DEADLINE: 18 JANUARY 2021

11. MADRAZO
1. ANGELES 12. MAMALO
2. BASINANG 13. MANACAP
3. BRAGA 14. MESIONA
4. BUENAFLOR 15. MIRAATO
5. CAPISTRANO 16. SERUELA
6. CASTILLO 17. TADIQUE
7. CAYBOT 18. UNTAL
8. CUARTERO 19. GERONGA -
9. DEROGONGAN 20. PARACALE
10. FRIAS 21. GASCON -

Characteristics and Features

1. Redentor Catapang and Casiana Catapang Garbin, V. Lipa Bank, G G.R. No. 240645, January 27, 19
2020, First Division, J. Caguioa

Issue: What is the essence of meeting of the minds in a contract? Is the promissory note in this
case valid?

ANSWER:

It is the meeting of the minds of the parties on the object and the cause which constitutes the
contract. The area of agreement must extend to all points that the parties deem material or
there is no consent at all. As a contract is consensual in nature, it is perfected upon the
concurrence of the offer and the acceptance. The offer must be certain and the acceptance
must be absolute, unconditional and without variance of any sort from the proposal.

The contract of loan and its accessory contract of mortgage as contained in the Promissory
Note and Deed of Real Estate Mortgage were entered into without the consent of petitioner
Casiana and were absolutely simulated by respondent Lipa Bank, making the same void ab
initio.

Section 1
1. Traders Royal Bank vs. Court of Appeals, Filriters Guaranty Assurance Corporation and Central 19
Bank of the Philippines, G.R. No. 93397, March 3, 1997, Second Division, J. Torres Jr.

Issue: Is a CBCI a Negotiable Instrument? What is negotiability and what is its relation to the right
conferred to a holder in due course? When the CBCI was transferred to Philfinance and TRB, what
was it that transpired, a negotiation or an assignment?

ANSWER:

CBCI is not a negotiable instrument, since the instrument clearly stated that it was payable to
Filriters, the registered owner, whose name was inscribed thereon, and that the certificate
lacked the words of negotiability which serve as an expression of 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 touchtone
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 indebtedness as it merely 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.

2. Firestone Tire & Rubber Company of the Philippines vs. Court of Appeals and Luzon 19
Development Bank, G.R. No. 113236, March 5, 2001, Second Division, J. Quisumbing

Issue: Are special withdrawal slips negotiable? Do the rules governing the giving of immediate
notice of dishonor of NI apply in this case?

ANSWER:

The withdrawal slips are non-negotiable. Hence, the rules governing the giving of immediate
notice of dishonor of negotiable instruments do not apply in this case.

3. Astro Electronics Corp. and Peter Roxas vs. Philippine Export and Foreign Loan Guarantee 19
Corporation, G.R. No. 136729, September 23, 2003, Second Division, J. Austria-Martinez

Issue: Whether or not Roxas should be jointly and severally liable with Astro for the sum awarded
by the RTC. What is a maker and what is its liability?

ANSWER:

Roxas will be jointly and severally liable (solidary) with Astro for the sum awarded by the RTC.

Under the Negotiable Instruments Law, persons who write their names on the face of
promissory notes are makers, promising that they will pay to the order of the payee or any
holder according to its tenor.

Roxas will still be primarily liable as a joint and several debtor under the notes considering that
his intention to be liable as such is manifested by the fact that he affixed his signature on each
of the promissory notes twice which necessarily would imply that he is undertaking the
obligation in two different capacities, official and personal.

4. Romeo C. Garcia vs. Dionisio V. Llamas, G.R. No. 154127, December 8, 2003, First Division, J. 20
Panganiban

Issue: Is the quoted promissory note a negotiable instrument? Assuming that it is what is the
liability of an accommodation party?

ANSWER: The quoted promissory note is not a negotiable instrument because the note was
made payable to a specific person rather than to bearer or to order. The liability of an
accommodation party is immediate and direct because being as surety, it is bound equally and
absolutely with the principal and is deemed an original promisor and debtor from the
beginning.

5. Transfield Philippines, Inc. vs. Luzon Hydro Corporation, Australia and New Zealand Banking 20
Corporation Limited and Security Bank Corporation, G.R. No. 146717, November 22,
2004, Second Division, J. Tinga
 Issue: What is a letter of credit? Is it a negotiable instrument? How about a draft drawn from a
letter of credit?

ANSWER: By definition, a letter of credit is a written instrument whereby the writer requests or
authorizes the addressee to pay money or deliver goods to a third person and assumes
responsibility for payment of debt therefor to the addressee. A letter of credit, however,
changes its nature as different transactions occur and if carried through to completion ends up
as a binding contract between the issuing and honoring banks without any regard or relation to
the underlying contract or disputes between the parties thereto.

6. People of the Philippines vs. Aloma Reyes and Trichia Mae Reyes (at large), G.R. No. 154159, 20
March 31, 2005, Second Division, J. Puno

Issue: What is a negotiable order of withdrawal (NOW)? It is a negotiable instrument? Is

negotiability the gravamen of estafa?

ANSWER: A negotiable order of withdrawal is defined as interest-bearing deposit accounts that

combine the payable on demand feature of checks and the investment feature of savings
accounts. NOW is considered as a negotiable instrument. To be sure, negotiability is not the
gravamen of the crime of estafa through bouncing checks. It is the fraud or deceit employed by
the accused in issuing a worthless check that is penalized.

7. Noe S. Andaya vs. People of the Philippines, G.R. No. 168486, June 27, 2006, First Division, J. 20
Ynares-Santiago

Issue: Are disbursement vouchers commercial documents (negotiable instruments)?

ANSWER: Disbursement vouchers are not a commercial document because it is not a document
used by merchants or businessmen to promote or facilitate trade or credit transactions nor is it
defined and regulated by the Code of Commerce or other commercial law. Rather, it is a private
document, which has been defined as a deed or instrument executed by a private person
without the intervention of a public notary or of other person legally authorized, by which some
disposition or agreement is proved, evidenced or set forth.

8. Leonila Batulanon vs. People of the Philippines, G.R. No. 139857, September 15, 2006, First 21
Division, J. Ynares-Santiago

Issue: Are cash vouchers negotiable instruments?

ANSWER: No, cash disbursement vouchers are not negotiable instruments nor are they defined
and regulated by the Code of Commerce. They are nothing more than receipts evidencing
payment to borrowers of the loans extended to them and as such are private documents only.

9. Pentacapital Investment Corporation vs. Makilito Mahinay/Pentacapital Investment 21

Corporation vs. Mikilito, G.R. No. 171736, July 5, 2010, Second Division, J. Nachura

Issue: Give another definition of promissory note other than Section 1 and 184 of the NIL?

ANSWER: In Sierra v. Court of Appeals, the Supreme Court held that:

A promissory note is a solemn acknowledgment of a debt and a formal commitment to repay it

on the date and under the conditions agreed upon by the borrower and the lender. A person who
signs such an instrument is bound to honor it as a legitimate obligation duly assumed by him
through the signature he affixes thereto as a token of his good faith. If he reneges on his promise
without cause, he forfeits the sympathy and assistance of this Court and deserves instead its
sharp repudiation.

10. Fideliza J. Aglibot vs. Ingersol L. Santia, G.R. No. 185945, December 5, 2012, First Division, J. 21
Reyes
 Issue: What is a check under Section 185? What is a bill of exchange under Section 126?

ANSWER: Section 185 of the Negotiable Instruments Law defines a check as "a bill of exchange
drawn on a bank payable on demand," while Section 126 of the said law defines a bill of exchange
as "an unconditional order in writing addressed by one person to another, signed by the person
giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or
determinable future time a sum certain in money to order or to bearer."

11. Philacor Credit Corporation vs. Commissioner of Internal Revenue, G.R. No. 169899, February 6, 21
2013, Second Division, J. Brion

Issue: What is the meaning of acceptance under Section 132? Does acceptance refer solely to a
bill of exchange? What is the object of acceptance?

ANSWER: Under Section 132 of the Negotiable Instruments Law (which provides for how
acceptance should be made), the act of acceptance refers solely to bills of exchange. Its object is
to bind the drawee of a bill and make him an actual and bound party to the instrument.

12. Rodrigo Rivera vs. Spouses Salvador C. Chua and Violeta S. Chua/Spouses Salvador C. Chua and 15
Violeta S. Chua vs. Rodrigo Rivera, G.R. Nos. 184458/184472, January 14, 2015, First
Division, J. Perez

Issue: What are the elements that must concur for an instrument to be negotiable? What is a
promissory note under Section 184 of the NIL?

ANSWER:

Section 1 of the NIL requires the concurrence of the following elements to be a negotiable
instrument: (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 or 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.

SECTION 184. Promissory Note, Defined. – A negotiable promissory note within the meaning of
this Act is an unconditional promise in writing made by one person to another, signed by the
maker, 54 engaging to pay on demand, or at a fixed or determinable future time, a sum certain
in money to order or to bearer. Where a note is drawn to the maker’s own order, it is not
complete until indorsed by him

13. Estanislao and Africa Sinamban vs. China Banking Corporation, G.R. No. 193890, March 11, 16
2015, Third Division, J. Reyes

Issue: What is a promissory note?

ANSWER:"A promissory note is a solemn acknowledgment of a debt and a formal commitment

to repay it on the date and under the conditions agreed upon by the borrower and the lender.”

14. Zenaida P. Maamo and Juliet O. Silor Vs. People of the Philippines, G.R. No. 201917, December 17
1, 2016, First Division, J. Caguioa

Issue: Is the signature on the check enough to prove conspiracy among public officials in a
malversation case?

ANSWER:

A mere signature appearing on a voucher or check is not enough to sustain a finding of conspiracy
among public officials charged with defraudation of the government. Proof, not mere conjectures
or assumptions, should be proffered to indicate that the accused had taken part in.
 For conspiracy to exist, it is essential that there must be a conscious design to commit an offense.
Conspiracy is not the product of negligence but of intentionality on the part of cohorts.

Section 1 [NIL and Tax]

1. Bibiano V. Bañas, Jr. vs. Court of Appeals, Aquino T. Larin, Rodolfo Tuazon and Procopio Talon, 18
G.R. No. 102967, February 10, 2000, Second Division, J. Quisumbing

Issue: What is re-discounting? What is unusual with the re-discounting in this case? When the
promissory note was re-discounted in this manner was it correct to report it as sale on
installment?

ANSWER:

● Bañas discounted the promissory note covering the future installments. The discounting
seems questionable because ordinarily, when a bill is discounted, the lender (e.g. banks,
financial institution) charges or deducts a certain percentage from the principal value as
its compensation. Here, the discounting was done by the buyer.
● When petitioner had the promissory notes covering the succeeding installment payments
of the land issued by AYALA, discounted by AYALA itself, on the same day of the sale, he
lost entitlement to report the sale as a sale on installment since, a taxable disposition
resulted and petitioner was required by law to report in his returns the income derived
from the discounting. What petitioner did is tantamount to an attempt to circumvent the
rule on payment of income taxes gained from the sale of the land to AYALA for the year
1976. Hence, it was not correct to report it as a sale on installment.

2. BPI Family Bank vs. Court of Appeals, Court of Tax Appeals and Commissioner of Internal 19
Revenue, G.R. No. 117319, July 19, 2006, Third Division, Resolution

Issue: Are T-Bills and CB-Bills promissory notes or deposit substitutes such that it is exempt from
DST? What is the difference between deposit substitutes and certificates of indebtedness? What is
the difference between certificate of indebtedness and promissory notes?

ANSWER:

The sale and transfer of T-bills and Central Bank bills are subject to documentary stamp tax
under Section 225.

A certificate of indebtedness is different from ordinary debt instruments such as promissory

notes and deposit substitutes. A certificate of indebtedness includes only instruments having
the general character of investment securities as distinguished from instruments evidencing
debts arising in ordinary transactions between individuals. As distinguished from a promissory
note which is an unconditional promise in writing made by one person to another, signed by the
maker, engaging to pay on demand, or at a fixed or determinable future time, a sum certain in
money, to order or bearer, T-bills and Central Bank bills are investment securities of a public
character, issued by the Philippine Government, thru the Central Bank of the Philippines.

On the other hand, the chief feature of a deposit substitute is borrowing. In this case, petitioner
sells government securities to private individuals/entities, in which its confirmations of sale are
being subjected to documentary stamp tax.
3. Bank of the Philippine Islands vs. Commissioner of Internal Revenue, G.R. No. 137002, July 27, 20
2006, First Division, J. Chico-Nazario

Issue: What does Section 182 of the National Internal Revenue Code (NIRC) cover? What is the
definition of a Bill of Exchange (B/E)? What is the distinction between a B/E and a letter of credit?
What is a telegraphic transfer? What is the nature of a DST? What is a draft?

ANSWER: Section 195 (now Section 182) of the NIRC covers foreign bills of exchange, letters of
credit, and orders of payment for money, drawn in Philippines, but payable outside the
Philippines.

A bill of exchange, when drawn in the Philippines but payable in another country, would surely
be covered by Section 182. And in the case of a bill of exchange, the funds may belong to the
drawer and need not be advanced by the drawee, as in the case of a check or a draft.

A draft is a form of a bill of exchange used mainly in transactions between persons physically
remote from each other. It is an order made by one person, say the buyer of goods, addressed
to a person having in his possession funds of such buyer ordering the addressee to pay the
purchase price to the seller of the goods. Where the order is made by one bank to another, it is
referred to as a bank draft.

4. Security Bank Corporation vs. Commissioner of Internal Revenue, G.R. No. 130838, August 22, 21
2006, Second Division, J. Garcia

Issue: Does the term securities include negotiable promissory notes?

ANSWER: The law treats these two instruments differently. The term "promissory note" has a
definite meaning under the negotiable instruments law, which does not include "securities.

5. International Exchange Bank vs. Commissioner of Internal Revenue, G.R. No. 171266, April 4, 1
2007, Second Division, J. Carpio Morales

Issue: Are the FSDs subject to DST? Is the negotiability of an instrument material for the
imposition of DST?

ANSWER:

The applicable provision is Section 180 of the Tax Code, as amended by R.A. 7660:

Sec. 180. Stamp tax on all loan agreements, promissory notes, bills of exchange, drafts,
instruments and securities issued by the government or any of its instrumentalities, certificates of
deposit bearing interest and others not payable on sight or demand. - On all loan agreements
signed abroad wherein the object of the contract is located or used in the Philippines; bills of
exchange (between points within the Philippines), drafts, instruments and securities issued by the
Government or any of its instrumentalities or certificates of deposits drawing interest, or orders
for the payment of any sum of money otherwise than at sight or on demand, or on all promissory
notes, whether negotiable or non-negotiable, except bank notes issued for circulation, and on
each renewal of any such note, there shall be collected a documentary stamp tax of Thirty
centavos (₱0.30) on each two hundred pesos, or fractional part thereof, of the face value of any
such agreement, bill of exchange, draft, certificate of deposit, or note: Provided, That only one
documentary stamp tax shall be imposed on either loan agreement, or promissory notes issued
to secure such loan, whichever will yield a higher tax: Provided, however, That loan agreements
or promissory notes the aggregate of which does not exceed Two hundred fifty thousand pesos
(₱250,000) executed by an individual for his purchase on installment for his personal use or that
of his family and not for business, resale, barter or hire of a house, lot, motor vehicle, appliance
 or furniture shall be exempt from the payment of the documentary stamp tax provided under
this section.

A passbook representing an interest earning deposit account issued by a bank qualifies as a

certificate of deposit drawing interest. A document to be deemed a certificate of deposit requires
no specific form as long as there is some written memorandum that the bank accepted a deposit
of a sum of money from a depositor. What is important and controlling is the nature or meaning
conveyed by the passbook and not the particular label or nomenclature attached to it, inasmuch
as substance, not form, is paramount.

The negotiable character of any and all documents under Section 180 is immaterial for purposes
of imposing DST.

The FSD, like a time deposit, provides for a higher interest rate when the deposit is not
withdrawn within the required fixed period; otherwise, it earns interest pertaining to a regular
savings deposit. To claim that time deposits evidenced by passbooks should not be subject to DST
is a clear evasion of the rule on equality and uniformity in taxation that requires the imposition of
DST on documents evidencing transactions of the same kind, in this particular case, on all
certificates of deposits drawing interest. Having a fixed term and the reduction of interest rates
in case of pre-termination are essential features of a time deposit.

6. ING Bank N.V. engaged in banking operation in the Philippines as ING Bank N.V. Manila Branch 2
Vs. Commissioner of Internal Revenue, G.R. No. 167679, April 20, 2016, Second Division, J.
Leonen

Issue: Are bills of exchanges covered by DST under Section 180 of the NIRC?

ANSWER:

● Yes, it is covered by documentary stamp tax under Sec. 180 of the NIRC which provides:

SEC. 180. Stamp tax on all loan agreements, promissory notes, bills of exchange, drafts,
instruments and securities issued by the government or any of its instrumentalities,
certificates of deposit bearing interest and others not payable on sight or demand. - On
all loan agreements signed abroad wherein the object of the contract is located or used
in the Philippines; bills of exchange (between points within the Philippines), drafts,
instruments and securities issued by the Government or any of its instrumentalities or
certificates of deposits drawing interest, or orders for the payment of any sum of
money otherwise than at sight or on demand, or on all promissory notes, whether
negotiable or non-negotiable, except bank notes issued for circulation, and on each
renewal of any such note, there shall be collected a documentary stamp tax of Thirty
centavos (P0.30) on each two hundred pesos, or fractional part thereof, of the face
value of any such agreement, bill of exchange, draft, certificate of deposit, or note:
Provided, That only one documentary stamp tax shall be imposed on either loan
agreement, or promissory notes issued to secure such loan, whichever will yield a
higher tax: Provided, however, That loan agreements or promissory notes the
aggregate of which does not exceed Two hundred fifty thousand pesos (P250,000)
executed by an individual for his purchase on installment for his personal use or that of
his family and not for business, resale, barter or hire of a house, lot, motor vehicle,
appliance or furniture shall be exempt from the payment of the documentary stamp tax
provided under this section.
 7. Commissioner of Internal Revenue vs. Philippine National Bank, G.R. No. 195147, June 11, 3
2016, First Division, J. Bersamin

Issues:

In what instances where the DST of P0.30 on each P200.00 be imposed under Section 180
of the 1977 NIRC, as amended by R.A. No. 7660? Can such DST be imposed on bills of
exchanges, drafts, and promissory notes?

