Negotiable Instruments Case Digest: Salas V.

CA (1990)

G.R. No. 76788 January 22,1990

Lessons Applicable: Introduction to Negotiable Instruments (Negotiable Instruments Law)

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

STATE INVESTMENT HOUSE V. CA

217 SCRA 32

FACTS:

Moulic issued checks as security to Victoriano, for pieces of jewelry to be sold on commission. Moulic
failed to sell the pieces of jewelry, so she returned them to Victoriano. The checks however could
not be recovered by Moulic as these have been discounted already in favor of petitioner.
Consequently, before the maturity dates, Moulic withdrew her funds from her account. Thereafter,
petitioner presented the checks for payment but these were dishonored. This prompted the petitioner
to initiate an action

against Moulic.

HELD:

A prima facie presumption exists that a holder of a negotiable instrument is a holder in due course. The
burden of proving that State is not a holder in due course is upon Moulic. In this regard, she failed to do
so.

The evidence shows that the dated checks were complete and regular; petitioner bought the
checks from Victoriano before their due dates; it took the checks in good faith and for value; and it was
never informed nor made aware that these checks were merely issued to payee as security.

Consequently, State is a holder in due course. Moulic cannot set up the defense that there was
failure or want of consideration. It can only invoke the defense if State was a privy to the purpose for
which they were issued and therefore is not a holder in due course.

Furthermore, the mere fact that the checks were issued as security is not sufficient ground to
discharge the instrument as against a holder in due course.

And also, Moulic was responsible for the dishonor of her checks. She withdrew her funds from
her account and could not have expected her checks to be honored by then.

Prudencio v. Court of Appeals [G.R. No. L-34539. July 14, 1986]

30

JUL

FACTS

Petitioners were induced to sign a promissory note after a Deed of Assignment was executed by the
Construction Company in favor of PNB. Later, PNB approved release of payments in contravention of the
tenor of the said deed.

ISSUE

Whether or not PNB may be considered as a holder in due course after fraudulent inducement.

RULING

NO. PNB is not a holder in due course. Not only was PNB an immediate party or in privy to the
promissory note – that is, it had dealt directly with the petitioners knowing fully well that the latter only
signed as accommodation – but petitioners were made to believe and on that belief entered into the
agreement that no other conditions would alter the terms thereof and yet, PNB altered the same.

Stelco vs CA

Stelco Marketing vs. CA

GR 96160, 17 June 1992, 210 scra 51

--accommodation party
FACTS:

Stelco Marketing Corporation sold structural steel bars to RYL Construction Inc. RYL gave Stelco’s “sister
corporation,” Armstrong Industries, a MetroBank check from Steelweld Corporation. The check was
issued by Steelweld’s President to Romeo Lim, President of RYL, by way of accommodation, as a
guaranty and not in payment of an obligation. When Armstrong deposited the check at its bank, it was
dishonored because it was drawn against insufficient funds. When so deposited, the check bore two
indorsements, i.e. RYL and Armstrong. Subsequently, Stelco filed a civil case against RYL and Steelweld
to recover the value of the steel products.

ISSUE:

Whether Steelweld as an accommodating party can be held liable by Stelco for the dishonored check.

RULING:

Steelweld may be held liable but not by Stelco. Under Section 29 of the NIL, Steelweld Corp. can be held
liable for having issued the subject check for the accommodation of Romeo Lim. An accommodation
party is one who has singed the instrument as maker, drawer, acceptor, or indorser, without receiving
valued 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. Stelco however, cannot be deemed a
holder of the check for value as it does not meet two essential requisites prescribed by statute, i.e. that
it did not become “the holder of it before it was overdue, and without notice that it had been previously
dishonored,” and that it did not take the check “in good faith and for value.”

Fossum v. Hermanos [G.R. No. L-19461. March 28, 1923]

30

JUL

FACTS

Appellant was himself a party to the contract which supplied the consideration for the draft, albeit he
there acted in a representative capacity. He procured the instrument to be indorsed by the bank and
delivered to himself without the payment of value, after it was overdue, and with full notice that, as
between the original parties, the consideration had completely failed. Petitioner invoked the “shelter
rule”.
ISSUE

Whether or not petitioner may hide under the “shelter rule”.

RULING

NO. While it is true that a person who is not himself a holder in due course may yet recover against the
person primarily liable where it appears that such holder derives his title through a holder in due course,
there are exceptions. Here, the holder was party to the contract which participated to the defect of the
instrument. Hence, shelter rule finds no application here.

Jai-Alai Corp vs BPI

Jai-Alai Corp. of the Phil. vs. Bank of the Phil. Islands

G.R. No. L-29432 August 6, 1975 66 SCRA 29

-forgery

FACTS:

Petitioner deposited 10 checks in its current account with BPI. The checks which were acquired by
petitioner from Ramirez, a sales agent of the Inter-Island Gas were all payable to Inter-Island Gas
Service, Inc. or order. After the checks had been submitted to Inter-bank clearing, Inter-Island Gas
discovered that all the indorsements made on the checks purportedly by its cashiers were forgeries. BPI
thus debited the value of the checks against petitioner's current account and forwarded to the latter the
checks containing the forged indorsements which petitioner refused to accept.

ISSUE:
Whether BPI had the right to debit from petitioner's current account the value of the checks with the
forged indorsements.

RULING:

BPI acted within legal bounds when it debited the petitioner's account. Having indorsed the checks to
respondent bank, petitioner is deemed to have given the warranty prescribed in Section 66 of the NIL
that every single one of those checks "is genuine and in all respects what it purports to be." Respondent
which relied upon the petitioner's warranty should not be held liable for the resulting loss.

**The depositor of a check as indorser warrants that it is genuine and in all respects what it purports to
be. Having indorsed the checks to respondent bank, petitioner is deemed to have given the warranty
prescribed in Section 66 of the NIL that every single one of those checks " is genuine and in all respects
what it purports to be."

Philippine National Bank v. Picornell [G.R. No. L-18751. September 26, 1922]

30

JUL

FACTS

Picornell delivered a bill of exchange to Philippine National Bank (PNB) which was later presented to and
accepted by Hyndman Tavera Y Ventura. The drawee-acceptor refused to pay PNB.

ISSUE

Whether or not a drawee is liable to the payee upon acceptance.

RULING

YES. The drawee, by acceptance, becomes liable to the payee or his indorsee and also to the drawer
himself. Here, the drawee accepted the bill and is primarily liable for the value of the negotiable
instrument, while the drawer, Picornell, is secondarily liable. Upon the non-payment of the bill by the
drawee-acceptor, the bank had the right of recourse, which it exercised, against the drawer. (Sec. 84,
Negotiable Instruments Law)

PNB V. CA - Acceptance of Checks

25 SCRA 693

FACTS:

Lim deposited in his PCIB account a GSIS check drawn against PNB. Following standard banking
procedures, the check was sent to petitioner for clearing. He didn’t return said check but paid the
amount to PCIB as well as debited it against the account of GSIS. Thereafter, a demand was received
from GSIS asking for the credit of the amount since the signatures found in the check were forged.
This was done by PNB and it now comes after PCIB but the latter wouldn’t want to return the money.

