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NEGOTIABLE INSTRUMENTS

WEEK 1

Preliminary Consideration:

o Phil. Educ. Co. Inc. vs. Soriano, 39 SCRA 587

39 SCRA 587 – Commercial Law – Negotiable Instruments Law – Postal Money Orders Not Negotiable
Instruments
In April 1958, a certain Enrique Montinola was purchasing ten money orders from the Manila Post Office.
Each money order was worth P200.00. Montinola offered to pay the money orders via a private check but
the cashier told him he cannot pay via a private check. But still somehow, Montinola was able to leave the
post office with the money orders without him paying for them.
Days later, the missing money orders were discovered. Meanwhile, the  Philippine Education Co., Inc.
(PECI)  presented one of the missing postal money orders before the Bank of America. The money order
was initially credited and so P200.00 was deposited in PECI’s account with the bank. But then later the
post office, through Mauricio Soriano (Chief of the Money Order Division of the Post Office), advised the
bank that the money order was irregularly issued hence the P200.00 was debited back from PECI’s
account.
PECI is now invoking that the money order was duly negotiated to them and thus they are entitled to the
amount it represents.
ISSUE: Whether or not postal money orders are negotiable instruments.
HELD: No. Postal money orders are not negotiable instruments. The rationale behind this rule is the fact
that in establishing and operating a postal money order system, the government is not engaging in
commercial transactions but merely exercises a governmental power for the public benefit. In fact, postal
money orders are subject to a lot of restrictions limiting their negotiability. Particularly in this case, as far
back as 1948, there was already an agreement between Bank of America and the Manila Post Office, that
in case the post office would have an adverse claim against any Bank of America depositor involving
postal money orders issued by the post office, all amounts cleared in relation thereto shall be refunded
back to the post office’s account with the bank – this in itself is already a limitation in the negotiability and
nature of the postal money orders issued by the post office because of the special conditions attached.
 

FACTS:

Enrique Montinola sought to purchase from the Manila Post Office ten (10) money orders of P200.00. He
offered them with private checks that were not generally accepted in payment of money order.
Apparently, he managed to leave with the money orders. After the discovery of the disappearance of the
unpaid money orders, a message was sent to all postmasters instructing them not to pay anyone that
holds the orders.

The Bank of America, then, received of the money orders from petitioner. Defendant then notified the
bank that the money order has been irregularly issued that the amount was deducted from petitioner's
account. After asking the Postmaster General to reconsider the deduction, which he denied, plaintiff filed
an action against defendant.

The lower court decided that the notice be revoked that the plaintiff shall be indemnified.

ISSUE: Whether the money order was negotiable.

RULING:

The SC affirmed the lower court's decision. Postal money orders are not negotiable instruments. The
reason behind this rule being that, in establishing and operating a postal money order system, the

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government is not engaging in commercial transactions but merely exercises a governmental power for
the public benefit.

o PAL vs. CA, 181 SCRA 557

FACTS:
 November 8, 1967: Amelia Tan, under the name and style of Able Printing Press commenced a
complaint for damages before the CFI

 CFI: favored Amelia Tan against Philippine Airlines Inc. (PAL)

 CA affirmed with mod

 May 18, 1978: PAL received a copy of the first alias writ of execution issued on the same day
directing Special Sheriff Jaime K. del Rosario to levy on execution in the sum of P25,000.00 with
legal interest thereon from July 20,1967 when respondent Amelia Tan made an extra-judicial demand
through a letter

 May 23, 1978: PAL filed an urgent motion to quash the alias writ of execution stating that no
return of the writ had as yet been made and that the judgment debt had already been fully satisfied as
evidenced by the cash vouchers signed and received by Deputy Sheriff Reyes who absconded

 May 26,1978: served a notice of garnishment on the depository bank of PAL 

ISSUE: W/N payment made to the absconding sheriff by check in his name operate to satisfy the
judgment debt

HELD: NO. CA affirmed.

 payment must be made to the obligee himself or to an agent having authority, express or implied,
to receive the particular payment

 The receipt of money due on ajudgment by an officer authorized by law to accept it will,
therefore, satisfy the debt

 Since a negotiable instrument is only a substitute for money and not money, the delivery of such
an instrument does not, by itself, operate as payment 

 The payment made by the PAL to the absconding sheriff was not in cash or legal tender
but in checks

Article 1249 of the Civil Code provides:

The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver
such currency, then in the currency which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents
shall produce the effect of payment only when they have been cashed, or when through the fault of the
creditor they have been impaired.
 As between two innocent persons, one of whom must suffer the consequence of a breach of
trust, the one who made it possible by his act of confidence must bear the loss. 

 PAL without prudence, departed from what is generally observed and done, and placed
as payee in the checks the name of the errant Sheriff and not the name of the rightful payee 

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o BPI vs. Sps. Reynaldo Royeca, July 21, 2008

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Negotiability:

o Equitable Banking Corporation vs. IAC, G.R. No. 74451, May 25, 1988

FACTS:
Nell Company issued a check to help Casals and Casville Enterprises obtain a  letter  of  credit  from 
Equitable  Banking  in  connection  with  equipment,  a garrett  skidder,  which  Casals  and  Casville 
were  buying  from  Nell.    Nell indicated  the  payee  as  follows  “EQUITABLE  BANKING 
CORPORATION  A/C 
CASVILLE ENTERPRISES INC.” 
 
Casals deposited the check with the bank and the bank teller accepted the same  and  in  accordance 
with  customary  bank  practice,  stamped  in  the check  the  words  “non-negotiable”.    The  amount 
was  withdrawn  after  the deposit. 
 
This  prompted  Nell  to  file  a  case  against  the  bank,  Casals  and  Casville.  While  the  instant  case 
was  being  tried,  Casals  and  Casville  assigned  the garrett skidder to plaintiff which credited in favor of
defendants the amount of P450,000, as partial satisfaction of its claim against them.   
 

HELD:
Equitable is not liable to Nell.  Nell should bear the loss as it was through its own acts, which put it into the
power of Casals and Casville Enterprises to perpetuate the fraud against it.   
 
The  check  wasn’t  initially  non-negotiable.    Neither  was  it  cross-checked.  The rubber-stamping
transversally on the face of the check was only made the bank teller in accordance with customary bank
practice, and not by Nell as  the  drawer  of  the  check,  and  simply  meant  that  thereafter  the  same 
check could no longer be negotiated. 
 
The payee was not indicated with reasonable certainty in contravention of Section 8.  As worded, it could
be accepted as deposit to the account of the party named therein after the symbols  of A/C, or payable to
the bank as trustee,  or  as  an  agent,  for  Casville  with  the  latter  being  the  ultimate beneficiary. 

161 SCRA 518 – Mercantile Law – Negotiable Instruments Law – Negotiable Instruments in
General –   Certainty of Payee 

FACTS: In 1975, Liberato Casals, majority stockholder of Casville Enterprises, went to buy two garrett
skidders (bulldozers) from Edward J. Nell Company amounting to P970,000.00. To pay the bulldozers,
Casals agreed to open a letter of credit with the Equitable Banking Corporation. Pursuant to this, Nell
Company shipped one of the bulldozers to Casville. Meanwile, Casville advised Nell Company that in
order for the letter of credit to be opened, Casville needs to deposit P427,300.00 with Equitable Bank, and
that since Casville is a little short, it requested Nell Company to pay the deposit in the meantime.
Nell Company agreed and so it eventually sent a check in the amount of P427,300.00. The check read:
Pay to the EQUITABLE BANKING CORPORATION Order of A/C OF CASVILLE ENTERPRISES, INC.
Nell Company sent the check to Casville so that it would be the latter who could send it to Equitable Bank
to cover the deposit in lieu of the letter of credit. Casals received the check, he went to Equitable Bank,
and the teller received the check. The teller, instead of applying the amount as deposit in lieu of the letter
of credit, credited the check to Casville’s account with Equitable Bank. Casals later withdrew all the
P427,300.00 and appropriated it to himself.

ISSUE: Whether or not Equitable Bank is liable to cover for the loss.

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HELD:  No. The subject check was equivocal and patently ambiguous. Reading on the wordings of the
check, the payee thereon ceased to be indicated with reasonable certainty in contravention of Section 8
of the Negotiable Instruments Law. As worded, it could be accepted as deposit to the account of the party
named after the symbols “A/C,” or payable to the Bank as trustee, or as an agent, for Casville
Enterprises, Inc., with the latter being the ultimate beneficiary. That ambiguity is to be
taken contra proferentem that is, construed against Nell Company who caused the ambiguity and could
have also avoided it by the exercise of a little more care. Thus, Article 1377 of the Civil Code, provides:
Art. 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who
caused the obscurity.

o Traders Royal Bank vs. Court of Appeals, 269 SCRA 15

FACTS:   Filriters (assigned) > Philfinance (still under the name of Filriters assigned) > Traders Royal
Bank = ? (valid or not)

 November 27, 1979: Filriters Guaranty Assurance Corporation (Filriters) executed a "Detached
Assignment whereby Filriters, as registered owner, sold, transferred, assigned and delivered unto
Philippine Underwriters Finance Corporation (Philfinance) all its rights and title to Central Bank
Certificates of Indebtedness (CBCI) of P500k and having an aggregate value of P3.5M

 The Detached Assignment contains an express authorization executed by the transferor

intended to complete the assignment through the registration of the transfer in the name of
PhilFinance

 February 4, 1981:  Traders Royal Bank (Traders) entered into a Repurchase Agreement w/
PhilFinance whereby in consideration of the sum of P500,000.00, PhilFinance sold, transferred and
delivered a CBCI w/ a face value of P500K which CBCI was among those previously acquired by
PhilFinance from Filriters

 PhilFinance failed to repurchase on the agreed date of maturity, April 27, 1981, when the checks
it issued in favor of petitioner were dishonored for insufficient funds

 Philfinance transferred and assigned all, its rights and title in the CBCI to Traders

 Respondent failed and refused to register the transfer as requested, and continues to do so
notwithstanding petitioner's valid and just title over the same and despite repeated demands in writing

 Traders prayed for the registration by the Central Bank of the subject CBCI in its name.