ANSWER:

Under Section 180, the DST of P0.30 on each P200.00, or fractional part thereof, shall only
be imposed on the face value of: (1) loan agreements; (2) bills of exchange; (3) drafts; (4)
instruments and securities issued by the Government or any of its instrumentalities; (5)
certificates of deposits drawing interest; (6) orders for the payment of any sum of money
otherwise than at sight or on demand; and (7) promissory notes, whether negotiable or
non-negotiable, except bank notes issued for circulation, and on each renewal of any such
note.

8. Malayan Insurance Company, Inc. Vs. St. Francis Square Realty Corporation/St. Francis Square 4
Realty Corporation Vs. Malayan Company, Inc., G.R. No. 198916-17/G.R. No. 198920-
21, July 23, 2018, Special Third Division, J. Peralta

Issue: Are checks issued for payment basis for the collection of value added tax?

ANSWER: YES.

As to the computation of the Actual Remaining Construction Cost (ARCC), the Court agrees with
the CA that the CIAC erred in relying mainly on Exhibit C-3, which is a mere summary or tabulation
of the cost to complete the project as of August 10, 2006.

Exhibit R-24, a 26-page Cost to Complete as of October 2008 and Exhibit R-48-series, which
consists of about 2,230 pages construction costs computation, receipts, vouchers, checks and
other documents, should also be considered in determining the ARCC.

Hence, the CA’s own computation of the ARCC based on Exhibit R-48-series in the total amount of
P554,583,160.20 including 1/11% Input VAT and 2% withholding tax should be modified in order
to arrive at the net ARCC of P505,391,573.63.

Section 2
1. New Sampaguita Builders Construction, Inc. (NSBCI) and spouses Eduardo R. Dee and Arcelita 5
M. Dee vs. Philippine National Bank, G.R. No. 148753, July 30, 2004, Third Division,
J. Panganiban

Issue: Can banks unilaterally increase interest rates? What is the effect of the repeal of the Usury
Law? What is the use of the Truth in Lending Act? Can attorney’s fees mentioned in the PN’s be
reduced?

ANSWER:

● Can banks unilaterally increase interest rates? No. The “unilateral determination and
imposition” of increased rates is “violative of the principle of mutuality of contracts ordained in
Article 1308 of the Civil Code.” One-sided impositions do not have the force of law between the
parties, because such impositions are not based on the parties’ essential equality.
● What is the effect of the repeal of the Usury Law? “While the Usury Law ceiling on interest rates
was lifted by [Central Bank] Circular No. 905, nothing in the said Circular grants lenders carte
blanche authority to raise interest rates to levels which will either enslave their borrowers or lead
to a hemorrhaging of their assets.” In fact, we have declared nearly ten years ago that neither
this Circular nor PD 1684, which further amended the Usury Law, “authorized either party to
unilaterally raise the interest rate without the other’s consent.”
● What is the use of the Truth in Lending Act? According to Republic Act No.3765, Sec. 2, “it is
hereby declared to be the policy of the State to protect its citizens from a lack of awareness of the
true cost of credit to the user by assuring a full disclosure of such cost with a view of preventing
the uninformed use of credit to the detriment of the national economy.” In this case, Justice
Panganiban states that “excessive interests, penalties and other charges not revealed in
disclosure statements issued by banks, even if stipulated in the promissory notes, cannot be given
effect under the Truth in Lending Act.” In this case, it was held that while a standard penalty
charge of 6 percent per annum has been imposed on the amounts stated in all three Promissory
Notes still remaining unpaid or unrenewed when they fell due,there is no stipulation therein that
would justify any increase in that charges. The effect, therefore, when the borrower is not clearly
informed of the Disclosure Statements—prior to the consummation of the availment or
drawdown—is that the lender will have no right to collect upon such charge or increases thereof,
even if stipulated in the Notes.
● Can attorney’s fees mentioned in the PN’s be reduced? The Court affirmed the equitable
reduction in attorney’s fees. These are not an integral part of the cost of borrowing, but arise only
when collecting upon the Notes becomes necessary. The purpose of these fees is not to give
respondent a larger compensation for the loan than the law already allows, but to protect it
against any future loss or damage by being compelled to retain counsel—in-house or not—to
institute judicial proceedings for the collection of its credit. Courts have has the power to
determine their reasonableness based on quantum meruit and to reduce the amount thereof if
excessive.

2. Bank of the Philippines Islands, Inc. vs. Sps. Norman and Angelina Yu, et al., G.R. No. 184122. 6
January 20, 2010, Second Division, J. Abad

Issue: The question is whether or not the reference to the penalty charges in the promissory note
constitutes substantial compliance with the disclosure requirement of the Truth in Lending Act?

ANSWER: The penalty charges that were stipulated in the promissory notes were valid. Financial
charges are amply disclosed if stated in the promissory note. What the Court disallows was the
collection of a handling charge that the promissory notes did not contain.

3. Union Bank of the Philippines vs. Spouses Rodolfo T. Tiu and Victoria N. Tiu, G.R. Nos. 173090- 7
91, September 7, 2011, First Division, J. Leonardo-De Castro

Issue: Is the stipulation that the promissory note is payable in dollars prohibited? Trace the history
of the rule on payment using foreign denomination from Article 1249 of the Civil Code to Republic
Act No. 8183 of July 5, 1996.

ANSWER:

● Such stipulation of payment in dollars is not prohibited by any prevailing law or

jurisprudence at the time the loans were taken. In this regard, Article 1249 of the Civil
Code provides:

Art. 1249. 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.
 ● Although the Civil Code took effect on August 30, 1950, jurisprudence had upheld the
continued effectivity of Republic Act No. 529, which took effect earlier on June 16, 1950.
Pursuant to Section 1 of Republic Act No. 529, any agreement to pay an obligation in a
currency other than the Philippine currency is void; the most that could be demanded is
to pay said obligation in Philippine currency to be measured in the prevailing rate of
exchange at the time the obligation was incurred. On June 19, 1964, Republic Act No.
4100 took effect, modifying Republic Act No. 529 by providing for several exceptions to
the nullity of agreements to pay in foreign currency.

On April 13, 1993, Central Bank Circular No. 1389 was issued, lifting foreign exchange
restrictions and liberalizing trade in foreign currency. In cases of foreign borrowings and
foreign currency loans, however, prior Bangko Sentral approval was required. On July 5,
1996, Republic Act No. 8183 took effect, expressly repealing Republic Act No. 529 in
Section 2 thereof. The same statute also explicitly provided that parties may agree that
the obligation or transaction shall be settled in a currency other than Philippine currency
at the time of payment.

4. Eleanor De Leon Llenado vs. People of the Philippines and Editha Villaflores, G.R. No. 193279, 8
March 14, 2012, Second Division, J. Sereno

Issue: When does the 12% interest rate (should there be no stipulation) commence to run?

ANSWER: It has been established that in the absence of stipulation, the rate of interest shall be
12% per annum to be computed from default, that is, from judicial or extrajudicial demand
under and subject to the provisions of Article 1169 of the Civil Code.

5. Asiatrust Development Bank vs. Carmelo H. Tuble, G.R. No. 183987, July 25, 2012, Second 9
Division, J. Sereno

Issue: What is a “dragnet clause”? What is a monetary interest? What is compensatory interest?

ANSWER:

● A mortgage with a blanket mortgage clause (dragnet clause) is an offer by the mortgagor
to the bank to provide the security of the mortgage for advances of and when they were
made.
● Monetary interest refers to the compensation set by the parties for the use or forbearance
of money.
● Compensatory interest refers to the penalty or indemnity for damages imposed by law or
by the courts. As a form of damages, it is due only if the obligor is proven to have defaulted
in paying the loan.

6. Arthur F. Mechavez Vs. Marlyn M, Bermudez, G.R. No. 185368, October 11, 2012, Third 10
Division, J. Velasco, Jr.

Issue: Is the stipulated interest of 3% per month and higher considered excessive, iniquitous,
unconscionable, and exorbitant?

ANSWER: Yes, in a plethora of cases the stipulated interest rates of 3% per month and higher are
excessive, iniquitous, unconscionable, and exorbitant.

● Parties may be free to contract and stipulate as they see fit, but that is not an absolute
freedom as provided under Art. 1306 of the Civil Code. While Mechaves harps on the
voluntariness with which the parties agreed upon the 5% per month interest rate,
voluntariness does not make the stipulation on interest valid. The 5% per month, or 60%
per annum, rate of interest is, indeed, iniquitous, and must be struck down.
 ● Mechaves has been sufficiently compensated for the loan and the interest earned, and
cannot be allowed to further recover on an interest rate which is unconscionable. Since
the stipulation on the interest rate is void, it is as if there was no express contract on said
interest rate. Hence, courts may reduce the interest rate as reason and equity demand.

7. Spouses Ignacio F. Juico and Alice P. Juico vs. China Banking Corporation, G.R. No. 187678, April 11
10, 2013, First Division, J. Villarama, Jr.

Issue: Must modifications in the rate of interest for loans pursuant to an escalation clause result
of an agreement between the parties? Is it binding in the absence of consent on the part of the
petitioners? How did the court consider the interest rate in excess of 15% as the rate charged for
the first year?

ANSWER: Yes, the modifications must be a result of an agreement between the parties. No, it is
not binding in the absence of consent on the part of petitioners.

It is now settled that an escalation clause is void where the creditor unilaterally determines and
imposes an increase in the stipulated rate of interest without the express conformity of the
debtor. One-sided impositions do not have the force of law between the parties, because such
impositions are not based on the parties’ essential equality. Modifications in the rate of interest
for loans pursuant to an escalation clause must be the result of an agreement between the
parties. Unless such important change in the contract terms is mutually agreed upon, it has no
binding effect. In the absence of consent on the part of the petitioners to the modifications in the
interest rates, the adjusted rates cannot bind them. Hence, we consider as invalid the interest
rates in excess of 15%, the rate charged for the first year.

8. Carlos Lim, et al. vs. Development Bank of the Philippines, G.R. No. 177050, July 1, 2013, 12
Second Division, J. Del Castillo

Issue: Can the imposition of additional interest and penalties not stipulated in the Promissory
Notes be allowed?

ANSWER:

As to the imposition of additional interest and penalties not stipulated in the Promissory Notes,
this should not be allowed. Article 1956 of the Civil Code specifically states that "no interest
shall be due unless it has been expressly stipulated in writing." Thus, the payment of interest
and penalties in loans is allowed only if the parties agreed to it and reduced their agreement in
writing.121

In this case, petitioners never agreed to pay additional interest and penalties. Hence, we agree
with the RTC that these are illegal, and thus, void.

9. Vicente D. Cabanting and Lalaine V. Cabanting Vs. BPI Family Savings Bank, Inc., G.R. No. 13
201927, February 17, 2016, Third Division, J. Peralta

Issue: Must the interest rate that are exorbitant equitably reduced? What is the guideline set by
the BSP-MB Circular No. 799 on the matter?

ANSWER: Yes, the exorbitant interest rate must be equitably reduced.

The guidelines set by the BSP-MB Circular No. 799 on the matter are as follows:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or
 quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under
Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable
damages.

II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money,
i.e., a loan or forbearance of money, the interest due should be that which may have
been stipulated in writing. Furthermore, the interest due shall itself earn legal interest
from the time it is judicially demanded. In the absence of stipulation, the rate of
interest shall be 6% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an

interest on the amount of damages awarded may be imposed at the discretion of the
court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages, except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty cannot be
so reasonably established at the time the demand is made, the interest shall begin to
run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The
actual base for the computation of legal interest shall, in any case, be on the amount
finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 6% per annum from such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of
credit.

10. Sps. Florante E. Jonsay, et al. Vs. Solidbank Corporation, G.R. No. 206459, April 6, 2016, Third 14
Division, J. Reyes

Issue: Must the interest rates that are exorbitant be equitably reduced? What is the guideline set
by the BSP-MB Circular No. 799 on the matter?

ANSWER:

● Yes, the interest rate that are exorbitant equitably reduced because rates found to be
iniquitous or unconscionable are void, as if there were no express contract thereon.
Above all, it is undoubtedly against public policy to charge excessively for the use of
money.
● Under BSP-MB Circular No. 799, the rate of interest for the loan or forbearance of
money, in the absence of stipulation, shall now be 6% per annum starting July 1, 2013.
11. Tarcisio S. Calilung Vs. Paramount Insurance Corporation, et al., G.R. No. 177050, G.R. No. 15
195641, July 11, 2016, First Division, J. Bersamin

Issue: When the judgment has become final and executory that includes payment of interest
based on a promissory note, may a party ask during the execution computation of interest as
compounded when the final and executory judgment did not mention about it?

ANSWER:
 It is settled that upon the finality of the judgment, the prevailing party is entitled, as a matter
of right, to a writ of execution to enforce the judgment, the issuance of which is a ministerial
duty of the court.

There was no basis for the petitioner to claim compounded interest pursuant to Article 2212 of
the Civil Code considering that the judgment did not include such obligation. As such, neither
the RTC nor any other court, including this Court, could apply Article 2212 of the Civil Code
because doing so would infringe the immutability of the judgment. Verily, the execution must
conform to, and not vary from, the decree in the final and immutable judgment.

12. Teresita I. Buenaventura Vs. Metropolitan Bank and Trust Company, G.R. No. 167082, August 3, 16
2016, First Division, J. Bersamin

Issue: Where the interest rates stated in the promissory note legal?

ANSWER: No, the interest rates were not legal.

First, the respondent had no legal basis for imposing rates far higher than those agreed upon
and stipulated in the promissory notes. It did not suitably justify the imposition of the
increased rates of 34.991% and 27.901%, as borne out by the statements of past due interest
and penalty charges as of July 15, 1998,.

Second, stipulation in the promissory notes on the automatic increase of the interest rate to
the prevailing rate did not justify the increase of the interest rates because the respondent did
not adduce evidence about the prevailing rates at the time material to this case.

To accord with the prevailing jurisprudence, the Court pronounces that the respondent was
entitled to recover the principal amount of P1,500,000.00 subject to the stipulated interest of
14.239%per annum from date of default until full payment;56 and the principal amount of
P1,200,000.00 subject to the stipulated interest of 17.532%per annum from date of default
until full payment

13. T Construction Supply, Inc. Vs. Philippine Savings Bank, G.R. No. 228435, June 21, 2017, Second 17
Division, J. Mendoza

Issue: Is an acceleration clause on a promissory note valid?

ANSWER:

It has long been settled that an acceleration clause is valid and produces legal effects.

In the case at bench, the promissory note explicitly stated that default in any of the installments
shall make the entire obligation due and demandable notice even without or demand. Thus, KT
Construction was erroneous in saying that PSBank's complaint was premature on the ground
that the loan was due only on October 12, 2011. KT Construction's entire loan obligation
became due and demandable when it failed to pay an installment pursuant to the acceleration
clause.

14. Radiowealth Finance Company, Inc. Vs. Alfonso O. Pineda, Jr., and Josephine C. Pineda G.R. No. 18
227147, July 30, 2018, Second Division, J. Perlas-Bernabe

Issue: Can a stipulation about venue of action be made in a promissory note?

ANSWER:

● Yes. The venue stipulation found in the subject Promissory Note – which reads "Any action
to enforce payment of any sums due under this Note shall exclusively be brought in the
proper court within National Capital Judicial Region or in any place where Radiowealth
Finance Company, Inc. has a branch/office, at its sole option" – is indeed restrictive in
 nature, considering that it effectively limits the venue of the actions arising therefrom to
the courts of: (a) the National Capital Judicial Region; or (b) any place where petitioner has
a branch/office. In light of Radiowealth's standing allegation that it has a branch in San
Mateo, Rizal, it appears that the venue has been properly laid, unless such allegation has
been disputed and successfully rebutted later on.

15. Villa Crista Monte Realty & Development Corporation Vs. Equitable PCI Bank, G.R. No. 208336, 19
November 21, 2018, First Division, J. Bersamin

Issue: Is an escalation clause without a concomitant de-escalation clause void and ineffectual for
violating Presidential Decree No. 1684, otherwise known as Amending Further Act No. 2655, As
Amended, Otherwise Known as "The Usury Law,"? Why was the absence of a de-escalation clause
allowed in this case?

ANSWER:

An escalation clause without a concomitant de-escalation clause is void and ineffectual for
violating Presidential Decree No. 1684 or the Usury Law.

It becomes inescapable for the Court to uphold the validity and enforceability of the escalation
clause involved herein despite the absence of the de-escalation clause. The actual grant by the
respondent of the decreases in the interest rates imposed on the loans extended to the
petitioner rendered inexistent the evil of inequality sought to be thwarted by the enactment
and application of Presidential Decree No. 1684. We do not see here a situation in which the
petitioner did not stand on equality with the lender bank.

16. Rosemarie Q. Rey Vs. Cesar G. Anson, G.R. No. 211206, November 07, 2018, Third Division, J. 20
Peralta

Issue: While it is agreed that parties to a loan agreement have wide latitude to stipulate on any
interest rate in view of the Central Bank Circular No. 905 s. 1982 which suspended the Usury Law
ceiling on interest effective January 1, 1983, may interest rates whenever unconscionable may
still be declared illegal? Does the said circular grants lenders carte blanche authority to raise
interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their
assets?

ANSWER: Interest rates whenever unconscionable may still be declared illegal. There is
certainly nothing in said circular which grants lenders carte blanche authority to raise interest
rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their
assets.

