NIL Midterms

MIDTERMS: NEGOTIABLE INSTRUMENTS Based on the Syllabus of Atty. Valerie Gayle J. Patac and the Book of Hector S.
De Leon
Does it give the holder the right to alter?

L. No. The holder has not authority to change the amount after it has
DEFECTIVE NEGOTIABLE INSTRUMENTS been filled in.
Example: M issues a note to P with the space for the date left blank in
SECTION 14. Blanks; When May Be Filled. — Where the instrument payment for goods purchased by M from P. This gives P prima facie
is wanting in any material particular, the person in possession thereof authority to fill up the blank.
has a prima facie authority to complete it by filling up the blanks
therein. And a signature on a blank paper delivered by the person 2. Authority to put any amount
making the signature in order that the paper may be converted into a A signature on a blank paper delivered in order that it may be
negotiable instrument operates as a prima facie authority to fill it up as converted into a negotiable instrument operates as prima facie
such for any amount. In order, however, that any such instrument authority to fill it up as such for any amount.
when completed may be enforced against any person who became a
party thereto prior to its completion, it must be filled up strictly in TN: there must be intention on the part of M to convert the blank paper
accordance with the authority given and within a reasonable time. But into a negotiable instrument.
if any such instrument, after completion, is negotiated to a holder in
due course, it is valid and effectual for all purposes in his hands, and Example: M delivered a blank paper containing his signature to P. In
he may enforce it as if it had been filled up strictly in accordance with order that P may have the authority to fill up for any amount, it must be
the authority given and within a reasonable time. shown that the purpose of M was to convert the said blank paper
into a negotiable instrument. Absent this showing, there cannot arise
When may blanks be filled? a prima facie authority on the part of P to fill it up for any amount.
When the instrument is wanting in any material particular.
3. Right against party prior to completion
Who has prima facie authority to fill it? The instrument may be enforced only against a party prior to
The person in possession of the note. completion if filled up strictly in accordance with the authority given and
within a reasonable time.
How does a signature on a blank paper operate, if it’s delivered by
the person making such signature? Example: M authorized P to put in the blank P1,000.00. However, P
It operates as prima facie authority to fill it up as such for any amount, inserts P2,000.00 and indorses the note to A, from A to B, and from B
in order that the paper may be converted into a negotiable instrument. to C, who is not a holder in due course. It is believed that C could
collect nothing from M, not being holder in due course.
How can the note be enforceable to a party prior to its
completion? Burden to Rebut
It must be filled up strictly in accordance with the authority given and The person who signed his name has the burden to rebut the
within a reasonable time. presumption of agency by contrary proof of want of authority, or
proving that the authority granted was exceeded.
Does it hold true if the note is negotiated to a holder in due
course? 4. Right of holder in due course.
No, if after completion, if it is negotiated to a HDC, then, it is valid and The defense that the instrument had not been filled up in accordance
effectual for all purposes in his hands. with the authority given and within a reasonable time is not available
as against a holder in due course (Personal Defense).
Two steps involved in the issuance of a negotiable instrument-
1. (It must be complete) The mechanical act of writing the Example: Let us now assume that C is a holder in due course. The
instrument completely in accordance with Sec. 1. defense that P exceeded his authority will not avail against C, since
2. (It must be delivered) The delivery of the complete being a holder in due course, the note is valid and effective for all
instrument by the maker or the drawer to the payee or purposes in his hands and he may enforce it as if it had been filled up
holder, with the intention of giving effect to it. strictly in accordance with the authority given and within a reasonable
time.
Defective Negotiable Instruments: those instruments which are
neither complete nor delivered, or both. Thus: Cases:
Application of Secs 14, 15 , and 16 BANK OF AMERICA vs. PHILIPPINE RACING CLUB INC
Sec 14: incomplete, but delivered (I-D) [Personal Defense] | G.R. No. 150228 | July 30, 2009
HDC- you cannot raise SEC 14; if not HDC- apply Sec 14. TOPIC FROM THE SYLLABUS: DEFECTIVE NEGOTIABLE
Sec 15: incomplete and undelivered (I-U) INSTRUMENTS
Sec 16: complete, but undelivered. (C-U) There are always two steps involved in the issuance of every
negotiable instrument, namely:
RULES WHERE INSTRUMENT IS INCOMPLETE BUT DELIVERED (1) the mechanical act of writing the instrument completely and in
(SEC 14) accordance with the requirements of Section 1; and
(2) the delivery of the complete instrument by the maker or the drawer
1. Authority to fill up the blanks: the holder has prima facie authority to the payee or holder with the intention of giving effect to it.
to complete an incomplete instrument by filling up the blanks.
What are the blanks to be filled? Such instrument, complete and delivered, is negotiable and may be
Those which are of material particular, such as those blanks for date, enforced accordingly.
due date, name of payee, amount, or rate of interest.
FACTS
What is a material alteration? Respondent Philippine Racing Club Inc. (PRCI) maintains several
A material alteration is defined in Section 125 of the NIL to be one accounts with different banks. Among those accounts maintained was
which changes the date, the sum payable, the time or place of a current account with herein petitioner, Bank of America (BA). The
payment, the number or relations of the parties, the currency in which authorized joint signatories with respect to said current account were
payment is to be made or one which adds a place of payment where PRCI‘s President Antonia Reyes and Vice President for Finance,
no place of payment is specified, or any other change or addition which Gregorio Reyes.
alters the effect of the instrument in any respect.
UV-GLS | 2ND YR 2ND SEM | 2019-2020 j-c-g-c-i

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MIDTERMS: NEGOTIABLE INSTRUMENTS Based on the Syllabus of Atty. Valerie Gayle J. Patac and the Book of Hector S. De Leon
On or about the 2nd week of December 1988, the President and Vice presume that there was proper delivery to the holder. The bank could
President of PRCI were scheduled to go out of the country in not be faulted if it encashed the checks under those circumstances.
connection with the corporation's business. In order not to disrupt
operations in their absence, they pre-signed several checks relating to However, the undisputed facts plainly show that there were
the current account with BA. The intention was to insure continuity of circumstances that should have alerted the bank to the likelihood that
PRCI‘s operations by making available cash/money especially to settle the checks were not properly delivered to the person who encashed
obligations that might become due. the same.
These checks were entrusted to the accountant with instruction to The Court, however, agrees with BA that PRCI‘s officers' practice of
make use of the same as the need arose. The internal arrangement presigning of blank checks should be deemed seriously negligent
was, in the event there was need to make use of the checks, the behavior and a highly risky means of purportedly ensuring the efficient
accountant would prepare the corresponding voucher and thereafter operation of businesses. It should have occurred to respondent's
complete the entries on the presigned checks. officers and managers that the pre-signed blank checks could fall into
the wrong hands as they did in this case where the said checks were
Consequently, a John Doe presented to Bank of America a couple of stolen from the company accountant to whom the checks were
PRCI‘s checks (Nos. 401116 and 401117) with the indicated value of entrusted.
P110,000.00 each. It is admitted that these two(2) checks were among
those presigned by PRCI‘s authorized signatories. Both had similar Nevertheless, even if it is assumed that both parties were guilty of
entries with similar infirmities and irregularities. negligent acts that led to the loss, petitioner bank will still emerge as
the party foremost liable in this case. In instances where both parties
On the space where the name of the payee should be indicated (Pay are at fault, this Court has consistently applied the doctrine of last
To The Order Of) the following 2-line entries were instead typewritten: clear chance in order to assign liability.
on the upper line was the word "CASH" while the lower line had the
following typewritten words, viz . : "ONE HUNDRED TEN THOUSAND Hence, CA‘s decision is affirmed with modification as to the award of
PESOS ONLY". damage.
Despite the highly irregular entries on the face of the checks, petitioner Ratio:
bank, without as much as verifying and/or confirming the legitimacy of Where an incomplete instrument has not been delivered and is
the checks, considering the substantial amount involved and the completed and negotiated without authority, it will not be a valid
obvious infirmity/defect of the checks on their faces, encashed said contract in the hands of any holder, as against any person whose
checks. A verification process, even by way of a telephone call to PRCI signature was placed thereon before delivery.
office, would have taken less than ten (10) minutes. But this was not
done by BA.
REPUBLIC PLANTERS BANK VS CA AND CANLAS
The investigation conducted by PRCI yielded the fact that there was no G.R. No. 93073 December 21, 1992
transaction involving PRCI that calls for the payment of P220,000.00 to
anyone. The checks appeared to have come into the hands of an The Court has took judicial notice from the customary procedure of
employee of PRCI (one Clarita Mesina who was subsequently commercial banks to require their clientele to sign promissory notes
criminally charged for qualied theft) who eventually completed prepared by banks in printed form with BLANK SPACES already filled
without authority the entries on the pre-signed checks. PRCI up as per agreed terms of the loan. This makes the promissory note a
demanded for BA to pay but such demand fell on deaf ears. Hence, a complete negotiable instrument.
complaint was filed against BA.
FACTS
ISSUE: Defendant Shozo Yamaguchi and private respondent Fermin were
WON the checks were incomplete and undelivered; and President/ COO and Treasurer respectively of the Worldwide Garment
WON the proximate cause of the wrongful encashment was due to Manufacturing Inc. (Worldwide).
petitioner's failure to make a verification regarding the said checks in
view of the misplacement of entries on the face of the check By virtue of a resolution, Yamaguchi and Canlas were authorized to
apply for credit facilities with herein petitioner Republic Planters Bank
HELD: Yes, the checks were incomplete and undelivered when it (RPB/Petitioner) in the forms of EXPORT ADVANCES AND LETTERS
was completed and negotiated without authority. Thus, it will NOT OF CREDIT. RPB then issued 9 promissory notes. In these promissory
make a valid contract in the hands of any holder, as against PRCI‘s notes, it was stated that for the value received, Yamaguchi and Canlas
signatories whose signatures were placed before delivery. PRCI jointly and severally promised to pay the sum, to which they affixed
therefore, cannot be held liable for the wrongful encashment. their signatures in the margins of the said note. Apparently then,
Worldwide changed its name to Pinch Manufacturing Corp.
As for BA‘s first two (2) contentions, the Court was not convinced. The
Court said that the presence of the obvious irregularities in each check
should have alerted the petitioner to be cautious before proceeding to On Feb 5, 1982, RPB filed complaint for recovery of sums of money
encash them which it did not do. covered by the 9 promissory notes. The complaint was originally
brought against Worldwide, but was substituted by Pinch
It is well-settled that banks are engaged in a business impressed with Manufacturing Corp. Only Canlas filed his Answer wherein he denied
public interest, and it is their duty to protect in return their many clients having issued the promissory notes in question, since according to
and depositors who transact business with them. They have the him, he was not an officer of the Pinch Manufacturing Corporation, but
obligation to treat their client's account meticulously and with the instead of Worldwide, and that he issued the notes in behalf of
highest degree of care, considering the fiduciary nature of their Worldwide.
relationship. The diligence required of banks, therefore, is more than
that of a good father of a family. LOWER COURT’S RULING
RTC: Judgment rendered in favor of RPB, ordering defendant Canlas
As for petitioner‘s third contention, the petitioner bank would have been
et al to pay the sums.
correct if the subject checks were correctly and properly filled out
by the thief and presented to the bank in good order. In that CA: Affirmed RTC‘s decision.
instance, there would be nothing to give notice to the bank of any
infirmity in the title of the holder of the checks and it could validly

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Only defendant Canlas appealed to CA, his contention was that he M.

should not be held personally liable for such authorized corporate acts EFFECT OF DELIVERY OF
that he performed. INCOMPLETE INSTRUMENTS
ISSUE: W/N the promissory notes delivered to Canlas were in blank Sec. 15. Incomplete instrument not delivered. — Where an
and is thus, an incomplete negotiable instrument. incomplete instrument has not been delivered it will not, if completed
HELD: NO. and negotiated, without authority, be a valid contract in the hands of
any holder, as against any person whose signature was placed
The promissory notes were not in blank. Thus, they are complete thereon before delivery.
negotiable instruments. Further examination revealed that the notes
in question show what they are the stereotype printed form of Rules where instrument is incomplete and undelivered
promissory notes used in commercial banking institutions in obtaining
loans. (1) Defense even against a holder in due course. — The fact that an
incomplete instrument, completed without authority, has not been
To absolve himself from liability, Canlas averred that the note is blank, delivered, is a defense even against a holder in due course.
thus an incomplete negotiable instrument. He cited Sec 14 of the NIL:
An incomplete instrument delivered to the borrower for his signature is Example: Suppose M makes a note for PI, 000.00 with the name of
governed by Sec 14 of the NIL, which provides, the payee in blank and keeps it in his drawer. P steals the note and
inserts his name as payee and then indorses the note to A, A to B, B to
Sec 14: Blanks: when may be filled— Where the C, and C to D, a holder in due course. (Sec. 52.)
instrument is wanting in any material particular, the person in
possession thereof has a prima facie authority to complete it
Can D enforce the note against M?
by filling up the blanks therein. … In order, however, that any
No, because the law is specific that the instrument is not a valid
such instrument when completed may be enforced against
contract in the hands of any holder. As the signature of M was placed
any person who became a party thereto prior to its
thereon before delivery, he does not assume any responsibility
completion, it must be filed up strictly in accordance with the
whatsoever.
authority given and within a reasonable time…
What defense exists? In this case, a real defense exists, (see Sec.
Were the notes incomplete? As such, is Sec 14 of NIL applicable?
58.) The instrument may be considered a forgery insofar as M is
No, the notes were complete negotiable instruments. Thus, Sec
concerned (see Sec. 23.) since both the two steps in the execution of a
14 is also not applicable. Canlas‘ allegation that he signed the notes
negotiable instrument are not complied with.
in blank was self-serving.
There is, however, a prima facie presumption of delivery, which M
Therefore, the SC chose to believe the bank‘s testimony that the notes
must rebut by proof to the contrary. Under certain circumstances,
were already filled up before they were given to Canlas and
negligence on the part of M may render him liable to a holder in due
Yamaguchi. For signing the notes above their names, they bound
course.
themselves as unconditional makers. The Court has took judicial notice
from the customary procedure of commercial banks to require
their clientele to sign promissory notes prepared by banks in 2. Defense available to parties prior to delivery.—The invalidity of
printed form with blank spaces already filled up as per agreed terms the above instrument is only with reference to the parties whose
of the loan. signatures appear on the instrument before, and not after delivery.
RATIO: RE TOPIC EXAMPLE: In the same example, the instrument can be enforced
When the notes were given to private respondents, the notes were against P, A, B, and C because, as indorsers, they warrant that the
complete in the sense that the spaces for the material particulars has instrument is genuine and in all respects what it purports to be, etc.
already been filled up. The notes were not incomplete instruments, (see Sees. 65-66.) As their signatures appear on the instrument after
neither were they given to Canlas in blank, as he claims. Thus, delivery, the instrument is valid as to them. In the case of P, he is liable
Sec 14 of the NIL is inapplicable. not merely because he is an indorser but also because he is the one
responsible for the theft, and the completion and negotiation of the
instrument.
SC’s Disposition: The decision of the CA absolving Canlas from
liability is reversed and set aside. Canlas is declared to be jointly and
severally liable on all 9 promissory notes. SECTION 16. Delivery; When Effectual; When Presumed. — Every
contract on a negotiable instrument is incomplete and revocable until
delivery of the instrument for the purpose of giving effect thereto. As
between immediate parties, and as regards a remote party other than
a holder in due course, the delivery, in order to be effectual, must be
made either by or under the authority of the party making, drawing,
accepting, or indorsing, as the case may be; and in such case the
delivery may be shown to have been conditional, or for a special
purpose only, and not for the purpose of transferring the property in the
instrument. But where the instrument is in the hands of a holder in due
course, a valid delivery thereof by all parties prior to him so as to make
them liable to him is conclusively presumed. And where the instrument
is no longer in the possession of a party whose signature appears
thereon, a valid and intentional delivery by him is presumed until the
contrary is proved.
Rules where instrument mechanically complete
1. Undelivered: Every instrument, even if it is completely written, is

incomplete and revocable until its delivery for the purpose of giving it
effect.

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Without the initial delivery of the instrument, there can be no Upon delivery, there is a presumption that there is an intention to
liability thereon. Moreover, such delivery must be intended to give transfer ownership of the instrument to the payee. However, it may be
effect to the instrument. shown between immediate parties that the delivery was conditional or
for a special purpose only.
What is delivery?
It means the transfer of possession, actual or constructive, from one Illustration: M delivers the note to P on condition that it will not be
person to another with intent to transfer title thereto. binding on him until a co-maker has been procured, or for safekeeping,
or for collection only. Here, P cannot enforce the instrument against M
What is ‘Issue’?: defined as the first delivery of the instrument, because the latter can set up the defense that the delivery was
complete in from, to a person who takes it as holder. conditional or for a special purpose only and not for the purpose of
transferring title to the instrument.
Example:
M makes a note payable to the order of P and keeps it in his drawer. In 5. In the hands of a holder in due course.—If a complete instrument
the absence of delivery, the instrument, though complete in all its is in the hands of a holder in due course, a valid delivery thereof by all
particulars, there is no contract. M does not assume any liability. P parties prior to him is conclusively presumed.
does not acquire any right against M who may revoke, cancel or tear it
up with or without any reason. What is a conclusive presumption? it admits of no evidence to the
contrary.
2. Delivered. — The place where the instrument was written, signed,
or dated does not necessarily fix or determine the place where it was It would seem that this conclusive presumption exists as well when the
executed. What is of decisive importance is the delivery thereof. The instruments taken from a thief as in any other case. It falls within the
delivery of the instrument is the final act essential to its consummation general principle that when one of two persons must suffer by the acts
as an obligation. of a third, he who has enabled such third person to occasion the loss
must bear it. This is a principle of manifest justice where it is confined
3. In possession of party other than a holder in due course.— If a to cases where the party who is made to suffer the loss has reposed
complete instrument is found in the possession of an immediate party confidence in the third person whose acts have occasioned the loss.
or a remote party other than a holder in due course, there is a prima
facie presumption of delivery but subject to rebuttal.
DE LA VICTORIA vs. BURGOS and SESBRENO
TN: An undelivered instrument is inoperative because delivery is a G.R. No. 111190 June 27, 1995
prerequisite to liability.
[FACTS]
(Presumption of Delivery)
However, if the instrument is no longer in the possession of the person
Sesbreno filed a complaint for damages against Fiscals Mabanto, Jr.,
who signed it and it is complete in its terms, "a valid and intentional
and Rama, Jr., before the RTC.
delivery by him is presumed until the contrary is proved.
After trial, judgment was rendered ordering Mabanto to pay
Immediate Parties vs Remote Parties
P11,000.00 to Sesbreno. This order was questioned by the defendants
Immediate Parties Remote parties
before the CA.
It "refers to those who are Remote parties are parties who
'immediate' in the sense of having are not in direct contractual However, a writ of execution was issued.
or being held to know of the relation to each other. But if they
conditions or limitations placed are knowledgeable of any A notice of garnishment was served on petitioner Loreto D. de la
upon the delivery of the infirmity in the instrument, they Victoria as City Fiscal of where defendant Mabanto, Jr., was then
instrument." In other words, it are considered immediate parties detailed.
contemplates privity, not for the purposes of Sec 16.
proximity. The notice directed petitioner not to disburse, transfer, release or
convey to any other person except to the deputy sheriff concerned the
Example: salary checks belonging to Mabanto, Jr., under penalty of law.
M makes a note payable to the order of P and keeps it in his drawer. P
steals the note and indorses it to A. A to B, B to C, and C to D. D has The petition questioning the order to pay the damages pending before
knowledge that P stole the note. the CA was dismissed.
Who are immediate parties? Thus the trial court, directed De la Victoria to submit his report showing
P and D. D is an immediate party, although he is physically remote the amount of the garnished salaries of Mabanto, Jr., within 15 days
from M because D is not a HDC. from receipt. He failed to do so.
What can M do? Thus, Sesbreno filed a motion to require De la Victoria to explain why
As against P and D, M can prove that no delivery was made or it was he should not be cited in contempt of court for failing to comply with the
unauthorized. order.
Can D recover from A, B, C? De la Victoria moved to quash the notice of garnishment claiming that
Yes, as they are indorsers. he was not in possession of anything of value belonging to Mabanto,
Jr., except his salary and RATA checks, but that said checks were
What if M delivers the note to X, his agent, with the instruction to not yet properties of Mabanto, Jr., until delivered to him, as such,
deliver it to P for safekeeping? (deposit) they were still public funds which could not be subject to garnishment.
If X does not tell P that it is only for safekeeping, P can enforce the
note as he is not an immediate party. [LOWER COURT’S RULING]
The trial court denied both motions and ordered petitioner to
(4) Delivered conditionally or for a special purpose. — If delivery immediately comply with its order. It opined that the checks of
was made or authorized, it may be shown to have been conditional, or Mabanto, Jr., had already been released through De la Victoria by the
for a special purpose only, and not for t Department of Justice duly signed by the officer concerned. Upon
he purpose of transferring the property (title) to the instrument. service of the writ of garnishment, De la Victoria, as custodian of the
checks was under obligation to hold them for the judgment creditor.

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Cheng Uy, Branch Manager of the Balintawak Branch of Producers

[ISSUES] Bank, relying on the assurance of respondent Samson Tung,
(1) whether a check still in the hands of the maker or its duly President of Plastic Corporation, that the transaction was legal and
authorized representative is owned by the payee before physical regular, instructed the cashier of Producers Bank to accept the
delivery to the latter checks for deposit and to credit them to the account of said Plastic
(2) whether the salary check of a government official or employee Corporation, inspite of the fact that the checks were crossed and
funded with public funds can be subject to garnishment. payable to petitioner Bank and bore no indorsement of the latter.
Hence, petitioner filed the complaint for a sum of money against
[HELD]
respondents on two causes of action:
Garnishment is considered as a species of attachment for reaching (1) To enforce payment of the balance of P1,032,450.02 on a
credits belonging to the judgment debtor owing to him from a stranger promissory note executed by respondent Sima Wei on June
to the litigation. 9, 1983; and
Under Sec. 16 of the Negotiable Instruments Law, every contract on a (2) To enforce payment of two checks executed by Sima Wei,
negotiable instrument is incomplete and revocable until delivery of the payable to petitioner, and drawn against the China Banking
instrument for the purpose of giving effect thereto. As ordinarily Corporation, to pay the balance due on the promissory note.
understood, delivery means the transfer of the possession of the
instrument by the maker or drawer with intent to transfer title to the The trial court granted the defendants' Motions to Dismiss. The Court
payee and recognize him as the holder thereof. of Appeals affirmed this decision.
Hence, this petition.

According to the trial court, the checks of Mabanto, Jr., were already
released by the Department of Justice duly signed by the officer ISSUE: whether petitioner Bank has a cause of action against any or
concerned through petitioner and upon service of the writ of all of the defendants, in the alternative or otherwise.
garnishment by the sheriff petitioner was under obligation to hold them
for the judgment creditor. RULING: NO.
A cause of action is defined as an act or omission of one party in
It recognized the role of De la Victoria as custodian of the checks. At violation of the legal right or rights of another. The essential
the same time however it considered the checks as no longer elements are: (1) legal right of the plaintiff; (2) correlative obligation
government funds and presumed delivered to the payee based on the of the defendant; and (3) an act or omission of the defendant in
last sentence of Sec. 16 of the Negotiable Instruments Law which violation of said legal right.
states: "And where the instrument is no longer in the possession of a
party whose signature appears thereon, a valid and intentional delivery The normal parties to a check are the drawer, the payee and the
by him is presumed." drawee bank. Courts have long recognized the business custom of
using printed checks where blanks are provided for the date of
Yet, the presumption is not conclusive because the last portion of the issuance, the name of the payee, the amount payable and the
provision says "until the contrary is proved." However this phrase was drawer's signature. All the drawer has to do when he wishes to issue
deleted by the trial court for no apparent reason. Proof to the contrary a check is to properly fill up the blanks and sign it.
is its own finding that the checks were in the custody of petitioner.
However, the mere fact that he has done these does not give rise to
Inasmuch as said checks had not yet been delivered to Mabanto,
any liability on his part, until and unless the check is delivered to
Jr., they did not belong to him and still had the character of public
the payee or his representative. A negotiable instrument, of which
funds.
a check is, is not only a written evidence of a contract right but is
also a species of property. A negotiable instrument must be
The trial court exceeded its jurisdiction in issuing the notice of
delivered to the payee in order to evidence its existence as a
garnishment concerning the salary checks of Mabanto, Jr., in the
binding contract.
possession of petitioner.
However, it does not necessarily follow that the drawer Sima Wei is
The notice of garnishment served on petitioner is ordered freed from liability to petitioner Bank under the loan evidenced by
DISCHARGED. the promissory note agreed to by her. Her allegation that she has
paid the balance of her loan with the two checks payable to
petitioner Bank has no merit for these checks were never
DBP VS WEI delivered to petitioner Bank. And even granting, without
GR NO. 85419 March 9, 1993 admitting, that there was delivery to petitioner Bank, the delivery of
checks in payment of an obligation does not constitute payment
FACTS: In consideration for a loan extended by petitioner Bank to unless they are cashed or their value is impaired through the fault of
the creditor. None of these exceptions were alleged by respondent
respondent Sima Wei, the latter executed and delivered to the former a
Sima Wei.Therefore, unless respondent Sima Wei proves that she
promissory note, engaging to pay the petitioner Bank or order the has been relieved from liability on the promissory note by some
amount of P1,820,000.00 with interest at 32% per annum. other cause, petitioner Bank has a right of action against her for the
balance due thereon.
Sima Wei made partial payments on the note, leaving a balance of
P1,032,450.02. However, insofar as the other respondents are concerned, petitioner
Bank has no privity with them. Since petitioner Bank never
Sima Wei issued two crossed checks payable to petitioner Bank received the checks on which it based its action against said
drawn against China Banking Corporation for the amount of respondents, it never owned the checks, nor did it acquire any
P550,000.00 and of P500,000.00. The said checks were allegedly interest therein. Thus, anything which the respondents may have
issued in full settlement of the drawer's account evidenced by the done with respect to said checks could not have prejudiced
promissory note. petitioner Bank. It had no right or interest in the checks which could
These two checks were not delivered to the petitioner-payee or to have been violated by said respondents.
any of its authorized representatives. Petitioner Bank has therefore no cause of action against said
For reasons not shown, these checks came into the possession of respondents, in the alternative or otherwise. If at all, it is Sima Wei,
respondent Lee Kian Huat, who deposited the checks without the the drawer, who would have a cause of action against her co-
petitioner-payee's indorsement (forged or otherwise) to the account respondents, if the allegations in the complaint are found to be true.
of respondent Plastic Corporation, at the Balintawak branch,
Caloocan City, of the Producers Bank.