 CA affirmed RTC: subsequent assignment in favor of Traders Royal Bank null and void and of no
force and effect. 

 Philfinance acquired no title or rights under CBCI which it could assign or transfer to
Traders and which it can register with the Central Bank

 instrument is payable only to Filriters, the registered owner

ISSUE: W/N the CBCI is a negotiable instrument

HELD:  NO. Petition is dismissed. CA affirmed.

 CBCI is not a negotiable instrument in the absence of words of negotiability within the meaning of
the negotiable instruments law (Act 2031)

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 certificate of indebtedness 

 = certificates for the creation and maintenance of a permanent improvement revolving

fund

 similar to a "bond" 

 properly understood as acknowledgment of an obligation to pay a fixed sum of

money

 usually used for the purpose of long term loans

 Philfinance merely borrowed the CBCI from Filriters, a sister corporation. 

 lack of any consideration = assignment is a complete nullity

 Filriters to Philfinance did not conform to the "Rules and Regulations Governing Central Bank
Certificates of Indebtedness" (Central Bank Circular No. 769, series of 1980) under which the note
was issued. 

 Published in the Official Gazette on November 19, 1980, Section 3 thereof provides that
any assignment of registered certificates shall not be valid unless made . . . by the registered owner
thereof in person or by his representative duly authorized in writing

 Alfredo O. Banaria, who signed the deed of assignment purportedly for and on
behalf of Filriters, did not have the necessary written authorization from the BOD

 Traders, being a commercial bank, cannot feign ignorance of Central Bank Circular 769,
and its requirements. 

 The fact that Filfinance owns majority shares in Filriters is not by itself a ground to disregard the
independent corporate status of Filriters. 

 Traders knew that Philfinance is not registered owner of the CBCI. 

 The fact that a non-owner was disposing of the registered CBCI owned by another entity
was a good reason for petitioner to verify of inquire as to the title Philfinance to dispose to the CBCI.

 Nemo potest nisi quod de jure potest — no man can do anything except what he can do lawfully.

TRADERS ROYAL BANK V. CA  

269 SCRA 15

FACTS:
Filriters through a Detached Agreement   transferred   ownership to Philfinance a Central Bank Certificate
of Indebtedness.  It was only through one of its  officers by which the CBCI was conveyed without
authorization from  the  company.    Petitioner  and  Philfinance  later  entered  into  a Repurchase  
agreement,   on   which   petitioner   bought   the   CBCI   from Philfinance.  The latter agreed to
repurchase the CBCI but failed to do so. When the petitioner tried to have it registered in its name in the
CB, the latter didn't want to recognize the transfer.   
 

HELD:

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The  CBCI  is  not  a  negotiable  instrument. The  instrument  provides  for  a promise to pay the
registered owner Filriters.  Very clearly, the instrument was  only  payable  to  Filriters. It  lacked  the 
words  of  negotiability  which should  have  served  as  an  expression  of  the  consent  that  the 
instrument may be transferred by negotiation. 
 
The  language  of  negotiability  which  characterize  a  negotiable  paper  as  a credit  instrument  is  its 
freedom  to  circulate  as  a  substitute  for  money. Hence, freedom of negotiability is the touchstone
relating to the protection of holders in due course, and the freedom of negotiability is the foundation for 
the  protection,  which  the  law  throws  around  a  holder  in  due  course. This freedom in   negotiability
is   totally   absent in a   certificate of indebtedness  as  it  merely  acknowledges  to  pay  a  sum  of 
money  to  a specified person or entity for a period of time. 
 
The  transfer  of  the  instrument  from  Philfinance  to  TRB  was  merely  an assignment, and is not
governed by the negotiable instruments law.    The pertinent  question  then  is—was  the  transfer  of 
the  CBCI  from  Filriters  to Philfinance  and  subsequently  from  Philfinance  to  TRB, in accord  with
existing law, so as to entitle TRB to have the CBCI registered in its name with  the  Central  Bank? 
Clearly  shown  in  the  record  is  the  fact  that Philfinance’s  title  over  CBCI  is  defective  since  it 
acquired  the  instrument from Filriters fictitiously. Although the deed of assignment stated that the
transfer  was  for  ‘value  received‘,  there  was  really  no  consideration involved.  What  happened  was 
Philfinance  merely  borrowed  CBCI  from Filriters,  a  sister  corporation.  Thus,  for  lack  of  any 
consideration,  the assignment made is a complete nullity.  Furthermore, the transfer wasn't in conformity 
with  the  regulations  set  by  the  CB. Giving  more  credence  to rule that there was no valid transfer or
assignment to petitioner.   

o Garcia vs. Llamas, 417 SCRA 292

FACTS:
 Romeo Garcia and Eduardo de Jesus borrowed P400K and issued a promissory note binding
themselves solidarily to Dionisio Llamas 

 Llamas filed a complaint for sum of money and damages against Garcia and de Jesus.

 Garcia: signed merely as an accommodation party 

 RTC: favored Llamas against de Jesus

 CA: no novation

ISSUE: W/N de Jesus is not be liable as an accomodation party because note is non-negotiable

HELD: YES. CA Affirmed

 Novation is a mode of extinguishing an obligation by changing its objects or principal obligations,
by substituting a new debtor in place of the old one, or by subrogating a third person to the rights of
the creditor - NOT in this case

 By its terms, the note was made payable to a specific person rather than to bearer or to order- a
requisite for negotiability under Act 2031, the Negotiable Instruments Law (NIL). Hence, petitioner
cannot avail himself of the NILs provisions on the liabilities and defenses of an accommodation
party. 

 Besides, a non-negotiable note is merely a simple contract in writing and is evidence of such
intangible rights as may have been created by the assent of the parties 

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 The promissory note is thus covered by the general provisions of the Civil Code, not by
the NIL

 Even granting arguendo that the NIL was applicable, still, petitioner would be liable for the
promissory note. 

 Under Article 29 of Act 2031, an accommodation party is liable for the instrument to a
holder for value even if, at the time of its taking, the latter knew the former to be only an
accommodation party. 

 The relation between an accommodation party and the party accommodated is,
in effect, one of principal and surety 

o METROBANK vs. CA, 194 SCRA 169

METROPOLITAN BANK V. CA 

194 SCRA 169 

FACTS:
Gomez  opened  an  account  with  Golden  Savings  bank  and  deposited  38 treasury  warrants.    All 
these  warrants  were  indorsed  by  the  cashier  of Golden  Savings,  and  deposited  it  to  the  savings 
account  in  a  Metrobank branch.    They  were  sent  later  on  for  clearing  by  the  branch  office  to  the
principal  office  of  Metrobank,  which  forwarded  them  to  the  Bureau  of Treasury  for  special 
clearing.    On  persistent  inquiries  on  whether  the warrants have been cleared, the branch manager
allowed withdrawal of the warrants,  only  to  find  out  later  on  that  the  treasury  warrants  have  been 
dishonored.   

HELD:
The  treasury  warrants  were  not  negotiable  instruments.    Clearly,  it  is indicated  that  it  was  non-
negotiable  and  of  equal  significance  is  the indication  that  they  are  payable  from  a  particular 
fund,  Fund  501.    This indication  as  the  source  of  payment  to  be  made  on  the  treasury  warrant 
makes  the  promise  to  pay  conditional  and  the  warrants  themselves  non-negotiable. 
 
Metrobank then cannot contend that by indorsing the warrants in general, GS assumed that they were
genuine and in all respects what they purport it to be, in accordance to Section 66 of the NIL.  The simple
reason is that the  law  isn’t  applicable  to  the  non-negotiable  treasury  warrants.    The 
indorsement  was  made  for  the  purpose  of  merely  depositing  them  with Metrobank  for  clearing.   
It  was  in  fact  Metrobank  which  stamped  on  the back of the warrants: “All prior indorsements and/or
lack of endorsements guaranteed…”

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,

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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: 1 st, 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 2 nd, 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.

o Phil. Education Co. vs. Soriano, 39 SCRA 587

PECO 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

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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.

o Caltex Phil. vs. CA 212 SCRA 448

212 SCRA 448 – Mercantile Law – Negotiable Instruments Law – Negotiable Instruments in
General – Bearer Instrument – Certificate of Time Deposit

In 1982, Angel de la Cruz obtained certificates of time deposit (CTDs) from Security Bank and Trust
Company for the former’s deposit with the said bank amounting to P1,120,000.00. The said CTDs are
couched in the following manner:

This is to Certify that  B E A R E R has deposited in this Bank the sum of   _______  Pesos, Philippine
Currency, repayable to said depositor _____  days. after date, upon presentation and surrender of this
certificate, with interest at the rate of ___  % per cent  per annum.