17. Lara's Gifts & Decors, Inc., Vs. Midtown Industrial Sales, Inc., G.R. No. 225433, August 28, 2019, 21
En Banc, J. Carpio

Issue: What are the guidelines on the imposition of interest rates?

ANSWER:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan
or forbearance of money, goods, credits or judgments, the interest due shall be that which is
stipulated by the parties in writing, provided it is not excessive and unconscionable, which, in the
absence of a stipulated reckoning date, shall be computed from default, i.e., from extrajudicial or
judicial demand in accordance with Article 1169 of the Civil Code, UNTIL FULL PAYMENT, without
compounding any interest unless compounded interest is expressly stipulated by the parties, by
law or regulation. Interest due on the principal amount accruing as of judicial demand shall
SEPARATELY earn legal interest at the prevailing rate prescribed by the Bangko Sentral ng
Pilipinas, from the time of judicial demand UNTIL FULL PAYMENT.
 2. In the absence of stipulated interest, in a loan or forbearance of money, goods, credits or
judgments, the rate of interest on the principal amount shall be the prevailing legal interest
prescribed by the Bangko Sentral ng Pilipinas, which shall be computed from default, i.e., from
extrajudicial or judicial demand in accordance with Article 1169 of the Civil Code, UNTIL FULL
PAYMENT, without compounding any interest unless compounded interest is expressly stipulated
by law or regulation. Interest due on the principal amount accruing as of judicial demand shall
SEPARATELY earn legal interest at the prevailing rate prescribed by the Bangko Sentral ng
Pilipinas, from the time of judicial demand UNTIL FULL PAYMENT.

3. When the obligation, not constituting a loan or forbearance of money, goods, credits or
judgments, is breached, an interest on the amount of damages awarded may be imposed in the
discretion of the court at the prevailing legal interest prescribed by the Bangko Sentral ng
Pilipinas, pursuant to Articles 2210 and 2011 of the Civil Code. No interest, however, shall be
adjudged on unliquidated claims or damages until the demand can be established with
reasonable certainty. Accordingly, where the amount of the claim or damages is established with
reasonable certainty, the prevailing legal interest shall begin to run from the time the claim is
made extrajudicially or judicially (Art. 1169, Civil Code) UNTIL FULL PAYMENT, but when such
certainty cannot be so reasonably established at the time the demand is made, the interest shall
begin to run only from the date of the judgment of the trial court (at which time the
quantification of damages may be deemed to have been reasonably ascertained) UNTIL FULL
PAYMENT. The actual base for the computation of the interest shall, in any case, be on the
principal amount finally adjudged, without compounding any interest unless compounded interest
is expressly stipulated by law or regulation.

18. Re: Anonymous Complaint against Presiding Judge Analie C. Aldea-Arocena, Municipal Trial 1
Court in Cities, Branch 1, San Jose City, Nueva Ecija., A.M. No. MTJ-17-1889 [Formerly
OCA IPI No. 16-2822-MTJ], September 03, 2019, En Banc, Per Curiam

Issue: What is the effect of a judge failing to see that the unconscionable interests and penalties
of the loan agreement in the promissory notes and statements of account were mirrored in the
compromise agreements?

ANSWER:

Here, Judge Arocena failed to apply the established jurisprudence on the imposition of interest
on loan obligations. The loan documents attached to the records show that the interest and
penalties imposed are excessive and unreasonable. Her omission to apply the correct rule
constitutes gross ignorance of the law.

Gross ignorance of the law is the failure of a magistrate to apply basic rules and settled
jurisprudence. It connotes a blatant disregard of clear and unambiguous provisions of law
because of bad faith, fraud, dishonest, or corruption.

Coupled with her failure to recuse from the Self-Reliant Cooperative cases, the Court is led to the
conclusion that Judge Arocena approved the unconscionable compromise agreements to favor
the cooperative, of which her husband is a member of the board of directors. There is no other
way to describe her conduct as gross ignorance of the law and abuse of authority.

19. Quintin Artacho Llorente, V. Star City PTY Limited, G.R. No. 212050, January 15, 2020, First 2
Division, J. Caguioa;

Issue: What is the revised guidelines on interest rates Eastern Shipping Lines, Inc. v. Court of
Appeals and Nacar v. Gallery Frames as modified in Lara's Gifts & Decors, Inc. v. Midtown
Industrial Sales, Inc.?
 ANSWER:

● The payment of the amount of the subject bank drafts in the sum of US$300,000.00
should bear interest at the legal rate of 12% per annum from the date of extrajudicial
demand to June 30, 2013 and at 6% per annum from July 1, 2013 until full payment and
the payment of the attorney's fees equivalent to 5% of the amount of demand or
US$15,000.00 should bear interest at the rate of 6% per annum from finality of the
court’s decision until full payment following the revised guidelines on interest rates
Eastern Shipping Lines, Inc. v. Court of Appeals and Nacar v. Gallery Frames as modified
in Lara's Gifts & Decors, Inc. v. Midtown Industrial Sales, Inc.

19a. Star City PTY Limited, V. Quintin Artacho Llorente and 3

Equitable PCI Bank (Now BDO Unibank, Inc.), G.R. No. 212216, January 15, 2020, First Division,
J. Caguioa

Issue:
What is the revised guidelines on interest rates in Eastern Shipping Lines, Inc. v. Court of Appeals
and Nacar v. Gallery Frames as modified in Lara's Gifts & Decors, Inc. v. Midtown Industrial Sales,
Inc.?

ANSWER:

Pursuant to Lara's Gifts & Decors, Inc. v. Midtown Industrial Sales, Inc., in the absence of stipulated
interest on (1) loans, (2) forbearance of any money, goods or credits, and (3) judgments in
litigations involving the same, the revised guidelines provide that the rates of interest as modified
in BSP-MB Circular No. 799, Series of 2013, shall be reduced from 12% per annum to 6% per annum,
wherein the same shall be computed from judicial or extrajudicial demand until full payment.
Moreover, it provides that the judgments that have become final and executory prior to July
1,2013, shall not be disturbed and shall continue to be implemented applying the rate of interest
fixed therein.

As applied in the case at bar, the payment of the amount of the bank drafts should bear interest
at the legal rate of 12% per annum from the date of extrajudicial demand to June 30, 2013 and at
6% per annum from July 1, 2013 until full payment.

Section 7
1. International Corporate Bank vs. Gueco, G.R. No. 141968, February 12, 2001, First Division, J. 4
Kapunan

Issue: What is a stale check? What is meant by reasonable time after issue that a check must be
presented for payment? What is the nature of a manager’s check?

ANSWER:

A stale check is one which has not been presented for payment within a reasonable time after its
issue. It is valueless and, therefore, should not be paid. Under the negotiable instruments law, an
instrument not payable on demand must be presented for payment on the day it falls due.

A check must be presented for payment within a reasonable time after its issue, and in determining
what is a "reasonable time," regard is to be had to the nature of the instrument, the usage of trade
or business with respect to such instruments, and the facts of the particular case. The test is
whether the payee employed such diligence as a prudent man exercises in his own affairs. This is
because the nature and theory behind the use of a check points to its immediate use and payability.
 A manager's check is one drawn by the bank's manager upon the bank itself. It is similar to a
cashier's check both as to effect and use. A cashier's check is a check of the bank's cashier on his
own or another check. In effect, it is a bill of exchange drawn by the cashier of a bank upon the
bank itself and accepted in advance by the act of its issuance. It is really the bank's own check and
may be treated as a promissory note with the bank as a maker. The check becomes the primary
obligation of the bank which issues it and constitutes its written promise to pay upon demand. The
mere issuance of it is considered an acceptance thereof. If treated as a promissory note, the drawer
would be the maker and in which case the holder need not prove presentment for payment or
present the bill to the drawee for acceptance.

Section 8 [Order Instruments]

1. Land Bank of the Philippines Vs. Narciso L. Kho/Ma. Lorena Flores and Alexander Cruz Vs. 5
Narciso L. Kho, G.R. No. 205839/G.R. No. 205840. July 7, 2016, Second Division, J. Brion

Issue: Is a Manager’s Check a Bill of Exchange?

ANSWER: Yes. A manager's check is a bill of exchange drawn by a bank upon itself, and is
accepted by its issuance. It is an order of the bank to pay, drawn upon itself, committing in effect
its total resources, integrity, and honor behind its issuance. The check is signed by the manager (or
some other authorized officer) for the bank. In this case, the signatories were Macarandan and
Benitez. The genuine check No. 07410 remained in Kho's possession the entire time and Land Bank
admits that the check it cleared was a fake. When Land Bank's CCD forwarded the deposited check
to its Araneta branch for inspection, its officers had every opportunity to recognize the forgery of
their signatures or the falsity of the check. Whether by error or neglect, the bank failed to do so,
which led to the withdrawal and eventual loss of the P25,000,000.00.This is the proximate cause
of the loss. Land Bank breached its duty of diligence and assumed the risk of incurring a loss on
account of a forged or counterfeit check. Kho's failure to inform Land Bank that the deal did not
push through as of January 2, 2006, does not justify Land Bank's confirmation and clearing of a
fake check bearing the forged signatures of its own officers. Whether or not the deal pushed
through, the check remained in Kho's possession. He was entitled to a reasonable expectation that
the bank would not release any funds corresponding to the check.

2. Federal Corporation Vs. Luwalhati R. Antonio and Eliza Bettina Ricasa Antonino, G.R. No. 6
199455. June 27, 2018, Third Division, J. Leonen

Issue: What are order instruments? Are order instruments equivalent to cash?

ANSWER: Under Section 30 of the Negotiable Instruments Law, an order instrument requires an
indorsement from the payee or holder before it may be validly negotiated. An order instrument,
which has to be endorsed by the payee before it may be negotiated, cannot be a negotiable
instrument equivalent to cash.

Section 9 [Bearer Instruments]

1. Teresita L. Vertudes vs. Julie Buenaflor and Bureau of Immigration, G.R. No. 153166, December 7
16, 2005, Second Division, J. Puno
 Issue: What is the effect of the issuance of bearer checks that were not crossed? Is this proof that
the transaction was not for loan but the promise for travel documents to Japan?

ANSWER:

● Petitioner admitted having received, and encashed, the two checks from private
respondent but offered the excuse that the same was extended to her as a loan. Note
even that the two checks were made payable to "cash," a bearer instrument, and was not
even crossed on its face, hence, can be encashed by any person holding the negotiable
instrument.
● Yes. If, indeed, private respondent gave the two checks to petitioner as a clean loan
(without any collateral) without any separate document embodying their loan
agreement, the latter should have at least been made the payee of the checks and a
memorandum written at the back of the check to the effect that it is being extended as a
loan, in order to protect the interest of the lender. This is conventional business practice
which is altogether absent in the case at bar, hence, petitioner's theory of loan must
necessarily crumble.

2. Philippine National Bank vs. Erlando T. Rodriguez and Norma Rodriguez, G.R. No. 170325, 8
September 26, 2008, Third Division, J. Reyes, R.T.

Issues and Answers:

1. Can an actual, existing and living payee be considered fictitious?

A review of US jurisprudence yields that an actual, existing, and living payee may also be fictitious
if the maker of the check did not intend for the payee to in fact receive the proceeds of the check.
This usually occurs when the maker places a name of an existing payee on the check for
convenience or to cover up an illegal activity. Thus, a check made expressly payable to a non-
fictitious and existing person is not necessarily an order instrument.

2. Who bears the loss in a fictitious payee situation, the drawee or the drawer?

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

3. What is the fictitious payee rule?

As a rule, when the payee is fictitious or not intended to be the true recipient of the proceeds, the
check is considered as a bearer instrument

4. What is the commercial bad faith exception to the fictitious payee rule?

Under the 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. Commercial bad faith is
present if the transferee of the check acts dishonestly, and is a party to the fraudulent scheme.
 3. People of the Philippines vs. Gilbert Reyes Wagas, G.R. No. 157943, September 4, 2013, First 9
Division, J. Bersamin

Issue: Where a check is made payable to cash is it payable to bearer? Can it be negotiated without
need of indorsement?

ANSWER:

● A check payable to cash is payable to the bearer and could be negotiated by merely delivery
without the need of an indorsement.

4. Jocelyn Sorensen Vs. Atty. Florito T. Pozon, A.C. No. 11334, January 07, 2019, Second Division, 10
Acting C.J., Carpio

Issue: May a “pay to cash” check be considered that respondent received the amount therein
stated?

ANSWER: No. Atty. Pozon was found guilty of violating the Code of Professional Responsibility and
Sorensen demanded the return of P72 000 filing fees allegedly received by Atty. Pozon. However,
only P21,000.00 shall be returned to the Sorensen. One of the reasons for the return of only the
partial amount of P21,000.00 is because the October 27, 2001 check in the amount of Five
Thousand Pesos (P5,000.00) is not evidence that Atty. Ponzon received the said amount as it is a
“pay to cash” check.

Section 12
1. San Miguel Corporation vs. Bartolome Puzon, Jr., G.R. No. 167567, September 22, 2010, First 11
Division, J. Del Castillo

Issue: What is the meaning of delivery in relation to Section 16? When the check was issued only
for security and was taken by the drawer who gave it as security can the drawer be charged of
theft?

ANSWER:

● Delivery as the term is used in Section 16 of the Negotiable Instruments Law means that
the party delivering did so for the purpose of giving effect thereto.

● No. Once there is delivery, the person to whom the instrument is delivered gets the title to
the instrument completely and irrevocably. The check was only meant to cover the
transaction and in the meantime Puzon was to pay for the transaction by some other
means other than the check. This being so, title to the check did not transfer to SMC; it
remained with Puzon. The second element of the felony of theft was therefore not
established.

Sections 14-15-16
1. Federico O. Borromeo, Lourdes O. Borromeo and Federico O. Borromeo, Inc , vs. Amancio Sun 12
and the Court of Appeals, G.R. No. 75908, October 22, 1999, Third Division, J. Purisima

Issue: Is document subject in this case executed with similar effects as Section 14 of the NIL?

ANSWER:
Pertinent records reveal that the subject Deed of Assignment is embodied in blank form for the assignment
of shares with authority to transfer such shares in the books of the corporation. It was clearly intended to
be signed in blank to facilitate the assignment of shares from one person to another at any future time. This
is similar to Section 14 of the Negotiable Instruments Law where the blanks may be filled up by the holder,
the signing in blank being with the assumed authority to do so.

Indeed, as the shares were registered in the name of Federico O. Borromeo just to give him personality and
standing in the business community, private respondent had to have a counter evidence of ownership of the
shares involve. Thus the execution of the deed of assignment in blank, to be filled up whenever needed. The
same explains the discrepancy between the date of the deed of assignment and the date when the signature
was affixed thereto.

2. Quirino Gonzales Logging Concessionaire, Quirino Gonzales and Eufemia Gonzales vs. Court of 13
Appeals and Republic Planters Bank, G.R. No. 126568, April 30, 2003, Third Division, J. Carpio-
Morales

Issue: Did the promissory note comply with Section 1 of the NIL? What is the presumption of
consideration? What is the consequence of an instrument issued in blank?

ANSWER:

● Yes, the promissory notes complied with Section 1 of the NIL.

● The presumption of consideration is the presumption wherein every negotiable
instrument is presumed to have been issued for a consideration and that the persons who
signed the same are presumed to have authority to have done so.
● The consequence of an instrument issued in blank is that the person who has possession
of such instruments has the prima facie authority to fill in the blanks.

3. Sps. Sergio and Milagros Ojeda vs. Andrelina Orbeta, G.R. No. 142047, July 10, 2006, Third 14
Division, Resolution

Issue: What is the effect of a blank check that was delivered?

ANSWER: It operates as a prima facie authority to fill it up as such for any amount.

4. Samson Ching vs. Clarita Nicdao and Court of Appeals, G.R. No. 141181, April 27, 2007, Third 15
Division, J. Callejo, Sr.

Issue: What is the effect of Sections 15 and 16 of the NIL? Is the check here an evidence of
indebtedness?

ANSWER:

An incomplete instrument not delivered to the person in possession, subsequently completed by

him alone without authority, he did not acquire any right or interest therein and cannot,
therefore, assert any cause of action founded on said instrument (in this case a stolen check).

No. Generally, checks may constitute evidence of indebtedness. However, in view of the findings
that the ₱20,000,000.00 was a stolen check and the obligations secured by the other ten (10)
checks had already been fully paid - they can no longer be given credence to establish civil
liability. Such civil liability, therefore, must be established by preponderant evidence other than
the discredited checks.

5. Rafael P. Lunaria vs. People of the Philippines, G.R. No. 160127, November 11, 2008, First 16
Division, CJ. Puno
 Issue: What is the effect of Section 14 of the NIL? What is presumption of authority to fill the
blanks?

ANSWER: Because of the presumption of authority, the burden of proof that there was no
authority or that authority granted was exceeded is carried by the person who questions such
authority.

Records show that [petitioner] had not proven lack of authority on the part of Artaiz to fill up such
blanks. Having failed to prove lack of authority, it can be presumed that Artaiz was within his
rights to fill up blanks on the check.

6. John Dy vs. People of the Philippines and the Honorable Court of Appeals, G.R. No. 158312, 17
November 14, 2008, Second Division, Acting C.J. Quisumbing

Issue: What is issuance of a check under Section 191? What is the prima facie authority to
complete blank material particulars under Section 14 of the NIL?

ANSWER:

Section 191 of the Negotiable Instruments Law14 defines "issue" as the first delivery of an
instrument, complete in form, to a person who takes it as a holder. Significantly, delivery is the
final act essential to the negotiability of an instrument. Delivery denotes physical transfer of the
instrument by the maker or drawer coupled with an intention to convey title to the payee and
recognize him as a holder. It means more than handing over to another; it imports such transfer
of the instrument to another as to enable the latter to hold it for himself.

Where the instrument is wanting in any material particular, the person in possession thereof
has a prima facie authority to complete it by filling up the blanks therein. And a signature on a
blank paper delivered by the person making the signature in order that the paper may be
converted into a negotiable instrument operates as a prima facie authority to fill it up as such
for any amount.

