Wong Vs CA

FACTS:

Wong issued 5 post dated checks

hese checks were initially intended to guarantee the calendar orders of customers who failed to issue
post-dated checks. However, following company policy, LPI refused to accept the checks as
guarantees. Instead, the parties agreed to apply the checks to the payment of petitioners unremitted
collections for 1984 amounting to P18,077.07.[3] LPI waived the P52.07 difference.

Before the maturity of the checks, petitioner prevailed upon LPI not to deposit the checks and promised
to replace them within 30 days. However, petitioner reneged on his promise. Hence, on June 5, 1986,
LPI deposited the checks with Rizal Commercial Banking Corporation (RCBC). The checks were returned
for the reason account closed. The dishonor of the checks was evidenced by the RCBC return slip.

On November 6, 1987, petitioner was charged with three (3) counts of violation of B.P. Blg. 22 [4] under
three separate Informations for the three checks

CONTENTION: . According to petitioner, he issued the checks not as payment for any obligation, but to
guarantee the orders of his customers. 

RTC: GUILTY CA: Affirmed in toto

He contends that private respondent is not a holder for value considering that the checks were
deposited by private respondent after the customers already paid their orders. Instead of depositing the
checks, private respondent should have returned the checks to him.

Issue: WON he is liable

Held: Yes, Under Section 186 of the Negotiable Instruments Law, a check must be presented for
payment within a reasonable time after its issue or the drawer will be discharged from liability thereon
to the extent of the loss caused by the delay.

By current banking practice, a check becomes stale after more than six (6) months, [23] or 180 days.
Private respondent herein deposited the checks 157 days after the date of the check. Hence said checks
cannot be considered stale. Only the presumption of knowledge of insufficiency of funds was lost, but
such knowledge could still be proven by direct or circumstantial evidence. As found by the trial court,
private respondent did not deposit the checks because of the reassurance of petitioner that he would
issue new checks. Upon his failure to do so, LPI was constrained to deposit the said checks. After the
checks were dishonored, petitioner was duly notified of such fact but failed to make arrangements for
full payment within five (5) banking days thereof. There is, on record, sufficient evidence that petitioner
had knowledge of the insufficiency of his funds in or credit with the drawee bank at the time of issuance
of the checks. And despite petitioners insistent plea of innocence, we find no error in the respondent
courts affirmance of his conviction by the trial court for violations of the Bouncing Checks Law.
Associated Bank Vs Ca
FACTS: In January 1981, the books of account of the Provincial Treasurer were post-audited by the
Provincial Auditor. It was then discovered that the hospital did not receive several allotment checks
drawn by the Province.
the Provincial Treasurer requested the manager of the PNB to return all of its cleared checks which
were issued from 1977 to 1980 in order to verify the regularity of their encashment.

were encashed by one Fausto Pangilinan, with the Associated Bank acting as collecting bank.

However, the manager of Associated Bank refused and suggested that Pangilinan deposit the check
in his personal savings account with the same bank. Pangilinan was able to withdraw the money
when the check was cleared and paid by the drawee bank, PNB.

All the checks bore the stamp of Associated Bank which reads "All prior endorsements guaranteed
ASSOCIATED BANK."

Provincial Treasurer wrote the manager of the PNB seeking the restoration of the various amounts
debited from the current account of the Province.  the PNB manager demanded reimbursement
9

from the Associated Bank.

Province of Tarlac filed a suit against PNB, Associated and FAUSTO
RTC: Dismissed FAUSTO, ordered payment of PNB to TARLAC, reimburse it to Associated Bank
CA; APPEALED
CONTENTION; PNB: TARLAC SHOULD BEAR THE LOSS
ASSOCIATED: Drawee Bank PNB shall bear the loss

While both banks are innocent of the forgery, Associated Bank claims that PNB was at fault and
should solely bear the loss because it cleared and paid the forged checks.