Angel de la Cruz subsequently delivered the CTDs to Caltex in connection with the purchase of fuel
products from Caltex.
In March 1982, Angel de la Cruz advised Security Bank that he lost the CTDs. He executed an affidavit of
loss and submitted it to the bank. The bank then issued another set of CTDs. In the same month, Angel
de la Cruz acquired a loan of P875,000.00 and he used his time deposits as collateral.
In November 1982, a representative from Caltex went to Security Bank to present the CTDs (delivered by
de la Cruz) for verification. Caltex advised Security Bank that de la Cruz delivered Caltex the CTDs as
security for purchases he made with the latter. Security Bank refused to accept the CTDs and instead
required Caltex to present documents proving the agreement made by de la Cruz with Caltex. Caltex
however failed to produce said documents.
In April 1983, de la Cruz’ loan with Security bank matured and no payment was made by de la Cruz.
Security Bank eventually set-off the time deposit to pay off the loan.
Caltex sued Security Bank to compel the bank to pay off the CTDs. Security Bank argued that the CTDs
are not negotiable instruments even though the word “bearer” is written on their face because the word
“bearer” contained therein refer to depositor and only the depositor  can encash the CTDs and no one
else.

ISSUE: Whether or not the certificates of time deposit are negotiable.

HELD: Yes. The CTDs indicate that they are payable to the bearer; that there is an implication that the
depositor is the bearer but as to who the depositor is, no one knows. It does not say on its face that the
depositor is Angel de la Cruz. If it was really the intention of respondent bank to pay the amount to Angel

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de la Cruz only, it could have with facility so expressed that fact in clear and categorical terms in the
documents, instead of having the word “BEARER” stamped on the space provided for the name of the
depositor in each CTD. On the wordings of the documents, therefore, the amounts deposited are
repayable to whoever may be the bearer thereof.
Thus, de la Cruz is the depositor “insofar as the bank is concerned,” but obviously other parties not privy
to the transaction between them would not be in a position to know that the depositor is not the bearer
stated in the CTDs.
However, Caltex may not encash the CTDs because although the CTDs are bearer instruments, a valid
negotiation thereof for the true purpose and agreement between Caltex and De la Cruz, requires both
delivery and indorsement. As discerned from the testimony of Caltex’ representative, the CTDs were
delivered to them by de la Cruz merely for guarantee or security and not as payment.

o Salas vs. CA, January 22, 1990

FACTS:
 February 6, 1980: Juanita Salas bought a motor vehicle from the Violago Motor Sales Corp.
(VMS) for P58,138.20 as evidence by a promissory note
 This note was subsequently endorsed to Filinvest Finance &Leasing Corp. (FFLC) 
 May 21, 1980: Salas defaulted in her installments allegedly due to discrepancies in the engine
and chassis number of the vehicle delivered and discovery of certificate of reg. and deed of mortgage
 VMS initiated for a sum of money at the RTC
 RTC: favored VMS
 CA: Affirmed

ISSUE: W/N the promissory note is a negotiable which will bar completely all defenses of Salas against
VMS

HELD:  YES. Affirmed

 Requisites under the law (Sec. 1 of Negotiable Instruments Law)
 it is in writing and signed by the maker (Salas)
 it contains an unconditional promise to pay the amount P58,138.20
 it is payable at a fixed or determinable future time which is P1,614.95 monthly for 36
months due and payable on the 21st day of each month starting March 21, 1980 thru and
inclusive of Feb 21 1983
 It is payable to VMS or order and as such
 drawee is named or indicated with certainty
 Filinvest = holder in due course

o Rivera vs. Sps. Chua, January 14, 2015

WEEK 2
Case:
o PNB vs. Rodriguez G.R. No. 170325, September 26, 2008

FACTS:
 Spouses Erlando and Norma Rodriguez were engaged in the informal lending business and had
a discounting arrangement with the Philnabank Employees Savings and Loan Association
(PEMSLA), an association of PNB employees

 The association maintained current and savings accounts with Philippine National Bank (PNB)

 PEMSLA regularly granted loans to its members.  Spouses Rodriguez would rediscount the
postdated checks issued to members whenever the association was short of funds.  

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 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 officers carried this out by forging the indorsement of the named
payees in the checks

 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. 

 this became the usual practice for the parties.

 November 1998-February 1999: spouses issued 69 checks totalling to P2,345,804.  These were

payable to 47 individual payees who were all members of PEMSLA

 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 amounts were duly debited from the Rodriguez account

 Spouses filed a civil complaint for damages against PEMSLA, the Multi-Purpose Cooperative of
Philnabankers (MCP), and PNB.  

 PNB credited the checks to the PEMSLA account even without indorsements

= PNB violated its contractual obligation to them as depositors - so PNB should bear the losses

 RTC: favored Rodriguez

 makers,  actually did not intend for the named payees to receive the proceeds of the
checks = fictitious payees (under the Negotiable Instruments Law) = negotiable by mere delivery

 CA: Affirmed - checks were obviously meant by the spouses to be really paid to PEMSLA =
payable to order

ISSUE: W/N the 69 checks are payable to order for not being issued to fictitious persons thereby
dismissing PNB from liability

HELD: NO.  CA Affirmed 

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 GR: when the payee is fictitious or not intended to be the true recipient of the proceeds, the check
is considered as a bearer instrument (Sections 8 and 9 of the NIL)

 EX: However, there is a commercial bad faith exception to the fictitious-payee rule.  A showing of
commercial bad faith on the part of the drawee bank, or any transferee of the check for that
matter, will work to strip it of this defense.  The exception will cause it to bear the loss. 

 The distinction between bearer and order instruments lies in their manner of negotiation

 order instrument - requires an indorsement from the payee or holder before it may be
validly negotiated

 bearer instrument - mere delivery

 US jurisprudence: “fictitious” if the maker of the check did not intend for the payee to in fact
receive the proceeds of the check

 In a fictitious-payee situation, the drawee bank is absolved from liability and the drawer bears the
loss

 When faced with a check payable to a fictitious payee, it is treated as a bearer instrument that
can be negotiated by delivery

 underlying theory: one cannot expect a fictitious payee to negotiate the check by placing
his indorsement thereon

 lack of knowledge on the part of the payees, however, was not tantamount to a lack of intention
on the part of respondents-spouses that the payees would not receive the checks’ proceeds

 PNB did not obey the instructions of the drawers when it accepted absent indorsement, forged or
otherwise.  It was negligent in the selection and supervision of its employees 

o San Miguel Corp. vs. Puzon, Jr. September 22, 2010

WEEK 4

Real and Personal Defenses

o State Investment House, Inc. vs. CA, January 11, 1993

State Investment House Inc. 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

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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.

State Investment Corporation vs. CA G.R. No. 101163 January 11, 1993

Moulic issued to Corazon two post-dated checks to Victoriano as a security for the two jewelry then the
payee negotiated the check to State Investment House. However, Moulic failed to sell the jewelry so she
returned them before the maturity of the checks but the checks cannot be retrieved because it is already
negotiated. Consequently, before their maturity dates, MOULIC withdrew her funds from the drawee
bank. Upon presentment for payment, the checks were dishonored for insufficiency of funds. On 20
December 1979, STATE allegedly notified MOULIC of the dishonor of the checks and requested that it be
paid in cash instead, although MOULIC avers that no such notice was given her. Is the drawer liable even
if no notice of dishonor was given to the drawer?
 
Yes. MOULIC, as drawer, is liable for the value of the checks she issued to the holder in due course,
STATE, without prejudice to any action for recompense she may pursue against the VICTORIANOs as
Third-‐Party Defendants who had already been declared as in default. (State Investment Corporation vs.
CA G.R. No. 101163 January 11, 1993)

FACTS:
 Nora B. Moulic issued to Corazon Victoriano, as security for pieces of jewelry to be sold on
commission,2 post-dated Equitable Banking Corporation checks OF P 50,000 each

 Corazon negotiated the checks to State Investment House. Inc. (State)

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 MOULIC failed to sell the pieces of jewelry, so she returned them to the payee before maturity of
the checks. 

 The checks, however, could no longer be retrieved as they had already been negotiated

 before their maturity dates, MOULIC withdrew her funds from the drawee bank

 Upon presentment for payment, the checks were dishonored for

insufficiency of funds

 October 6, 1983: State sued to recover the value of the checks plus attorney's fees and expenses
of litigation

 CA affirmed RTC: dismissed

ISSUE: W/N State has a right to recourse as holder in due course regardless if the sale did not push
through against MOULIC

HELD: YES. Petition is Granted. 

Sec. 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 that it was 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.

 a prima facie presumption exists that the holder of a negotiable instrument is a holder in due
course

 burden of proving that STATE is not a holder in due course lies in MOULIC - failed

 As holder in due course, it holds the instruments free from any defect of title of prior parties, and
from defenses available to prior parties among themselves

 State may, therefore, enforce full payment of the checks

 MOULIC cannot set up against STATE the defense that there was failure or absence of
consideration

 That the post-dated checks were merely issued as security is not a ground for the
discharge of the instrument as against a holder in due course. 

