LEE V.

CA
G.R NO. 145498
JAMUARY 17, 20015
ISSUES:

1.) WON the check was issued on account or for value.

2.) WON the petitioner is considered as accommodation party.
3.) WON the petitioner has actual knowledge of the sufficiency or
insufficiency of funds handled by his co-accused.
4.) WON the private complainant, at the time of issuance, had knowledge
that the check had no sufficient funds.
5.) WON the guilt of the accused was proven beyond reasonable doubt.
FACTS:

 Private complainant Rogelio Bergado testifies that on July 19, 1992, he

loaned Unlad Commercial Enterprise (Unlad for brevity), through its agent
Norma Ilagan. He received a total of 26 checks, 4 of which were
dishonored for the reason “drawn against insufficient funds,” he went to
Calapan, Mindoro and talked to Bautista and the latter replaced the
dishonored checks with United Coconut Planters Bank (UCPB), signed by
Bautista and herein petitioner.
 When Bergado deposited the check at UCPB, the same was dishonored
due to “account closed’; through his lawyer, he sent demand letters to
Bautista and petitioner, who, despite having received the same still failed
and refused to make any payment.
 For the defense, petitioner testified that: it is Bautista who is the sole owner
of Unlad; he does not know anything about the check issued by Bautista
in favor of Bergado nor did he receive any amount from Bergado or any
other person; he agreed to open an account with Bautista because
Bautista promised to give him 5% interest from the proceeds of loans that
will be made in favor of other people from said account.
 However, he terminated his accommodation arrangement with Bautista
and asked for the checks he previously signed but Bautista refused to
return them; and inspite of these, he continued investing to Bautista’s
business.
 To bolster his claim, petitioner presented: an affidavit executed by
Bautista stating that Bautista is the sole proprietor of Unlad and that
business transaction entered into by Unlad shall bu Bautista’s personal
responsibility, an affidavit executed by Bautista stating that petitioner is no
 longer connected with Unlad and that petitioner should not be held liable
regarding any transaction entered into by Unlad after 1989 since petioner
is no longer a signatory.
RULING:

1.) YES. The check issued is for value. We held that upon issuance of a check,
in the absence of evidence to the contrary, it is presumed that the same
was issued for valuable consideration, in turn, may consist either in some
right, interest, profit or benefit accruing to the party who makes the
contract, or some forbearance, detriment, loss or some responsibility, to
act, or labor, or service given, suffered or undertaken by the other side. It
is an obligation to do, or not to do in favor of the party who makes the
contract, such as the maker or indorser. In this case, petitioner himself
testified that he signed several checks in blank, the subject check
included, in exchange for 2.5% interest from the proceeds of loans that will
be made from said account. This is valuable consideration for which the
check was issued. There was neither a pre-existing obligation incurred on
the part of petitioner when the subject check was given by Bautista to
private complainant on July 24, 1993 because petitioner was no longer
connected with Unlad or Bautista starting July 1989, cannot be given merit
since, as earlier discussed, petitioner failed to adequately prove that he
has severed his relationship with Bautista or Unlad.
2.) YES. Petitioner’s insistence that since he is not to owner of Unlad, he could
not have had any knowledge as to the insufficiency of funds is devoid
with merit. As clarified in Lao v. CA, the very case petitioner is invoking, the
doctrine that a mere employee tasked to sign checks in blanks may not
be deemed to have knowledge of the insufficiency of funds applies only
to corporate checks and not to personal checks. In this case, what is
involved is a personal and not a corporate check.
3.) YES. We have held that knowledge involves a state of mind difficult to
establish, thus the statute itself creates a prima facie presumption that the
drawer had knowledge of the insufficiency of his funds in or credit with the
bank at the time of the issuance and on the check’s presentment for
payment if he fails to pay the amount of the check within five banking
days from notice of dishonor. In the present case, the prosecution has
established the prima facie presumption of knowledge of petitioner of
insufficient funds through the demand letter sent to petitioner, Exhibit “C”
which was duly received by petitioner as shown by the registry return
receipt, Exhibit “D”. Moreover, petitioner had admitted that he continued
investing in Unlad until April 1994. Hence, he cannot claim that he has
 completely severed his ties with Bautista as of 1989. With nothing but his
bare assertions, which are ambiguous at best, petitioner has failed to
rebut the prima facie presumption laid down by the statute and
established by the prosecution.
4.) We have held that knowledge of the payee that the drawer did not have
sufficient funds with the drawee bank at the time the check was issued is
immaterial as deceit is not an essential element of the offense under B.P
Blg.22. this is because the grave men of the offense is the issuance of a
bad check, hence, malice and intent in the issuance thereof are
inconsequential. In Yu v. CA the court held that there is no violation of B.P
Blg.22, if complainant was actually told by the drawer that he has no
insufficient funds in the bank. In the present case, since there is no
evidence that a categorical statement was given to private complainant
when the subject check was issued to him, the above ruling cannot
apply.
5.) YES. Proof beyond reasonable doubt does not mean absolute certainty.
Suffice it to say the law requires only moral certainty or degree of proof
which produces conviction in prejudiced mind. After reviewing the entire
records of this case, we find that there is no reason to depart from the trial
court’s judgment of conviction. The weight and quantum of evidence
needed to prove the guilt of petitioner beyond reasonable doubt were
met and established by the prosecution and correctly affirmed by the CA.
 AGLIBOT V. SANTIA
G.R NO. 185945
DECEMBER 5, 1012
ISSUES:

1.) WON Aglibot is an accommodation party and therefore liable to Santia.

2.) WON Aglibot is considered as a mere guarantor of PLCC to Santia.
3.) WON the liability of Aglibot as accommodation party remains not only
primary but also unconditional to a holder for value and he is considered
as solidary co-debtor.
4.) WON Aglibot is considered as surety thus, his liability to Santia is immediate
and direct.
5.) WON a guaranty is not presumed, but must be express, and cannot
extend to more than what is stipulated therein.
RELEVANT FACTS:

 Private respondent-complainant Santia loaned to PLCC, through its

Manager petitioner Aglibot. The loan was evidenced by a promissory note
issued by Aglibot in behalf of PLCC.
 Allegedly as a guaranty or security for the payment of the note, Aglibot
also issued and delivered to Santia 11 post-dated personal checks drawn
from her own account maintained in Metrobank. Aglibot is a major
stockholder of PLCC.
 Upon presentment of the aforesaid checks for payment, they were
dishonored by the bank for having been drawn against insufficient funds
or closedaccount.
 Santia thus demanded payment from PLCC and Aglibot of the face value
the checks, but neither of them heeded his demand. Consequently, 11
informations for violation of B.P 22 were filed against Aglibot.
 Aglibot, in her counter-affidavit, admitted that she did obtain a loan from
Santia, but claimed that she did so in behalf of PLCC; that before granting
the loan, Santia demanded and obtained from her a security for the
repayment thereof in the form of the aforesaid checks, but with the
understanding that upon remittance in cash of the face amount of the
checks, Santia would correspondingly return to her each check so paid;
but despite having already paid the said checks, Santia refused to return
them to her, although he gave her assurance that he would not deposit
them; that in breach of his promise, Santia deposited her checks, resulting
 in their dishonor; that she did not receive any notice of dishonor, that for
want of notice, she could not be held criminally liable under B.P 22 over
the said checks.
RULING:

1.) Yes. The appellate court ruled that by issuing her own postdated checks,
Aglibot thereby bound herself personally and solidarily to pay Santia, and
dismissed her claim that she issued her checks in her official capacity as
PLCC’s manager merely to guarantee the investment of Santia. It noted
that she could have issued PLCC’s checks, but instead she chose to issue
her own checks, drawn against her personal account with Metrobank. It
concluded that Aglibot intended to personally assume the repayment of
the loan, pointing out that in her Counter-Affidavit, she enen admitted
that she was personally indebted to Santia, and only raised payment as
her defense, a clear admission of her liability for the said loan.
2.) NO. The Court must, however, reject Aglibot’s claim as a mere guarantor
of the indebtedness of PLCC to Santia for want of proof, in view of Article
1403 (2) of the Cicil Code, embodying the Statute of Frauds which
provides: The following contracts are unenforceable, unless they are
ratified. (2) those that do not comply with the Statute of Frauds as set forth
in this number. In the following cases an agreement hereafter made shall
be unenforceable by qction, unless the same, or some note or
memorandum thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the agreement cannot
be received without the writing, or a secondary evidence of its events: (a)
An agreement that by its terms is not to be performed within a year from
the making thereof; (b) A special promise to answer for the debt, default,
or miscarriage of another; (c) An agreement made in consideration of
marriage, other than a mutual promise to marry; (d) An agreement for the
sale of goods, chattels or things in action, at a price not less than five
hundred pesos, unless the buyer accept and receive part of such goods
and chattels, or the evidences, or some of them, or such things in action,
or pay at the time some part of the purchase money; but when a sale is
made by auction or entry is made by the auctioneer in his sales book, at
the time of the sale, of the amount and kind of property sold, terms of
sale, price, names of purchasers and person on whose account the sale is
made, it is a sufficient memorandum; (e) An agreement for the leasing of
a longer period than one year, or for the sale of real property or an
interest therein; (f) A representation of the credit of a third person. Under
the above provision, concerning a guaranty agreement, which is a
 promise to answer for the debt or default of another, the law clearly
requires that it, or some note or memorandum thereof, be in writing.
Otherwise, it would be unenforceable unless ratified, although under
Article 1358 of the Civil Code, a contract of guaranty does not have to
appear in a public document. Contracts are generally obligatory in
whatever form they may have been entered into, provided all the
essential requisites for their validity are present, and the Statute of Frauds
simply provides the method by which the contracts enumerated in article
1403 (2) may be proved, but it does not declare them invalid just because
they are not reduced to writing. Thus, the form required under the Statute
is for convenience or evidentiary purpose only.
3.) YES. It was held in Arguego that unlike in a contract of suretyship, the
liability of the accommodation party remains not only primary but also
unconditional to a holder for value, such that even if the accommodated
party receives an extension of the period of payment without the consent
of the accommodation party, the latter is still liable for the whole
obligation and such extension does not release him because as far as a
holder for value is concerned, he is a solidary co-debtor. The mere fact,
then, that Aglibot issued her own checks to Santia made her personally
liable to the latter on her checks without the need for Santia to first go
after PLCC for the payment of its loan. It would have been otherwise had
it been shown that Aglibot was a mere guarantor, except that since
checks were issued ostensibly in payment for the loan, the provisions of
the NIL must take primacy in application.
4.) YES. The relationship between an accommodation party and the
accommodated is, in effect, one of principal and surety- the
accommodation party being the surety. It is a settled rule that a surety is
bound equally and absolutely with the principal and is deemed an
original promisor and debtor from the beginning. The liability is immediate
and direct. It is not a valid defense that the accommodation party did
not receive any valuable consideration when he executed the instrument;
nor is it correct to say that the holder for value is not a holder in due
course merely because at the time he acquired the instrument, he knew
that the indorser was only an accommodation party.
5.) YES. Article 2055 of the Civil Code also provides that a guaranty is not
presumed, but must be express, and cannot extend to more than what is
stipulated therein. This is the obvious rationale why a contract of
guarantee is unenforceable unless made in writing or evidenced by some
writing. For as pointed out by Santia, Aglibot has not shown any proof,
such as a contract, a secretary’s certificate or a board resolution, nor
even a note or memorandum thereof, whereby it was agreed that she
would issue her personal checks in behalf of the company to guarantee
the payment of its debt to Santia. Certainly, there is nothing shown in the
Promissory Note signed by Aglibot herself remotely containing an
agreement between her and PLCC resembling her guaranteeing its debt
to Santia. And neither is there a showing that PLCC thereafter ratified her
act “guaranteeing” its indebtedness by issuing her own checks to Santia.
 TOWN SAVINGS AND LOAN BANK, INC., V. CA
G.R NO. 106011
JUNE 17, 1993
ISSUES:

1.) WON Hipolito is considered as accommodation party of Reyes.

2.) WON the actual beneficiary of the loan made by Hipolitos was Pilarita H.
Reyes and no other.
3.) WON the bank’s president who induced the Hipolitos to sign the said
promissory note.
4.) WON Hipolitos are Surety and not mere guarantors of Pilarita.
5.) WON Maulini v. Serrano case is applicable in the case at bar.
RELEVANT FACTS:

 The Hipolitos applied for, and were granted, a loan for which they
executed and delivered to TSLB a promissory note. For failure to keep
current their monthly payments on the account, the obligors were
deemed to have defaulted. Notices of past due account and demands
for payment were sent but ignored.
 The Hipolitos denied being personally liable on the promissory note which
they executed. The loan was allegedly for the account of Pilarita H. Reyes,
the sister of Miguel Hipolito. She was the real party-in-interest.
 The Hipolitos, not having received any part of the loan, were mere
guarantors for Pilarita. They allegedly signed the promissory note because
they were persuaded to do so by Joey Santos, President of TSLB.
 When they received the demand letters, they confronted him but they
were told that the Bank had to observe the formality of sending notices
and demand letters. The real purpose was only to pressure Pilarita to
comply with her undertaking.
 Insisting that they were mere guarantors, the Hipolitos vehemently
protested against being dragged into the litigation as principal parties.
RULING:

1.) YES. We hold for petitioner. “An accommodation party is one who has
signed the instrument as maker, drawer, indorser, without receiving value
therefor and for the purpose of lending his name to some other person.
Such person is liable on the instrument to a holder for value,
notwithstanding such holder, at the time of taking of the instrument knew
 him to be only an accommodation party. In lending his name to the
accommodated party, the accommodation party is in effect a surety for
the latter. He lends his name to enable the accommodated party to
obtain credit or to raise money. He receives no part of the consideration
for the instrument but assumes liability to the other parties thereto
because he wants to accommodate another.”
2.) YES. In this case, there is no question that the private respondents signed
the promissory note in order to enable Pilarita who is Miguel Hipolito’s
sister, to borrow the total sum of P1.4 million from TLSB. As observed by
both the trial court and the appellate court, the actual beneficiary of the
loan was Pilarita and no other. The Hipolitos accommodated her by
signing a promissory note for half of the loan that she applied for because
TLSB may not lend any single borrower more than authorized limit of its
loan portfolio. Under Section 29 of the NIL, the Hipolitos are liable to the
bank on the promissory note that they signed to accommodate Pilarita.
3.) NO. Respondent appellate court erred in giving credence to Hipolito’s
allegation that it was the bank’s president who induced him to sign the
promissory note so that the bank would not violate the Central Bank’s
regulation limiting the amount that TLSB could lend out. Besides being self-
serving, Hipolito’s testimony was uncorroborated by any other evidence
on record, therefore, it should have been received with extreme caution.
The Court is convinced that the intention of respondents Hipolitos in
signing the promissory note was not so much to enable the Bank to grant
a loan to Pilarita but for the latter to be able to obtain the full amount of
the loan that she needed at that time. It is not credible that a Bank would
want so much to lend money to a borrower that it would go out of its way
to convince another person (Miguel Hipolito) to accommodate the
borrower (Pilarita). 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 M that she wanted to borrow from the
Bank.
4.) YES. The Court is convinced that the intention of respondents Hipolitos in
signing the promissory note was not so much to enable the Bank to grant
a loan to Pilarita but for the latter to be able to obtain the full amount of
the loan that she needed at the time. It is not credible that a Bank would
want so much to lend money to a borrower that it would go out of its way
to convince another person (Hipolitos) to accommodate the borrower
(Pilarita). In the ordinary course of things, the borrower, Pilarita not the
Bank, would have requested her brother Miguel Hipolito to
 accommodate her so she could have the P1.4 M that she wanted to
borrow from the Bank.
5.) NO. The case of Maulini v. Serrano (28 phil., 649), relied upon by the
appellate court in reversing the decision of the trial court, is not
applicable to this case. In that case, the evidence showed that the
indorser (loan broker Serrano) in making the indorsement to the lender,
Maulini, was acting as agent for the latter or, as a mere vehicle for the
transference of the naked title from the borrower or maker of the note
(Moreno). Furthermore, his indorsement was wholly without consideration.
We ruled that Serrano was not an accommodation indorser, he was not
liable on the note. Unlike Maulini case, there was no agreement here,
written or verbal, that in signing the promissory note, the Hipolitos were
acting as agents for the money lender the bank. The consideration of the
note signed by the Hipolitos was received by them through Pilarita. They
acted as agents of Pilarita, not of the bank. They signed the promissory
note as favor to Pilarita, to help her raise the funds that she needed. It was
Pilarita whom they accommodated, not the bank, contrary to the
erroneous finding of the appellate court.
 CRISOLOGO-JOSE V. CA AND SANTOS
G.R NO. 80599
SEPTEMBER 15, 1989
ISSUES:

1.) WON an accommodation party liable on the instrument to a holder for

value does not apply to corporations which are accommodation parties.
2.) WON an officer or agent of a corporation shall have the power to
execute or indorse a negotiable paper in the name of the corporation for
accommodation only if specifically authorized to do so.
3.) WON the consignation made by private respondent Santos after his
tender of payment was refused by petitioner, was proper under Article
1256 of the Civil Code.
4.) WON an accommodation party can validly consign the amount of the
debt due with the court after his tender of payment was refused by the
creditor.
5.) WON the presumption rule is applicable in the case at bar in determining
whether or not there was insufficiency of funds in or credit with the
drawee bank.
RELEVENT FACTS:

 The plaintiff Santos, Jr, was the VP of MEI, and Atty. Benares was the
President of said corp. Atty. Benares, in accommodation of his clients the
spouses Ong, issued check drawn against Traders Royal Bank payable to
defendant Crisologo-Jose. Since the check was under the account of MEI
the same was to be signed by its president Atty. Benares, and the
treasurer of the said corp.
 However, since at that time, the treasurer was not available, Atty. Benares
prevailed upon the plaintiff, Santos Jr,.to sign the aforesaid check as an
alternative signatory. Plaintiff Santos Jr., did sign the check.
 It appears that the check was issued to defendant Crisologo-Jose in
consideration of the waiver or quitclaim by said defendant over a certain
property which the GSIS agreed to sell to the clients of Atty. Benares with
the understanding that upon approval by the GSIS of the compromise
agreement with the spouses Ong, the check will be encash accordingly.
  However, since the compromise agreement was not approved the
aforesaid check was replaced by Atty. Benares with another TRB check
also payable to the defendant Crisologo-Jose. This replacement was also
signed by Atty. Benares and the plaintiff Santos Jr,. When the defendant
deposited this replacement check with her account it was dishonored for
insufficiency of funds. A subsequent re-depositing of the said check was
likewise dishonored by the bank with the same reason. Hence, defendant
was constrained to file a criminal complaint for violation of B.P 22.
 Meanwhile, during the preliminary investigation plaintiff Santos Jr.,
tendered cashier’s check to defendant Crisologo-Jose. The defendant
refused to receive the cashier’s check in payment of the dishonored
check. Hence, plaintiff deposited the said amount with the Clerk of
Court.
RULING:

1.) YES. The aforequoted provision of the NIL which holds an accommodation
party liable on the instrument to a holder for value, although such holder
at the time of the instrument knew him to be only an accommodation
party, does not include nor apply to corporations which are
accommodation parties. This is because the issue or indorsement of
negotiable paper by a corporation without consideration and for the
accommodation of another is ultra vires. Hence, one who has taken the
instrument with knowledge of the accommodation nature thereof cannot
recover against a corporation where it is only an accommodation party. If
the form of the instrument, or the nature of the transaction, is such as to
charge the indorsee with knowledge that the issue or indorsement of the
instrument by the corporation is for the accommodation of another, he
cannot recover against the corporation thereon.
2.) YES. By way of exception, an officer or agent of a corporation shall have
the power to execute or indorse a negotiable paper in the name of the
corporation for the accommodation of the third person only if specifically
authorized to do so. Corollarily, corporate officers, such as the president
and vice-president, have no power to execute for mere accommodation
a negotiable instrument of the corporation for their individual debts or
transactions arising from or in relation to matters in which the corporation
has no legitimate concern. Since such accommodation paper cannot
thus be enforced against the corporation, especially since it is not
involved in any aspect of the corporate business or operations, the
inescapable conclusion in law and in logic is that the signatories thereof
 shall be personally liable therefor, as well as the consequences arising
from their acts in connection therewith.
3.) YES. We interpose the caveat, however, that by holding that the remedy
for consignation is proper under the given circumstances, we do not
thereby rule that all the operative facts for consignation which would
produce the effect of payment are present in this case. Those are factual
issues that are not clear in the records before us and which are for the RTC
to ascertain in Civil Case for which the reason it has advisedly been
directed by respondent court to give due course to the complainant for
consignation, and which would be subject to such issues or claims as may
be raised by defendant and the counterclaim filed therein which is
hereby ordered similarly revived.
4.) YES. Bases on the foregoing consideration, this Courts finds that the
plaintiff-appellant acted within his legal rights when he consigned the
amount of P45, 000.00 on August 14, 1981, between August 7, 1981, the
date when plaintiff-appellant receive the notice of non-payment, and
August 14, 1981, the date when the debt due was deposited with the
Clerk of Court (a Saturday and a Sunday which are not banking days)
intervened. The fifth banking day fell on August 14, 1981. Hence, no
criminal liability has yet to attach to plaintiff-appellant when he deposited
the amount of P45, 000.00 with the court a quo on August 14, 1981.
5.) YES. These are aside the considerations that the disputed period involved
in the criminal case is only a presumptive rule, juris tantum at that, to
determine whether or not there was knowledge of insufficiency of funds in
or credit with the drawee bank; that payment of civil liability is not a
mode for extinguishment of criminal liability; and that the requisite
quantum of evidence in the two types of cases are not the same.
 BANCO ATLANTICO V. AUDITOR GENERAL
G.R NO. L-33549
JANUARY 31, 1978
ISSUES:

1.) WON Banco Atlantico was a holder in due course.

