewellry, she returned it to Victoriano before the maturity of the checks.
However, the checks cannot be retrieved as they have been negotiated. Before the maturity date Moulic withdrew her
funds from the bank contesting that she incurred no obligation on the checks because the jewellery was never sold and the
checks are negotiated without her knowledge and consent. Upon presentment of for payment, the checks were
dishonoured for insufficiency of funds.

Issues:
1. Whether or not State Investment House inc. was a holder of the check in due course
2. Whether or not Moulic can set up against the petitioner the defense that there was failure or absence of consideration

Held:

Yes, Section 52 of the NIL provides what constitutes a holder in due course. The evidence shows that: on the faces of the
post dated checks were complete and regular; that State Investment House Inc. bought the checks from Victoriano before
the due dates; that it was taken in good faith and for value; and there was no knowledge with regard that the checks were
issued as security and not for value. A prima facie presumption exists that a holder of a negotiable instrument is a holder
in due course. Moulic failed to prove the contrary.
No, Moulic can only invoke this defense against the petitioner if it was a privy to the purpose for which they were issued
and therefore is not a holder in due course.

No, Section 119 of NIL provides how an instruments be discharged. Moulic can only invoke paragraphs c and d as
possible grounds for the discharge of the instruments. Since Moulic failed to get back the possession of the checks as
provided by paragraph c, intentional cancellation of instrument is impossible. As provided by paragraph d, the acts which
will discharge a simple contract of payment of money will discharge the instrument. Correlating Article 1231 of the Civil
Code which enumerates the modes of extinguishing obligation, none of those modes outlined therein is applicable in the
instant case. Thus, Moulic may not unilaterally discharge herself from her liability by mere expediency of withdrawing
her funds from the drawee bank. She is thus liable as she has no legal basis to excuse herself from liability on her check to
a holder in due course. Moreover, the fact that the petitioner failed to give notice of dishonor is of no moment. The need
for such notice is not absolute; there are exceptions provided by Sec 114 of NIL.

27. Nyco Sales Corporation vs BA Finance Corporation

NYCO SALES CORP v BA FINANCE

FACTS:
NYCO Sales Corp extended a credit accommodation to the Fernandez Brothers. The brothers, acting in behalf of
Sanshell Corp, discounted a BPI check for P60,000 with NYCO, which then indorsed the said check to BA Finance
accompanied by a Deed of Assignment. BA Finance, in turn, released the funds,which were used by the brothers. The BPI
check was dishonored. The brothers issued a substitute check,which was also dishonored. Now BA Finance goes after
NYCO, which disclaims liability.

ISSUE:
W/N NYCO, as the assignor, is liable for breach of warranties.

HELD:
YES. The assignor (NYCO) warrants both the existence and legality of the credit, as well as the solvency of the debtor. If
there is a breach of any of the2 warranties, the assignor is liable to the assignee. That being the case, NYCO cannot
evade liability. So long as the credit remains unpaid, the assignor remains liable notwithstanding failure to give notice of
dishonor that is because the liability of NYCO stems form the assignment, not on the checks alone.

Nyco Sales Corporation vs. BA Finance Corp. [GR 71694, 16 August 1991] Second Division, Paras (J): 4 concur

