Negotiable Instruments Case Digest: Equitable

PCI Bank V. Ong (2006)

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

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

 December 5 1991: Upon inquiry by Serande at PCI Bank on whether

the TCBT  Check had been cleared, she received an affirmative answer. 

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

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

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

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

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

 Despite several demands made, it was refused

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

 CA affirmed RTC: favored Ong

ISSUE: W/N Ong can hold PCI liable

HELD: YES.  Petition is DENIED. CA affirmed.
 By admitting it committed an error, clearing the check of Sarande and issuing in
favor of Ong not just any check but a manager's check for that matter, PCI Bank's
liability is fixed

 certification = acceptance, 

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

 No unjust enrichment

SECTION 52. What constitutes a holder in due course. – A holder in due course is a

holder who has taken the instrument under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice it had
been previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it.
The same law provides further:
Sec. 24. Presumption of consideration. – Every negotiable instrument is deemed prima
facie to have been issued for a valuable consideration; and every person whose
signature appears thereon to have become a party thereto for value.
Sec. 26. What constitutes holder for value. – Where value has at any time been given
for the instrument, the holder is deemed a holder for value in respect to all parties who
become such prior to that time.
Sec. 28. Effect of want of consideration. – Absence or failure of consideration is a
matter of defense as against any person not a holder in due course; and partial failure
of consideration is a defense pro tanto, whether the failure is an ascertained and
liquidated amount or otherwise.
 manager's check 

 an order of the bank to pay, drawn upon itself, committing in effect its total
resources, integrity and honor behind its issuance
 regarded substantially to be as good as the money it represents

 same footing as a certified check

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

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

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

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

Sec. 62. Liability of acceptor. – The acceptor by accepting the instruments engages that
he will pay it according to the tenor of his acceptance; and admits –
(a) The existence of the drawer, the genuineness of his signature, and his capacity and
authority to draw the instrument; and
(b) The existence of the payee and his then capacity to indorse.

Labels: 2006, Case Digest, Checks, Equitable PCI Bank v. Ong, G.R. No. 156207, Juris Doctor,Negotiable

Instruments Case Digest, Negotiable Instruments Law, Promissory Notes, September 15

BPI vs Roxas 536 SCRA 168. October 15, 2016

Facts:

                Gregorio C. Roxas, respondent, is a trader. He delivered stocks of vegetable oil to spouses
Rodrigo and Marissa Cawili. As payment therefor, spouses Cawili issued a personal check in the amount
of P348,805.50. However, when respondent tried to encash the check, it was dishonored by the drawee
bank. Spouses Cawili then assured him that they would replace the bounced check with a cashier’s check
from the Bank of the Philippine Islands (BPI), petitioner.

Respondent and Rodrigo Cawili went to petitioner’s branch at Shaw Boulevard, Mandaluyong
 City where Elma Capistrano, the branch manager, personally attended to them. Upon Elma’s instructions,
Lita Sagun, the bank teller, prepared BPI Cashier’s Check No. 14428 in the amount of P348,805.50,
drawn against the account of Marissa Cawili, payable to respondent. Rodrigo then handed the check to
respondent in the presence of Elma.

The following day, respondent returned to petitioner’s branch at Shaw Boulevard to encash the
cashier’s check but it was dishonored. Elma informed him that Marissa’s account was closed on that date.
Despite respondent’s insistence, the bank officers refused to encash the check and tried to retrieve it from
respondent. He then called his lawyer who advised him to deposit the check in his (respondent’s) account
at Citytrust, Ortigas Avenue. However, the check was dishonored on the ground "Account Closed."

                Respondent filed with the RTC complaint for sum of money against petitioner. The RTC renders
judgment ordering BPI to pay Roxas.

                Court of Appeals affirmed the trial court’s judgment.

Issue:

1.       Whether or not respondent is a holder in due course.

2.       Whether or not BPI is liable to respondent for the amount of the cashier’s check.

Ruling:

1.       Yes.

Section 52 of the Negotiable Instruments Law provides:

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

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

(b) That he became the holder of it before it was overdue and without notice that it 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 person negotiating it.

As a general rule, under the above provision, every holder is presumed prima facie to be a holder
in due course. One who claims otherwise has the onus probandi to prove that one or more of the
conditions required to constitute a holder in due course are lacking. In this case, petitioner contends that
the element of "value" is not present, therefore, respondent could not be a holder in due course.
Petitioner’s contention lacks merit. Section 25 of the same law states:
 SEC. 25. Value, what constitutes. – Value is any consideration sufficient to support a simple
contract. An antecedent or pre-existing debt constitutes value; and is deemed as such whether the
instrument is payable on demand or at a future time. There is no dispute that respondent received
Rodrigo Cawili’s cashier’s check as payment for the former’s vegetable oil. The fact that it was Rodrigo
who purchased the cashier’s check from petitioner will not affect respondent’s status as a holder for value
since the check was delivered to him as payment for the vegetable oil he sold to spouses Cawili. Verily,
the Court of Appeals did not err in concluding that respondent is a holder in due course of the cashier’s
check.

2.       Yes.

It bears emphasis that the disputed check is a cashier’s check. The Court held that a cashier’s
check is really the bank’s own check and may be treated as a promissory note with the bank as the
maker. The check becomes the primary obligation of the bank which issues it and constitutes a written
promise to pay upon demand. The Court took judicial notice of the "well-known and accepted practice in
the business sector that a cashier’s check is deemed as cash." This is because the mere issuance of a
cashier’s check is considered acceptance thereof.

In view of the above pronouncements, petitioner bank became liable to respondent from the
moment it issued the cashier’s check. Having been accepted by respondent, subject to no condition
whatsoever, petitioner should have paid the same upon presentment by the former.

Negotiable Instruments Case Digest:

Philippine National Bank V. Erlando Rodriguez
(2008)
G.R. No. 170325 September 26, 2008
Lessons Applicable: Fictitious Persons (Negotiable Instruments Law)

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

 The association maintained current and savings accounts with Philippine

National Bank (PNB)

 PEMSLA regularly granted loans to its members.  Spouses Rodriguez would

 rediscount the postdated checks issued to members whenever the association was
short of funds.  

 As was customary, the spouses would replace the postdated checks with their own
checks issued in the name of the members.

 It was PEMSLA’s policy not to approve applications for loans of members

with outstanding debts.  

 To subvert  this policy, some PEMSLA officers devised a scheme to obtain

additional loans despite their outstanding loan accounts.  

 They took out loans in the names of unknowing members, without the
knowledge or consent of the latter.  

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

 Rodriguez checks were deposited directly by PEMSLA to its savings account without

any indorsement from the named payees.  

 This was an irregular procedure made possible through the facilitation of Edmundo
Palermo, Jr., treasurer of PEMSLA and bank teller in the PNB Branch. 

 this became the usual practice for the parties.

 November 1998-February 1999: spouses issued 69 checks totalling to

P2,345,804.  These were payable to 47 individual payees who were all members of
PEMSLA

 PNB eventually found out about these fraudulent acts

 To put a stop to this scheme, PNB closed the current account of PEMSLA.  

 As a result, the PEMSLA checks deposited by the spouses were returned or

dishonored for the reason “Account Closed.” 

 The amounts were duly debited from the Rodriguez account

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

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

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

 RTC: favored Rodriguez

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

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

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

HELD: NO.  CA Affirmed 

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

 EX: However, there is a commercial bad faith exception to the fictitious-payee rule.  A

showing of commercial bad faith on the part of the drawee bank, or any transferee of the
check for that matter, will work to strip it of this defense.  The exception will cause it to bear
the loss. 

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

of negotiation

 order instrument - requires an indorsement from the payee or holder

before it may be validly negotiated

 bearer instrument - mere delivery

 US jurisprudence: “fictitious” if the maker of the check did not intend for the payee to in fact
receive the proceeds of the check
 In a fictitious-payee situation, the drawee bank is absolved from liability
and the drawer bears the loss

 When faced with a check payable to a fictitious payee, it is treated as a

bearer instrument that can be negotiated by delivery

 underlying theory: one cannot expect a fictitious payee to negotiate the

check by placing his indorsement thereon

 lack of knowledge on the part of the payees, however, was not

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

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

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

 In a fictitious-payee situation, the drawee bank is absolved from liability

and the drawer bears the loss

 When faced with a check payable to a fictitious payee, it is treated as a

bearer instrument that can be negotiated by delivery
 : “fictitious” if the maker of the check did not intend for the payee to in fact receive the
proceeds of the check

Respondnent allegation
 EX: However, there is a commercial bad faith exception to the fictitious-payee rule.  A
showing of commercial bad faith on the part of the drawee bank, or any transferee of the
check for that matter, will work to strip it of this defense.  The exception will cause it to bear
the loss.
Peti lose
 underlying theory: one cannot expect a fictitious payee to negotiate the
check by placing his indorsement thereon

 lack of knowledge on the part of the payees, however, was not

tantamount to a lack of intention on the part of respondents-spouses that
the payees would not receive the checks’ proceeds
 PNB did not obey the instructions of the drawers when it accepted absent indorsement,
forged or otherwise.  It was negligent in the selection and supervision of its employees

Negotiable Instruments Case Digest: Bataan

Cigar V. CA (1994)
G.R. No. 93048  March 3, 1994
Lessons Applicable: Rights of a holder (Negotiable Instruments Law)

FACTS: 
 Bataan Cigar & Cigarette Factory, Inc. (BCCFI), a corporation involved in the manufacturing of cigarettes
purchased from King Tim Pua George (George King) 2,000 bales of tobacco leaf to be delivered starting
October 1978. 
 July 13, 1978: it issued crossed checks post dated sometime in March 1979 in the total amount of P820K
 George represented that he would complete delivery w/in 3 months from Dec 5 1978 so BCCFI agreed to
purchase additional 2,500 bales of tobacco leaves, despite the previous failure in delivery
 It issued post dated crossed checks in the total amount of P1.1M payable sometime in September 1979.  
 July 19, 1978:  George sold to SIHI at a discount check amounting to P164K, post dated March 31, 1979,
drawn by BCCFI w/ George as payee. 
 December 19 and 26, 1978: George sold 2 checks both in the amount of P100K, post dated September 15
& 30, 1979 respectively, drawn by BCCFI w/ George as payee
 Upon failure to deliver, BCCFI issued on March 30, 1979 and September 14 & 28, 1979 a stop payment
order for all checks
 SIHI failing to claim, filed a claim against  BCCFI
 RTC: SIHI = holder in due course. Non-inclusion of Gearoge as party is immaterial to the case
ISSUE: W/N SIHI is a holder in due course beign a second indorser and a holder of crossed checks

HELD: YES.  GRANTED. RTC reversed.