5 / 36
Petitioner has cause of action for her balance due to

respondent Sima Wei alone but petitioner has no cause of These are the SO-CALLED TRANSITORY OR CONTINUING
action to the other respondents since petitioner never received CRIMES under which violation of B.P. Blg. 22 is categorized. In other
the checks on which the action is based. words, a person charged with a transitory crime may be validly tried in
any municipality or territory where the offense was in part committed.
Consequently, venue or jurisdiction lies either in the Regional
LIM VS CA Trial Court of Kalookan City or Malabon.
G.R. No. 107898 December 19, 1995
TOPIC FROM THE SYLLABUS: EFFECT OF DELIVERY OF RATIO RE: TOPIC
INCOMPLETE INSTRUMENTS Under Sec 191 of the NIL, the term ―issue‖ means the first delivery of
The place where the bills were written, signed, or dated does not the instrument complete in form to a person who takes it as a holder.
necessarily fix or determine the place where they were executed. What The term holder, on the other hand, refers to the payee or indorsee of
is of decisive importance is the delivery thereof. The delivery of the a bill or note who is in possession of it.
instrument is the final act essential to its consummation as an
obligation. Citing People vs Yabut:
The place where the bills were written, signed, or dated does not
An undelivered bill or note is inoperative. Until delivery, the contract necessarily fix or determine the place where they were executed. What
is revocable. And the issuance as well as the delivery of the check is of decisive importance is the delivery thereof.
must be to a person who takes it as a holder, which means
"the payee or indorsee of a bill or note, who is in possession of it, or The delivery of the instrument is the final act essential to
the bearer thereof." its consummation as an obligation. An undelivered bill or note is
inoperative. Until delivery, the contract is revocable. And the issuance
Delivery of the check signifies transfer of possession, whether actual or as well as the delivery of the check must be to a person who takes it as
constructive, from one person to another with intent to transfer a holder, which means "(t)he payee or indorsee of a bill or note, who is
title thereto. in possession of it, or the bearer thereof."
FACTS: Delivery of the check signifies transfer of possession, whether actual or

Spouses Manuel and Rosita Lim, were charged before the RTC constructive, from one person to another with intent to transfer
Malabon with 3 counts of estafa. The information alleged that the title thereto.
spouses, conspiring together, purchased goods (mild steel plates) from
Linton Commercial Company Inc (Linton) with deceit and issued seven Although Linton sent a collector who received the checks from
(7) Consolidated Bank and Trust Co. (Solidbank) checks petitioners in Kalookan, they were actually issued and delivered to
simultaneously with the delivery as payment therefor. When presented Linton at its place of business in Navotas. The receipt of the checks
to RCBC, the drawee bank, the checks were dishonored. Despite by the collector of Linton is not the issuance and delivery to the payee
repeated notice and demand to Lim spouses, they failed to pay the in contemplation of law. The collector was not the person who could
checks. take the checks as a holder, i.e., as a payee or indorsee thereof, with
the intent to transfer title thereto.
Manuel Lim admitted having issued the seven (7) checks in question to
pay for deliveries made by LINTON but denied that his company's We therefore sustain likewise the conviction of petitioners by the
account had insufficient funds to cover the amounts of the checks. He Regional Trial Court of Malabon for violation of B.P. Blg. 22
presented the bank ledger showing a balance of P65,752.75. Also, he
claimed that he ordered SOLIDBANK to stop payment because the Section 3 of B.P. Blg. 22 provides that "notwithstanding receipt of an
supplies delivered by LINTON were not in accordance with the order to stop payment, the drawee bank shall state in the notice of
specifications in the purchase orders. dishonor that there were no sufficient funds in or credit with such bank
for the payment in full of the check, if such be the fact. The notice of
TC: Declared spouses guilty of Estafa and violation of BP 22. dishonor issued by the drawee bank, indicates not only that payment of
Sentenced both accused. the check was stopped but also that the reason for such order was that
CA: Acquitted accused of estafa, checks were not made in payment the maker or drawer did not have sufficient funds with which to cover
of an obligation contracted at the time of their issuance; but affirmed the checks.
TC’s ruling on accused’s guilt on violation of BP 22.
Before the SC, accused imputed the ff errors:
1. The RTC had no jurisdiction

2. They could not be liable for violation of BP 22 as they issued
the checks weeks after the deliveries of the goods; and
3. Neither could they be held liable for violating B.P. Blg. 22 as
they ordered payment of the checks to be stopped because
the goods delivered were not those specified by them,
besides they had sufficient funds to pay the checks.
ISSUE: W/N TC Malabon has jurisdiction to try the BPP 22 case

HELD: Yes.
Section 1, par. 1, of B.P. Blg. 22 punishes the issuing of a worthless

check. Thus, a fundamental element is knowledge on the part of the
drawer of the insufficiency of his funds in or credit with the drawee
bank for the payment of such check in full upon presentment. It is
settled that venue in criminal cases is a vital ingredient of jurisdiction.
In determining the venue, the following acts essential to each crime is

considered: the seven checks were issued to Linton at its place of
business in Navotas; they were delivered to Linton at the same place;
they were dishonored at Kalookan City; and petitioners had
knowledge of the insufficiency of funds.

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N.
FORGERY AND MATERIAL ALTERATION Examples:
1. I make a promissory note payable to my own order, wherein I forged
M‘s signature as maker. When I attempt to indorse the forged
Sec. 23. Forged signature; effect of.—When a signature is forged or
signature to A, the latter asks M, ―Hey, Joe indorsed me this note, and
made without authority of the person whose signature it purports to be,
your signature is here as maker. Is this genuine?‖, to which, M replied:
it is wholly inoperative, and no right to retain the instrument, or to give
―Yeah, it‘s all right.‖
a discharge therefor, or to enforce payment thereof against any party
thereto, can be acquired through or under such signature, unless the
Here, we have a case of estoppel arising from declaration, where M
party against whom it is sought to enforce such right is precluded from
is already precluded from setting up that his signature was a forgery.
setting up the forgery or want of authority.
"He who is silent when conscience requires him to speak shall be
Forgery explained. debarred from speaking when conscience requires him to be silent."
By forgery is meant the counterfeit-making or fraudulent alteration of a (Tobias v. Morris)
writing, and may consist in the signing of another's name or the
alteration of an instrument in the name, amount, description of the
METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM
person and the like, with intent thereby to defraud.
(MWSS) VS CA
Drawer's negligence facilitated the encashment of forged checks and
Who are the forgers contemplated by Sec 23?
prevented the discovery of the fraud.
1. One who affixes his signature on the instrument, and
does not claim to act as agent and has not authority to
Facts: 23 checks payable to various payees were issued and released
bind the person whose signature he has forged
by MWSS, all of which were paid and cleared by PNB and debited by
2. One who affixes his signature purporting to be an agent
the latter against MWSS‘ account. During the same time, 23 checks
but has no authority to bind the alleged prinicoal.
bearing the same numbers were likewise paid and cleared by PNB and
against MWSS‘ account.
What is the effect of a forged signature?
In both cases, the signature is wholly inoperative and so no right can
Investigation conducted by the NBI shows that the second 23 checks
be acquired. Payment made through such forgery is ineffectual and
were deposited by three (3) fictitious payees and the fraudulent
does not discharge the Instrument.
encashment was an "inside job."
What’s the nature of the defense of forgery?
Issue: Is MWSS barred from setting up the defense of forgery under
It is a real or absolute defense, even against a holder in due course.
Section 23?
Held: Yes, instead of using the official PNB commercial blank checks,
What is the proof of forgery?
MWSS used its own personalized checks, without providing the
Being a mechanism of fraud, it must be proven clearly and
needed security measures. It failed to reconcile the bank statements
convincingly, burden of proving such lies on the party so alleging the
with its own records which failure facilitated the fraudulent
forgery. It cannot be presumed.
encashment. This negligence was the proximate cause of the failure to
discover the fraud.
What about variance of signatures?
It cannot be conclusive proof that the instrument is forged.
2. R is authorized to draw on W (a bank) for any amount not exceeding
What is the extent of forgery? P5,000.00. P makes a bill of exchange payable to his own order for
Sec 23 does not declare the instrument to be wholly void not the P6,000.00 by forging R's signature. P indorsed the bill to A, a holder in
genuine signatures be declared inoperative. It is only the forged or due course, who presented it for payment. After the bill had been
unauthorized signatures that is declared inoperative. Rights may still cleared thru W's clearing office, W paid the bill.
exist and be enforced by virtue of those which are genuine.
INDORSEMENT Can W recover the amount paid to A?
No, because W was guilty of gross negligence considering that the
General Rule: Preservation of rights of prior parties irregularity was apparent on the face of the bill. W is, therefore,
precluded from setting up the question of forgery, (see Republic of the
A forged indorsement prevents any subsequent party from acquiring Phil. v. Equitable Banking Corporation).
any right as against any party whose name appears prior to the
forgery. Such an indorsement cuts off the rights of all subsequent 3. M, maker, P, payee. X indorses the note to A by forging P's
parties as against parties prior to the forgery. signature. A indorses the note to B, B to C, C to D, the present holder.
However, the law makes an exception to these rules where a party is Order Instrument
precluded from setting forgery as a defense. (Gempesaw v. Court of MP
Appeals)
X ABCD
EXCEPTIONS:
Being the present holder in due course, who can D enforce the
note against?
1. If the party is precluded from setting up forgery or want of authority;
D can enforce the note against A, B, and C who are indorsers
subsequent to the forgery. As indorsers, they warrant that the
2. Where the forged signature is not necessary to the holder‘s title in
instrument is genuine and in all respects what it purports to be.
which case the forgery may be disregarded (Sec 48).
Bearer Instrument: Holder cannot claim from MPABC since by mere
―Precluded‖: Synonymous with being estopped.
delivery ra ang bearer.
Two Classes of being ―Precluded‖ by setting up the defense of
Cases of forgery in general.
forgery
(a) Those who by their acts, silence, or negligence, are estopped from
The cases of forgery may be divided as follows:
setting up the defense of forgery; and
(1) Forgery of promissory notes which may be subdivided into:
(b) Those who warrant or admit the genuineness of the signatures in
(a) Forgery of an indorsement on the note; and
question, namely:
(b) Forgery of the maker's signature.
1) indorsers; 2) acceptors; and 3) persons negotiating by delivery.

7 / 36
Thus, where the note, mechanically complete, the party whose

(2) Forgery of bills of exchange which may be subdivided into: indorsement is forged is liable to a holder in due course, but not to one
(a) Forgery of an indorsement on the bill; and who is not a holder in due course.
(b) Forgery of the drawer's signature; either
1) with acceptance by the drawee; or The other parties, including the maker, prior to the party whose
2) without such acceptance but the bill is paid by signature is forged, may also be held liable by one who is not a holder
the drawee. in due course.
FORGERY 1- Promissory Note The reason is that the instrument being payable to bearer, it can be
negotiated by mere delivery. Indorsement is not necessary to the title
of the holder. Hence, even if the indorsement is forged, the forgery
(A.) Forgery of an INDORSEMENT on a promissory note
may be disregarded.
1. Where note is payable to ORDER Example

The note is originally a bearer instrument. The note is delivered by M
We are aware that where the note is payable to order, there are two to P, who indorsed it to A. X forged A‘s signature. B indorses note to
steps required for its negotiation that is: INDORSEMENT by the C who, in turn, delivers without indorsment to D, a holder in due
payee/holder and its DELIVERY to the next holder. course.
Thus, in case there is forgery in the note, the party whose indorsement Bearer Instrument
is forged is not liable to any holder even to a holder in due course.
The indorsement, being forged, is inoperative. M P A
|
Example: |
|
M makes a note payable to the order of P. P indorses it to A. X obtains X B C D
possession of the note fraudulently and indorses it to B, by forging A's
signature. B indorses to C, present holder. Thus, the indorsements are
as follows:
Is the indorsement of P, A, and B, necessary to vest title to D?
No. Being originally payable to bearer, mere delivery is sufficient.
Order Instrument
Can A, the one whose signature was forged, be liable to D?
M P A Yes. Even if the indorsement of A was forged, A can be liable to D, a
| holder in due course.
|
| How about M and P, are they also liable to D?
X B C Yes. The Maker and the parties prior to whose signature was forged
(A), can be liable.
X Obtained the note
fraudulently and How about B and C? are they liable to D?
forged A‘s signature- A‘s signature is wholly inoperative. Yes, they are. D can enforce the note agiant B and C who are liable for
their warranties as indorsers.
Can C enforce the instrument against M and P?
No, he cannot enforce the instrument against M and P because C's
FORGERY 2- Bills of Exchange
rights against them are cut off by the forged signature of A which is
wholly inoperative. Here, there are now three parties: the drawer, the payee and the
drawee bank.
Can C enforce the note against A?
No, since A‘s signature is wholly inoperative. A has no privity with C. 1. Where BILL is payable to ORDER
Where the bill is payable to order, the party whose indorsement is
Even if C is a holder in due course? forged, is not liable to any holder even a holder in due course. The
Yes, since what we have here is an Order instrument, it must have a forged indorsement is wholly inoperative.
valid negotiation thru indorsment and delivery. With the presence of a
forgery during the indorsement, it renders the signature of A to be a.) Liability of Collecting Bank
wholly inoperative, even against C, who is a holder in due course. Where the signature of the payee was forged, the collecting bank is
liable to the payee and must bear the loss because it is its legal duty to
So where can C go against then? ascertain that the payee's endorsement was genuine before cashing
C may go against B whose signature is genuine and therefore, the check.
operative. B warranted to C that the instrument was valid and
subsisting at the time of B‘s indorsement (Sec 65-66). Example
X forged D‘s signature. X managed to indorse the bill purporting as D,
TN: B or C, of course, C has a right of recourse against X, the forger. to P, who indorsed it to A. A indorsed to Collecting Bank (CB). CB in
turn, indorsed to the Drawee Bank (DB). The DB actually gave the
TN: A can recover from M and P because his rights against them were amount to the CB, and debited the amount against D‘s account.
not affected by the forgery. The signatures of M and P are genuine and
they are liable to A on their contract. D
|
|
2. Where promissory note is payable to BEARER X  P  A  Collecting Bank (CB)  Drawee Bank (DB)
If the instrument is payable to bearer, it is negotiated by mere delivery Can the Drawee Bank debit from D?
without indorsement. No. D‘s signature was forged prior to indorsment, thereby rendering it
wholly inoperative.

8 / 36
Can P be liable to DB? collecting bank or last indorser, as a general rule, bears the loss, but
Yes, P warrants the genuineness of the note. the unqualified indorsement of the collecting bank on the check should
be read together with the 24-hour regulation on clearing house
Can the Collecting Bank be liable? operations. Once that 24-hour period is over, the liability of the
No. Collecting Bank‘s warranty does not extend to D‘s genuineness as collecting bank in such an indorsement has ceased. (Metropolitan
the drawer, since D is a client of the Drawee Bank. Bank & Trust Co. v. the First National City Bank).
Can D run for A and B? In the case of BDO Savings and Mortgage Bank vs. Equitable Banking
Yes. While the drawee-bank may not debit the account of the drawer, it Corporation (the clearing regulation (this is the present clearing
may generally pass liability back through the collection chain to the regulation) at the time the parties' dispute occurred was as follows:
party who took from the forger and, of course, to the forger himself.
"Sec. 21. xxx xxx xxx Items which have been the subject of material
As a general rule, a bank or corporation who has obtained possession alteration or items bearing forged endorsement when such
of a check upon an unauthorized or forged indorsement of the payee's endorsement is necessary for negotiation shall be returned by direct
signature and who collects the amount of the check from the drawee, presentation or demand to the Presenting Bank and not through the
is liable for the proceeds thereof to the payee or other owner, regular clearing house facilities within the period prescribed by law for
notwithstanding that the amount has been paid to the person from the filing of a legal action by the returning bank/branch, institution or
whom the check was obtained. (Westmont Bank vs. Ong). entity sending the same."
b.) If the drawee pays under a forged indorsement, the drawer is The above-cited clearing regulations are substantially the same in that
not liable on the bill and the drawee may not debit the drawer's it allows a return of a check "bearing forged endorsement when such
account. If it does, it shall have to recredit the amount of the endorsement is necessary for negotiation" even beyond the next
check to the account of the drawer. regular clearing although not beyond the prescriptive period "for the
filing of a legal action by the returning bank."
A bank is bound to know the signature of its customers (drawers), 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 e.) Drawee Bank can recover from Collecting Bank
the account of the depositor whose name was forged. (San Carlos
Milling Co., Ltd. vs.BPI. & China Banking Corp.) The collecting bank has privity with its depositors who are its clients.
Furthermore, it is also in a better position to detect forgery, fraud or
irregularity in the indorsement. If the drawee-bank discovers that the
c.) However, where the checks are received merely for collection signature of the payee was forged after it has cleared the check and
and deposit, the bank, as agent, cannot be expected to know or paid the amount of the check to the holder thereof, it can recover the
ascertain the genuineness of all prior indorsements (Jai –Alai Corp amount paid from the collecting bank (Republic Bank vs. Ebrada).
vs BPI)
What if the collecting bank was not negligent in ascertaining
Exception: genuineness?
But by stamping on checks: "all prior endorsements and /or lack of Even if the collecting bank was not negligent, it would still be liable to
endorsements guaranteed," a collecting/presenting bank thereby the drawee-bank because of its indorsement. The drawee-bank is not
makes the assurance that it has ascertained the genuineness of all similarly situated as the collecting bank because the former makes no
prior indorsements. (Associated Bank vs. Court of Appeals. warranty as to the genuineness of any indorsement. Its duty is but to
verify the genuineness of the drawer's signature and not of the
d.) Collecting bank is liable as an indorser. indorsement because the drawer is its client.
So even if the indorsement on the check deposited by the collecting 2. When the bill is payable to BEARER
bank's client is forged, the collecting bank is bound by its warranties as
an indorser and cannot set up the defense of forgery as against the In case the bill is originally payable to bearer, the drawee may debit the
drawee-bank. (Associated Bank vs. Court of Appeals) drawer's account in spite of the forged indorsement. The reason is that
the forged indorsement is not necessary to the title of the holder. The
HONGKONG & SHANGHAI BANKING CORPORATION V. drawee cannot recover from the holder.
PEOPLE'S BANK & TRUST COMPANY
Drawee bank allowed 27 days to elapse after clearing before notifying Example:
collecting bank as to forgery of payee's name. Supposing that the check drawn by the insurance company is originally
a bearer one, H & S bank may charge the amount thereof to the
Facts: R drew a check on W (a bank) and in favor of P as payee. The account of the insurance company. In this case, the drawee (H & S
check fell into the hands of A, who erased the name of P and put his bank) would not be able to recover from the holder (P.N. bank) of the
name instead. A deposited the altered check in his name with B (a bearer bill since the forged indorsement of P by X did not prevent the
bank) which presented the check to W for clearing. The check was transfer of title.
duly cleared by W and A, the forger, was credited the amount of the
check. The alteration was discovered 27 days later and B was notified The remedy of the drawer insurance company is against X, the forger.
on the same day. Of course, P, the payee, is not bound not having received the amount
of the check and not having indorsed the same.
Issue: Is B liable to refund the amount of the check?
It must be remembered that all the foregoing are qualified in those
Held: No. The court, relying on the doctrine announced in Republic of cases where there is estoppel against the party desiring to set up the
the Philippines v. Equitable Banking Corporation (supra.), held as defense of forgery.
decisive the fact that W allowed 27 days to elapse after clearing before
notifying B as to such alteration. The applicable Central Bank Right of drawee bank (DB) to recover payment where payee’s
regulation provides for a 24-hour period only within which the drawee- signature was forged
bank must return a check to the collecting bank if the check is
defective for any reason. 1. Recover from last indorser- DB is not supposed to check the
signature of the indorsers w/n they are genuine. Bc the indorsee is
TN: The remedy of the drawee bank is against the party responsible supposed to warrant the signatures of the payee are genuine.
for the alteration. It is true that when an indorsement is forged, the However, the said warranty only extends to a holder in due course.

9 / 36
Cases from the Syllabus

The recovery is permitted because although the drawee bank was in a
way negligent in failing to detect the forgery, yet, if the encasher of the
ALLIED BANKING CORPORATION vs.
check had performed his duty, the forgery would, in all probability,
have been detected and the fraud defeated. LIM SIO WAN, METROPOLITAN BANK AND TRUST CO., &
PRODUCERS BANK
2. Drawee bank can collect from drawer or depositor: A | G.R. No. 133179 | March 27, 2008
The General Rule is that, the drawee bank who has paid a check on
which the indorsement has been forged cannot debit or charge the Sec. 23. Forged signature; effect of.—When a signature is forged or
drawer‘s account. The risk of loss is on the DB. 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
But an exception is enshrined in Associated Bank, where the a discharge therefor, or to enforce payment thereof against any party
DRAWER (principal, who entrusted the agent) is guilty of negligence thereto, can be acquired through or under such signature, unless the
which caused the bank to honor such a check. Also, Gempesaw, party against whom it is sought to enforce such right is precluded from
where petitionere trusted her secretary, Galang to issue 82 checks.
setting up the forgery or want of authority.
The negligence of petitioner facilitated the fraud.
If at the same time the drawee bank was also negligent to the point of FACTS:
substantially contributing to the loss, then such loss from the forgery Respondent Lim deposited with petitioner bank (Allied) a money
can be apportioned between the drawer and the drawee. market placement for a term of 31 days to mature on December 15,
1983 as evidenced by Provisional Receipt No. 1356 dated November
14, 1983.
Illustrative Cases from the Book
On December 5, 1983, a person claiming to be respondent Lim Sio
ILLUSORIO VS CA Wan called up Cristina So, an officer of Allied, and instructed the latter
Depositor entrusted to his secretary who was able to encash and to pre-terminateher money market placement and to give the check to
deposit to her personal account several checks against account of the one Deborah Dee Santos. Lim Sio Wan allegedly described the
depositor, his credit cards and check books with blank check. appearance of Santos so that Cristina So could easily identify her
when she picks up the check.
Facts:
Petitioner Illusorio was a depositor of good standing of respondent Consequently, Santos arrived at the bank and signed the application
bank, MBC. He entrusted to his secretary, KE, his credit cards and
form for a manager‘s check to be issued. The bank then issued a
check books with blank checks. However, KE was able to encash and
deposit to her personal account 17 checks drawn against Illusorio‘s manager‘s check representing the proceeds of Lim Sio Wan‘s money
account at MBC Bank. Illusorio didn‘t bother checking his statement of market placement in the name of Lim Sio Wan as payee. It was cross-
account until someone apprised him he saw KE use Illusorio‘s credit checked ―For Payee’s Account Only‖ and was given to Santos.
cards. As such, Illusorio requested MBC to restore to his account the
value of the checks wrongfully encashed but MBC refused. Thereafter, the manager's check was deposited in the account of
Filipinas Cement Corporation (FCC) at respondent Metropolitan Bank
Issue: Is MBC liable for damages for its negligence in failing to detect and Trust Co. (Metrobank), with the forged signature of Lim Sio
the discrepant checks? Wan as indorser.
Held:
1. Petitioner has the burden of proving negligence on the part of On September 21, 1983, before all of the foregoing happened, FCC
the bank for failure to detect the discrepancy in the signatures on the had earlier deposited a money market placement for PhP2 million with
checks, but he didn‘t submit one to the NBI.
respondent Producers Bank. Deborah Dee Santos, who was
working for Producers Bank, was the money market trader
2. MBC employees exercised due diligence. The bank's employees
in the present case did not have a hint as to Eugenio's [KE's] modus assigned to handle FCC's account. Such deposit is evidenced by
operandi because she was a regular customer of the bank, having Official Receipt No. 317568 and a Letter dated September 21, 1983 of
been designated by petitioner himself to transact in his behalf. Santos addressed to Angie Lazoof FCC, acknowledging receipt of the
placement.
3. It was Illusorio who was negligent, he accorded his secretary
unusual degree of trust and unrestricted access to his credit cards. The placement matured on October 25, 1983 and was rolled-over until
December 5, 1983 as evidenced by a Letter dated October 25, 1983.
4. Petitioner failed to examine his bank statements. — "Petitioner's When the placement matured, FCC demanded the payment of the
failure to examine his bank statements appears as the proximate proceeds of the placement. On December 5, 1983, the same date that
cause of his own damage. In view of Article 2179 of the New Civil Cristina So received the phone call instructing her to pre-terminate Lim
Code, when the plaintiff's own negligence was the immediate and Sio Wan's placement, the manager's check in the name of Lim Sio
proximate cause of his injury, no recovery could be had for damages."
Wan was deposited in the account of FCC, purportedly representing
the proceeds of FCC's money market placement with Producers
5. Petitioner precluded from setting up forgery. — "The rule [in
Section 23] does provide for an exception, namely: 'unless the party Bank.In other words, the Allied check was deposited with
against whom it is sought to enforce such right is precluded from Metrobank in the account of FCC as Producers Bank's payment of
setting up the forgery or want of authority.' In the instant case, it is the its obligation to FCC.
exception that applies. In our view, petitioner is precluded from setting
up the forgery, assuming there is forgery, due to his own negligence in To clear the check and in compliance with the requirements of the
entrusting to his secretary his credit cards and checkbook including the Philippine Clearing House Corporation (PCHC) Rules and Regulations,
verification of his statements of account." Metrobank stamped a guaranty on the check, which reads: "All prior
endorsements and/or lack of endorsement guaranteed."
6. Fact of forgery not proved- both courts below uniformly found that
Manila Bank's personnel diligently performed their duties, having The check was sent to Allied through the PCHC. Upon the
compared the signature in the checks from the specimen signatures on presentment of the check, Allied funded the check even without
record and satisfied themselves that it was petitioner's.
checking the authenticity of Lim Sio Wan's purported