Facts: Nyco Sales Corporation whose president and general manager is Rufino Yao, is engaged in the business of selling
construction materials with principal office in Davao City. Sometime in 1978, the brothers Santiago and Renato
Fernandez, both acting in behalf of Sanshell Corporation, approached Rufino Yao for credit accommodation. They
requested Nyco, thru Yao, to grant Sanshell discounting privileges which Nyco had with BA Finance Corporation. Yao
apparently acquiesced, hence on or about 15 November 1978, the Fernandezes went to Yao for the purpose of
discounting Sanshell's post-dated check which was a BPI-Davao Branch Check 499648 dated 17 February 1979 for the
amount of P60,000.00. The said check was payable to Nyco. Following the discounting process agreed upon, Nyco, thru
Yao, endorsed the check in favor of BA Finance. Thereafter, BA Finance issued a check payable to Nyco which endorsed
it in favor of Sanshell. Sanshell then made use of and/or negotiated the check. Accompanying the exchange of checks
was a Deed of Assignment executed by Nyco in favor of BA Finance with the conformity of Sanshell. Nyco was
represented by Rufino Yao, while Sanshell was represented by the Fernandez brothers. Under the said Deed, the subject
of the discounting was the aforecited check. At the back thereof and of every deed of assignment was the Continuing
Suretyship Agreement whereby the Fernandezes unconditionally guaranteed to BA Finance the full, faithful and prompt
payment and discharge of any and all indebtedness of Nyco. The BPI check, however, was dishonored by the drawee
bank upon presentment for payment. BA Finance immediately reported the matter to the Fernandezes who thereupon
issued a substitute check dated 19 February 1979 for the same amount in favor of BA Finance. It was a Security Bank and
Trust Company check bearing the number 183157, which was again dishonored when it was presented for payment.
Despite repeated demands, Nyco and the Fernandezes failed to settle the obligation with BA Finance, thus prompting
the latter to institute an action in court. Nyco and the Fernandezes, despite having been served with summons and
copies of the complaint, failed to file their answer and were consequently declared in default. On 16 May 1980, the
lower court ruled in favor of BA Finance ordering them to pay the former jointly and severally, the sum of P65,536.67
plus 14% interest per annum from 1 July 1979 and attorney's fees in the amount of P3,000.00 as well as the costs of suit.
Nyco, however, moved to set aside the order of default, to have its answer admitted and to be able to implead Sanshell.
The prayer was granted through an order dated 23 June 1980, wherein the decision of the court was set aside only as
regards Nyco. Trial ensued once more until the court reached a second decision, ordering Nyco to pay BA Finance
P60,000.00 as principal obligation, plus interest thereon at the rate of 14% per annum from 1 February 1979 until fully
paid; the amount of P10,000.00 as and for attorney's fees; and one-third (1/3) of the costs of the suit. With respect to
the Fernandezes, the decision of 16 May 1980 stood. On appeal, the appellate court also upheld BA Finance but
modified the lower court's decision by ordering that the interest should run from 19 February 1979 until paid and not
from 1 February 1979. Nyco's subsequent motion for reconsideration was denied. Nyco filed the petition for review on
certiorari. Commercial Law – Negotiable Instruments Law, 2006 ( 53 ) Narratives (Berne Guerrero)

Issue: Whether Nyco was actually discharged of its liability over the SBTC check when BA Finance failed to give it a notice
of dishonor.

Held: NO. Nyco's pretension that it had not been notified of the fact of dishonor is belied not only by the formal demand
letter but also by the findings of the trial court that Rufino Yao of Nyco and the Fernandez Brothers of Sanshell had
frequent contacts before, during and after the dishonor. More importantly, it fails to realize that for as long as the credit
remains outstanding, it shall continue to be liable to BA Finance as its assignor. The dishonor of an assigned check simply
stresses its liability and the failure to give a notice of dishonor will not discharge it from such liability. This is because the
cause of action stems from the breach of the warranties embodied in the Deed of Assignment, and not from the
dishonoring of the check alone.

28. Bataan Cigar vs CA

Bataan Cigar and Cigarette Factory vs. Court of Appeals [GR 93048, 3 March 1994] Second Division, Nocon (J): 3 concur
see case entry 44

Facts: Bataan Cigar & Cigarette Factory, Inc. (BCCFI), a corporation involved in the manufacturing of cigarettes, engaged
one of its suppliers, King Tim Pua George (George King), to deliver 2,000 bales of tobacco leaf starting October 1978. In
consideration thereof, BCCFI, on 13 July 1978 issued crossed checks post dated sometime in March 1979 in the total
amount of P820,000.00. Relying on the supplier's representation that he would complete delivery within three months
from 5 December 1978, BCCFI agreed to purchase additional 2,500 bales of tobacco leaves, despite the supplier's failure
to deliver in accordance with their earlier agreement. Again BCCFI issued postdated crossed checks in the total amount
of P1,100,000.00, payable sometime in September 1979. During these times, George King was simultaneously dealing
with State Investment House, Inc. (SIHI) On 19 July 1978, he sold at a discount check TCBT 551826 bearing an amount of
P164,000.00, post dated 31 March 1979, drawn by BCCFI, naming George King as payee to SIHI. On December 19 and 26,
1978, he again sold to SIHI checks TCBT 608967 & 608968, both in the amount of P100,000.00, post dated September 15
& 30, 1979 respectively, drawn by BCCFI in favor of George King. In as much as George King failed to deliver the bales of
tobacco leaf as agreed despite BCCFI's demand, BCCFI issued on 30 March 1979, a stop payment order on all checks
payable to George King, including check TCBT 551826. Subsequently, stop payment was also ordered on checks TCBTs
608967 & 608968 on September 14 & 28, 1979, respectively, due to George King's failure to deliver the tobacco leaves.
Efforts of SIHI to collect from BCCFI having failed, it instituted the case for collection on three unpaid checks, naming
only BCCFI as party defendant. The trial court pronounced SIHI as having a valid claim being a holder in due course. It
further said that the non-inclusion of King Tim Pua George as party defendant is immaterial in the case, since he, as
payee, is not an indispensable party. The Court of Appeals affirmed the decision of the trial court. BCCFI filed the
petition for review.

