1. Lee v Court of Appeals G.R. NO. 117913.

February 1, 2002

March 15, 2014 Leave a comment

A trust receipt is considered as a security transaction intended to aid in financing importers and retail
dealers who do not have sufficient funds or resources to finance the importation or purchase of
merchandise, and who may not be able to acquire credit except through utilization, as collateral of the
merchandise imported or purchased.

Facts: Charles Lee, as President of MICO wrote private respondent Philippine Bank of Communications
(PBCom) requesting for a grant of a discounting loan/credit line in the sum of Three Million Pesos
(P3,000,000.00) for the purpose of carrying out MICO’s line of business as well as to maintain its volume of
business. On the same day, Charles Lee requested for another discounting loan/credit line of Three Million
Pesos (P3,000,000.00) from PBCom for the purpose of opening letters of credit and trust receipts. nother
loan of One Million Pesos (P1,000,000.00) was availed of by MICO from PBCom which was likewise later on
renewed. Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap and Richard Velasco, in their personal
capacities executed a Surety Agreement in favor of PBComwhereby the petitioners jointly and severally,
guaranteed the prompt payment on due dates or at maturity of overdrafts, promissory notes, discounts,
drafts, letters of credit, bills of exchange, trust receipts, and other obligations of every kind and nature, for
which MICO may be held accountable by PBCom. Charles Lee, in his capacity as president of MICO,
wrote PBCom and applied for an additional loan in the sum of Four Million Pesos (P4,000,000.00). The loan
was intended for the expansion and modernization of the company’s machineries. Upon approval of the said
application for loan, MICO availed of the additional loan of Four Million Pesos (P4,000,000.00).

To secure the trust receipts transactions, MICO and Lee executed a real estate mortgage in favor of PBCOM
over several properties it owns. Upon maturity of all credit availments obtained by MICO from PBCom, the
latter made a demand for payment.[For failure of petitioner MICO to pay the obligations incurred despite
repeated demands, PBCom extrajudicially foreclosed MICO’s real estate mortgage and sold the said
mortgaged properties in a public auction sale. Lee contends that the letters of credit, surety agreements
and loan transactions did not ripen into valid and binding contracts since no part of the proceeds of the loan
transactions were delivered to MICO or to any of the petitioners-sureties. Petitioners-sureties allege that
Chua Siok Suy was the beneficiary of the proceeds of the loans and that the latter made them sign the
surety agreements in blank. Thus, they maintain that they should not be held accountable for any liability
that might arise therefrom.

Issue:

1) whether or not the proceeds of the loans and letters of credit transactions were ever delivered to MICO

2) whether or not the individual petitioners, as sureties, may be held liable under the two (2) Surety
Agreements

Held:

1) whether or not the proceeds of the loans and letters of credit transactions were ever delivered to MICO

The letter of credita, as well as the security agreements, have not merely created a prima facie case but
have actually proved the solidary obligation of MICO and the petitioners, as sureties of MICO, in favor of
respondent PBCom.

While the presumption found under the Negotiable Instruments Law may not necessarily be applicable to
trust receipts and letters of credit, the presumption that the drafts drawn in connection with the letters of
credit have sufficient consideration. Under Section 3(r), Rule 131 of the Rules of Court there is also a
presumption that sufficient consideration was given in a contract.

Hence, petitioners should have presented credible evidence to rebut that presumption as well as the
evidence presented by private respondent PBCom. The letters of credit show that the pertinent
materials/merchandise have been received by MICO. The drafts signed by the beneficiary/suppliers in
connection with the corresponding letters of credit proved that said suppliers were paid by PBCom for the
account of MICO. On the other hand, aside from their bare denials petitioners did not present sufficient and
competent evidence to rebut the evidence of private respondent PBCom.

2) whether or not the individual petitioners, as sureties, may be held liable under the two (2) Surety
Agreements

A perusal of the By-Laws of MICO, however, shows that the power to borrow money for the company and
issue mortgages, bonds, deeds of trust and negotiable instruments or securities, secured by mortgages or
pledges of property belonging to the company is not confined solely to the president of the corporation. The
Board of Directors of MICO can also borrow money, arrange letters of credit, execute trust receipts and
promissory notes on behalf of the corporation.[35] Significantly, this power of the Board of Directors
according to the by-laws of MICO, may be delegated to any of its standing committee, officer or agent.[36]
Hence, PBCom had every right to rely on the Certification issued by MICO’s corporate secretary, P.B.
Barrera, that Chua Siok Suy was duly authorized by its Board of Directors to borrow money and obtain credit
facilities in behalf of MICO from PBCom.

2. Tibajia Jr. v. Court of Appeals [G.R. No. 100290. June 4, 1993]

24 Mar

FACTS

Tibajia spouses delivered to Sheriff the total money judgment in cashier’s check and cash.Private
respondent, Eden Tan, refused to accept the payment made by the Tibajia spouses and instead insisted that
the garnished funds deposited with the cashier of the Regional Trial Court of Pasig, Metro Manila be
withdrawn to satisfy the judgment obligation. Tibajias filed a motion to lift the writ of execution on the
ground that the judgment debt had already been paid. The motion was denied.

ISSUE

Whether or not payment by means of cashier’s check is considered payment in legal tender.
RULING

NO. A check, whether a manager’s check or ordinary check, is not legal tender, and an offer of a check in
payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor. A
check is not legal tender and that a creditor may validly refuse payment by check, whether it be a
manager’s, cashier’s or personal check. The Supreme Court stressed that, “We are not, by this decision,
sanctioning the use of a check for the payment of obligations over the objection of the creditor.”

3. Pio Barretto Realty Development Corporation vs Court of Appeals

360 SCRA 127 – Mercantile Law – Negotiable Instruments Law – Check Payments – Due Diligence in
Presenting Checks for Payment

FACTS:
Honor Moslares and Pio Barretto Realty Development Corporation are disputing over the estate of
Nicolai Drepin, represented by Atty. Tomas Trinidad. To settle the dispute, and while the case was in court,
they entered into a Compromise Agreement by which they agreed to have the estate in dispute be sold; that
in case Moslares was able to buy the property first, he should pay P3,000,000.00 to Barretto Realty
(representing the amount of investments by Barretto Realty in the estate); that should Barretto Realty buy
the property first, it should pay P1,000,000.00 to Moslares (representing interest). The compromise
agreement was approved by the judge (Judge Perfecto Laguio).
Barretto Realty was able to buy the property first hence it delivered a manager’s check worth
P1,000,000.00 to Moslares but the latter refused to accept the same. Barretto Realty filed a petition before
the trial court to direct Moslares to comply with the Compromise Agreement. Barretto Realty also consigned
the check payment with the court. The judge issued a writ of execution against Moslares and the sheriff also
delivered the check to Moslares which the latter accepted. However, three years later, Moslares filed a
motion for reconsideration alleging that the check payment did not amount to legal tender and that he
never even encashed the check. The judge agreed with Moslares.

ISSUE:
Whether or not the judge was correct.
HELD:
No. There was already a final and executory order issued by the same judge three years prior. The same may
no longer be amended regardless of any claim or error or incorrectness (save for clerical errors only). It is
true that a check is not a legal tender and while delivery of a check produces the effect of payment only
when it is encashed, the rule is otherwise if the debtor (Barretto Realty) was prejudiced by the creditor’s
(Moslares’) unreasonable delay in presentment. Acceptance of a check implies an undertaking of due
diligence in presenting it for payment. If no such presentment was made, the drawer cannot be held liable
irrespective of loss or injury sustained by the payee. Payment will be deemed effected and the obligation for
which the check was given as conditional payment will be discharged.