 Sec. 52
1. That it is complete and regular upon its face
2. 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
 3. That he took it in good faith and for value
4. 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
 Sec. 59
 every holder is deemed prima facie a holder in due course
 However, when it is shown that the title of any person who has negotiated the instrument was defective,
the burden is on the holder to prove that he or some person under whom he claims, acquired the title as
holder in due course.
 effect of crossing of a check

1. check may not be encashed but only deposited in the bank

2. check may be negotiated only once — to one who has an account with a bank
3. act of crossing the check serves as warning to the holder that the check has been issued for a definite
purpose - he must inquire if he has received the check pursuant to that purpose, otherwise, he is not a
holder in due course

 crossing of checks should put the holder on inquiry and upon him devolves the duty to ascertain the
indorser's title to the check or the nature of his possession - failure = guilty of gross negligence amounting
to legal absence of good faith, contrary to Sec. 52(c) of the Negotiable Instruments Law
 SIHI is not a holder in due course. Consequently, BCCFI cannot be obliged to pay the checks.  However,
that SIHI could not recover from the checks. The only disadvantage of a holder who is not a holder in due
course is that the instrument is subject to defenses as if it were non-negotiable. Hence, SIHI can collect
from the immediate indorser, George

Corporate Law Case Digest: Atrium

Management Corp. V. CA (2001)
 G.R. No. 109491. February 28, 2001.
Lessons Applicable: Ultra Vires Act, When corporate officers may be held personally liable (Corporate Law)

FACTS:
 Hi-Cement Corporation through its corporate signatories:
 petitioner Lourdes M. de Leon - treasure
 late Antonio de las Alas - Chairman
         issued 4 checks in favor of E.T. Henry and Co. Inc., as payee. 
 E.T. Henry approached Atrium for financial assistance, offering to discount the 4 checks 
 Upon presentment for payment by Atrium, the drawee bank dishonored all checks reasoning payment
stopped.
 Atrium, instituted this action after its demand for payment of the value of the checks was denied. 
 RTC: Ordered Lourdes M. de Leon, her husband Rafael de Leon, E.T. Henry and Co., Inc. and Hi-Cement
Corporation to pay Atrium, jointly and severally, the value of all checks, plus interest and attorneys fees
 CA: Absolved Hi-Cement from liability on the basis that the issuance of the signatories were ultra vires
acts therefore the checks were not issued for a valuable consideration
ISSUE: 
1. W/N the issuance of the checks were ultra vires act. -NO
2. W/N Lourdes M. de Leon and Antonio de las Alas were personally liable for the checks issued as
corporate officers and authorized signatories of the check. - Ms. de Leon may be held personally liable

HELD: 

1. 
 Act of issuing the checks - within the ambit of a valid corporate act, for it was for securing a loan to
finance the activities of the corporation ≠ ultra vires act
 ultra vires act - 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 
 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.  Ms. de Leon may be held personally liable therefor.
 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
         a. He assents:
            i.  to a patently unlawful act of the corporation
           ii.  for bad faith or gross negligence in directing its affairs
         iii.  for conflict of interest, resulting in damages to the corporation, its stockholders or other persons
         b. 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;
         c. He agrees to hold himself personally and solidarily liable with the corporation; or
         d. He is made, by a specific provision of law, to personally answer for his corporate action
 Lourdes M. de Leon and Antonio de las Alas as treasurer and Chairman of Hi-Cement were authorized to
issue the checks. 
 However, Ms. de Leon was negligent when she signed the confirmation letter requested by Mr. Yap of
Atrium and Mr. Henry of E.T. Henry for the rediscounting of the crossed checks issued in favor of E.T.
Henry. 
 She was aware that the checks were strictly endorsed for deposit only to the payees account and not to be
further negotiated. 
 What is more, the confirmation letter contained a clause that was not true: in payment of Hydro oil bought
by Hi-Cement from E.T. Henry. 
 Her negligence resulted in damage to the corporation. 

Negotiable Instruments Case Digest: Allied

Banking Corp. V. Lim Sio Wan (2008)
 
G.R. No. 133179               March 27, 2008
Lessons Applicable: Liabilities of the Parties (Negotiable Instruments Law)

FACTS: 
Lim Sio Wan (deposited 1st money market) > Allied Bank > (pre-terminated and
withdrawn) Santos > (through forged indorsement of Lim Sio Wan deposited in FCC
account) Metrobank > (release in exchange of undertaking of reimbursement) FCC
> (through Santos, as officer of Producers bank, deposited money market) Producers
Bank 
 September 21, 1983: FCC had deposited a money market placement for P 2M with
Producers Bank

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

 Such deposit is evidenced by Official Receipt and a Letter 

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

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

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

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

 The bank issued Manager’s Check representing the proceeds of Lim Sio Wan’s
money market placement in the name of Lim Sio Wan, as payee, cross-checked "For
Payee’s Account Only" and given to Santos

 Allied manager’s check was deposited in the account of Filipinas Cement Corporation
(FCC) at Metropolitan Bank and Trust Co. (Metrobank), with the forged signature of
Lim Sio Wan as indorser

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

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

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

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

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

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

 Allied filed a third party complaint against Metrobank and Santos

 Metrobank filed a fourth party complainagainst FCC

 FCC for its part filed a fifth party complaint against Producers Bank. 

 Summonses were duly served upon all the parties except for Santos, who was no
longer connected with Producers Bank

 May 15, 1984: Allied informed Metrobank that the signature on the check was
forged
 Metrobank withheld the amount represented by the check from FCC.

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

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

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

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

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

DISMISSED

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

DISMISSED

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

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

HELD: YES. CA affirmed.  Modified Porudcers Bank to reimburse Allied and Metrobank.

 Articles 1953 and 1980 of the Civil Code

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

Art. 1980. Fixed, savings, and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple loan.
 bank deposit is in the nature of a simple loan or mutuum

 money market is a market dealing in standardized short-term credit instruments

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

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

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

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

 Allied negligent in issuing the manager’s check and in transmitting it to Santos

without even a written authorization

 Allied did not even ask for the certificate evidencing the money market placement or
call up Lim Sio Wan at her residence or office to confirm her instructions.

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

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

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

 Given the relative participation of Allied and Metrobank to the instant case, both
banks cannot be adjudged as equally liable. Hence, the 60:40 ratio of the liabilities
of Allied and Metrobank, as ruled by the CA, must be upheld.
 FCC, having no participation in the negotiation of the check and in the forgery of
Lim Sio Wan’s indorsement, can raise the real defense of forgery as against both
banks

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

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

Negotiable Instruments Case Digest:

Associated Bank V. CA (1996)
 
G.R. No. 107382/G.R. No. 107612             January 31, 1996
Lessons Applicable: Forgery (Negotiable Instruments Law)

FACTS:
 The Province of Tarlac maintains a current account with the Philippine National Bank
(PNB) Tarlac Branch where the provincial funds are deposited. 

 Checks issued by the Province are signed by the Provincial Treasurer and
countersigned by the Provincial Auditor or the Secretary of the Sangguniang Bayan.

 A portion of the funds of the province is allocated to the Concepcion Emergency

Hospital

 drawn to the order of "Concepcion Emergency Hospital, Concepcion, Tarlac" or "The

Chief, Concepcion Emergency Hospital, Concepcion, Tarlac." 

 The checks are released by the Office of the Provincial Treasurer and received for
the hospital by its administrative officer and cashier.

 January 1981:Upon post-audit by the Provincial Auditor, it was discovered that the
hospital did not receive several allotment checks 

 February 19, 1981:  After the checks were examined, they learned that 30 checks of
P203,300 were encashed by Fausto Pangilinan, with the Associated Bank acting as
collecting bank.
 Fausto Pangilinan

 administrative officer and cashier of payee hospital until his retirement on February
28, 1978, collected the questioned checks from the office of the Provincial Treasurer

 sought to encash the 1st check with Associated Bank

 Jesus David, manager of Associated Bank refused and suggested that Pangilinan

deposit the check in his personal savings account with the same bank

 Pangilinan was able to withdraw the money when the check was cleared and paid by
the drawee bank, PNB.

 PNB did not return the questioned checks within twenty-four hours, but several days
later

 After forging the signature of Dr. Adena Canlas who was chief of the payee hospital,
Pangilinan followed the same procedure for the other checks. 

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

 CA affrimed RTC: Associated to reimburse PNB and ordering PNB to pay Province of
Tarlac

ISSUE: W/N PNB and Associated Bank should be held liable

HELD: YES. PARTIALLY GRANTED. The collecting bank, Associated Bank, shall be liable

to PNB for 50% of P203,300

Sec. 23. FORGED SIGNATURE, EFFECT OF. — When a signature is forged or made
without 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.
 GR

 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. 

 EX: where "a party against whom it is sought to enforce a right is precluded from
setting up the forgery or want of authority."

 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

 In bearer instruments, the signature of the payee or holder is unnecessary to pass

title to the instrument. Hence, when the indorsement is a forgery, only the person
whose signature is forged can raise the defense of forgery against a holder in due
course

 In order instruments, 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. 

 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

 A collecting bank where a check is deposited and which indorses the check upon
presentment with the drawee bank =  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. 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.

 GR: drawee bank may not debit the drawer's account and is not entitled to
indemnification from the drawer - risk of loss must perforce fall on the drawee bank

 EX: 

 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

 In cases involving a forged check, where the drawer's signature is forged, the
drawer can recover from the drawee bank.

 In cases involving checks with forged indorsements,  the drawee bank canseek
reimbursement or a return of the amount it paid from the presentor bank or person

 However, a drawee bank has the duty to promptly inform the presentor of the
forgery upon discovery. If the drawee bank delays in informing the presentor of the
forgery, thereby depriving said presentor of the right to recover from the forger, the
former is deemed negligent and can no longer recover from the presentor

 Under Section 4(c) of CB Circular No. 580, items bearing a forged endorsement
shall be returned within twenty-Sour (24) hours after discovery of the forgery but in
no event beyond the period fixed or provided by law for filing of a legal action by
the returning bank. Section 23 of the PCHC Rules deleted the requirement that
 items bearing a forged endorsement should be returned within twenty-four hours.