7. Bank of America NT & SA vs. Philippine Racing Club, G.R. No. 150228, January 30, 2009, First 18
Division, J. Leonardo-De Castro

Issue: What are the effects of Article 14 and 16? What is the effect of Article 15? What is material
alteration? What is meant by obvious irregularities? What is material alteration?

ANSWER:

● In defense of its cashier/teller's questionable action, Bank of America insists that pursuant
to Sections 14 and 16 of the NIL, it could validly presume, upon presentation of the checks,
that the party who filled up the blanks had authority and that a valid and intentional
delivery to the party presenting the checks had taken place.
● Bank of America’s contention would have been correct if the subject checks were correctly
and properly filled out by the thief and presented to the bank in good order. However, the
facts show that there were circumstances that should have alerted the bank to the
likelihood that the checks were not properly delivered to the person who encashed the
same. Thus the Court held Section 15 of the NIL is applicable in this case, which provides
that where an incomplete instrument has not been delivered it will not, if completed and
negotiated, without authority, be a valid contract in the hands of any holder, as against any
person whose signature was placed thereon before delivery.
● A material alteration is defined in Section 125 of the NIL to be one which changes the date,
the sum payable, the time or place of payment, the number or relations of the parties, the
 currency in which payment is to be made or one 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.
● Although not in the strict sense "material alterations," the misplacement of the typewritten
entries for the payee and the amount on the same blank and the repetition of the amount
using a check writer were glaringly obvious irregularities on the face of the check.

8. Rizal Commercial Banking Corporation vs. Hi-Tri Development Corporation and Luz R. Bakunawa, 19
G.R. No. 192413, June 13, 2012, Second Division, J. Sereno

Issue: When are instruments considered delivered under Section 16?

ANSWER:

As between immediate parties and as regards a remote party other than a holder in due course,
the delivery, in order to be effectual, must be made either by or under the authority of the party
making, drawing, accepting, or indorsing, as the case may be; and, in such case, the delivery may
be shown to have been conditional, or for a special purpose only, and not for the purpose of
transferring the property in the instrument. But where the instrument is in the hands of a holder
in due course, a valid delivery thereof by all parties prior to him so as to make them liable to him
is conclusively presumed. And where the instrument is no longer in the possession of a party
whose signature appears thereon, a valid and intentional delivery by him is presumed until the
contrary is proved.

9. Jaime T. Gaisano Vs. Development Insurance and Surety Corporation, G.R. No. 190702, February 20
27, 2017, Third Division, J. Jardeleza

Issue: Was the check considered as delivered for the purpose of determining time of payment of
insurance premiums? (Note: Instructive as to Insurance contract but not covered by the NIL)

ANSWER:The notice of the availability of the check, by itself, does not produce the effect of
payment of the premium. At the time of loss, there was no payment of premium yet to make
the insurance policy effective.

10. Asia Brewery, Inc. and Charlie S. Go Vs. Equitable PCI Bank, G.R. No. 190432, April 25, 2017, First 21
Division, C.J. Sereno

Issue: What is the presumption of a valid delivery under Section 16?

ANSWER: Where the instrument is in the hands of a holder in due course, a valid delivery thereof
by all parties prior to him so as to make them liable to him is conclusively presumed. And where
the instrument is no longer in the possession of a party whose signature appears thereon, a valid
and intentional delivery by him is presumed until the contrary is proved.

11. Philippine Savings Bank, V. Maria Cecilia Sakata, June 17, 2020, G.R. No. 229450, June 17, 2020, 1
Third Division, J. Leonen

Issue: If there is a finding that a check is forged under Section 23 is rule on “prima facie authority”
to negotiate under Section 14 still relevant?

ANSWER:

Section 23 of the Negotiable Instruments Law bars a party from setting up the defense of forgery
if it is guilty of negligence." However, we find that respondent is not negligent in this case.
Petitioner failed to prove its contentions that respondent received the monthly statements, and
that her mother received, forged and presented the questioned checks. Thus, there is no need to
discuss the applicability of Section 14 of the Negotiable Instruments Law.
 The presumption remains that every person takes ordinary care of his or her concerns, and that
the ordinary course of business has been followed. "Negligence is not presumed, but must be
proven by him [or her] who alleges it." Here, petitioner was unable to dispute the presumption of
ordinary care exercised by respondent.

Furthermore, in Philippine National Bank v. Quimpo, the respondent's act of leaving his
checkbook in the car with his longtime classmate and friend while he went out for a short while
cannot be considered negligence sufficient to excuse the bank from its own negligence, because
respondent had no reason to suspect that his friend would breach his trust.

Similarly in this case, even assuming that her mother indeed presented the questioned checks
while respondent was in Japan, she cannot be held negligent in entrusting the same to her
mother.

Having established the forgery of respondent's signatures and petitioner's negligence in failing to
detect the forgery on the checks, the checks are wholly inoperative. Thus, only petitioner is liable
for making payments on the forged checks.

Sections 17
1. People of the Philippines vs. Martin L. Romero and Ernesto C. Rodriguez, G.R. No. 112985, April 2
21, 1999, First Division, J. Pardo

Issued: Is Section 17 of the NIL applicable? (Also, liability of indorse Section 63 and 66)

ANSWER:

● Yes, Section 17 of the NIL applicable. The rule in the Negotiable Instruments Law is that
when there is ambiguity in the amount in words and the amount in figures, it would be
the amount in words that would prevail, as applied in this case.

2. Remedios Nota Sapiera vs. Court of Appeals and Ramon Sua, G.R. No. 128927, September 14, 3
1999, Second Division, J. Bellosillo

Issues:

(1) In what capacity did Sapiera sign when there is doubt as to her signature?
(2) What is the rule of construction under Section 17?
(3) Who are indorsers under Section 63?
(4) What is the liability of an indorser under Section 66?

ANSWER:

(1) In the instant case, since the checks were signed without any indication as to how Sapiera
should be bound by the same, she was deemed to have signed in her capacity as an
indorser.
(2) Under Section 17, the rule of construction provides that where a signature is placed upon
the instrument in such a way that it is not clear in what capacity the person making the
same intended to sign, he is deemed an indorser.
(3) Under Section 63, a person placing his signature upon an instrument otherwise than as
maker, drawer or acceptor, is deemed to be an indorser unless he clearly indicates by
appropriate words his intention to be bound in some other capacity.
(4) The liability of a general indorser as laid down in Section 66 provides that 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
section; and

(b) That the instrument is, at the time of the indorsement, valid and subsisting.

In addition, he engages that, on due presentment, it shall be accepted or paid or both, as

the case may be, according to its tenor, and that if it be dishonored and the necessary
proceedings on dishonor be duly taken, he will pay the amount thereof to the holder or to
any subsequent indorser who may be compelled to pay it.

3. Spouses Eduardo B. Evangelista and Epifania C. Evangelista vs. Mercator Finance Corp., Lydia P. 4
Salazar, Lamecs Realty and Development Corp. and the Register of Deeds of Bulacan, G.R. No.
148864, August 21, 2003, Third Division, J. Puno

Issue: What rule must be followed if there is no ambiguity? How will the document be interpreted
under Section 17 of the NIL when the NI reads: “I/We” and signed by two or more persons? (Also,
forgery, on the findings of fact by the trial courts)

ANSWER:Courts can interpret a contract only if there is doubt in its letter. But, an examination of
the promissory note shows no such ambiguity. Assuming that there is an ambiguity, Section 17 of
the Negotiable Instruments Law states:

SECTION 17. Construction where the instrument is ambiguous. – Where the language of the
instrument is ambiguous or there are omissions therein, the following rules of construction apply:

(g) Where an instrument containing the word "I promise to pay" is signed by two or more persons,
they are deemed to be jointly and severally liable thereon.

There is documentary evidence regarding the solidary liability of the Spouses Evangelista and
Embassy Farms. It was provided in the promissory notes the words “I/We jointly and severally
promise to pay to the order of Mercator Finance Corporation.” The note was signed at the bottom
by Eduardo Evangelista, Epifania Evangelista and Embassy Farms with the signature of Eduardo
Evangelista below that of Embassy Farms. There were also evidences that the Spouses Evangelista
even signed other promissory notes for the restructuring of the loans, which contained the same
provisions.

Petitioners also insist that the promissory note does not convey their true intent in executing the
document. The defense is unavailing. Even if petitioners intended to sign the note merely as officers
of Embassy Farms, still this does not erase the fact that they subsequently executed a continuing
suretyship agreement.

Sections 19, 20, 44, 69

1. Adalia Francisco vs. Court of Appeals, Herby Commercial & Construction Corporation and Jaime 5
C. Ong, G.R. No. 116320, November 29, 1999, Third Division, J. Gonzaga-Reyes

Issue: What are the effects of the findings of fact of the trial courts of the existence of forgery?
How a NI may be issued through an agent (Section 20) or indorsed in a representative capacity
(Section 44)?

ANSWER:

● What are the effects of the findings of fact of the trial courts of the existence of forgery?
 Due to her forgery of Ong's signature which enabled her to deposit the checks in her own
account, Francisco deprived HCCC of the money due it from the GSIS pursuant to the Land
Development and Construction Contract. Thus, we affirm respondent court's award of
compensatory damages in the amount of P370,475.00, but with a modification as to the interest
rate which shall be six percent (6%) per annum, to be computed from the date of the filing of the
complaint since the amount of damages was alleged in the complaint; however, the rate of
interest shall be twelve percent (12%) per annum from the time the judgment in this case becomes
final and executory until its satisfaction and the basis for the computation of this twelve percent
(12%) rate of interest shall be the amount of P370,475.00. This is in accordance with the doctrine
enunciated in Eastern Shipping Lines, Inc. vs. Court of Appeals, et al.

● How a NI may be issued through an agent (Section 20) or indorsed in a representative capacity
(Section 44)?

Sections 20 and 44 provides for the following:

Sec. 20. Liability of person signing as agent, and so forth. - Where the instrument contains or a
person adds to his signature words indicating that he signs for or on behalf of a principal or in a
representative capacity, he is not liable on the instrument if he was duly authorized; but the mere
addition of words describing him as an agent, or as filling a representative character, without
disclosing his principal, does not exempt him from personal liability.

Sec. 44. Indorsement in representative capacity. - Where any person is under obligation to indorse
in a representative capacity, he may indorse in such terms as to negative personal liability.

In this case, petitioner claims that she was, in any event, authorized to sign Ong's name on the
checks by virtue of the Certification executed by Ong in her favor giving her the authority to collect
all the receivables of HCCC from the GSIS, including the questioned checks. Petitioner's alternative
defense must similarly fail. The Negotiable Instruments Law provides that where any person is
under obligation to indorse in a representative capacity, he may indorse in such terms as to
negative personal liability. An agent, when so signing, should indicate that he is merely signing in
behalf of the principal and must disclose the name of his principal; otherwise he shall be held
personally liable. Even assuming that Francisco was authorized by HCCC to sign Ong's name, still,
Francisco did not indorse the instrument in accordance with law. Instead of signing Ong's name,
Francisco should have signed her own name and expressly indicated that she was signing as an
agent of HCCC. Thus, the Certification cannot be used by Francisco to validate her act of forgery.

2. Solidbank Corporation vs. Mindanao Ferroalloy Corporation, spouses Jong-Wong Hong, and 6
Sook-ok Kim Hong, Teresita Cu and Ricardo P. Guevarra, G.R. No. 153535, July 28, 2005,
Third Division, J. Panganiban

Issue: What is the liability of an agent under Sections 19 and 20 of the NIL.

Answer: Under Section 19 of the Negotiable Instruments Law, agents or representatives may sign
for the principal. Their authority may be established, as in other cases of agency. Section 20 of the
law provides that a person signing "for and on behalf of a [disclosed] principal or in a
representative capacity x x x is not liable on the instrument if he was duly authorized."
Sections 22
1. Atrium Management Corporation vs. Court of Appeals, E.T. Henry and Co., Lourdes Victoria M. 7
De Leon, Rafael De Leon, Jr., and Hi-Cement Corporation, G.R. No. 109491, February 28, 2001,
First Division, J. Pardo

Issue: What is an ultra vires act? In what instances will personal liability of corporate officers
attach? What is a holder in due course? Is Atrium a holder in due course when it re-discounted the
crossed checks? Are holders not in due course precluded from recovering on the instrument?

ANSWER:

● An ultra vires act is one committed outside the object for which a corporation is created
as defined by the law of its organization and therefore beyond the power conferred
upon it by law" The term "ultra vires" is "distinguished from an illegal act for the former
is merely voidable which may be enforced by performance, ratification, or estoppel,
while the latter is void and cannot be validated.
● Personal liability of a corporate director, trustee or officer along (although not
necessarily) with the corporation may so validly attach, as a rule, only when:
1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or
gross negligence in directing its affairs, or (c) for conflict of interest, resulting in
damages to the corporation, its stockholders or other persons;
2. He consents to the issuance of watered down stocks or who, having knowledge
thereof, does not forthwith file with the corporate secretary his written objection
thereto;
3. He agrees to hold himself personally and solidarily liable with the corporation; or
4. He is made, by a specific provision of law, to personally answer for his corporate
action.

● A holder in due course is a holder who has taken the instrument under the following
conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice that it had
been previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it.

● No. The checks were crossed checks and specifically indorsed for deposit to payee's
account only. From the beginning, Atrium was aware of the fact that the checks were all
for deposit only to payee's account, meaning E.T. Henry. Clearly, then, Atrium could not
be considered a holder in due course.
● No. It does not follow as a legal proposition that simply because petitioner Atrium was
not a holder in due course for having taken the instruments in question with notice that
the same was for deposit only to the account of payee E.T. Henry that it was altogether
precluded from recovering on the instrument. The Negotiable Instruments Law does not
provide that a holder not in due course cannot recover on the instrument.

The disadvantage of Atrium in not being a holder in due course is that the negotiable
instrument is subject to defenses as if it were non-negotiable. One such defense is
absence or failure of consideration.

1a. Lourdes M. De Leon vs. Court of Appeals, Atrium Management

Corporation, and HiCement Corporation, G.R. No. 121794, February 28, 2001, First Division, J.
Pardo
 Issues and Answers:

1. What is an ultra vires act?

An ultra vires act is one committed outside the object for which a corporation is created as defined
by the law of its organization and therefore beyond the power conferred upon it by law. The term
ultra vires is distinguished from an illegal act for the former is merely voidable which may be
enforced by performance, ratification, or estoppel, while the latter is void and cannot be validated.

2. In what instances will personal liability of corporate officers attach?

Personal liability of a corporate director, trustee or officer along (although not necessarily) with the
corporation may so validly attach, as a rule, only when:
(1) He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross
negligence in directing its affairs, or (c) for conflict of interest, resulting in damages
to the corporation, its stockholders or other persons;

(2) He consents to the issuance of watered down stocks or who, having knowledge thereof,
does not forthwith file with the corporate secretary his written objection thereto;

(3) He agrees to hold himself personally and solidarity liable with the corporation; or

(4) He is made, by a specific provision of18law, to personally answer for his corporate action.

3. What is 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 had been
previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it. 


4. Is Atrium a holder in due course when it re-discounted the crossed checks?

In the instant case, the checks were crossed checks and specifically indorsed for deposit to payee’s
account only. From the beginning, Atrium was aware of the fact that the checks were all for deposit
only to payee’s account, meaning E.T. Henry. Clearly, then, Atrium could not be considered a holder
in due course.

5. Are holders not in due course precluded from recovering on the instrument?
It does not follow as a legal proposition that simply because petitioner Atrium was not a holder in
due course for having taken the instruments in question with notice that the same was for deposit
only to the account of payee E.T. Henry that it was altogether precluded from recovering on the
instrument. The Negotiable Instruments Law does not provide that a holder not in due course
cannot recover on the instrument. The disadvantage of Atrium in not being a holder in due course is
that the negotiable instrument is subject to defenses as if it were non-negotiable. One such defense
is absence or failure of consideration.


2. Pilipinas Shell Petroleum Corporation Vs. Carlos Duque & Teresa Duque, G.R. No. 216467. 9
February 15, 2017, Second Division, J. Peralta

Issue: Can a corporate officer who issues a bouncing check be held civilly liable when he is
convicted?

ANSWER:
 ● Yes, he can. A corporate officer who issues a bouncing corporate check can only be held
civilly liable when he is convicted.
● When a corporate officer issues a worthless check in the corporate name he may be held
personally liable for violating a penal statute. The statute imposes criminal penalties on
anyone who with intent to defraud another of money or property, draws or issues a check
on any bank with knowledge that he has no sufficient funds in such bank to meet the check
on presentment. Moreover, the personal liability of the corporate officer is predicated on
the principle that he cannot shield himself from liability from his own acts on the ground
that it was a corporate act and not his personal act.

3. Arturo C. Calubad Vs. Ricarcen Development Corporation, G.R. No. 202364, August 30, 2017, 10
Third Division, J. Leonen

Issue: What is the liability of a corporation when its former president Ricarcen issued a checks that
were dishonored for insufficiency of funds?

ANSWER:

● The doctrine of apparent authority provides that even if no actual authority has been
conferred on an agent, his or her acts, as long as they are within his or her apparent scope
of authority, bind the principal. However, the principal’s liability is limited to third persons
who are reasonably led to believe that the agent was authorized to act for the principal due
to the principal’s conduct. Apparent authority is determined by the acts of the principal and
not by the acts of the agent.

● Calubad could not be faulted for continuing to transact with Marilyn, former president of
Ricarcen, even agreeing to give out additional loans, because Ricarcen clearly clothed her
with apparent authority. Likewise, it reasonably appeared that Ricarcen’s officers knew of
the mortgage contracts entered into by Marilyn in Ricarcen’s behalf as proven by the issued
Banco De Oro checks as payments for the monthly interest and the principal loan.

● If a private corporation intentionally or negligently clothes its officers or agents with

apparent power to perform acts for it, the corporation will be estopped to deny that such
apparent authority is real, as to innocent third persons dealing in good faith with such
officers or agents.