4. Crystal vs. CA
GR L-35767, 18 June 1976
Resolution of the Second Division, Barredo (J)

Facts: The Supreme Court, in its decision of 25 February 1975, affirmed the decision of the Court of
Appeals,holding that Raymundo Crystal’s redemption of the property acquired by Pelagia Ocang, Pacita,
Teodulo, Felicisimo, Pablo, Lydia, Dioscoro and Rodrigo, all surnamed de Garcia, was invalid as the check
which Crystal used in paying the redemption price has been either dishonored or had become stale (Ergo,
the value of the check was never realized). Crystal filed a motion for reconsideration.

Issue: Whether the conflicting circumstances of the check being dishonored and becoming stale affect the
validity of the redemption sale.

Held: For a check to be dishonored upon presentment and to be stale for not being presented at all in time
are incompatible developments that have variant legal consequences. If indeed the questioned check was
dishonored, the redemption was null and void. If it had only become state, it becomes imperative that the
circumstances that caused its non- presentment be determined, for if it was not due to the fault of the
drawer, it would be unfair to deprive him of the rights he had acquired as redemptioner. Herein, it appears
that there is a strong showing that the check was not dishonored, although it became stale, and that Pelagia
Ocang had actually been paid the full value thereof. The Supreme Court, thus, reconsidered its decision and
remanded the case to the trial court for further proceedings.
5. Vda. de Eduque vs. Ocampo
GR L-222, 26 April 1950
Second Division, Moran (CJ)

Facts: On 16 February 1935, Dr. Jose Eduque secured two loans from Mariano Ocampo de Leon, Dona
Escolastica delos Reyes and Don Jose M. Ocampo, with amount s of P40,000 and P15,000, both payable
within 20 years with interest of 5% per annum. Payment of the loans was guaranteed by mortgage on real
property. On 6 December 1943, Salvacion F. Vda de Eduque, as administratrix of the estate of Dr. Jose
Eduque, tendered payment by means of a cashier’s check representing Japanese War notes to Jose M.
Ocampo, who refused payment. By reason of such refusal, an action was brought and the cashier’s check
was deposited in court. After trial, judgment was rendered against Ocampo compelling him to accept the
amount, to pay the expenses of consignation, etc. Ocampo accepted the judgment as to the second loan but
appealed as to the first loan.

Issue: Whether there is a tender of payment by means of a cashier’s check representing war notes.

Held: Japanese military notes were legal tender during the Japanese occupation; and Ocampo impliedly
accepted the consignation of the cashier’s check when he asked the court that he be paid the amount of the
second loan (P15,000). It is a rule that a cashier’s check may constitute a sufficient tender where no
objection is made on this ground.
6. Negotiable Instruments Case Digest: Roman Catholic Bishop of Malolos v. IAC (1990)

G.R. No. 72110 November 16, 1990

FACTS:

July 7, 1971: A contract over the land was executed between the Roman Catholic Bishop of Malolos (bishop)
as vendor and the through its then president, Mr. Carlos F. Robes, as vendee, stipulating for a downpayment
of P23,930 and the balance of P100,000 plus 12% interest per annum to be paid within 4 years from
execution of the contract.

The contract likewise provides for cancellation, forfeiture of previous payments, and reconveyance of the
land in case of failure to pay within the period

March 12, 1973: private respondent, through its new president, Atty. Adalia Francisco, addressed a letter 6
to Father Vasquez, parish priest of San Jose Del Monte, Bulacan, requesting to be furnished with a copy of
the subject contract and the supporting documents

July 17, 1975: after the expiration of the stipulated period for payment, Atty. Francisco wrote the formal
request that her company be allowed to pay the principal amount of P100,000 in 3 equal installments of 6
months each with the 1st installment and the accrued interest of P24,000 to be paid immediately upon
approval

July 29, 1975: Bishop through its counsel, Atty. Carmelo Fernandez, formally denied the request but granted
a grace period of 5 days from the receipt of the denial to pay the total balance of P124,000

August 4, 1975: private respondent, through its president, Atty. Francisco, wrote the counsel of the
petitioner requesting an extension of 30 days from to fully settle its account. - denied

RTC: favored Bishop declaring the down payment as forfeited

ISSUE: W/N there is tender of payment by issuance of a certified check

HELD: NO. RTC reinstated.

Tender of payment involves a positive and unconditional act by the obligor of offering legal tender currency
as payment to the obligee for the former’s obligation and demanding that the latter accept the same.
Tender of payment cannot be presumed by a mere inference from surrounding circumstances sheer proof of
sufficient available funds to meet more than the total obligation within the grace period - NOT sufficient

On the contrary, the respondent court finds itself remiss in overlooking or taking lightly the more important
findings of fact made by the trial court which are entitled to great weight on appeal and should be accorded
full consideration and respect and should not be disturbed unless for strong and cogent reasons certified
personal check which is not legal tender nor the currency stipulated, and therefore, cannot constitute valid
tender of payment Since a negotiable instrument is only a substitute for money and not money, the delivery
of such an instrument does not, by itself, operate as payment

7. SESBRENO V. CA

Sesbreno vs. CA
GR 89252, 24 May 1993
Third Division, Feliciano (J)

Facts: On 9 February 1981, Raul Sesbreno made a money market placement in the amount of
P300,000 with the Philippine Underwriters Finance Corporation (PhilFinance), with a term of 32
days. PhilFinance issued to Sesbreno the Certificate of Confirmation of Sale of a Delta Motor
Corporation Promissory Note (2731), the Certificate of Securities Delivery Receipt indicating the
sale of the note with notation that said security was in the custody of Pilipinas Bank, and postdated
checks drawn against the Insular Bank of Asia and America for P304,533.33 payable on 13 March
1981. The checks were dishonored for having been drawn against insufficient funds. Pilipinas Bank
never released the note, nor any instrument related thereto, to Sesbreno; but Sesbreno learned
that the security was issued 10 April 1980, maturing on 6 April 1981, has a face value of
P2,300,833.33 with PhilFinance as payee and Delta Motors as maker; and was stamped “non-
negotiable” on its face. As Sesbreno was unable to collect his investment and interest thereon, he
filed an action for damages
against Delta Motors and Pilipinas Bank.

Issue: Whether non-negotiability of a promissory note prevents its assignment.

Held: Only an instrument qualifying as a negotiable instrument under the relevant statute may be
negotiated either by indorsement thereof coupled with delivery, or by delivery alone if it is in
bearer form. A negotiable instrument, instead of being negotiated, may also be assigned or
transferred. The legal consequences of negotiation and assignment of the instrument are different.
A negotiable instrument may not be negotiated but may be assigned or transferred, absent an
express prohibition against assignment or transfer written in the face of the instrument. herein,
there was no prohibition stipulated.
8. Benjamin Abubakar vs The Auditor General

81 Phil. 359 – Commercial Law – Negotiable Instruments Law – Treasury Warrants

FACTS:
In 1941, a treasury warrant was issued in favor of Placido Urbanes, a government employee in the
province of La Union. The said treasury warrant was meant to augment the Food Production Campaign in the
said province. It was then negotiated by Urbanes to Benjamin Abubakar, a private individual. When
Abubakar sought to have the treasury warrant encashed, the Auditor General denied payment because first of,
it is against the appropriating law (Republic Act 80) to authorize payments to private individuals when it
comes to treasury warrants. Abubakar then contends that he is entitled to encash as he was a holder in good
faith.

ISSUE:
Whether or not a treasury warrant is a negotiable instrument.