HELD:

Acceptance is not required for checks, for the same are payable on demand. Acceptance and
payment are distinguished with each other. The former pertains to a promise to perform an act while
the latter is the actual performance of the act.
PNB had also been negligent with the particularity that it had been guilty of a greater degree of
negligence because it had a previous and formal notice from GSIS that the check had been lost, with the
request that payment be stopped. Just as important is that it is its acts, which are the proximate cause
of the loss.

Negotiable Instruments Case Digest: Ang Tiong V. Ting (1968)

G.R. No. L-26767 February 22, 1968

Lessons Applicable: General Indorser (Negotiable Instrurments)

Laws Applicable: Section 63 of the Negotiable Instruments Law

FACTS:

August 15, 1960: Lorenzo Ting issued Philippine Bank of Communications check K-81618, w/ sum of
P4,000, payable to "cash or bearer"

With Felipe Ang's signature (indorsement in blank) at the back thereof, the instrument was received by
the Ang Tiong who presented it to the drawee bank for payment but it was dishonored

Ting made a written demand to both Ting and Ang to no avail

March 6, 1962: Municipal Court of Manila favored Tiong against Ting and Ang

CA: ordered Ang to pay with interest

Ang contends that he is an accomodating indorser

ISSUE: W/N Ang is an accomodating indorser and not a general indorser a

HELD: NO. Affirmed

Section 63 of the Negotiable Instruments Law: a person placing his signature upon an instrument
otherwise than as maker, drawer or acceptor = a general indorser, — unless he clearly indicates plaintiff
appropriate words his intention to be bound in some other capacity

warrants:

(a) that the instrument is genuine and in all respects what it purports to be;

(b) that he has a good title to it;

(c) that all prior parties have capacity to contract; and

(d) that the instrument is at the time of his indorsement valid and subsisting

Even on the assumption that the appellant is a mere accommodation party, as he professes to be, he is
by the clear mandate of section 29 of the Negotiable Instruments Law, "liable on the instrument to a
holder for value, notwithstanding that such holder at the time of taking the instrument knew him to be
only an accommodation party."

It is not a valid defense that the accommodation party did not receive any valuable consideration when
he executed the instrument.

Nor is it correct to say that the holder for value is not a holder in due course merely because at the time
he acquired the instrument, he knew that the indorser was only an accommodation party.

assuming him to be an accommodation indorser, may obtain security from the maker to protect himself
against the danger of insolvency of the latter, cannot in any manner affect his liability to the Tiong, as
the said remedy is a matter of concern exclusively between accommodation indorser and
accommodated party.

The liability of the appellant remains primary and unconditional.

People v. Maniego [G.R. No. L-30910. February 27, 1987]

30

JUL

FACTS

Accused-appellant Maniego was an indorser of several checks drawn by her sister, which were
dishonored after they have been exchanged with cash belonging to the Government.
ISSUE

Whether or not Maniego may not be made liable on account of dishonor of checks indorsed by her.

RULING

NO. Appellant’s contention that as mere indorser, she may not be made liable on account of the
dishonor of the checks indorsed by her is untenable. Under the law, the holder or last indorsee of a
negotiable instrument has the right to “enforce payment of the instrument for the full amount thereof
against all parties liable thereon.”

CLARK V. SELINER- Liability Of An Accommodation Party

42 PHIL 384

FACTS:

Sellner with two other persons, signed a promissory note solidarily binding themselves to pay to the
order of R.N Clark. The note matured but the amount wasn't paid. The defendant alleges that
he didn't receive any amount of the debt; that the instrument wasn't presented to him for

payment and being an accommodation party, he is not liable unless the note is negotiated, which
wasn't done.

HELD:
On the first issue, the liability of Sellner as one of the signers of the note, is not dependent on whether
he has or has not, received any part of the debt. The defendant is really and expressly one of the
joint and several debtors of the note and as such he is liable under the provisions of Section 60 of the
Negotiable Instruments Law.

As to the presentment for payment, such action is not necessary in order to charge the person primarily
liable, as is the defendant Sellner.

As to whether or not Sellner is an accommodation party, it should be taken into account that by putting
his signature to the note, he lent his name, not to the creditor, but to those who signed with him placing
him in the same position and with the same liability as the said signers. It should be noted that the
phrase”without receiving value therefore” as used in section 29 means “without receiving value by
virtue of the instrument” and not, as it apparently is supposed to mean, “without receiving payment for
lending his name.” It is immaterial as far as the creditor is concerned, whether one of the signers has or
has not received anything in payment for the use of his name. In this case, the legal situation of Sellner
is that of a joint surety who upon the maturity of the note, pay the debt, demand the collateral

security and dispose of it to his benefit. As to the plaintiff, he is a holder for value.

Crisologo-Jose vs Court of Appeals (1989)

February 14, 2013 markerwins Corporation Law, Mercantile Lawcorpo, merc

Facts: Plaintiff Ricardo S. Santos, Jr. was the vice-president of Mover Enterprises, Inc. in-charge of
marketing and sales; and the president of the said corporation was Atty. Oscar Z. Benares. Atty. Benares,
in accommodation of his clients, the spouses Jaime and Clarita Ong, issued check against Traders Royal
Bank, payable to defendant Ernestina Crisologo-Jose. Since the check was under the account of Mover
Enterprises, Inc., the same was to be signed by its president, Atty. Oscar Z. Benares, and the treasurer of
the said corporation. However, since at that time, the treasurer of Mover Enterprises was not available,
Atty. Benares prevailed upon the plaintiff, Ricardo S. Santos, Jr., to sign the aforesaid check. The check
was issued to defendant Ernestina Crisologo-Jose in consideration of the waiver or quitclaim by said
defendant over a certain property which the Government Service Insurance System (GSIS) agreed to sell
to the spouses Jaime and Clarita Ong, with the understanding that upon approval by the GSIS of the
compromise agreement with the spouses Ong, the check will be encashed accordingly. Since the
compromise agreement was not approved within the expected period of time, the aforesaid check was
replaced by Atty. Benares. This replacement check was also signed by Atty. Oscar Z. Benares and by the
plaintiff Ricardo S. Santos, Jr. When defendant deposited this replacement check with her account at
Family Savings Bank, Mayon Branch, it was dishonored for insufficiency of funds. The petitioner filed an
action against the corporation for accommodation party.
Issue: WON the corporation can be held liable as accommodation party?

Held: No. Accommodation party liable on the instrument to a holder for value, although such holder at
the time of taking the instrument knew him to be only an accommodation party, does not include nor
apply to corporations which are accommodation parties. This is because the issue or indorsement of
negotiable paper by a corporation without consideration and for the accommodation of another is ultra
vires. Hence, one who has taken the instrument with knowledge of the accommodation nature thereof
cannot recover against a corporation where it is only an accommodation party. If the form of the
instrument, or the nature of the transaction, is such as to charge the indorsee with knowledge that the
issue or indorsement of the instrument by the corporation is for the accommodation of another, he
cannot recover against the corporation thereon. By way of exception, an officer or agent of a
corporation shall have the power to execute or indorse a negotiable paper in the name of the
corporation for the accommodation of a third person only if specifically authorized to do so. Corollarily,
corporate officers, such as the president and vice-president, have no power to execute for mere
accommodation a negotiable instrument of the corporation for their individual debts or transactions
arising from or in relation to matters in which the corporation has no legitimate concern. Since such
accommodation paper cannot thus be enforced against the corporation, especially since it is not
involved in any aspect of the corporate business or operations, the inescapable conclusion in law and in
logic is that the signatories thereof shall be personally liable therefor, as well as the consequences
arising from their acts in connection therewith.