Sections 23 [Forgery]
1. Associated Bank vs. Court of Appeals, Province of Tarlac and Philippine National Bank G.R. No. 11
107382, January 31, 1996, Second Division, J. Romero

Issue: Give a review of the effects of a forged indorsement? Where thirty checks bearing forged
endorsements are paid, who bears the loss, the drawer, the drawee bank or the collecting bank?

ANSWER:

● A forged signature, whether it be that of the drawer or the payee, is wholly inoperative
and no one can gain title to the instrument through it. A person whose signature to an
instrument was forged was never a party and never consented to the contract which
allegedly gave rise to such instrument. Section 23 does not avoid the instrument but only
the forged signature. Thus, a forged indorsement does not operate as the payee’s
indorsement.

● The collecting bank bears the loss. Parties who warrant or admit the genuineness of the
signature in question and those who, by their acts, silence or negligence are estopped from
 setting up the defense of forgery, are precluded from using this defense. Indorsers, persons
negotiating by delivery and acceptors are warrantors of the genuineness of the signatures
on the instrument. A collecting bank which indorses a check bearing a forged indorsement
and presents it to the drawee bank guarantees all prior indorsements, including the forged
indorsement. It warrants that the instrument is genuine, and that it is valid and subsisting
at the time of his indorsement. Because the indorsement is a forgery, the collecting bank
commits a breach of this warranty and will be accountable to the drawee bank.

1a. Philippine National Bank vs. Court of Appeals, Province of Tarlac 12

and Associated Bank G.R. No. 107612, January 31, 1996, Second Division, J. Romero

Issue: Give a review of the effects of a forged indorsement?

ANSWER:

The checks involved in this case are order instruments, hence, the following discussion is made with
reference to the effects of a forged indorsement on an instrument payable to order.
Where the instrument is payable to order at the time of the forgery, such as the checks in this case,
the signature of its rightful holder (here, the payee hospital) is essential to transfer title to the
same instrument. When the holder's indorsement is forged, all parties prior to the forgery may
raise the real defense of forgery against all parties subsequent thereto. 22
An indorser of an order instrument warrants "that the instrument is genuine and in all respects
what it purports to be; that he has a good title to it; that all prior parties had capacity to contract;
and that the instrument is at the time of his indorsement valid and subsisting." 23 He cannot
interpose the defense that signatures prior to him are forged.
A collecting bank where a check is deposited and which indorses the check upon presentment with
the drawee bank, is such an indorser. So even if the indorsement on the check deposited by the
banks's client is forged, the collecting bank is bound by his warranties as an indorser and cannot
set up the defense of forgery as against the drawee bank.
The bank on which a check is drawn, known as the drawee bank, is under strict liability to pay the
check to the order of the payee. The drawer's instructions are reflected on the face and by the
terms of the check. Payment under a forged indorsement is not to the drawer's order. When the
drawee bank pays a person other than the payee, it does not comply with the terms of the check
and violates its duty to charge its customer's (the drawer) account only for properly payable items.
Since the drawee bank did not pay a holder or other person entitled to receive payment, it has no
right to reimbursement from the drawer. 24 The general rule then is that the drawee bank may not
debit the drawer's account and is not entitled to indemnification from the drawer. 25 The risk of loss
must perforce fall on the drawee bank.

However, if the drawee bank can prove a failure by the customer/drawer to exercise ordinary care
that substantially contributed to the making of the forged signature, the drawer is precluded from
asserting the forgery.
If at the same time the drawee bank was also negligent to the point of substantially contributing to
the loss, then such loss from the forgery can be apportioned between the negligent drawer and the
negligent bank. 26
In cases involving a forged check, where the drawer's signature is forged, the drawer can recover
from the drawee bank. No drawee bank has a right to pay a forged check. If it does, it shall have to
recredit the amount of the check to the account of the drawer. The liability chain ends with the
drawee bank whose responsibility it is to know the drawer's signature since the latter is its
customer.

Where thirty checks bearing forged endorsements are paid, who bears the loss, the drawer, the
drawee bank or the collecting bank?
 ANSWER:

Since a forged indorsement is inoperative, the collecting bank had no right to be paid by the drawee
bank. The former must necessarily return the money paid by the latter because it was paid wrongfully.

More importantly, by reason of the statutory warranty of a general indorser in section 66 of the
Negotiable Instruments Law, a collecting bank which indorses a check bearing a forged indorsement
and presents it to the drawee bank guarantees all prior indorsements, including the forged
indorsement. It warrants that the instrument is genuine, and that it is valid and subsisting at the time
of his indorsement. Because the indorsement is a forgery, the collecting bank commits a breach of
this warranty and will be accountable to the drawee bank. This liability scheme operates without
regard to fault on the part of the collecting/presenting bank. Even if the latter bank was not negligent,
it would still be liable to the drawee bank because of its indorsement.

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

2. SPS. Francisco S. Antonio and Amor W. Antonio vs. Sps. Teodorico C. Omnes and Alice Omnes 13
and the Standard Chartered Bank, G.R. No. 140980, March 1, 2000, Second Division, Resolution

Issue: Are the Antonios precluded from recovering from Standard Chartered Bank due to
negligence?

ANSWER: Yes, the Antonios are precluded from recovering due to negligence. The Court ruled that
while the general rule is that a drawee bank which clears a forged check for payment should
reimburse the drawer, this does not apply when the failure of the latter to exercise ordinary care
made the loss possible.

3. Metropolitan Bank & Trust Company vs. Sanvar Development Corp., G.R. No. 145916, January 14
29, 2001, Second Division, Resolution

Issue: Whether or not Sanvar’s complaint states a cause of action against Metrobank bank, the
collecting bank, as to the two checks? Who bears the loss in case of a forged indorsement? (Also,
Section 51 and 191 on simple holder, desirable short cut, laches, negligence, liability of collecting
bank)

ANSWER:

● Yes, it states a cause of action because by virtue of the negligent acts of petitioner bank, together
with that of Eduardo Talaue, respondent Sanvar had been damaged and prejudiced.
● 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 had done its duty to
ascertain the genuineness of the indorsements.
4. Westmont Bank (formerly Associated Banking Corp.) vs. Eugene Ong, G.R. No. 132560, January 15
30, 2002, Second Division, J. Quisumbing

Issue: What is the effect of forgery? What is nature of the liability of a collecting bank in forgeries
of indorsements? Is Ong a holder under Sections 51 and 191 when he was never in actual or
physical possession of the checks? What is the concept of a “desirable short cut”? What is the
degree of care required for banks considering the nature of its business? Why was there negligence
here? Was Ong barred by laches since it took him five (5) months to demand from Westmont?
(Also, crossed checks, managers checks, collecting bank’s liability, section 63 indorser)

ANSWER:

Under Section 23 of the Negotiable Instruments Law: When a signature is forged or made
without the authority of the person whose signature it purports to be, it is wholly inoperative,
and no right to retain the instrument, or to give a discharge therefor, or to enforce payment
thereof against any party thereto, can be acquired through or under such signature, unless the
party against whom it is sought to enforce such right is precluded from setting up the forgery or
want of authority.

The collecting bank is liable to the payee and must bear 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 upon an unauthorized or
forged indorsement of the payee’s signature and who collects the amount of the check from the
drawee, is liable for the proceeds thereof to the payee or other owner, notwithstanding that the
amount has been paid to the person from whom the check was obtained.

Yes, Ong is still a holder under Sections 51 and 191. Even if the absence of delivery is considered,
such consideration is not material. The rationale for this view is that in said cases the plaintiff
uses 95 one action to reach, by a desirable shortcut, the person who ought in any event 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.

The concept of a “desirable short cut” pertains to cases where the plaintiff uses one action to
reach (by a desirable short cut) the person who ought in any event to be ultimately liable as
among the innocent persons involved in the transaction.

Banks are engaged in a business impressed with public interest, and it is their duty to protect in
return their many clients and depositors who transact business with them. They have the
obligation to treat their client’s account meticulously and with the highest degree of care,
considering the fiduciary nature of their relationship. The diligence required of banks, therefore,
is more than that of a good father of a family.

There was negligence in this case, since at the time the questioned checks were accepted for
deposit to Paciano Tanlimco’s account by defendant bank;it admittedly had in its files specimen
signatures of plaintiff who maintained a current account with them. Given the substantial face
value of the two checks and the fact that they were being deposited by a person not the payee,
the very least defendant bank should have done, as any reasonable prudent man would have
done, was to verify the genuineness of the indorsements thereon. However, defendant
apparently failed to make such a verification or, what is worse did so but, chose to disregard the
obvious dissimilarity of the signatures. The first omission makes it guilty of gross negligence; the
second of bad faith.

The Court ruled in the negative. In the case at bar, it cannot be said that respondent sat on his
rights. He immediately acted after knowing of the forgery by proceeding to seek help from the
Tanlimco family and later the Central Bank, to remedy the situation and recover his money from
the forger, Paciano Tanlimco. Only after he had exhausted possibilities of settling the matter
amicably with the family of Tanlimco and through the CB, about five months after the unlawful
transaction took place, did he resort to making the demand upon the petitioner and eventually
before the court for recovery of the money value of the two checks. These acts cannot be
construed as undue delay in or abandonment of the assertion of his rights.
5. Traders Royal Bank vs. Radio Philippines Network, Inc., Intercontinental Broadcasting 16
Corporation and Banahaw Broadcasting Corporation, through the Board of Administrators,
and Security Bank and Trust Company, G.R. No. 138510, October 10, 2002, Third Division, J.
Corona

Issue: Whether or not TRB should be held solely liable when it paid the amount of the checks in
question to a person other than the payee indicated on the face of the check, the BIR? What is
effect of Section 23 of the NIL? What is the consequence of a bank paying a forged check? What is
crossed check? Was TRB negligent? What is a collecting bank? Under the circumstances is SBTC a
collecting bank? Who are deemed indorsers?

ANSWER:

(a) Since TRB did not pay the rightful holder or other person or entity entitled to receive
payment, it has no right to reimbursement. Petitioner TRB was remiss in its duty and
obligation, and must therefore suffer the consequences of its own negligence and
disregard of established banking rules and procedures.
"When a signature is forged or made without the authority of the person whose signature
it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give
a discharge therefor, or to enforce payment thereof against any party thereto, can be
acquired through or under such signature.
(b) When a signature is forged or made without the authority of the person whose signature
it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give
a discharge therefor, or to enforce payment thereof against any party thereto, can be
acquired through or under such signature."5 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.
(c) 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.
(d) a crossed check is one having crossed on it
(e) By encashing in favor of unknown persons checks which were on their face payable to the
BIR, a government agency which can only act only through its agents, petitioner did so at
its peril and must suffer the consequences of the unauthorized or wrongful endorsement.
In this light, petitioner TRB cannot exculpate itself from liability by claiming that
respondent networks were themselves negligent.
(f) A collecting bank which indorses a check bearing a forged indorsement and presents it to
the drawee bank guarantees all prior indorsements, including the forged indorsement
itself, and ultimately should be held liable therefor. However, it is doubtful if the subject
checks were ever presented to and accepted by SBTC so as to hold it liable as a collecting
bank, as held by the Court of Appeals
(g) SECTION 63. When person deemed indorser. - A person placing his signature upon an
instrument otherwise than as maker, drawer, or acceptor, is deemed to be an indorser
unless he clearly indicates by appropriate words his intention to be bound in some other
capacity. Here, not one of the disputed checks bears the requisite endorsement of
appellant SBTC. What appears to be a guarantee stamped at the back of the checks is that
of the Philippine National Bank, Buendia Branch, thereby indicating that it was the latter
Bank which received the same.

6. Ramon K. Ilusorio, vs. Court of Appeals and the Manila Banking Corporation, G.R. No. 139130, 17
November 27, 2002, Second Division, J. Quisumbing

Issue: What is the effect of the negligence of the drawer on the rule that when the signature of the
drawer is forged (Section 23) the drawee bears the loss?

ANSWER:
 It is a rule that when a signature is forged or made without the authority of the person whose
signature it purports to be, the check is wholly inoperative. No right to retain the instrument, or
to give a discharge therefore, or to enforce payment thereof against any party, can be acquired
through or under such signature.

However, the rule does provide for an exception, namely: "unless the party against whom it is
sought to enforce such right is precluded from setting up the forgery or want of authority."

In the instant case, it is the exception that applies. In our view, petitioner is precluded from
setting up the forgery, assuming there is forgery, due to his own negligence in entrusting to his
secretary his credit cards and checkbook including the verification of his statements of account.

7. Michael A. Osmeña vs. Citibank, N.A., Associated Bank and Frank Tan, G.R. No. 141278, March 18
23, 2004, Second Division, J. Callejo, Sr.

Issue: Was there negligence on the part of the banks in paying the amount of the check without
the indorsement of Frank Tan? Is the ruling in the Associated Bank case (1996) on the liability of a
collecting bank applicable in this case?

(Q: What is “wholly in operative” referred to by the pronoun “it” arising out of forgery? Is “it” the
instrument or the signature? A: Westmont (1/30/02) – signature; Ilusorio (11/27/02) – check or
instrument; BPI vs Casa (5/28/04) – signature. A: “It” refers to the signature not the instrument to
be wholly inoperative due to forgery, Associated Bank vs. CA (1/31/96), for if “it” refers to the
instrument then the exceptions to Section 23 will be of no more use as the instrument becomes
wholly inoperative].

ANSWER:

● No, there was no negligence. Associated Bank case (1996) is not applicable for, as has been
amply demonstrated, the Osmena failed to establish that the proceeds of the check was
indeed wrongfully paid by the respondents Banks to a person other than the intended
payee. In addition, the Negotiable Instruments Law was enacted for the purpose of
facilitating, not hindering or hampering transactions in commercial paper. Thus, the said
statute should not be tampered with haphazardly or lightly.
● Osmena’s allegation that Tan did not receive the proceeds of the check is belied by the
evidence on record and attendant circumstances. And if it were to be supposed that Tan
did not receive the check, given that his need for the money was urgent, it strains credulity
that Tan never even made an effort to get in touch with Osmena to inform him that he did
not receive the check as agreed upon, and to inquire why the check had not been delivered
to him.

8. Bank of the Philippine Islands vs. Casa Montessori Internationale, and Leonardo T. Yabut G.R. 19
No. 149454, May 28, 2004, First Division, J. Panganiban

Issue: What is forgery under Section 23? What are the factual findings of the sole negligence of
BPI? Who bears the loss in case of forgery of the drawer’s signature? What is estoppel? Was CASA
estopped in failing to make a report?

ANSWER:

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 x x x to enforce payment thereof against
any party thereto, can be acquired through or under such signature, unless the party against
whom it is sought to enforce such right is precluded from setting up the forgery or want of
authority.
 By the nature of its functions, a bank is "under obligation to treat the accounts of its depositors
with meticulous care, always having in mind the fiduciary nature of their relationship."

(BPI) failed to detect the eight instances of forgery. Its negligence consisted in the omission of
that degree of diligence required of a bank. It cannot now feign ignorance, for very early on we
have already ruled that 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."

Estoppel precludes individuals from denying or asserting, by their own deed or representation,
anything contrary to that established as the truth, in legal contemplation.

Estoppel will not arise. A person who has no knowledge of or consent to a transaction may not
be estopped by it.

8a. Casa Montessori Internationale vs. Bank of the Philippine 20

Islands, G.R. No. 149507, May 28, 2004, First Division, J. Panganiban

Issue: What is forgery under Section 23? What are the factual findings of the sole negligence of
BPI? Who bears the loss in case of forgery of the drawer’s signature? What is estoppel? Was CASA
estopped in failing to make a report?

ANSWER: Under this provision, a forged signature is a real or absolute defense, and a person
whose signature on a negotiable instrument is forged is deemed to have never become a party
thereto and to have never consented to the contract that allegedly gave rise to it.

BPI contends that it has a signature verification procedure, in which checks are honored only
when the signatures therein are verified to be the same with or similar to the specimen
signatures on the signature cards. Nonetheless, it still failed to detect the eight instances of
forgery. Its negligence consisted in the omission of that degree of diligence required of a bank.

Estoppel precludes individuals from denying or asserting, by their own deed or representation,
anything contrary to that established as the truth, in legal contemplation. A person who has no
knowledge of or consent to a transaction may not be estopped by it."Estoppel cannot be
sustained by mere argument or doubtful inference x x x."CASA is not barred from questioning
BPI’s error even after the lapse of the period given in the notice.

9. Samsung Construction Company Philippines, Inc., vs. Far East Bank and Trust Company and 21
Court of Appeals, G.R. No. 129015, August 13, 2004, Second Division, J. Tinga

Issue: In case of forgery of the signature of the drawer without negligence on its part who bears
the loss? What are the factual findings as to the negligence of the drawee bank? (Also, bank
deposits treated a loan, fiduciary relationship of bank and its depositor)

ANSWER: When negligence can be traced on the part of the drawer whose signature was forged,
and the need arises to weigh the comparative negligence between the drawer and the drawee to
determine who should bear the burden of loss. The fact that the check was made out in the
amount of nearly one million pesos is unusual enough to require a higher degree of caution on the
part of the bank. Not only did the amount in the check nearly total one million pesos, it was also
payable to cash. That latter circumstance should have aroused the suspicion of the bank, as it is
not ordinary business practice for a check for such large amount to be made payable to cash or to
bearer, instead of to the order of a specified person.
 Banks are engaged in a business impressed with public interest, and it is their duty to protect in
return their many clients and depositors who transact business with them. They have the
obligation to treat their client’s account meticulously and with the highest degree of care,
considering the fiduciary nature of their relationship. The diligence required of banks, therefore, is
more than that of a good father of a family. Given the circumstances, extraordinary diligence
dictates that FEBTC should have ascertained from Jong personally that the signature in the
questionable check was his.