 For the only grounds are those outlined in Sec. 119 of the Negotiable Instruments Law:

Sec. 119. Instrument; how discharged. — A negotiable instrument is discharged: (a) By payment in due
course by or on behalf of the principal debtor; (b) By payment in due course by the party accommodated,
where the instrument is made or accepted for his accommodation; (c) By the intentional cancellation
thereof by the holder; (d) By any other act which will discharge a simple contract for the payment of
money; (e) When the principal debtor becomes the holder of the instrument at or after maturity in his own
right.
 Obviously, MOULIC may only invoke paragraphs (c) and (d) as possible grounds for the
discharge of the instrument. 

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 But, the intentional cancellation contemplated under paragraph (c) is that cancellation
effected by destroying the instrument either by tearing it up,  burning it, or writing the word "cancelled"
on the instrument.

 The act of destroying the instrument must also be made by the holder of the instrument
intentionally. 

 Since MOULIC failed to get back possession of the post-dated checks, the
intentional cancellation of the said checks is altogether impossible.

 acts which will discharge a simple contract for the payment of money under paragraph (d)
are determined by other existing legislations since Sec. 119 does not specify what these acts are,
e.g., Art. 1231 of the Civil Code which enumerates the modes of extinguishing obligations.

 Again, none of the modes outlined therein is applicable in the instant case as Sec. 119
contemplates of a situation where the holder of the instrument is the creditor while its drawer is the
debtor. In the present action, the payee, Corazon Victoriano, was no longer MOULIC's creditor at the
time the jewelry was returned.

 State failed to give Notice of Dishonor to MOULIC is of no moment. The need for such notice is
not absolute; there are exceptions under Sec. 114 of the Negotiable Instruments Law:

Sec. 114. When notice need not be given to drawer. — Notice of dishonor is not required to be given to
the drawer in the following cases: 
(a) Where the drawer and the drawee are the same person; 
(b) When the drawee is a fictitious person or a person not having capacity to contract; 
(c) When the drawer is the person to whom the instrument is presented for payment: 
(d) Where the drawer has no right to expect or require that the drawee or acceptor will honor the
instrument; 
(e) Where the drawer had countermanded payment.
o she was responsible for the dishonor of her checks, hence, there was no need to serve
her Notice of Dishonor, which is simply bringing to the knowledge of the drawer or indorser of the
instrument, either verbally or by writing, the fact that a specified instrument, upon proper proceedings
taken, has not been accepted or has not been paid, and that the party notified is expected to pay it

 No unjust enrichment -absence of a similar provision in Act No. 3135, as amended, it cannot be
concluded that the creditor loses his right recognized by the Rules of Court to take action for the
recovery of any unpaid balance on the principal obligation simply because he has chosen to
extrajudicially foreclose the real estate mortgage pursuant to a Special Power of Attorney given him
by the mortgagor in the contract of mortgage. 

o PNB vs. Conception Mining Co., July 31, 1962

PNB V. CONCEPCION MINING

115 PHIL 723

FACTS:

A  case  for  collection  of  a  sum  of  money  was  filed  against  defendants  in connection   with   a  
promissory   note   they   issued   with   others.      The defendants  move  that  since  their  co-makers 
have  died,  claim  should  be also against the estates of such.  This was denied by the court.

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HELD:

Where an instrument containing the words “I promise to pay” is signed by two  or  more  persons,  they 
are  deemed  to  be  jointly  and  severally  liable thereon.    By  virtue  of  this  provision  found  in 
Section  17,  and  as  the promissory  note  was  executed  jointly  and  severally  by  the  parties,  the
payee  of  the promissory  note  had  the  right  to  hold  any  one  of  the  them responsible for the
payment of the amount of the note.

WEEK 5
Cases:
o PNB vs. Quimpo, 158 SCRA 582

PNB V. QUIMPO

158 SCRA 582

FACTS:
While Gozon was in the bank with Santos left in the car, the latter stole a check and forged the signature
of the former.  He was able to encash the check.  He was later apprehended by the police authorities and
he admitted to stealing the check.  The court decided in favor of Gozon.  The bank now posed the issue
on whether Gozon’s act of leaving his checkbook in the car the proximate cause of the loss. 
 
HELD:
Where the private respondent’s check was removed and stolen without his knowledge and consent, he
cannot be considered negligent in this case.

158 SCRA 582 – Mercantile Law – Negotiable Instruments Law – Liabilities of Parties –  Forgery –
Liability of the Drawee Bank 

In June 1973, Francisco Gozon II went to the Philippine National Bank (Caloocan City) accompanied by
his friend Ernesto Santos. Gozon left Santos in his car and while Gozon was at the bank, Santos took a
check from Gozon’s checkbook. Santos forged Gozon’s signature and filled out the check with the
amount of P5,000.00. Santos was able to encash the check that day with PNB. Gozon learned of this
when his statement arrived. Santos eventually admitted to forging Gozon’s signature. Gozon then
demanded the PNB to refund him the amount. PNB refused.  Judge Romulo Quimpo ruled in favor of
Gozon.

ISSUE: Whether or not PNB is liable.

HELD: Yes. A bank is bound to know the signatures of its customers; and if it pays a forged check, it
must be considered as making the payment out of its own funds, and cannot ordinarily change the
amount so paid to the account of the depositor whose name was forged. PNB failed to meet its obligation
to know the signature of its correspondent (Gozon). Further, it was found by the court that there are
glaring differences between Gozon’s authentic specimen signatures and that of the forged check.

o BPI vs. Casa Montessori Internationale 430 SCRA 261

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BPI V. CASA MONTESORRI INTERNATIONALE

430 SCRA 261

 

FACTS:
CASA has a current account with BPI.  It was discovered that for a material period of time, several checks
were encashed by a certain Sonny Santos, who  eventually  was  known  to  be  a  fictitious  name  used 
by  the  external auditor  of  CASA.    The  external  auditor  admitted  forging  the  signature  of CASA’s
president to be able to encash the checks.  The trial court held the bank liable but this was modified.  The
modified decision  apportioned the loss between BPI and CASA.   
 

HELD:
A  forged  signature  is  a  real  and  absolute  defense,  and  a  person  whose signature appears on a
negotiable instrument is forged is deemed to never have become a party thereto and to have never
consented to the contract that allegedly gave rise to it. 
 
The  counterfeiting  of  any  writing,  consisting  in  the  signing  of  another’s name with intent to defraud,
is forgery. 
 
First, there was really a finding of forgery.  The forger admitted even in his affidavit of his forgery. 
 
Second,  there  was  a  finding  by  the  police  laboratory  that  indeed  the signatures were forged. 
 
Furthermore,  the  negligence  is  attributable  to  BPI  alone.  Its  negligence consisted in the omission of
the degree of diligence required of a bank.
*Loss borne by proximate cause of negligence 

BPI VS. CASA MONTESSORI INTERNATIONAL

FACTS: On November 8, 1982, CASA Montessori International opened Current AccouNT with BPI with
CASA’s President Lebron as one of its authorized signatories. In 1991, after conducting an investigation,
plaintiff discovered that nine of its checks had been encashed by a certain Sonny D. Santos since 1990 in
the total amount of P782,000.00. It turned out that Santos with account at BPI Greenbelt Branch was a
fictitious name used by third party defendant Leonardo T. Yabut who worked as external auditor of CASA.
Third party defendant voluntarily admitted that he forged the signature of Lebron and encashed the
checks. In 1991, plaintiff filed Complaint for Collection with Damages against defendant bank praying that
the latter be ordered to reinstate the amount of P782,500.00 with interest. RTC rendered decision in favor
of the plaintiff. CA modified decision holding CASA as contributory negligent hence ordered Yabut to
reimburse BPI half the total amount claimed and CASA, the other half. It also disallowed attorney’s fees
and moral and exemplary damages.

ISSUE: W/N moral and exemplary damages and attorney’s fees should be awarded.

RULING: Moral and exemplary damages denied but atty.’s fees granted.

In the absence of a wrongful act or omission, or of fraud or bad faith, moral damages cannot be awarded.
The adverse result of an action does not per se make the action wrongful, or the party liable for it.CASA
was unable to identify the particular instance upon which its claim for moral damages is predicated.
Neither bad faith nor negligence so gross that it amounts to malice can be imputed to BPI.
Imposed by way of correction for the public good, exemplary damages cannot be recovered as a matter
of right. There is no bad faith on the part of BPI for paying the checks of CASA upon forged signatures.
Therefore, the former cannot be said to have acted in a wanton, fraudulent, reckless, oppressive or

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malevolent manner. The latter, having no right to moral damages, cannot demand exemplary damages.
When the act or omission of the defendant has compelled the plaintiff to incur expenses to protect the
latter’s interest, or where the court deems it just and equitable, attorney’s fees may be recovered. In the
present case, BPI persistently denied the claim of CASA under the NIL to recredit the latter’s account for
the value of the forged checks. This denial constrained CASA to incur expenses and exert effort for more
than ten years in order to protect its corporate interest in its bank account.