PNB V. MAZA AND MECENAS

48 PHIL 207

FACTS:

Maza and Macenas executed a total of five promissory notes. These were not paid at maturity. And to
recover the amounts stated on the face of the promissory notes, PNB initiated an action against the
two. The special defense posed by the two is that the promissory notes were delivered to

them in blank by a certain Enchaus and were made to sign the notes so that the latter could
secure a loan from the bank. They also alleged that they never negotiated the notes with the bank nor
have they received any value thereof. They also prayed that Enchaus be impleaded in the

complaint but such was denied. The trial court then held in favor of the bank.

HELD:
The defendants attested to the genuineness of the instruments sued on. Neither did they point
out any mistake in regard to the amount and interest that the lower court sentenced them to
pay. Given such, the defendants are liable. They appear as the makers of the promissory notes

and as such, they must keep their engagement and pay as promised.

And assuming that they are accommodation parties, the defendants having signed the instruments
without receiving value thereof, for the purpose of lending their names to some other person, are still
liable for the promissory notes. The law now is such that an accommodation party cannot claim no
benefit as such, but he is liable according to the face of his undertaking, the same as he himself
financially interest in the transaction. It is also no defense to say that they didn't receive the value of
the notes. To fasten

liability however to an accommodation maker, it is not necessary that any consideration should move to
him. The accommodation which supports the promise of the accommodation maker is that parted
with by the person taking the note and received by the person accommodated.

Negotiable Instruments Case Digest: Maulini V. Serrano (1914)

G.R. No. L-8844 December 16, 1914

Lessons Applicable: Consideration and Accommodation Party (Negotiable Instruments)

FACTS:

promissory note: 3,000. Due 5th of September, 1912.

We jointly and severally agree to pay to the order of Don Antonio G. Serrano on or before the 5th day of
September, 1912, the sum of three thousand pesos (P3,000) for value received for commercial
operations. Notice and protest renounced. If the sum herein mentioned is not completely paid on the
5th day of September, 1912, this instrument will draw interest at the rate of 1½ per cent per month
from the date when due until the date of its complete payment. The makers hereof agree to pay the
additional sum of P500 as attorney's fees in case of failure to pay the note.

Manila, June 5, 1912.

(Sgd.) For Padern, Moreno & Co., by F. Moreno, member of the firm. For Jose Padern, by F. Moreno.
Angel Gimenez.

The note was indorsed on the back as follows:

Pay note to the order of Don Fernando Maulini, value received. Manila, June 5, 1912. (Sgd.) A.G.
Serrano.

Maulini's business as a broker consisted in looking up and ascertaining persons who had money to loan
as well as those who desired to borrow money and, acting as a mediary, negotiate a loan between the
two

Method usually followed: the broker delivered the money personally to the borrower, took note in his
own name and immediately transferred it by indorsement to the lender

done at the special request of the indorsee and simply as a favor to him, the latter stating to the broker
that he did not wish his name to appear on the books of the borrowing company as a lender of money
and that he desired that the broker take the note in his own name, immediately transferring to him title
thereto by indorsement

Trial Court: immaterial whether there was a consideration for the transfer or not, as the indorser, under
the evidence offered, was an accommodation indorser.

ISSUES: W/N Serrano was an accomodation indorser

HELD: Judgment reversed.

never was a moment when Serrano was the real owner of the note

The only payment that the broker received was for his services in negotiating the loan.

In cases of accommodation indorsement the indorser makes the indorsement for the accommodation of
the maker. Such an indorsement is generally for the purpose of better securing the payment of the note

lend his name to the maker, NOT to the holder

indorsement is made as a favor to the indorsee, who requests it, not the better to secure payment, but
to relieve himself from a distasteful situation, and where the only consideration for such indorsement
passes from the indorser to the indorsee, the situation does not present one creating an
accommodation indorsement, nor one where there is a consideration sufficient to sustain an action on
the indorsement.

Parol evidence was admissible for the purpose named.

People v. Maniego [G.R. No. L-30910. February 27, 1987]

30

JUL

FACTS

Accused-appellant Maniego was an indorser of several checks drawn by her sister, which were
dishonored after they have been exchanged with cash belonging to the Government.

ISSUE

Whether or not Maniego may not be made liable on account of dishonor of checks indorsed by her.

RULING
NO. Appellant’s contention that as mere indorser, she may not be made liable on account of the
dishonor of the checks indorsed by her is untenable. Under the law, the holder or last indorsee of a
negotiable instrument has the right to “enforce payment of the instrument for the full amount thereof
against all parties liable thereon.”

PHILIPPINE BANK OF COMMERCE V. ARUEGO

102 SCRA 530

FACTS:

Aruego, on behalf of World Current Events, entered into a Credit Agreement with PBCom, for
the publication of the company’s periodicals. At every printing endeavor by the printing press, a
bill of exchange is drawn against PBCom. The instruments are signed by Aruego, without any
indication that he is an agent of World Current Events. When he was being held liable by PBCom, he
averred that he only signed the instrument in the capacity of agent of the company.

HELD:

An inspection of the drafts accepted by the defendant would show nowhere that he has disclosed that
he was signing in representation of the Philippine Education Foundation Company. He merely signed his
name. For failure to disclose his principal, Aruego was personally liable for the drafts he accepted.

CRISOLOGO JOSE V. CA - Accommodation Party

177 SCRA 594

FACTS:

The president of Movers Enterprises, to accommodate its clients Spouses Ong, issued a check in
favor of petitioner Crisologo-Jose. This was in consideration of a quitclaim by petitioner over a
parcel of land, which the GSIS agreed to sell to spouses Ong, with the understanding that upon
approval of the compromise agreement, the check will be encashed accordingly. As the
compromise agreement wasn't approved during the expected period of time, the aforesaid check was
replaced with another one for the same value. Upon deposit though of the checks by petitioner,
it was dishonored. This prompted the petitioner to file a case against Atty. Bernares and Santos for
violation of BP22. Meanwhile, during the preliminary investigation, Santos tried to tender a
cashier’s check for the value of the dishonored check but petitioner refused to accept such. This was
consigned by Santos with the clerk of court and he instituted charges against petitioner. The trial court
held that consignation wasn't applicable to the case at bar but was reversed by the CA.
HELD:

Petitioner averred that it is not Santos who is the accommodation party to the instrument but the
corporation itself. But assuming arguendo that the corporation is the accommodation party, it
cannot be held liable to the check issued in favor of petitioner. The rule on accommodation
party

doesn't include or apply to corporations which are accommodation parties. This is because the issue or
indorsement of another is ultra vires. Hence, one who has taken the instrument with knowledge of the
accommodation nature thereof cannot recover against a corporation where it is only an
accommodation party. If the form of the instrument, or the nature of the transaction, is such as to
charge the indorsee with the knowledge that the issue or indorsement of the instrument by the
corporation is for the accommodation of another, he cannot recover against the corporation
thereon.