10. BPI Family Bank, vs. Edgardo Buenaventura, Myrna Lizardo and Yolanda Tica, G.R. No. 148196, 1
September 30, 2005, Second Division, J. Austria-Martinez

Issue: Since bank deposits are considered loan can banks unilaterally freeze an account? What are
the liabilities of banks on forgery? Is there a need for Buenaventura et. al. to ascertain the right of
Franco on the check? What is the nature of a bank’s relationship with its depositor? (Also, liabilities
of parties, collecting bank’s clearing indorsements, PCHC)

ANSWER:

● 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.
● 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.
● 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.
● In summation, the Court reminds BPI-FB that the banking sector must at all times maintain
a high level of meticulousness, always having in mind the fiduciary nature of its
relationship with its depositors. This fiduciary relationship means that the bank’s
obligation to observe "high standards of integrity and performance" is deemed written
into every deposit agreement between a bank and its depositor. Failure to comply with
this standard shall render a bank liable to its depositors for damages.

10a. Edgardo Buenaventura, Myrna Lizardo and Yolanda Tica, vs. 2

BPI Family Bank, G.R. No. 148259, September 30, 2005, Second Division, J. Austria-Martinez

Issue: Since bank deposits are considered loan can banks unilaterally freeze an account? What are
the liabilities of banks on forgery? Is there a need for Buenaventura et. al. to ascertain the right of
Franco on the check? What is the nature of a bank’s relationship with its depositor? (Also,
liabilities of parties, collecting bank’s clearing indorsements, PCHC)

ANSWER:
 ● In this case, the bank 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 and
disallow any withdrawal therefrom to allegedly protect its interest.
● 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.
● Buenaventura, et al. were not privy 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.
● 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.

11. Allied Banking Corporation vs. Lim Sio Wan, Metropolitan Bank and Trust Company, and 3
Producers Bank, G.R. No. 133197, March 27, 2008, Second Division, J. Velasco, Jr.

Issue:

(1) Give the liabilities of the parties by reason of forgery?

(2) What is the effect of the negligence of Allied and Metrobank?
(3) Who is ultimately liable and under what grounds?

ANSWER:

(1) The liability of Allied Banking Corporation is concurrent with that of Metropolitan Bank and
Trust Company as the last indorser of the check. Given the relative participation of Allied
and Metrobank in the instant case, both banks cannot be adjudged as equally liable and
therefore, shall be liable under the 60:40 ratio pertaining to Allied and Metrobank,
respectively.
(2) Allied Banking Corporation’s negligence was considered the proximate cause of the
resulting loss whereas had it exercised due diligence as a financial institution, it could have
prevented the whole fraudulent transaction from unfolding because the check would not
have been issued and no loss of funds would have resulted. Moreover, Metropolitan Bank
and Trust Company’s negligent and cavalier indorsement contributed to the easier release
of Lim Sio Wan’s money and perpetuation of the fraud.

(3) On the ground of unjust enrichment wherein at the expense of Lim Sio Wan, the proceeds
of the placement were deposited in Producers Bank and its indebtedness to FCC was
subsequently extinguished by reason of the same, the Supreme Court held that Producers
Bank was ultimately liable and therefore, should reimburse Allied Banking Corporation and
Metropolitan Bank and Trust Company for the amount of the check.

12. Executive Judge Henedino P. Eduarte, RTC, Br. 20, Cauayan Isabela vs. Elizabeth T. Ibay, Clerk II, 4
MTCC, Cauayan, Isabela, A.C. No. P-12-3100, November 12, 2013, En Banc, Per
Curiam

Issue: Is forgery of a check ground for administrative liability?

 ANSWER: YES.

The Court finds that there is substantial evidence to support Ibay’s dismissal on the ground of
dishonesty. In Filoteo v. Calago we held that stealing a check and encashing it is considered gross
dishonesty.

Section 52(A) (1) of the Revised Uniform Rules on Administrative Cases in the Civil Service provides
that dishonesty is a grave offense punishable by dismissal from the service even when committed
for the first time. In Office of the Court Administrator v. Ibay, we found Ibay guilty of dishonesty for
stealing and encashing a check of Magpantay.

In the present case, Ibay did not explain the whereabouts of De Ocampo’s check and merely denied
the charges against her. The case against Ibay is bolstered by the fact that Judge Eduarte found
striking similarities between her handwriting in the inventory of cases and the forged endorsement
in the check. Ibay even admitted that her handwriting in the inventory bears similarities to that of
the endorser of the check.

Since this is no longer Ibay’s first offense and the Court already warned her before that a similar act
would warrant a more severe penalty, we now find it imperative to impose upon her the extreme
penalty of dismissal from the service.

13. Land Bank of the Philippines Vs. Narciso L. Kho/Ma. Lorena Flores and Alexander Cruz Vs. 5
Narciso L. Kho, G.R. No. 205839/G.R. No. 205840, July 7, 2016, Second Division, J. Brion

Issue: As between the drawer and the drawee bank who suffers the loss in case of encashment of a
fake check?

ANSWER: It is the drawee bank who should suffer the resulting damage. In this case, Land Bank
breached its duty of diligence and assumed the risk of incurring a loss on account of a forged or
counterfeit check. When Land Bank’s CCD forwarded the deposited check to its Araneta branch for
inspection, its officers had every opportunity to recognize the forgery of their signatures or the
falsity of the check. Whether by error or neglect, the bank failed to do so, which led to the
withdrawal and eventual loss of the ₱25,000,000.00.This is the proximate cause of the loss. Hence,
it should suffer the resulting damage.

14. Marphil Export Corporation and Ireneo Lim Vs. Allied Banking Corporation, G.R. No. 187922, 6
September 21, 2016, Third Division, J. Jardeleza

Issue: What is the basis of the right of a collecting bank to debit a client’s account for the value of
the dishonored check it previously credited? What is the principle of legal compensation under
Article 1279 of the Civil Code? What is the relationship between banks and depositors? (Also,
crossed check, section 66 liability of general indorser)

ANSWER: In the case of Associated Bank v. Tan, we upheld the right of a collecting bank to debit a
client's account for; the value of a dishonored check it previously credited by virtue of the
principle of legal compensation. Since the relationship between banks and depositors has been
held to be that of creditor and debtor in a simple loan, legal compensation may take place when
the conditions in Article 1279 of the Civil Code are present: (1) that each one of the obligors be
bound principally, and that he be at the same time a principal creditor of the other; (2) that both
debts consist in a sum of money, or if the things due are consumable, they be of the same kind,
and also of the same quality if the latter has been stated; (3) that the two debts be due; (4) that
they be liquidated and demandable; and (5) that over neither of them there be any retention or
controversy, commenced by third persons and communicated in due time to the debtor.
15. BDO Unibank, Inc. Vs. Engr. Selwyn Lao, doing business under the name and style "Selwyn F. Lao 7
Construction" and "Wing An Construction and Development Corporation" and International
Exchange Bank, G.R. No. 227005, June 19, 2017, Second Division, J. Mendoza

Issue: What is the sequence of recovery in cases of unauthorized payment of checks? What is the
basis of the liability of the drawee bank with the drawer? Where is the liability of a collecting bank
to the drawee bank anchored on? (Also, liability of the drawee bank to its drawer-client, liability of
collecting bank, Section 66 on liability of a general indorser, Section 17 PCHC Rules)

ANSWER:

● In cases of unauthorized payment of checks to a person other than the payee named
therein, the drawee bank may be held liable to the drawer. The drawee bank, in turn,
may seek reimbursement from the collecting bank for the amount of the check.
● The liability of the drawee bank is based on its contract with the drawer and its duty to
charge to the latter's accounts only those payables authorized by him. A drawee bank is
under strict liability to pay the check only to the payee or to the payee's order. When the
drawee bank pays a person other than the payee named in 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.
● The liability of the collecting bank is anchored on its guarantees as the last endorser of
the check. Under Section 66 of the Negotiable Instruments Law, an endorser warrants
"that the instrument is genuine and in all respects what it purports to be; that he has good
title to it; that all prior parties had capacity to contract; and that the instrument is at the
time of his endorsement valid and subsisting."

In sum, Lao, the drawer of the subject check, has a right of action against BDO for its
failure to comply with its duty as the drawee bank. BDO, in turn, would have a right of
action against Union Bank because of the falsity of its warranties as the collecting bank.
Considering, however, that BDO was not made a party in the appeal, it could no longer be
held liable to Lao. Thus, following Associated Bank, the proceedings for recovery must be
simplified and Lao should be allowed to recover directly from Union Bank.

16. Metropolitan Bank and Trust Company Vs. Junnel's Marketing Corporation, et al./Bank of 8
Commerce Vs. Junnel's Marketing Corporation, et al., G.R. No. 235511/G.R. No. 235565.
June 20, 2018, Third Division, J. Velasco, Jr.

Issues and Answers:

1. What is meant by the ruling that the banks must be sequentially liable for the entire amount of the
subject checks?

It means that the drawee bank becomes liable to the drawer for the amount of the checks but the
drawee bank, in turn, can seek reimbursement from the collecting bank. The rationale of this rule
on sequence of recovery lies in the very basis and nature of the liability of a drawee bank and a
collecting bank in said cases.

2. What is the Rule on Sequence of Recovery in Cases of Unauthorized Payment of Checks?

It means that the drawee bank becomes liable to the drawer for the amount of the checks but the
drawee bank, in turn, can seek reimbursement from the collecting bank. The rationale of this rule
on sequence of recovery lies in the very basis and nature of the liability of a drawee bank and a
collecting bank in said cases.
 The sequence of recovery in cases of unauthorized payment of checks, however, does not
ordinarily stop with the collecting bank. In the event that it is made to reimburse the
drawee bank, the collecting bank can seek similar reimbursement from the very persons who
caused the checks to be deposited and received the unauthorized payments.37 Such persons are
the ones ultimately liable for the unauthorized payments and their liability rests on their absolute
lack of valid title to the checks that they were able to encash.

3. What is the Doctrine of Comparative Negligence?

The doctrine of comparative negligence is a legal principle that limits the extent of reparation that
may be recovered by a person who is guilty of contributory negligence. Under this doctrine, a
person who is guilty of contributory negligence, though allowed to seek recourse against the
principal tortfeasor, must nonetheless bear a portion of the losses proportionate to the amount of
his negligence. The application of this doctrine is sanctioned in our jurisdiction by the second
sentence of Article 2179 of the Civil Code.

17. Iris Rodriguez Vs. Your Own Home Development Corporation (YOHDC), G.R. No. 199451. August 9
15, 2018, Third Division, J. Leonen

Issue: What is the duty of Metrobank as drawee bank upon discovering that the checks were not
paid to the correct payees?

ANSWER:

● Metrobank as the drawee bank is obligated to return the full amounts of the checks upon
discovering that they were not paid to the correct payees.
● The bank on which a check is drawn, known as the drawee bank, is under strict liability to
pay the check to the order of the payee. The drawer’s instructions are reflected on the face
and by the terms of the check. Payment under a forged indorsement is not to the drawer’s
order. When the drawee bank pays a person other than the payee, it does not comply with
the terms of the check and violates its duty to charge its customer’s (the drawer) account
only for properly payable items. Since the drawee bank did not pay a holder or other person
entitled to receive payment, it has no right to reimbursement from the drawer. The general
rule then is that the drawee bank may not debit the drawer’s account and is not entitled to
indemnification from the drawer. The risk of loss must perforce fall on the drawee bank. In
cases involving checks with forged indorsements, such as the present petition, the chain of
liability does not end with the drawee bank. The drawee bank may not debit the account of
the drawer but may generally pass liability back through the collection chain to the party
who took from the forger and, of course, to the forger himself, if available. In other words,
the drawee bank can seek reimbursement or a return of the amount it paid from the
presentor bank or person. Theoretically, the latter can demand reimbursement from the
person who indorsed the check to it and so on. The loss falls on the party who took the
check from the forger, or on the forger himself.

18. Philippine National Bank, Vs. Felina Giron-Roque, et. al., G.R. No. 240311, September 18, 2019, 10
First Division, J. Perlas-Bernabe

Issue: What is the effect when the signature in the subject check was forged?

ANSWER:
 ● PNB commenced extrajudicial foreclosure proceedings on Felina's real property on the
ground of the latter's non-payment of the first and second loans inclusive of interests and
penalties. However, and as unanimously found by the courts a quo: (a) Felina did not avail
of the second loan, as her signature in the subject check was forged; xxx

● The foreclosure sale had no basis since the second loan was void, considering that the
subject check was forged and Gloria was not duly authorized to withdraw from PNB. In view
of the nullity of the second loan, Felina's outstanding balance to PNB has been significantly
reduced to the value of the first loan, plus interests and penalties.

19. Philippine Savings Bank, V. Maria Cecilia Sakata, June 17, 2020, G.R. No. 229450, June 17, 2020, 11
Third Division, J. Leonen

Issue: What is the meaning of forgery? Is forgery presumed and if it is not, what is the quantum of
proof required and who has the burden of proving it? What is the effect of a forged signature
under Section 23? What type of a defense forgery is? Is the bank still liable on a forged check that
it pays even when the forgery may be so near like the genuine as to defy detection by the depositor
himself? If the drawer is also negligent what is the doctrine of shared responsibility?

ANSWER:

● What is the meaning of forgery? Forgery is the "counterfeiting of any writing, consisting in
the signing of another's name with intent to defraud.”

● Is forgery presumed and if it is not, what is the quantum of proof required and who has
the burden of proving it? Since it is not presumed, forgery "must be proved with clear,
positive and convincing evidence" by the party alleging it. Whether forgery exists on the
checks is a question of fact, which requires reevaluation of evidence best left to the lower
courts.

● What is the effect of a forged signature under Section 23? Under Section 23 of the
Negotiable Instruments Law, when a signature is forged or made without the authority of
the person whose signature it purports to be, it is wholly inoperative, and no right to retain
the instrument, or to give a discharge therefor, or to enforce payment thereof against any
party thereto, can be acquired through or under such signature, unless the party against
whom it is sought to enforce such right is precluded from setting up the forgery or want of
authority.

● What type of a defense forgery is? A forged signature is a real or absolute defense, and a
person whose signature on a negotiable instrument is forged is deemed to have never
become a party thereto and to have never consented to the contract that allegedly gave
rise to it.

● Is the bank still liable on a forged check that it pays even when the forgery may be so
near like the genuine as to defy detection by the depositor himself? Yes, the bank is still
liable. As payment made under a forged signature is ineffectual, the drawee bank cannot
charge it to the drawer's account because it is in a superior position to detect forgery.
"The forgery may be so near like the genuine as to defy detection by the depositor himself,
and yet the bank is liable to the depositor if it pays the check.

● If the drawer is also negligent what is the doctrine of shared responsibility? If the drawer
is also negligent, Section 23 of the Negotiable Instruments Law bars a party from setting
up the defense of forgery if it is guilty of negligence
CONSIDERATION
[Sections 24, 25, 28, 191 (value), (Rule 131 Section 3 (r) and (s) of the Rules of Court and Article 1354 of the Civil
Code)]
1. Teresita Villaluz, Chit Ilagan, spouses Ador and Tess Taberna and Mario Llamas vs. Court of 12
Appeals and spouses Reynaldo and Zenaida Anzures, G.R. No. 106214, September 5, 1997,
Third Division, J. Francisco

Issue: What is the presumption of consideration under Section 24? What is the effect of Villaluz’
issuance of a check for P2 million? (Note, there is a twin ejectment case involving, Ilagan, Taberna
and Llamas but not part of NIL)

ANSWER:

2. Remigio S. Ong vs. People of the Philippines and Court of Appeals, G.R. No. 139006, November 13
27, 2000, First Division, J. Kapunan

Issue: What is the gravamen of the offense punished by BP 22? Is it necessary to prove
consideration in BP 22?

ANSWER:

● The gravamen of the offense punished by B.P. 22 is the act of making and issuing a
worthless check or a check that is dishonored upon its presentation for payment. It is not
the non-payment of an obligation which the law punishes.
● In actions based upon a negotiable instrument, it is unnecessary to aver or prove
consideration, for consideration is imported and presumed from the fact that it is a
negotiable instrument.

3. Luis S. Wong vs. Court of Appeals and People of the Philippines, G.R. No. 117857, February 2, 14
2001, Second Division, J. Quisumbing

Issue: What was the consideration for the issuance of the checks? In BP 22 is there a necessity to
determine the reason for the issuance of the check? (Also, Section 1, NI as substitute for money,
letters of credit, drafts)

ANSWER:

● Initially, the checks were intended to be used as guarantee for the purchase orders of customers,
they found the checks were eventually used to settle the remaining obligations of petitioner with
LPI.
● No, there is no necessity because the mere act of issuing a worthless check is malum prohibitum.

4. Charles Lee, Chua Siok Uy, Mariano Sio, Alfonso Yap, Richard Velasco and Alfonso Co vs. Court of 15
Appeals and Philippine Bank of Communications, G.R. No. 117913, February 1,
2002, Second Division, J. De Leon, Jr.

Issue: What is the presumption of consideration under Section 24 and Rule 131 Section 3 of the
Rules of Court? What are the requirements for a negotiable instrument to be a substitute for
money? What are letters of credit? Are letters of credit negotiable instruments? How about a draft?
How are letters of credit transacted?

ANSWER:

Under Section 3, Rule 131 of the Rules of Court the following presumptions, among others, are
satisfactory if uncontradicted: a) That there was a sufficient consideration for a contract and b)
That a negotiable instrument was given or indorsed for sufficient consideration. As observed by
the Court of Appeals, a similar presumption is found in Section 24 of the Negotiable Instruments
Law, which provides that every negotiable instrument is deemed prima facie to have been issued
 for valuable consideration, and every person whose signature appears thereon to have become a
party for value.

Negotiable instruments which are meant to be substitutes for money, must conform to the
following requisites to be considered as such a) It must be in writing; b) It must be signed by the
maker or drawer; c) It must contain an unconditional promise or order to pay a sum certain in
money; d) It must be payable on demand or at a fixed or determinable future time; e) It must be
payable to order or bearer; and f) Where it is a bill of exchange, the drawee must be named or
otherwise indicated with reasonable certainty.