BANK OF THE PHILIPPINE ISLANDS v. CASA MONTESSORI INTERNATIONALE and LEONARDO

T. YABUT
[G.R. No. 149454. May 28, 2004] (430 SCRA 261)

FACTS:
          CASA Montessori International opened a current account with BPI with CASAs President Ms. Ma.
Carina C. Lebron as one of its authorized signatories. In 1991, after conducting an investigation, plaintiff
discovered that nine (9) of its checks had been encashed by a certain Sonny D. Santos since 1990 in the
total amount of P782,000.00. It turned out that Sonny D. Santos with account at BPIs Greenbelt Branch
[was] a fictitious name used by third party defendant Leonardo T. Yabut who worked as external auditor
of CASA. Third party defendant voluntarily admitted that he forged the signature of Ms. Lebron and
encashed the checks.
            The PNP Crime Laboratory conducted an examination of the nine (9) checks and concluded that
the handwritings thereon compared to the standard signature of Ms. Lebron were not written by the latter.
            On March 4, 1991, plaintiff filed the herein Complaint for Collection with Damages against
defendant bank.

ISSUE 1:
            Was there forgery under the Negotiable Instruments Law (NIL)?

HELD:
YES. Forgery cannot be presumed. It must be established by clear, positive and convincing
evidence. Under the best evidence rule as applied to documentary evidence like the checks in question,
no secondary or substitutionary evidence may inceptively be introduced, as the original writing itself must
be produced in court. But when, without bad faith on the part of the offeror, the original checks have
already been destroyed or cannot be produced in court, secondary evidence may be produced. Without
bad faith on its part, CASA proved the loss or destruction of the original checks through the Affidavit of the
one person who knew of that fact- Yabut. He clearly admitted to discarding the paid checks to cover up
his misdeed. In such a situation, secondary evidence like microfilm copies may be introduced in court.
Even with respect to documentary evidence, the best evidence rule applies only when the contents
of a document -- such as the drawers signature on a check -- is the subject of inquiry.

ISSUE 2:
            Is BPI liable as the drawee bank for allowing payment on the checks to a wrongful and fictitious
payee?

HELD:
            YES. BPI -- the drawee bank -- becomes liable to its depositor-drawer for allowing payment on the
checks to a wrongful and fictitious payee. Since the encashing bank is one of its branches, BPI can easily
go after it and hold it liable for reimbursement.  It may not debit the drawers account and is not entitled to
indemnification from the drawer. In both law and equity, when one of two innocent persons must suffer by
the wrongful act of a third person, the loss must be borne by the one whose negligence was the
proximate cause of the loss or who put it into the power of the third person to perpetrate the wrong.
            A bank is bound to know the signatures of its customers; and if it pays a forged check, it must be
considered as making the payment out of its own funds, and cannot ordinarily charge the amount so paid
to the account of the depositor whose name was forged.

o Samsung Construction Company Philippines vs. FEBTC, 436 SCRA 402

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Facts: Samsung Construction held an account with Far East Bank. One day a check worth
900,000, payable to cash, was presented by one Roberto Gonzaga in the Makati Branch of Far East
Bank. Thecheck was certified to be true by Jose Sempio, the assistant accountant of Samsung, who was
also present during the time thecheck was cashed. Later however it was discovered that no
suchcheck was ever approved by the Samsung’s head accountant, the president of the company also
never signed any such check.

Issue: Whether or not Far East Bank is liable to reimburse Samsung for cashing out the forged check,
which was drawn from the account of Samsung

Held: Far East Bank is liable for reimbursement. Sec. 23 of the Negotiable Instrument Law states that a
forged signature makes the instrument “wholly inoperative”. If payment is made the drawee (Far East)
cannot charge it to the drawer’s account (Samsung). The fact that the forgery is clever is immaterial. The
forged signature may so closely resemble the genuine as to defy detection by the depositor himself. And
yet, if the bank pays the check, it is paying out with its own money and not of the depositor’s. This rule of
liability can be stated briefly in these words: “A bank is bound to know its depositor’s signature.” The
accusation of negligence on the part of Samsung was not clearly proven. Absence of proof to the
contrary, the presumption is that the ordinary course of business was followed.

Samsung Construction Company Phils. v. Far East Bank and Trust Company [G.R. No. 129015.
August 13, 2004]

FACTS
A check with forged signature payable to cash was drawn against petitioner’s account. Petitioner
demands credit of the amount debited by encashment. 

ISSUE
Whether or not petitioner may recover from the drawee bank.

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

o PNB vs. CA, 256 SCRA 693

25 SCRA 693 – Mercantile Law – Negotiable Instruments Law – Liabilities of Parties – Forgery
–   Forged Check – Warranties
In November 1961, GSIS advised PNB that a check bearing check number 645915- B has been lost.
On January 15, 1962, Augusto Lim, holding GSIS Check No. 645915- B which was in the amount of
P57,415.00, went to PCIB to have the check deposited in his PCIB account. Apparently, the check was
indorsed to him by Manuel Go, which was previously indorsed by Mariano Pulido to Go. Pulido was the
named payee in the check.
PCIB did not encash the check in favor of Augusto Lim but rather it deposited the amount to Lim’s PCIB
account. Lim cannot withdraw the amount yet as it needs clearing. PCIB stamped the check with “All prior
indorsements and/or Lack of Endorsement Guaranteed, Philippine Commercial and Industrial Bank”.

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PCIB then sent the check to PNB for clearing. PNB did not act on the check but it paid PCIB the amount
of the check. PCIB considered this as a manifestation that the check was good hence it cleared Lim to
withdraw the amount.
On January 31, 1962, GSIS demanded PNB to restore the amount and PNB complied. PNB then
demanded PCIB to refund the amount of the check. PCIB refused. The lower court ruled in favor of PCIB.
This was affirmed by the Court of Appeals. PNB argued that the indorsements are forged hence it has no
liability.
ISSUE: Whether or not PCIB should refund the amount to PNB.
HELD: No. The question whether or not the indorsements have been falsified is immaterial to PNB’s
liability as a drawee or to its right to recover from the PCIB for, as against the drawee, the indorsement of
an intermediate bank does not guarantee the signature of the drawer, since the forgery of the
indorsement is not the cause of the loss.
With respect to the warranty on the back of the check, it should be noted that the PCIB thereby
guaranteed “all prior indorsements,” not the authenticity of the signatures of the officers of the GSIS who
signed on its behalf, because the GSIS is not an indorser of the check, but its drawer. Further, PNB has
been negligent. It has been notified months before about the lost check.

o BPI Family Bank vs. Buenaventura, 471 SCRA 431

BPI FAMILY BANK v. EDGARDO BUENAVENTURA et al.

[G.R. No. 148196, September 30, 2005] (471 SCRA 431)

FACTS:
            A complaint for Reinstatement of Current Account/Release of Money plus Damages was filed by
the Buenaventuras against BPI Family Bank (BPI-FB) in the RTC. Buenaventura, et al. opened a Current
account with the BPI-FB Branch in Caloocan City. They deposited a check from Amado Franco which
was purportedly issued by Eladio Teves and Joseph Teves. The check was subsequently cleared and the
amount of P500, 000.00 was credited to their Current Account.
            Petitioners then drew a check amounting to P91, 270.00 which was dishonored upon presentment
for payment for the reason that the account was already closed in spite of the balance in their current
account. They subsequently learned that the Bank of the Philippine Islands unilaterally freeze their
Current account on the ground that the source of fund was illegal or unauthorized.
            BPI-FB refused to reinstate the account even after demand from the petitioners. It asserted  that
the freezing of the account was triggered by the forgery claim of FMIC and the unauthorized fund transfer
to Tevesteco. The check received by Buenaventura, et al. from Amado Franco was drawn by Eladio
Teves  and Joseph Teves against the Current Account of the Tevesteco Arrastre Stevedoring Co., Inc.
(Tevesteco) by means of forgery.

ISSUE:
            WON BPI-FB is liable for the loss due to its negligence to detect forgery prior to clearing the
check?

HELD:
            YES. Every bank that issues checks for the use of its customers should know whether or not the
drawer's signature thereon is genuine, whether there are sufficient funds in the drawers account to cover
checks issued, and it should be able to detect alterations, erasures, superimpositions or intercalations
thereon, for these instruments are prepared, printed and issued by itself, it has control of the drawer's
account, and it is supposed to be familiar with the drawer's signature. It should possess appropriate
detecting devices for uncovering forgeries and/or alterations on these instruments. Unless a forgery or
alteration is attributable to the fault or negligence of the drawer himself, the remedy of the drawee bank
that negligently clears a forged and/or altered check for payment is against the party responsible for the
forgery or alteration, otherwise, it bears the loss.