Issue: WON the collecting Associated Bank is liable as general indorser

Held: An indorser of an order instrument warrants "that the instrument is genuine and in all respects
what it purports to be; that he has a good title to it; that all prior parties had capacity to contract; and
that the instrument is at the time of his indorsement valid and subsisting."  He cannot interpose the
23 

defense that signatures prior to him are forged.

A collecting bank where a check is deposited and which indorses the check upon presentment with
the drawee bank, is such an indorser. So even if the indorsement on the check deposited by the
banks's client is forged, the collecting bank is bound by his warranties as an indorser and cannot set
up the defense of forgery as against the drawee bank.
More importantly, by reason of the statutory warranty of a general indorser in section 66 of the
Negotiable Instruments Law, a collecting bank which indorses a check bearing a forged indorsement
and presents it to the drawee bank guarantees all prior indorsements, including the forged
indorsement. It warrants that the instrument is genuine, and that it is valid and subsisting at the time
of his indorsement. Because the indorsement is a forgery, the collecting bank commits a breach of
this warranty and will be accountable to the drawee bank. This liability scheme operates without
regard to fault on the part of the collecting/presenting bank. Even if the latter bank was not negligent,
it would still be liable to the drawee bank because of its indorsement.

The Court has consistently ruled that "the collecting bank or last endorser generally suffers the loss
because it has the duty to ascertain the genuineness of all prior endorsements considering that the
act of presenting the check for payment to the drawee is an assertion that the party making the
presentment has done its duty to ascertain the genuineness of the endorsements."  31

The drawee bank is not similarly situated as the collecting bank because the former makes no
warranty as to the genuineness. of any indorsement.  The drawee bank's duty is but to verify the
32 

genuineness of the drawer's signature and not of the indorsement because the drawer is its client.

Moreover, the collecting bank is made liable because it is privy to the depositor who negotiated the
check. The bank knows him, his address and history because he is a client. It has taken a risk on his
deposit. The bank is also in a better position to detect forgery, fraud or irregularity in the
indorsement.

Hence, the drawee bank can recover the amount paid on the check bearing a forged indorsement
from the collecting bank. However, a drawee bank has the duty to promptly inform the presentor of
the forgery upon discovery. If the drawee bank delays in informing the presentor of the forgery,
thereby depriving said presentor of the right to recover from the forger, the former is deemed
negligent and can no longer recover from the presentor.  33

Applying these rules to the case at bench, PNB, the drawee bank, cannot debit the current account
of the Province of Tarlac because it paid checks which bore forged indorsements. However, if the
Province of Tarlac as drawer was negligent to the point of substantially contributing to the loss, then
the drawee bank PNB can charge its account. If both drawee bank-PNB and drawer-Province of
Tarlac were negligent, the loss should be properly apportioned between them.

The loss incurred by drawee bank-PNB can be passed on to the collecting bank-Associated Bank
which presented and indorsed the checks to it. Associated Bank can, in turn, hold the forger, Fausto
Pangilinan, liable.

GREAT ASIAN SALES CENTER CORPORATION and TAN CHONG

LIN, petitioners, vs. THE COURT OF APPEALS and BANCASIA
FINANCE AND INVESTMENT CORPORATION, respondents.

FACTS: FACTS:

 March 17, 1981: Great Asian BOD approved a resolution authorizing its Treasurer and
General Manager, Arsenio Lim Piat, Jr. (Arsenio) to secure a loan, not exceeding 1M, from
Bancasia
 February 10, 1982: Great Asian BOD approved a resolution authorizing Great Asian to
secure a discounting line with Bancasia in an amount not exceeding P2M
 also designated Arsenio as the authorized signatory to sign all instruments,
documents and checks necessary to secure the discounting line
 Tan Chong Lin signed 2 surety agreements in favor of Bancasia
 Great Asian, through its Treasurer and General Manager Arsenio, signed 4 Deeds of
Assignment of Receivables (Deeds of Assignment), assigning to Bancasia 15 postdated
checks:
 9 checks were payable to Great Asian
 3 were payable to "New Asian Emp."
 3 were payable to cash 
 various customers of Great Asian issued these postdated checks in payment for
appliances and other merchandise.
 Deed of Assignments of assignment:
 January 12, 1982: 4 post-dated checks of P244,225.82 maturing March 17, 1982,
2 were dishonored 
 January 12, 1982:  4 post-dated checks of P312,819 maturing April 1, 1982, all 4
were dishonored 
 February 11, 1982: 8 postdated checks of P344,475 maturing April 30, 1982, all 8
checks were dishonored
 March 5, 1982: 1 postdated checks of P200K maturing March 18, 1982 also
dishonored
 Great Asian assigned the postdated checks to Bancasia at a discount rate of less than 24% of the face
value of the checks
 Arsenio endorsed all the 15 dishonored checks by signing his name at the back of the
checks
 8 dishonored checks bore the endorsement of Arsenio below the stamped name of
"Great Asian Sales Center"
 7 dishonored checks just bore the signature of Arsenio
 The drawee banks dishonored the 15 checks on maturity when deposited for collection by
Bancasia, with any of the following as reason for the dishonor: 
 "account closed"
 "payment stopped"
 "account under garnishment"
 "insufficiency of funds
 March 18, 1982: Bancasia's lawyer,Atty. Eladia Reyes, sent by registered mail to Tan
Chong Lin a letter notifying him of the dishonor and demanding payment from him 
 June 16, 1982: Bancasia sent by personal delivery a letter to Tan Chong Lin
 May 21, 1982: Great Asian filed a case before the CFI for insolvency listing Bancasia as
one of the creditors of Great Asian in the amount of P1,243,632.00
 June 23, 1982: Bancasia filed a complaint for collection of a sum of money against Great
Asian and Tan Chong Lin
 CFI: favored Bancasia ordering Great Asian and Tan Chong Lin to pay jointly and
severally
 CA: deleted atty. fees
ISSUE: W/N Bancasia and Tang Chon Lin should be held liable under the Civil Code because it was a separate
and distinct deed of assignment
HELD: YES.  Affirmed with Modification

Second Issue: Breach of Contract by Great Asian

Bancasias complaint against Great Asian is founded on the latters breach of

contract under the Deeds of Assignment. The Deeds of Assignment uniformly
stipulate[14] as follows:

If for any reason the receivables or any part thereof cannot be paid by the obligor/s,
the ASSIGNOR unconditionally and irrevocably agrees to pay the same, assuming
the liability to pay, by way of penalty three per cent (3%) of the total amount unpaid,
for the period of delay until the same is fully paid.

In case of any litigation which the ASSIGNEE may institute to enforce the terms of
this agreement, the ASSIGNOR shall be liable for all the costs, plus attorneys fees
equivalent to twenty-five (25%) per cent of the total amount due. Further thereto, the
ASSIGNOR agrees that any and all actions which may be instituted relative hereto
shall be filed before the proper courts of the City of Manila, all other appropriate
venues being hereby waived.

The last Deed of Assignment[15] contains the following added stipulation:

xxx Likewise, it is hereby understood that the warranties which the ASSIGNOR
hereby made are deemed part of the consideration for this transaction, such that any
violation of any one, some, or all of said warranties shall be deemed as deliberate
misrepresentation on the part of the ASSIGNOR. In such event, the monetary
obligation herein conveyed unto the ASSIGNEE shall be conclusively deemed
defaulted, giving rise to the immediate responsibility on the part of the ASSIGNOR to
make good said obligation, and making the ASSIGNOR liable to pay the penalty
stipulated hereinabove as if the original obligor/s of the receivables actually defaulted.
xxx

Obviously, there is one vital suspensive condition in the Deeds of

Assignment. That is, in case the drawers fail to pay the checks on maturity, Great
Asian obligated itself to pay Bancasia the full face value of the dishonored checks,
including penalty and attorneys fees. The failure of the drawers to pay the checks is a
suspensive condition,[16] the happening of which gives rise to Bancasias right to
demand payment from Great Asian. This conditional obligation of Great Asian arises
from its written contracts with Bancasia as embodied in the Deeds of
Assignment. Article 1157 of the Civil Code provides that -
Obligations arise from:
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts.