Issue: Whether 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: The Negotiable Instruments Law states what constitutes a holder in due course, i.e. "A holder in due course is a
holder who has taken the instrument under the following conditions: (a) That it is complete and regular upon its face; (b)
That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if
such was the fact; (c) That he took it in good faith and for value; (d) That at the time it was negotiated to him he had no
notice of any infirmity in the instrument or defect in the title of the person negotiating it." Section 59 of the NIL further
states that every holder is deemed prima facie a holder in due course. However, when it is shown that the title of any
person who has negotiated the instrument was defective, the burden is on the holder to prove that he or some person
under whom he claims, acquired the title as holder in due course. 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. Failing in
this respect, the holder is declared guilty of gross negligence amounting to legal absence of good faith, contrary to Sec.
52(c) of the Negotiable Instruments Law, and as such the consensus of authority is to the effect that the holder of the
check is not a holder in due course. Herein, BCCFI's defense in stopping payment is as good to SIHI as it is to George King.
Because, really, the checks were issued with the intention that George King would supply BCCFI with the bales of
tobacco leaf. There being failure of consideration, SIHI is not a holder in due course. Consequently, BCCFI cannot be
obliged to pay the checks. (Note: It does not mean, however, that SIHI could not recover from the checks. The only
disadvantage of a holder who is not a holder in due course is that the instrument is subject to defenses as if it were
nonnegotiable. Hence, SIHI can collect from the immediate indorser, George King.)

29. Equitable PCI vs Ong

PCI Bank V. Ong (2006)

G.R. No. 156207 September 15, 2006
Lessons Applicable: Promissory Notes and Checks (Negotiable Instruments Law)

FACTS:

Warliza Sarande deposited in her account at Philippine Commercial International (PCI) Bank a PCI Bank TCBT Check
of P225K.

December 5 1991: Upon inquiry by Serande at PCI Bank on whether the TCBT Check had been cleared, she received an
affirmative answer.

Relying on this assurance, she issued 2 checks drawn against the proceeds of TCBT Check.

PCI Bank Check No. 073661 dated 5 December 1991 for P132K which Sarande issued to respondent Rowena Ong owing
to a business transaction.

On the same day, Ong presented to PCI Bank requesting PCI Bank to convert the proceeds into a manager's check, which
the PCI Bank obliged.

December 6 1991: Ong deposited PCI Bank Manager's Check in her account with Equitable Banking Corporation

December 9 1991: she received a check return-slip informing her that PCI Bank had stopped the payment of the check
on the ground of irregular issuance.

Despite several demands made, it was refused

Ong was constrained to file a Complaint for sum of money, damages and attorney's fees against PCI Bank

CA affirmed RTC: favored Ong

ISSUE: W/N Ong can hold PCI liable

HELD: YES. Petition is DENIED. CA affirmed.

By admitting it committed an error, clearing the check of Sarande and issuing in favor of Ong not just any check but a
manager's check for that matter, PCI Bank's liability is fixed

certification = acceptance,

Equitable PCI as drawee bank is bound on the instrument upon certification and it is immaterial to such liability in favor
of Ong who is a holder in due course whether the drawer (Warliza Sarande) had funds or not with the Equitable PCI Bank

No unjust enrichment

SECTION 52. What constitutes a holder in due course. – A holder in due course is a holder who has taken the instrument
under the following conditions:

(a) That it is complete and regular upon its face;

(b) That he became the holder of it before it was overdue, and without notice it had been previously dishonored, if such
was the fact;

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

(d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in the title of
the person negotiating it.

The same law provides further:

Sec. 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 thereto for value.

Sec. 26. What constitutes holder for value. – Where value has at any time been given for the instrument, the holder is
deemed a holder for value in respect to all parties who become such prior to that time.