By way of exception, an officer or agent of a corporation shall have the power to execute or
indorse a negotiable paper in the name of the corporation for the accommodation of a third
party only is specifically authorized to do so. Corollarily, corporate officers have no power to
execute for mere accommodation a negotiable instrument of the corporation for their
individual debts and transactions arising from or in relation to matters in which the corporation
has no legitimate concern. Since such accommodation paper cannot be enforced against the
corporation, the signatories thereof shall be personally liable therefore, as well as the consequences
arising from their acts in connection therewith.

Negotiable Instruments Case Digest: Republic V. Ebrada (1975)

G.R. No. L-40796 July 31, 1975

Lessons Applicable: Forgery (Negotiable Instruments Law)

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.

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

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

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.

MWSS V. CA

143 SCRA 20

FACTS:

MWSS had an account from PNB. Its treasurer, auditor, and General Manager are the ones
authorized to sign checks. During a period of time, 23 checks were drawn and debited against the
account of petitioner. Bearing the same check numbers, the amounts stated therein were again

debited from the account of petitioner. The amounts drawn were deposited in the accounts of the
payees in PCIB. It was found out though that the names stated in the drawn checks were all fictitious.
Petitioner demanded the return of the amounts debited but the bank refused to do so. Thus, it filed a
complaint.

HELD:

There was no categorical finding that the 23 checks were signed by persons other than those
authorized to sign. On the contrary, the NBI reports shows that the fraud was an “inside job” and
that the delay in the reconciliation of the bank statements and the laxity and loss of records

control in the printing of the personalized checks facilitated the fraud. It further doesn’t provide that
the signatures were forgeries.

Forgery cannot be presumed. It should be proven by clear, convincing and positive evidence. This
wasn’t done in the present case.

The petitioner cannot invoke Section 23 because it was guilty of negligence not only before the
questioned checks but even after the same had already been negotiated.
Samsung Construction Company Phils. v. Far East Bank and Trust Company [G.R. No. 129015. August 13,
2004]

30

JUL

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.

Negotiable Instruments Case Digest: Allied Banking Corp. V. Lim Sio Wan (2008)
G.R. No. 133179 March 27, 2008

Lessons Applicable: Liabilities of the Parties (Negotiable Instruments Law)

FACTS:

Lim Sio Wan (deposited 1st money market) > Allied Bank > (pre-terminated and withdrawn) Santos >
(through forged indorsement of Lim Sio Wan deposited in FCC account) Metrobank > (release in
exchange of undertaking of reimbursement) FCC > (through Santos, as officer of Producers bank,
deposited money market) Producers Bank

September 21, 1983: FCC had deposited a money market placement for P 2M with Producers Bank

Santos was the money market trader assigned to handle FCC’s account

Such deposit is evidenced by Official Receipt and a Letter

When the placement matured, FCC demanded the payment of the proceeds of the placement

November 14, 1983: Lim Sio Wan deposited with Allied Banking Corporation (Allied) a money market
placement of P 1,152,597.35 for a term of 31 days

December 5, 1983: a person claiming to be Lim Sio Wan called up Cristina So, an officer of Allied, and
instructed the latter to pre-terminate Lim Sio Wan’s money market placement, to issue a manager’s
check representing the proceeds of the placement, and to give the check to Deborah Dee Santos who
would pick up the check. Lim Sio Wan described the appearance of Santos

Santos arrived at the bank and signed the application form for a manager’s check to be issued

The bank issued Manager’s Check representing the proceeds of Lim Sio Wan’s money market placement
in the name of Lim Sio Wan, as payee, cross-checked "For Payee’s Account Only" and given to Santos
Allied manager’s check was deposited in the account of Filipinas Cement Corporation (FCC) at
Metropolitan Bank and Trust Co. (Metrobank), with the forged signature of Lim Sio Wan as indorser

Metrobank stamped a guaranty on the check, which reads: "All prior endorsements and/or lack of
endorsement guaranteed."

Upon the presentment of the check, Allied funded the check even without checking the authenticity of
Lim Sio Wan’s purported indorsement.

amount on the face of the check was credited to the account of FCC

December 9, 1983: Lim Sio Wan deposited with Allied a second money market placement to mature on
January 9, 1984

December 14, 1983: upon the maturity date of the first money market placement, Lim Sio Wan went to
Allied to withdraw it. She was then informed that the placement had been pre-terminated upon her
instructions which she denied

Lim Sio Wan filed with the RTC against Allied to recover the proceeds of her first money market
placement

Allied filed a third party complaint against Metrobank and Santos

Metrobank filed a fourth party complainagainst FCC

FCC for its part filed a fifth party complaint against Producers Bank.
Summonses were duly served upon all the parties except for Santos, who was no longer connected with
Producers Bank

May 15, 1984: Allied informed Metrobank that the signature on the check was forged

Metrobank withheld the amount represented by the check from FCC.

Metrobank agreed to release the amount to FCC after the FCC executed an undertaking, promising to
indemnify Metrobank in case it was made to reimburse the amount

Lim Sio Wan thereafter filed an amended complaint to include Metrobank as a party-defendant, along
with Allied.

RTC : Allied Bank to pay Lim Sio Wan plus damages and atty. fees

Allied Bank’s cross-claim against Metrobank is DISMISSED.

Metrobank’s third-party complaint as against Filipinas Cement Corporation is DISMISSED

Filipinas Cement Corporation’s fourth-party complaint against Producer’s Bank is DISMISSED

CA: Modified. Allied Banking Corporation to pay 60% and Metropolitan Bank and Trust Company 40%

ISSUE: W/N Allied should be solely liable to Lim Sio Wan.

HELD: YES. CA affirmed. Modified Porudcers Bank to reimburse Allied and Metrobank.
Articles 1953 and 1980 of the Civil Code

Art. 1953. A person who receives a loan of money or any other fungible thing acquires the ownership
thereof, and is bound to pay to the creditor an equal amount of the same kind and quality.

Art. 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be
governed by the provisions concerning simple loan.

bank deposit is in the nature of a simple loan or mutuum

money market is a market dealing in standardized short-term credit instruments (involving large
amounts) where lenders and borrowers do not deal directly with each other but through a middle man
or dealer in open market. In a money market transaction, the investor is a lender who loans his money
to a borrower through a middleman or dealer.

Lim Sio Wan, as creditor of the bank for her money market placement, is entitled to payment upon her
request, or upon maturity of the placement, or until the bank is released from its obligation as debtor

GR: collecting bank which indorses a check bearing a forged indorsement and presents it to the drawee
bank guarantees all prior indorsements, including the forged indorsement itself, and ultimately should
be held liable therefor

EX: when the issuance of the check itself was attended with negligence.

Allied negligent in issuing the manager’s check and in transmitting it to Santos without even a written
authorization
Allied did not even ask for the certificate evidencing the money market placement or call up Lim Sio
Wan at her residence or office to confirm her instructions.

Allied’s negligence must be considered as the proximate cause of the resulting loss.