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            Having been negligent in detecting the forgery prior to clearing the check, BPI-FB should bear the
loss and can’t shift the blame to Buenaventura, et al. having failed to show any participation on their part
in the forgery. BPI-FB fails to point any circumstance which should have put Buenaventura, et al. on
inquiry as to the why and wherefore of the possession of the check by Amado Franco. Buenaventura,  et
al. were not privies to any transaction involving FMIC, Tevesteco or Franco. They thus had no obligation
to ascertain from Franco what the nature of the latter’s title to the checks was, if any, or the nature of his
possession. They cannot be guilty of gross neglect amounting to legal absence of good faith, absent any
showing that there was something amiss about Franco’s acquisition or possession of the check, which
was payable to bearer.
          Thus, BPI-FB has no unilateral right to freeze the current account of Buenaventura, et al. based on
the suspicion that the funds in the latter’s account are illegal or unauthorized having been sourced from
the unlawful transfer of funds from the account of FMIC to Tevesteco and disallow any withdrawal
therefrom to allegedly protect its interest.
            Needless to stress, the contract between a bank and its depositor is governed by the provisions of
the Civil Code on simple loan. Thus, there is a debtor-creditor relationship between a bank and its
depositor. The bank is the debtor and the depositor is the creditor. The depositor lends the bank money
and the bank agrees to pay the depositor on demand. The savings or current deposit agreement between
the bank and the depositor is the contract that determines the rights and obligations of the parties.
       Thus, the fact that the funds in deposit with BPI-FB under the name of Buenaventura, et al. were
allegedly derived exclusively from the alleged P80,000,000.00 unlawfully transferred from the funds of
FMIC or that the deposit under the name of Tevesteco consisted allegedly exclusively of the
said P80,000,000.00 debited from FMIC’s account is immaterial. These circumstances cannot be used
against a party not privy to the forgery. xxx 

o MWSS vs. CA 143 SCRA 20

143 SCRA 20 – Mercantile Law – Negotiable Instruments Law – Liabilities of Parties – Forgery –
Negligence of Drawer
Metropolitan Waterworks and Sewerage System (MWSS) had an account with PNB. When it was still
called NAWASA, MWSS made a special arrangement with PNB so that it may have personalized checks
to be printed by Mesina Enterprises. These personalized checks were the ones being used by MWSS in
its business transactions.
From March to May 1969, MWSS issued 23 checks to various payees in the aggregate amount of
P320,636.26. During the same months, another set of 23 checks containing the same check numbers
earlier issued were forged. The aggregate amount of the forged checks amounted to P3,457,903.00. This
amount was distributed to the bank accounts of three persons: Arturo Sison, Antonio Mendoza, and Raul
Dizon.
MWSS then demanded PNB to restore the amount of P3,457,903.00. PNB refused. The trial court ruled in
favor of MWSS but the Court of Appeals reversed the trial court’s decision.
ISSUE: Whether or not PNB should restore the said amount.
HELD: No. MWSS is precluded from setting up the defense of forgery. It has been proven that MWSS
has been negligent in supervising the printing of its personalized checks. It failed to provide security
measures and coordinate the same with PNB. Further, the signatures in the forged checks appear to be
genuine as reported by the National Bureau of Investigation so much so that the MWSS itself cannot tell
the difference between the forged signature and the genuine one. The records likewise show that MWSS
failed to provide appropriate security measures over its own records thereby laying confidential records
open to unauthorized persons. Even if the twenty-three (23) checks in question are considered forgeries,
considering the MWSS’s gross negligence, it is barred from setting up the defense of forgery under
Section 23 of the Negotiable Instruments Law.
The Supreme Court further emphasized that forgery cannot be presumed. It must be established by clear,
positive, and convincing evidence. This was not done in the present case.

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o Gempesaw vs. CA Feb. 9, 2003

FACTS:
 Gempesaw owns and operates four grocery stores
 to pay their debts of her supplies, she draws checks against her account
 she signed each and every crossed check without bothering to verify the accuracy of the
checks against the corresponding invoices because she reposed full and implicit trust and confidence
on her bookkeeper. 
 although the Bank notified her of all checks presented to and paid by the bank, petitioner
did not verify he correctness of the returned checks, much less check if the payees actually received
the checks in payment for the supplies she received
 It was only after the lapse of more 2 years that petitioner found out about the fraudulent
manipulations of her bookkeeper
 November 7, 1984: Gempesaw made a written demand on respondent drawee Bank to credit her
account with the money value of the 82 checks totalling P1,208.606.89 for having been wrongfully
charged against her account
 January 23, 1985: Gempesaw filed against Philippine Bank of Communications (drawee Bank) for
recovery of the money value of 82 checks charged against the Gempesaw's account on the ground
that the payees' indorsements were forgeries
 RTC: dismissed the complaint
 CA: affirmed 
 Gempesaw gross negligence = promixate cause of the loss

ISSUE: W/N Gempesaw has a right to recover the amount attributable to the forgeries

HELD: NO. REMANDED to the trial court for the reception of evidence to determine the exact amount of
loss suffered by the petitioner, considering that she partly benefited from the issuance of the questioned
checks since the obligation for which she issued them were apparently extinguished, such that only the
excess amount over and above the total of these actual obligations must be considered as loss of which
one half must be paid by respondent drawee bank to herein petitioner.
 Petitioner completed the checks by signing them as drawer and thereafter authorized her
employee Alicia Galang to deliver to payees
 GR: drawee bank who has paid a check on which an indorsement has been forged cannot charge
the drawer's account for the amount of said check
 EX: where the drawer is guilty of such negligence which causes the bank to honor such a check
or checks. 
 Under the NIL, the only kind of indorsement which stops the further negotiation of an instrument
is a restrictive indorsement which prohibits the further negotiation thereof.

Sec. 36. When indorsement restrictive. - An indorsement is restrictive which either chanrobles virtual law
library
(a) Prohibits further negotiation of the instrument; or
xxx xxx xxx

 In this kind of restrictive indorsement, the prohibition to transfer or negotiate must be written in
express words at the back of the instrument, so that any subsequent party may be forewarned that
ceases to be negotiable. 
 However, the restrictive indorsee acquires the right to receive payment and bring any
action thereon as any indorser, but he can no longer transfer his rights as such indorsee where the
form of the indorsement does not authorize him to do so. 

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 When it violated its internal rules that second endorsements are not to be accepted without the
approval of its branch managers and it did accept the same upon the mere approval of Boon, a chief
accountant, it contravened the tenor of its obligation at the very least, if it were not actually guilty of
fraud or negligence
 drawee Bank did not discover the irregularity with respect to the acceptance of checks with
second indorsement for deposit even without the approval of the branch manager despite periodic
inspection conducted by a team of auditors from the main office constitutes negligence on the part of
the bank in carrying out its obligations to its depositors

o Associated Bank vs. CA January 31, 1996

Facts: Faustino Pangilinan, cashier of the Concepcion Emergency Hospital, forged the signature of Dr.
Adena Canlas who was the Chief of the said hospital and endorsed 30 checks amounting to P203,300 to
himself. The money was drawn from the account of the Province of Tarlac with PNB. Pangilinan
deposited the checks to his personal savings account with Associated Bank which was cleared and paid
for by PNB. The checks have a stamp of Associated Bank which reads “All prior endorsements
guaranteed by Associated Bank”.

The Province of Tarlac, through the Provincial Treasurer, wrote PNB to restore the various amounts
debited from the current account of the Province. PNB on its part demanded reimbursement from
Associated Bank. Both banks resisted payment which led to the Province of Tarlac suing PNB. PNB in
turn impleaded Associated Bank in the suit as a third-party defendant while Associated Bank impleaded
Canlas and Pangilinan as fourth-party defendants.

The trial court ruled that 1) PNB should pay the Province of Tarlac the P203,300 with legal interests, 2)
Associated Bank should be pay the same amount to PNB and 3) dismissed the complaints against
Canlas and Pangilinan. On appeal, the CA affirmed the ruling of the trial court 

Issue: Who should bear the loss arising from the forgery, the Province of Tarlac, PNB, Associated Bank
or Pangilinan?

Held: The SC held that the Province and Associated Bank should bear losses in the proportion of 50-50.

The Province can only recover 50% of the P203,300 from PNB because of the negligence they exhibited
in releasing the checks to the then already retired Pangilinan who is an unauthorized person to handle the
said checks.

On the other hand, Associated Bank is liable to PNB only to 50% of the same amount because of its
liability as indorser of the checks that were deposited by Pangilinan, and guaranteed the genuineness of
the said checks. They failed to exercise due diligence in checking the veracity of indorsements.

o Republic vs. Ebrada, July 31, 1975

FACTS:
 February 27, 1963: Mauricia T. Ebrada, encashed Back Pay Check dated January 15, 1963 for
P1,246.08 at Republic Bank 

 check was issued by the Bureau of Treasury

 Bureau advised Republic Bank that the indorsement on the reverse side of the check by the
payee, "Martin Lorenzo" was a forgery because he died as of July 14, 1952 and requested a refund

 July 11, 1966: Ebrada filed a Third-Party complaint against Adelaida Dominguez who, in turn,
filed on September 14, 1966 a Fourth-Party complaint against Justina Tinio.

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 March 21, 1967: City Court of Manila favored Republic against Ebrada, for Third-Party plaintiff
against Adelaida Dominguez, and for Fourth-Party plaintiff against Justina Tinio

 CA: reversed Mauricia T. Ebrada claim against Adelaida Dominguez and Domiguez against

Justina Tinio

ISSUE: W/N: Ebrada should be held liable.