By express provision in the Deeds of Assignment, Great Asian unconditionally

obligated itself to pay Bancasia the full value of the dishonored checks. In short, Great
Asian sold the postdated checks on with recourse basis against itself. This is an
obligation that Great Asian is bound to faithfully comply because it has the force of
law as between Great Asian and Bancasia. Article 1159 of the Civil Code further
provides that -

Obligations arising from contracts have the force of law between the contracting
parties and should be complied with in good faith.

Great Asian and Bancasia agreed on this specific with recourse stipulation,

despite the fact that the receivables were negotiable instruments with the endorsement
of Arsenio. The contracting parties had the right to adopt the with recourse stipulation
which is separate and distinct from the warranties of an endorser under the Negotiable
Instruments Law. Article 1306 of the Civil Code provides that

The contracting parties may establish such stipulations, clauses, terms and conditions
as they may deem convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy.

The explicit with recourse stipulation against Great Asian effectively enlarges, by

agreement of the parties, the liability of Great Asian beyond that of a mere endorser of
a negotiable instrument. Thus, whether or not Bancasia gives notice of dishonor to
Great Asian, the latter remains liable to Bancasia because of the  with
recourse stipulation which is independent of the warranties of an endorser under
the Negotiable Instruments Law.
There is nothing in the Negotiable Instruments Law or in the Financing Company
Act (old or new), that prohibits Great Asian and Bancasia parties from adopting
the with recourse stipulation uniformly found in the Deeds of Assignment. Instead of
being negotiated, a negotiable instrument may be assigned. [17] Assignment of a
negotiable instrument is actually the principal mode of conveying accounts receivable
under the Financing Company Act. Since in discounting of receivables the assignee is
subrogated as creditor of the receivable, the endorsement of the negotiable instrument
becomes necessary to enable the assignee to collect from the drawer. This is
particularly true with checks because collecting banks will not accept checks unless
endorsed by the payee. The purpose of the endorsement is merely to facilitate
collection of the proceeds of the checks.
The purpose of the endorsement is not to make the assignee finance company
a holder in due course because policy considerations militate against according
finance companies the rights of a holder in due course. [18] Otherwise, consumers who
purchase appliances on installment, giving their promissory notes or checks to the
seller, will have no defense against the finance company should the appliances
later turn out to be defective. 
Thus, the endorsement does not operate to make the finance company a
holder in due course. 
For its own protection, therefore, the finance company usually requires the
assignor, in a separate and distinct contract, to pay the finance company in the
event of dishonor of the notes or checks.
As endorsee of Great Asian, Bancasia had the option to proceed against Great
Asian under the Negotiable Instruments Law. Had it so proceeded, the Negotiable
Instruments Law would have governed Bancasias cause of action. Bancasia, however,
did not choose this route. Instead, Bancasia decided to sue Great Asian for breach of
contract under the Civil Code, a right that Bancasia had under the express with
recourse stipulation in the Deeds of Assignment.
The exercise by Bancasia of its option to sue for breach of contract under the
Civil Code will not leave Great Asian holding an empty bag. Great Asian, after
paying Bancasia, is subrogated back as creditor of the receivables. Great Asian can
then proceed against the drawers who issued the checks. Even if Bancasia failed to
give timely notice of dishonor, still there would be no prejudice whatever to Great
Asian. Under the Negotiable Instruments Law, notice of dishonor is not required if the
drawer has no right to expect or require the bank to honor the check, or if the drawer
has countermanded payment.[19] In the instant case, all the checks were dishonored for
any of the following reasons: account closed, account under garnishment,
insufficiency of funds, or payment stopped. In the first three instances, the drawers
had no right to expect or require the bank to honor the checks, and in the last instance,