When Metrobank indorsed the check without verifying the authenticity of Lim Sio Wan’s indorsement
and when it accepted the check despite the fact that it was cross-checked payable to payee’s account
only

contributed to the easier release of Lim Sio Wan’s money and perpetuation of the fraud

Given the relative participation of Allied and Metrobank to the instant case, both banks cannot be
adjudged as equally liable. Hence, the 60:40 ratio of the liabilities of Allied and Metrobank, as ruled by
the CA, must be upheld.

FCC, having no participation in the negotiation of the check and in the forgery of Lim Sio Wan’s
indorsement, can raise the real defense of forgery as against both banks

Producers Bank was unjustly enriched at the expense of Lim Sio Wan

Producers Bank should reimburse Allied and Metrobank for the amounts ordered to pay Lim Sio Wan

WESTMONT BANK V. ONG

373 SCRA 212

FACTS:

Ong was supposed to be the payee of the checks issued by Island Securities. Ong has a current
account with petitioner bank. He opted to sell his shares of stock through Island Securities. The
company in turn issued checks in favor of Ong but unfortunately, the latter wasn't able to receive any.
His signatures were forged by Tamlinco and the checks were deposited in his own account with
petitioner. Ong then sought to collect the money from the family of Tamlinco first before filing a
complaint with the Central Bank. As his efforts were futile to recover his money, he filed an action
against the petitioner. The trial and appellate court decided in favor of Ong.

HELD:

Since the signature of the payee was forged, such signature should be deemed inoperative and
ineffectual. Petitioner, as the collecting bank, grossly erred in making payment by virtue of said
forged signature. The payee, herein respondent, should therefore be allowed to collect from the
collecting bank.

It should be liable for the loss because it is its legal duty to ascertain that the payee’s endorsement
was genuine before cashing the check. As a general rule, a bank or corporation who has obtained
possession of a check with an unauthorized or forged indorsement of the payee’s signature and who
collects the amount of the check other from the drawee, is liable for the proceeds thereof to the payee
or the other owner, notwithstanding that the amount has been paid to the person from whom the
check was obtained.

DOCTRINE OF DESIRABLE SHORT CUT—plaintiff uses one action to reach, by desirable short cut, the
person who ought to be ultimately liable as among the innocent persons involved in the transaction.
In other words, the payee ought to be allowed to recover directly from the collecting bank, regardless of
whether the check was delivered to the payee or not.

On the issue of laches, Ong didn't sit on his rights. He immediately sought the intervention of Tamlinco’s
family to collect the sum of money, and later the Central Bank. Only after exhausting all the
measures to settle the issue amicably did he file the action.

ILUSORIO VS. CA

FACTS:

Ramon Ilusorio entrusted his credit cards and checkbooks and blank checks to his secretary. Apparently,
his secretary was able to encash and deposit to her personal account 17 checks drawn against his
account.
Ilusorio requested to restore to his account the value of the checks that were wrongfully encashed but
the bank refused, hence the case.

In court, the bank testified that they make sure that the sign on the check is verified. When asked by the
NBI to submit standard signs to compare, Ilusorio failed to comply. The lower held held in favor of
defendant.

ISSUE: Whether the bank was negligent in receiving the checks.

RULING:

The SC affirmed the lower court's decision. Ilusorio failed to prove that the bank was negligent on their
part as he has the burden of proof. The bank's employees did not know the secretary's modus operandi
as she was always transacting in behalf of Ilusorio.

The SC even held that it was Ilusorio who was negligent as he trusted his secretary of unusual degree.

Ilusorio also cites Sec. 23 of the NIL that a forged check is inoperative and that he bank has no authority
to pay. While true, the case at bar falls under the exception stated in the section. The SC held that
Ilusorio is precluded from setting up the forgery, assuming there is forgery, due to his own negligence in
entrusting his secretary.

TRADERS ROYAL BANK V. RPN

390 SCRA 608

FACTS:

RPN, IBC and BBC were all assessed for tax by the BIR. To pay the assessed taxes, they bought
manager’s checks from petitioner bank. None of these checks were paid to the BIR. They were
found to have been deposited in the account of a third person in Security Bank. As the taxes remained
unpaid, the BIR issued a levy, distraint and garnishment against the three networks. An action was
filed wherein it was decided that the networks should be reimbursed for the amounts of the checks
by petitioner bank and the latter in turn, must be reimbursed by Security Bank. In the appellate court,
it was held that Traders Bank should be the only bank liable.

HELD:

Petitioner ought to have known that where a check is drawn payable to the order of one person and is
presented for payment by another and purports upon its face to have been duly indorsed by the payee
of the check, it is the primary duty of the petitioner to know that the check was duly indorsed by
the original payee, and it pays the amount of the check to the third person, who has forged the
signature of the payee, the loss falls upon the petitioner who cashed the check. Its only remedy is
against the person

to whom it paid the money.

It should be further noted that one of the checks was a crossed check. The crossing of the check
should have put petitioner on guard; it was duty-bound to ascertain the indorser’s title to the
check or the nature of his possession.

Bank of America, NT and SA vs. Associated Citizens Bank G.R. No. 141001, May 21, 2009

MARCH 16, 2014 LEAVE A COMMENT

The Bank is under strict liability, based on the contract between the bank and its customer (drawer), to
pay the check only to the payee or the payee’s order. The drawer’s instructions are reflected on the face
and by the terms of the check. When the drawee bank pays a person other than the payee named on
the check, it does not comply with the terms of the check and violates its duty to charge the drawer’s
account only for properly payable items.

Facts: BA-Finance Corporation (BA Finance) and Miller Offset Press, Inc. (Miller) entered into a credit
line facility agreement whereby Miller can discount and assign its trade receivables with the BA Finance.
At the same time, Uy Kiat Chung, Ching Uy Seng, and Uy Chung Guan Seng, acting for Miller, executed a
Continuing Suretyship Agreement with BA-Finance. Under the agreement, they jointly and severally
guaranteed the full and prompt payment of any and all indebtedness which Miller may incur with BA-
Finance.

Miller discounted and assigned several trade receivables to BA-Finance by executing Deeds of
Assignment in favor of the latter. In consideration thereof, BA-Finance issued four checks payable to the
order of Miller with the notation “For Payee’s Account Only.” These checks were drawn against Bank of
America. The four checks were deposited by Ching Uy Seng in Associated Citizens Bank with his joint
account with Uy Chung Seng. Associated Bank stamped the checks and guaranteed all prior
endorsements and/or lack of endorsements and sent them through clearing. Later, Bank of America as
drawee bank honored the checks and paid the proceeds to Associated Bank as the collecting bank.
When Miller failed to deliver to BA-Finance the proceeds of the assigned trade receivables, BA-Finance
filed a collection suit against Miller and impleaded the three representative of the latter.

Bank of America filed a third party complaint against Associated Bank. In its answer to the third party
complaint, Associated Bank admitted having received the four checks for deposit in the joint account of
Ching Uy Seng and Uy Chung Guan Seng, but alleged that Ching Uy Seng, being one of the corporate
officers of Miller, was duly authorized to act for and on behalf of Miller.

Issues: Whether or not Bank of America is liable to pay BA-Finance and whether or not Associated Bank
should reimburse Bank of America the amount of the four checks.