Sec. 28. Effect of want of consideration. – Absence or failure of consideration is a matter of defense as against any
person not a holder in due course; and partial failure of consideration is a defense pro tanto, whether the failure is an
ascertained and liquidated amount or otherwise.

manager's check

an order of the bank to pay, drawn upon itself, committing in effect its total resources, integrity and honor behind its
issuance

regarded substantially to be as good as the money it represents

same footing as a certified check

The object of certifying a check, as regards both parties, is to enable the holder to use it as money.

check operates as an assignment of a part of the funds to the creditors

Sec. 187. Certification of check; effect of. – Where a check is certified by the bank on which it is drawn, the certification
is equivalent to an acceptance

Section 63 of the Central Bank Act to the effect "that a check which has been cleared and credited to the account of the
creditor shall be equivalent to a delivery to the creditor in cash in an amount equal to the amount credited to his
account

Sec. 62. Liability of acceptor. – The acceptor by accepting the instruments engages that he will pay it according to the
tenor of his acceptance; and admits –

(a) The existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the instrument;
and

(b) The existence of the payee and his then capacity to indorse.
30. Security Bank and Trust Company vs RCBC

597 Phil. 402

QUISUMBING, Acting C.J.

Before us are opposing parties' petitions for review of the Decision[1] dated March 29, 2005 and
Resolution[2] dated December 12, 2005 of the Court of Appeals in CA-G.R. CV No. 67387. The two petitions
are herein consolidated as they stem from the same set of factual circumstances.

The facts, as found by the trial and appellate courts, are as follows:

On January 9, 1981, Security Bank and Trust Company (SBTC) issued a manager's check for P8 million,
payable to "CASH," as proceeds of the loan granted to Guidon Construction and Development Corporation
(GCDC). On the same day, the P8-million check, along with other checks, was deposited by Continental
Manufacturing Corporation (CMC) in its Current Account No. 0109-022888 with Rizal Commercial Banking
Corporation (RCBC). Immediately, RCBC honored the P8-million check and allowed CMC to withdraw the
same.[3]

On the next banking day, January 12, 1981, GCDC issued a "Stop Payment Order" to SBTC, claiming that the
P8-million check was released to a third party by mistake. Consequently, SBTC dishonored and returned the
manager's check to RCBC. Thereafter, the check was returned back and forth between the two banks,
resulting in automatic debits and credits in each bank's clearing balance.[4]

On February 13, 1981, RCBC filed a complaint[5] for damages against SBTC with the then Court of First
Instance of Rizal, Branch XXII. Said case was docketed as Civil Case No. 1081 and later transferred to the
Regional Trial Court (RTC) of Makati City, Branch 143.

Meanwhile, following the rules of the Philippine Clearing House, RCBC and SBTC stopped returning the
checks to each other. By way of a temporary arrangement pending resolution of the case, the P8-million check
was equally divided between, and credited to, RCBC and SBTC.[6]

On May 9, 2000, the RTC of Makati City, Branch 143, rendered a Decision[7] in favor of RCBC. The dispositive
portion of the decision reads:

PREMISES CONSIDERED, the Court renders judgment in favor of plaintiff [RCBC] and finds defendant SBTC
justly liable to [RCBC] and sentences [SBTC] to pay [RCBC] the amount of:

1. PhP4,000,000.00 as and for actual damages;

2. PhP100,000.00 as and for attorney's fees; and,

3. the costs.

SO ORDERED.[8]
On appeal, the Court of Appeals affirmed with modification the above Decision, to wit:

WHEREFORE, the appealed Decision is AFFIRMED with MODIFICATION. Appellant Security Bank and Trust
Co. shall pay appellee Rizal Commercial Banking Corporation not only the principal amount of P4,000,000.00
but also interest thereon at (6%) per annum covering appellee's unearned income on interest computed from
the time of filing of the complaint on February 13, 1981 to the date of finality of this Decision. For lack of factual
and legal basis, the award of attorney's fees is DELETED.

SO ORDERED.[9]
Now for our resolution are the opposing parties' petitions for review on certiorari of the abovecited decision. On
its part, SBTC alleges the following to support its petition:

I.

THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN REFUSING TO APPLY THE LAW
BECAUSE, IN ITS OPINION, TO DO SO WOULD "RESULT IN AN INJUSTICE."

II.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT TO DETERMINE
WHETHER OR NOT A BANK IS A HOLDER IN DUE COURSE, ONLY THE NEGOTIABLE INSTRUMENTS
LAW NEED BE APPLIED TO THE EXCLUSION OF CENTRAL BANK RULES AND REGULATIONS.