HELD: YES. Affirmed in toto.

 under Section 65 of the Negotiable Instruments Law:  

Every person negotiating an instrument by delivery or by qualified indorsement, warrants:

(a) That the instrument is genuine and in all respects what it purports to be.
(b) That she has good title to it.
xxx xxx xxx
Every indorser who indorses without qualification warrants to all subsequent holders in due course:
(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding sections;
(b) That the instrument is at the time of his indorsement valid and subsisting.
 Under action 23 of the Negotiable Instruments Law (Act 2031):

When a signature is forged or made without the authority of the person whose signature it purports to be,
it is wholly inoperative, and no right to retain the instruments, or to give a discharge thereof against any
party thereto, can be acquired through or under such signature unless the party against whom it is sought
to enforce such right is precluded from setting up the forgery or want of authority.
 Martin Lorenzo (forged as original payee) > Ramon R. Lorenzo (2nd indorser) = NO EFFECT

 Ramon R. Lorenzo(2nd indorser)> Adelaida Dominguez (third indorser)>Adelaida Dominguez to

Ebrada who did not know of the forgery = valid and enforceable barring any claim of forgery

 drawee of a check can recover from the holder the money paid to him on a forged instrument

 not its duty to ascertain whether the signatures of the payee or indorsers are genuine or
not

 indorser is supposed to warrant to the drawee that the signatures of the payee
and previous indorsers (NOT only holders in due course) are genuine

 RATIONALE: . indorsers own credulity or recklessness, or misplaced confidence was the

sole cause of the loss. Why should he be permitted to shift the loss due to his own fault in assuming
the risk, upon the drawee, simply because of the accidental circumstance that the drawee afterwards
failed to detect the forgery when the check was presented

 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 plaintiff Bank for
payment

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 Based on the doctrine from Great Eastern Life Ins. Co. v. Hongkong Shanghai Bank (1922) ,
bank should suffer the loss when it paid the amount of the check in question to Ebrada, but it has the
remedy to recover from the Ebrada the amount it paid

 Ebrada immediately turning over to Adelaida Dominguez (Third-Party defendant and the Fourth-
Party plaintiff) who in turn handed the amount to Justina Tinio on the same date would not exempt
her from liability because by doing so, she acted as an accommodation party in the check for which
she is also liable under Section 29 of the Negotiable Instruments Law (Act 2031):

An accommodation party is one who has signed the instrument as maker, drawer, acceptor, or indorser,
without receiving value therefor, and for the purpose of lending his name to some other person. Such a
person is liable on the instrument to a holder for value, notwithstanding such holder at the time of taking
the instrument knew him to be only an accommodation party.

Facts: Mauricia T. Ebrada (defendant) encashed a check at the Republic Bank. The check was issued by
the Bureau of Treasury and was indorsed several times before falling into the hands of the defendant.
Defendant managed to cash the check (worth around 1200 pesos). It was however discovered that the
original payee, Martin Lorenzo, was already dead for more than a decade. Therefore the
initial endorsement must have been a forgery.

Issues:
(1) Whether or not Ebrada is liable to return the amount that she cashed.

(2) Whether or not a drawee of a check (bank) can recover from the holder (Ebrada) the money paid from
a forged instrument.

Held: Sec. 23 of the Negotiable Instruments Law dictates that where the signature on the negotiable
instrument is forged then the negotiation of the check is without force or effect. In this specific case the
court held that since the check was endorsed multiple times already it was not the responsibility of the
bank to ascertain if the signatures of the previous endorsements were genuine or not. It was the
responsibility of the holder of the check to satisfy himself that the paper is genuine. The acts of presenting
the check for payment or putting it into circulation asserts that the holder has performed his duty to
ascertain the validity of the instrument. “Everyone with even the least experience in business knows that
no business man would accept a check in exchange for money or goods unless he is satisfied that
the check is genuine. If he is deceived he has suffered a loss of his cash or goods through his own
mistake.” Ebrada, upon receiving the check in question, was duty bound to ascertain if it was genuine or
not before presenting it to plaintiff Bank. The Bank may recover from Ebrada the amount she received for
the check.

o Metropolitan Bank and Trust Com. vs. BA Finance Corp. Dec. 4, 2009

METROPOLITAN BANK AND TRUST COMPANY (formerly ASIANBANK CORPORATION)  V. BA

FINANCE CORPORATION and MALAYAN INSURANCE CO. INC.
[G.R. No. 179952, Dec. 4, 2009] (607 SCRA 620)

FACTS:
            Lamberto Bitanga (Bitanga) obtained from respondent BA Finance Corporation (BA Finance) 
a loan to secure which, he mortgaged his car to respondent BA Finance. Bitanga thus had the mortgaged
car insured by respondent Malayan Insurance Co., Inc. (Malayan Insurance). The car was stolen. On

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Bitangas claim, Malayan Insurance issued a check payable to the order of B.A. Finance
Corporation and Lamberto Bitanga for P224,500, drawn against China Banking Corporation (China
Bank). The check was crossed with the notation For Deposit Payees Account Only.
            Without the indorsement or authority of his co-payee BA Finance, Bitanga deposited the check to
his account with the Asianbank Corporation (Asianbank), now merged with petitioner Metropolitan Bank
and Trust Company (Metrobank). Bitanga subsequently withdrew the entire proceeds of the check.
            In the meantime, Bitangas loan became past due, but despite demands, he failed to settle it. BA
Finance thereupon demanded the payment of the value of the check from Asianbank but to no avail,
prompting it to file a complaint for sum of money and damages against Asianbank and Bitanga alleging
that, inter alia, it is entitled to the entire proceeds of the check.
            On the issue of whether or not BA Finance has a cause of action, Metrobank  contends that
Bitanga is authorized to indorse the check as the drawer names him as one of the payees. Moreover, his
signature is not a forgery nor has he or anyone forged the signature of the representative of BA Finance
Corporation. No unauthorized indorsement appears on the check. Absent the indispensable fact of
forgery or unauthorized indorsement, the payee may not recover from the collecting bank.

ISSUE 1:
            Whether BA Finance has a cause of action against Metrobank even if the subject check had not
been delivered to BA Finance by the issuer itself?

HELD:
            YES. Section 41 of the Negotiable Instruments Law provides:
            Where an instrument is payable to the order of two or more payees or indorsees who are not
partners, all must indorse unless the one indorsing has authority to indorse for the others.
            Bitanga alone endorsed the crossed check, and petitioner allowed the deposit and release of the
proceeds thereof, despite the absence of authority of Bitangas co-payee BA Finance to endorse it on its
behalf. Petitioners argument that since there was neither forgery, nor unauthorized indorsement because
Bitanga was a co-payee in the subject check, the dictum in Associated Bank v. CA does not apply in the
present case fails. The payment of an instrument over a missing indorsement is the equivalent of
payment on a forged indorsement or an unauthorized indorsement in itself in the case of joint payees.
            Accordingly, one who credits the proceeds of a check to the account of the indorsing payee is
liable in conversion to the non-indorsing payee for the entireamount of the check.

ISSUE 2:
            Is Metrobank liable to BA Finance for the full value of the check, under the Negotiable Instruments
Law?

HELD:
            YES. Section 68 of the Negotiable Instruments Law instructs that joint payees who indorse are
deemed to indorse jointly and severally. When the maker dishonors the instrument, the holder thereof can
turn to those secondarily liable the indorser for recovery.
            A collecting bank, Asianbank in this case, where a check is deposited and which indorses the
check upon presentment with the drawee bank, is an indorser. his is because in indorsing a check to the
drawee bank, a collecting bank stamps the back of the check with the phrase all prior endorsements
and/or lack of endorsement guaranteed and, for all intents and purposes, treats the check as a negotiable
instrument, hence, assumes the warranty of an indorser.
            Petitioner, as the collecting bank or last indorser, generally suffers the loss because it has the
duty to ascertain the genuineness of all prior indorsements considering that the act of presenting the
check for payment to the drawee is an assertion that the party making the presentment has done its duty
to ascertain the genuineness of prior indorsements.

FACTS:
 November 12,1994: Renato D. Cabilzo (Cabilzo) issued a Metrobank Check payable to "CASH"
and postdated on November 24, 1994 in the amount of  P1,000 drawn against his Metrobank account
to Mr. Marquez, as his sales commission

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 check was presented to Westmont Bank for payment who indorsed it to Metrobank for
appropriate clearing
 After the entries thereon were examined, including the availability of funds and the authenticity of
the signature of the drawer, Metrobank cleared the check for encashment in accordance with the
Philippine Clearing House Corporation (PCHC) Rules
 November 16, 1994: Cabilzo’s representative was at Metrobank when he was asked by a bank
personnel if Cabilzo had issued a check in the amount of P91K to which he replied in negative
 That afternoon: Cabilzo called Metrobank to reiterate that he did not issue the check 
 He later discovered that the check of P1K was altered to P91K and date was changed
from Nov 24 to Nov 14.
 Cabilzo demanded that Metrobank re-credit the amount of P91,000.00 to his account
 June 30, 1995: Through counsel sent a letter-demand for the amount of P90K
 CA affirmed RTC: Favored Cablizo