Held: The bank on which a check is drawn, known as the drawee bank, is under strict liability, based on
the contract between the bank and its customer (drawer), to pay the check only to the payee or the
payee’s order. The drawer’s instructions are reflected on the face and by the terms of the check. When
the drawee bank pays a person other than the payee named on the check, it does not comply with the
terms of the check and violates its duty to charge the drawer’s account only for properly payable items.
On the part of Associated Bank, the law imposes a duty of diligence on the collecting bank to scrutinize
checks deposited with it for the purpose of determining their genuineness and regularity. The collecting
bank being primarily engaged in banking holds itself out to the public as the expert and the law holds it
to a high standard of conduct. In presenting the checks for clearing and for payment, the defendant
[collecting bank] made an express guarantee on the validity of “all prior endorsements.” Thus, stamped
at the back of the checks are the defendant’s clear warranty. As the warranty has proven to be false and
inaccurate, Associated Bank is liable for any damage arising out of the falsity of its representation.

Held: A bank that regularly processes checks that are neither payable to the customer nor duly
indorsed by the payee is apparently grossly negligent in its operations. This Court has recognized the
unique public interest possessed by the banking industry and the need for the people to have full trust
and confidence in their banks. For this reason, banks are minded to treat their customer’s accounts with
utmost care, confidence, and honesty. In a checking transaction, the drawee bank has the duty to verify
the genuineness of the signature of the drawer and to pay the check strictly in accordance with the
drawer’s instructions, i.e., to the named payee in the check. It should charge to the drawer’s accounts
only the payables authorized by the latter. Otherwise, the drawee will be violating the instructions of
the drawer and it shall be liable for the amount charged to the drawer’s account. Rodriguez checks are
payable to order since the bank failed to prove that the named payees therein are fictitious.

Hence, the fictitious-payee rule which will make the instrument payable to bearer does not apply. PNB
accepted the 69 checks for deposit to the PEMSLA account even without any indorsement from the
named payees. It bears stressing that order instruments can only be negotiated with a valid
indorsement.

Negotiable Instruments Case Digest: PNB V. CA (1968)

G.R. No. L-26001 October 29, 1968

Lessons Applicable:

Forgery (Negotiable Instruments Law)

Liabilities of the parties (Negotiable Instruments Law)

FACTS:

January 15, 1962: Augusto Lim deposited in his current account with the PCIB branch at Padre Faura,
Manila a GSIS Check of P57,415.00 drawn against the PNB

PCIB stamped the following on the back of the check: "All prior indorsements and/or Lack of
Endorsement Guaranteed, Philippine Commercial and Industrial Bank," Padre Faura Branch, Manila

Same date: following an established banking practice in the Philippines, the check was forwarded for
clearing through the Central Bank to the PNB
did not return said check the next day, or at any other time, but retained it and paid its amount to the
PCIB, as well as debited it against the account of the GSIS in the PNB

PNB received a formal notice from the GSIS that the check had been lost, with the request that payment
thereof be stopped

January 31, 1962: Upon demand from the GSIS, the P57,415.00 was re-credited to them bec. the
signatures of its officers on the check were forged

signatures of the General Manager and the Auditor of the GSIS on the check, as drawer, are forged

payee Mariano D. Pulido indorsed it to Manuel Go and then indorsed by Manuel Go to Augusto Lim

February 2, 1962: PNB demanded from the PCIB the refund

PNB filed against the PCIB

CA affirmed CFI: dismissed

ISSUE: W/N PCIB as indorser is liable despite the fact that the check is forged when PNB is also negligent

HELD: NO. Affirmed

PCIB stamped on the back of the check: "All prior indorsements and/or Lack of Endorsement
Guaranteed, Philippine Commercial and Industrial Bank," Padre Faura Branch, Manila

indorsements falsified is immaterial to the 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.
Guaranteed not the authenticity of the signatures of the officers of the GSIS who signed because the
GSIS is not an indorser of the check, but its drawer

warranty is irrelevant to the PNB's alleged right to recover from the PCIB

in general, "acceptance" is not required for checks since they are payable on demand

acceptance

promise to perform an act

the acceptance of a bill is the signification by the drawee of his assent to the order of the drawer

payment

actual performance

compliance with obligation

PNB had been guilty of a greater degree of negligence, because it had a previous and formal notice from
the GSIS that the check had been lost, with the request that payment thereof be stopped

PNB's negligence was the main or proximate cause for the corresponding loss

PNB did not return the check

when 1 of 2 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

where the collecting (PCIB) and the drawee (PNB) banks are equally at fault, the court will leave the
parties where it finds them

applies in the case of a drawee who pays a bill without having previously accepted it

Section 62 of Act No. 2031 provides

The acceptor by accepting the instrument engages that he will pay it according to the tenor of
hisacceptance; and admits:

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

draw the instrument; and

(b) The existence of the payee and his then capacity to indorse.

MONTINOLA V. PNB

88 PHIL 178

FACTS:

Ramos, as a disbursing officer of an army division of the USAFE, made cash advancements w/ the
Provincial Treasurer of Lanao. In exchange, the Prov’l Treasurer of Lanao gave him a P500,000 check.
Thereafter, Ramos presented the check to Laya for encashment. Laya in his capacity as Provincial
Treasurer of Misamis Oriental as drawer, issued a check to Ramos in the sum of P100000, on the
Philippines National Bank as drawee; the P400000 value of the check was paid in military notes.

Ramos was unable to encash the said check for he was captured by the Japanese. But after his
release, he sold P30000 of the check to Montinola for P90000 Japanese Military notes, of which only
P45000 was paid by the latter. The writing made by Ramos at the back of the check was to the
effect that he was assigning only P30000 of the value of the document with an instruction to the bank to
pay P30000 to Montinola and to deposit the balance to Ramos's credit. This writing was, however,
mysteriously obliterated and in its place, a supposed indorsement appearing on the back of the check
was made for the whole amount of the check. At the time of the transfer of this check to Montinola,
the check was long overdue by about 2-1/2 years.

Montinola instituted an action against the PNB and the Provincial Treasurer of Misamis Oriental to
collect the sum of P100,000, the amount of the aforesaid check. There now appears on the face of
said check the words in parenthesis "Agent, Phil. National Bank" under the signature of Laya
purportedly showing that Laya issued the check as agent of the Philippine National Bank.

HELD:

The words "Agent, Phil. National Bank" now appearing on the face of the check were added or placed
in the instrument after it was issued by the Provincial Treasurer Laya to Ramos. The check was
issued by only as Provincial Treasurer and as an official of the Government, which was under obligation
to provide the USAFE with advance funds, and not as agent of the bank, which had no such
obligation. The addition of those words was made after the check had been transferred by Ramos
to Montinola. The insertion of the words "Agent, Phil. National Bank," which converts the bank
from a mere drawee to a drawer and therefore changes its liability, constitutes a material alteration
of the instrument without the consent of the parties liable thereon, and so discharges the instrument

PCIB V. CA

350 SCRA 446

FACTS:

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

The trial court decided in favor of Ford.