 Since PNB did not return the questioned checks within twenty-four hours, but
several days later, Associated Bank alleges that PNB should be considered negligent
and not entitled to reimbursement of the amount it paid on the checks. 

 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

 In this case, the checks were indorsed by the collecting bank (Associated Bank) to
the drawee bank (PNB) 

 The stamp guaranteeing prior indorsements is not an empty rubric which a bank
must fulfill for the sake of convenience

 It is within the bank's discretion to receive a check for no banking institution would
consciously or deliberately accept a check bearing a forged indorsement. When a
check is deposited with the collecting bank, it takes a risk on its depositor.
 ASSOCIATED BANK vs. CA,
 PROVINCE OF TARLAC and PHILIPPINE NATIONAL BANK
 G.R. No. 107382/G.R. No. 107612             January 31, 1996

 The Province of Tarlac maintains a current account with the Philippine National Bank (PNB
Tarlac Branch) where the provincial funds are deposited. Portions of the funds were allocated to
the Concepcion Emergency Hospital. Checks were issued to it and were received by the
hospital’s administrative officer and cashier (Fausto Pangilinan). Pangilinan, through the help of
Associated Bank but after forging the signature of the hospital’s chief (Adena Canlas), was able
to deposit the checks in his personal account. All the checks bore the stamp “All prior
endorsement guaranteed Associated Bank.” Through post-audit, the province discovered that the
hospital did not receive several allotted checks, and sought the restoration of the debited amounts
from PNB. In turn, PNB demanded reimbursement from Associated Bank. Both banks resisted
payment. Hence, the present action.

 Issue: Who shall bear the loss resulting from the forged checks.

 Held: PNB is not negligent as it is not required to return the check to the collecting bank within
24 hours as the banks involved are covered by Central Bank Circular 580 and not the rules of the
Philippine Clearing House. Associated Bank, and not PNB, is the one duty-bound to warrant the
instrument as genuine, valid and subsisting at the time of indorsement pursuant to Section 66 of
 the Negotiable Instruments Law. The stamp guaranteeing prior indorsement is not an empty
rubric; the collecting bank is held accountable for checks deposited by its customers. However,
due to the fact that the Province of Tarlac is equally negligent in permitting Pangilinan to collect
the checks when he was no longer connected with the hospital, it shares the burden of loss from
the checks bearing a forged indorsement. Therefore, the Province can only recover 50% of the
amount from the drawee bank (PNB), and the collecting bank (Associated Bank) is liable to PNB
for 50% of the same amount.

 Samsung Construction v. Far East Bank

and Trust Company (FEBTC) and CA,
G.R. No. 129015 Banking, Negotiable
Instruments Law
 MARCH 27, 2019
 FACTS:
 A certain Roberto Gonzaga presented for payment FEBTC Check No.
432100 to the bank’s branch in Bel-Air, Makati. The check, payable
to cash and drawn against Samsung Construction’s current account,
was in the amount of P999,500.00. The bank teller, Cleofe Justiani,
checked the balance of the account. After ascertaining there were
enough funds, and after comparing the signature in the check and that
of the specimen on record, Justiani was satisfied as to the authenticity
of the signature on the check.
 Gonzaga presented 3 identification cards to the bank officers.
 Justiani forwarded the check to the branch Senior Assistant Cashier
Gemma Velez for approval. Velez too concluded that the check was
indeed signed by the company’s  Project Manager Jong Kyu Lee.
 The check was also forwarded to Shirley Syfu, another bank officer
for approval. Syfu then noticed that Jose Sempio III (Sempio), the
assistant accountant of Samsung Construction, was also in the
bank. Syfu showed the check to Sempio, who vouched for the
genuineness of Jong’s signature.
 Satisfied with the genuineness of the signature of Jong, Syfu
authorized the banks encashment of the check to Gonzaga.
 The following day, the company’s accountant, Kyu Yong Lee
discovered that a check had been encashed. Aware that he had not
prepared such a check for Jong’s signature, Kyu found that the last
blank check was missing.
 Jong learned of the encashment of the check, and realized that his
signature had been forged.
 Samsung Construction filed a Complaint for violation of Section 23
of the NIL, and prayed for the payment of the amount debited as a
result of the questioned check plus interest, and attorneys fees.
 The RTC held that Jong’s signature on the check was forged and
accordingly directed the bank to pay or credit back to Samsung
Constructions account the said amount.
 On appeal, the CA reversed the RTC Decision and absolved FEBTC
from any liability.
  
 ISSUE:
 Whether or not FEBTC is liable to Samsung Construction in paying
the forged check.
  
 RULING:
 Section 23 of the Negotiable Instruments Law states:
 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 therefore, 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 general rule is to the effect that a forged signature is wholly
inoperative, and payment made through or under such signature is
ineffectual or does not discharge the instrument. If payment is made,
 the drawee cannot charge it to the drawers account. The traditional
justification for the result is that the drawee is in a superior position to
detect a forgery because he has the makers signature and is expected
to know and compare it. The rule has a healthy cautionary effect on
banks by encouraging care in the comparison of the signatures against
those on the signature cards they have on file.
 Quite palpably, the general rule remains that the drawee who has paid
upon the forged signature bears the loss. The exception to this rule
arises only 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. 
 We recognize that Section 23 of the Negotiable Instruments Law bars
a party from setting up the defense of forgery if it is guilty of
negligence. Yet, we are unable to conclude that Samsung
Construction was guilty of negligence in this case.
 Given the circumstances, extraordinary diligence dictates that FEBTC
should have ascertained from Jong personally that the signature in the
questionable check was his.
 Still, even if the bank performed with utmost diligence, the drawer
whose signature was forged may still recover from the bank as long
as he or she is not precluded from setting up the defense of forgery.
After all, Section 23 of the Negotiable Instruments Law plainly states
that no right to enforce the payment of a check can arise out of a
forged signature. Since the drawer, Samsung Construction, is not
precluded by negligence from setting up the forgery, the general rule
should apply. Consequently, if a bank pays a forged check, it must be
considered as paying out of its funds and cannot charge the amount so
paid to the account of the depositor. A bank is liable, irrespective of
its good faith, in paying a forged check.
Areza vs. Express Savings Bank

Areza vs. Express Savings Bank

(G.R. No. 176697, September 10, 2014)

Doctrines: A depositary/collecting bank where a check is deposited, and which

endorses the check upon presentment with the drawee bank, is an endorser. 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.”

It is well-settled that the relationship of the depositors and the Bank or similar
institution is that of creditor-debtor. Article 1980 of the New Civil Code provides that
fixed, savings and current deposits of money in banks and similar institutions shall be
governed by the provisions concerning simple loans. 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 deposit agreement between the bank and
the depositor is the contract that determines the rights and obligations of the parties.

Facts: Petitioners received an order for the purchase of a motor vehicle from Gerry
Mambuay where the latter paid petitioners with nine (9) Philippine Veterans Affairs
Office (PVAO) checks payable to different payees and drawn against the Philippine
Veterans Bank (drawee), each valued at Two Hundred Thousand Pesos (₱200,000.00).
Petitioners deposited the said checks in their savings account with the Express
Savings Bank which, in turn, deposited the checks with its depositary bank,
Equitable-PCI Bank and the latter presented the checks to the drawee, the Philippine
Veterans Bank, which honored the checks. However, the subject checks were returned
by PVAO to the drawee on the ground that the amount on the face of the checks was
altered from the original amount of ₱4,000.00 to ₱200,000.00. After informing Express
Savings Bank that the drawee dishonored the checks, Equitable-PCI Bank debited the
deposit account of ESB in the amount of P1.8M. Express Savings Bank then withdrew
the amount of P1.8M representing the returned checks from petitioners saving
account.
Issue: Whether or not Express Savings Bank had the right to debit₱1,800,000.00 from
petitioners’ accounts.

Held: No, Express Savings Bank cannot debit the savings account of petitioners. A
depositary/collecting bank where a check is deposited, and which endorses the check
upon presentment with the drawee bank, is an endorser. 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.” As collecting bank, Express Savings Bank is liable
for the amount of the materially altered checks. It cannot further pass the liability
back to the petitioners absent any showing in the negligence on the part of the
petitioners which substantially contributed to the loss from alteration.

AUG

14

RAMON K. ILUSORIO v. COURT OF APPEALS. G.R. No. 139130.

November 27, 2002.
FACTS:

Ramon Ilusorio entrusted his credit cards and checkbooks and blank checks to his secretary.
Apparently, his secretary was able to encash and deposit to her personal account 17 checks drawn
against his account.

Ilusorio requested to restore to his account the value of the checks that were wrongfully encashed but
the bank refused, hence the case.

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

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

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

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

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

International Corporate Bank

vs. CA
International Corporate Bank, Inc. vs. Court of Appeals and Philippine National Bank
G.R. No. 129910, September 5, 2006
501 SCRA 20
FACTS: The Ministry of Education and Culture issued 15 checks drawn against Philippine
National Bank (PNB). Petitioner International Corporate Bank, Inc. (ICB) accepted the checks
for deposit on various dates.
After 24 hours from submission of the checks to PNB for clearing, ICB paid the value of the
checks and allowed the withdrawals of the deposits. However, on 14 October 1981, PNB
returned all the checks to petitioner without clearing them because the serial number  of the
checks were materially altered. Thus, ICB instituted an action for collection of sums of money
against PNB to recover the value of the checks.

RTC Ruling: ICB is not entitled to recover the value of the checks from PNB because the ICB
failed to inquire on the status of the checks before paying their value. PNB cannot be faulted for
the delay in clearing the checks considering the ingenuity in which the alterations were effected.
CA Ruling on its 10 October 1991 Decision: It reversed the trial court’s decision. Applying
Section 4(c) of Central Bank Circular No. 580, series of 1977, it held that checks that have been
materially altered shall be returned within 24 hours after discovery of the alteration. However, it
ruled that even if the drawee bank returns a check with material alterations after discovery of the
alteration, the return would not relieve the drawee bank from any liability for its failure to return
the checks within the 24-hour clearing period.
Respondent filed a Motion for Reconsideration on 6 November 1991 but the Registry Return
Receipt shows that counsel for respondent or his agent received a copy of the 10 October 1991
Decision on 16 October 1991. The motion was filed late.