10 / 36
indorsement. Thus, the amount on the face of the check was credited The warranty "that the instrument is genuine and in all respects what it
to the account of FCC. purports to be" covers all the defects in the instrument affecting the
validity thereof, including a forged indorsement. Thus, the last
Lim Sio Wan initially filed a complaint against Allied for the recovery of indorser will be liable for the amount indicated in the negotiable
the proceeds of her money market placement. She then subsequently instrument even if a previous indorsement was forged. The Court held
amended the complaint to include Metrobank. Thus, Allied‘s complaint in a line of cases that "a collecting bank which indorses a check
against Metrobank was converted into a cross-claim. Metrobank for its bearing a forged indorsement and presents it to the drawee bank
part, filed a third-party complaint against FCC, who in turn filed a guarantees all prior indorsements, including the forged indorsement
fourth-party complaint against Producers Bank. itself, and ultimately should be held liable therefor."
LOWER COURTS’ RULING HOWEVER, this general rule is subject to exceptions. One such
RTC – Ordered Allied to pay Lim Sio Wan the amount representing the exception is when the issuance of the check itself was attended
money market placement plus 12% interest per annum from March 16, with negligence. Thus, in some of the cases decided by the SC,
1984 until fully paid. RTC also ordered Allied to pay moral damages, where the collecting bank is generally held liable, in cases where the
attorney‘s fees and to pay the costs of suit. It then DISMISSED the checks were negligently issued, the Court held the institution issuing
cross-claim, 3rd party and 4th party complaint. the check just as or more liable than the collecting bank.
CA – MODIFIED RTC‘s decision and ordered Allied to pay 60%, and In the instant case, the trial court correctly found Allied negligent in
the remaining 40% by Metrobank plus 12% interest per annum from issuing the manager's check and in transmitting it to Santos without
March 16, 1984 until fully paid.The moral damages, attorney's fees and even a written authorization. In fact, Allied did not even ask for the
costs of suit adjudged shall likewise be paid by defendant-appellant certificate evidencing the money market placement or call up Lim Sio
Allied Banking Corporation and defendant-appellee Metropolitan Bank Wan at her residence or office to confirm her instructions. Both actions
and Trust Company in the same proportion of 60-40. could have prevented the whole fraudulent transaction from unfolding.
Allied's negligence must be considered as the proximate cause of the
ISSUE: WON CA erred in holding Allied liable to the extent of 60% of resulting loss.
amount adjudged demandable in clear disregard to the ultimate liability
of Metrobank as guarantor of all indorsement on the check, including a To reiterate, had Allied exercised the diligence due from a financial
forged indorsement, it being the collecting bank institution, the check would not have been issued and no loss of funds
would have resulted. In fact, there would have been no issuance of
HELD: No. The CA was correct in holding Allied liable to the extent of indorsement had there been no check in the first place.
60% and Metreobank, 40% of the amount adjuged demandable.
The liability of Allied, however, is concurrent with that of Metrobank as
Section 66 in relation to Sec. 65 of the Negotiable Instruments Law the last indorser of the check. When Metrobank indorsed the check in
provides: compliance with the PCHC Rules and Regulationswithout verifying
the authenticity of Lim Sio Wan's indorsement and when it
Section 66. Liability of general indorser . — Every indorser who accepted the check despite the fact that it was cross-checked
indorses without qualification, warrants to all subsequent holders in payable to payee's account only, its negligent and cavalier
due course; indorsement contributed to the easier release of Lim Sio Wan's money
and perpetuation of the fraud. Given the relative participation of Allied
a) The matters and things mentioned in subdivisions (a), (b) and (c) of and Metrobank to the instant case, both banks cannot be adjudged as
the next preceding section; and equally liable. Hence, the 60:40 ratio of the liabilities of Allied and
b) That the instrument is at the time of his indorsement valid and Metrobank, as ruled by the CA, must be upheld.
subsisting;
FCC, having no participation in the negotiation of the check and in the
And in addition, he engages that on due presentment, it shall be forgery of Lim Sio Wan's indorsement, can raise the real defense of
accepted or paid, or both, as the case may be according to its tenor, forgery as against both banks.
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 Petition is PARTLY GRANTED. RTC decision affirmed with
to any subsequent indorser who may be compelled to pay it. Modification (Producers Bank is hereby ordered to pay Allied and
Metrobank the aforementioned amounts. The liabilities of the parties
Section 65. Warranty where negotiation by delivery, so fourth. — Every are concurrent and independent of each other).
person negotiating an instrument by delivery or by a qualified
indorsement, warrants:
BPI v. CA
a) That the instrument is genuine and in all respects what it | G.R. No. 102383 | November 26, 1992
purports to be;
b) That he has a good title of it; Forgery and Material Alteration
c) That all prior parties had capacity to contract; Items which have been the subject of material alteration or items
d) That he has no knowledge of any fact which would impair the bearing forged endorsement when such endorsement is necessary for
validity of the instrument or render it valueless. negotiation shall be returned by direct presentation or demand to the
Presenting Bank and not through the regular clearing house facilities
But when the negotiation is by delivery only, the warranty extends in within the period prescribed by law for the filing of a legal action by the
favor of no holder other than the immediate transferee. returning bank/branch, institution or entity sending the same.
The provisions of subdivision (c) of this section do not apply to FACTS:

persons negotiating public or corporation securities, other than bills On October 9, 1981, Eligia G. Fernando who had a money market
and notes.
placement as evidenced by a promissory note with a maturity date of
November 11, 1981 and a maturity value of P2,462,243.19 called BPI‘s
Money Market Department. The caller wanted to preterminate the

11 / 36
placement, but Reginaldo Eustaquio, Dealer Trainee in BPI's Money and/or lack of endorsement was then stamped on the two checks,
Market Department, who received the call and who happened to be which CBC forthwith sent to clearing and which BPI cleared on the
alone in the trading room at the time, told her "trading time" was over same day.
for the day, which was a Friday, and suggested that she call again the
following week. The promissory note the caller wanted to preterminate Days after, the withdrawals began on the Current Account. All
was a roll-over of an earlier 50-day money market placement that had these withdrawals were allowed on the basis of the verification of the
matured on September 24, 1981.Later that afternoon, Eustaquio drawer's signature with the specimen signature on file and the
conveyed the request for pretermination to the officer who before had sufficiency of the funds in the account. However, the balance shown in
handled Eligia G. Fernando's account, Penelope Bulan, but Eustaquio the computerized teller terminal when a withdrawal is serviced at the
was left to attend to the pretermination process. counter, unlike the ledger or usual statement prepared at month-end,
does not show the account's opening date, the amounts and dates of
The next Monday, the caller of the previous Friday followed up deposits and withdrawals.
with Eustaquio, merely by phone again, on the pretermination of the
placement. Although not familiar with the voice of the real Eligia G. The maturity date of Eligia G. Fernado's money market
Fernando, Eustaquio "made certain" that the caller was the real Eligia placement with BPI came, when the real Eligia G. Fernando went to
G. Fernando by "verifying" that the details the caller gave about the BPI for the roll-over of her placement. She disclaimed having
placement tallied with the details in "the ledger/folder" of the account. preterminated her placement on October 12, 1981. She executed an
Eustaquio knew the real Eligia G. Fernando to be the Treasurer of affidavit stating that while she was the payee of the two checks in
Philippine American Life Insurance Company (Philamlife) since he was controversy, she never received nor endorsed them and that her
handling Philamlife's corporate money market account. But neither purported signature on the back of the checks was not hers but forged.
Eustaquio nor Bulan who originally handled Fernando's account, nor With her surrender of the original of the promissory noteevidencing the
anybody else at BPI, bothered to call up Fernando at her Philamlife placement which matured that day, BPI issued her a new promissory
office to verify the request for pretermination. note to evidence a roll-over of the placement.
Eustaquio, thus, proceeded to prepare the "purchase order slip" LOWER COURT’S RULING:
for the requested pretermination as required by office procedure, and Arbitration Committee- ruled in favor of petitioner BPI and ordered
from his desk, the papers, following the processing route, passed China Banking Corporation to pay the former the amount of
through the position analyst, securities clerk, verifier clerk and P1,206,607.58 with interest thereon at 12% per annum
documentation clerk both payable to Eligia G. Fernando, covering the
preterminated placement. Board of Directors of the PCHC- reversed the Arbitration
Committee's decision
The same caller changed the delivery instructions; instead of the
checks being delivered to her office at Philamlife, she would herself RTC Makati- dismissed the petition but modified the order
pick up the checks or send her niece, Rosemarie Fernando, to pick
them up. Eustaquio then told her that if it were her niece who was CA- affirmed RTC‘s decision
going to get the checks, her niece would have to being a written
authorization from her to pick up the checks. This telephone ISSUE: Whether or not BPI can claim reimbursement from CBC which
conversation ended with the caller's statement that "definitely" it would earlier paid the proceeds of the checks after the same checks were
be her niece, Rosemarie Fernando, who would pick up the checks. cleared by petitioner BPI through the PCHC provided that, payee‘s
Thus, Eustaquio had to hurriedly go to the dispatcher, Bernardo signature is forged?
Laderas, to tell him of the new delivery instructions for the checks; in
fact, he changed the delivery instruction on the purchase order slip, HELD:
writing thereon "Rosemarie Fernando release only with authority to Petitioner BPI's reliance on the doctrine of last clear chance to
pick up. clear it from liability is not well-taken. CBC had no prior notice of the
fraud perpetrated by BPI's employees on the pretermination of Eligia
It was, in fact Rosemarie Fernando who got the two checks from G. Fernando's money market placement. Moreover, Fernando is not a
the dispatcher however, the dispatcher forgot to require the surrender depositor of CBC. Hence, a comparison of the signature of Eligia G.
of the promissory note evidencing the placement. There is also no Fernando with that of the impostor Eligia G. Fernando, which
showing that Eligia G. Fernando's purported signature on the letter respondent CBC did, could not have resulted in the discovery of the
requesting the pretermination and the latter authorizing Rosemarie fraud. Hence, unlike in the Picart case herein the defendant, had he
Fernando to pick up the two checks, both of which letters were used reasonable care and caution, would have recognized the risk he
presumably handed to the dispatcher by Rosemarie Fernando, was was taking and would have foreseen harm to the horse and the plaintiff
compared or verified with Eligia G. Fernando's signature in BPI's file. but did not, respondent CBC had no way to discover the fraud at all. In
Such purported signature has been established to be forged although it fact the records fail to show that respondent CBC had knowledge,
has a "close similarity" to the real signature of Eligia G. Fernando. actual or implied, of the fraud perpetrated by the impostor and the
employees of BPI.
In the afternoon of October 13, 1981, a woman who represented
herself to be Eligia G. Fernando applied at CBC's Head Office for the Applying the doctrine of proximate cause, petitioner BPI's
opening of a current account.She was accompanied and introduced to contention that CBC alone should bear the loss must fail. The gap of
Emily Sylianco Cuaso, Cash Supervisor, by Antonio Concepcion whom one (1) day between the issuance and delivery of the checks bearing
Cuaso knew to have opened, earlier that year, an account upon the the impostor's name as payee and the impostor's negotiating the said
introduction of Valentin Co, a long-standing "valued client" of CBC. forged checks by opening an account and depositing the same with
What Cuaso indicated in the application form, however, was that the respondent CBC is not controlling. It is not unnatural or unexpected
new client was introduced by Valentin Co, and with her initials on the that after taking the risk of impersonating Eligia G. Fernando with the
form signifying her approval, she referred the application to the New connivance of BPI's employees, the impostor would complete her
Accounts Section for processing. The following day, October 14, 1981, deception by encashing the forged checks. There is therefore, greater
the woman holding herself out as Eligia G. Fernando deposited the two reason to rule that the proximate cause of the payment of the forged
checks in controversy with Current Account No. 126310-3. Her checks by an impostor was due to the negligence of petitioner BPI.
endorsement on the two checks was found to conform with the This finding, notwithstanding, we are not inclined to rule that petitioner
depositor's specimen signature. CBC's guaranty of prior endorsements BPI must solely bear the loss of P2,413,215.16, the total amount of the

12 / 36
two (2) forged checks. Due care on the part of CBC could have PNB contended among others, that the checks in question were
prevented any loss. regular on its face in all respects, including the genuineness of the
signatures of authorized NWSA signing officers and there was nothing
While it is true that petitioner BPI's negligence may have been the on its face that could have aroused any suspicion as to its
proximate cause of the loss, respondent CBC's negligence contributed genuineness and due execution and; that NWSA was guilty of
equally to the success of the impostor in encashing the proceeds of the negligence which was the proximate cause of the loss.
forged checks. The demands of substantial justice are satisfied by
PNB also filed a third party complaint against the negotiating banks
allocating the loss and the costs of the arbitration proceeding and the
PBC and PCIB on the ground that they failed to ascertain the Identity
cost of litigation on a 60-40 ratio. Conformably with this ruling, no of the payees and their title to the checks which were deposited in the
interests and attorney's fees can be awarded to either of the respective new accounts of the payees with them.
parties.Petitioner Bank of the Philippine Islands shall be responsible for
sixty percent (60%) while respondent China Banking Corporation shall ● CFTI rendered a decision in favor of the MWSS.
share forty percent (40%) of the loss ● However the Court of Appeals reversed the said decision,
and so this instant petition.
RATIO:
When signature is forged or made without the authority of the person ISSUE: W/N MWSS can claim against PNB.
whose signature it purports to be, it is wholly inoperative and no right to
Supreme Court (Decision): NO!
retain the instrument, or to give discharge therefore, or to enforce
payment thereof, against any party thereto, can be acquired through or The appellate court applied Section 24 of the Negotiable
under such forged signature, unless the party against whom it is Instruments Law which provides: Every negotiable instrument is
sought to enforce such right is precluded from setting up the forgery or deemed prima facie to have been issued for valuable consideration
want of authority. and every person whose signature appears thereon to have become a
party thereto for value.
The petitioner submits that the above provision does not apply to the
METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM
facts of the instant case because the questioned checks were not
(MWSS), v. CA
those of the MWSS and neither were they drawn by its authorized
(Found this digest on my files)
signatories. -------- (6) the admission of the respondent bank's witness,
Mr. Faustino Mesina, Jr. that the checks in question were not printed
FACTS: by his printing press. The petitioner contends that since the signatures
of the checks were forgeries, the respondent drawee bank must bear
MWSS is a government owned and controlled corporation created the loss under the rulings of this Court.
under Republic Act No. 6234 as the successor-in- interest of the o A bank is bound to know the signatures of its customers; and if it
defunct NWSA. The Philippine National Bank (PNB for short), on the pays a forged check it must be considered as making the
other hand, is the depository bank of MWSS and its predecessor-in- payment out of its obligation funds, and cannot ordinarily charge
interest NWSA. the amount so paid to the account of the depositor whose name
was forged.
Among the several accounts of NWSA with PNB is NWSA Account No. o The signatures to the checks being forged, under Section 23 of
6. The authorized signature for said Account No. 6 were those of the Negotiable Instruments Law they are not a charge against
MWSS treasurer Jose Sanchez, its auditor Pedro Aguilar, and its plaintiff nor are the checks of any value to the defendant.
acting General Manager Victor L. Recio. Their respective specimen o It must therefore be held that the proximate cause of loss was due
signatures were submitted by the MWSS to and on file with the PNB. to the negligence of the Bank of the Philippine Islands in honoring
and cashing the two forged checks. (San Carlos Milling Co. v.
By special arrangement with the PNB, the MWSS used personalized Bank of the P. I., 59 Phil. 59)
checks in drawing from this account. These checks were printed for
MWSS by its printer, F. Mesina Enterprises. During the months of However, we have carefully reviewed the documents cited by the
March, April and May 1969, twenty-three (23) checks were prepared, petitioner. There is no express and categorical finding in these
processed, issued and released by NWSA, all of which were paid and documents that the twenty-three (23) questioned checks were indeed
cleared by PNB and debited by PNB against NWSA Account No. 6. ---- signed by persons other than the authorized MWSS signatories.
--- P 320,636.26 During the same months, 23 checks bearing the
same numbers as the aforementioned NWSA checks were likewise On the contrary, the findings of NBI show that the MWSS fraud was an
paid and cleared by PNB and debited against NWSA Account. The "inside job" and that the petitioner's delay in the reconciliation of bank
foregoing checks were deposited by the payees Raul Dizon, Arturo statements and the laxity and loose records control in the printing of its
Sison and Antonio Mendoza in their respective current accounts with personalized checks facilitated the fraud. Likewise, the questioned
the Philippine Commercial and Industrial Bank (PCIB) and Philippine Documents Report No. 159-1074 dated November 21, 1974 of the
Bank of Commerce (PBC) in the months of March, April and May 1969. National Bureau of Investigation does not declare or prove that the
signatures appearing on the questioned checks are forgeries.
Thru the Central Bank Clearing, these checks were presented for The report merely mentions the alleged differences in the type face,
payment by PBC and PCIB to the defendant PNB, and paid, also in the checkwriting, and printing characteristics appearing in the standard or
months of March, April and May 1969. At the time of their presentation submitted models and the questioned typewritings. The NBI Chemistry
to PNB these checks bear the standard indorsement which reads 'all Report No. C-74-891 merely describes the inks and pens used in
prior indorsement and/or lack of endorsement guaranteed.' writing the alleged forged signatures.
Subsequent investigation however, conducted by the NBI showed that
Raul Dizon, Arturo Sison and Antonio Mendoza were all fictitious It is clear that these three (3) NBI Reports relied upon by the petitioner
persons. are inadequate to sustain its allegations of forgery. These reports did
not touch on the inherent qualities of the signatures which are
NWSA addressed a letter to PNB requesting the immediate restoration indispensable in the determination of the existence of forgery. There
to its Account No. 6, of the total sum of P3,457,903.00 corresponding must be conclusive findings that there is a variance in the inherent
to the total amount of these twenty-three (23) checks claimed by characteristics of the signatures and that they were written by two or
NWSA to be forged and/or spurious checks. PNB refused. more different persons.
MWSS filed the instant complaint on November 10, 1972 before the
Court of First Instance of Manila. Forgery cannot be presumed (Siasat, et al. v. Intermediate Appellate
Court, et al, 139 SCRA 238). It must be established by clear,

13 / 36
positive, and convincing evidence. This was not done in the This negligence was, therefore, the proximate cause of the
present case. failure to discover the fraud. Thus,
In the instant case, the allegations of forgery were not clearly When a person opens a checking account with a bank, he is given
established during trial. blank checks which he may fill out and use whenever he wishes. Each
time he issues a check, he should also fill out the check stub to which
Considering the absence of sufficient security in the printing of the the check is usually attached. If the depositor has filled out his check
checks coupled with the very close similarities between the genuine stubs properly, a comparison between them and the cancelled checks
signatures and the alleged forgeries, the twenty-three (23) checks in will reveal any forged check not taken from his checkbook. If his
question could have been presented to the petitioner's signatories negligence should cause the bank to honor a forged check or prevent it
without their knowing that they were bogus checks. Indeed, the cashier from recovering the amount it may have already paid on such check,
of the petitioner whose signatures were allegedly forged was unable to he cannot later complain should the bank refuse to recredit his account
tell the difference between the allegedly forged signature and his own with the amount of such check.
genuine signature. On the other hand, the MWSS officials admitted ● The records likewise show that the petitioner failed to
that these checks could easily be passed on as genuine. provide appropriate security measures over its own records
xxxx thereby laying confidential records open to unauthorized
persons.
Moreover, the petitioner is barred from setting up the defense of ● Relying on the foregoing statement of Mr. Ongtengco, the
forgery under Section 23 of the Negotiable Instruments Law which National Bureau of Investigation concluded in its Report
provides that: dated November 2, 1970 that the fraudulent encashment of
the twenty-three (23)cheeks in question was an "inside job".
SEC. 23. FORGED SIGNATURE; EFFECT OF.- When the signature is ● Even if the twenty-three (23) checks in question are
forged or made without authority of the person whose signature it considered forgeries, considering the petitioner's gross
purports to be, it is wholly inoperative, and no right to retain the negligence, it is barred from setting up the defense of forgery
instrument, or to give a discharge therefor, or to enforce payment under Section 23 of the Negotiable Instruments Law.
thereof against any party thereto can be acquired through or under
such signature unless the party against whom it is sought to enforce Nonetheless, the petitioner claims that it was the negligence of the
such right is precluded from setting up the forgery or want of authority. respondent Philippine National Bank that was the proximate cause of
● Because it was guilty of negligence not only before the the loss.
questioned checks were negotiated but even after the same
had already been negotiated. (See Republic v. Equitable The argument has no merit. The records show that the respondent
Banking Corporation, 10 SCRA 8) drawee bank, had taken the necessary measures in the detection of
● The records show that at the time the twenty-three (23) forged checks and the prevention of their fraudulent encashment. In
checks were prepared, negotiated, and encashed, the fact, long before the encashment of the twenty-three (23) checks in
petitioner was using its own personalized checks, instead of question, the respondent Bank had issued constant reminders to all
the official PNB Commercial blank checks. In the exercise of Current Account Bookkeepers informing them of the activities of
this special privilege, however, the petitioner failed to provide forgery syndicates.
the needed security measures. That there was gross
negligence in the printing of its personalized checks is We cannot fault the respondent drawee Bank for not having detected
shown by the following uncontroverted facts, to wit: the fraudulent encashment of the checks because the printing of the
petitioner's personalized checks was not done under the supervision
(1) The petitioner failed to give its printer, Mesina Enterprises, specific and control of the Bank.
instructions relative to the safekeeping and disposition of excess
forms, check vouchers, and safety papers; There is no evidence on record indicating that because of this private
(2) The petitioner failed to retrieve from its printer all spoiled check printing the petitioner furnished the respondent Bank with samples of
forms; checks, pens, and inks or took other precautionary measures with the
(3) The petitioner failed to provide any control regarding the paper PNB to safeguard its interests.
used in the printing of said checks;
(4) The petitioner failed to furnish the respondent drawee bank with Under the circumstances, therefore, the petitioner was in a better
samples of typewriting, cheek writing, and print used by its printer in position to detect and prevent the fraudulent encashment of its
the printing of its checks and of the inks and pens used in signing the checks. Petition for review DISMISSED.
same; and
(5) The petitioner failed to send a representative to the printing office PNB vs CA
during the printing of said checks. G.R. No. L-26001. October 29, 1968
● Another factor which facilitated the fraudulent encashment of
Facts
the twenty-three (23) checks in question was the failure of
One Augusto Lim deposited in his current account with PCIB branch a
the petitioner to reconcile the bank statements with its own
GSIS check in the sum of P57, 415.00 drawn against PNB. The next
records.
day, the check was forwarded for clearing through the Central Bank, to
● It is accepted banking procedure for the depository bank to
the PNB, which did not return said check the next day, or at any other
furnish its depositors bank statements and debt and credit
time, but retained, and paid its amount to the PCIB as well as debited it
memos through the mail. The records show that the
against account of the GSIS in the PNB. Upon demand from GSIS, the
petitioner requested the respondent drawee bank to
sum of P57,415.00 was recredited to the latter‘s account for the reason
discontinue the practice of mailing the bank statements, but
that the signatures of its officers were forged.
instead to deliver the same to a certain Mr. Emiliano
Zaporteza. For reasons known only to Mr. Zaporteza
PNB demanded from PCIB the refund of said sum, which the PCIB
however, he was unreasonably delayed in taking prompt
refused to do. Hence, the present action against the PCIB.
deliveries of the said bank statements and credit and debit
memos. As a consequence, Mr. Zaporteza failed to reconcile
PNB: since the signatures of the drawer are forged, so must the
the bank statements with the petitioner's records.
signatures of the supposed indorsers be.
● If Mr. Zaporteza had not been remiss in his duty of taking the
bank statements and reconciling them with the petitioner's
Issue 1: W/N the forged signature fo drawer renders the indorsers‘
records, the fraudulent encashments of the first checks
signatures to be forged too.
should have been discovered, and further frauds prevented.