the drawers had countermanded payment.
Moreover, under common law, delay in notice of dishonor, where such notice is
required, discharges the drawer only to the extent of the loss caused by the delay.
[20]
 This rule finds application in this jurisdiction pursuant to Section 196 of the
Negotiable Instruments Law which states, Any case not provided for in this Act shall
be governed by the provisions of existing legislation, or in default thereof, by the rules
of the Law Merchant. Under Section 186 of the Negotiable Instruments Law, delay
in the presentment of checks discharges the drawer. However, Section 186 refers
only to delay in presentment of checks but is silent on delay in giving notice of
dishonor. 
Consequently, the common law or Law Merchant can supply this gap in
accordance with Section 196 of the Negotiable Instruments Law.
One other issue raised by Great Asian, that of lack of consideration for the Deeds
of Assignment, is completely unsubstantiated. The Deeds of Assignment uniformly
provide that the fifteen postdated checks were assigned to Bancasia for valuable
consideration. Moreover, Article 1354 of the Civil Code states that, Although the
cause is not stated in the contract, it is presumed that it exists and is lawful, unless the
debtor proves the contrary. The record is devoid of any showing on the part of Great
Asian rebutting this presumption. On the other hand, Bancasias Loan Section
Manager, Cynthia Maclan, testified that Bancasia paid Great Asian a consideration at
the discount rate of less than 24% of the face value of the postdated checks.
[21]
 Moreover, in its verified petition for voluntary insolvency, Great Asian admitted its
debt to Bancasia when it listed Bancasia as one of its creditors, an extra-judicial
admission that Bancasia proved when it formally offered in evidence the verified
petition for insolvency.[22]The Insolvency Law requires the petitioner to submit a
schedule of debts that must contain a full and true statement of all his debts and
liabilities.[23] The Insolvency Law even requires the petitioner to state in his
verification that the schedule of debts contains a full, correct and true discovery of all
my debts and liabilities x x x. [24] Great Asian cannot now claim that the listing of
Bancasia as a creditor was not an admission of its debt to Bancasia but merely an
acknowledgment that Bancasia had sent a demand letter to Great Asian.
Great Asian, moreover, claims that the assignment of the checks is not a loan
accommodation but a sale of the checks. With the sale, ownership of the checks
passed to Bancasia, which must now, according to Great Asian, sue the drawers and
indorser of the check who are the parties primarily liable on the checks. Great Asian
forgets that under the Deeds of Assignment, Great Asian expressly undertook to pay
the full value of the checks in case of dishonor. Again, we reiterate that this
obligation of Great Asian is separate and distinct from its warranties as indorser
under the Negotiable Instruments Law.
Great Asian is, however, correct in saying that the assignment of the checks is a
sale, or more properly a discounting, of the checks and not a loan
accommodation. However, it is precisely because the transaction is a sale or a
discounting of receivables, embodied in separate Deeds of Assignment, that the
relevant provisions of the Civil Code are applicable and not the Negotiable
Instruments Law.
 At any rate, there is indeed a fine distinction between a discounting line and a loan
accommodation. If the accounts receivable, like postdated checks, are sold for a
consideration less than their face value, the transaction is one of discounting, and is
subject to the provisions of the Financing Company Act. The assignee is immediately
subrogated as creditor of the accounts receivable. However, if the accounts receivable
are merely used as collateral for the loan, the transaction is only a simple loan, and the
lender is not subrogated as creditor until there is a default and the collateral is
foreclosed.
In summary, Great Asians four contracts assigning its fifteen postdated checks to
Bancasia expressly stipulate the suspensive condition that in the event the drawers of
the checks fail to pay, Great Asian itself will pay Bancasia. Since the common
condition in the contracts had transpired, an obligation on the part of Great Asian
arose from the four contracts, and that obligation is to pay Bancasia the full value of
the checks, including the stipulated penalty and attorneys fees.