ISSUE: W/N Cablizo can recover from Metrobank

HELD: YES.  CA Affirmed

 material alteration
 changes the items which are required to be stated under Section 1 of the Negotiable
Instruments Law
 Section 1. Form of negotiable instruments. - An instrument to be negotiable must
conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand or at a fixed determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein
with reasonable certainty.
 changes the effect of the instrument
 Section 125. What constitutes material alteration. – Any alteration which changes:
(a) The date;
(b) The sum payable, either for principal or interest;
(c) The time or place of payment;
(d) The number or the relation of the parties;
(e) The medium or currency in which payment is to be made;
Or which adds a place of payment where no place of payment is specified, or any other change or
addition which alters the effect of the instrument in any respect is a material alteration.
 In the case at bar, the check was altered so that the amount was increased from P1,000.00
to P91,000.00 and the date was changed from 24 November 1994 to 14 November 1994.
 Section 124. Alteration of instrument; effect of. – Where a negotiable instrument is materially
altered without the assent of all parties liable thereon, it is avoided, except as against a party who has
himself made, authorized,and assented to the alteration and subsequent indorsers.
But when the instrument has been materially altered and is in the hands of a holder in due course not
a party to the alteration, he may enforce the payment thereof according to its original tenor.  
 Cabilzo was not the one who made nor authorized the alteration. Neither did he assent to the
alteration by his express or implied acts
 There is no showing that he failed to exercise such reasonable degree of diligence
required of a prudent man which could have otherwise prevented the loss.
 bank must be a high degree of diligence, if not the utmost diligence
  Surprisingly, however, Metrobank failed to detect the above alterations which could not
escape the attention of even an ordinary person
 "NINETY" is also typed differently and with a lighter ink
 only 2 asterisks were placed before the amount in figures, while 3 asterisks were
placed after such amount 
 "NINETY" are likewise a little bigger when compared with the letters of the words
"ONE THOUSAND PESOS ONLY"

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 When the drawee bank pays a materially altered check, it violates the terms of the check, as well
as its duty to charge its client’s account only for bona fide disbursements he had made.
 The corollary liability of Westmont Ban's indorsement, if any, is separate and independent from
the liability of Metrobank to Cabilzo. 

WEEK 6
o Vicky Ty vs. People, September 27, 2004

Facts: Ty’s mother was confined in Manila Doctor's Hospital to which a medical bill amounting to 600,000
pesos was made to be paid to TY, after signing a contract of responsibility with the hospital. Ty, issued 7
checks to cover the said expenses, all of which were dishonored for being drawn against a closed a
account. Manila Doctors Hospital then instituted criminal actions against Ty for violation of BP22. 

In her defense she alleged that she issued the checks involuntarily because her mother threatened to
commit suicide due to the inhumane treatment she allegedly suffered while confined in the hospital. She
further claimed that no consideration was obtained by her because all the checks were made as payment
to the medical bills. 

Issue: Whether or not valuable consideration exists. 

Held: Under Section 24 of the Negotiable Instruments Law, it is presumed that valuable consideration
exist upon the issuance of a check in the absence of evidence to the contrary.Valuable consideration is
any benefit, interest or profit accruing to the party. The use of the hospital facilities and services may be
deemed as such.

Facts: 

Ty's mother and sister was confined at the Manila Doctors Hospital. The total hospital bills amounted to
P1 million. After signing a contract of responsibility with the hospital, Ty issued 7 checks to cover the said
expenses, all of which were dishonored for being drawn against a closed a account. Manila Doctors
Hospital sued Ty for violation of BP 22. In her defense, Ty alleged that she issued the checks because of
an "uncontrollable fear of a greater injury". She averred that her mother threatened to commit suicide due
to the inhumane treatment she allegedly suffered while confined in the hospital. Ty was found guilty by
the trial court of 7 counts of violation of BP 22. Ty appealed wherein she reiterated her defense that she
issued the checks under the impulse of an uncontrollable fear of a greater injury or in avoidance of a
greater evil or injury.

Issue: 

Is the defense of uncontrollable fear or avoidance of a greater evil or injury tenable to warrant Ty's
exemption from criminal liability?

Held: 

Uncontrollable fear

For this exempting circumstance to be invoked successfully, the following requisites must concur: (1)
existence of an uncontrollable fear; (2) the fear must be real and imminent; and (3) the fear of an injury is
greater than or at least equal to that committed.

It must appear that the threat that caused the uncontrollable fear is of such gravity and imminence that
the ordinary man would have succumbed to it. It should be based on a real, imminent or reasonable fear
for ones life or limb. A mere threat of a future injury is not enough. It should not be speculative, fanciful, or
remote. A person invoking uncontrollable fear must show therefore that the compulsion was such that it

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reduced him to a mere instrument acting not only without will but against his will as well. It must be of
such character as to leave no opportunity to the accused for escape.

In this case, far from it, the fear, if any, harbored by Ty was not real and imminent. Ty claims that she was
compelled to issue the checks a condition the hospital allegedly demanded of her before her mother could
be discharged for fear that her mothers health might deteriorate further due to the inhumane treatment of
the hospital or worse, her mother might commit suicide. This is speculative fear; it is not the
uncontrollable fear contemplated by law.

To begin with, there was no showing that the mothers illness was so life-threatening such that her
continued stay in the hospital suffering all its alleged unethical treatment would induce a well-grounded
apprehension of her death. Secondly, it is not the laws intent to say that any fear exempts one from
criminal liability much less petitioners flimsy fear that her mother might commit suicide. In other words, the
fear she invokes was not impending or insuperable as to deprive her of all volition and to make her a
mere instrument without will, moved exclusively by the hospitals threats or demands.

Ty has also failed to convince the Court that she was left with no choice but to commit a crime. She did
not take advantage of the many opportunities available to her to avoid committing one. By her very own
words, she admitted that the collateral or security the hospital required prior to the discharge of her
mother may be in the form of postdated checks or jewelry. And if indeed she was coerced to open an
account with the bank and issue the checks, she had all the opportunity to leave the scene to avoid
involvement. 

Avoidance of a greater evil or injury

The law prescribes the presence of three requisites to exempt the actor from liability under this
paragraph: (1) that the evil sought to be avoided actually exists; (2) that the injury feared be greater than
the one done to avoid it; (3) that there be no other practical and less harmful means of preventing it.

In the instant case, the evil sought to be avoided is merely expected or anticipated. If the evil sought to be
avoided is merely expected or anticipated or may happen in the future, this defense is not applicable. Ty
could have taken advantage of an available option to avoid committing a crime. By her own admission,
she had the choice to give jewelry or other forms of security instead of postdated checks to secure her
obligation.

Moreover, for the defense of state of necessity to be availing, the greater injury feared should not have
been brought about by the negligence or imprudence, more so, the willful inaction of the actor. In this
case, the issuance of the bounced checks was brought about by Tys own failure to pay her mothers
hospital bills. (Ty vs. People,  G.R. No. 149275. September 27, 2004)

Accommodation:
o Ang vs. Associated Bank, G.R. No. 146511, September 5, 2007

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

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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.

o Lim vs. Saban, G.R. No. 163720, December 16, 2004

LIM v. SABAN
G.R. No. 163720; December 16, 2004
Ponente: J. Tinga

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FACTS:

Under an Agency Agreement, Ybañez authorized Saban to look for a buyer of the lot for Two Hundred
Thousand Pesos (P200,000.00) and to mark up the selling price to include the amounts needed for
payment of taxes, transfer of title and other expenses incident to the sale, as well as Saban's commission
for the sale. 

Through Saban's efforts, Ybañez and his wife were able to sell the lot to the petitioner Genevieve Lim
(Lim) and the spouses Benjamin and Lourdes Lim (the Spouses Lim) on March 10, 1994. The price of the
lot as indicated in the Deed of Absolute Sale is Two Hundred Thousand Pesos (P200,000.00).  It
appears, however, that the vendees agreed to purchase the lot at the price of Six Hundred Thousand
Pesos (P600,000.00), inclusive of taxes and other incidental expenses of the sale.

After the sale, Lim remitted to Saban the amounts of P113,257 for payment of taxes due on the
transaction as well as P50,000.00 as broker's commission. Lim also issued in the name of Saban four
postdated checks in the aggregate amount of P236,743.00.

Subsequently, Ybañez sent a letter dated June 10, 1994 addressed to Lim. In the letter Ybañez asked
Lim to cancel all the checks issued by her in Saban's favor and to "extend another partial payment" for the
lot in his (Ybañez's) favor. 

After the four checks in his favor were dishonored upon presentment, Saban filed a complaint for
collection of sum of money and damages against Ybañez and Lim
Saban alleged that Ybañez told Lim that he (Saban) was not entitled to any commission for the sale since
he concealed the actual selling price of the lot from Ybañez and because he was not a licensed real
estate broker. Ybañez was able to convince Lim to cancel all four checks.

In his Answer, Ybañez claimed that Saban was not entitled to any commission because he concealed the
actual selling price from him and because he was not a licensed real estate broker.

ISSUE:
          Whether Saban is entitled to receive his commission from the sale

HELD:

          Yes, Saban is entitled to receive his commission from the sale.

          The Supreme Court held that to deprive Saban of his commission subsequent to the sale which
was consummated through his efforts would be a breach of his contract of agency with Ybañez which
expressly states that Saban would be entitled to any excess in the purchase price after deducting the
P200,000.00 due to Ybañez and the transfer taxes and other incidental expenses of the sale.
          Moreover, the Court has already decided in earlier cases that would be in the height of injustice to
permit the principal to terminate the contract of agency to the prejudice of the broker when he had already
reaped the benefits of the broker's efforts.

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