III.

THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN FAILING TO NOTE THAT THE
MANAGER'S CHECK IN QUESTION WAS ACCEPTED FOR DEPOSIT BY THE RCBC AND WAS NOT
ENCASHED BY THE PAYEE.

IV.

THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN FAILING TO CONSIDER THAT PRIOR TO
THE DEPOSIT OF THE CHECKS WORTH PhP53 MILLION, RCBC WAS HOLDING 43 CHECKS TOTALING
P49,017,669.66 DRAWN BY CONTINENTAL MANUFACTURING CORPORATION AGAINST ITS CURRENT
ACCOUNT WHEN THE BALANCE OF THAT ACCOUNT WAS A MERE P573.62.

V.

THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN FAILING TO CONSIDER THAT THE
CHECKS DEPOSITED WITH RCBC THE PROCEEDS OF WHICH WERE IMMEDIATELY WITHDRAWN TO
HONOR THE 43 CHECKS TOTALING P49,017,669.66 DRAWN BY CONTINENTAL MANUFACTURING
CORPORATION ON ITS CURRENT ACCOUNT WERE NOT ALL MANAGER'S CHECK[S] BUT INCLUDED
ORDINARY CHECKS IN THE TOTAL AMOUNT OF PhP15,436,140.81.

VI.

THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN FAILING TO CONSIDER THAT EACH OF
THE 43 CHECKS DRAWN BY THE CONTINENTAL MANUFACTURING CORPORATION WERE ALL
HONORED BY RCBC ON THE BASIS OF A MIXTURE OF ALL THE MANAGER'S AND ORDINARY CHECKS
DEPOSITED ON THAT DAY OF 9 JANUARY 1981.

VII.

THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT THE RCBC IS A HOLDER
IN DUE COURSE.

VIII.

THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT SBTC WAITED FOR
THREE (3) DAYS TO NOTIFY THE RCBC OF THE STOP PAYMENT ORDER.

IX.

THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT SBTC SHOULD HAVE
FIRST ACQUIRED PERSONAL KNOWLEDGE OF THE FACTS WHICH GAVE RISE TO THE REQUEST
FOR THE STOP PAYMENT ORDER BEFORE HONORING SUCH REQUEST.

X.

THE HONORABLE COURT OF APPEALS RULED CORRECTLY IN REFUSING TO HOLD SBTC LIABLE
FOR DAMAGE CLAIMS BASED SOLELY ON SPECULATION, CONJECTURE AND GUESSWORK.

XI.

THE HONORABLE COURT OF APPEALS RULED CORRECTLY IN HOLDING THAT RCBC IS NOT
ENTITLED TO EXEMPLARY DAMAGES.
 XII.

THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING SBTC LIABLE FOR THE
ATTORNEY'S FEES OF RCBC [SIC].[10]
On RCBC's part, the following issues are submitted for resolution:

I.

WHETHER OR NOT SBTC IS LIABLE FOR THE MANAGER'S CHECK IT ISSUED.

II.

WHETHER OR NOT RCBC IS ENTITLED TO COMPENSATORY DAMAGES EQUIVALENT TO THE

INTEREST INCOME LOST AS A RESULT OF THE ILLEGAL REFUSAL OF SBTC TO HONOR ITS OWN
MANAGER'S CHECK, AS WELL AS FOR EXEMPLARY DAMAGES AND ATTORNEY'S FEES. [11]
Simply stated, we find that in these consolidated petitions, the legal issues for our resolution are: (1) Is SBTC
liable to RCBC for the remaining P4 million? and (2) Is SBTC liable to pay for lost interest income on the
remaining P4 million, exemplary damages and attorney's fees?

RCBC avers that the manager's check issued by SBTC is substantially as good as the money it represents
because by its peculiar character, its issuance has the effect of an advance acceptance. RCBC claims that it is
a holder in due course when it credited the P8-million manager's check to CMC's account. Accordingly, RCBC
asserts that SBTC's refusal to honor its obligation justifies RCBC claim for lost interest income, exemplary
damages and attorney's fees.

On the other hand, SBTC contends that RCBC violated Monetary Board Resolution No. 2202 of the Central
Bank of the Philippines mandating all banks to verify the genuineness and validity of all checks before allowing
drawings of the same. SBTC insists that RCBC should bear the consequences of allowing CMC to withdraw
the amount of the check before it was cleared.[12]

We shall rule on the issues seriatim.