Papa v. Valencia Digest

Papa v. Valencia

G.R. No. 105188 January 23, 1998

Banking; Checks

Facts:

1. The case arose from a sale of a parcel of land allegedly made to private respondent Penarroyo by
petitioner acting as attorney-in-fact of Anne Butte. The purchaser, through Valencia, made a check
payment in the amount of P40,000 and in cash, P5,000. Both were accepted by petitioner as evidenced
by various receipts. It appeared that the said property has already been mortgaged to the bank
previously together with other properties of Butte.

2. When Butte passed away, the private respondent Penarroyo now demanded that the title to the
property be conveyed to him, however the bank refused. Hence, the filing of a suit for specific
performance by private respondents against the petitioner. The lower court ruled in favor of the private
respondents and ordered herein petitioner the conveyance or the property or if not, its payment. The
petitioner appealed the lower court's decision alleging that the sale was not consummated as he never
encashed the check given as part of the purchase price.

3. The Court of Appeals affirmed with modifications the lower court's decision. It held that there was a
consummated sale of the subject property despite.

Issue: Whether or not the check is a valid tender of payment/Whether or not there was a valid sale of
the subject property

RULING: Yes. While it is true that the delivery of check produces payment only when encashed (pursuant
to Art. 1249, Civil Code), the rule is otherwise if the debtor is prejudiced by the delay in presentment.
(Here in this case, the petitioner now alleges that he did not present the check, ten years after the same
was paid to him as part of the purchase price of the property.)

Check acceptance implied an undertaking of due diligence in presenting it for payment. If the person
who receives it sustains loss by want of this diligence, this will operated as actual payment of the debt or
obligation for which the check was given. The debtor cannot now be held liable if non-presentment of
the check was through the fault of the creditor.

ISSUE:

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

HELD:

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

Commissioner, the checks were diverted and encashed for the eventual distribution among
members of the syndicate.

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

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

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

QUIRINO VS. CA

FACTS:

Petitioner Quirino Gonzales Logging Concessionaire (QGLC) applied for credit accommodation which the
Bank approved. Their obligation was secured by a real estate mortgage of parcels of land. QGLC
executed a promissory note in which they defaulted. The Bank foreclosed the property and was
subsequently owned by the Bank. The Bank then filed a complaint for a sum of money in regards to the
unpaid notes.

The notes were payable 30 days after date and provided for the solidary liability in their non-payment at
maturity. Petitioners deny having received the value of the promissory notes.

The RTC sided with petitioner but the CA reversed the decision.

ISSUE: Whether the promissory notes were valid.

RULING:

Petitioner claims that they signed the notes in blank but did not receive the value of the notes. They also
admit the genuineness and due execution of the notes. The promissory notes were negotiable as they
met the requirements of Sec. 1 of the NIL. The notes are prima facie deemed to have issued for
consideration.
In any case, it is no defense that the promissory notes were signed in blank as Section 14 of the
Negotiable Instruments Law concedes the prima facie authority of the person in possession of
negotiable instruments, such as the notes herein, to fill in the blanks.

The SC remanded the issue concerning the notes to the court of origin.

GREAT EASTERN LIFE V. HSBC

43 PHIL 678

FACTS:

The plaintiff is an insurance corporation, which drew a check in favor of Melicor. This was
stolen by Maasim, forged the signature of Melicor and deposited the check to his account in PNB.
Thereafter, PNB endorsed the check to HSBC who later debited the account of plaintiff. Plaintiff believed
all along that Melicor received the payment. Upon knowledge of the debit HSBC did on its account, it
demanded that the same amount be credited.

HELD:

The banks are liable. The money was in deposit with the bank and it had no legal right to pay it out to
anyone except the plaintiff or its order.

The only remedy of the bank paying a check to a person who has forged the name of the payee is
against the forger.

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.

FAR EAST REALTY INVESTMENT INC. v. CA

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

Paras, J.

Doctrine:

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

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

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

Facts:

Private respondents asked the petitioner to extend an accommodation loan in the sum of P4,500.00.
Respondents delivered to the petitioner a check for P4,500.00, drawn by Dy Hian Tat, and signed by
them at the back of said check, with the assurance that after one month from September 13, 1960, the
said check would be redeemed by them by paying cash in the sum of P4,500.00, or the said check can be
presented for payment on or immediately after one month. Petitioner agreed and extended an
accommodation loan

The aforesaid check was presented for payment to the China Banking Corporation, but said check
bounced and was not cashed by said bank, for the reason that the current account of the drawer thereof
had already been closed. Petitioner demanded payment from the private but the latter failed and
refused to pay notwithstanding repeated demands.

Both private respondents raised the defense that both have been wholly discharged by delay in
presentment of the check for payment.

The Lower Court ruled in favor of the petitioner. However, this was reversed by the CA upon appeal by
the respondents, ruling that the check was not given as collateral to guarantee a loan secured since the
check passed through other hands before reaching the petitioner and the said check was not presented
within a reasonable time. Hence this petition.

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

Issues:

1. Whether or not presentment for payment can be dispensed with

2. Whether or not presentment for payment and notice of dishonor of the questioned check were made
within reasonable time

Held:

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

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

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

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

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

VIOLET MCGUIRE SUMACAD, ET AL. vs. THE PROVINCE OF SAMAR, THE PHILIPPINE NATIONAL BANK

Posted on February 14, 2013 by winnieclaire

Standard

[G.R. No. L-8155. October 23, 1956.]

Facts: While the province of Samar was still occupied by Japanese military forces, a check was issued by
said province to Paulino M. Santos (then the postmaster of Borongan) for the sum of P25,000, drawn
against the Philippine National Bank Cebu Branch. The payee negotiated the check with James McGuire,
an American citizen and resident of the municipality of Borongan. James McGuire presented the check
to the municipal treasurer of Borongan for payment, but the latter (who merely noted it) was not able
or did not choose to pay the same.
James McGuire wrote letters to the Bureau of Posts seeking payment of the check, which were in turn
referred to the PNB. As of this date the province of Samar still had a deposit of P84,287.47 in the PNB.
PNB requested James McGuire to present the check to the provincial treasurer and the provincial
auditor for certification. Before the check could be certified by the authorities concerned as being in
order and entitled to priority of payment, the province of Samar, withdraw the amount of P83,504.07,
leaving a balance of only P743.43.

In the meantime, James McGuire transferred his rights to the check to the herein Plaintiffs who, unable
to cash it.

Issue: WON defendants herein are solidarily liable to pay the check.