HELD:
No. A treasury warrant is not a negotiable instrument. One of the requirements of a negotiable
instrument is that it must be unconditional. In Section 3 of the Negotiable Instruments Law, an order or
promise to pay out of a particular fund makes the instrument conditional. A treasury warrant, like the one in
this case, comes from a particular fund, a particular appropriation. In this case, it was written on the face of
the treasury warrant that it is “payable from the appropriation for food administration”. Thus, it is not
negotiable for being conditional.
NOTE the difference: However, an instrument is negotiable if it merely mentions/indicates a particular fund
out of which reimbursement is to be made. This does not make the instrument conditional because it does not
say that such particular fund is the source of payment. It is only a notice to the drawee that he can reimburse
himself out of that particular fund after paying the payee. As to the source of payment to the payee, there is no
mention of it.

9. Philippine Bank of Commerce vs. Aruego

GR L-25836-37, 31 January 1981
First Division, Fernandez (J)

Facts: Jose Aruego publishes a periodical called “World Current Events.” To facilitate payment of the printing,
Aruego obtained a credit accommodation from the Philippine Bank of Commerce. For every printing of the
periodical, the printer (Encal Press and Photo-Engraving) collected the cost of printing by drawing a draft
against the bank, said draft being sent later to Aruego for acceptance. As an added security for the
payment of the amounts advanced to the printer, the bank also required Aruego to execute a trust
receipt in favor of the bank wherein Aruego undertook to hold in trust for the bank the periodicals and to
sell the same with the promise to turn over to the bank the proceeds of the sale to answer for the
payment of all obligations arising from the draft. The bank instituted an action against Aruego to recover
the cost of printing of the latter’s periodical for the period of 28 August 1950 to 14 March 1951.

Issue [1]: Whether the drafts were bills of exchange or mere pieces of evidence of indebtedness.

Held [1]: Under the Negotiable Instruments Law, a bill of exchange is an unconditional order in
writing addressed by one person to another, signed by the person giving it, requiring the person to
whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in
money to order or to bearer. As long as a commercial paper conforms with the definition of a bill of
exchange, that paper is considered a bill of exchange. The nature of acceptance is important only
in the determination of the kind of liabilities of the parties involved, but not in the determination of
whether a commercial paper is a bill of exchange or not.

Issue [2]: Whether Aruego is an agent of Philippine Education Foundation Company when he
signed the supposed bills of exchange.

Held [2]: Nowhere in the drafts accepted by Aruego that he disclosed that he was signing as representative
of the Philippine Education Foundation Company. For failure to disclose his principal, Aruego is personally
liable for the drafts he accepted, pursuant to Section 20 of the Negotiable Instruments Law.

Issue [3]: Whether Aruego is primarily liable.

Held [3]: An accommodation party is one who has signed the instrument as maker, drawer, acceptor,
indorser, without receiving value therefor and for the purpose of lending his name to some other person.
Herein, Aruego signed as a drawee / acceptor. Under the Negotiable Instruments Law, a drawee is
primarily liable. If Aruego intended to be secondarily liable only, he should not have signed as an
acceptor / drawee. In doing so, he became primarily and personally liable for the drafts.

10. Jimenez vs. Bucoy

GR L-10221, 28 February 1958
En Banc, Bengzon (J)

Facts: In the proceedings in the intestate of Luther Young and Pacita Young who died in 1954 and 1952,
respectively, Pacifica Jimenez presented for payment 4 promissory notes signed by Pacita for different
amounts totalling P21,000. Acknowledging receipt by Pacita during the Japanese occupation, in the currency
then prevailing, the Administrator manifested willingness to pay provided adjustment of the sums be made in
line with the Ballantyne schedule. The claimant objected to the adjustment insisting on full payment in
accordance with the notes. The court held that the notes should be paid in the currency prevailing after the
war, and thus entitling Jimemez to recover P21,000 plus P2,000 as attorney’s fees. Hence, the appeal.

Issue: Whether the amounts should be paid, peso for peso; or whether a reduction should be made
in accordance with the Ballantyne schedule.

Held: If the loan was expressly agreed to be payable only after the war, or after liberation, or
became payable after those dates, no reduction could be effected, and peso-for-peso payment
shall be ordered in Philippine currency. The Ballantyne Conversion Table does not apply where the
monetary obligation, under the contract, was not payable during the Japanese occupation. Herein,
the debtor undertook to pay “six months after the war,” peso for peso payment is indicated.

11. Baldomero Inciong, Jr. vs Court of Appeals

257 SCRA 578 – Mercantile Law – Negotiable Instruments in General – Signature of Makers –
Guaranty

In February 1983, Rene Naybe took out a loan from Philippine Bank of Communications (PBC) in
the amount of P50k. For that he executed a promissory note in the same amount. Naybe was able to
convince Baldomero Inciong, Jr. and Gregorio Pantanosas to co-sign with him as co-makers. The
promissory note went due and it was left unpaid. PBC demanded payment from the three but still no
payment was made. PBC then sue the three but PBC later released Pantanosas from its obligations.
Naybe left for Saudi Arabia hence can’t be issued summons and the complaint against him was
subsequently dropped. Inciong was left to face the suit. He argued that that since the complaint
against Naybe was dropped, and that Pantanosas was released from his obligations, he too should
have been released.

ISSUE: Whether or not Inciong should be held liable.

HELD: Yes. Inciong is considering himself as a guarantor in the promissory note. And he was
basing his argument based on Article 2080 of the Civil Code which provides that guarantors are
released from their obligations if the creditors shall release their debtors. It is to be noted however
that Inciong did not sign the promissory note as a guarantor. He signed it as a solidary co-maker.
A guarantor who binds himself in solidum with the principal debtor does not become a solidary co-
debtor to all intents and purposes. There is a difference between a solidary co-debtor and a fiador in
solidum (surety). The latter, outside of the liability he assumes to pay the debt before the property of
the principal debtor has been exhausted, retains all the other rights, actions and benefits which
pertain to him by reason of the fiansa; while a solidary co-debtor has no other rights than those
bestowed upon him.

Because the promissory note involved in this case expressly states that the three signatories therein
are jointly and severally liable, any one, some or all of them may be proceeded against for the entire
obligation. The choice is left to the solidary creditor (PBC) to determine against whom he will
enforce collection. Consequently, the dismissal of the case against Pontanosas may not be deemed
as having discharged Inciong from liability as well. As regards Naybe, suffice it to say that the court
never acquired jurisdiction over him. Inciong, therefore, may only have recourse against his co-
makers, as provided by law.

12. Ponce vs. CA

GR L-49444, 31 May 1979
First Division, Melencio-Herrera (J)

Facts: On 3 June 1969, Jesus Afable, together with Feliza Mendoza and Ma. Aurora Dino executed a
promissory note in favor of Nelia Ponce in the sum of P814,868.42 payable without interest on or before
31 July 1969, subject to an interest of 12% per annum if not paid at maturity, and an additional sum
equivalent to 10% of total amount due as attorney’s fees in case it is necessary to bring suit, and the
execution of a first mortgage on their properties or the Carmen Planas Memorial Inc. in the event of
failure to pay the indebtedness in accordance with the terms. Upon failure of the debtors to pay, a
complaint was filed against them for the recovery of the principal sum, plus interest and damages. The
trial court rendered judgment in favor of Ponce. The Court of Appeals affirmed the decision of the trial
court. On the second motion for reconsideration, however, the appellate court reversed the judgment
and opined that the intent of the parties was that the note was payable in US dollars which is illegal, with
neither party entitled to recover under the “in pari delicto” rule.

Issue: Whether an agreement to pay in dollars defeat a creditor’s claim for payment.