A letter of credit is not a negotiable instrument. It is a letter from a bank guaranteeing that a
buyer’s payment to a seller will be received on time and for the correct amount. In the event that
the buyer is unable to make a payment on the purchase, the bank will be required to cover the
full or remaining amount of the purchase.

Bank Draft is a payment instrument whose funds are guaranteed by a financial institution.

Modern Letters of Credit are usually not made between natural persons. They involve bankto-
bank transactions.

4a. Mico Metals Corporation vs. Court of Appeals and Philippine 16

Bank of Communications G.R. No. 117914, February 1, 2002, Second Division, J. De Leon, Jr.

Issue: What is the presumption of consideration under Section 24 and Rule 131 Section 3 of the Rules
of Court? What are the requirements for a negotiable instrument to be a substitute for money? What
are letters of credit? Are letters of credit negotiable instruments? How about a draft? How are letters
of credit transacted?

ANSWER:

(a) Under Section 3, Rule 131 of the Rules of Court the following presumptions, among
others, are satisfactory if uncontradicted: a) That there was a sufficient consideration for
a contract and b) That a negotiable instrument was given or indorsed for sufficient
consideration. As observed by the Court of Appeals, a similar presumption is found in
Section 24 of the Negotiable Instruments Law which provides that every negotiable
instrument is deemed prima facie to have been issued for valuable consideration and
every person whose signature appears thereon to have become a party for value.
(b) Negotiable instruments which are meant to be substitutes for money, must conform to
the following requisites to be considered as such a) it must be in writing; b) it must be
signed by the maker or drawer; c) it must contain an unconditional promise or order to
pay a sum certain in money; d) it must be payable on demand or at a fixed or
determinable future time; e) it must be payable to order or bearer; and f) where it is a bill
of exchange, the drawee must be named or otherwise indicated with reasonable
certainty.
(c) Modern letters of credit are usually not made between natural persons. They involve
bank to bank transactions. Historically, the letter of credit was developed to facilitate the
sale of goods between, distant and unfamiliar buyers and sellers. It was an arrangement
under which a bank, whose credit was acceptable to the seller, would at the instance of
the buyer agree to pay drafts drawn on it by the seller, provided that certain documents
are presented such as bills of lading accompanied the corresponding drafts
(d) Letters of credit and trust receipts are, however, not negotiable instruments.
(e) But drafts issued in connection with letters of credit are negotiable instruments.
(f) It was an arrangement under which a bank, whose credit was acceptable to the seller,
would at the instance of the buyer agree to pay drafts drawn on it by the seller, provided
 that certain documents are presented such as bills of lading accompanied the
corresponding drafts.

5. Felicito G. Sanson, Celedonia Sanson-Saquin, Angeles A. Montinola, Eduardo A. Montinola, Jr. vs. 17
Court of Appeals and Melecia T. Sy, as administratrix of the Intestate Estate of the Late Juan Bon
Fing Sy, G.R. No. 127745, April 22, 2003, Third Division, J. Carpio Morales

Issue: What is the effect of Section 24 of the NIL? (Note instructive as to “dead man’s statute” but
not covered in the NIL) (Also, Section 52 holder in due course, and gravamen of BP 22)

ANSWER:

The genuineness of the deceased’s signature having been shown, he is prima facie presumed
to have become a party to the check for value, following Section 24 of the Negotiable
Instruments Law which states that – Every negotiable instrument is deemed prima facie to
have been issued for a valuable consideration; and every person whose signature appears
thereon to have become a party thereto for value.

As for the administrator's invocation of the Dead Man’s Statute, the same does not likewise
lie. The rule renders incompetent: 1) parties to a case; 2) their assignors; or 3) persons in
whose behalf a case is prosecuted.

The rule is exclusive and cannot be construed to extend its scope by implication so as to
disqualify persons not mentioned therein. Mere witnesses who are not included in the above
enumeration are not prohibited from testifying as to a conversation or transaction between
the deceased and a third person, if he took no active part therein.

6. Leodegario Bayani vs. People of the Philippines, G.R. No. 154947, August 11, 2004, Second 18
Division, J. Callejo

Issue: What is the gravamen of BP 22? Was Evangelista considered a holder in due course? What is
the presumption of consideration (Section 24)? What is the effect of want of consideration (Section
28)?

ANSWER:

● The gravamen of the offense punished by BP 22 is the act of making and issuing a worthless
check or a check that is dishonored upon its presentation for payment. It is not the non-
payment of an obligation which the law punishes.
● Yes, Evangelista is considered a holder in due course. The evidence on record shows that
Evangelista rediscounted the check and gave P55,000.00 to Rubia after the latter endorsed
the same.
● Section 24 provides every negotiable instrument is deemed prima facie to have been issued
for a valuable consideration; and every person whose signature appears thereon to have
become a party thereto for value. In this case, such presumption cannot be overcome by the
petitioner’s bare denial of receipt of the amount of P55,000.00 from Rubia.
● Section 28 provides that the absence or failure of consideration is a matter of defense as
against any person not a holder in due course; and partial failure of consideration is a
defense pro tanto, whether the failure is an ascertained and liquidated amount or
otherwise.

7. Vicky C. Ty vs. People of the Philippines, G.R. No. 149275, September 27, 2004, Second Division, 19
J. Tinga
 Issue: What is the basis of the presumption of consideration? Is it a valid defense that no valuable
consideration redowned to the maker personally?

ANSWER:

8. Victor Ongson vs. People of the Philippines, G.R. No. 156169, August 12, 2005, First Division, J. 20
Ynares-Santiago

Issue: What constitutes valuable consideration? What is the presumption of consideration? What is
it that the law punishes in BP 22? (Also, elements of BP 22)

ANSWER: Upon issuance of a check, in the absence of evidence to the contrary, it is presumed
that the same was issued for valuable consideration, which may consist either in some right,
interest, profit or benefit accruing to the party who makes the contract, or some forbearance,
detriment, loss or some responsibility, to act, or labor, or service given, suffered or undertaken by
the other side. It is an obligation to do, or not to do in favor of the party who makes the contract,
such as the maker or endorser.

What the law punishes is such issuance of a bum check and not the purpose for which the check
was issued nor the terms or conditions relating to its issuance.Thus, even if there had been
payment through compensation or some other means, there could still be prosecution for
violation of B.P. 22.

The elements of violation of B.P. 22 are: (1) making, drawing, and issuance of any check to apply
on account or for value; (2) knowledge of the maker, drawer, or issuer that at the time of issue
he does not have sufficient funds in or credit with the drawee bank for the payment of the check
in full upon its presentment; and (3) subsequent dishonor of the check by the drawee bank for
insufficiency of funds or credit, or dishonor for the same reason had not the drawer, without any
valid cause, ordered the bank to stop payment.

9. Leodegario Bayani vs. People of the Philippines, G.R. No. 155619, August 14, 2007, Third Division, 21
J. Austria-Martinez

Issue: What is the presumption of consideration (Section 24)? What constitutes valuable
consideration? (Note instructive as to hearsay and the elements of BP 22, but not covered by the
NIL) (Also, Section 191 on the meaning of issuance)

ANSWER: Under the Negotiable Instruments Law, it is presumed that every party to an instrument
acquired the same for a consideration or for value. Valuable consideration may consist either of
some right, interest, profit or benefit accruing to the party who makes the contract; or some
forbearance, detriment, loss of some responsibility to act; or labor or service given, suffered or
undertaken by the other side. It is an obligation to do or not to do, in favor of the party who makes
the contract, such as the maker or indorser.

10. Isidro Pablito M. Palana vs. People of the Philippines, G.R. No. 149995, September 28, 2007, 1
Third Division, J. Ynares-Santiago

Issue: What is the presumption of consideration? What is the meaning of issuance under Section
191 of the NIL?

ANSWER:

● Upon issuance of a check, in the absence of evidence to the contrary, it is presumed that
the same was issued for valuable consideration, which may consist either in some right,
interest, profit or benefit accruing to the party who makes the contract, or some
forbearance, detriment, loss or some responsibility, to act, or labor, or service given,
suffered or undertaken by the other side. Since it was established that petitioner received
 money from private complainant in various amounts, petitioner cannot now claim that the
checks were not issued for value.
● Issuance, as defined under the Negotiable Instruments Law, is the first delivery of the
check.

11. Carmencita G. Cariño vs. Merlin de Castro, G.R. No. 176084, April 30, 2008, Third Division, J. 2
Ynares-Santiago

Issue: Was the check issued for consideration? (Note instructive as to authority to prosecute
criminal cases but not covered by the NIL. Quote: “Under Section 5, Rule 110 of the Rules of Court
all criminal actions commenced by complaint or information shall be prosecuted under the direction
and control of the fiscal. The fiscal represents the People of the Philippines in the prosecution of
offenses before the trial courts at the metropolitan trial courts, municipal trial courts, municipal
circuit trial courts and the regional trial courts. However, when such criminal actions are brought to
the Court of Appeals or (to) this Court (SC), it is the Solicitor General who must represent the People
of the Philippines not the fiscal.”)

ANSWER: In this case, not only were the checks without valuable consideration; they were also
issued for a non-existing account. The MTC and RTC found that the checks were issued by
respondent without valuable consideration; that petitioner was not authorized to collect rental
payments from respondent; and that consequently, respondent can legally refuse payment on
the ground that said checks were issued without valuable and legal consideration.

12. Siain Enterprises, Inc. vs. Cupertino Realty Corporation and Edwin R. Catacutan, G.R. No. 170782, 3
June 22, 2009, Third Division, J. Nachura

Issues:

(1) Was there a consideration for the issuance of the promissory note?
(2) What is the presumption of consideration? Is this presumption provided for in the Rules of
Court?

ANSWER:

(1) Yes, the Supreme Court held that the issuance of the promissory note was supported by a
consideration.
(2) The presumption of consideration is laid down in Rule 131, Section 24 of the Rules of
Court, which provides that every negotiable instrument is deemed prima facie to have
been issued for a valuable consideration; and every person whose signature appears
thereon to have become a party thereto for value.

13. Engr. Jose E. Cayanan vs. North Star International Travel, Inc., G.R. No. 172954. October 5, 2011, 4
1st Division, J. Villarama

Issue: What is the presumption of consideration under Section 24? (Also, notice of dishonor)

ANSWER:Under the Negotiable Instruments Law, it is presumed that every party to an instrument
acquires the same for a consideration or for value. As petitioner alleged that there was no
consideration for the issuance of the subject checks, it devolved upon him to present convincing
evidence to overthrow the presumption and prove that the checks were in fact issued without
valuable consideration. Sadly, however, petitioner has not presented any credible evidence to rebut
the presumption, as well as North Star’s assertion, that the checks were issued as payment for the
US$85,000 petitioner owed.

Notably, petitioner anchors his defense of lack of consideration on the fact that he did not personally
receive the US$85,000 from Virginia. However, we note that in his pleadings, he never denied having
 instructed Virginia to remit the US$85,000 to View Sea Ventures. Evidently, Virginia sent the money
upon the agreement that the petitioner will give to North Star the peso equivalent of the amount
remitted plus interest.

14. Erlinda C. San Mateo vs. People of the Philippines, G.R. No. 200090, March 6, 2013, Third 5
Division, J. Abad

Issue: Is lack of valuable consideration for the issuance of checks which were later dishonored for
insufficient funds material to the success of a prosecution for violation of BP 22?

ANSWER: No. The Court has consistently pronounced that the issue of lack of valuable
consideration for the issuance of checks which were later on dishonored for insufficient funds is
immaterial to the success of a prosecution for violation of B.P. 22. To be liable for violation of B.P.
22, the following essential elements must be present: (1) the making, drawing, and issuance of any
check to apply for account or for value; (2) the knowledge of the maker, drawer, or issuer that at
the time of issue he does not have sufficient funds in or credit with the drawee bank for the
payment of the check in full upon its presentment; and (3) the subsequent dishonor of the check by
the drawee bank for insufficiency of funds or credit or dishonor for the same reason had not the
drawer, without any valid cause, ordered the bank to stop payment.In this case, the third element is
present and had been adequately established. With respect to the first element, the Court gives full
faith and credit to the findings of the lower courts that the checks were issued for value since San
Mateo herself admitted that she drew and issued the same as payment for the yarns she ordered
from ITSP. Besides, the Court has consistently pronounced that the issue of lack of valuable
consideration for the issuance of checks which were later on dishonored for insufficient funds is
immaterial to the success of a prosecution for violation of B.P. 22. But the Court finds that the
second element was not sufficiently established. Section 2 of B.P. 22 creates the presumption that
the issuer of the check was aware of the insufficiency of funds when he issued a check and the bank
dishonored it. This presumption, however, arises only after it is proved that the issuer had received
a written notice of dishonor and that, within five days from receipt thereof, he failed to pay the
amount of the check or to make arrangements for its payment. Here, there is no basis in concluding
that San Mateo knew of the insufficiency of her funds. While she may have requested Sehwani in
her letters dated October 8, 2005 and November 11, 2005, to defer depositing all the checks, with
maturity dates of July and August 2005, otherwise, her account will close, such act did not amount
to an admission that, when she issued those checks, she knew that she would have no sufficient
funds in the drawee bank to pay for them.

15. Ricardo V. Quintos vs. Development Bank of the Philippines, et al., G.R. No. 168258, August 17, 6
2015, First Division, J. Leonardo-De Castro

Issue: What is the presumption of consideration? (Also, Section 16 on presumption of delivery,

evidence of indebtedness)

ANSWER: Article 1354 of the Civil Code provides that "[although the cause is not stated in the
contract, it is presumed that it exists and is lawful, unless the debtor proves the contrary."

16. Manuel C. Ubas, Sr. Vs. Wilson Chan, G.R. No. 215910, February 6, 2017, First Division, J. Perlas- 7
Bernabe

Issue: What is the presumption of consideration? What is the vital function of legal presumption?

ANSWER:

● Every negotiable instrument is deemed prima facie to have been issued for a valuable
consideration; and every person whose signature appears thereon to have become a
party thereto for value (Section 24, NIL)
● The vital function of legal presumption is to dispense with the need for proof.
17. Ivy Lim Vs. People of the Philippines and Blue Pacific Holdings, Inc., G.R. No. 224979, December 8
13, 2017, J. Peralta

Issues and Answers:

1. What is the presumption of consideration?

Every negotiable instrument is deemed prima facie to have been issued for a valuable
consideration; and every person whose signature appears thereon to have become a party thereto
for value. (Section 24, Negotiable Instruments Law)

2. Is clear and convincing evidence enough to overturn this disputable presumption?

● Consideration being presumed, it need not be alleged and proved, But the presumption is
only prima facie. It may, therefore, be rebutted by evidence to the contrary. (Pineda vs. De
La Rama, 121 SCRA 671 [1983]; see Yang vs. Court of Appeals, 409 SCRA 159 [2003].) The
evidence must be convincing to overthrow the presumption. It is not overcome by a mere
denial of receipt of the consideration. (Bayani vs. People, 436 SCRA 113 [2004].)
● Only evidence of the clearest and most convincing kind will suffice for that purpose. (Travel-
On Inc v CA, 1992) 


18. Conchita Gloria and Maria Lourdes Gloria-Payduan, G.R. No. 202324, June 4, 2018, First Division, 9
J. Del Castillo

Issue: What is the effect of Articles 1346 and 1409 of the Civil Code on the subject promissory note?

ANSWER:

● The mortgage and promissory note were declared null and void for being absolutely
simulated.
● As far as the petitioners were concerned, they merely entrusted the title to the subject
property to Biag for the purpose of reconstituting the same as he claimed that the title on
file with the Register of Deeds of Quezon City may have been lost by fire. They did not intend
for Biag to mortgage the subject property to secure a loan; yet the latter, without
petitioners’ knowledge and consent, proceeded to do just that, and in the process, he
falsified the loan and mortgage documents and the accompanying promissory note by
securing Conchita’s signatures thereon through fraud and misrepresentation and taking
advantage of her advanced age and naivete and forged Juan’s signature and made it appear
that the latter was still alive at the time, when in truth and in fact, he had passed away in
1987.

19. Spouses Luis G. Batalla and Salvacion Batalla, Vs. Prudential Bank, Nagatome Auto Parts, Alicia 10
Rantael, And Honda Cars San Pablo, Inc., G.R. No. 200676, March 25, 2019, Second
Division, J. J. Reyes, Jr.

Issue: Can the promissory note that spouses Batalla executed with Prudential be rescinded on the
ground of alleged defects of the car delivered to them by Honda?

ANSWER: No.

● Contract of loan is distinct and separate from a contract of sale.

● The transactions of Spouses Batalla with Prudential and Honda are distinct and separate
from each other. From the time Spouses Batalla accepted the loan proceeds from Prudential,
the loan agreement had been perfected. As such, they were bound to comply with their
obligations under the loan agreement regardless of the outcome of the contract of sale with
Honda. Even assuming that the car that Spouses Batalla received was not brand new or had
 hidden defects, they could not renege on their obligation of paying Prudential the loan
amount.

● Spouses Batalla’s recourse in case of defects in the motor vehicle delivered to them was
limited against Honda and does not extend to Prudential as it merely lent the money to
purchase the car.

20. Quintin Artacho Llorente, V. Star City PTY Limited, G.R. No. 212050, January 15, 2020 , First 11
Division, J. Caguioa

Issue: What is the meaning of value?

ANSWER: Value, in general terms, may be some right, interest, profit or benefit to the party who
makes the contract or some forbearance, detriment, loan, responsibility, etc. on the other side.

20a. Star City PTY Limited, V. Quintin Artacho Llorente and Equitable PCI Bank (Now BDO Unibank, 12
Inc.), G.R. No. 212216, January 15, 2020, First Division, J. Caguioa

Issue: What is the meaning of value?

ANSWER:

Sections 28
1. Perpetual Savings Bank vs. Dolores Brondial, et. al., G.R. No. 146663, March 14, 2001, First 13
Division, Resolution

Issue: Is PSB a holder in due course? Does the promissory note have consideration? What is the
effect of Section 28 of the NIL? Is Brondial and accommodation party under Section 29? What is the
role of PSB (the party accommodated) in this transaction?