Held: The obligation of the Appellant bank is merely subsidiary. An implied acceptance of the check by
the Appellant bank was thereby created. The request by the Appellant bank from the Bureau of Posts for
photostatic copies of the check and the subsequent requirement by it for its presentation by James
McGuire to the provincial treasurer and the provincial auditor for certification, would be an empty
gesture if the Appellant did not thereby mean to assume the obligation of paying the check and holding
sufficient deposit of the drawer for the purpose. Even so, Appellant’s resulting obligation is merely
subsidiary, the province of Samar being primarily liable to pay the check.
Negotiable Instruments Case Digest: Gullas V. PNB (1935)

G.R. No. L-43191 November 13, 1935

Lessons Applicable: Notice of Dishonor (Negotiable Instrument)

FACTS:

August 2, 1933: Treasurer of the US for the United States Veterans Bureau issued a Warrant in the
amount of $361, payable to the order of Francisco Sabectoria Bacos

Atty. Paulino Gullas and Pedro Lopez signed as endorsers of this check

cashed by the Philippine National Bank

dishonored by Insular Treasurer

outstanding balance of Attorney Gullas on the books of the bank was P509

August 20, 1933: Attorney Gullas left his residence for Manila so the notices of dishonor informing him
that the amount of $366 was applied to his outstanding balance were not received by him

August 31, 1933: Upon his return to Cebu, he received the notice of dishonor and paid the balance

Inconveniences to Atty. Gullas:

insurance unpaid due to lack of credit

periodicals in the vicinity gave prominence to the news to the great mortification of Gullas

ISSUE: W/N the bank had the right to automatically credit Gullas account and it was not prejudicial to
him

HELD: NO. Pay Gullas nominal damage of P250

it has been held a long line of authorities that notice of dishonor is in order to charge all indorser and
that the right of action against him does not accrue until the notice is given

GR: a bank has a right of set off of the deposits in its hands for the payment of any indebtedness to it on
the part of a depositor

However this may be, as to an indorser the situation is different, and notice should actually have been
given him in order that he might protect his interests.
Negotiable Instruments Case Digest: Great Asian Sales Center Corp. V. CA (2002)
G.R. No. 105774 April 25, 2002

Lessons Applicable: Notice of Dishonor (Negotiable Instruments Law)

FACTS:

March 17, 1981: Great Asian BOD approved a resolution authorizing its Treasurer and General Manager,
Arsenio Lim Piat, Jr. (Arsenio) to secure a loan, not exceeding 1M, from Bancasia

February 10, 1982: Great Asian BOD approved a resolution authorizing Great Asian to secure a
discounting line with Bancasia in an amount not exceeding P2M

also designated Arsenio as the authorized signatory to sign all instruments, documents and checks
necessary to secure the discounting line

Tan Chong Lin signed 2 surety agreements in favor of Bancasia

Great Asian, through its Treasurer and General Manager Arsenio, signed 4 Deeds of Assignment of
Receivables (Deeds of Assignment), assigning to Bancasia 15 postdated checks:

9 checks were payable to Great Asian

3 were payable to "New Asian Emp."

3 were payable to cash

various customers of Great Asian issued these postdated checks in payment for appliances and other
merchandise.

Deed of Assignments of assignment:

January 12, 1982: 4 post-dated checks of P244,225.82 maturing March 17, 1982, 2 were dishonored

January 12, 1982: 4 post-dated checks of P312,819 maturing April 1, 1982, all 4 were dishonored

February 11, 1982: 8 postdated checks of P344,475 maturing April 30, 1982, all 8 checks were
dishonored

March 5, 1982: 1 postdated checks of P200K maturing March 18, 1982 also dishonored

Great Asian assigned the postdated checks to Bancasia at a discount rate of less than 24% of the face
value of the checks

Arsenio endorsed all the 15 dishonored checks by signing his name at the back of the checks

8 dishonored checks bore the endorsement of Arsenio below the stamped name of "Great Asian Sales
Center"
7 dishonored checks just bore the signature of Arsenio

The drawee banks dishonored the 15 checks on maturity when deposited for collection by Bancasia,
with any of the following as reason for the dishonor:

"account closed"

"payment stopped"

"account under garnishment"

"insufficiency of funds

March 18, 1982: Bancasia's lawyer,Atty. Eladia Reyes, sent by registered mail to Tan Chong Lin a letter
notifying him of the dishonor and demanding payment from him

June 16, 1982: Bancasia sent by personal delivery a letter to Tan Chong Lin

May 21, 1982: Great Asian filed a case before the CFI for insolvency listing Bancasia as one of the
creditors of Great Asian in the amount of P1,243,632.00

June 23, 1982: Bancasia filed a complaint for collection of a sum of money against Great Asian and Tan
Chong Lin

CFI: favored Bancasia ordering Great Asian and Tan Chong Lin to pay jointly and severally

CA: deleted atty. fees

ISSUE: W/N Bancasia and Tang Chon Lin should be held liable under the Civil Code because it was a
separate and distinct deed of assignment

HELD: YES. Affirmed with Modification

As plain as daylight, the two board resolutions clearly authorize Great Asian to secure a loan or
discounting line from Bancasia

Clearly, the discounting arrangements entered into by Arsenio under the Deeds of Assignment were the
very transactions envisioned in the two board resolutions of Great Asian to raise funds for its business.

There is nothing in the Negotiable Instruments Law or in the Financing Company Act (old or new), that
prohibits Great Asian and Bancasia parties from adopting the with recourse stipulation uniformly found
in the Deeds of Assignment. Instead of being negotiated, a negotiable instrument may be assigned.

the endorsement does not operate to make the finance company a holder in due course. For its own
protection, therefore, the finance company usually requires the assignor, in a separate and distinct
contract, to pay the finance company in the event of dishonor of the notes or checks. (only security)
Otherwise, consumers who purchase appliances on installment, giving their promissory notes or checks
to the seller, will have no defense against the finance company should the appliances later turn out to
be defective

As endorsee of Great Asian, Bancasia had the option to proceed against Great Asian under the
Negotiable Instruments Law. Had it so proceeded, the Negotiable Instruments Law would have
governed Bancasia’s cause of action. Bancasia, however, did not choose this route.

Instead, Bancasia decided to sue Great Asian for breach of contract under the Civil Code, a right that
Bancasia had under the express with recourse stipulation in the Deeds of Assignment.

Great Asian, after paying Bancasia, is subrogated back as creditor of the receivables. Great Asian can
then proceed against the drawers who issued the checks. Even if Bancasia failed to give timely notice of
dishonor, still there would be no prejudice whatever to Great Asian.

Under the Negotiable Instruments Law, notice of dishonor is not required if the drawer has no right to
expect or require the bank to honor the check, or if the drawer has countermanded payment

In the instant case, all the checks were dishonored for any of the following reasons:

"account closed"

"account under garnishment"

"insufficiency of funds"

drawers had no right to expect or require the bank to honor the checks

"payment stopped"

drawers had countermanded payment

Moreover, under common law, delay in notice of dishonor, where such notice is required, discharges the
drawer only to the extent of the loss caused by the delay.

Again, we reiterate that this obligation of Great Asian is separate and distinct from its warranties as
indorser under the Negotiable Instruments Law.Civil Code are applicable and not the Negotiable
Instruments Law.

separate Deeds of Assignment - provisions of the Civil Code are applicable (NOT Negotiable Instruments
Law)

Great Asian’s four contracts assigning its fifteen postdated checks to Bancasia expressly stipulate the
suspensive condition that in the event the drawers of the checks fail to pay, Great Asian itself will pay
Bancasia
The stipulations in the Surety Agreements undeniably mandate the solidary liability of Tan Chong Lin
with Great Asian

Moreover, the stipulations in the Surety Agreements are sufficiently broad, expressly encompassing "all
the notes, drafts, bills of exchange, overdraft and other obligations of every kind which the PRINCIPAL
may now or may hereafter owe the Creditor"