14 / 36
Held: No. this conclusion does not necessarily follow from said of the Philippine Islands, when they presented the cashier's check to it
premise. Besides, there is absolutely no evidence, and the PNB has for payment, the China Banking Corporation was absolved even if the
not even tried to prove that the aforementioned indorsements are endorsement of Newland Baldwin on the check was a forgery.
spurious.
BPI contended that they were not negligent, that they had dealt with
Issue 3: W/N PCIB is negligent the accredited representatives of the company in the due course of
Held: No, by not returning the check to the PCIB, by thereby indicating
business, and that the loss was due to the dishonesty of plaintiff's
that the PNB had found nothing wrong with the check and would honor
employees and the negligence of plaintiff's general agent.
the same, and by actually paying its amount to the PCIB, the PNB
induced the latter, not only to believe that the check was genuine and
good in every respect, but, also, to pay its amount to Augusto Lim. In TC: BPI acted on good faith, was not guilty of negligence, thus, plaintiff
other words, the PNB was the primary or proximate cause of the loss, cannot recover, and that the plaintiff had not exercised adequate
and, hence, may not recover from the PCIB. supervision over plaintiff‘s MNL office, thus plaintiff was guilty of
negligence.
When one of two (2) innocent persons must suffer by the wrongful act
of a third person, the loss must be borne by the one whose negligence Hence this appeal.
was the proximate cause of the loss or who put it into the power of the
third person to perpetrate the wrong. [ISSUE/S]
WON plaintiff can recover from BPI.
SC affirmed lower court‘s decisions.
[HELD]
SAN CARLOS MILLING V. BPI YES. A bank that cashes a check must know to whom it pays. In
| G.R. No. 37467 | DECEMBER 11, 1933 connection with the cashier's check, this duty was therefore upon the
Bank of the Philippine Islands, and the China Banking Corporation was
FORGERY AND MATERIAL ALTERATION: "A bank is bound to know not bound to inspect and verify all endorsements of the check, even if
the signatures of its customers; and if it pays a forged check, it must be some of them were also those of depositors in the bank. It had a right
considered as making the payment out of its own funds, and cannot to rely upon the endorsement of the Bank of the Philippine Islands
ordinarily charge the amount so paid to the account of the depositor when it gave the latter bank credit for its own cashier's check.Thus:
whose name was forges."
"A bank is bound to know the signatures of its customers; and if it pays
[FACTS] a forged check, it must be considered as making the payment out of its
San Carlos Milling, organized under the laws of Hawaii, is a business own funds, and cannot ordinarily charge the amount so paid to the
authorized to engage in business in the PH. Their main office is account of the depositor whose name was forged."
located in MNL.
Thus, the proximate cause of the loss was due to the negligence of
Alfred Cooper held the business in the PH. Joseph Wilson is the BPI in honoring and cashing the checks.
principal employee in MNL. Cooper, desiring to go on vacation, gave
general power of attorney to Newland Baldwin and revoked by Wilson
NATIVIDAD GEMPESAW vs.
to dealings with BPI in which plaintiff maintained a deposit.
CA and PHILIPPINE BANK OF COMMUNICATIONS
| G.R. No. 92244 | February 9, 1993
After a year, Wilson conspiring with Alfredo Dolores, a messenger-
clerk in the MNL office, sent a cablegram (God, this is so old) to
TOPIC FROM THE SYLLABUS: Forgery and Material Alteration –
Honolulu requesting a telegraphic transfer to the China Banking Corp
Sec. 23 –"When a signature is forged or made without the authority of
(CBC) of MNL of $100k. The money was received by CBC, likewise a
the person whose signature it purports to be, it is wholly inoperative,
bank in which plaintiff maintained a deposit, and upon receipt, CBC
and no right to retain the instrument, or to give a discharge therefor, or
sent an exchange contract to plaintiff offering the sum of P201k.
to enforce payment thereof against any party thereto, can be acquired
($100k = P201k) On this contract was forged the name of Newland
through or under such signature, unless the party against whom it is
Baldwin and typed on the body of the contract was a note:
sought to enforce such right is precluded from setting up the
forgery or want of authority."
"Please sent us certified check in our favor when transfer in received."
A manager‘s check on the CBC for 201k payable to San Carlos Milling
Company or order was receipted for by Dolores and was deposited FACTS:
with BPI with a forged endorsement in the name of Newland Baldwin. Petitioner Natividad O. Gempesaw owns and operates four grocery
BPI credited the account in the sum 201k and passed the cashier‘s stores located at Rizal Avenue Extension and at Second Avenue, both
check in the ordinary course of business through the clearing house, in Caloocan City. Among these groceries are D.G. Shopper's Mart and
where it was paid by the CBC. BPI then received a letter, purporting to D.G. Whole Sale Mart.
be signed by Newland Baldwin, directing that 200k be packed for
shipment and delivery the next day. Petitioner maintains a checking account with the Caloocan City Branch
of the respondent drawee Bank. To facilitate payment of debts to her
The next day, the money was turned over to Dolores, who took it to the suppliers, petitioner draws checks against her checking account with
plaintiff‘s office, where he turned the money over to Wilson and the respondent bank as drawee. Her customary practice of issuing
received as his share, 10k. (Wow, Dolores is a he. Haha) Moreover, checks in payment of her suppliers were as follows:
BPI received a check for P1.00 to cover the cost of packing the money,
still at the name of Newland Baldwin.  The checks were prepared and filled up as to all material
particulars by her trusted bookkeeper, Alicia Galang, an
After, the crime was discovered, the plaintiff brought a suit against BPI employee for more than eight (8) years.
and CBC for recovery of the money transferred.  After the bookkeeper prepared the checks, the completed
checks were submitted to the petitioner for her signature,
CBC contended that they had drawn a check to the credit of the together with the corresponding invoice receipts which
plaintiff company, that the check had been endorsed for deposit, and indicate the correct obligations due and payable to her
that as the prior endorsement had in law been guaranteed by the Bank suppliers.

15 / 36
 Petitioner signed each and every check without bothering to

verify the accuracy of the checks against the corresponding HELD: Yes. Under section 23 of the NIL,forgery is a real or absolute
invoices because she reposed full and implicit trust and defense by the party whose signature is forged. A party whose
confidence on her bookkeeper. signature to an instrument was forged was never a party and never
gave his consent to the contract which gave rise to the instrument.
The issuance and delivery of the checks to the payees named therein Since his signature does not appear in the instrument, he cannot be
were left to the bookkeeper. Petitioner admitted that she did not make held liable thereon by anyone, not even by a holder in due course.
any verification as to whether or not the checks were actually delivered
to their respective payees. Although the respondent drawee Bank The said section does not refer only to the forged signature of the
notified her of all checks presented to and paid by the bank, petitioner maker of a promissory note and of the drawer of a check. It covers
did not verify the correctness of the returned checks, much less check also a forged indorsement, i.e., the forged signature of the payee or
if the payees actually received the checks in payment for the supplies indorsee of a note or check. Since under said provision a forged
she received. signature is "wholly inoperative", no one can gain title to the instrument
through such forged indorsement. Such an indorsement prevents any
In the course of her business operations covering a period of two subsequent party from acquiring any right as against any party whose
years, petitioner issued, following her usual practice stated above, a name appears prior to the forgery. Such forged indorsement cuts off
total of eighty-two (82) checks in favor of several suppliers. These the rights of all subsequent parties as against parties prior to the
checks were all presented by the indorsees as holders thereof to, and forgery. However, the law makes an exception to these rules
honored by, the respondent drawee Bank. Respondent drawee Bank where a party is precluded from setting up forgery as a defense.
correspondingly debited the amounts thereof against petitioner's
checking account. Most of the aforementioned checks were for As a matter of practical significance, problems arising from forged
amounts in excess of her actual obligations to the various payees indorsements of checks may generally be broken into two types of
as shown in their corresponding invoices. cases: (1) where forgery was accomplished by a person not associated
with the drawer — for example a mail robbery; and (2) where the
Practically, all the checks issued and honored by the respondent indorsement was forged by an agent of the drawer. This difference
drawee Bank were crossed checks. Aside from the daily notice given in situations would determine the effect of the drawer's negligence with
to the petitioner by the respondent drawee Bank, the latter also respect to forged indorsements.
furnished her with a monthly statement of her bank transactions,
attaching thereto all the cancelled checks she had issued and which While there is no duty resting on the depositor to look for forged
were debited against her current account. It was only after the lapse of indorsements on his cancelled checks in contrast to a duty imposed
more than two (2) years that petitioner found out about the fraudulent upon him to look for forgeries of his own name, a depositor is under a
manipulations of her bookkeeper. duty to set up an accounting system and a business procedure as are
reasonably calculated to prevent or render difficult the forgery of
All the eighty-two (82) checks with forged signatures of the payees indorsements, particularly by the depositor's own employees. And if the
were brought to Ernest L. Boon, Chief Accountant of respondent drawer (depositor) learns that a check drawn by him has been paid
drawee Bank at the Buendia branch, who, without authority therefor, under a forged indorsement, the drawer is under duty promptly to
accepted them all for deposit at the Buendia branch to the credit and/or report such fact to the drawee bank.
in the accounts of Alfredo Y. Romero and Benito Lam. The Chief
Accountant Ernest L. Boon was a very close friend of Alfredo Y. For his negligence or failure either to discover or to report
Romero. promptly the fact of such forgery to the drawee, the drawer loses
his right against the drawee who has debited his account under
Sixty-three (63) out of the eighty-two (82) checks were deposited in the forged indorsement. In other words, he is precluded from using
Savings Account of Alfredo Y. Romero at the respondent drawee forgery as a basis for his claim for recrediting of his account.
Bank's Buendia branch, and four (4) checks in his Savings Account at
its Ongpin branch. The rest of the checks were deposited in an In the case at bar, petitioner admitted that the checks were filled up
account under the name of Benito Lam at the Elcano branch of the and completed by her trusted employee, Alicia Galang, and were later
respondent drawee Bank. given to her for her signature. Her signing the checks made the
negotiable instrument complete. Prior to signing the checks, there was
About thirty (30) of the payees whose names were specifically written no valid contract yet.Petitioner completed the checks by signing them
on the checks testified that they did not receive nor even see the as drawer and thereafter authorized her employee Alicia Galang to
subject checks and that the indorsements appearing at the back of the deliver the eighty-two (82) checks to their respective payees.
checks were not theirs.
However, instead of issuing the checks to the payees as named in the
Consequently, petitioner made a written demand on respondent checks, Alicia Galangdelivered them to the Chief Accountant of the
drawee Bank to credit her account with the money value of the eighty- Buendia branch of the respondent drawee Bank, a certain Ernest L.
two (82) checks totalling P1,208,606.89 for having been wrongfully Boon. It was established that the signatures of the payees as first
charged against her account. Respondent drawee Bank refused to indorsers were forged.
grant petitioner's demand. Thus, petitioner filed a complaint with the
RTC. 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
LOWER COURTS’ RULING the amount of said check. An exception to this rule is where the drawer
RTC – dismissed the complaint. is guilty of such negligence which causes the bank to honor such a
CA – affirmed RTC‘s decision on two grounds, namely (1) that the check or checks.The negligence of a depositor which will prevent
petitioner‘s gross negligence in issuing the checks was the proximate recovery of an unauthorized payment is based on failure of the
cause of the loss and (2) assuming that the bank was also negligent, depositor to act as a prudent businessman would under the
the loss must nevertheless be borne by the party whose negligence circumstances.
was the proximate cause of the loss.
In the case at bar, the petitioner relied implicitly upon the honesty and
ISSUE: WON petitioner is precluded from using forgery as a defense loyalty of her bookkeeper, and did not even verify the accuracy of the
by reason of her negligence. amounts of the checks she signed against the invoices attached

16 / 36
thereto. Furthermore, although she regularly received her bank REPUBLIC OF THE PHILIPPINES V. EQUITABLE BANKING
statements, she apparently did not carefully examine the same nor the CORPORATION
check stubs and the returned checks, and did not compare them with I G.R. NO. L-15894 I JANUARY 30, 1964
the sales invoices. Otherwise, she could have easily discovered the
discrepancies between the checks and the documents serving as Topic From the Syllabus: Forgery and Material Alteration
bases for the checks. Where a loss, which must be borne by one of two parties alike
innocent of forgery, can be traced to the neglect or fault of either, it is
It is highly improbable that in a period of two years, not one of reasonable that it would be borne by him, even if innocent of any
petitioner's suppliers complained of non-payment. Assuming that even intentional fraud, through whose means it has succeeded.
one single complaint had been made, petitioner would have been duty-
bound, as far as the respondent drawee Bank was concerned, to make FACTS:
an adequate investigation on the matter. Had this been done, the The Republic of the Philippines (Government) seeks to recover
discrepancies would have been discovered, sooner or later. the total sum of P342,767.63, representing the aggregate value of
Petitioner's failure to make such adequate inquiry constituted twenty-four (24) warrants similarly paid by the Treasurer to the PI
negligence which resulted in the bank's honoring of thesubsequent Bank. These claims for refund are based upon a common ground —
checks with forged indorsements. although said twenty-eight (28) warrants were executed on genuine
government forms, the signature thereon of the drawing office and that
One thing is clear from the records —the petitioner failed to of the representative of the Auditor General in that office are forged.
examine her records with reasonable diligence whether before
she signed the checks or after receiving her bank statements. From July to December 1952, the Corporacion de los Padres
Dominicos (Corporacion) had acquired the twenty-four (24) treasury
Thus, petitioner's negligence was the proximate cause of her warrants involved in case G.R. No. L-15895 by accommodating its
loss. And since it was her negligence which caused the respondent former trusted employee, Jacinto Carranza, who asked the
drawee Bank to honor the forged checks or prevented it from Corporacion to cash the warrants, alleging that it was difficult to do so
recovering the amount it had already paid on the checks, petitioner directly with the Government and that his wife expected a sort of
cannot now complain should the bank refuse to recredit her account commission for the encashment; that the Corporacion acceded to
with the amount of such checks. Under Section 23 of the NIL, she is Carranza's request, provided that the warrants would first be deposited
now precluded from using the forgery to prevent the bank's debiting of with PI Bank, and that actual payment of the value of the warrants
her account, by reason of her gross negligence. would be made only after the same had been duly accepted and
cleared by the Treasurer and the proceeds thereof duly credited to the
Although, under Section 196 of the NIL, any case not provided for in account of the Corporacion in the PI Bank; that the warrants were,
the Act shall be governed by the provisions of existing legislation. accordingly, deposited by the Corporacion with said bank, which
However, under the laws of quasi-delict, she cannot point to the accepted them "subject to collection only"; that when the warrants
negligence of the respondent drawee Bank in the selection and were deposited with the PI Bank, each bore the indorsement of the
supervision of its employees as being the cause of the loss because respective payees and that of the Corporation; that, subsequently, the
her negligence is the proximate cause thereof and under Article 2179 PI Bank presented the warrants for payment to the drawee, the
of the Civil Code, she may not be awarded damages. Government, thru the Clearing Office of the Central Bank; that after
being cleared, the warrants were paid by the Treasurer.
However, under Article 1170 of the same Code the respondent drawee
Bank may be held liable for damages. The article provides: The PI Bank credited the proceeds of said warrants to the
Corporation, which, in turn, withdrew said proceeds by means of its
"Those who in the performance of their obligations are guilty of fraud, own checks and eventually paid the corresponding amounts to Jacinto
negligence or delay, and those who in any manner contravene the Carranza. Record shows that four (4) warrants involved therein were
tenor thereof, are liable for damages." deposited with the Equitable Bank by persons known thereto as its
depositors or customers, namely, Robert Wong, Lu Chill Kau and
There is no question that there is a contractual relation between Chung Ching; that, in due course, the Equitable Bank cleared said
petitioner as depositor (obligee) and the respondent drawee bank as warrants, thru the Clearing Office, then collected the corresponding
the obligor. In the performance of its obligation, the drawee bank is amounts from the Treasurer and thereafter credited said amounts to
bound by its internal banking rules and regulations which form part of the accounts of the respective depositors; that on January 15, 1958,
any contract it enters into with any of its depositors. When it violated its the Treasurer notified the Equitable Bank of the alleged defect of said
internal rules that second endorsements are not to be accepted without warrants and demanded reimbursement of the amounts thereof; and
the approval of its branch managers and it did accept the same upon that this demand was rejected by the Equitable Bank.
the mere approval of Boon, a chief accountant, it contravened the
tenor of its obligation at the very least, if it were not actually guilty of The clearing of the aforementioned twenty-eight (28) warrants
fraud or negligence. thru the Clearing Office was made pursuant to the "24-hour clearing
house rule", which had been adopted by the Central Bank in a
The SC held that banking business is so impressed with public interest conference with representatives and officials of the different banking
where the trust and confidence of the public in general is of paramount institutions in the Philippines.
importance such that the appropriate standard of diligence must be a
high degree of diligence, if not the utmost diligence. Surely, respondent ISSUE: Whether or not the Government can recover the amounts paid
drawee Bank cannot claim it exercised such a degree of diligence that erroneously in consideration of the 28 treasury warrants,which in fact,
is required of it. There is no way the Court can allow it now to escape were forged.
liability for such negligence. Its liability as obligor is not merely
vicarious but primary wherein the defense of exercise of due diligence HELD:
in the selection and supervision of its employees is of no moment. NO. The Government was found to be negligent, thus they are not
entitled to recovery. It was the Treasurer who initially cleared the 28
Thus, premises considered, the case is REMANDED to the trial treasury warrant, being a member of the aforementioned Clearing
court for the reception of evidence to determine the exact amount Office.
of loss suffered by the petitioner.

17 / 36
The aforementioned twenty-eight (28) warrants were cleared and And although the subject checks are non-negotiable (this was another
paid by the Treasurer, in view which the PI Bank and the Equitable issue, altho irrelevant to the topic) the responsibility of petitioner as
Bank credited the corresponding amounts to the respective depositors indorser thereof remains. To countenance a repudiation by the
of the warrants and then honored their checks for said amounts. Thus, petitioner of its obligation would be contrary to equity and would deal a
the Treasury had not only been negligent in clearing its own warrants, negative blow to the whole banking system of this country.
but had, also, thereby induced the PI Bank and the Equitable Bank to
RTC decision affirmed.
pay the amounts thereof to said depositors.
[RATIO RE: TOPIC]
The irregularity of said warrants was apparent the face thereof,
Every indorser who indorsee without qualification, warrants to all
from the viewpoint of the Treasury. Moreover, the same had not
subsequent holders in due course' (a) that the instrument is genuine
advertised the loss of genuine forms of its warrants. Neither had the PI and in all respects what it purports to be; (b) that he has good title to it;
Bank nor the Equitable Bank been informed of any irregularity in (c) that all prior parties have capacity to contract; and (d) that the
connection with any of the warrants involved in these two (2) cases, instrument is at the time of his indorsement valid and subsisting.
until after December 23, 1952, — or after the warrants had been
cleared and honored — when the Treasury gave notice of the forgeries
adverted to above. As a consequence, the loss of the amounts thereof REPUBLIC BANK vs. MAURICIA T. EBRADA
is mainly imputable to acts and omissions of the Treasury, for which G.R. No. L-40796 July 31, 1975
the PI Bank and the Equitable Bank should not and cannot be
penalized.
TOPIC FROM THE SYLLABUS:
According to Section 23 of the NIL, where the signature on a
RATIO: negotiable instrument is forged, the negotiation of the check is without
Generally, where a drawee bank otherwise would have a right of force or effect. However, this does not mean that the existence of one
recovery against a collecting or indorsing bank for its payment of a forged signature therein will render void all the other negotiations of the
forged check its action will be barred if it is guilty of an unreasonable check with respect to the other parties whose signature are genuine.
delay in discovering the forgery and in giving notice thereof.
Those indorsers who did not know of the forgery, should be considered
BANCO DE ORO SAVINGS vs EQUITABLE BANKING CORP. valid and enforceable, barring any claim of forgery. Furthermore, an
G.R. No. 74917 January 20, 1988 indorser who purchases a check is bound to satisfy himself that the
paper is genuine and that, by indorsing it, he asserts that he performed
his duty; the drawee [Bank] who has paid the forged check, without
[FACTS]
negligence on its part, may recover the money from such negligent
BDO drew six crossed Manager's check amounting to 45,982.23
purchasers or indorsers.
Pesos and payable to certain member establishments of Visa Card.
Subsequently, the Checks were deposited with Equitable Banking to
the credit of its depositor, a certain Aida Trencio.
FACTS:
Following normal procedures, and after stamping at the back of the Mauricia Ebrada (defendant/Ebrada) encashed a check, dated Jan 15,
Checks the usual endorsements. All prior and/or lack of endorsement 1963, for P1, 246.08 at the Republic Bank (RB/Plaintiff Bank). The
guaranteed thatEquitablesent the checks for clearing through the check was issued by Bureau of Treasury (Bureau). Later, RB was later
Philippine Clearing House Corporation (PCHC). Accordingly, BDO paid advised by the Bureau that the indorsement on the check by the
the Checks; its clearing account was debited for the value of the original payee, Martin Lorenzo, was a forgery, since the latter was
Checks and Equitable‘s clearing account was credited for the same already dead since July on 15, 1952.
amount. Thereafter, BDO discovered that the endorsements appearing
at the back of the Checks and purporting to be that of the payees were Knowing this, the Bureau asked a refund from RB, to which the latter
forged and/or unauthorized or otherwise belong to persons other than did. To recover what it had refunded to the Bureau, Plaintiff Bank made
the payees. BDO presented the Checks directly toEquitablefor the demands upon defendant Ebrada to account for the sum of P1,246.08,
purpose of claiming reimbursement from the latter. However, Equitable but said defendant refused to do so. So plaintiff Bank sued defendant
refused. Ebrada before the City Court of Manila.
Thus, the present complaint. In her Answer, Ebrada denied material allegations and put up the
affirmative defense that she was a holder in due course, and alleged
[LOWER COURT’S RULING] that the Bank has no cause of action, and that the bank was in
Under Arbitration, ruled in favour of BDO. RTC affirmed. estoppel. Consequently, Ebrada filed a Third-Party complaint against
Adelaida Dominguez who, in turn, filed on September 14, 1966 a
[ISSUES] Fourth-Party complaint against Justina Tinio, the indorsers prior to
WON the Bank is liable to reimburse, due to the forgery. her.
[HELD] Thus,
YES. Maker  (Payee) Martin Lorenzo (+)  Ramon Lorenzo  Delia
In the matter of forgery in endorsements, this Court has succinctly Dominguez  Mauricia Ebrada
emphasized that the collecting bank or last endorser generally suffers
the loss because it has the duty to ascertain the genuineness of all LOWER COURT’S RULING
prior endorsements considering that the act of presenting the check for TC: rendered judgment for the plaintiff Bank against defendant
payment to the drawee is an assertion that the party making the Ebrada; for Third-Party plaintiff against Third-Party defendant,
presentment has done its duty to ascertain the genuineness of the Adelaida Dominguez, and for Fourth-Party plaintiff against Fourth-
endorsements. Party defendant, Justina Tinio.
Thus, We hold that while the drawer generally owes no duty of Before the CFI, Ebrada appealed where the parties submitted to a
diligence to the collecting bank, the law imposes a duty of diligence on partial stipulation of facts.
the collecting bank to scrutinize checks deposited with it for the Pertinent Facts:
purpose of determining their genuineness and regularity. The collecting  On Jan 15, 1963, Bureau of Treasury issued a check
bank being primarily engaged in banking holds itself out to the public payable to the order of MARTIN LORENZO in the sum of
as the expert and the law holds it to a high standard of conduct. P1, 246.08 and drawn on the Republic Bank.