FAR EAST REALTY INVESTMENT INC., petitioner-appellant, vs.

THE HONORABLE COURT OF APPEALS, DY HIAN TAT, SIY CHEE and GAW SUY AN

FACTS:  The private respondents approached the petitioner at its office in Manila and asked the
latter to extend to them an accommodation loan in the sum of P4,500.00, Philippine Currency, which
they needed in their business, and which they promised to pay, jointly and severally, in one month
time; that they proposed to pay the petitioner interest thereon at the rate of 14% per annum, as in
fact they delivered to the petitioner the China Banking Corporation Check No. VN-915564, dated
September 13, 1960, 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 and said bank would honor the same; that, in order to
accomodate the private respondents, the petitioner agreed and actually extended to the private
respondents an accommodation loan in the sum of P4,500.00 

The check bounced and was not able to pay the loan upon demand.

GAW SUY AN: Petitioner has no cause of action against him because as it appears on the
endorsement at the back of CBC Check No. VN-915564, he signed said endorsement for his
principal, the Victory Hardware and not for his own individual account, hence, could not be made
personally liable

HIAN TAT: same with SUY and petitioner not being a holder of the check for value, has no recourse
against the immediate endorser, and neither with the drawer thereof, and considering that this check
in question was dated September 13, 1960 and deposited only for payment on March 5, 1964, this
unreasonable delay in presentment wholly discharged not only the endorser but also the drawer

TRIAL COURT: three defendants to pay the plaintiff, jointly and severally,
CA: Reversed check was not given as collateral to guarantee a loan secured by the three
private but passed through other hands before reaching the petitioner and the said check was not
presented within a reasonable time and after its issuance

RESPONDENTS: It is further argued by the private respondents that in order to charge the persons
secondarily liable, such as drawer and endorsers, the instrument must be presented for payment on
the date and period therein mentioned in the instrument, if it is payable on a fixed date, or within a
reasonable time after issue, otherwise, the drawer and endorsers are discharged from liability.

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

Issue: The main issue in this case is whether or not presentment for payment and notice of dishonor
of the questioned check were made within reasonable time.

Held: No, Where the instrument is not payable on demand, presentment must be made on the day it
fags 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).

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).

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 

"Reasonable time" has been defined as so much time as is necessary under the circumstances for a
reasonable prudent and diligent man to do,

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.

DENIED

ASIAN BANKING CORPORATION, plaintiff-appellee, vs. JUAN JAVIER

Salvador B. Chaves drew a check on the Philippine National Bank for P11,000 in favor of La Insular,
a concern doing business in this city. This check was indorsed by the limited partners of La Insular,
and then deposited by Salvador B. Chaves in his current account with the plaintiff, Asia Banking
Corporation

Salvador B. Chaves drew another check for P18,785.30 on the Philippine National Bank, in favor of
the aforesaid La Insular and deposited to his account in ABC
Subsequently these checks were presented by the plaintiff to the Philippine National Bank for
payment, but the latter refused to pay on the ground that the drawer.

Plaintiff now brings this action against the JUAN JAVIER, as indorser, for the payment of the value
of both checks.

TRIAL COURT: Lower court sentenced the defendant to pay the plaintiff 

CONTENTION: that at all events its liability as indorser of the checks in question was extinguished

Issue: WON there is notice given to the defendants to make him liable as principal

Held: No, Section 89 of the Negotiable Instruments Law (Act No. 2031) provides that, when a
negotiable instrument is dishonored for non-acceptance or non-payment, notice thereof must
be given to the drawer and each of the indorsers, and those who are not notified shall be
discharged from liability, except where this act provides otherwise.