Held: If there is an agreement to pay an obligation in a currency other than Philippine legal tender, the
same is illegal / null and void as contrary to public policy, pursuant to RA 529, and the most that can be
demanded is to pay the said obligation in Philippine currency. It cannot defeat a creditor’s claim for
payment, for such will allow a person to enrich himself inequitably at another’s expense. What RA 529
prohibits is the payment of an obligation in dollars. A creditor cannot oblige the debtor to pay in dollars,
even if the loan was given in said currency. In such case, the indemnity is expressed in Philippine
currency on the basis of the current rate of exchange at the time of payment.
13. Kalalo vs. Luz
GR L-27782, 31 July 1970
En Banc, Zaldivar (J)

Facts: On 17 November 1959, Octavio Kalalo entered into an agreement with Alfredo Luz where he
was to render engineering design services for a fee. On 11 December 1961, Kalalo sent Luz a
statement of account where the balance due for services rendered was P59,505. On 18 May 1962, Luz
sent Kalalo a resume of fees due to the latter, and a check for P10,861.08. Kalalo refused to accept the
check as full payment of the balance of the fees due him. On 10 August 1962, Kalalo filed a complaint
containing 4 causes of action, i.e. $28,000 (representing 20% of the amount paid to Luz in the
International Research Institute project) and the balance of P30,881.25 as fees; P17,0000 as
consequential and moral damages; P55,000 as moral damages, attorney’s fees and litigation expenses;
and P25,000 as actual damages, attorney’s fees and litigation expenses). The trial court ruled in favor of
Kalalo. Luz filed an appeal directly with the Supreme Court raising only questions of law.

Issue: Whether the rate of exchange of dollar to peso are those at the time of the payment of the
judgment or at the time when the research institute project became due and demandable.

Held: Luz’ obligation to pay Kalalo the sum of US$28,000 accrued on 25 August 1961, or after the enactment
of RA 529 (16 June 1950). Thus, the provision of the statute which requires payment at the prevailing rate of
exchange when the obligation was incurred cannot be applied. RA 529 does not provide for the rate of
exchange for the payment of obligation incurred after the enactment of the Act, and thus the rate of exchange
should be that prevailing at the time of payment. The view finds support in the ruling of the Court in Engel vs.
Velasco & Co. The trial court did not err in holding the rate of exchange is that at the time of payment.
14. Caltex (Philippines) Inc. vs. CA
GR 97753, 10 August 1992
Second Division, Regalado (J)

Facts: On various dates, Security Bank and Trust Co. (SEBTC), through its Sucat branch, issued 280
certificates of time deposit (CTD) in favor of one Angel dela Cruz who deposited with the bank the aggregate
amount of P1.12 million. Anger de la Cruz delivered the CTDs to Caltex in connection with his purchase of
fuel products from the latter. Subsequently, dela Cruz informed the bank that he lost all the CTDs,
and thus executed an affidavit of loss to facilitate the issuance of the replacement CTDs. De la Cruz
was able to obtain a loan of P875,000 from the bank, and in turn, he executed a notarized Deed of
Assignment of Time Deposit in favor of the bank. Thereafter, Caltex presented for verification the
CTDs (which were declared lost by de la Cruz) with the bank. Caltex formally informed the bank of
its possession of the CTDs and its decision to preterminate the same. The bank rejected Caltex’
claim and demand, after Caltex failed to furnish copy of the requested documents evidencing the
guarantee agreement, etc. In 1983, de la Cruz’ loan matured and the bank set-off and applied the
time deposits as payment for the loan. Caltex filed the complaint, but which was dismissed.

Issue [1]: Whether the Certificates of Time Deposit (CTDs) are negotiable instruments.

Held [1]: The CTDs in question meet the requirements of the law for negotiability. Contrary to the lower
court’s findings, the CTDs are negotiable instruments (Section 1). Negotiability or non-negotiability of an
instrument is determined from the writing, i.e. from the face of the instrument itself. The documents
provided that the amounts deposited shall be repayable to the depositor. The amounts are to be
repayable to the bearer of the documents, i.e. whosoever may be the bearer at the time of presentment.

Issue [2]: Whether the CTDs’ negotiation require delivery only.

Held [2]: Although the CTDs are bearer instruments, a valid negotiation thereof for the true purpose and
agreement between it (Caltex) and de la Cruz requires both delivery and indorsement; as the CTDs were
delivered to it as security for dela Cruz’ purchases of its fuel products, and not for payment. Herein, there was
no negotiation in the sense of a transfer of title, or legal title, to the CTDs in which situation mere delivery of
the bearer CTDs would have sufficed. The delivery thereof as security for the fuel purchases at most
constitutes Caltex as a holder for value by reason of his lien. Accordingly, a negotiation for such purpose
cannot be effected by mere delivery of the instrument since the terms thereof and the subsequent disposition
of such security, in the event of non-payment of the principal obligation, must be contractually provided for.
 15. TRADERS INSURANCE V. DY ENG BIOK

104 PHIL 806

FACTS:
Dy Eng Giok was a provincial sales agent of distillery corporation, with the responsibility of remitting sales
proceeds to the principal corporation. He has a running balance and to satisfy payment, a surety
bond was issued with petitioner as guarantor, whereby they bound themselves liable to the distillery
corporation.
More purchases was made by Dy Eng Giok and he was able to pay for these additional
purchases. Nonetheless, the payment was first applied to
his prior payables. A remaining balance still is unpaid. Thus, an action
was filed against sales agent and surety company. Judgment was rendered in favor of the corporation.

HELD:
The remittances of Dy Eng Giok should first be applied to the obligation first contracted by him and
covered by the surety agreement. First, in the
absence of express stipulation, a guaranty or suretyship operates
prospectively and not retroactively. It only secures the debts contracted
after the guaranty takes effect. To apply the payment to the obligations
contracted before the guaranty would make the surety answer for debts outside the guaranty. The
surety agreement didn't guarantee the payment of any outstanding balance due from the principal debtor but
only he would
turn out the sales proceeds to the Distileria and this he has done, since his
remittances exceeded the value of the sales during the period of the guaranty.

Second, since the Dy Eng Biok’s obligations prior to the guaranty were not
covered, and absent any express stipulation, any prior payment made should be applied to the debts that
were guaranteed since they are to be regarded as the more onerous debts.

16. Philippine National Bank vs Concepcion Mining Company, Inc.

5 SCRA 745 – Mercantile Law – Negotiable Instruments Law – Negotiable Instruments in General – Rules of
Construction

A promissory note dated march 12, 1954 was executed by Vicente Legarda, president of Concepcion Mining
Company, and Jose Sarte. On the face of the promissory note partially reads:
 NINETY DAYS after date, for value received, I promise to pay to the order of the Philippine National
Bank . . . .

The promissory note matured and without payment from the makers. PNB sued Concepcion Mining and
Sarte.

ISSUE: Whether or not the estate of Legarda should be included in the suit.

HELD: No. There is no need for pursuant to Section 17 (g) of the Negotiable Instruments Law:

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

xxx xxx xxx

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

17. Dela Victoria vs. Burgos

GR 111190, 27 June 1995
First Division, Bellosillo (J)

Facts: Raul Sesbreno filed a complaint for damages against Assistant City Fiscal Bienvenido Mabanto before the
RTC of Cebu City. After trial, judgment was rendered ordering Mabanto to pay Sesbreno P11,000. The decision
having become final and executory, the trial court ordered its execution upon Sesbreno’s motion. The writ of
execution was issued despite Mabanto’s objection. A notice of garnishment was served upon Loreto de la Victoria
as City Fiscal of Mandaue City where Mabanto was then detailed. De la Victoria moved to quash the notice of
garnishment claiming that he was not in possession of any money, funds, etc. belonging to Mabanto until delivered
to him, and as such are still public funds which could not be subject of garnishment..
Issue: Whether the checks subject of garnishment belong to Mabanto or whether they still belong
to the government.