18 / 36
 At the back of the check, the following signatures are found Therefore, Ebrada was duty bound to ascertain whether the check
in this order: 1.) Martin Lorenzo; 2.) Ramon R. Lorenzo; 3. was genuine before presenting it to plaintiff Bank for payment.
Delia Dominguez; and 4. Maurica T. Ebrada. Her failure to do so makes her liable for the loss and the plaintiff
 That the check was delivered to Ebrada by Dominguez for Bank may recover from her the money she received for the check.
the purpose of encashment.
 That Ebrada affixed her signature on the check on Feb 27 Withal, since RB already suffered the loss when it paid the check to
1963, when she encashed it with Republic Bank. Ebrada, it has still the remedy to recover from the latter the amount the
 That after receiving the cash proceeds from RB, Ebrada Bank paid to her. Although Ebrada was not the forger, she was the last
turned over the amount to Dominguez, who in turn, handed indorser of the check, and has warranted she has god title to it.
the amount to Justinia Tinio.
Ebrada was also liable as Accomodation Party
TC: ordered the defendant Mauricia T. Ebrada to pay Republic Bank What about the fact that after receiving the cash proceeds, Ebrada
P1, 246.08 turned over the cash to Adelaida, and Adelaida in turn, handed it to
Justina? Would this exempt Ebrada (defendant) from liability?
CA: (Elevated to SC for pure question of law?)
No. by doing so, she acted as an accommodation party in the check
for which she is also liable under Section 29, NIL: An accommodation
ISSUE: Whether or not the bank can recover from the last party is one who has signed the instrument as maker, drawer,
indorser, defendant Ebrada. acceptor, or indorser, without receiving value therefor, and for the
purpose of lending his name to some other person. Such a person is
HELD: YES. It is admitted that Ebrada was the last indorser of the said liable on the instrument to a holder for value, notwithstanding such
check. As such indorser, she was supposed to have warranted that holder at the time of taking the instrument knew him to be only an
she has good title to said check; for under Section 65 and Section 66 accommodation party.
of the Negotiable Instruments Law.
SC’s Disposition: Judgment appealed from is hereby affirmed in toto
However, it turned out that the signature of the original payee of the with costs against defendant-appellant.
check, Martin Lorenzo, was a forgery because he was already dead,
almost 11 years before the check in question was issued by the RATIO RE: TOPIC FROM SYLLABUS
Bureau. According to Section 23 of the NIL, where the signature on a As a general rule, according to Section 23 of the NIL, where the
negotiable instrument is forged, the negotiation of the check is without signature on a negotiable instrument is forged, the negotiation of the
force or effect. check is without force or effect. However, this does not mean that the
existence of one forged signature therein will render void all the other
But does this mean that the existence of one forged signature negotiations of the check with respect to the other parties whose
therein will render void ALL THE OTHER NEGOTIATIONS OF THE signature are genuine. Those indorsers who did not know of the
CHECK with respect to the other parties whose signature are forgery, should be considered valid and enforceable, barring any claim
genuine? of forgery.
No, it was held that it is only the negotiation based on the forged or However, this also does not mean that the indorser is free from
unauthorized signature which is inoperative. This means that the responsibilities: as indorser, Ebrada was duty bound to ascertain
negotiation of the check in question from Martin Lorenzo, the original whether the check was genuine before presenting it to plaintiff Bank for
payee, to Ramon R. Lorenzo, the second indorser, should be declared payment. Her failure to do so in the case at bar, makes her liable for
of no effect, but the negotiation of the aforesaid check from Ramon R. the loss and the plaintiff Bank may recover from her the money she
Lorenzo to Adelaida Dominguez, the third indorser, and from Adelaida received for the check.
Dominguez to the defendant-appellant Ebrada, who did not know of
the forgery, should be considered valid and enforceable, barring ASSOCIATED BANK V. CA
any claim of forgery. [Since Ebrada did not know of the forgery, is | G.R. No. 89802 | MAY 7, 1992
she absolved from liability? NO, she was still negligent. See
below.]
[TOPIC FROM THE SYLLABUS]
Drawee bank cannot go after CB in beater and order instrument if
What happens then, if, after the Republic Bank has paid the
amount of the check to the holder (Ebrada) thereof, it was there is a forgery. However, the exception:
discovered that the signature of the payee (Martin Lorenzo, dead
person) was forged? Can RB recover from Ebrada, the one who FORGERY AND MATERIAL ALTERATION: "the law imposes a duty of
encashed the check? diligence on the collecting bank to scrutinize checks deposited with it,
for the purpose of determining their genuineness and regularity. The
Yes. In a similar case, State v. Broadway Mut. Bank, it was held that collecting bank, being primarily engaged in banking, holds itself out to
the drawee of a check can recover from the holder the money paid to the public as the expert on this filed, and the law thus holds it to high
him on a forged instrument. standard of conduct."
Why so?
[FACTS]
Since it is not the duty of the bank to ascertain whether the signatures
Private respondent is engaged in the business of ready-to-wear
of the payee (Martin) was genuine or not. The indorsers herein, is
supposed to warrant to the Bank that the signature of the payee and garments under the firm name ―Melissa‘s RTW.‖ She deals with
previous indorsers were genuine. An indorser who purchases a check Robinson‘s Dept Store, Payless, Rempson, and the Corona Bazaar.
is bound to satisfy himself that the paper is genuine and that, by These companies issued in payment of their respective accounts
indorsing it, he asserts that he performed his duty and the drawee who crossed checks payable to Melissa‘s RTW totaling 15,805 pesos.
has paid the forged check, the Bank without negligence on its part,
may recover the money from such negligent purchasers or indorsers. When respondent went to these companies to collect, she was
The recovery at bar is permitted because although the drawee informed of the issuance of the checks which upon further inquiry
Bank was in a way negligent in failing to detect the forgery, yet if revealed that the said checks had been deposited with the Associated
the encashers (Ebrada et al) of the check had performed their Bank and subsequently paid by it to one Sayson. Sayson had not been
duties, the forgery would in all probability, have been detected authorized by the private respondent to deposit and encash the said
and the fraud defeated. checks.

19 / 36
Respondent sued the petitioners in the RTC for recovery of the total
value plus damages.
GREAT EASTERN LIFE INSURANCE CO. vs.
[LOWER COURT’S RULING] HONGKONG& SHANGHAI BANKING Co. and PHILIPPINE
RTC: judgment rendered in favor of respondent. Petitioners appealed NATIONAL BANK
to CA contending that respondent had no cause of action an should | G.R. No. 18657 | August 23, 1922
have proceeded against the companies that issued the checks.
FACTS:
CA: Affirmed RTC. Cause of action of respondent arose from the On May 3, 1920, the plaintiff drew its check for P2,000 on the
illegal, anomalous and irregular acts of the appellants in violating Hongkong and Shanghai Banking Corporation with whom it had an
common banking practices to the damage and prejudice of the account, payable to the order ofLazaro Melicor. However, E.M.
respondent, in allowing to be deposited and encashed the checks to Maasim fraudulently obtained possession of the check, forged
improper parties. Melicor's signature, as an endorser, and then personally
endorsed and presented it to the Philippine National Bank where the
Hence this petition. amount of the check was placed to his credit.
[ISSUE/S] After having paid the check, and on the next day, the Philippine
WON private respondent has a cause of action. Petitioners say ang
National Bank endorsed the check to the Hongkong and Shanghai
companies ang liable since didtonilagihatag ang checks to those not Banking Corporation, which it paid, and charged the amount of the
authorized. check to the account of the plaintiff.In the ordinary course of business,
the Hongkong and Shanghai Banking Corporation rendered a bank
[HELD] statement to the plaintiff showing that the amount of the check was
YES. The six checks in the case at bar had been crossed and issued charged to its account, and no objection was then made to the
"for payee's account only." This could only signify that the drawers had statement.
intended the same for deposit only by the person indicated, to wit,
Melissa's RTW. About four months after the check was charged to the account of the
plaintiff, it discovered that Lazaro Melicor, to whom the check was
The petitioners were negligent when they permitted the encashment of made payable, had never received it, and that his signature, as an
the checks by Sayson. The Bank should have first verified his right to
endorser, was forged by Maasim, who presented and deposited it to
endorse the crossed checks, of which he was not the payee, and to his private account in the Philippine National Bank.
deposit the proceeds of the checks to his own account. In Banco de
Oro Savings and Mortgage Bank v. Equitable Banking Corp: With this knowledge, the plaintiff promptly made a demand upon the
Hongkong and Shanghai Banking Corporation that it should be given
"the law imposes a duty of diligence on the collecting bank to scrutinize credit for the amount of the forged check, which the bank refused to
checks deposited with it, for the purpose of determining their do. Thus, the plaintiff commenced an action to recover the P2,000
genuineness and regularity. The collecting bank, being primarily which was paid on the forged check.
engaged in banking, holds itself out to the public as the expert on this
field, and the law thus holds it to a high standard of conduct." The Shanghai Bank denies any liability, but prays that, if a judgment
should be rendered against it, in turn, it should have like judgment
Petitioners (desperately) insist that the respondent has no cause of against the Philippine National Bank which denies all liability to either
action because they have no privity of contract with her. They (more party.
desperately) argued that it was Eddie Reyes, the respondent‘s own
husband, who endorsed the checks. Also, alleged (most desperately) LOWER COURT’S RULING
that the check was forged. RTC – rendered a judgment in favor of the Shanghai Bank and
Philippine National Bank.
Still the court said that he was not authorized to make endorsements,
and even if the endorsements were forged, the Bank would still be ISSUE: WON the defendant banks are liable for the consequences of
liable to the respondent for not verifying the endorser‘s authority. There the forgery on the negotiable instrument
is no difference between actual forging and an endorsement by a
person not authorized. HELD: Yes. Plaintiff's check was drawn on the Shanghai Bank
payable to the order of Melicor. In other words, the plaintiff
Moreover, the Bank had stamped on the back thereof the words: "All authorized and directed the Shanghai Bank to pay Melicor, or his
prior endorsements and/or lack of endorsements guaranteed," and order, P2,000. It did not authorize or direct the bank to pay the
thus made the assurance that it had ascertained the genuineness of all check to any other person than Melicor, or his order, and the
prior endorsements. testimony is undisputed that Melicor never did part with his title or
endorse the check, and never received any of its proceeds.
Thus, petitioner is indeed liable to the respondent. Petition is denied.
Neither is the plaintiff estopped or bound by the bank statement, which
was made to it by the Shanghai Bank. This is not a case where the
plaintiff's own signature was forged to one of its checks.In such a case,
the plaintiff would have known of the forgery, and it would have been
its duty to have promptly notified the bank of any forged signature, and
any failure on its part would have released the bank from any liability.
That is not this case.
Here, the forgery was that of Melicor, who was the payee of the check,
and the legal presumption is that the bank would not honor the
check without the genuine endorsement of Melicor. In other words,
when the plaintiff received its bank statement, it had a right to assume

20 / 36
that Melicor had personally endorsed the check, and that, otherwise, sent the cash check to the Clearing House of the Central Bank with the
the bank would not have paid it. following words stamped at the back of the check:
Section 23 of Act No. 2031, known as the Negotiable Instruments Law, Metropolitan Bank and Trust Company Cleared (illegible) office All
says: prior endorsements and/or Lack of endorsements Guaranteed.
The check was cleared the same day. Private respondent paid
"When a signature is forged or made without the authority of the petitioner through clearing the amount of P50,000.00, and Sales was
person whose signature it purports to be, it is wholly inoperative, and credited with the said amount in his deposit with Metro Bank.
no right to retain the instrument, or to give a discharge therefor, or to
enforce payment thereof against any party thereto, can be acquired On August 26, 1964, Sales made his first withdrawal of P480.00
through or under such signature, unless the party against whom it is from his current account. On August 28, 1964, he withdrew
sought to enforce such right is precluded from setting up the forgery or P32,100.00. Then on August 31, 1964, he withdrew the balance of
want of authority." P17,920.00 and closed his account with Metro Bank. Nine (9) days
later, FNCB returned cancelled Check No. 7166 to drawer Joaquin
That section is square in point. Cunanan & Company, together with the monthly statement of the
company's account with FNCB. That same day, the company notified
The money was on deposit in the Shanghai Bank, and it had no legal FNCB that the check had been altered. The actual amount of P50.00
right to pay it out to anyone except the plaintiff or its order. Here, the was raised to P50,000.00, and over the name of the payee, Manila
plaintiff ordered the Shanghai Bank to pay the P2,000 to Melicor, and Polo Club, was superimposed the word CASH.
the money was actually paid to Maasim and was never paid to Melicor.
Melicor never personally endorsed the check, or authorized any one to FNCB notified Metro Bank of the alteration by telephone,
endorse it for him, and the alleged endorsement was a forgery. Hence, confirming it the same day with a letter, which was received by Metro
upon the undisputed facts, it must follow that the Shanghai Bank Bank on the following day, September 4, 1964.On September 10,
has no defense to this action. 1964, FNCB wrote Metro Bank asking for reimbursement of the
amount of P50,000.00.
As it is admitted that the Philippine National Bank cashed the check
upon a forged signature, and placed the money to the credit of The latter did not oblige, so that FNCB reiterated its request on
Maasim, who was the forger, then endorsed the check and forwarded September 29, 1964. Metro Bank was adamant in its refusal.On June
it to the Shanghai Bank by whom it was paid, the Philippine National 29, 1965, FNCB filed in the Court of First Instance of Manila, Branch
Bank had no license or authority to pay the money to Maasim or VIII, Civil Case No. 61488 against Metro Bank for recovery of the
anyone else upon a forged signature. It was its legal duty to know amount of P50,000.00.
that Melicor's endorsement was genuine before cashing the check. Its
remedy is against Maasim to whom it paid the money. LOWER COURT’S RULING:
Judgment of the lower court is reversed. HSBC is ordered to pay RTC- ordered Metro Bank to reimburse FNCB the amount of
plaintiff P2,000 with interest and costs of action. A judgement in P50,000.00 with legal rate of interest from June 25, 1965 until fully
favor of HSBC as against PNB is likewise entered for the same paid, to pay attorney's fees of P5,000.00, and costs.
amount with costs of action.
CA- affirmed the judgment of the trial court
RATIO – The insurance company is not liable on the check because its
order is to pay the amount thereof to P or his order and not to any ISSUE: Whether or not Metrobank should reimsburse FNCB for the
other persons. The insurance company, being the drawer, was not altered amount as indorser.
found to be negligent in the handling of its business affairs and the
theft of the check by a total stranger was not attributable to negligence HELD:
of the drawer; neither was the forging of the payee's indorsement due
to the drawer's negligence. Since the drawer was not negligent, the NO. FNCB is liable. The drawee bank receiving the check for
drawee (HSBC) was duty-bound to restore to the drawer's account the clearing from the Central Bank Clearing House must return the check
amount theretofore paid under the check with a forged payee's to the collecting bank within the 24-hour period if the check is defective
indorsement because the drawee did not pay as ordered by the for any reason which FNCB failed to do so. Indorsement must be read
drawer. together with the 24-hour regulation on clearing House Operations of
the Central Bank.
METROPOLITAN BANK AND TRUST COMPANY V. THE FIRST FNCB did not deny the allegation of Metro Bank that before it
NATIONAL CITY BANK allowed the withdrawal of the balance of P17,920.00 by Salvador
I G.R. No. L-55079 I November 19, 1982 Sales, Metro Bank withheld payment and first verified, through its
Assistant Cashier Federico Uy, the regularity and genuineness of the
Topic From the Syllabus: Forgery and Material Alteration check deposit from Marcelo Mirasol, Department Officer of FNCB,
The indorsement, itself, is very clear when it begins with words because its (Metro Bank) attention was called by the fast movement of
―For clearance, clearing office ****‖ In other words, such an the account.
indorsement must be read together with the 24-hour regulation on
clearing House Operations of the Central Bank. Once that 24- hour RATIO:
period is over, the liability on such an indorsement has ceased. Items which should be returned for any reason whatsoever shall
be delivered to and received through the clearing Office in the special
FACTS: red envelopes and shall be considered and accounted as debits to the
On August 25, 1964, Check No. 7166 dated July 8, 1964 for banks to which the items are returned. Nothing in this section shall
P50,000.00, payable to CASH, drawn by Joaquin Cunanan & prevent the returned items from being settled by reinbursement to the
Company on FNCB was deposited with Metrobank by a certain bank, institution or entity returning the items.
Salvador Sales. Earlier that day, Sales had opened a current account
with Metro Bank depositing P500.00 in cash.Metro Bank immediately

21 / 36
REPUBLIC BANK vs CA ILUSORIO VS CA

G.R. No. 42725. April 22, 1991 G.R. No. 139130 November 27, 2002
[OVERVIEW] TOPIC FROM THE SYLLABUS

Banco De Oro v Equitable Banking ruling is amended to include the True, it is a rule that when a signature is forged or made without the
24-hour clearing house rule, which provides that should the drawee authority of the person whose signature it purports to be, the check is
bank fail to return a forged or altered check to the collecting bank
wholly inoperative. No right to retain the instrument, or to give a
within the 24-hour clearing period, the collecting bank is absolved from
discharge therefor, or to enforce payment thereof against any party,
liability.
can be acquired through or under such signature. However, the rule
does provide for an exception, namely: "unless the party against
[FACTS]
San Miguel Corporation (SMC) drew a dividend check for P240 on its whom it is sought to enforce such right is precluded from setting
account in First National City Bank (FNCB) in favor of J. Roberto C. up the forgery or want of authority."
Delgado, a stockholder. After the check had been delivered to
Delgado, the amount on its face was fraudulently and without authority
of SMC, altered by increasing it from P240 to P9,240. The check was FACTS
indorsed and deposited on March 14, 1966 by Delgado in his account Petitioner Ramon Ilusorio is a prominent businessman who was the
with the Republic Bank. Managing Director of Multinational Investment Bancorporation and the
Chairman and/or President of several other corporations. He was a
Republic accepted the check for deposit without ascertaining its depositor in good standing of private respondent bank, the Manila
genuineness and regularity. Later, Republic endorsed the check to
Banking Corporation (MBC). As he was running about 20 corporations,
FNCB by stamping on the back of the check "all prior and/or lack of
indorsement guaranteed" and presented it to FNCB for payment and was going out of the country a number of times, petitioner
through the Central Bank Clearing House. This guarantee led FNCB to entrusted to his secretary, Katherine E. Eugenio (Katherine), his credit
pay P9,240 to Republic. cards and his checkbook with blank checks. It was also Katherine who
verified and reconciled the statements of said checking account.
SMC notified FNCB of the material alteration in the amount of the
check in question. FNCB lost no time in recrediting P9,240 to SMC. Between September 5, 1980 and Jan 23, 1981, Katherine was able to
FNCB informed Republic in writing of the alteration and the forgery of encash and deposit to her personal account 17 checks drawn against
the endorsement of J. Roberto C. Delgado. By then, Delgado had Ilusorio‘s account with an aggregate amount of P119, 634.34. Illusorio
already withdrawn his account from Republic. didn‘t bother checking his statement of account until someone apprised
him he saw Katherine use Illusorio‘s credit cards.
On August 15, 1966, FNCB demanded that Republic refund the
P9,240 on the basis of the latter‘s endorsement and guaranty.
As such, Ilusorio fired Katherine immediately and instituted a criminal
Republic refused, claiming there was delay in giving it notice of the
action against her for estafa thru falsification. MBC also lodged a
alteration; that it was not guilty of negligence; that it was the drawer‘s
(SMC‘s) fault in drawing the check in such a way as to permit the complaint against Katherine for estafa thru falsification of commercial
insertion of numerals increasing the amount; that FNCB, as drawee, documents.
was absolved of any liability to the drawer (SMC), thus, FNCB had no
right of recourse against Republic. Therafter, MBC sought the expertise of NBI to determine genuineness
of the signatures. NBI suggested that Ilusorio be asked to submite 7
[LOWER COURT’S RULING] more additional standard signatures, however, petitioner failed to
Trial court favoured Republic. comply with this request.
CA affirmed lower court.
Illusorio requested MBC to restore to his account the value of the
[ISSUES] checks wrongfully encashed but MBC refused, thus this instant case.
WON Republic is liable to refund the amount paid
LOWER COURT’S RULING:
[HELD]
TC: Dismissed, no sufficient basis for plaintiff‘s cause against MBC.
No.
The 24-hour clearing house rule applies. [Section 4(c) of Central Bank CA: Affirmed TC ruling.
Circular No. 9]
"Items which should be returned for any reason whatsoever shall be ISSUES
returned directly to the bank, institution or entity from which the item (1) W/N petitioner has a cause of action against private respondent
was received… All items cleared at 11:00 o’clock A.M. shall be (NO)
returned not later than 2:00 o’clock P.M. on the same day and all items (2) W/N private respondent bank, in filing an estafa case against
cleared at 3:00 o’clock P.M. shall be returned not later than 8:30 A.M. petitioner‘s secretary, is barred from raising the defense that the fact of
of the following business day except for items cleared on Saturday forgery was not established (NO)
which may be returned not later than 8:30 A.M. of the following day."
HELD:
It is true that when an endorsement is forged, the collecting bank or 1. Petitioner has no cause of action against Manila Bank. To be
last endorser, as a general rule, bears the loss. But the unqualified
entitled to damages, petitioner has the burden of proving negligence
endorsement of the collecting bank on the check should be read
together with the 24-hour regulation on clearing house operation. Thus, on the part of the bank for failure to detect the discrepancy in the
when the drawee bank fails to return a forged or altered check to the signatures on the checks. It is incumbent upon petitioner to establish
collecting bank within the 24-hour clearing period, the collecting bank the fact of forgery, i.e., by submitting his specimen signatures and
is absolved from liability. comparing them with those on the questioned checks. Curiously
though, petitioner failed to submit additional specimen signatures as
There is nothing inequitable in such a rule for if in the regular course of requested by the NBI from which to draw a conclusive finding
business the check comes to the drawee bank which, having the regarding forgery. The Court of Appeals found that petitioner, by his
opportunity to ascertain its character, pronounces it to be valid and own inaction, was precluded from setting up forgery.
pays it, it is not only a question of payment under mistake, but payment
in neglect of duty which the commercial law places upon it, and the
result of its negligence must rest upon it.

22 / 36
Did the bank exercise due diligence? Rules of Court the complaint or information filed in court is required to
Yes. Consistently, the CA and the RTC found that Manila Bank be brought in the name of the "People of the Philippines.
employees exercised due diligence in cashing the checks. The bank‘s
employees in the present case did not have a hint as to Eugenio‘s SC’s DISPOSITION: the instant petition is DENIED for lack of
modus operandi because she was a regular customer of the bank, merit. CA’s decision is AFFIRMED.
having been designated by petitioner himself to transact in his behalf.
According to the appellate court, the employees of the bank exercised RATIO:
due diligence in the performance of their duties. Of course it is possible When a signature is forged or made without the authority of the person
that the verifiers of TMBC might have made a mistake in failing to whose signature it purports to be, the check is wholly inoperative.
detect any forgery -- if indeed there was. However, a mistake is not However, the rule does provide for an exception, namely: "unless the
equivalent to negligence if they were honest mistakes. In the instant party against whom it is sought to enforce such right is precluded
case, we believe and so hold that if there were mistakes, the same from setting up the forgery or want of authority."
were not deliberate, since the bank took all the precautions.
Here, it is the exception that applies. In our view, petitioner is
BUT, REVERSE UNO CARD- It was petitioner, not the bank, who was precluded from setting up the forgery, assuming there is forgery, due to
negligent. On two instances pa gyud! OOF. his own negligence in entrusting to his secretary his credit cards and
checkbook including the verification of his statements of account.
First, petitioner accorded his secretary an unusual degree of trust and
unrestricted access to his credit cards, passbooks, check books, bank
statements, including custody and possession of cancelled checks and
reconciliation of accounts.
PCIB V. CA
| G.R. Nos.121413, 121479, & 128604 | JANUARY 29, 2001
Secondly, Petitioner‘s failure to examine his bank statements appears
as the proximate cause of his own damage. He had all the
opportunities to verify his account as well as the cancelled checks
FORGERY AND MATERIAL ALTERATION: In crossed checks, the
issued thereunder -- month after month. But he did not, until his partner
collecting bank is bound to scrutinize the check and know its
asked him whether he had entrusted his credit card to his secretary
depositors before clearing indorsement; that as a general rule, banks
because the said partner had seen her use the same. It was only then
are liable for wrongful or tortuous acts of its agents within the scope
that he was minded to verify the records of his account. Had he done
and in the course of their employment; that failure of the drawee bank
so, he could have been alerted to any anomaly committed against him.
to seasonably discover irregularity in the checks constitutes negligence
and renders the bank liable for loss of proceeds of the checks.
In other words, petitioner had sufficient opportunity to prevent or detect
any misappropriation by his secretary had he only reviewed the status
of his accounts based on the bank statements sent to him regularly. In [FACTS](medyo complicated nisiya, basta Petitioner is PCIB and
view of Article 2179 of the New Civil Code, when the plaintiff‘s own Citibank and respondent is Ford Motors)
negligence was the immediate and proximate cause of his injury, no In general:
recovery could be had for damages. Respondent Ford drew and issued a 3 Citibank Checks on 1977, 1978,
and 1979, all in favor of the Commissioner of Internal Revenue (CIR)
ON FORGERY: for payment of its percentage taxes.GR 121413 and 121479 is the
True, it is a rule that when a signature is forged or made without the case for the 1977 check and GR 128604 is the case for the 1978 and
authority of the person whose signature it purports to be, the check is 1979 checks. All the proceeds of these checks did not reach the CIR
wholly inoperative. No right to retain the instrument, or to give a as they were embezzled by the syndicate. This case is about who is
discharge therefor, or to enforce payment thereof against any party, negligent and therefore liable for the money embezzled.
can be acquired through or under such signature.
Thus, the parties of these checks are: Ford – drawer,Citibank –
However, the rule does provide for an exception, namely: "unless the drawee/acceptor, and CIR – payee through PCIB. So Ford issues the
party against whom it is sought to enforce such right is precluded checks, Citibank pays to PCIB, and PCIB pays to CIR.
from setting up the forgery or want of authority."
So summary sa ani na story. Ford issued checks para mubayad sa
Here, it is the exception that applies. In our view, petitioner is iyang taxes to BIR. Pero ang mga proceeds sa checks wala jud niabot
precluded from setting up the forgery, assuming there is forgery, due to sa BIR rather gi deposit siya into a fictitious account where gi
his own negligence in entrusting to his secretary his credit cards and embezzle siya by ―the syndicate.‖ Chuy kayo sa? Anyway, the
checkbook including the verification of his statements of account. syndicate are composed of 8 people working in a conspiracy. Mas
machuy pajud ni, these 8 people are employees and officers from
Why petitioner’s reliance on Associated Bank vs CA and FORD, PCIB, CITIBANK, AND BIR!! They managed to steal
Philippine Bank of Commerce vs CA was misplaced- In those approximately 12 Million pesos. Literally OCEAN’S 8 OF THE
cases, the banks were negligent for failing to observe precautionary PHILIPPINES.
measures to detect the forgery; while here, MBC‘s personnel diligently
performed their duties. [FACTS]
1977 check: (GR 121413 and 121479)
Issue 2: W/N private respondent bank, in filing an estafa case Ford drew and issued a Citibank check in the amount of 4,746,114.41
against petitioner’s secretary, is barred from raising the defense pesos in favor of CIR. The check was deposited with the IBAA, now
that the fact of forgery was not established- PCIB, BIR‘s authorized collecting bank. It was cleared by the Central
Bank and the proceeds of the check was paid to PCIB by Citibank.
No. MBC is not estopped from asserting the fact that forgery has not However, the proceeds was never received by the CIR.
been clearly established. Petitioner cannot hold private respondent in
estoppel for the latter is not the actual party to the criminal action. In a Citibank admitted that the check was a crossed check, which contains
criminal action, the State is the plaintiff, for the commission of a felony the phrase ―Payee‘s Account Only.‖ Citibank admitted that it paid the
is an offense against the State. Thus, under Section 2, Rule 110 of the full face value of the check to PCIB but was never received by the CIR.
In fact, when it was deposited with PCIB, there is an indorsement at