ANSWER:

● No, PSB is not a holder in due course.

● No, the promissory note does not have consideration.
● The effect of Section 28 of the NIL is that the absence of consideration can be used as a
defense against a holder not in due course.
● No, they are not under Section 29 because Brondial did not sign the instrument as maker,
drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of
lending his name to some other person.
● PSB, as the party accommodated has the role of either:
○ 1. To reimburse the amount which the accommodation party may be obliged
to pay
○ 2. To pay the instrument directly to the holder

Section 29 [Accommodation Party]

1. Spouses Gil and Noelli Gardose vs. Reynaldo S. Tarroza, G.R. No. 130570, May 19, 1998 , Second 15
Division, J. Puno

Issue: What is the relationship of the accommodation party and the party accommodated? What is
the difference between a surety and guaranty? What is an accommodation party? What is the
 immediate right of recourse under Section 151? What is the liability of the drawer under Section
61? (Note, no mention where the check was drawn and what was the reason for the dishonor or if
it was dishonored in the first place).

ANSWER:

The relationship between an accommodation party and the party accommodated is in effect one
of principal and surety.

By guaranty, a person called the guarantor binds himself to the creditor to fulfill the obligation
of the principal debtor in case the latter should fail to do so. By surety, a person binds himself
solidarily with the principal debtor.

An accommodation party is one who has signed the instrument as maker, drawer, indorser,
without receiving value therefor and for the purpose of lending his name to some other person.
Such person is liable on the instrument to a holder for value, notwithstanding such holder, at the
time of the taking of the instrument knew him to be only an accommodation party is in effect a
surety for the latter. He lends his name to enable the accommodated party to obtain credit or to
raise money. He receives no part of the consideration for the instrument but assumes liability to
the other parties thereto because he wants to accommodate another.

Under Section 151 of the Negotiable Instruments Law, when a bill is dishonored by non-
acceptance, an immediate right of recourse against the drawers and indorsers accrues to the
holder.

The drawer of a negotiable instrument engages that, on due presentment, the instrument will be
accepted or paid, or both, and if dishonored, he will pay the amount thereof to the holder.

2. Agro Conglomerates, Inc. and Mario Soriano vs. Court of Appeals, and Regent Savings and Loan 16
Bank, Inc., G.R. No. 117660, December 18, 2000, Second Division, J. Quisumbing

Issue: What is an accommodation maker? What is a surety?

ANSWER: An accommodation party (Accomodation maker in case of promissory note. this is not
in the case) is a person who has signed the instrument as maker, acceptor, or indorser, without
receiving value therefor, and for the purpose of lending his name to some other person and is
liable on the instrument to a holder for value, notwithstanding such holder at the time of taking
the instrument knew (the signatory) to be an accommodation party

Suretyship is defined as the relation which exists where one person has undertaken an obligation
and another person is also under the obligation or other duty to the obligee, who is entitled to but
one performance, and as between the two who are bound, one rather than the other should
perform

3. Majestic Finance & Investment Co., Inc. vs. Amelia L. Bonifacio, G.R. No. 147920, April 3, 2002, 17
First Division, Resolution

Issue: What is an accommodation party? Why is the accommodation party here not liable?

ANSWER:
 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.

There is nothing in the said contract which allows the petitioner as lessor to automatically forfeit
the advance rental for the last six months of the lease period from July to December, 1990. Since
the amount covered by respondent's postdated check pertained to the rentals for the last six
months of the lease period, the appellate court was correct in holding that she was under no
obligation as accommodation party of the lessees to make good her check.

4. Genevieve Lim vs. Florencio Saban, G.R. No. 163720, December 16, 2004, Second Division, J. 18
Tinga

Issue: What is an accommodation party? Give the elements for the existence of an accommodation
party? Was Lim an accommodation party to Ybañez? (Note instructive as to revocation of broker’s
agency rights after the transaction has been consummated, but not covered by NIL) (Also, Section
119 [d] and Section 122 on discharge of NIL)

ANSWER:

● An accommodation party as a person "who has signed the negotiable instrument as maker,
drawer, acceptor or indorser, without receiving value therefor, for the purpose of lending
his name to some other person."
● The accommodation party is one who meets all these three requisites, viz: (1) he signed the
instrument as maker, drawer, acceptor, or indorser; (2) he did not receive value for the
signature; and (3) he signed for the purpose of lending his name to some other person.
● No. In the case at bar, while Lim signed as drawer of the checks she did not satisfy the two
other remaining requisites. The absence of the second requisite becomes pellucid when it
is noted at the outset that Lim issued the checks in question on account of her transaction,
along with the other purchasers, with Ybañez which was a sale and, therefore, a reciprocal
contract. Neither is there any indication that Lim issued the checks for the purpose of
enabling Ybañez, or any other person for that matter, to obtain credit or to raise money,
thereby totally debunking the presence of the third requisite of an accommodation party.

5. Tomas Ang vs. Associated Bank and Antonio Ang Eng Liong, G.R. No. 146511, September 5, 2007, 19
First Division, J. Azcuna

Issue: What is an accommodation party under Section 29 of the NIL? Were the Promissory Notes
discharged under Section 119 (d) and 122 of the NIL? What is the warranty of an accommodation
party? What is the meaning of “without receiving value” What about “receiving value” for lending
his name? (Note instructive as to revocation of broker’s agency rights after the transaction has
been consummated, but not covered by NIL) (Also, Section 184 on promissory notes, Section 119 on
payment, Section 2 and Usury law on reduction of rates)

ANSWER:

Notably, Section 29 of the NIL defines an 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,

(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.
 An accommodation party lends his name to enable the accommodated party to obtain credit or
to raise money; he receives no part of the consideration for the instrument but assumes liability
to the other party/ies thereto. The accommodation party is liable on the instrument to a holder
for value even though the holder, at the time of taking the instrument, knew him or her to be
merely an accommodation party, as if the contract was not for accommodation.

The promissory notes were not discharged or impaired through any act or omission of the bank,
Sections 119 (d) and 122 of the NIL as well as Art. 1249 of the Civil Code would necessarily find
no application.

"Without receiving value therefor" used in Sec. 29 of the NIL means "without receiving value by
virtue of the instrument" and not as it is apparently supposed to mean, "without receiving
payment for lending his name."

Stated differently, when a third person advances the face value of the note to the
accommodated party at the time of its creation, the consideration for the note as regards its
maker is the money advanced to the accommodated party. It is enough that value was given for
the note at the time of its creation.

6. Henry Dela Rama Co vs. Admiral United Savings Bank, G.R. No. 154740, April 16, 2008, Third 20
Division, J. Nachura

Issue: What is the liability of an accommodation party under Section 29 of the NIL? What is a
promissory note? Who proves payment? Can stipulated interest rates be equitably reduced? What
is the basis of such reduction under the Civil Code? (Also, Section 22 on liability of corporate
officers)

ANSWER: An accommodation party who lends his name to enable the accommodated party to
obtain credit or raise money is liable on the instrument to a holder for value even if he receives
no part of the consideration.He assumes the obligation to the other party and binds himself to
pay the note on its due date.

A promissory note is a solemn acknowledgment of a debt and a formal commitment to repay it

on the date and under the conditions agreed upon by the borrower and the lender. A person who
signs such an instrument is bound to honor it as a legitimate obligation duly assumed by him
through the signature he affixes thereto as a token of his good faith. If he reneges on his promise
without cause, he forfeits the sympathy and assistance of this Court and deserves instead its
sharp repudiation.

A party who pleads payment as a defense has the burden of proving that such payment had, in
fact, been made. When the plaintiff alleges nonpayment, still, the general rule is that the burden
rests on the defendant to prove payment, rather than on the plaintiff to prove nonpayment.

Courts are empowered to reduce such penalty if the same is iniquitous or unconscionable. Article
1229 of the Civil Code states: ART. 1229. The judge shall equitably reduce the penalty when the
principal obligation has been partly or irregularly complied with by the debtor. Even if there has
been no performance, the penalty may also be reduced by the courts if it is iniquitous or
unconscionable.This sentiment is echoed in Article 2227 of the same Code: ART. 2227. Liquidated
damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are
iniquitous or unconscionable.

7. Claude P. Bautista vs. Auto Plus Traders, Incorporated and Court of Appeals, G.R. No. 166405, 21
August 18, 2008, Second Division, J. Quisumbing

Issue: What is an accommodation party? Was Bautista an accommodation party?

ANSWER: Section 29 of the Negotiable Instruments Law defines an 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. Here, Bautista was not an accommodation party. There is no showing of when petitioner
issued the check and in what capacity. In the absence of concrete evidence it cannot just be
assumed that petitioner intended to lend his name to the corporation. Hence, petitioner cannot be
considered as an accommodation party.

8. Nissan Gallery-Ortigas vs. Purification F. Felipe, G.R. No. 199067, November 11, 2013, Third 1
Division, J. Mendoza

Issue: What is the liability of a person under Section 29 of the Negotiable Instruments Law?

ANSWER:

The Court shall not be belabored with the issue of whether or not Purificacion was an
accommodation party because she was not. Granting that she was, it is with more reason that she
cannot escape any civil liability because Section 29 of the Negotiable Instruments Law specifically
bounds her to the instrument.

Sec. 29. Liability of accommodation party. – An accommodation party is one who has signed the
instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the
purpose of lending his name to some other person. Such a person is liable on the instrument to a
holder for value, notwithstanding such holder, at the time of taking the instrument, knew him to
be only an accommodation party.

9. Spouses Francisco Sierra (substituted by Donato, Teresita Teodora, Lorenza, Lucina, 2

Imelda, Vilma and Milagros Sierra) and Antonina Santos, et al. vs. PAIC Savings and
Mortgage Bank, G.R. No. 197857, September 10, 2014, First Division, J. Perlas-Bernabe

Issue: What is the effect of an accommodation mortgagor? Is it like that of an accommodation

party?

ANSWER:

● The accommodation mortgagor in effect becomes a surety to enable the accommodated

debtor to obtain credit.
● Yes, like an accommodation party to a negotiable instrument, the accommodation
mortgagor in effect becomes a surety to enable the accommodated debtor to obtain
credit, as petitioners in this case.

10. Rosalina Carodan Vs. China Banking Corporation, G.R. No. 210542, February 24, 2016 , 3
First Division, C.J. Sereno

Issues:

(1) What is an accommodation mortgagor?

(2) What is Rosalina’s liability under Article 2047 of the Civil Code?

ANSWER:

(1) An accommodation mortgagor is not the recipient of the loan, but merely a third party
who is not a party to the principal obligation but secures the same by pledging or
mortgaging his own property.
 (2) Under Article 2047 of the Civil Code, Rosaliana was held to be liable as a surety because
she bound herself solidarily with the principal debtor when she affixed her signature to
the Surety Agreement.

11. Sps. Marcelian Tapayan and Alice Tapayan Vs. Ponceda M. Martinez, G.R. No. 207786, 4
January 30, 2017, First Division, J. Caguioa

Issue: Are the parties under the circumstances considered as accommodation borrowers?

ANSWER: No, petitioner Spouses Tapayan’s claim that they are mere accommodation borrowers is
not supported by sufficient evidence.

Spouses Tapayan's payment of the interest on the DBP Loan, the insurance premiums corresponding
to the Pingol Property, and other incidental fees solely on their account, without seeking
reimbursement from the alleged Joint Venturers, establishes Petitioners' direct interest in the DBP
Loan, and negates the claim that they are mere accommodation borrowers. Since the proceeds of
the DBP Loan redounded to Petitioners' benefit, they must bear the liability arising from its non-
payment, and comply with the obligations imposed by the Deed of Undertaking executed in
connection therewith.

SECTION 2

Bank of the Philippine Islands, Inc. vs. Sps. Norman and Angelina Yu, et al.

G.R. No. 184122 | January 20, 2010

Issue: The question is whether or not the reference to the penalty charges in the promissory note constitutes
substantial compliance with the disclosure requirement of the Truth in Lending Act?

Facts: The Yus, doing business as Tuanson Trading, and Tuanson Builders Corporation borrowed ₱75M from FEBTC.
Unable to pay their loans, the Yus and Tuanson Builders requested a loan restructuring, which the bank, now merged
with BPI, granted. Despite the restructuring, the Yus still had difficulties paying their loan. They asked BPI to release
some of the mortgaged lands since their total appraised value far exceeded the amount of the remaining debt.
When BPI ignored their request, the Yus withheld payments on their amortizations. Thus, BPI extrajudicially
foreclosed the mortgaged properties in Legazpi City and Camarines Sur. But the Yus sought by court action against
BPI and the winning bidder, Magnacraft, the annulment of the foreclosure sale.

In the course of the proceedings, the Yus and Magnacraft entered into a compromise agreement that affirmed the
latter’s ownership of 3 out of 10 parcels of land that were auctioned. By virtue of the agreement, the court dismissed
the complaint against Magnacraft.

On 2003 the Yus filed their new complaint before the RTC against BPI for recovery of alleged excessive penalty
charges, attorney’s fees, and foreclosure expenses that the bank caused to be incorporated in the price of the
auctioned properties. They sought reconsideration of the reduction of penalty charges and the allowance of the
attorney’s fees. They claimed that the penalty charges should be deleted for violation of RA 3765 (Truth in Lending
Act). BPI’s disclosure did not state the rate of penalties on late amortizations.
Issue: The question is whether or not the reference to the penalty charges in the promissory note constitutes
substantial compliance with the disclosure requirement of the Truth in Lending Act?

Ruling: The penalty charges that were stipulated in the promissory notes were valid. Financial charges are amply
disclosed if stated in the promissory note. What the Court disallows was the collection of a handling charge that the
promissory notes did not contain.

Under Circular 158 of the Central Bank, the lender is required to include the information required by R.A. 3765 in the
contract covering the credit transaction or any other document to be acknowledged and signed by the borrower. In
addition, the contract or document shall specify additional charges, if any, which will be collected in case certain
stipulations in the contract are not met by the debtor. In this case, the promissory notes signed by the Yus contained
data, including penalty charges, required by the Truth in Lending Act. They cannot avoid liability based on a rigid
interpretation of the Truth in Lending Act that contravenes its goal.

SECTION 8 (ORDER INSTRUMENTS)

Federal Corporation vs. Luwalhati Antonio and Eliza Bettina Ricasa Antonio

G.R. No. 199455 | June 27, 2018

Issue: What are order instruments? Are order instruments equivalent to cash?

Facts: Eliza was the owner of Unit 22-A in Allegro Condominium, located in New York, United States. In November
2003, monthly common charges on the Unit became due. These charges were for the period of July to November
2003, and were for a total amount of almost US$10K.

On December, Luwalhati and Eliza were in the Philippines. As the monthly common charges on the Unit had become
due, they decided to send several Citibank checks to Sison, who was based in New York. Citibank checks allegedly
amounting to almost US$18K for the payment of monthly charges and US$11.6K for the payment of real estate taxes
were sent by Luwalhati through FedEx. The package was addressed to Sison who was tasked to deliver the checks
payable to Maxwell-Kates, Inc. and to the New York County Department of Finance. Sison allegedly did not receive the
package, resulting in the non-payment of Luwalhati and Eliza's obligations and the foreclosure of the Unit. 9

Upon learning that the checks were sent on December 15, Sison contacted FedEx on February 9, 2004 to inquire about
the non-delivery. She was informed that the package was delivered to her neighbor but there was no signed receipt.

On March 14, Luwalhati and Eliza, through their counsel, sent a demand letter to FedEx for payment of damages due
to the non-delivery of the package, but FedEx refused to heed their demand.11 Hence, on April 5, they filed their
Complaint for damages.
The RTC found that Luwalhati failed to accurately declare the contents of the package as "checks." 18 However, it ruled
that a check is not legal tender or a "negotiable instrument equivalent to cash," as prohibited by the Air Waybill.19 It
explained that common carriers are presumed to be at fault whenever goods are lost. 20 Luwalhati testified on the non-
delivery of the package. FedEx, on the other hand, claimed that the shipment was released without the signature of
the actual recipient, as authorized by the shipper or recipient. However, it failed to show that this authorization was
made; thus, it was still liable for the loss of the package.

Issue: What are order instruments? Are order instruments equivalent to cash?

Ruling: An order instrument, which has to be endorsed by the payee before it may be negotiated, cannot be a
negotiable instrument equivalent to cash.

Money is "what is generally acceptable in exchange for goods." It can take many forms, most commonly as coins and
banknotes. Despite its myriad forms, its key element is its general acceptability. RA 7653 (The New Central Bank Act),
defines "legal tender" as follows:

All notes and coins issued by the Bangko Sentral shall be fully guaranteed by the Government of the Republic of the
Philippines and shall be legal tender in the Philippines for all debts, both public and private: Provided, however, That,
unless otherwise fixed by the Monetary Board, coins shall be legal tender in amounts not exceeding Fifty pesos
(P50.00) for denomination of Twenty-five centavos and above, and in amounts not exceeding Twenty pesos (P20.00)
for denominations of Ten centavos or less.

It is settled in jurisprudence that checks, being only negotiable instruments, are only substitutes for money and are
not legal tender; more so when the check has a named payee and is not payable to bearer. The Court ruled that the
payment of a check to the sheriff did not satisfy the judgment debt as checks are not considered legal tender. It is also
held that the debts paid in a money market transaction through the use of a check is not a valid tender of payment as
a check is not legal tender in the Philippines. It is emphasized that a check, whether a manager's check or ordinary
check, is not legal tender.

Under Section 30 of the [Negotiable Instruments Law], an order instrument requires an indorsement from the payee
or holder before it may be validly negotiated. A bearer instrument, on the other hand, does not require an indorsement
to be validly negotiated.

There is no question that checks, whether payable to order or to bearer, so long as they comply with the requirements
under Section 1 of the Negotiable Instruments Law, are negotiable instruments.