Held: Under Section 16 of the Negotiable Instruments Law, every contract on a negotiable
instrument is incomplete and revocable until delivery of the instrument for the purpose of giving
effect thereto. As ordinarily understood, delivery means the transfer of the possession of the
instrument by the maker or drawer with the intent to transfer title to the payee and recognize him as
the holder thereof. Herein, the salary check of a government officer or employee does not belong to
him before it is physically delivered to him. Inasmuch as said checks had not yet been delivered to
Mabanto, they did not belong to him and still had the character of public funds. As a necessary
consequence of being public fund, the checks may not be garnished to satisfy the judgment.

18 ASTRO ELECTRONIC CORP. & ROXAS VS. PHIL. EXPORT &FOREIGN LOAN GUARANTEE
CORP.
G.R. No. 136729. September 23, 2003

Facts: Astro Electronic Corp. (Astro) was granted several loans by Phil. Trust Co. (Phil Trust) amounting to
Php 3,000.00 with interest and secured by three promissory notes. In each note, it appears that Roxas signed
twice as president of Astro and in his personal capacity. Thereafter, Philippine Export & Foreign Guarantee
Corp. (Phil Guarantee), with the consent of Astro, guaranteed in favor of Phil Trust the payment of 70% of
Astro’s loan. Upon the latter’s failure to pay its loan obligation, despite demands, Phil Guarantee paid 70% of
the guaranteed loan. The Phil Trust and Phil Guarantee subsequently filed against astro and Roxas a
complaint for sum of money. The Regional Trial Court rendered its decision ordering Astro & Roxas to pay
jointly and severally Phil Guarantee the sum of Php 3, 621, 187.52 with interest and cost.

Issue: Whether or not Roxas should be jointly and severally liable with Astro for the sum awarded by the
RTC.

Held: By signing twice, as president of Astro and in his personal capacity, Roxas became a co-maker of the
notes and cannot escape any liability arising from it. Under the NIL, persons who write their names on the
face of the note as makers, promising that they will pay to the order of the payee or any holder according to its
tenor will be liable as such. Roxas is primarily liable as a joint and several debtor considering that his
intention to be liable is manifested by the fact that he affixed his signature twice in each of the three
promissory notes which necessarily would imply that he is undertaking the obligation in two different
capacities, official and personal.

19. DevelopmentBank of Rizal v. Sima Wei [G.R. No.

85419. March 9, 1993]
30JUL
FACTS
Respondent Sima Wei drew crossed checks for the petitioner, but were not delivered accordingly. It came in
the possession of Lee Kian Huat without petitioner-payees indorsement.

ISSUE
Whether or not there is a cause of action against respondent Sima Wei in as far as the crossed checks are
concerned.

RULING
NO. The payee of a negotiable instrument acquires no interest with respect thereto until its delivery to
him. Without the initial delivery of the instrument from the drawer to the payee, there can be no liability on the
instrument. Moreover, such delivery must be intended to give effect to the instrument. Here, non-delivery of
said checks to petitioner-payee, the former did not acquire any right or interest therein and cannot therefore
assert any cause of action, founded on said checks, whether against the drawer Sima Wei or against any of
the other respondents.

20. Negotiable Instruments Case Digest: Francisco V. CA (1999)

G.R. No. 116320 November 29, 1999

Lessons Applicable: Forgery (Negotiable Instruments Law)

FACTS:
June 23, 1977: Adalia Francisco (Francisco) president of A. Francisco Realty & Development Corporation
(AFRDC) and Jaime C. Ong (Ong) President and General Manager of Herby Commercial & Construction
Corporation (HCCC), entered into a contract where HCCC agreed to undertake the construction of 35 housing
units and the development of 35 hectares of land.

HCCC was to be paid on turn-key basis (basis of the completed houses and developed lands delivered to and
accepted by AFRDC and the GSIS)

To facilitate payment, AFRDC executed a Deed of Assignment in favor of HCCC to enable the it to collect
payments directly from the GSIS.

Furthermore, the GSIS and AFRDC put up an Executive Committee Account with the Insular Bank of Asia &
America (IBAA) of P4M from which checks would be issued and co-signed by petitioner Francisco and the
GSIS Vice-President Armando Diaz (Diaz).

February 10, 1978: HCCC filed a complaint w/ the RTC against Francisco, AFRDC and the GSIS for the
collection of the unpaid balance under the Land Development and Construction Contract in the amount of
P515,493.89 for completed and delivered housing units and land development.

Sometime in 1979: Ong discovered that Diaz and Francisco had executed and signed 7 checks drawn against
the IBAA and payable to HCCC but were never delivered to HCCC

GSIS gave Francisco custody of the checks since she promised that she would deliver the same to HCCC.
Francisco forged the signature of Ong, without his knowledge or consent, at the dorsal portion of the said
checks to make it appear that HCCC had indorsed the checks; Francisco then indorsed the checks for a second
time by signing her name at the back of the checks and deposited the checks in her IBAA savings account

June 7, 1979: Ong filed complaints charging Francisco with estafa thru falsification of commercial documents
- dismmised by the Assistant City Fiscal

According to Francisco, she agreed to grant HCCC the loans in the total amount of P585K and covered by 18
promissory notes in order to obviate the risk of the non-completion of the project.

As a means of repayment, Ong allegedly issued a Certification authorizing Francisco to collect HCCCs
receivables from the GSIS

RTC: favored Ong and against IBAA and Francisco

November 21, 1989: IBAA and HCCC entered into a Compromise Agreement which was approved by the
trial court, wherein HCCC acknowledged receipt of the amount of P370,475.00 in full satisfaction of its
claims against IBAA, without prejudice to the right of IBAA to pursue its claims against Francisco.

CA affirmed RTC

Francisco claims that she was, in any event, authorized to sign Ongs name on the checks by virtue of the
Certification executed by Ong in her favor giving her the authority to collect all the receivables of HCCC
from the GSIS, including the questioned checks.

ISSUE: W/N Francisco can sign Ongs name on the checks and it was not forgery

HELD: NO.
Francisco had custody of the checks, as proven by the check vouchers bearing her uncontested signature

Francisco forged the signature of Ong on the checks to make it appear as if Ong had indorsed said checks

The Negotiable Instruments Law provides that where any person is under obligation to indorse in a
representative capacity, he may indorse in such terms as to negative personal liability

An agent, when so signing, should indicate that he is merely signing in behalf of the principal and must
disclose the name of his principal; otherwise he shall be held personally liable

Instead of signing Ongs name, Francisco should have signed her own name and expressly indicated that she
was signing as an agent of HCCC

21. Negotiable Instruments Case Digest: Republic Planters Bank V. CA (1992)

G.R. No. 93073 December 21, 1992

Lessons Applicable: Incomplete instruments to rules of construction (Negotiable Instrument Law)

FACTS:
Shozo Yamaguchi (President/Chief Operating Officer) and Fermin Canlas (Treasurer) by virtue of Board
Resolution of Worldwide Garment Manufacturing, Inc were authorized to apply for credit facilities with the
Republic Planters Bank in the forms of export advances and letters of credit/trust receipts accommodations.