Despite its late filing, the Court of Appeals resolved to admit the motion for reconsideration “in
the interest of substantial justice.” In its 9 August 1994 Amended Decision, the Court of
Appeals reversed itself and affirmed the Decision of the trial court dismissing the complaint. The
CA held that its 10 October 1991 Decision failed to appreciate that the rule on the return of
altered checks within 24 hours from the discovery of the alteration had been duly passed by the
Central Bank and accepted by the members of the banking system. Until the rule is repealed or
amended, the rule has to be applied.
In its 16 July 1997 Resolution, the Court of Appeals denied the Motion for Reconsideration of
ICB for lack of merit so the latter filed the petition before the Supreme Court under both Rules
45 and 65.

ISSUES:
1. Whether or not the checks were materially altered.
2. Whether or not the motion for reconsideration filed by respondent was out of time thus
making the 10 October 1991 Decision final and executory.
3. Whether or not the filing of the petition under both Rules 45 and 65 is proper.
RULING:
1. An alteration on the serial number of a check is not a material alteration. The Court held that
since there were no material alterations on the checks, respondent Philippine National Bank is
liable to petitioner International Corporate Bank, Inc. for the value of the checks amounting to
P1,447,920, with legal interest from 16 March 1982 until full payment.

In Philippine National Bank v. Court of Appeals, it already ruled that the alteration on the serial
number of a check is not a material alteration. Thus, an alteration is said to be material if it alters
the effect of the instrument. It means an unauthorized change in an instrument that purports to
modify in any respect the obligation of a party or an unauthorized addition of words or numbers
or other change to an incomplete instrument relating to the obligation of a party. In other words,
a material alteration is one which changes the items which are required to be stated under Section
1 of the Negotiable Instruments Law.

2. With regard to the timeliness of filing of respondent’s Motion for Reconsideration, the Court
reiterated that there are instances when rules of procedure are relaxed in the interest of justice.
However, in this case, PNB did not proffer any explanation for the late filing of the motion for
reconsideration. Instead, there was a deliberate attempt to deceive the Court of Appeals by
claiming that the copy of the 10 October 1991 Decision was received on 22 October 1991 instead
of on 16 October 1991. The Court of Appeals admission of the motion for reconsideration is not
justified. Thus, the late filing of the motion for reconsideration rendered the 10 October 1991
Decision final and executory.

3. The remedies of appeal and certiorari are mutually exclusive and not alternative or successive.
However, the Court found the petition to be meritorious so it resolved the issue and set aside
technicality for this justifiable reason. Additionally, the petition was filed on time both under
Rules 45 and 65. Hence, in accordance with the liberal spirit which pervades the Rules of Court
and in the interest of justice, it treated the petition as having been filed under Rule 45.

NOTES:
Petitioners may not delegate upon the court the task of determining under which rule should the
petition should fall; A petition cannot be subsumed simultaneously under Rule 45 and Rule 65 of
the Rules of Court, and neither may petitioners delegate upon the court the task of determining
under which rule the petition should fall– Respondent asserts that the petition should be
dismissed outright since petitioner availed of a wrong mode of appeal. Respondent citesYbañez
v. Court of Appeals where the Court ruled that “a petition cannot be subsumed simultaneously
under Rule 45 and Rule 65 of the Rules of Court, and neither may petitioners delegate upon the
court the task of determining under which rule the petition should fall.”
METROBANK VS CABILZO (510 SCRA 259)

Metropolitan Bank and Trust Company vs Cabilzo

510 SCRA 259 [G.R. No. 154469 December 6, 2006]

Facts: Petitioner Metrobank is a banking institution duly organized and existing as such under Philippine laws.
Respondent Renato D. Cabilzo (Cabilzo) was one of Metrobank’s clients who maintained a current account with
Metrobank Pasong Tamo Branch. On 12 November 1994, Cabilzo issued a Metrobank Check No. 985988, payable
to “CASH” and postdated on 24 November 1994 in the amount of One Thousand Pesos (P 1,000.00). The check was
drawn against Cabilzo’s Account with Metrobank Pasong Tamo Branch under Current Account No. 618044873-3
and was paid by Cabilzo to a certain Mr. Marquez, as his sales commission. Subsequently, the check was presented
to Westmont Bank for payment. Westmont Bank, in turn, indorsed the check to Metrobank for appropriate clearing.
After the entries thereon were examined, including the availability of funds and the authenticity of the signature of
the drawer, Metrobank cleared the check for encashment in accordance with the Philippine Clearing House
Corporation (PCHC) Rules.  On 16 November 1994, Cabilzo’s representative was at Metrobank Pasong Tamo
Branch to make some transaction when he was asked by a bank personnel if Cabilzo had issued a check in the
amount of P 91,000.00 to which the former replied in the negative. On the afternoon of the same date, Cabilzo
himself called Metrobank to reiterate that he did not issue a check in the amount of P 91,000.00 and requested that
the questioned check be returned to him for verification, to which Metrobank complied. 1,000.00 was altered to P
Upon receipt of the check, Cabilzo discovered that Metrobank Check No. 985988 which he issued on 12 November
1994 in the amount of P 91,000.00 and the date 24 November 1994 was changed to 14 November 1994.

Issue: Whether or not the alteration made in the subject check is a material alteration.

Held: Yes. An alteration is said to be material if it changes the effect of the instrument. It means that an
unauthorized change in an instrument that purports to modify in any respect the obligation of a party or an
unauthorized addition of words or numbers or other change to an incomplete instrument relating to the obligation of
a party.In other words, a material alteration is one which changes the items which are required to be stated under
Section 1 of the Negotiable Instruments Law.  

Section 125. What constitutes material alteration. – Any alteration which changes: (a) The date;  (b) The sum
payable, either for principal or interest;  (c) The time or place of payment;  (d) The number or the relation of the
parties;  (e) The medium or currency in which payment is to be made; Or which adds a place of payment where no
place of payment is specified, or any other change or addition which alters the effect of the instrument in any respect
is a material alteration. 

In the case at bar, the check was altered so that the amount was increased from P 1,000.00 to P91,000.00 and the
date was changed from 24 November 1994 to 14 November 1994. Apparently, since the entries altered were among
those enumerated under Section 1 and 125, namely, the sum of money payable and the date of the check, the instant
controversy therefore squarely falls within the purview of material alteration.  

Now, having laid the premise that the present petition is a case of material alteration, it is now necessary for us to
determine the effect of a materially altered instrument, as well as the rights and obligations of the parties thereunder.
The following provision of the Negotiable Instrument Law will shed us some light in threshing out this issue: 

Section 124. Alteration of instrument; effect of. – Where a negotiable instrument is materially altered without the
assent of all parties liable thereon, it is avoided, except as against a party who has himself made, authorized,
assented to the alteration and subsequent indorsers .  and But when the instrument has been materially altered and is
in the hands of a holder in due course not a party to the alteration, he may enforce the payment thereof according to
its original tenor. 

Indubitably, Cabilzo was not the one who made nor authorized the alteration. Neither did he assent to the alteration
by his express or implied acts. There is no showing that he failed to exercise such reasonable degree of diligence
required of a prudent man which could have otherwise prevented the loss. As correctly ruled by the appellate court,
Cabilzo was never remiss in the preparation and issuance of the check, and there were no indicia of evidence that
would prove otherwise. Indeed, Cabilzo placed asterisks before and after the amount in words and figures in order to
forewarn the subsequent holders that nothing follows before and after the amount indicated other than the one
specified between the asterisks.  

The degree of diligence required of a reasonable man in the exercise of his tasks and the performance of his duties
has been faithfully complied with by Cabilzo. In fact, he was wary enough that he filled with asterisks the spaces
between and after the amounts, not only those stated in words, but also those in numerical figures, in order to
prevent any fraudulent insertion, but unfortunately, the check was still successfully altered, indorsed by the
collecting bank, and cleared by the drawee bank, and encashed by the perpetrator of the fraud, to the damage and
prejudice of Cabilzo.  

Verily, Metrobank cannot lightly impute that Cabilzo was negligent and is therefore prevented from asserting his
rights under the doctrine of equitable estoppel when the facts on record are bare of evidence to support such
conclusion. The doctrine of equitable estoppel states that when one of the two innocent persons, each guiltless of
any intentional or moral wrong, must suffer a loss, it must be borne by the one whose erroneous conduct, either by
omission or commission, was the cause of injury. Metrobank’s reliance on this dictum, is misplaced. For one,
Metrobank’s representation that it is an innocent party is flimsy and evidently, misleading. At the same time,
Metrobank cannot asseverate that Cabilzo was negligent and this negligence was the proximate cause of the loss in
the absence of even a scintilla proof to buttress such claim. Negligence is not presumed but must be proven by the
one who alleges it.
When the drawee bank pays a materially altered check, it violates the terms of the check, as well as its duty to
charge its client’s account only for bona fide disbursements he had made. Since the drawee bank, in the instant case,
did not pay according to the original tenor of the instrument, as directed by the drawer, then it has no right to claim
reimbursement from the drawer, much less, the right to deduct the erroneous payment it made from the drawer’s
account which it was expected to treat with utmost fidelity. 

METROPOLITAN BANK AND TRUST COMPANY, et al. v. JOSE B. TAN, et

al.

509 SCRA 383 (2006)

Absent any evidence that the property is conjugal, lack of consent by one spouse does
not automatically render the mortgage void.

Upon application of the Metropolitan Bank and Trust Company (Metrobank) for extra-
judicial foreclosure of mortgage, the Office of the Provincial Sheriff issued a “Sheriff‘s
Notice of Sale” setting on the sale at public auction of four mortgaged parcels of
land registered in the name of Jose B. Tan. Before the scheduled publicauction, Spouses
Jose B. Tan and Eliza Go Tan filed a complaint against Metrobank for removal of cloud
on the title in question and injunction before the Regional Trial Court of Misamis
Oriental.