23 / 36
the back stating,"all prior indorsements and/or lack of indorsements WON Ford has the right to recover from the collecting bank (PCIB
guaranteed." Ford was informed by the CIR that the check was not and the drawee bank (Citibank) the value of the checks intended
paid to the government but was in fact encashed by unauthorized as payment to the CIR. (related sa topic)
persons. Thus, Ford has to make a second payment to the BIR. WON Ford’s action has prescribed.
Thus, as a consequence of the respondents‘ refusal to reimburse Ford So pagabotsa SC, they blamed each other kung kinsay negligent. Diba
for the 2nd payment, the latter filed a complaint before the Court. their employees and officers kay members sa syndicate, so they
blamed each other for being unaware samga modus sailang
After an investigation by the NBI, it revealed that the check was employees. Grabe ang pointing fingers anina case. So it all boils down
recalled by Godofredo Rivera, the general ledger accountant of Ford. to the question of liability based on the degree of negligence among
According to the investigation, it said that Rivera had to recall the the parties.
checks due to errors in the computation, and that he wants to replace
the check with 2 manager‘s checks wherein the syndicate then [HELD] (degree of negligence among parties):
deposited it with the Pacific Banking Corporation.
Ford: Citibank and PCIB blames Ford of negligence as it allowed its
[LOWER COURT’S RULING] (1977 check) own employee, Rivera, to negotiate the checks to his co-conspirators,
TC: rendered a decision in favor of Ford. Ordered Citibank and PCIB instead of delivering them to the payee. They contend that Ford should
to solidarily pay Ford the amount of the check. have performed more diligence as such transactions contains
Respondents petitioned for review on certiorari with CA. enormous amount of money. They say that Ford is the proximate
CA: affirms the decisions with modification. Absolved Citibank from cause of the damage as they fail to check their own employees.
any liability, only ordered PCIB to pay Ford. PCIB moved to reconsider
but was denied. Hence this petition. Ford avers that there was no evidence presented before the TC
showing lack of diligence. Ford claims that respondents raised the
PCIB sought for reversal of decision in the case GR 121413. Ford filed issue of negligence for the first time on appeal. Moreover, Ford adds
a counter move, seeking to reinstate the decision by the TC in toto that Rivera was not authorized to make any representation in its
which found PCIB and Citibank solidarily liable for the loss in the case behalf.
of GR 121479.
SC said that Ford‘s negligence is not the proximate cause of the loss.
[FACTS]1978 and 1979 checks: (GR 128604) Proximate cause is that which, in the natural and continuous
The same syndicate embezzled the subject checks. Kayatachuya. sequence, unbroken by any efficient, intervening cause produces the
injury, and without which the result would not have occurred. Since,
Ford drew and issued 2 Citibank checks on 1978 in the amount of alone, they could not have done the embezzlement, then, Ford‘s
P5,851,706.37 and on 1979 in the amount of P6,311591.73 payable to negligence is not the proximate cause.
CIR. BIR Revenue Tax Receipt was issued for both. Similarly, both
checks were crossed checks with written words ―payable to the PCIB: PCIB failed to verify the authority of Mr. Rivera to negotiate the
payee‘s account only.‖ checks. Thus, it showed lack of care and prudence required in the
circumstances. (Diba Rivera asked PCIB to convert them to manager’s
Checks never reached the payee. Then again, CIR asked for checks.) As agent of BIR, PCIB is duty bound to consult its principal
payments from Ford. BIR considered the revenue tax receipts as fake regarding the unwarranted instructions given by the payor or its agent.
and spurious. These fakeness of these receipts were confirmed by NBI
and as a result Ford is again forced to pay BIR anew. Citibank argues that PCIB‘s clearing stamp appearing at the back
stating that ―all prior indorsements and/or lack of indorsements
Ford again filed a case for recovery against Citibank and PCIB. So guaranteed," should render PCIB liable as it made it pass through the
during trial, the RTC found out the modus operandi of the syndicate: clearing house and therefore Citibank had no other option but to pay it.
brief summary rani sailang modus. Thus, Citibank avers that PCIB is the proximate cause of Ford‘s injury.
So Rivera, as general ledger accountant of Ford, prepares the checks.
However, instead of delivering the check to the payee, he passed the Sc said, the crossing of the check with the phrase "Payee's Account
check to Castro (PCIB San Andres branch manager) and Dulay (PCIB Only," is a warning that the check should be deposited only in the
Meralco branch assistant manager), they coursed the check to a account of the CIR. Thus, it is the duty of PCIBank to ascertain that the
fictitious account of ‗Reynaldo Reyes.‘ This is done by depositing a check be deposited in payee's account only. Therefore, it is the
worthless Bank of America check in exactly the same amount of the collecting bank (PCIBank) which is bound to scrutinize the check and
Ford checks and tampering them so that the worthless checls are to know its depositors before it could make the clearing indorsement
replaced by the Ford checks. From that account, Castro drew checks "all prior indorsements and/or lack of indorsement guaranteed".
distributing the shares to the 8 conspirators. Naa pay mga syndicate
nawalana implead. Thus, one who encashed a check which had been forged or diverted,
is guilty of negligence which proximately contributed to the success of
Okay so remember, the syndicate is within all these companies. So if the fraud.As a general rule, a banking corporation is liable for the
you’re wondering, ―ngano weird girecal lsa Ford ang Check? Ford’s wrongful or tortuous acts and declarations of its officers or agents
accountant and assistant niya kay syndicate.; ngano Maclear man ang within the course and scope of their employment. A bank will be held
checks sa PCIB? Managers sa PCIB kay syndicate.; ngano niissue liable for the negligence of its officers or agents when acting within the
man ug receipt si BIR nawala man sila kadawat sa proceeds sa course and scope of their employment.
check? BIR collection agent kay syndicate. Amazing diba?
Having established that the collecting bank‘s negligence is the
[LOWER COURT’S RULING] (1978 and 1979 checks) proximate cause of the loss, we conclude that PCIB is liable since it
RTC: rendered a decision in favor of Ford. Held that only Citibank is was Castro and Dulay, managers of PCIB helped open the account of
liable. Both Ford and Citibank appealed to the CA. Reyes, a fictitious person, deposited a worthless Bank of America
CA: Affirms the decision in toto. Hence ,this petition. Check in the same amount of the Ford checks, and tampered with the
checks and succeeded in replacing the worthless checks and the
Ford prays that both Citibank and PCIB should be liable. encashment of the same.
[ISSUE/S]

24 / 36
Citibank: Evidence shows that Citibank was likewise negligent in the WESTMONT BANK vs. EUGENE ONG
performance of its duties. Citibank failed to establish that its payment | G.R. No. 132560 | January 30, 2002
of Ford‘s checks were made in due course and legally in order.
TOPIC FROM THE SYLLABUS: Forgery and Material Alteration –
Ford cited Sec. 62 of NIL that by accepting the instrument, the
As a general rule, a bank or corporation who has obtained possession
acceptor which is Citibank engages that it will pay according to the
of a check upon an unauthorized or forged indorsement of the payee's
tenor of its acceptance, and that it will pay only to the payee, (the CIR),
signature and who collects the amount of the check from the drawee,
considering the fact that here the check was crossed with annotation
is liable for the proceeds thereof to the payee or other owner,
"Payees Account Only."
notwithstanding that the amount has been paid to the person from
whom the check was obtained.
Thus, Citibank should have scrutinized the check before paying the
amount of the proceeds thereof to the BIR. In the clearing stamps by
the PCIB, said stamps does not bear any initials. Citibank failed to FACTS:
Respondent Eugene Ong maintained a current account with petitioner,
notice and verify the absence of the clearing stamps. If these was
formerly the Associated Banking Corporation, but now known as
examined, the switching of the worthless checks would have been
discovered in time. Westmont Bank. Sometime in May 1976, he sold certain shares of
stocks through Island Securities Corporation. To pay respondent Ong,
The fact that the drawee bank did not discover the irregularity Island Securities purchased two (2) Pacific Banking Corporation
manager's checks, both dated May 4, 1976, issued in the name of
seasonably, in our view, constitutes negligence in carrying out the
Eugene Ong as payee.
bank's duty to its depositors. The point is that as a business affected
with public interest and because of the nature of its functions, the bank
However, before Ong could get hold of the checks, his friend Faciano
is under obligation to treat the accounts of its depositors with
Tanlimco got hold of them, forged Ong's signature and deposited these
meticulous care, always having in mind the fiduciary nature of their
relationship. with petitioner, where Tanlimco was also a depositor. Even though
Ong's specimen signature was on file, petitioner accepted and credited
both checks to the account of Tanlimco, without verifying the
Ford, PCIB and Citibank liability: Thus, invoking the doctrine of
comparative negligence, we are of the view that both PCIBank and 'signature indorsements' appearing at the back thereof. Tanlimco
then immediately withdrew the money and absconded.
Citibank failed in their respective obligations and both were negligent in
the selection and supervision of their employees resulting in the
Instead of going straight to the bank to stop or question the payment,
encashment of Citibank Check Nos. SN 10597 and 16508. Thus, we
Ong first sought the help of Tanlimco's family to recover the amount.
are constrained to hold them equally liable for the loss of the proceeds
of said checks issued by Ford in favor of the CIR. Later, he reported the incident to the Central Bank, which like the first
effort, unfortunately proved futile.
However, Ford is not completely blameless in its failure to detect the
fraud. Failure on the part of the depositor to examine its passbook, It was only on October 7, 1977, about five (5) months from discovery of
the fraud, did Ong cry foul and demanded in his complaint that
statements of account, and cancelled checks and to give notice within
petitioner pay the value of the two checks from the bank on whose
a reasonable time (or as required by statute) of any discrepancy which
it may in the exercise of due care and diligence find therein, serves to gross negligence he imputed his loss. In his suit, he insisted that he did
not "deliver, negotiate, endorse or transfer to any person or entity" the
mitigate the banks' liability by reducing the award of interest from
twelve percent (12%) to six percent (6%) per annum. subject checks issued to him and asserted that the signatures on the
back were spurious.
Issue on prescription: (not related)
PCIB claims that the act took place on 1977 but relief was sought in The bank did not present evidence to the contrary, but simply
contended that since plaintiff Ong claimed to have never received the
1983 (7 years later).
originals of the two (2) checks in question from Island Securities, much
Under Statute of Limitations: begins to run when the bank gives the
depositor notice of the payment, which is when the check is returned to less to have authorized Tanlimco to receive the same, he never
acquired ownership of these checks. Thus, he had no legal personality
the alleged drawer as a voucher with a statement of his account.
Under the law: action upon a written contract must be brought within to sue as he isnot a real party-in-interest. The bank then filed a
10 years from the time of the right of action accrues. demurrer to evidence which was denied.
In the case: Action accrues on Dec. 19, 1977. Complaint filed on Jan. LOWER COURTS’ RULING
RTC – ruled in favor of Ong and ordered Westmont Bank to pay him
20, 1983, (6 years had lapsed). Thus, it was seasonably filed.
the amount of the manager‘s checks with legal interest plus moral and
[FALLO] exemplary damages.
CA – affirmed RTC‘s decision
Assailed decision is affirmed. PCIB and Citibank must share the loss
on a 50/50 ratio, and each bank is ordered to pay Ford with 6% interest
thereon. Petitioner’s Contention:
 Since respondent admitted that he was never in actual or
physical possession of the two (2) checks of the Island
Securities nor did he authorize Tanlimco or any of the latter's
representative to demand, accept and receive the same,
petitioner arguesthat respondent cannot sue petitioner
because under Section 51 of the Negotiable Instruments
Law, it is only when a person becomes a holder of a
negotiable instrument can he sue in his own name.
 It is petitioner's position that for all intents and purposes,
Island Securities has not yet tendered payment to
respondent Ong, thus, any action by Ong should be directed
towards collecting the amount from Island Securities.

25 / 36
 Petitioner claims that since there was no delivery yet and O.

respondent has never acquired possession of the checks, MATERIAL ALTERATION
respondent's remedy is with the drawer (Island Securities)
and not with petitioner bank. Sec. 124. Alteration of instrument; effect of. - Where a negotiable
instrument is materially altered without the assent of all parties liable
ISSUE: WON petitioner, as the collecting bank, grossly erred in thereon, it is avoided, except as against a party who has himself made,
making payment by virtue of said forged signature. authorized, or assented to the alteration and subsequent indorsers. But
when an instrument has been materially altered and is in the hands of
HELD: Yes. Under Section 23 of the Negotiable Instruments Law: a holder in due course not a party to the alteration, he may enforce
payment thereof according to its original tenor.
―When a signature is forged or made without the authority of the
person whose signature it purports to be, it is wholly inoperative, and
no right to retain the instrument, or to give a discharge therefor, or to Sec. 125. What constitutes a material alteration. - Any alteration which
enforce payment thereof against any party thereto, can be acquired changes: a. The date; b. The sum payable, either for principal or
through or under such signature, unless the party against whom it is interest; c. The time or place of payment; d. The number or the
sought to enforce such right is precluded from setting up the forgery or relations of the parties; e. The medium or currency in which payment is
want of authority.‖ to be made; f. Or which adds a place of payment where no place of
payment is specified, or any other change or addition which alters the
Since the signature of the payee, in the case at bar, was forged to effect of the instrument in any respect, is a material alteration
make it appear that he had made an endorsement in favor of the
forger, such signature should be deemed as inoperative and
ineffectual. Petitioner, as the collecting bank, grossly erred in making What is a material alteration?
payment by virtue of said forged signature. The payee, herein Material alteration is defined to be any change in the instrument which
respondent, should therefore be allowed to recover from the collecting affects or changes the liability of the parties in any way, as specified in
Sec. 125 or changes the contract of the parties in any respect.
bank.
Any change, addition, substitution or erasure which alters the effect of
The collecting bank is liable to the payee and must bear the loss the instrument is a material alteration.
because it is its legal duty to ascertain that the payee's endorsement
was genuine before cashing the check. As a general rule, a bank or In material alteration, it presupposes that the instrument is complete,
corporation who has obtained possession of a check upon an as opposed to Section 14 of the NIL wherein the instrument is
unauthorized or forged indorsement of the payee's signature and who presumed to be lacking or incomplete.
collects the amount of the check from the drawee, is liable for the
proceeds thereof to the payee or other owner, notwithstanding that the The effect of a material alteration by the holder is to discharge the
amount has been paid to the person from whom the check was instrument and all prior parties thereto who did not give their consent to
obtained. such alteration.
What are the liabilities of parties in material alteration?

The theory of the rule is that the possession of the check on the forged
John issued a promissory note in the amount of Php5,000.00 payable
or unauthorized indorsement is wrongful, and when the money had
to the order of Anthony, the payee. Anthony negotiated to Mario who
been collected on the check, the bank or other person or corporation convinced Anthony that he be allowed to change the amount to
can be held as for moneys had and received, and the proceeds are Php15,000.00 so he can pay his debt to Janet. Thereafter, Mario
held for the rightful owners who may recover them. The position of the negotiated to Janet, Janet to Charie, the holder.
bank taking the check on the forged or unauthorized indorsement is
the same as if it had taken the check and collected the money without Can the holder go against Janet?
indorsement at all and the act of the bank amounts to conversion of the Yes, because Janet is a subsequent indorser. As such, Janet warrants
check. that the instrument is what it purports to be and that it is valid and
subsisting. Thus, Janet is estopped from denying the validity of the
(Not sure if this is relevant to the topic of forgery but I noticed it instrument.
was quoted in the book of De Leon…so..)
Petitioner's claim that since there was no delivery yet and respondent Can the holder go against Mario?
Yes, because Mario was the one who altered the instrument; and also
has never acquired possession of the checks, respondent's remedy is
because of his warranties as a general indorser.
with the drawer and not with petitioner bank. Petitioner relies on the
view to the effect that where there is no delivery to the payee and no Can the holder go against Anthony?
title vests in him, he ought not to be allowed to recover on the ground Yes, because Anthony assented to the alteration; and also because of
that he lost nothing because he never became the owner of the check his warranties.
and still retained his claim of debt against the drawer. However,
another view in certain cases holds that even if the absence of Can the holder go against John?
delivery is considered, such consideration is not material. The It depends on whether Charie is a holder in due course or not. If Charie
rationale for this view is that in said cases the plaintiff uses one action is not a holder in due course, the instrument is avoided as to her.
to reach, by a desirable short cut, the person who ought in any event to Hence, Charie cannot go against John. However, if Charie is a holder
be ultimately liable as among the innocent persons involved in the in due course, Charie may enforce the instrument according to its
transaction. In other words, the payee ought to be allowed to recover original tenor. Hence, Charie may go after John but only for
directly from the collecting bank, regardless of whether the check was Php5,000.00, the original tenor of the instrument.
delivered to the payee or not. Considering the circumstances in this
case, in the Court‘s view, petitioner could not escape liability for its
negligent acts.
Thus, petition is DENIED for lack of merit.

26 / 36
P. What does solidary (joint and several) liability mean? This means
RULES OF INTERPRETATION IN CASE OF AMBIGUITY that anyone of the signers may be held liable for the whole amount of
the instrument. (Manifestations: "I, we, or either or us promise to pay."
Sec. 17. Construction where instrument is ambiguous. — Where
How about the phrase, ―We promise to pay‖?
the language of the instrument is ambiguous, or there are omissions
"We promise to pay" signed by two makers imparts only joint liability.
therein, the following rules of construction apply:
In a joint obligation, there are as many debts as there are debtors,
(a) Where the sum payable is expressed in words and also in figures
each debt being considered distinct and separate from each other.
and there is a discrepancy between the two, the sum denoted by the
Thus, if the amount of the instrument is P4,000.00 and there are four
words is the sum payable; but if the words are ambiguous or uncertain,
makers, there are four separate debts. Hence, each is liable only for
reference may be had to the figures to fix the amount;
P1,000.00 to the holder.
(b) Where the instrument provides for the payment of interest, without
specifying the date from which interest is to run, the interest runs from
the date of the instrument, and if the instrument is undated, from the
issue thereof; SPOUSES EVANGELISTA V. MERCATOR FINANCE
(c) Where the instrument is not dated, it will be considered to be dated CORPORATION
as if the time it was issued; I G.R. NO. 148864 I AUGUST 21, 2003
(d) Where there is a conflict between the written and printed provisions
of the instrument, the written provisions prevail;
(e) Where the instrument is so ambiguous that there is doubt whether it FACTS:
is a bill or note, the holder may treat it as either at his election;
Petitioners filed a complaint for annulment of titles against
(f) Where a signature is so placed upon the instrument that it is not
respondents, Mercator Finance Corporation, Lydia P. Salazar, Lamecs
clear in what capacity the person making the same intended to sign, he
is to be deemed an indorser; Realty and Development Corporation, and the Register of Deeds of
(g) Where an instrument containing the words "I promise to pay" is Bulacan. Petitioners claimed being the registered owners of five (5)
signed by two or more persons, they are deemed to be jointly and parcels of land2 contained in the Real Estate Mortgageexecuted by
severally liable thereon. them and Embassy Farms, Inc. (Embassy Farms). They alleged that
they executed the Real Estate Mortgage in favor of Mercator only as
officers of Embassy Farms. They did not receive the proceeds of the
Rules of construction in case of ambiguity or omission. loan evidenced by a promissory note, as all of it went to Embassy
Farms. Thus, they contended that the mortgage was without any
1. Sums expressed in words and in figures different. — When there is consideration as to them since they did not personally obtain any loan
a discrepancy between the sum expressed in words and the sum or credit accommodations. There being no principal obligation on
expressed in figures, the former controls. which the mortgage rests, the real estate mortgage is void. With the
void mortgage, they assailed the validity of the foreclosure proceedings
2. Words ambiguous or uncertain. — Words outweigh figures. conducted by Mercator, the sale to it as the highest bidder in the public
However, when the words are ambiguous or uncertain, reference may auction, the issuance of the transfer certificates of title to it, the
be had to the figures to determine the true amount. (If a check bears subsequent sale of the same parcels of land to respondent Salazar,
the figures "P365.00" and the amount written is "three sixty five pesos," and the transfer of the titles to her name, and lastly, the sale and
the marginal figures control.) transfer of the properties to respondent Lamecs.
3. Date when stipulated interest to run not specified. — If the date
Mercator admitted that petitioners were the owners of the subject
when the stipulated interest is to run is not specified, the interest runs
from the date of the instrument or if undated, from the date of parcels of land. It, however, contended that on February 16, 1982,
issue. plaintiffs executed a Mortgage in favor of defendant Mercator Finance
Corporation for and in consideration of certain loans, and/or other
4. Instrument undated. — An undated instrument is considered dated forms of credit accommodations obtained from the Mortgagee. It
as of the date of its issue. contended that since petitioners and Embassy Farms signed the
promissory note6 as co-makers, aside from the Continuing Suretyship
What is meant by issue? It means the first delivery of the instrument Agreement subsequently executed to guarantee the indebtedness of
complete in form, to a person who takes it as holder. The date Embassy Farms, and the succeeding promissory notes8restructuring
appearing in the instrument is deemed prima facie the true date of its the loan, then petitioners are jointly and severally liable with Embassy
issue acceptance, or indorsement. Farms. Due to their failure to pay the obligation, the foreclosure and
subsequent sale of the mortgaged properties are valid.
If the promissory note has no date but it was delivered to the payee on
October 15,2010, then the note will be considered dated as of the
same time. Respondents Salazar and Lamecs asserted that they are
innocent purchasers for value and in good faith, relying on the validity
5. Written and printed provisions in conflict. — In case of conflict of the title of Mercator. Lamecs admitted the prior ownership of
between the written and printed provisions, the former (written) petitioners of the subject parcels of land, but alleged that they are the
prevail. present registered owner. Both respondents likewise assailed the long
silence and inaction by petitioners as it was only after a lapse of almost
6. Whether instrument bill or note in doubt. — In case of doubt as ten (10) years from the foreclosure of the property and the subsequent
to whether an instrument is a bill or note, the holder may treat either sales that they made their claim. Thus, Salazar and Lamecs averred
at his election. that petitioners are in estoppel and guilty of laches.
7. Capacity in which person signed in doubt.—In case of doubt as After pre-trial, Mercator moved for summary judgment on the
to what capacity the person making the instrument intended to sign, he
ground that except as to the amount of damages, there is no factual
is to be deemed an indorser.
issue to be litigated. Mercator argued that petitioners had admitted in
8. Instrument signed by two or more persons. — An instrument with their pre-trial brief the existence of the promissory note, the continuing
the words "I promise to pay" signed by two or more persons gives suretyship agreement and the subsequent promissory notes
rise to solidary liability. restructuring the loan, hence, there is no genuine issue regarding their
liability. The mortgage, foreclosure proceedings and the subsequent
sales are valid and the complaint must be dismissed.