9 promissory notes with Worldwide Garment Manufacturing, Inc. was apparently rubber stamped above the
signatures of Yamaguchi and Canlas were issued to Republic Planters Bank
December 20, 1982: Worldwide Garment Manufacturing, Inc. changed its corporate name to Pinch
Manufacturing Corporation

February 5, 1982: Republic Planters filed a complaint for the recovery of sums of money

Shozo Yamaguchi did not file an Amended Answer and failed to appear at the scheduled pre-trial conference
despite due notice

Fermin Canlas denied having issued the promissory notes as an officer of Pinch Manufacturing Corporation
and when he issued said promissory notes in behalf of Worldwide Garment Manufacturing, Inc., it was in
blank (typewritten entries not appearing when he signed)

ISSUE: W/N Fermin Canlas is solidarily liable with the other defendants, namely Pinch Manufacturing
Corporation and Shozo Yamaguchi on the 9 promissory notes because they are negotiable and ruled by the
Negotiable Instruments Law

HELD: CA absolving Fermin Canlas is REVERSED and SET ASIDE. Judgement is hereby rendered
declaring private respondent Fermin Canlas jointly and severally liable on all 9 promissory notes with the
following sums and at 16% interest per annum
Under the Negotiable lnstruments Law, persons who write their names on the face of promissory notes are
makers and are liable as such.

Fermin Canlas one of the co-makers of the promissory notes

cannot escape liability arising therefrom

made clearer and certain, without reason for ambiguity, by the presence of the phrase "joint and several" as
describing the unconditional promise to pay to the order of Republic Planters Bank

Severally and jointly or solidarily liable

"I promise to pay" is signed by 2 or more persons

"I" ,We" , or "Either of us" promise to, pay, when signed by two or more persons

"and (in) his personal capacity" below the signatures of the makers - immaterial and will not affect to the
liability of Fermin Canlas as a joint and several debtor of the notes.

With or without it, he is primarily liable as a co-maker of each of the notes and his liability is that of a
solidary debtor

A change in the corporate name does not make a new corporation, and whether effected by special act or
under a general law, has no affect on the identity of the corporation, or on its property, rights, or liabilities

The corporation continues, as before, responsible in its new name for all debts or other liabilities which it had
previously contracted or incurred.

GR: officers or directors under the old corporate name bear no personal liability for acts done or contracts
entered into by officers of the corporation, if duly authorized. Inasmuch as such officers acted in their
capacity as agent of the old corporation and the change of name meant only the continuation of the old
juridical entity, the corporation bearing the same name is still bound by the acts of its agents if authorized by
the Board.

EX: Under the Negotiable Instruments Law, the liability of a person signing as an agent is specifically
provided for as follows:
Sec. 20. Liability of a person signing as agent and so forth. Where the instrument contains or a person adds to
his signature words indicating that he signs for or on behalf of a principal , or in a representative capacity, he
is not liable on the instrument if he was duly authorized; but the mere addition of words describing him as an
agent, or as filling a representative character, without disclosing his principal, does not exempt him from
personal liability.
Where the agent signs his name but nowhere in the instrument has he disclosed the fact that he is acting in a
representative capacity or the name of the third party for whom he might have acted as agent, the agent is
personally liable to take holder of the instrument and cannot be permitted to prove that he was merely acting
as agent of another and parol or extrinsic evidence is not admissible to avoid the agent's personal liability.

incomplete stereotype printed form of promissory notes generally used by commercial banking institutions to
be signed by their clients in obtaining loans.

blank spaces to be filled up on material particulars such as payee's name, amount of the loan, rate of interest,
date of issue and the maturity date.

An incomplete instrument which has been delivered to the borrower for his signature is governed by Section
14 of the Negotiable Instruments Law:

Sec. 14. Blanks: when may be filled. — Where the instrument is wanting in any material particular, the
person in possesion thereof has a prima facie authority to complete it by filling up the blanks therein. ... In
order, however, that any such instrument when completed may be enforced against any person who became a
party thereto prior to its completion, it must be filled up strictly in accordance with the authority given and
within a reasonable time...
The notes were not incomplete instruments; neither were they given to private respondent Fermin Canlas in
blank as he claims. Thus, Section 14 of the NegotiabIe Instruments Law is not applicable.

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

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

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

ISSUE 1:
Was there forgery under the Negotiable Instruments Law (NIL)?
HELD:
YES. Forgery cannot be presumed. It must be established by clear, positive and convincing
evidence. Under the best evidence rule as applied to documentary evidence like the checks in
question, no secondary or substitutionary evidence may inceptively be introduced, as the
original writing itself must be produced in court. But when, without bad faith on the part of the
offeror, the original checks have already been destroyed or cannot be produced in court,
secondary evidence may be produced. Without bad faith on its part, CASA proved the loss or
destruction of the original checks through the Affidavit of the one person who knew of that fact-
Yabut. He clearly admitted to discarding the paid checks to cover up his misdeed. In such a
situation, secondary evidence like microfilm copies may be introduced in court.
Even with respect to documentary evidence, the best evidence rule applies only when the
contents of a document -- such as the drawers signature on a check -- is the subject of inquiry.
ISSUE 2:
Is BPI liable as the drawee bank for allowing payment on the checks to a wrongful and
fictitious payee?

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

23. Philippine Commercial Industrial Bank vs. CA

GR 121413, 29 January 2001
Second Division, Quisumbing (J)

Facts: Ford issued Citibank checks in favor of the Commissioner of Internal Revenue as payments of its
taxes, through the depository bank Insular Bank of Asia and America (later PCIBank). Proceeds of the
checks were never received by the Commissioner, but were encashed and diverted to the accounts of
members of a syndicate, to which Ford’s General Ledger Accountant Godofredo Rivera belongs. Upon
demand of the Commissioner anew, Ford was forced to make second payment of its taxes. Thus, Ford
instituted actions to recover the amounts from the collecting (depository) and drawee banks.

Issue: Whether Ford has the right to recover from the collecting bank (PCI Bank) and/or the
drawee bank (Citibank) the value of the checks.
Held: The mere fact that forgery was committed by a drawer- payor’s confidential employee or agent, who by
virtue of his position had unusual facilities to perpetrate the fraud and imposing the forged paper upon the
bank, does not entitle the bank to shift the loss to the drawer-payor, in the absence of some
circumstance raising estoppel against the drawer. The rule applies to checks fraudulently
negotiated or diverted by the confidential employees who hold them in their possession.

In GRs 121413 and 121479, PCIBank failed to verify the authority of Mr. Rivera to negotiate the
checks. Furthermore, PCIBank’s clearing stamp which guarantees prior or lack of indorsements
render PCIBank liable as it allowed Citibank without any other option but to pay the checks.
PCIBank, being a depository / collecting bank of the BIR, had the responsibility to make sure that
the crossed checks were deposited in “Payee’s account only” as found in the instrument.

In GR 128604, on the other hand, the switching operation involving the checks, while in transit for clearing,
were the clandestine or hidden actuations performed by the members of the syndicate in their own personal,
covert and private capacity; without the knowledge nor official or conscious participation of PCIBank in the
process of embezzlement. Central Bank Circular 580 (1977), however, provide d that any theft affecting items
in transit for clearing are for the account of the sending bank (herein PCIBank). Still, Citibank was likewise
negligent in the performance of its duties as it failed to establish its payment of Ford’s checks were made in
due course and legally in order. The fact that drawee bank did not discover the irregularity seasonably
constitutes negligence in carrying out the bank’s duty to its depositors.

24. Associated Bank vs. CA

GR 107382, 31 January 1996
Second Division, Romero (J)

Facts: 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.

25.
Westmont Bank v. Ong [G.R. No. 132560. January 30, 2002]

30
JUL
FACTS

Manager’s checks payable to respondent Ong was intercepted, indorsed by forging Ong’s signature, and
deposited to petitioner. Ong sought for remedies after learning this but to no avail.

ISSUE

Whether or not respondent Ong may still recover from petitioner.