Eliza Go Tan avers that she never gave her consent or conformity to encumber the title
in question. The real estate mortgages are null and void because Jose B. Tan had already
fully paid the obligations secured by the mortgages. On the other hand, Metrobank
alleged that the Spouses Tan, together with their two sons, obtained acredit line from
which they made availments from time to time. Consequently, the line was gradually
increased.

The RTC rendered judgment in favor of Spouses Tan. Metrobank appealed before the
Court of Appeals. By Decision the CA affirmed the trial court‘s decision and accordingly
dismissed the appeal. A Motion for Reconsideration was filed but the same has been
dismissed. Hence, this petition.

ISSUE:

Whether or not the lack of respondent Eliza Go Tan‘s consent to the mortgage covering
the title in question would render the encumbrance void

HELD:

As for the claim that respondent Eliza Go Tan did not give her consent to the mortgage
of the title in question, the same is belied by her signature on Real Estate Mortgage
which is annotated as Entry No. 174644 at the back of the title. Her bare denial that the
signature was forged, without more, does not lie.

In any event, lack of respondent Eliza Go Tan‘s consent to the mortgage covering the
title in question would not render the encumbrance void under the second paragraph of
Article 124 of the Family Code. For proof is wanting that the property covered by the
title is conjugal — that it was acquired during respondents‘ marriage which is what
would give rise to the presumption that it is conjugal property. The statement in the title
that the property is “registered in accordance with the provisions of Section 103 of the
Property Registration Decree in the name of JOSE B. TAN, of legal age, married
to Eliza Go Tan” does not prove or indicate that the property is conjugal.

The presumption under Article 116 of the Family Code that properties acquired during
the marriage are presumed to be conjugal cannot apply in the instant case. Before such
presumption can apply, it must first be established that the property was in fact
acquired during the marriage. In other words, proof of acquisition during the marriage
is a condition sine qua non for the operation of the presumption in favor
of conjugal ownership. No such proof was offered nor presented in the case at bar.

VELASQUEZ vs. SOLIDBANK CORPORATION

G.R. No. 157309
March 28, 2008
FACTS:  The case arose out of a business transaction for the sale of dried sea
cucumber for export to South Korea between Wilderness Trading (of
Velasquez), as seller, and Goldwell Trading of Pusan, South Korea, as buyer.
To facilitate payment of the products, Goldwell Trading opened a letter of
credit in favor of Wilderness Trading with the Bank of Seoul, Pusan, Korea.
Petitioner applied for credit accommodation with Solidbank for pre-shipment
financing. The credit accommodation was granted. Petitioner was successful
in his first two export transactions both drawn on the letter of credit. The third
export shipment, however, yielded a different result. Petitioner submitted to
Solidbank the necessary documents for his third shipment. Wanting to be paid
the value of the shipment in advance, petitioner negotiated for a documentary
sight draft to be drawn on the letter of credit, chargeable to the account of
Bank of Seoul. The sight draft represented the value of the shipment.
As a condition for the issuance of the sight draft, petitioner executed a letter of
undertaking in favor of respondent. Under the terms of the letter of
undertaking, petitioner promised that the draft will be accepted and paid by
Bank of Seoul according to its tenor. Petitioner also held himself liable if the
sight draft was not accepted.
Respondent failed to collect on the sight draft as it was dishonored by non-
acceptance by the Bank of Seoul. The reasons given for the dishonor were late
shipment, forged inspection certificate, and absence of countersignature of the
negotiating bank on the inspection certificate.Goldwell Trading likewise
issued a stop payment order on the sight draft because most of the bags of
dried sea cucumber exported by petitioner contained soil.

Due to the dishonor of the sight draft and the stop payment order, respondent
demanded restitution of the sum advanced. Petitioner failed to heed the
demand.

Solidbank filed a complaint for recovery of sum of money with the RTC. In his
answer, petitioner alleged that his liability under the sight draft was
extinguished when respondent failed to protest its non-acceptance, as
required under the Negotiable Instruments Law (NIL). He also alleged that
the letter of undertaking is not binding because it is a superfluous document,
and that he did not violate any of the provisions of the letter of credit.

RTC rendered judgment in favor of respondent. The CA affirmed with

modification. hence this petition.

ISSUE: WON not petitioner should be held liable to respondent under the

sight draft or the letter of undertaking.
Held: petition denied.

YES; letter of undertaking

Admittedly, petitioner was discharged from liability under the sight draft
when respondent failed to protest it for non-acceptance by the Bank of Seoul.
A sight draft made payable outside the Philippines is a foreign bill of exchange.
When a foreign bill is dishonored by non-acceptance or non-payment, protest
is necessary to hold the drawer and indorsers liable. Verily, respondent’s
failure to protest the non-acceptance of the sight draft resulted in the
discharge of petitioner from liability under the instrument.
Petitioner, however, can still be made liable under the letter of undertaking. It
bears stressing that it is a separate contract from the sight draft. The liability
of petitioner under the letter of undertaking is direct and primary. It is
independent from his liability under the sight draft. Liability subsists on it
even if the sight draft was dishonored for non-acceptance or non-payment.

Respondent agreed to purchase the draft and credit petitioner its value upon
the undertaking that he will reimburse the amount in case the sight draft is
dishonored. The bank would certainly not have agreed to grant petitioner an
advance export payment were it not for the letter of undertaking. The
consideration for the letter of undertaking was petitioner’s promise to pay
respondent the value of the sight draft if it was dishonored for any reason by
the Bank of Seoul.

**GUARANTY**
We cannot accept petitioner’s thesis that he is only a mere guarantor under
the letter of credit. Petitioner cannot be both the primary debtor and the
guarantor of his own debt. This is inconsistent with the very purpose of a
guarantee which is for the creditor to proceed against a third person if the
debtor defaults in his obligation. Certainly, to accept such an argument would
make a mockery of commercial transactions.
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Negotiable Instruments Case Digest:

Velasquez V. Solidbank Corp. (2006)
G.R. No. 157309 March 28, 2008
Lessons Applicable: Protest, acceptance and payment for honor (Negotiable
Instruments Law)

FACTS:
 Wilderness Trading (Velasquez) sold and exported to Goldwell Trading
of Pusan, South Korea dried sea cucumber
 To facilitate payment, Goldwell Trading opened a letter of credit in favor of
Wilderness Trading in the amount of US$87,500.00 with the Bank of
Seoul, Pusan, Korea.
 November 12, 1992: Gonzales applied for credit accommodation with Solidbank
Corp. for pre-shipment financing - granted. 
 First two export - successful
 Third export - not successful
 February 22, 1993: Velasquez submitted to RCBC the necessary documents for his
third shipment.
 Wanting to be paid the value of the shipment in advance,Velasquez negotiated for a
 documentary sight draft for US$59,640.00 to be drawn on the letter of credit,
chargeable to the account of Bank of Seoul. 
 Terms: 
 promised that the draft will be accepted and paid by Bank of Seoul according to its
tenor
 Velasquez himself liable if the sight draft was not accepted
 Solidbank Corp.  failed to collect on the sight draft as it was dishonored by non-
acceptance by the Bank of Seoul. -reasons:
 late shipment
 forged inspection certificate
 absence of countersignature of the negotiating bank on the inspection certificate
 Goldwell Trading issued a stop payment order on the sight draft because most of
the bags of dried sea cucumber exported contained soil
 Solidbank Corp. demanded restitution of the sum advanced
 Gonzales failed to heed the demand
 June 3, 1993: Solidbank Corp. filed a complaint for recovery of sum of money with
the RTC 
 alleged that his liability under the sight draft was extinguished when Solidbank
Corp. failed to protest its non-acceptance, as required under the Negotiable
Instruments Law (NIL)
 RTC: favored Solidbank Corp. bec. even w/o protest Velasquez remained liable
under the letter of undertaking which he signed
 CA: affirmed w/ mod
ISSUE: W/N Velasquez is no longer liable because of failure by Solidbank to file protest
against the sight draft (Sec. 152 of NIL) despite the letter of undertaking 

HELD: NO. Petition is DENIED. CA Affirmed.

 A sight draft made payable outside the Philippines = foreign bill of exchange
 When a foreign bill is dishonored by non-acceptance or non-payment, protest is
necessary to hold the drawer and indorsers liable
Section 152. In what cases protest necessary. Where a foreign bill appearing on its face
to be such is dishonored by non-acceptance, it must be duly protested for non-
acceptance, and where such a bill which has not been previously dishonored by non-
acceptance, is dishonored by non-payment, it must be duly protested for non-payment.
If it is not so protested, the drawer and indorsers are discharged. Where a bill does not
appear on its face to be a foreign bill, protest thereof in case of dishonor is unnecessary
 Liability subsists on it even if the sight draft was dishonored for non-acceptance or
non-payment
 liability of Velasquez under the letter of undertaking is direct and primary and
independent from the sight draft
Labels: 2008, acceptance, Case Digest, G.R. No. 157309, Juris Doctor, March 28, Negotiable Instruments
Case Digest, Negotiable Instruments Law, payment for honor, Protest, Velasquez v. Solidbank Corp

FEBTC FAR EAST BANK & TRUST

COMPANY v. GOLD PALACE
JEWELLERY CO.,G.R. NO. 168274
August 20, 2008 Negotiable Instruments
Law, Alteration
JUNE 9, 2019

FACTS:

A foreigner purchased from the respondent Gold Palace several pieces of jewelry, and in
payment thereof, he offered Foreign Draft No. M-069670 issued by the United Overseas Bank
(Malaysia), addressed to the Land Bank of the Philippines (LBP), and payable to the respondent
company for P380,000.00.

Yang the assistant general manager of Gold Palace, issued Cash Invoice No. 1609 to the
foreigner, asked him to come back, and informed him that the pieces of jewelry would be
released when the draft had already been cleared.

The draft was deposited in the company’s account with the said Far East branch. When Far East,
the collecting bank, presented the draft for clearing to LBP, the drawee bank, the latter cleared
the same -UOB’s account with LBP was debited, and Gold Palace’s account with Far East was
credited with the amount stated in the draft.

The foreigner eventually was able to colleot the pieces of jewellery.