According to this, the indorsers are not liable unless they are notified that the document was
dishonored. Then, under the general principle of the law of procedure, it will be incumbent upon the
plaintiff, who seeks to enforce the defendant's liability upon these checks as indorser, to establish
said liability by proving that notice was given to the defendant within the time, and in the manner,
required by the law that the checks in question had been dishonored. If these facts are not proven,
the plaintiff has not sufficiently established the defendant's liability. There is no proof in the record
tending to show that plaintiff gave any notice whatsoever to the defendant that the checks in
question had been dishonored, and there it has not established its cause of action.

REVERSED

GREAT ASIAN SALES CENTER CORPORATION and TAN CHONG

LIN, petitioners, vs. THE COURT OF APPEALS and BANCASIA
FINANCE AND INVESTMENT CORPORATION, respondents.
SUPRA HELD: The exercise by Bancasia of its option to sue for breach of
contract under the Civil Code will not leave Great Asian holding an empty
bag. Great Asian, after paying Bancasia, is subrogated back as creditor of the
receivables. Great Asian can then proceed against the drawers who issued the
checks. Even if Bancasia failed to give timely notice of dishonor, still there would be
no prejudice whatever to Great Asian. Under the Negotiable Instruments Law, notice
of dishonor is not required if the drawer has no right to expect or require the bank to
honor the check, or if the drawer has countermanded payment. [19] In the instant case,
all the checks were dishonored for any of the following reasons: account closed,
account under garnishment, insufficiency of funds, or payment stopped. In the first
three instances, the drawers had no right to expect or require the bank to honor the
checks, and in the last instance, the drawers had countermanded payment.
Moreover, under common law, delay in notice of dishonor, where such notice is
required, discharges the drawer only to the extent of the loss caused by the delay.
  This rule finds application in this jurisdiction pursuant to Section 196 of the
[20]

Negotiable Instruments Law which states, Any case not provided for in this Act shall
be governed by the provisions of existing legislation, or in default thereof, by the rules
of the Law Merchant. Under Section 186 of the Negotiable Instruments Law, delay
in the presentment of checks discharges the drawer. However, Section 186 refers
only to delay in presentment of checks but is silent on delay in giving notice of
dishonor. 
Consequently, the common law or Law Merchant can supply this gap in
accordance with Section 196 of the Negotiable Instruments Law.
NYCO SALES CORPORATION, petitioner, vs.
BA FINANCE CORPORATION, JUDGE ROSALIO A. DE LEON—REGIONAL TRIAL COURT, BR.
II, INTERMEDIATE APPELLATE COURT, FIRST CIVIL CASES DIVISION, respondents.

FACTS: Nyco Sales Corporation (hereinafter referred to as Nyco) whose president and general
manager is Rufino Yao, is engaged in the business of selling construction materials 

the brothers Santiago and Renato Fernandez (hereinafter referred to as the Fernandezes), both
acting in behalf of Sanshell Corporation, approached Rufino Yao for credit accommodation. 

the Fernandezes went to Yao for the purpose of discounting Sanshell's post-dated check which was
a BPI-Davao for the amount of P60,000.00. The said check was payable to Nyco. Nyco assigned the
said check to BA Finance.

BA Finance issued check in favor with NYCO and there after endorsed it to SANSHELL
accompanied with DEED of assignment.

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 for the same amount in favor of BA Finance and was dishonored.

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.

TRIAL COURT: the lower court ruled in favor of BA Finance ordering them to pay the former jointly
and severally

CA: AFFIMED

CONTENTION: NYCO was actually discharged of its liability over the SBTC check when BA
Finance failed to give it a notice of dishonor; 

Issue: whether or not the assignor is liable to its assignee for its dishonored checks.
WON there is novation

Held: Yes, 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 (Rollo,
p. 40). 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 (See Art. 1628, Civil Code).

NOE, In the instant case, there was no express agreement that BA Finance's acceptance of the
SBTC check will discharge Nyco from liability. Neither is there incompatibility because both checks
were given precisely to terminate a single obligation arising from Nyco's sale of credit to BA Finance.
As novation speaks of two distinct obligations, such is inapplicable to this case.