27 / 36
IV.
LOWER COURT’S RULING: CONSIDERATION
RTC- granted the motion for summary judgment and dismissed the
complaint A.
DEFINITION OF CONSIDERATION
CA- upheld RTC‘s decision. It is crystal clear then that the plaintiffs-
spouses signed the promissory note not only as officers of Embassy Sec. 24. Presumption of consideration. — Every negotiable instrument
Farms, Inc. but in their personal capacity as well therefore, they have is deemed prima facie to have been issued for a valuable
dual capacity as solidary debtor(s) with Embassy Farms, Inc. to pay consideration; and every person whose signature appears thereon to
defendant Mercator Finance Corporation the amount of indebtedness. have become a party thereto for value.
ISSUE: Whether or not the plaintiffs are jointly and severally liable with Meaning of Consideration
Embassy Farms for the payment of the loans. It means an inducement to a contract, that is, the cause, price or
impelling influence which induces a contracting party to enter into a
HELD: contract.
YES. It was provided in the promissory note which contained the
signatures of the plaintiffs together with the Embassy Farm. Petitioners It is the essential or more proximate purpose a party has in view at the
further allege that there is an ambiguity in the wording of the time of entering into the contract.
promissory note and claim that since it was Mercator who provided the
Is it synonymous with motive?
form, then the ambiguity should be resolved against it.Courts can
No, it is different from motive which is the personal or private reasons
interpret a contract only if there is doubt in its letter.But, an of a party in entering into a contract.
examination of the promissory note shows no such ambiguity.
B.
Petitioners also insist that the promissory note does not convey PRESUMPTION OF CONSIDERATION
their true intent in executing the document. The defense is unavailing.
Even if petitioners intended to sign the note merely as officers of Should consideration be expressly stated in the instrument?
Embassy Farms, still this does not erase the fact that they No, the presumption is that the instrument has been issued for a
subsequently executed a continuing suretyship agreement. A surety is valuable consideration and that every person whose signature appears
one who is solidarily liable with the principal. thereon has become a party thereto for value, whether the words
"value received" appear in it or not.
RATIO:
The agreement was signed by petitioners and the promissory notes Consideration being presumed, it need not be alleged and proved, but
subsequently executed by petitioners and Embassy Farms, the presumption is only prima facie. It may, therefore, be rebutted by
restructuring their loan, likewise prove that petitioners are solidarily evidence to the contrary (Pineda vs. De La Rama).
liable with Embassy Farms.
PINEDA V. DELA RAMA
| G.R. No. L-31831 | APRIL 28, 1983
PHILIPPINE NATIONAL BANK vs.
CONCEPCION MINING COMPANY, INC., ET AL.,
G.R. No. L-16968 July 31, 1962
PRESUMPTION OF CONSIDERATION: The presumption that a
negotiable instrument is issued for a valuable consideration is
[FACTS]
The present action was instituted by PNB to recover from Concepcion only prima facie. It can be rebutted by proof to the contrary.
Mining the face of a promissory note. Concepcion Mining alleged that
the co-maker the promissory note Don Vicente L. Legarda died on [FACTS]
February 24, 1946 and his estate is in the process of judicial Pineda was alleged to have misappropriated 11,000 cavans of palay
determination. On the basis of this allegation it is prayed, as a special owned by National Rice and Corn Administration (NARIC) which was
defense, that the estate of said deceased Vicente L. Legarda be deposited at his ricemill in Tarlac. Thus, Dela Rama‘s (a lawyer)
included as party-defendant. services were retained by Pineda for the purpose of making
representations with the chairman and general manager of NARIC to
CFI ruled the inclusion of said defendant is unnecessary and delay or stop the institution of criminal charges against Pineda.
immaterial.
Dela Rama instituted a civil case for collection against Pineda claiming
[ISSUES]
WON the failure to include the co-maker as a party is fatal to the action that Pineda borrowed P9,300 from him evidenced by a matured
promissory note. Dela Rama said that he loaned the P9,300 in 2
[HELD] No. Section 17 (g) of the Negotiable Instruments Law provides installments. 1st loan for P5k and 2ndloand for P4,300.
as follows:
Pineda avers that he signed the promissory note only because Dela
SEC. 17.Construction where instrument is ambiguous. — Where the Rama had told him that this amount had already been advanced to
language of the instrument is ambiguous or there are omissions grease the palms of the Chairman and General Manager of NARIC in
therein, the following rules of construction apply: order to save Pineda from prosecution.
(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 [LOWER COURT’S RULING]
severally liable thereon. CIF: decided in favor of Pineda. Pineda has established that Dela
Rama made him believe that he was giving money to the authorities of
In view of the above quoted provisions, and as the promissory note
NARIC to grease their palms but upon inquiry found out that none of
was executed jointly and severally by the same parties, namely,
Concepcion Mining Company, Inc. and Vicente L. Legarda and Jose S. the authorities has received that amount. Since it was not received by
Sarte, the payee of the promissory note had the right to hold any one the authorities, it clearly follows that the amount involved was
or any two of the signers of the promissory note responsible for the imaginary. The purpose of which was intended to be illegal.
payment of the amount of the note. This judgment of the lower court
should be affirmed.

28 / 36
Pineda thought nanangutangsiyaniDela Rama para ibribesa NARIC. the checks in the name of Travel On so that its General Manager, Elita
Pero, wala man diaygihatagniDelaRamasa NARIC ang money so Montilla, can show to Travel On‘s BOD that the receivables were still
anasi Pineda namura rag walakonagutang kay wala man good.
siyanipagawasugkwarta. Dela Rama nuonavers Sec. 24 sa NIL,
presumed ang consideration, bayarikosaimogiutang. Lower Court: Ordered Travel-On to pay Miranda. The latter‘s
indebtedness to petitioner was not satisfactorily established and that
CA: reversed the decision of CIF. CA said that Pineda, being a person the postdated checks were issued not for the purpose of encashment
of average intelligence, astute in business, and wise would not sign to pay his indebtedness but to accommodate the General Manager of
any document or paper unless he was fully aware of the importance Travel-On.
thereof. Sec. 24 of NIL provides that every negotiable instrument is
deemed prima facie to have been issued for a valuable consideration CA: Affirmed.
Before the SC, it is urged that the postdated checks are per se
and every person whose signature appear on the instrument become a
party thereto. Hence, this petition. evidence of liability on the part of private respondent. Petitioner further
argues that even assuming that the checks were for accommodation,
private respondent is still liable thereunder considering that petitioner is
[ISSUE/S]
WON the promissory note has been issued for a valuable a holder for value.
consideration.
ISSUE: W/N the checks represent Miranda’s indebtedness.
[HELD]
HELD: Yes. CA’s decision reversed.
NO! The presumption that a negotiable instrument is issued for a
valuable consideration is only prima facie. It can be rebutted by proof
to the contrary. The terms of the note was for gifts for NARIC officials. The appellate court erred in considering only the statements of account
in determining whether private respondent was indebted to petitioner
Thus, the note was executed for an illegal consideration.
under the checks. By doing so, it failed to give due importance to the
Art. 1409. The following contracts are inexistent and void from the most telling piece of evidence of private respondent's indebtedness —
the checks themselves which he had issued. This Court finds that the
beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, checks are the all important evidence of petitioner's case; that these
good customs, public order and public policy; checks clearly established private respondent's indebtedness to
xxx xxxxxx petitioner; that private respondent was liable thereunder.
Art. 1412. If the act in which the unlawful or forbidden cause consists
It is important to stress that a check which is regular on its face is
does not constitute a criminal offense, the following rules shall be
observed: deemed prima facie to have been issued for a valuable consideration
(1) When the fault is on the part of both contracting parties, neither and every person whose signature appears thereon is deemed to have
become a party thereto for value. Thus, the mere introduction of the
may recover what he has given by virtue of the contract, or demand
the performance of the other's undertaking. instrument sued on in evidence prima facie entitles the plaintiff to
recovery. Further, the rule is quite settled that a negotiable
instrument is presumed to have been given or indorsed for a
WON the cash advances reached the NARIC officials is of no moment.
The consideration is contrary to law and policy thus, they are void ab sufficient consideration unless otherwise contradicted and
initio and no cause of action for the collection cases can arise from it. overcome by other competent evidence.
Case is dismissed.
Who has the burden of proof to prove that the checks were
without sufficient consideration?
TRAVEL-ON VS CA It was Miranda, not petitioner. The Court of Appeals, contrary to these
G.R. No. 56169. June 26, 1992
established rules, placed the burden of proving the existence of
valuable consideration upon petitioner. This cannot be countenanced;
It is important to stress that a check which is regular on its face is
deemed prima facie to have been issued for a valuable consideration it was up to private respondent to show that he had indeed issued the
and every person whose signature appears thereon is deemed to have checks without sufficient consideration. The Court considers that
become a party thereto for value. private respondent was unable to rebut satisfactorily this legal
xxx presumption.
A negotiable instrument is presumed to have been given or indorsed
for a sufficient consideration unless otherwise contradicted and Was Travel-on an Accomodated Party?
overcome by other competent evidence. No. In accommodation transactions recognized by the NIL, an
accommodating party lends his credit to the accommodated party, by
FACTS: Petitioner Travel-On, Inc. ("Travel-On") is a travel agency issuing or indorsing a check which is held by a payee or indorsee as a
selling airline tickets on commission basis for and in behalf of different holder in due course, who gave full value therefor to the
airline companies. Private respondent Arturo S. Miranda had a accommodated party. But the accommodating party is bound on the
revolving credit line with petitioner. He procured tickets from petitioner check to the holder in due course who is necessarily a third party and
on behalf of airline passengers and derived commissions therefrom. is not the accommodated party. Having issued or indorsed the check,
the accommodating party has warranted to the holder in due course
On June 14, 192, Travel-On filed a suit before CFI Manila to collect 6 that he will pay the same according to its tenor. Travel-On was payee
checks issued by Miranda with a face value of P115,000.00. The of all six (6) checks; it presented these checks for payment at the
complaint prayed for the issuance of a writ of preliminary attachment drawee bank but the checks bounced. Travel-On obviously was
and attorney‘s fees. Miranda apparently issued the 6 postdated checks not an accommodated party; it realized no value on the checks
in payment of purchase of several airline tickets, but when Travel On which bounced.
encashed the said checks, all were dishonored by the drawee banks.
Conclusion: Thus, we believe and so hold that private respondent
Miranda however claimed that he had already fully paid and even
must be held liable on the six (6) checks here involved. Those checks
overpaid his obligations and that refunds were in fact due to him. He
in themselves constituted evidence of indebtedness of private
argued that he had issued the postdated checks for purposes of
respondent, evidence not successfully overturned or rebutted by
accommodation, as he had in the past accorded similar favors to
private respondent.
petitioner. Supporting his theory, Miranda testified that he had issued

29 / 36
C. D.
DEFINITION OF A VALUABLE CONSIDERATION ABSENCE, LACK, OR FAILURE OF CONSIDERATION
Value Sec. 28. Effect of want of consideration. — Absence or failure of

Sec. 25. Value, what constitutes. — Value Is any consideration consideration is a matter of defense as against any person not a holder
sufficient to support a simple contract. An antecedent or pre-existing in due course; and partial failure of consideration is a defense pro
debt constitutes value; and is deemed such whether the instrument is tanto, whether the failure is an ascertained and liquidated amount or
payable on demand or at a future time. otherwise.
(1) Value means valuable consideration. What is the effect of absence of consideration?
Absence of consideration means a total lack of any valid consideration
(2) Valuable consideration may "in general terms be said to consist for the contract, in consequence of which the alleged contract must fall.
either in some right, interest, profit or benefit accruing to the party who
makes the contract, or some forbearance, detriment, loss, M makes a promissory note to P in payment for a parcel of land
responsibility, act, labor or service, on the other side. And if any of which does not exist. What is the effect?
these exists, it will furnish a sufficient consideration to sustain the As between the parties, there can be no recovery on the note as there
making or indorsing of a promissory note in favor of the payee or is absence of consideration. But if P indorses the note to A, a holder in
other holder." due course, A can recover from M because absence of consideration
is only a personal defense not available against a holder in due course.
(3) Simply defined, consideration means any prestation sufficient to
support any contract in favor of the party to an instrument, such as the Failure of Consideration
maker or indorser, and it may consist in giving, doing, or not doing. It means the failure or refusal of one of the parties to do, perform or
comply with the consideration agreed upon. In other words, something
How about love, is it a consideration? was agreed upon as consideration but for some cause, such agreed
No, a consideration, founded on mere love, affection, or gratitude is consideration failed to materialize.
not sufficient to sustain an action on a note or bill, as for example,
when an instrument is made or accepted by a parent in favor of a child, Absence vs Failure of consideration
the same cannot be enforced as between the original parties. Failure is mere refusal of an existing consideration.
But under Sec 28, since the wording used is ABSENCE OR FAILURE,
ADEQUACY OF THE CONSIDERATION a consideration is a matter of defense as against.
A valuable consideration need not be adequate. It is sufficient if it is a
valuable one. Can a HDC demand payment based on Sec 28? YES.
But if you are NOT a HDC- you cannot demand based on Sec 28.
Example: P sells to M a piano worth P9,000. M issues to a promissory
note for P10,000, there is a valuable consideration for the note, which DEFENSE PRO TANTO (Partial)
is the piano.
In the example given, if there is really a land owned by P which was
Can M allege as a defense the inadequacy of consideration? sold, but P failed to deliver it to M because he sold it again to X who in
No, the law presumes M is capable of managing his affairs, and the good faith registered the sale, there is a failure of consideration so that
mere indadequacy of the consideration is not a sufficient ground for P cannot recover from M.
relief unless there‘s (FUM) fraud, undue influence, or mistake.
If only 2/3 portion of the land was delivered, there would be a partial
Can a debt be a valuable consideration? failure of consideration which would bar recovery Only pro tanto.
Yes, may it be an antecedent or pre-existing debt. It may even be from Hence, P could recover only 2/3 of the note as M is not liable to the
a debt of a third person; or even such instrument is payable on extent of 1/3 which is the price of the undelivered portion.
demand, or at a future time.
HDC can collect
What is the requirement for a debt to be a valuable consideration? Not HDC, can only collect equivalent.
It must be shown however, that the creditor or holder of the debt has
given up the preexisting debt or the right to sue. If not HDC cannot collect if absence of consideration is raised.
Benefit of treating a debt as consideration HDC: collect partial

The transfer of negotiable instruments not only as security for new NHDC: equivalent amount or the amount actually delivered.
purchases and advances, made upon the transfer thereof but also as
security for antecedent debts has become very common in the PNB V. BARTOLOME PICORNELL
commercial world. Such transactions contribute largely to the benefit G.R. No. L-18915 September 26, 1922
and convenience both of debtors and creditors. The creditor is thereby
enabled to realize or to secure his debt, and thus may safely give a Absence, Lack or Failure of Consideration
prolonged credit, or forbear from taking any legal steps to enforce his
The drawee, by accepting unconditionally the bill, becomes liable to
rights. The debtor has also the advantage of making his negotiable
the holder, and cannot allege want to consideration between him and
paper of equivalent value to cash.
the drawer. The holder is a stranger as regards the transaction
Illustrations: between the drawer and the drawee, and if he has given value to the
I owe You P1,000 payable today. However, I failed to pay in cash. I drawer and has no knowledge of any equity between the drawer and
then issue a check for P1,000 to You. You accepts the check. Here, the drawee, he is in the same situation as an indorsee in good faith.
the consideration of the check is my preexisting debt to You.
FACTS:
Consequently, if my friend, RJ is the debtor in the preceding situation, Bartolome Picornell, following instruction Hyndman, Tavera & Ventura,
and RJ fails to pay You, then the note I issued in favor of You for the bought in Cebu 1,735 bales of tobacco; that Picornell obtained from
benefit of RJ rests on a sufficient consideration, the pre existing debt of the branch of the National Bank in Cebu the sum of P39,529,83, the
RJ.
value of the tobacco, together with his commission. This instrument
was delivered to the branch of the National Bank in Cebu, together
with the invoice and bill of lading of the tobacco, which was shipped in
the boat Don Ildefonso, on February 27, 1920, consigned to Hyndman,

30 / 36
Tavera & Ventura at Manila. The invoice and bill of lading were RATIO:
delivered to the National Bank with the understanding that the bank The drawer of the bill by drawing it warrants that it will be accepted on
should not deliver them to Hyndman, Tavera & Ventura except upon due presentment and paid in due course; hence if it is not paid, he
payment of the bill; which condition was expressed by the well-known become liable for the payment of its value to the holder. The fact that
formula "D/P" (documents for [against] payment).The central office of the drawer was a commission agent of the drawee in the purchase of
the National bank in Manila received the bill and the aforesaid the merchandise covered by the bill does not necessarily make him an
documents annexed thereto. agent of the drawee in his obligations emanating from the bill drawn by
him.
The tobacco having arrived at Manila, the firm of Tambunting, owner of
the ship Don Ildefonso, that brought the shipment, requested General Rule: Absence of consideration means a total lack of any
Hyndman, Tavera & Ventura to send for the goods, which was done by valid consideration for the contract, in consequence of which the
the company without the knowledge of the National Bank which alleged contract must fall. (Sec 28)
retained and always had in its possession the invoice and bill of lading
of the tobacco, until it presented them as evidence at the trial. Exception: Sec. 29, absence of consideration is not a defense. This
means that absence of consideration between the accommodation
party and the accommodated party does not of itself constitute a valid
Joaquin Pardo de Tavera alleged that the bill in question was without
defense against a holder for value even though he knew of it when he
consideration and that judgment should not have been rendered became a holder.
against him. The appellant Picornell contended that it should have
been taken into account that he merely acted as an agent of Hyndman,
Tavera & Ventura in all these transactions; that the tobacco was not of
E. HOLDER FOR VALUE
inferior quality, as alleged by the said company; that the condition
"D/P" attached to the transaction was not modified; that he had the
Sec. 26. What constitutes holder for value. — Where value has at
right to complain because the bank consented to the said company
any time been given for the instrument, the holder is deemed a holder
taking possession of the tobacco before the payment of the bill; that
for value in respect to all parties who become such prior to that time.
the bank held the tobacco as a deposit; that the bank was not
authorized to sell the tobacco, said sale not being allowed either by law
Who is a holder for value? He is one who has given a valuable
or by the circumstances; that he should not have been ordered to pay consideration for the instrument issued or negotiated to him.
the value of the bill without proof that he was notified of its dishonor, as
required by section 89 of the Negotiable Instruments Law. What is the extent of being a holder?
The holder is deemed as such not only as regards the party to whom
The sum of P6,708.82, which the trial court ordered deducted from the value has been given by him but also in respect to all those who
value of the bill of exchange, is the proceeds received by the bank became parties prior to the time when value was given.
from the sale of a part of a certain quantity of tobacco shipped by
Picornell at Cebu to the Hyndman, Tavera & Ventura company at Illustrations:
Manila, the price of which, together with his commission, was received
by him from the branch of the plaintiff bank in Cebu, and in M P (without consideration)
consideration whereof he drew the bill in favor of the central office of P A (without consideration)
said bank in Manila and against the said Hyndman, Tavera & Ventura A B (with consideration)
company, the consignee of the tobacco.The P28,790.72, which the
defendants are sentenced to pay solidarily to the plaintiff bank, Is B considered a holder in due course (HDC) to A, M, and P?
constitutes the value of the tobacco at the date when the bill fell due, Yes. Under Sec 26 he is.
as appraised for the purpose.
M issues a note to P, the payee, without consideration. P, also without
LOWER COURT’S RULING: consideration, indorses it to A, who with value, indorses it to B.
CFI Manila- sentenced the defendants to pay solidarily to the plaintiff
Under Sec 26, B is considered a holder for value not only as regards A
bank the sum of P28, 790.72 with interest at the rte of 9 per centum
but also as regards M and P.
per annum from May 3, 1921, and costs; and the defendant Bartolome
Picornell, to pay said plaintiff the sum of P10,739.11 with interest at 9 If B is a holder in due course, he may enforce payment for the full
per cent per annum, all as aforesaid, deducting the sum of P6, 708.82 amount of the note against M, P and A.
from such amounts to be paid by the defendants.
If B is not a holder in due course, M can set up the defense of absence
ISSUE: Whether Hyndman, Tavera & Ventura company can escape of consideration.
liability due to want of full consideration.
Bank deposits are governed by the provisions on simple loan. As
HELD: creditor, the depositor does not expect to receive the identical money
The bank was a holder in due course, and was such for value full and in return but an equivalent sum. (see Art. 1953, ibid.) His money
complete. The Hyndman, Tavera & Ventura company cannot escape becomes the money of the bank and is mingled with the other money,
liability in view of section 28 of the Negotiable Instruments Law. the entire amount forming a single fund from which all deposits are
paid.
The drawee by acceptance becomes liable to the payee or his
Where a holder has lien on instrument
indorsee, and also to the drawer himself. But the drawer and acceptor
Sec. 27. When lien on instrument constitutes holder for value. —
are the immediate parties to the consideration, and if the acceptance
Where the holder has a lien on the instrument, arising either from
be without consideration, the drawer cannot recover of the acceptor. contract or by implication of law, he is deemed a holder for value to the
The payee holds a different relation; he is a stranger to the transaction extent of his lien.
between the drawer and the acceptor,and is, therefore, in a legal
sense a remote party. In a suit by him against the acceptor, the One who has taken a negotiable instrument as collateral security for a
question as to the consideration between the drawer and the acceptor debt has a lien on the instrument. As such holder of collateral security,
cannot be inquired into. The payee or holder gives value to the drawer, he would be a pledgee but the requirements therefor and the effects
and if he is ignorant of the equities between the drawer and the thereof, not being provided for by the NIL, it shall be governed by the
acceptor, he is in the position of a bona fide indorsee. provisions of the Civil Code on pledge of incorporeal rights.

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Example to the payment of the loan. Petitioner demands the payment of the
M issues note to P for 100k, but P pledged note to A only for 20k. certificates but to no avail.
How much can A collect from M?
A can collect the FULL AMOUTN OF 100k, A holds 20k in trust for P ISSUE:
because he is only a holder for value. A) Whether or not the Certificates of Time Deposit (CTD) are
Negotiable Instruments.
If the amount of the instrument is more than the debt secured by such B) Whether or not the petitioner can rightfully recover the CTDs.
instrument, the pledgee is a holder for value to the extent of his lien.
He can collect the full value of the instrument, and apply the same to HELD:
the payment of the debt but he must deliver the surplus to the pledgor.
A) YES. The documents provide that the amounts deposited shall
If, between the pledgor and the party liable on the instrument, there are be repayable to the depositor. The documents do not say that the
existing defenses, then die pledgee can collect on the instrument only depositor is Angel de la Cruz and that the amounts deposited are
to the extent of the amount of the debt. repayable specifically to him. Rather, the amounts are to be repayable
to the bearer of the documents or, for that matter, whosoever may be
If the amount of the instrument is less than or the same as the debt the bearer at the time of presentment. If it was really the intention of
secured by such instrument, the pledgee is a holder for value for the respondent bank to pay the amount to Angel de la Cruz only, it could
full amount and may, therefore, recover all. have with facility so expressed that fact in clear and categorical terms
in the documents, instead of having the word "BEARER" stamped on
If the defenses of the party liable on the instrument are real defenses, the space provided for the name of the depositor in each CTD.
then the pledgee can recover nothing upon the instrument.
B) NO. The records reveal that Angel de la Cruz, whom petitioner
Example chose not to implead in this suit for reasons of its own, delivered the
M makes a promissory note for P1,000 to the order of P who CTDs amounting to P1,120,000.00 to petitioner without informing
pledges it to A to secure the payment of P's debt of P800.00. The respondent bank thereof at any time. Unfortunately for petitioner,
note is indorsed and delivered by P to A. although the CTDs are bearer instruments, a valid negotiation thereof
for the true purpose and agreement between it and De la Cruz, as
(1) In this case, A is a holder for value to the extent of P800.00 which ultimately ascertained, requires both delivery and indorsement. For,
is also the extent of his lien. On the maturity of the note, even if the although petitioner seeks to deflect this fact, the CTDs were in reality
debt of P800.00 is not yet due, A may recover the full amount of delivered to it as a security for De la Cruz' purchases of its fuel
P1,000.00, holding the surplus for P, the pledgor. products.
(2) If M has defenses against P, indorser, such as absence or failure of

consideration (Sec. 28.), A can collect only P800.00 on the note even if F.
he is a holder in due course. As the note in the hands of M is void, all ACCOMODATION PARTY
that ought to be recovered by A is the amount due on the loan.
(3) Supposing that the amount of the instrument is P700.00 then A is a Sec. 29. Liability of accommodation party. — An accommodation
holder for value for the full amount of P700.00 and is entitled to recover party is one who has signed the instrument as maker, drawer,
to that extent. acceptor, or indorser, without receiving value therefor, and for the
purpose of lending his name to some other person. Such a person is
(4) If the signature of M is a forgery, A can collect nothing from M liable on the instrument to a holder for value, notwithstanding such
because M's signature is inoperative. As against M, A acquired no right holder at the time of taking the instrument knew him to be only an
to enforce payment of the note. (Sec. 23.) Forgery is a real defense accommodation party.
(Sec 57).
What is an accommodation bill or note?
CALTEX V. CA Accommodation bill or note is one to which the accommodation party
12 SCRA 448 has put his name, without consideration, for the purpose of
(From Prelims Reviewer) accommodating some other party who is to use it, and is expected to
pay it. IOW, it is a loan of one‘s credit.
FACTS:
Who is an accommodation party?
Security Bank and Trust Company (Security Bank), a commercial
He is one who has signed the instrument as
banking institution, through its Sucat Branch issued 280 certificates of
1. Maker, drawer, acceptor or indorser
time deposit (CTDs) in favor of one Angel dela Cruz who deposited
2. Without receiving value for the signature and
with herein defendant the aggregate amount of P1,120,000.00. Angel
3. For the purpose of lending his name to some other person.
dela Cruz delivered the said certificates of time deposit (CTDs) to
herein plaintiff, Caltex, in connection with his purchase of fuel products
Who is the accommodated party?
from the latter. After some time, dela Cruz informed Mr. Tiangco, the
Accommodated party is one in whose favor a person, without receiving
Sucat branch manager, that he lost all the certificates of time deposit .
value therefor, signs an instrument for the purpose of lending his credit
Mr. Tiangco avised dela Cruz to execute and submit a notarized
and enabling said party to raise money upon it. (Sec. 29.) He impliedly
Affidavit of Loss. Angel de la Cruz negotiated and obtained a loan from
agrees to take up the instrument at maturity and to indemnify the
defendant bank and executed a notarized Deed of Assignment of Time
accommodation party against the consequences of non-payment.
Deposit.
Example:
Mr. Aranas, Credit Manager of plaintiff Caltex (Phils.) Inc. went to the
P is in immediate need of P30,000.00 but he cannot find anybody to
defendant bank's Sucat branch and presented for verification the CTDs
lend him the sum he needs. No one trusts him because he has no
declared lost by Angel dela Cruz alleging that the same were delivered
credit, and so, he goes to M, a rich relative, who is willing to
to herein plaintiff `as security for purchases made with Caltex
accommodate him by letting him borrow on his (M's) credit. So M signs
Philippines, Inc.' by said depositor. Caltex was requested by Security
a promissory note payable to P, receiving no consideration therefor. P
Bank to furnish the former 'a copy of the document evidencing the
then indorses the note to the PNB (bank) which discounts the note
guarantee agreement with Mr. Angel dela Cruz' as well as 'the details
because of M's credit.
of Mr. Angel dela Cruz' obligations against which' plaintiff proposed to
apply the time deposits. No copy of the requested documents was
Can P enforce the note against M, should P pay PNB? No, because
furnished so Security Bank rejected Caltex demand for payment. The
P gave no consideration to M and he was merely accommodated by M.
loan matured and the time deposits were terminated and then applied