After around three weeks, LBP informed Far East that the amount in the  Foreign Draft had been
materially altered from P300.00 to P380,000.00. The material alteration was discovered by UOB
after LBP had informed it that its funds were being depleted following the encashment of the
subject draft. Far East subsequently refunded the P380,000.00 earlier paid by LBP with the
intention to debit Golden Palace of the amount it paid.

However, the outstanding balance of Golden Palace’s account was already inadequate, Far East
was able to debit only P168,053.36, but this was done without a prior written notice to the
account holder. Petitioner demanded from respondents the payment of P211,946.64 or the
difference between the amount in the materially altered draft and the amount debited from the
respondent company’s account. Upon refusal or Gold Palace, Far East filed a case for sum of
money and damages.

The RTC rendered a Decision in favor of Far East, ordering Gold Palace to pay the former
actual damages and as attorney’s fees.

On appeal, the CA reversed the ruling of the trial court. It ruled that Far East failed to undergo
the proceedings on the protest of the foreign draft or to notify Gold Palace of the draft’s
dishonor; thus, Far East could not charge Gold Palace on its secondary liability as an indorser.

The CA denied petitioner’s MR which prompted the petitioner to institute the instant Petition for
Review on Certiorari.

ISSUE:

Whether or not Far East may rightfully debit the money paid by the drawee bank from
respondent company’s account.

RULING:

We deny the petition.

Act No. 2031, or the Negotiable Instruments Law (NIL), explicitly provides that the acceptor, by
accepting the instrument, engages that he will pay itaccording to the tenor of his acceptance. The
drawee’s actual payment of the amount in the check implies not only his assent to the order of
the drawer and a recognition of his corresponding obligation to pay the aforementioned sum, but
also, his clear compliance with that obligation.

The payment of a check includes its acceptance.

LBP was liable on its payment of the check according to the tenor of the check at the time of
payment, which was the raised amount.

Because of that engagement, LBP could no longer repudiate the payment it erroneously made to
a due course holder.

On the other hand, Gold Palace was not a participant in the alteration of the draft, was not
negligent, and was a holder in due course.

This construction and application of the law gives effect to the plain language of the NIL and is
in line with the sound principle that where one of two innocent parties must suffer a loss, the law
will leave the loss where it finds it.

The foregoing considered, we affirm the ruling of the appellate court to the extent that Far East
could not debit the account of Gold Palace, and for doing so, it must return what it had
erroneously taken. Far East’s remedy under the law is not against Gold Palace but against the
drawee-bank or the person responsible for the alteration.

Negotiable Instruments Case Digest: Far East

Bank & Trust Co. V. Gold Palace Jewelry Co.
(2008)
 
G.R. No. 168274 August 20, 2008
Lessons Applicable: Liabilities of the Parties (Negotiable Instruments Law)
FACTS:
 June 1998: Samuel Tagoe, a foreigner, purchased from Gold Palace Jewellery Co.'s
(Gold Palace's) store at SM-North EDSA several pieces of jewelry valued at
P258,000

 paid w/ Foreign Draft issued by the United Overseas Bank (Malaysia) to Land Bank
of the Philippines, Manila (LBP) for P380,000

 Teller of Far East Bank, next door tenant, informed Julie Yang-Go (manager of Gold
Palace) that a foreign draft has similar nature to a manager's check, but advised her
not to release the pieces of jewelry until the draft had been cleared

 Yang issued Cash Invoice so the jewelries can be released 

 Yang deposited the draft in the company's account with the Far East on June 2,
1998

 When Far East, the collecting bank, presented the draft for clearing to LBP, the
drawee bank, cleared the it and Gold Palace's account with Far East was credited 

 June 6, 1998: The foreigner eventually returned to claim the purchased goods. 

 After ascertaining that the draft had been cleared, Yang released the pieces of
jewelry and his change, Far East Check of P122,000 paid by the bank

 June 26, 1998: LBP informed Far East that the Foreign Draft had been materially
altered from P300 to P300,000and that it was returning the same

 Far East refunded the amount to LBP and debit only P168,053.36 of the amount left
in Gold Palace' account without a prior written notice to the account holder

 Far East only notified by phone the representatives of the Gold Palace

 August 12, 1998: Far East demanded from Gold Palace the payment of balance and
upon refusal filed in the RTC

 RTC: in favor of Far East on the basis that Gold Palace was liable under the liabilities
 of a general indorser

 CA: reversed since Far East failed to undergo the proceedings on the protest of the
foreign draft or to notify Gold Palace of the draft's dishonor; thus, Far East could not
charge Gold Palace on its secondary liability as an indorser

ISSUE: W/N Gold Palace should be liable for the altered Foreign Draft

HELD: NO.  AFFIRMED WITH THE MODIFICATION that the award of exemplary damages and
attorney's fees is DELETED

Act No. 2031, or the Negotiable Instruments Law (NIL), explicitly provides that the
acceptor, by accepting the instrument, engages that he will pay it according to the
tenor of his acceptance.
 This provision applies with equal force in case the drawee pays a bill without having
previously accepted it. 

 Actual payment by the drawee is greater than his acceptance, which is merely a
promise in writing to pay

 The payment of a check includes its acceptance

 The tenor of the acceptance is determined by the terms of the bill as it is when the
drawee accepts.

 LBP was liable on its payment of the check according to the tenor of the check at
the time of payment, which was the raised amount.

 Gold Palace was not a participant in the alteration of the draft, was not negligent,
and was a holder in due course

 LBP, having the most convenient means to correspond with UOB, did not first verify
the amount of the draft before it cleared and paid the same

 Gold Palace had no facility to ascertain with the drawer, UOB Malaysia, the true
amount in the draft. It was left with no option but to rely on the representations of
LBP that the draft was good
 Principle that the drawee bank, having paid to an innocent holder the amount of an
uncertified, altered check in good faith and without negligence which contributed to
the loss, could recover from the person to whom payment was made as for money
paid by mistake - NOT applicable

 The Court is also aware that under the Uniform Commercial Code in the United
States of America, if an unaccepted draft is presented to a drawee for payment or
acceptance and the drawee pays or accepts the draft, the person obtaining payment
or acceptance, at the time of presentment, and a previous transferor of the draft, at
the time of transfer, warrant to the drawee making payment or accepting the draft
in good faith that the draft has not been altered - absent any similar provision in our
law, cannot extend the same preferential treatment to the paying bank

 Gold Palace is protected by Section 62 of the NIL, its collecting agent, Far East,
should not have debited the money paid by the drawee bank from respondent
company's account. When Gold Palace deposited the check with Far East, it, under
the terms of the deposit and the provisions of the NIL, became an agent of the Gold
Palace for the collection of the amount in the draft

 The subsequent payment by the drawee bank and the collection of the amount by
the collecting bank closed the transaction insofar as the drawee and the holder of
the check or his agent are concerned, converted the check into a mere
voucher, and, as already discussed, foreclosed the recovery by the drawee of the
amount paid. This closure of the transaction is a matter of course; otherwise,
uncertainty in commercial transactions, delay and annoyance will arise if a bank at
some future time will call on the payee for the return of the money paid to him on
the check

 As the transaction in this case had been closed and the principal-agent relationship
between the payee and the collecting bank had already ceased, the latter in
returning the amount to the drawee bank was already acting on its own and should
now be responsible for its own actions. Neither can petitioner be considered to have
acted as the representative of the drawee bank when it debited respondent's
account, because, as already explained, the drawee bank had no right to recover
what it paid. Likewise, Far East cannot invoke the warranty of the payee/depositor
who indorsed the instrument for collection to shift the burden it brought upon itself.
This is precisely because the said indorsement is only for purposes of collection
which, under Section 36 of the NIL, is a restrictive indorsement.  It did not in any
 way transfer the title of the instrument to the collecting bank. Far East did not own
the draft, it merely presented it for payment. Considering that the warranties of a
general indorser as provided in Section 66 of the NIL are based upon a transfer of
title and are available only to holders in due course, these warranties did not attach
to the indorsement for deposit and collection made by Gold Palace to Far East.
Without any legal right to do so, the collecting bank, therefore, could not debit
respondent's account for the amount it refunded to the drawee bank.

People vs. Maniego [GR L-30910, 27 February 1987] First Division, Narvasa (J): 6 concur Facts: The
information which initiated the criminal proceedings in the Court of First Instance of Rizal indicted 3
persons — Lt. Rizalino M. Ubay, Mrs. Milagros Pamintuan, and Mrs. Julia T. Maniego — for the crime of
MALVERSATION, committed as follows: "That on or about the period covering the month of May, 1957
up to and including the month of August, 1957, in Quezon City, Philippines, the above-named accused,
conspiring together, confederating with and helping one another, with intent of gain and without
authority of law, did, then and there, wilfully, unlawfully and feloniously malverse, misappropriate and
misapply public funds in the amount of P66,434.50 belonging to the Republic of the Philippines, in the
following manner, to wit: the accused, Lt. RIZALINO M. Ubay, a duly appointed officer in the Armed
Forces of the Philippines in active duty, who, during the period specified above, was designated as
Disbursing Officer in the Officer of the Chief of Finance, GHQ, Camp Murphy, Quezon City, and as such
was entrusted with and had under his custody and control public funds, conspiring and confederating
with his co-accused, MILAGROS T. PAMINTUAN and JULIA T. MANIEGO, did then and there, unlawfully,
willfully and feloniously, with intent of gain and without authority of law, and in pursuance of their
conspiracy, take, receive, and accept from his said co-accused several personal checks drawn against the
Philippine National Bank and the Bank of the Philippine Islands, of which the accused, MILAGROS T.
PAMINTUAN is the drawer and the accused, JULIA T. MANIEGO, is the indorser, in the total amount of
P66,434.50, cashing said checks and using for this purpose the public funds entrusted to and placed
under the custody and control of the said Lt. Rizalino M. Ubay, all the said accused knowing fully well
that the said checks are worthless and are not covered by funds in the aforementioned banks, for which
reason the same were dishonored and rejected by the said banks when presented for encashment, to
the damage and prejudice of the Republic of the Philippines, in the amount of P66,434.50, Philippine
currency." Only Lt. Ubay and Mrs. Maniego were arraigned, Mrs. Pamintuan having apparently fled to
the United States in August, 1962. Both Ubay and Maniego entered a plea of not guilty. After trial
judgment was rendered by the Court of First Instance, convicting Ubay of the crime of malversation and
sentenced him to suffer the penalty of reclusion temporal of 12 years, 1 day to 14 years, 8 months, and
a fine of P57,434.50 which is the amount malversed, and to suffer perpetual special disqualification;
while acquitting Maniego but ordering her to pay solidarily with Ubay the amount of P57,434.50 to the
government. Maniego sought reconsideration of the judgment, praying that she be absolved from civil
liability or, at the very least, that her liability be reduced to P46,934.50. The Court declined to negate her
civil liability, but did reduce the amount thereof to P46,934.50. She appealed to the Court of Appeals as
Ubay had earlier done. Ubay's appeal was subsequently dismissed by the Appellate Court because of his
failure to file brief. On the other hand, Maniego submitted her brief in due course. Because, in the
Appellate Court's view, Maniego's brief raised only questions of law, her appeal was later certified to the
Supreme Court. Issue: Whether a mere indorser may be made liable on account of the dishonor of the
checks indorsed by her. Held: Under the law, the holder or last indorsee of a negotiable instrument has
the right to "enforce payment of the instrument for the full amount thereof against all parties liable
thereon." Among the "parties liable thereon" is an indorser of the instrument i.e., "a person placing his
signature upon an instrument otherwise than as maker, drawer, or acceptor unless he clearly indicates
by appropriate words his intention to be bound in some other capacity." Such an indorser "who indorses
without qualification," inter alia "engages that on due presentment, the instrument 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." Maniego may also be deemed an
"accommodation party" in the light of the facts, i.e., 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 such, she is under the law "liable on the instrument to a holder for value,
notwithstanding such holder at the time of taking the instrument knew her to be only an
accommodation Commercial Law – Negotiable Instruments Law, 2006 ( 30 ) Narratives (Berne Guerrero)
party," although she has the right, after paying the holder, to obtain reimbursement from the party
accommodated, "since the relation between them is in effect that of principal and surety, the
accommodation party being the surety."