RULING

YES. Ong’s signature as payee, in the case at bar, was forged to make it appear that he had made an
indorsement in favor of the forger. Such signature should be deemed as inoperative and ineffectual. Petitioner,
as the collecting bank, grossly erred in making payment by virtue of said forged signature. Ong should
therefore be allowed to recover from the collecting bank.
26. Republic Bank vs. Ebrada
GR L-40796, 31 July 1975
First Division, Martin (J)

Facts: Mauricia Ebrada encashed a back pay check for P1246.08 at Republic Bank (Escolta Branch).
The Bureau of Treasury, which issued the check advised the bank that the alleged indorsement of the
check by one “Martin Lorenzo” was a forgery as the latter has been dead since 14 July 1952; and
requested that it be refunded he sum deducted from its account. The bank refunded the amount to the
Bureau and demanded upon Ebrada the sum in question, who refused. Hence, the present action.

Issue: Whether the bank can recover from the last indorser.

Held: According to Section 23 of the Negotiable Instruments Law, where the signature on a negotiable
instrument is forged, the negotiation of the check is without force or effect. However, following the ruling
in Beam vs. Farrel (US case), where a check has several indorsements on it, only the negotiation based
on the forged or unauthorized signature which is inoperative. The last indorser, Ebrada, was duty-bound
to ascertain whether the check was genuine before presenting it to the bank for payment. Her failure to
do so makes her liable for the loss and the Bank may recover from her the money she received for the
check. Had she performed her duty, the forgery would have been detected and fraud defeated. Even if
she turned over the amount to Dominguez immediately after receiving the cash proceeds of the check,
she is liable as an accommodation party under Section 29 of the Negotiable Instruments Law.
27. Negotiable Instruments Digest: BPI FAMILY BANK v. EDGARDO BUENAVENTURA et al.
BPI FAMILY BANK v. EDGARDO BUENAVENTURA et al.
[G.R. No. 148196, September 30, 2005] (471 SCRA 431)

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

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

HELD:
YES. Every bank that issues checks for the use of its customers should know whether or not
the drawer's signature thereon is genuine, whether there are sufficient funds in the drawers account
to cover checks issued, and it should be able to detect alterations, erasures, superimpositions or
intercalations thereon, for these instruments are prepared, printed and issued by itself, it has control
of the drawer's account, and it is supposed to be familiar with the drawer's signature. It should
possess appropriate detecting devices for uncovering forgeries and/or alterations on these
instruments. Unless a forgery or alteration is attributable to the fault or negligence of the drawer
himself, the remedy of the drawee bank that negligently clears a forged and/or altered check for
payment is against the party responsible for the forgery or alteration, otherwise, it bears the loss.
Having been negligent in detecting the forgery prior to clearing the check, BPI-FB should
bear the loss and can’t shift the blame to Buenaventura, et al. having failed to show any
participation on their part in the forgery. BPI-FB fails to point any circumstance which should have
put Buenaventura, et al. on inquiry as to the why and wherefore of the possession of the check by
Amado Franco. Buenaventura, et al. were not privies to any transaction involving FMIC, Tevesteco
or Franco. They thus had no obligation to ascertain from Franco what the nature of the latter’s title
to the checks was, if any, or the nature of his possession. They cannot be guilty of gross neglect
amounting to legal absence of good faith, absent any showing that there was something amiss
about Franco’s acquisition or possession of the check, which was payable to bearer.
Thus, BPI-FB has no unilateral right to freeze the current account of Buenaventura, et
al. based on the suspicion that the funds in the latter’s account are illegal or unauthorized having
been sourced from the unlawful transfer of funds from the account of FMIC to Tevesteco and
disallow any withdrawal therefrom to allegedly protect its interest.
Needless to stress, the contract between a bank and its depositor is governed by the
provisions of the Civil Code on simple loan. Thus, there is a debtor-creditor relationship between a
bank and its depositor. The bank is the debtor and the depositor is the creditor. The depositor lends
the bank money and the bank agrees to pay the depositor on demand. The savings or current
deposit agreement between the bank and the depositor is the contract that determines the rights
and obligations of the parties.
Thus, the fact that the funds in deposit with BPI-FB under the name of Buenaventura, et
al. were allegedly derived exclusively from the alleged P80,000,000.00 unlawfully transferred from
the funds of FMIC or that the deposit under the name of Tevesteco consisted allegedly exclusively
of the said P80,000,000.00 debited from FMIC’s account is immaterial. These circumstances
cannot be used against a party not privy to the forgery. xxx
28. Negotiable Instruments Digest: BANK OF THE PHILIPPINE ISLANDS v. CASA MONTESSORI
INTERNATIONALE and LEONARDO T. YABUT
BANK OF THE PHILIPPINE ISLANDS v. CASA MONTESSORI INTERNATIONALE and
LEONARDO T. YABUT
[G.R. No. 149454. May 28, 2004] (430 SCRA 261)

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

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

HELD:
YES. Forgery cannot be presumed. It must be established by clear, positive and convincing
evidence. Under the best evidence rule as applied to documentary evidence like the checks in
question, no secondary or substitutionary evidence may inceptively be introduced, as the original
writing itself must be produced in court. But when, without bad faith on the part of the offeror, the
original checks have already been destroyed or cannot be produced in court, secondary evidence
may be produced. Without bad faith on its part, CASA proved the loss or destruction of the original
checks through the Affidavit of the one person who knew of that fact- Yabut. He clearly admitted to
discarding the paid checks to cover up his misdeed. In such a situation, secondary evidence like
microfilm copies may be introduced in court.
Even with respect to documentary evidence, the best evidence rule applies only when the
contents of a document -- such as the drawers signature on a check -- is the subject of inquiry.
ISSUE 2:
Is BPI liable as the drawee bank for allowing payment on the checks to a wrongful and
fictitious payee?
HELD:
YES. BPI -- the drawee bank -- becomes liable to its depositor-drawer for allowing payment
on the checks to a wrongful and fictitious payee. Since the encashing bank is one of its
branches, BPI can easily go after it and hold it liable for reimbursement. It may not debit the
drawers account and is not entitled to indemnification from the drawer. In both law and equity, when
one of two innocent persons must suffer by the wrongful act of a third person, the loss must be
borne by the one whose negligence was the proximate cause of the loss or who put it into the
power of the third person to perpetrate the wrong.
A bank is bound to know the signatures of its customers; and if it pays a forged check, it
must be considered as making the payment out of its own funds, and cannot ordinarily charge the
amount so paid to the account of the depositor whose name was forged.
29. PNB vs. Quimpo
GR L-53194, 14 March 1988
First Division, Gancayco (J)

Facts: Francisco Gozon was a depositor of the Philippine National Bank (PNB Caloocan City
branch). Ernesto Santos, Gozon’s friend, took a check from the latter’s checkbook which was left in
the car, filled it up for the amount of P5,000, forged Gozon’s signature, and encashed it. Gozon
learned about the transaction upon receipt of the bank’s statement of account, and requested the
bank to recredit the amount to his account. The bank refused. Hence, the present action.

Issue: Who shall bear the loss resulting from the forged check.

Held: The prime duty of a bank is to ascertain the genuineness of the signature of the drawer or the depositor
on the check being encashed. It is expected to use reasonable business prudence in accepting and cashing a
check being encashed or presented to it. Payment in neglect of duty places upon him the result of such
negligence. Still, Gozon’s act in leaving his checkbook in the car, where his trusted friend remained in, cannot
be considered negligence sufficient to excuse the bank from its own negligence. The bank bears the loss.
30. Associated Bank vs. CA
GR 107382, 31 January 1996
Second Division, Romero (J)

Facts: 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.
31. MWSS vs. CA
GR L-62943, 14 July 1986
Second Division, Gutierrez Jr. (J)

Facts: By special arrangement with PNB, MWSS used personalized checks in drawing from its
account. The checks were printed by its printer, F. Mesina Enterprises. 23 checks were paid and
cleared by PNB, and debited against MWSS’ account from March to May 1969. The checks were
deposited by payees Raul Dizon, Arturo Sison, and Antonio Mendoza in their account with PCIBank.
Said persons were later found to be fictitious. MWSS requested PNB to restore the amount debited
due to the 23 checks, allegedly forged, to its account. The bank refused. Hence, the present action.