At the outset, it must be noted that the questioned check issued by SBTC is not just an ordinary check but a
manager's check. A manager's check is one drawn by a bank's manager upon the bank itself. It stands on the
same footing as a certified check,[13] which is deemed to have been accepted by the bank that certified it.[14] As
the bank's own check, a manager's check becomes the primary obligation of the bank and is accepted in
advance by the act of its issuance.[15]

In this case, RCBC, in immediately crediting the amount of P8 million to CMC's account, relied on the integrity
and honor of the check as it is regarded in commercial transactions. Where the questioned check, which was
payable to "Cash," appeared regular on its face, and the bank found nothing unusual in the transaction, as the
drawer usually issued checks in big amounts made payable to cash, RCBC cannot be faulted in paying the
value of the questioned check.[16]

In our considered view, SBTC cannot escape liability by invoking Monetary Board Resolution No. 2202 dated
December 21, 1979, prohibiting drawings against uncollected deposits. For we must point out that the Central
Bank at that time issued a Memorandum dated July 9, 1980, which interpreted said Monetary Board Resolution
No. 2202. In its pertinent portion, said Memorandum reads:

"MEMORANDUM TO ALL BANKS

July 9, 1980

For the guidance of all concerned, Monetary Board Resolution No. 2202 dated December 31, 1979 prohibiting,
as a matter of policy, drawing against uncollected deposit effective July 1, 1980, uncollected deposits
representing manager's cashier's/ treasurer's checks, treasury warrants, postal money orders and duly funded
"on us" checks which may be permitted at the discretion of each bank, covers drawings against demand
deposits as well as withdrawals from savings deposits."[17]
Thus, it is clear from the July 9, 1980 Memorandum that banks were given the discretion to allow immediate
drawings on uncollected deposits of manager's checks, among others. Consequently, RCBC, in allowing the
immediate withdrawal against the subject manager's check, only exercised a prerogative expressly granted to
it by the Monetary Board.

Moreover, neither Monetary Board Resolution No. 2202 nor the July 9, 1980 Memorandum alters the
extraordinary nature of the manager's check and the relative rights of the parties thereto. SBTC's liability as
drawer remains the same − by drawing the instrument, it admits the existence of the payee and his then
capacity to indorse; and engages that on due presentment, the instrument will be accepted, or paid, or both,
according to its tenor.[18]

Concerning RCBC's claim for lost interest income on the remaining P4 million, this is already covered by the
amount of damages in the form of legal interest of 6%, based on Article 2200[19] and 2209[20] of the Civil Code
of the Philippines, as awarded by the Court of Appeals in its decision.

In addition to the above-mentioned award of compensatory damages, we also find merit in the need to award
exemplary damages in order to set an example for the public good. The banking system has become an
indispensable institution in the modern world and plays a vital role in the economic life of every civilized
society. Whether as mere passive entities for the safe-keeping and saving of money or as active instruments of
business and commerce, banks have attained an ubiquitous presence among the people, who have come to
regard them with respect and even gratitude and, above all, trust and confidence. In this connection, it is
important that banks should guard against injury attributable to negligence or bad faith on its part. As
repeatedly emphasized, since the banking business is impressed with public interest, the trust and confidence
of the public in it is of paramount importance. Consequently, the highest degree of diligence is expected, and
high standards of integrity and performance are required of it. SBTC having failed in this respect, the award of
exemplary damages to RCBC in the amount of P50,000.00 is warranted.[21]

Pursuant to current jurisprudence, with the finding of liability for exemplary damages, attorney's fees in the
amount of P25,000.00[22] must also be awarded against SBTC and in favor of RCBC.

WHEREFORE, the assailed Decision dated March 29, 2005 and Resolution dated December 12, 2005 of the
Court of Appeals in CA-G.R. CV No. 67387 is hereby AFFIRMED with MODIFICATION. Security Bank and
Trust Company is ordered to pay Rizal Commercial Banking Corporation: (1) the remaining P4,000,000.00,
with legal interest thereon at six percent (6%) per annum from the time of filing of the complaint on February
13, 1981 to the date of finality of this Decision; (2) exemplary damages of P50,000.00; and (3) attorney's fees
of P25,000.00.

No pronouncement as to costs.

SO ORDERED.

Corona*, Carpio Morales, Tinga, and Leonardo-De Castro, JJ., concur.