Facts:

RIZALINO M.

Ubay, a duly appointed officer in the Armed Forces of the Philippines in active duty, who...
was entrusted with and had under... his custody and control public funds, conspiring and
confederating with his co-accused, MILAGROS T. PAMINTUAN and JULIA T. MANIEGO...
take, receive, and accept from his said co-accused several personal checks drawn against
the Philippine National Bank and the Bank of the Philippine Islands, of which the accused,
MILAGROS T. PAMINTUAN is the drawer and the accused, JULIA T. MANIEGO, is the
indorser... using for this purpose the public funds entrusted to and placed under the custody
and control of the said Lt.Rizalino M. Ubay, all the said accused knowing fully well that the
said checks are worthless and are not covered by... funds in the aforementioned banks, for
which reason the same were dishonored and rejected by the said banks when presented for
encashment, to the damage and prejudice of the Republic of the Philippines,... Only Lt.
Ubay and Mrs. Maniego were arraigned, Mrs. Pamintuan having apparently fled to the
United States

Court of First Instance... convicts him of the crime of malversation

In the absence of evidence against accused Julia T. Maniego, the Court hereby acquits her,
but both she and Rizal T. Ubay are hereby ordered to pay jointly and severally the amount
of P57,434.50 to the government.

Maniego sought reconsideration of the judgment, praying that she be absolved from civil
liability

The Court declined to negate her civil liability, but did reduce the amount... thereof  to
P46,934.50.

Ubay's appeal was subsequently dismissed by the Appellate Court because of his failure to
file brief.

Maniego's brief raised only questions of law, her appeal was later certified to this Court

Issues:

1)  The Lower Court erred in holding her civilly liable to indemnify the Government for the
value of the checks after she had been found not guilty of the crime out of which the civil
liability arises.

2)  Even assuming arguendo that she could properly be held civilly liable after her acquittal,
it was error for the lower Court to adjudge her liable as an indorser to indemnify the
government for the amount of the checks.

3)  The Lower Court erred in declaring her civilly liable jointly and severally with her co-
defendant Ubay, instead of absolving her altogether.

Ruling:

The verdict must go against the appellant.

But a person adjudged not criminally responsible may still be held to be civilly liable.

A person's acquittal of a crime on the ground that... his guilt has not been proven beyond
reasonable doubt... does not bar a civil action for damages founded on the same acts
involved in the offense.

Hence, contrary to her submission

Maniego's acquittal on reasonable doubt of the crime of Malversation imputed to her and
her two (2) co-accused did not operate to absolve her from civil liability... adequately
establishes that she was an indorser of several checks drawn by her sister, which were...
dishonored after they had been exchanged with cash belonging to the Government, then in
the official custody of Lt. Ubay.

Appellant's contention that as mere indorser, she may not be made liable on account of the
dishonor of the checks indorsed by her, is likewise untenable.

Under the law, the holder or last indorsee of a negotiable instrument has the right to
"enforce payment of the... instrument for the full amount thereof against all parties liable
thereon."

Such an indorser "who indorses without qualification," inter alia "engages that on due
presentment,** (the instrument) 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."

Maniego may also be deemed an "accomodation party" in the light of the facts, i.e., 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 such, she is under the law "liable on the instrument to a holder for value, notwithstanding
such holder at the time of taking the instrument knew ** (her) to be only an accommodation
party"... although she has the... right, after paying the holder, to obtain reimbursement from
the party accommodated, "since the relation between them is in effect that of principal and
surety, the accommodation party being the surety."

Principles:

People vs Maniego 148 SCRA 30, 27 Feb 1987,

G.R. No. L-30910
Facts:
Defendant, was acquitted on the crime of malversation of public fund due to reasonable
doubt. The judgement however still found the defendant civilly liable for the amount
malversed. Defendant appealed the said judgement, contending that she was just a mere
indorser of the said checks issued against the funds of the government. The CA certified
the this said case to the sc as it was purely a question of law.

Issue:
Whether the Petitioner is civilly liable for being a mere indorser on account of the
dishonor of the checks indorsed by her
Held:
Yes, the holder or last indorsee of a negotiable instrument has the right to “enforce
payment of the instrument for the full amount thereof against all parties liable thereon.”
Among the “parties liable thereon” is an indorser of the instrument i.e., “a person
placing his signature upon an instrument otherwise than as maker, drawer, or acceptor
** unless he clearly indicates by appropriate words his intention to be bound in some
other capacity. “Such an indorser “who indorses without qualification,” inter alia
“engages that on due presentment, ** (the instrument) 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.” Maniego may
also be deemed an “accommodation party” in the light of the facts, i.e., 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.”

Negotiable Instruments Case Digest: Gonzales

V. RCBC (2006)
G.R. No. 156294 November 29, 2006
Lessons Applicable: Right of the holder (Negotiable Instruments Law)

FACTS:
 Gonzales, New Accounts Clerk in the Retail Banking Department at RCBC Head Office 
 Dr. Don Zapanta of the Ade Medical Group drew a foreign check of $7,500 against the drawee bank
Wilshire Center Bank, LA, California payable to Eva Alviar (Alviar), Gonzales mother. 
 Alviar then endorsed this check. 
 Since RCBC gives special accommodations to its employees to receive the check’s value w/o awaiting the
clearing period, Gonzales presented the foreign check to Olivia Gomez, the RCBC’s Head of Retail
Banking
 Olivia Gomez requested Gonzales to endorse it which she did. Olivia Gomez then acquiesced to the early
encashment of the check and signed the check but indicated thereon her authority of "up to P17,500.00
only".
 Carlos Ramos signed it with an "ok" annotation. 
 Presented the check to Rolando Zornosa, Supervisor of the Remittance section of the Foreign Department
of the RCBC Head Office, who after scrutinizing the entries and signatures authorized its encashment. 
 Gonzales received its peso equivalent P155,270.85
 RCBC tried to collect through its correspondent bank, the First Interstate Bank of California but it was
dishonored the check because:
 "END. IRREG" or irregular indorsemen
 "account closed"
 Unable to collect, RCBC demanded from Gonzales 
 November 27, 1987: Through letter Gonzales agreed that the payment be made thru salary deduction. 
 October 1987: deductions started
 March 7, 1988: RCBC sent a demand letter to Alviar for the payment but she did not respond
 June 16, 1988: a letter was sent to Gonzales reminding her of her liability as an indorser 
 July 1988:  Gonzales resigned from RCBC paying only P12,822.20 covering 10 months
 RCBC filed a complaint for a sum of money against Eva Alviar, Melva Theresa Alviar-Gonzales and the
latter’s husband Gino Gonzales
 CA Affirmed RTC: liable Eva Alviar as principal debtor and Melva Theresa Alviar-Gonzales as guarantor
ISSUE: W/N Eva Alviar and Melva Theresa Alvia-Gonzales is liable as general endorsers

HELD: NO. CA REVERSED. RCBC reimburse Gonzales 

 Sec. 66. Liability of general indorser. - Every indorser who indorses without qualification, warrants to all
subsequent holders in due course
1. The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding section;
          (a) That the instrument is genuine and in all respects what it purports to be
          (b) That he has a good title to it
          (c) That all prior parties had capacity to contract

     2.  That the instrument is, at the time of his 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

 Under Section 66, the warranties for which Alviar and Gonzales are liable as general endorsers in favor of
subsequent endorsers extend only to the state of the instrument at the time of their endorsements,
 This provision cannot be used by the party which introduced a defect on the instrument (RCBC) w/c
qualifiedly endorsed it
 Had it not been for the qualified endorsement "up to P17,500.00 only" of Olivia Gomez, who is the
employee of RCBC, there would have been no reason for the dishonor of the check
 The holder or subsequent endorser who tries to claim under the instrument which had been dishonored for
"irregular endorsement" must not be the irregular endorser himself who gave cause for the dishonor.
 Otherwise, a clear injustice results when any subsequent party to the instrument may simply make the
instrument defective and later claim from prior endorsers who have no knowledge or participation in
causing or introducing said defect to the instrument, which thereby caused its dishonor.

MELVA THERESA ALVIAR GONZALES v. RIZAL COMMERCIAL BANKING

CORPORATION, GR NO. 156294, 2006-11-29

Facts:

Gonzales was an employee of Rizal Commercial Banking Corporation (or RCBC) as New
Accounts Clerk in the Retail Banking Department at its Head Office.

ffice.