Issue: Who shall bear the loss resulting from the alleged forged checks.

Held: There was no express and categorical finding that the 23 checks were forged or signed by persons
other than the authorized MWSS signatories. Forgery is not presumed but should be established by clear,
positive and convincing evidence. MWSS is barred from setting up defense of forgery under Section 23 of
the Negotiable Instruments Law as MWSS committed gross negligence in the printing of its personalized
checks, failed to reconcile its bank statements with its own records, and failed to provide appropriate
security measures over its own record. PNB, the drawee bank, had taken necessary measures in the
detection of forged checks and the prevention of their fraudulent encashment through constant reminders
to all its current account bookkeepers informing them of the activities of forgery syndicates. MWSS’ gross
negligence was the proximate cause of the loss (P3 million), and should bear the loss.
32.METROPOLITAN BANK AND TRUST COMPANY versus -
PHILIPPINE BANK OF COMMUNICATIONS, FILIPINAS ORIENT
FINANCE CORPORATION, PIPE MASTER CORPORATION and TAN
JUAN LIAN,

33.
Republic Bank vs. CA
GR 42725, 22 April 1991
First Division, Grino Aquino (J)

Facts: San Miguel Corporation issued a dividend check for P240 in favor of J. Roberto Delgado, a
stockholder. Delgado altered the amount of the check to P9,240. The check was indorsed and deposited
by Delgado with Republic Bank. Republic Bank endorsed the check to First National City Bank (FNCB),
the drawee bank, by stamping on the back of the check “all prior and / or lack of indorsements
guaranteed. Relying on the endorsement, FNCB paid the amount to Republic Bank. Later on, San Miguel
informed FNCB of the material alteration of the amount. FNCB recredited the amount to San Miguel’s
account, and demanded refund from Republic Bank. Republic Bank refused. Hence, the present action.

Issue: Who shall bear the loss resulting from the altered check.

Held: When an indorsement is forged, the collecting bank or last indorser, as a general rule, bears
the loss. But the unqualified indorsement of the collecting bank on the check should be read
together with the 24-hour regulation on clearing house operation. Thus, when the drawee bank fails
to return a forged or altered check to the collecting bank within the 24-hour clearing period (as
provided by Section 4c of Central Bank Circular 9, as amended), the collecting bank is absolved
from liability. The drawee bank, FNCB, should bear the loss for the payment of the altered check for
its failure to detect and warn Republic Bank of the fraudulent character of the check within the 24-
hour clearing house rule.
34. Manila Lighter Transportation vs. CA
GR L-50373, 15 February 1990
First Division, Grino-Aquino (J)

Facts: 49 checks were issued by Manila Lighter Transportation’s customers in payment of

brokerage / lighterage services and were all delivered to its collector, Augusto Perez. Upon
forged indorsements of the company’s General Manager, Luis Gaskell, the checks found their
way to the accounts of third persons and were later withdrawn. A complaint to recover the value
of the checks were filed against China Bank. Bank denied liability.

Issue: Whether the bank is negligent as to bear the loss resulting from the checks with forged
indorsements.

Held: Since Manila Lighter Transportation was not a client of the bank, the latter had no way of
ascertaining the authenticity of its indorsements on the checks which were deposited in the
accounts of third persons (Ko Lit and Cao Pek) in said bank. The bank was not negligent
because, in accordance with banking practice, it caused the checks to pass through the clearing
house before it allowed their proceeds to be withdrawn by the depositors
35. Gempesaw vs. CA
GR 92244, 9 February 1993
Second Division, Campos Jr. (J)

Facts: Natividad Gempesaw issued checks, prepared by her bookkeeper, a total of 82 checks in favor of
several supplies. Most of the checks for amounts in excess of actual obligations as shown in their
corresponding invoices. It was only after the lapse of more than 2 years did she discovered the fraudulent
manipulations of her bookkeeper. It was also learned that the indorsements of the payee were forged,
and the checks were brought to the chief accountant of Philippine Bank of Commerce (the Drawee Bank,
Buendia Branch) who deposited them in the accounts of Alfredo Romero and Benito Lam. Gempesaw
made demand upon the bank to credit the amount charged due the checks. The bank refused. Hence,
the present action.

Issue: Who shall bear the loss resulting from the forged indorsements.

Held: As a rule, a drawee bank who has paid a check on which an indorsement has been forged
cannot charge the drawer’s account for the amount of said check. An exception to the rule is where
the drawer is guilty of such negligence which causes the bank to honor such checks. Gempesaw did
not exercise prudence in taking steps that a careful and prudent businessman would take in
circumstances to discover discrepancies in her account. Her negligence was the proximate cause of
her loss, and under Section 23 of the Negotiable Instruments Law, is precluded from using forgery
as a defense. On the other hand, the banking rule banning acceptance of checks for deposit or cash
payment with more than one indorsement unless cleared by some bank officials does not invalidate
the instrument; neither does it invalidate the negotiation or transfer of said checks. The only kind of
indorsement which stops the further negotiation of an instrument is a restrictive indorsement which
prohibits the further negotiation thereof, pursuant to Section 36 of the Negotiable Instruments Law.
In light of any case not provided for in the Act that is to be governed by the provisions of existing
legislation, pursuant to Section 196 of the Negotiable Instruments Law, the bank may be held liable
for damages in accordance with Article 1170 of the Civil Code. The drawee bank, in its failure to
discover the fraud committed by its employee and in contravention banking rules in allowing a chief
accountant to deposit the checks bearing second indorsements, was adjudged liable to share the
loss with Gempesaw on a 50:50 ratio.
 36. International Corporate Bank, Inc vs Court of Appeals
501 SCRA 20 [G.R. No. 129910 September 5, 2006]

Facts: The Ministry of Education and Culture issued 15 checks drawn against respondent which
petitioner accepted for deposit on various dates. After 24 hours from submission of the checks to
respondent for clearing, petitioner paid the value of the checks and allowed the withdrawals of
the deposits. However, on 14 October 1981, respondent returned all the checks to petitioner
without clearing them on the ground that they were materially altered. Thus, petitioner instituted
an action for collection of sums of money against respondent to recover the value of the checks.

Issue: Whether the alterations in the serial numbers of the check is a material alteration.

Held: No. Sections 124 and 125 of Act No. 2031, otherwise known as the Negotiable
Instruments Law, provide:

SEC. 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, or assented to the alteration and subsequent indorsers. But when
an 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 payment thereof according to its original tenor.

SEC. 125. What constitutes a 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 relations 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.

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.

The case at the bench is unique in the sense that what was altered is the serial number of the
check in question, an item which, it can readily be observed, is not an essential requisite for
negotiability under Section 1 of the Negotiable Instruments Law. The aforementioned alteration
did not change the relations between the parties. The name of the drawer and the drawee were
not altered. The intended payee was the same. The sum of money due to the payee remained the
same.
37. Philippine National Bank v. Court of Appeals [G.R. No. 107508. April
25, 1996]
30 Jul

FACTS

Petitioner returned the check to PBCom and debited PBCom’s account for the amount covered
by the check, the reason being that there was a “material alteration” of the check number.

ISSUE

Whether or not there is “material alteration” on the check.

RULING

NO. 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. Here, the alteration of check number does not
affect its negotiability contemplated in Section 1 of the Negotiable Instruments Law.