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What is the evidence to prove accommodation? DE LA RAMA VS ADMIRAL UNITED SAVINGS BANK
Parol evidence. [This rule prohibits any party from presenting G.R. No. 154740 April 16, 2008
any evidence that will change, modify or vary an agreement which has
been reduced to writing.] If this were not so, an accommodated party
FACTS
could enforce payment of the instrument against the accommodation
party. Admiral United Savings Bank (ADMIRAL) extended a loan of Five
Hundred Thousand Pesos (P500,000.00) to petitioner Henry Dela
Rama Co (Co), with Leocadio O. Isip (Isip) as co-maker. The loan was
Liability of accommodation party to a holder evidenced by Promissory Note.
1. Absence of consideration is not a defense. Co and Isip failed to pay the loan when it became due and
Absence of consideration between the accommodation party and the demandable. Demands for payment were made by Admiral, but these
accommodated party does not of itself constitute a valid defense were not heeded, thus prompting Admiral to file a collection case
against a holder for value even though he knew of it when he became against them with the QC-RTC. Co answered the complaint alleging
a holder (See Republic vs Ebrada). that the promissory note was a sham, and denied having received any
benefirs from the loan transaction, claiming that it was Admiral who
Example induced him into executing a Promissory Note.
In the preceding example, the fact that M did not receive any
consideration for the note would not be a defense in an action brought Pending resolution of the case, Isip unfortunately died, thus, dropped
against him by PNB. This would still be true even if PNB knew that M's from the complaint. Co then filed a third party complaint against
signature was made for P's accommodation. If M were not to be held Metropolitan Rentals & Sales, Inc. (Metro) and averred that
liable, then the accommodation would not serve any purpose. incorporators and officers of Metro prodded him in obtaining the loan.
Metro denied this allegation.
2. Accomodation party in effect a surety (PBCOM vs Aruego)
however, unlike a suretyship, the liability of an accommodation party RTC: Dismissed on the ground that Metro already paid the loan.
remains not only primary, but also unconditional to a holder for
value. CA: Reversed, found preponderance of evidence to hold Co liable for
the payment of his loan obligation to ADMIRAL.
Rights of Accommodation Party Before the SC, Co has not denied the authenticity and due execution
of the promissory note. He however, asserts that he is not legally
1. Revoke or Rescind by cancellation or by notice to those bound by said document because he merely acted as an
interested accommodation party for Metro Rent. He claimed that he signed the
a. But once negotiated, the AP is liable. note only for the purpose of lending his name to Metro Rent, without
receiving value therefor.
2. Right to Reimbursement from accommodated party
ISSUE: W/N Co should not be liable for being an accommodation
3. Right to contribution from other solidary accommodation
party
maker.
a. This right springs from an implied promise HELD: NO. petition is DENIED
between the accommodation makers to share
equally the burden resulting from the execution of The document, bearing Co's signature speaks for itself. To repeat, Co
the note. They are joint guarantors of the principal
has not questioned the genuineness and due execution of the note. By
debtor.
signing the note, CO acknowledged receipt of the loan and undertook
to pay the same to Admiral. Thus, he cannot validly set up the defense
Meaning of ―without receiving value therefor‖ that he did not receive the value of the note or any consideration
According to the SC, the expression, "without receiving value therefor" therefor.
only means that no value has been received for the negotiable
instrument and not "without receiving payment for lending his name." At any rate, Co's assertion that he merely acted as an accommodation
party for Metro Rent cannot release him from liability under the note.
Thus, if in the same example, M is given P1,000.00 in consideration of
An ACCOMMODATION PARTY who lends his name to enable the
lending his name but not for the promissory note he signs, M does not
accommodated party to obtain credit or raise money is liable on the
lose his status as an accommodation party.
instrument to a holder for value even if he receives no part of the
consideration. He assumes the obligation to the other party and binds
himself to pay the note on its due date. By signing the note, Co thus
Accomodation party and regular party, distinguished
became liable for the debt even if he had no direct personal
Accommodation party Regular Party interest in the obligation or did not receive any benefit therefrom.
He signs an instrument without
He signs the instrument for value. A PROMISSORY NOTE is a solemn acknowledgment of a debt and a
receiving value therefor.
He signs for the purpose of formal commitment to repay it on the date and under the conditions
lending his name to some other He does not sign for that purpose agreed upon by the borrower and the lender. A person who signs such
person an instrument is bound to honor it as a legitimate obligation duly
He may always show by parol He cannot disclaim or limit his assumed by him through the signature he affixes thereto as a token of
evience that he is only an personal liability as appearing on his good faith. If he reneges on his promise without cause, he forfeits
accommodation party the instrument by parol evidence the sympathy and assistance of this Court and deserves instead its
After paying the holder, he may sharp repudiation.
sue for reimbursement the He may not sue any subsequent
accommodated party, although a party for reimbursement. Co is not unfamiliar with commercial transactions. He is a certified
subsequent party. public accountant. Certainly, he fully understood the import and
consequences of what he was doing when he signed the promissory

33 / 36
note. He even mortgaged his own properties to secure payment of the Thus, no novation took place. The parties did not declare that the old
loan. His disclaimer, therefore, does not inspire belief. obligation had been extinguished by the acceptance of the check or
that the check would replace the note. It is also unmeritorious that the
GARCIA V. LLAMAS obligation was novated by the substitution of debtors. Novation is
| G.R. No. 154127 | DECEMBER 8, 2003 never presumed. Petitioner has not shown that he was expressly
released from the obligation, that the 3 rd person was substituted in his
[TOPIC FROM THE SYLLABUS] place, or that the obligation as cancelled and substituted by the solitary
ACCOMODATION PARTY: The relation between an accommodation undertaking of De Jesus. Moreover, the law requires that the creditor
party and the party accommodated is, in effect, one of principal and expressly consent to the substitution of a new debtor. More important,
surety — the accommodation party being the surety. It is a settled rule de Jesus was not a 3rd person to the obligation. They were solidary
that a surety is bound equally and absolutely with the principal and is obligors. Thus, petitioner is liable for the entire obligation.
deemed an original promisor and debtor from the beginning. The
liability is immediate and direct. Issue on defense of accommodation party (related)
Petitioner avers that he is an accommodation party, thus he was
[FACTS] released as obligor when respondent agreed to extend the obligation.
Petitioner and de Jesus borrowed P400,000 from respondent The note:
evidenced by a promissory note wherein they bound themselves jointly
and severally to pay the loan. The loan has long been overdue and "PROMISSORY NOTE
despite repeated demands by respondent, petitioner and de Jesus "P400,000.00
have failed and refused to pay it. Thus, a complaint for sum of money "RECEIVED FROM ATTY. DIONISIO V. LLAMAS, the sum of FOUR
and damags was initiated by Llamas against Garcia and De Jesus. HUNDRED THOUSAND PESOS, Philippine Currency payable on or
before January 23, 1997 at No. 144 K-10 St. Kamias, Quezon City,
Garcia averred that he assumed no liability as he signed it merely as with interest at the rate of 5% per month or fraction thereof. IcAaEH
an accommodation party for de Jesus, and that he is relieved from any "It is understood that our liability under this loan is jointly and severally
liability as such was paid by de Jesus by means of check and that the [sic].
issuance of the check and respondent‘s acceptance novated or "Done at Quezon City, Metro Manila this 23rd day of December, 1996."
superseded the note.
Note was made to a specific person rather than to bearer or to order,
Respondent asserted that the loan remained unpaid for the reason that thus, NIL does not apply, Civil Code does. Even if granting arguendo
the check issued by de Jesus bounced. that NIL was applicable. Petitioner would still be liable: Under Article 29
of Act 2031, an accommodation party is liable for the instrument to a
[LOWER COURT’S RULING] holder for value even if, at the time of its taking, the latter knew the
RTC: ruled in favor of Llamas and ordered Garcia and De Jesus to former to be only an accommodation party. The relation between an
pay, jointly and severally, the respondent 400k for the principal amount accommodation party and the party accommodated is, in effect, one of
plus interest and 100k for attorney‘s fees. principal and surety — the accommodation party being the surety. It is
a settled rule that a surety is bound equally and absolutely with the
CA:treated the case as a summary judgment, because petitioner had principal and is deemed an original promisor and debtor from the
failed to raise a single genuine issue regarding any material fact and beginning. The liability is immediate and direct.
thus,affirmed the decision of RTC but remanded the case as to De
Jesus back to the CA as he was still unable to present his evidence ex Issue on propriety of summary judgment
parte. From the records, it appears that petitioner himself moved to submit
It ruled that no novation had taken place when the check was accepted the case for judgment on the basis of the pleadings or summary
by Llamas. Check was issued precisely to pay for the loan that was judgment. In a written Manifestation, he stated that "judgment on the
covered by the promissory note and such did not serve to make De pleadings may now be rendered without further evidence, considering
Jesus the sole debtor because the obligation was solidary and the the allegations and admissions of the parties."
check bounced.
Petition is denied.
Hence, this petition.
[ISSUE/S]
WON there was novation in the obligation; WON the defense that TOWN SAVING AND LOAN BANK, INC. vs. CA, SPOUSES
petitioner was only an accommodation party had any basis; and MIGUELITO HIPOLITO and ALICIA N. HIPOLITO
WON the judgment on the pleadings or a summary judgment was | G.R. No. 106011 | June 17, 1993
proper.
TOPIC FROM THE SYLLABUS: Accomodation Party –one in whose
[HELD] favor a person, without receiving value therefor, signs an instrument for
Issue on novation the purpose of lending his credit and enabling said party to raise
Petitioner insists that novation took place, due to the substitution of De money upon it.
Jesus as sole debtor or the replacement of the promissory note by the
check and that the obligation was extinguished as De Jesus paid the FACTS:
loan with the check. On or about May 4, 1983, the Hipolitos applied for, and were granted,
a loan in the amount of P700,000.00 with interest of 24% per annum.
For novation to take place, the following requisites must concur: In payment therefore, they executed and delivered to Town Savings
1) There must be a previous valid obligation. and Loan Bank (or TSLB) a promissory note with a maturity period of
2) The parties concerned must agree to a new contract. three (3) years and an acceleration clause upon default in the payment
3) The old contract must be extinguished. of any amortization, plus a penalty of 36% and 10% attorney's fees, if
4) There must be a valid new contract. the note were referred to an attorney for collection.
Eventually, for failure to keep current their monthly payments on the

account, they were deemed to have defaulted on May 24, 1984.

34 / 36
Notices of past due account and demands for payment were sent but It is not credible that a Bank would want so much to lend money to a
ignored. At the time of the institution of the action on March 12, 1986, borrower that it would go out of its way to convince another person
the unpaid obligation amounted to P1,114,983.40. (respondent Miguel Hipolito) to accommodate the borrower (Pilarita H.
Reyes). In the ordinary course of things, the borrower, Pilarita, not the
Bank, would have requested her brother Miguel to accommodate her
so she could have the P1.4 million that she wanted to borrow from the
Respondents’ Contentions: Bank.
 They alleged that loan was for the account of Pilarita H.
Reyes, the sister of Miguel Hipolito. She was the real party- The case of Maulini vs. Serrano relied upon by the appellate court in
in-interest. reversing the decision of the trial court, is not applicable to this case. In
 Not having received any part of the loan, they alleged that that case, the SC ruled that:
they were mere guarantors for Pilarita.
 They allegedly signed the promissory note because they ". . . Where, however, an indorsement is made as a favor to the
were persuaded to do so by Joey Santos, President of indorsee, who requests it, not the better to secure payment, but to
TSLB. relieve himself from a distasteful situation, and where the only
 When they received the demand letters, they confronted him consideration for such indorsement passes from the indorser to the
but they were told that the Bank had to observe the formality indorsee, the situation does not present one creating an
of sending notices and demand letters. The real purpose accommodation indorsement, nor one where there is a consideration
was only to pressure Pilarita to comply with her undertaking. sufficient to sustain an action on the indorsement.‖
LOWER COURTS’ RULING Unlike, the Maulini case, there was no agreement here, written or
RTC – held the respondents (then defendants) spouses Miguel and verbal, that in signing the promissory note, Miguel and Alicia Hipolito
Alicia Hipolito, liable as accommodation parties on the promissory were acting as agents for the money lender, the Bank. The
note. consideration of the note signed by the Hipolitos was received by them
CA – relieved the Hipolitos from any liability and held that the it was through Pilarita. They acted as agents of Pilarita, not of the bank.
TLSB who accomodated Pilarita They signed the promissory note as a favor to Pilarita, to help her raise
the funds that she needed. It was Pilarita whom they
ISSUE: WON the Hipolitos are deemed accomodation parties, thus accommodated, not the bank, contrary to the erroneous finding of
liable on the promissory note which they executed in favor of the the appellate court.
petitioner
Petition is GRANTED. CA Decision is reversed; RTC decision
HELD: Yes. reinstated.
SEC. 29. Liability of accommodation party. – An accommodation party

is one who has signed the instrument as maker, drawer, indorser, ERESTINA CRISOLOGO-JOSE V. CA
without receiving value therefor and for the purpose of lending his I G.R. No. 80599 I September 15, 1989
name to some other person. Such person is liable on the instrument to
a holder for value, notwithstanding such holder, at the time of the Topic From the Syllabus: Accomodation Party
taking of the instrument knew him to be only an accommodation party.
The issue or indorsement of negotiable paper by a corporation without
consideration and for the accommodation of another is ultra vires.
As held in Phil. Bank of Commerce vs. Aruego:
Hence, one who has taken the instrument with knowledge of the
accommodation nature thereof cannot recover against a corporation
―In lending his name to the accommodated party, the accommodation where it is only an accommodation party. If the form of the instrument,
party is in effect a surety for the latter. He lends his name to enable the or the nature of the transaction, is such as to charge the indorsee with
accommodated party to obtain credit or to raise money. He receives no knowledge that the issue or indorsement of the instrument by the
part of the consideration for the instrument but assumes liability to corporation is for the accommodation of another, he cannot recover
the other parties thereto because he wants to accommodate against the corporation thereon.
another.‖
FACTS:
In this case, there is no question that the private respondents signed
the promissory note in order to enable Pilarita H. Reyes, who is Miguel Plaintiffs Oscar Benares and Ricardo Santos are the president and
vice-president, respectively, of Mover Enterprises, Inc., in
Hipolito's sister, to borrow the total sum of P1.4 million from TSLB. As
accommodation of his clients the Ongs, issued a check payable to
observed by both the trial court and the appellate court, the actual Jose. Since the check was under the account of the Enterprise, it was
beneficiary of the loan was Pilarita H. Reyes and no other. signed by Benares and Santos.
The Hipolitos accommodated her by signing a promissory note It appears that the check was issued to defendant Ernestina Crisologo-
for half of the loan that she applied for because TSLB may not Jose in consideration of the waiver or quitclaim by said defendant over
lend any single borrower more than the authorized limit of its loan a certain property which the Government Service Insurance System
portfolio. Under Section 29of the Negotiable Instruments Law,the (GSIS) agreed to sell to the clients of Atty. Oscar Benares, the
Hipolitos are liable to the bank on the promissory note that they signed spouses Jaime and Clarita Ong, with the understanding that upon
to accommodate Pilarita. approval by the GSIS of the compromise agreement with the spouses
Ong, the check will be encashed accordingly.
Respondent CA erred in giving credence to Hipolito's allegation that it However, since the compromise agreement was not approved within
was the bank's president who induced him to sign the promissory note the expected period of time, the aforesaid check for P45,000.00 was
so that the bank would not violate the Central Bank's regulation limiting replaced by Atty. Benares with another Traders Royal Bank cheek
the amount that TSLB could lend out. Besides being self-serving, bearing No. 379299 dated August 10, 1980, in the same amount of
Hipolito's testimony was uncorroborated by any other evidence on P45,000.00, also payable to the defendant Jose. This replacement
record, therefore, it should have been received with extreme caution. check was also signed by Atty. Oscar Z. Benares and by the plaintiff
Ricardo S. Santos, Jr. When defendant deposited this replacement

35 / 36
checkwith her account at Family Savings Bank, Mayon Branch, it was ANG TIONG VS. TING
dishonored for insufficiency of funds. GR No. L-26767, Feb 22, 1968
During the preliminary investigation of the criminal charge against
Benares and the plaintiff herein, before Assistant City Fiscal Alfonso T. Facts:
Llamas, plaintiff Ricardo S. Santos, Jr. tendered cashier's check No. On 15 August 1960 Lorenzo Ting issued Philippine Bank of
CC 160152 for P45,000.00 dated April 10, 1981 to the defendant Communication scheck payable to "cash or bearer". With Felipe Ang's
Ernestina Crisologo-Jose, the complainant in that criminal case. The signature at the back thereof, the instrument was received by Ang
defendant refused to receive the cashier's check in payment of the Tiong who thereafter presented it to thedrawee bank for payment. The
dishonored check in the amount of P45,000.00. Hence, plaintiff bank dishonored it.
encashed the aforesaid cashier's check and subsequently deposited
said amount of P45,000.00 with the Clerk of Court. Incidentally, the Ang Tiong then made written demands on both Lorenzo Ting and
cashier's check adverted to above was purchased by Atty. Oscar Z. Felipe Ang that they make good the amount represented by the check.
Benares and given to the plaintiff herein to be applied in payment of These demands went unheeded; so he filed for collection of the sum of
the dishonored check.
money. Felipe Ang then elevated the case to the Court of Appeals
Petitioner avers that the accommodation party in this case is Mover contending that he is a mere accommodation party.
Enterprises, Inc. and not private respondent who merely signed the
check in question in a representative capacity, that is, as vice- Issue: W/N Ang is liable as accommodation party
president of said corporation, hence he is not liable thereon under the Held: Yes.
Negotiable Instruments Law.
Nothing in the check in question indicates that Felipe Ang is not a
LOWER COURT’S RULING: general indorser within the purview of section 63 of the Negotiable
Instruments Law which makes "a person placing his signature upon an
RTC- it was "not persuaded to believe that consignation referred to in
Article 1256 of the Civil Code is applicable to this case," rendered instrument otherwise than as maker, draweror acceptor" a general
judgment dismissing plaintiff s complaint and defendant's counterclaim indorser, "unless he clearly indicates by appropriate wordshis intention
to be bound in some other capacity," which he did not do.
CA-reversed and set aside said judgment of dismissal and revived the
complaint for consignation, directing the trial court to give due course Section 66 ordains that "every indorser who indorses without
thereto qualifications, warrants to all subsequent holders in due course"
(a) that the instrument is genuine and in all respects what it purports to
ISSUE: Whether or not the corporation is liable to the petitioner as an be;
accommodation party when the corporate officer issued a corporation‘s
(b) that he has a good title to it;
check in their personal capacity.
(c) that all prior parties have capacity to contract; and
HELD: (d) that the instrument is at the time of his indorsement valid and
subsisting.
No, The provision of the Negotiable Instruments Law which holds an
accommodation party liable on the instrument to a holder for value, In addition, "he engages that on due presentment, it shall be accepted
although such holder at the time of taking the instrument knew him to or paid, or both, as the case may be, and that if it be dishonored, he
be only an accommodation party, does not include nor apply to will pay the amount thereof to the holder."
corporations which are accommodation parties. This is because the
issue or indorsement of negotiable paper by a corporation without
Even on the assumption that Felipe Ang is a mere accommodation
consideration and for the accommodation of another is ultra vires.
party, as he professes to be, he is nevertheless, by the clear mandate
Hence, one who has taken the instrument with knowledge of the
accommodation nature thereof cannot recover against a corporation of section 29 of the Negotiable Instruments Law, yet "liable on the
where it is only an accommodation party. instrument to a holder for value, notwithstanding that such holder at the
time of taking the instrument knew him tobe only an accommodation
By way of exception, an officer or agent of a corporation shall have the party." The accommodation party is liable to a holder for value as if the
power to execute or indorse a negotiable paper in the name of the contract was not for accommodation. It is not a valid defense that the
corporation for the accommodation of a third person only if specifically accommodation party did not receive any valuable consideration when
authorized to do so. Corollarily, corporate officers, such as the he executed the instrument. Nor is it correct to say that the holder for
president and vice-president, have no power to execute for mere value is not a holder in due course merely because at the time he
accommodation a negotiable instrument of the corporation for their acquired the instrument he knew that the indorser was only an
individual debts or transactions arising from or in relation to matters in
accommodation party.
which the corporation has no legitimate concern.
Since such accommodation paper cannot thus be enforced against the That Felipe Ang, again assuming him to be an accommodation
corporation, especially since it is not involved in any aspect of the indorser, may obtain security from the maker to protect himself against
corporate business or operations, the inescapable conclusion in law the danger of insolvency of the latter, cannot in any manner affect his
and in logic is that the signatories thereof shall be personally liable liability to Ang Tiong, as the said remedy is a matter of concern
therefor, as well as the consequences arising from their acts in exclusively between accommodation indorser and accommodated
connection therewith. party. So that the fact that Felipe Ang stands only as a surety in
relation to themaker, granting this to be true for the sake of argument,
RATIO:The fact that for lack of capacity the corporation is not bound is immaterial to the claim of Ang Tiong, and does not a whit diminish
by an accommodation paper does not thereby absolve, but should
nor defeat the rights of the latter who is aholder for value.
render personally liable, the signatories of said instrument where the
facts show that the accommodation involved was for their personal
account, undertaking or purpose and the creditor was aware thereof. The liability of Felipe Ang remains primary and unconditional. To
sanction Felipe Ang's theory is to give unwarranted legal recognition to
the patent absurdity of a situation where an indorser, when sued on an
instrument by a holder in due course and for value, can escape liability
on his indorsement by the convenient expedient of interposing the
defense that he is a mere accommodation indorser.
DISPOSITION: SC affirmed CA’s decision

36 / 36

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MIDTERMS: NEGOTIABLE INSTRUMENTS Based on the Syllabus of Atty. Valerie Gayle J. Patac and the Book of Hector S.

Does it give the holder the right to alter?

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Only defendant Canlas appealed to CA, his contention was that he M.

Rules where instrument mechanically complete

1. Undelivered: Every instrument, even if it is completely written, is

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Cheng Uy, Branch Manager of the Balintawak Branch of Producers

Hence, this petition.

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Petitioner has cause of action for her balance due to

FACTS: Delivery of the check signifies transfer of possession, whether actual or

Before the SC, accused imputed the ff errors:

1. The RTC had no jurisdiction

ISSUE: W/N TC Malabon has jurisdiction to try the BPP 22 case

Section 1, par. 1, of B.P. Blg. 22 punishes the issuing of a worthless

In determining the venue, the following acts essential to each crime is

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Thus, where the note, mechanically complete, the party whose

1. Where note is payable to ORDER Example

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Cases from the Syllabus

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The provisions of subdivision (c) of this section do not apply to FACTS:

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 Petitioner signed each and every check without bothering to

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REPUBLIC BANK vs CA ILUSORIO VS CA

[OVERVIEW] TOPIC FROM THE SYLLABUS

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 Petitioner claims that since there was no delivery yet and O.

What are the liabilities of parties in material alteration?

Thus, petition is DENIED for lack of merit.

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Value Sec. 28. Effect of want of consideration. — Absence or failure of

Benefit of treating a debt as consideration HDC: collect partial

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(2) If M has defenses against P, indorser, such as absence or failure of

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