A foreign check in the amount of $7,500 was drawn by Dr. Don Zapanta of the Ade Medical
Group... payable to Gonzales' mother,... defendant Eva Alviar (or Alviar).

Alviar then endorsed this check.

Gonzales presented the foreign check to Olivia Gomez, the RCBC's Head of

Retail Banking

Olivia Gomez req... queste... d Gonzales to endorse it... which she did. O... livia Gomez
then acquiesced to the early encashment of the check and signed the check but indicated
thereon her authority of "up to P17,500.00 only"

0.00 only"

Olivia Gomez... directed Gonzales to present the check to RCBC employee Carlos Ramos

Carlos Ramos also signed it with an "ok" annotation

Gonzales presented the check to Rolando Zornosa, Supervisor of the

Remittance section of the Foreign Department of the RCBC Head Office, who after
scrutinizing the entries and signatures therein

Gonzales presented the check to Rolando Zornosa, Supervisor of the

Remittance section of the Foreign Department of the RCBC Head Office,... who after
scrutinizing the entries and signatures therein... authorized its encashment.

Gonzales then received its peso equivalent of P155,270.85.

RCBC then tried to collect the amount of the check with the drawee bank... through its
correspondent bank, the First Interstate Bank of California, on two occasions dishonored
the check because of "END. IRREG" or irregular indorsement.

check was returned due to "account closed"

RCBC again sent the... check to the drawee bank, but this time the c

RCBC demanded from Gonzales the payment of the peso equivalent of the check that she
received. Gonzales settled the matter by agreeing that payment be made thru salary...
deduction. This temporary arrangement for salary deductions was communicated by
Gonzales to RCBC through a letter dated November 27, 1987... deductions was
implemented starting October 1987. On March 7, 1988 RCBC sent a demand letter to Alviar
for the payment of her obligation but this fell on deaf ears as RCBC did not receive any
response from Alviar.

a letter was sent to Gonzales reminding her of her liability as an indorser of the subject
check and that for her to avoid litigation she has to fulfill her commitment to settle her
obligation

On July

1988 Gonzales resigned from RCBC. What had been deducted from her salary was only
P12,822.20 covering ten months.

RCBC filed a complaint for a sum of money against Eva Alviar, Melva Theresa Alviar-
Gonzales and the latter's husband Gino Gonzales.

the RTC... held two of the three defendants liable... judgment... rendered for plaintiff and as
against defendant EVA. P. ALVIAR as principal debtor and defendants MELVA THERESA
ALVIAR GONZLAES... as guarantor... the CA... affirmed the RTC judgment.

Issues:

CA erred

IN FINDING [PETITIONER], AN ACCOMMODATION PARTY TO A CHECK

SUBSEQUENTLY ENDORSED PARTIALLY, LIABLE TO RCBC AS GUARANTOR

Ruling:

The foreign drawee bank, Wilshire Center Bank N.A., refused to pay the bearer of this
dollar-check drawn by Don Zapanta because of the defect introduced by RCBC, through its
employee, Olivia Gomez. It is, therefore, a useless piece of paper if returned in that state to
its... original payee, Eva Alviar.

There is no doubt in the mind of the Court that a subsequent party which caused the defect
in the instrument cannot have any recourse against any of the prior endorsers in good faith.
Eva Alviar's and the petitioner's liability to subsequent holders of the foreign check is...
governed by the Negotiable Instruments Law

Sec. 66. Liability of general indorser.

Under Section 66, the warranties for which Alviar and Gonzales are liable as general
endorsers in favor of subsequent endorsers extend only to the state of the instrument at the
time of their endorsements, specifically, that the instrument is genuine and in all respects
what it... purports to be; that they have good title thereto; that all prior parties had capacity
to contract; and that the instrument, at the time of their endorsements, is valid and
subsisting. This provision, however, cannot be used by the party which... introduced a
defect on the instrument, such as respondent RCBC in this case, which qualifiedly endorsed
the same, to hold prior endorsers liable on the instrument because it results in the absurd
situation whereby a subsequent party may render an instrument useless and inutile... and
let innocent parties bear the loss while he himself gets away scot-free.

It cannot be over-stressed that had it not been for the qualified endorsement ("up to
P17,500.00 only") of Olivia Gomez, who is the employee of RCBC, there would have been
no reason for the dishonor of... the check, and full payment by drawee bank therefor would
have taken place as a matter of course.

RCBC, which caused the dishonor of the check upon presentment to the drawee bank,
through the qualified endorsement of its employee, Olivia Gomez, cannot hold prior
endorsers, Alviar and Gonzales in this case, liable on the instrument.

Principles:

The holder or subsequent endorser who tries to claim under the instrument which had been
dishonored for "irregular endorsement" must not be the irregular endorser himself who gave
cause for the dishonor. Otherwise, a clear injustice results when any subsequent... party to
the instrument may simply make the instrument defective and later claim from prior
endorsers who have no knowledge or participation in causing or introducing said defect to
the instrument, which thereby caused its dishonor.

Moreover, it is a well-established principle in law that as between two parties, he who, by

his acts, caused the loss shall bear the same.[5] RCBC, in this instance, should therefore
bear the loss.

Section 66 of the Negotiable Instruments Law which further states that the general endorser
additionally engages that, on due presentment, the instrument 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 endorser who may be compelled to pay it, must be read in the
light of the rule in equity requiring that those who come to court should come with clean...
hands.

CASE DIGEST: FIDELIZA J. AGLIBOT, Petitioner, v. INGERSOL L.

SANTIA, Respondent. Aglibot v. Santia (G.R. No. 185945. December 5,
2012).

FACTS: Engr. Ingersol L. Santia (Santia) loaned the amount of P2,500,000.00

to Pacific Lending & Capital Corporation (PLCC), through its Manager, petitioner
Fideliza J. Aglibot (Aglibot). The loan was evidenced by a promissory note.
Allegedly as a guaranty for the payment of the note, Aglibot issued and delivered
to Santia eleven (11) post-dated personal checks drawn from her own account
maintained at Metrobank. Upon presentment of the checks for payment, they
were dishonored by the bank for having been drawn against insufficient funds or
closed account. Santia thus demanded payment from PLCC and Aglibot of the
face value of the checks, but neither of them heeded his demand. Consequently,
eleven (11) Informations for violation of B.P. 22 were filed before the MTCC.

MTCC acquitted Aglibot. On appeal, the RTC rendered a decision absolving

Aglibot and dismissing the civil aspect of the case on the ground of "failure to
fulfill a condition precedent of exhausting all means to collect from the principal
debtor."

On appeal, the Court of Appeals ruled that the RTC erred when it dismissed the
civil aspect of the case. Hence, the CA ruled that Aglibot is personally liable for
the loan.

Thus, Aglibot filed this instant petition for certiorari. She argued that she was
merely a guarantor of the obligation and therefore, entitled to the benefit of
excussion under Article of the 2058 of the Civil Code. She further posited that she
is not personally liable on the checks since she merely contracted the loan in
behalf of PLCC.

ISSUES: Is Aglibot entitled to the benefit of excussion? Is Aglibot

personally liable on the checks?

HELD: FIRST ISSUE: Aglibot cannot invoke the benefit of excussion. It is

settled that the liability of the guarantor is only subsidiary, and all the properties
of the principal debtor, the PLCC in this case, must first be exhausted before the
guarantor may be held answerable for the debt. Thus, the creditor may hold the
guarantor liable only after judgment has been obtained against the principal
debtor and the latter is unable to pay, "for obviously the ‘exhaustion of the
principal’s property’ — the benefit of which the guarantor claims — cannot even
begin to take place before judgment has been obtained." This rule is
contained in Article 2062 of the Civil Code, which provides that the action
brought by the creditor must be filed against the principal debtor alone, except in
some instances mentioned in Article 2059 when the action may be brought
against both the guarantor and the principal debtor.

The Court must, however, reject Aglibot’s claim as a mere guarantor of the
indebtedness of PLCC to Santia for want of proof, in view of Article 1403(2) of the
Civil Code, embodying the Statute of Frauds. Under the above provision,
concerning a guaranty agreement, which is a promise to answer for the debt
or default of another, the law clearly requires that it, or some note or
memorandum thereof, be in writing. Otherwise, it would be unenforceable unless
ratified, although under Article 1358 of the Civil Code, a contract of guaranty does
not have to appear in a public document.
Contracts are generally obligatory in whatever form they may have been entered
into, provided all the essential requisites for their validity are present, and the
Statute of Frauds simply provides the method by which the contracts enumerated
in Article 1403(2) may be proved, but it does not declare them invalid just
because they are not reduced to writing. Thus, the form required under the
Statute is for convenience or evidentiary purposes only.

On the other hand, Article 2055 of the Civil Code also provides that a guaranty is
not presumed, but must be express, and cannot extend to more than what is
stipulated therein. This is the obvious rationale why a contract of guarantee is
unenforceable unless made in writing or evidenced by some writing.

SECOND ISSUE: Aglibot is an accommodation party and therefore

liable to Santia. The appellate court ruled that by issuing her own post-dated
checks, Aglibot thereby bound herself personally and solidarily to pay Santia, and
dismissed her claim that she issued her said checks in her official capacity as
PLCC’s manager merely to guarantee the investment of Santia. The facts present
a clear situation where Aglibot, as the manager of PLCC, agreed to accommodate
its loan to Santia by issuing her own post-dated checks in payment thereof. She is
what the Negotiable Instruments Law calls an accommodation party.

The relation between an accommodation party and the party accommodated is, in
effect, one of principal and surety — the accommodation party being the surety. It
is a settled rule that a surety is bound equally and absolutely with the
principal and is deemed an original promisor and debtor from the
beginning. The liability is immediate and direct.

It is not a valid defense that the accommodation party did not receive any
valuable consideration when he executed the instrument; nor is it correct to say
that the holder for value is not a holder in due course merely because at the time
he acquired the instrument, he knew that the indorser was only an
accommodation party. Unlike in a contract of suretyship, the liability of the
accommodation party remains not only primary but also unconditional to a
holder for value, such that even if the accommodated party receives an extension
of the period for payment without the consent of the accommodation party, the
latter is still liable for the whole obligation and such extension does not release
him because as far as a holder for value is concerned, he is a solidary co-debtor.