2.) WON payment of checks by foreign bank to payee without previously
clearing said checks with the drawee bank is contrary to normal or
ordinary banking practice especially where drawee bank is a foreign
bank and the amounts involved are large and bars recovery.
3.) WON the said 3 checks in question were honored and full amount of the
aforementioned checks paid to Boncan in the ordinary course of its
banking transactions.
4.) WON the Phil.Embassy in Madrid as drawer of the 3 checks in question,
can be held liable.
5.) WON there was forgery committed on the 3 checks in question.
RELEVANT FACTS:

 The record discloses that the petitioner is a commercial Bank doing

business in Madrid, Spain. Boncan, then the Finance Officer of the
Phil.Embassy in Madrid, Spain, negotiated with Banco Atlantico a
Phil.Embassy check signed by Gonzales, its ambassador and by said
Boncan as Finance Officer US$10, 109.10, payable to Azucena Pace and
drawn against the PNB in USA; the check was endorsed by Pace and
Boncan; that the petitioner, without clearing the check with the drawn
bank in USA,.paid the full amount of US$10, 109.10 to Boncan.
 Boncan negotiated by endorsement with the petitioner another embassy
check signed by Gonzales as ambassador and by her as finance officer in
the sum of US$35,000.75 payable to Boncan and drawn against PNB USA;
that petitioner paid the full amount of the check to Boncan without
clearing said check with the drawn bank.
 Boncan negotiated by endorsement with petitioner another embassy
check signed by Gonzales and finance officer Boncan in the sum of
 US$90,000.00 payable to Boncan and drawn against PNB USA, and that
the petitioner paid the full amount to Boncan of the aforementioned
check without clearing said check with the drawn bank.
 That upon presentment for acceptance and payment of the
aforementioned checks by Banco Atlantico through its collecting bank in
USA to the drawn bank the PNB USA said drawee bank dishonored the
checks by non-acceptance allegedly on the ground that the drawer
had ordered payments to be stoppred; that upon receipt of the notice of
dishonor , the collecting bank of the petitioner in USA sent individual
notices of protest with respect to the checks in question to thec
Phil.Embassy in Madrid, Spain and to Boncan as endorser payee that
Boncan and the Phil.Embassy in Madrid, Spain refused to pay the
petitioner the amounts of the aforementioned checks.
 The petitioner, Banco Atlantico, filed the corresponding money claim with
the Auditor General.
RULING:

1.) NO. All the four conditions enumerated under Sec.52 of NIL must concur
before a holder can be considered as a holder in due course. The
absence or failure to comply with any of the conditions set forth under this
section will make one’s title to the instrument defective. The check for
US$90,000.00 was a demand note. When Boncan the payee of this check,
negotiated the same by depositing it in her account, at the same time
informing the bank in writing that it be not presented for collection until a
later date. Banco Atlantico through its agent teller or cashier should have
been put on guard that there was something wrong with the check. The
fact that the amount involved was quiet big and it was the payee herself
who made the request that the same not be presented for collection until
a fixed date in the future was proof of a glaring infirmity or defect of the
instrument. It loudly proclaims, “Take me at your risk.” The interest of the
payee was the immediate punishment of the check of which she was the
beneficiary and not the deferment of the presentment for collection of
the same to the drawee bank. This being the case, Banco Atlantico was
not a holder in due course as defined in Sec.52 of the NIL, because it was
obvious that it had knowledge of the infirmity or defect of the check. The
fact that the check was honored by claimant bank was proof not only of
their gross negligence but a further manifestation of the special treatment
they were accorded to Boncan.
2.) YES. The petitioner paid the amounts of the 3 checks in question to Virginia
Boncan, a Phil. Emabassy employee, without previously clearing the said
 checks with the drawee bank, PNB, New York. This is contrary to normal or
ordinary banking practice especially so where the drawee bank is a
foreign bank and the amounts involved were large. The drawer of the
aforementioned checks was not even a client of the petitioner. There is a
showing that Virginia Boncan enjoyed special treatment from the
employees and chiefs of the petitioner’s foreign department. It was
probably because of this special relationship that the petitioner, in
disregard of the elementary principles that should attend banking
transactions, cashed the 3 checks in question without prior clearances
from the drawee bank. The Phil. Embassy in Madrid, as drawer of the 3
checks in question, cannot be held liable. It is apparent that the said 3
checks were fraudulently altered by Virginia Boncan as to their amounts
and, therefore, wholly inoperative. No right of payment thereof against
any party thereto could have been acquired by the petitioner claimant.
3.) NO. While the aforementioned checks of the Embassy may have
appeared valid, payment to Boncan in her capacity as endorser and
payee of the checks without clearing them first with the drawee bank is
definitely not in accordance with normal or ordinary banking practice,
especially so in this case where the drawee bank was a foreign bank,and
the amount involved were quiete large. The normal procedure would
have been for the Banco Atlantico to clear the 3 checks concerned with
the drawee bank before paying Boncan.
4.) NO. It is apparent that the said 3 checks were fraudulently altered by
Virginia Boncan as to their amounts and, therefore, wholly inoperative. No
right of payment thereof against any party thereto could have been
acquired by the petitioner.
5.) YES. As regards the 3 checks in question had altered by Boncan by
fraudulently increasing the amounts for which said checks were issued,
and claimant bank failed to protect itself by cashing them without first
clearing them with the drawee bank. When claimant gave Boncan
special treatment as a privileged client in disregard of the elementary
principles of prudence that should attend banking transactions, they
should stand to suffer the loss of their negligence.
 MESINA V. THE HON.INTERMEDIATE APPELLATE COURT
G.R NO. 70145
NOVEMBER 13, 1986
ISSUES:

1.) WON a person who became the holder of a cashier’s check as endorsed
by the person who stole it and refused to say how and why it was passed
to him is not a holder in due course.
2.) WON the bank from whom a cashier’s check was bought and which is
aware of the facts surrounding its loss has the right to refuse to pay the
same when presented by a holder who was not the one who bought the
check from the bank.
3.) WON interpleader is an issuing bank’s proper remedy where purchaser of
cashier’s check claims it was lost and another has presented it for
payment.
4.) WON an order to the parties named in a petition for interpleader to file an
answer is an order to interplead. Non-answering party liable to be
declared in default.
5.) WON IAC can make findings of facts in a certiorari case to enable it to
rule whether or not the trial court committed a grave abuse of discretion.
RELEVANT FACTS:

 Respondent Jose Go, purchased from Associated Bank Cashier’s Check

for P800, 000.00. Unfortunately, Go left said check on the top of the desk
of the bank manager when he left the bank. The bank manager entrusted
the check for safekeeping to a bank official, a certain Albert Uy, who had
a then a visitor in the person of Alexander Lim, Uy had to answer a phone
call after which he proceeded to men’s room. When he returned to his
desk, his visitor was already gone.
 When Go inquired for his cashier’s check from Uy, the check was not in his
folder and nowhere to be found. The latter advised Go to go to the bank
to accomplish a “STOP PAYMENT” order, which suggestion Go
immediately followed. He also executed an affidavit of loss. Uy went to
 the police to report the loss of the check, pointing to the person Lim as
one who could shed light on it.
 The records of the police show that Associated Bank received the lost
check for clearing, coming from Prudential Bank. The check was
immediately dishonored by Associated Bank by sending it back to
Prudential Bank, with the words “Payment stopped” stamped on it.
However, the same was again returned to Associated Bank and for the
second time it was dishonored. Associated Bank received a letter, from
certain Atty. Navarro demanding payment on the cashier’s check in
question, which was being held by his client and threatened to sue if
payment was not made. Associated Bank, replied saying the check
belonged to Go who lost it in the bank and is laying claim to it.
 Unsure of what to do on the matter, Associated Bank filed an action for
interpleader naming as respondent, Go and one John Doe, Atty.
Navarro’s then unnamed client. Associated Bank received summons and
copy of the complaint for damages of a certain Marcelo A. Mesina.
 Associated Bank moved to amend its complaint, having been notified for
the first time of the name of Atty. Navarro’s client and substituted Mesina
for John Doe. When Cpl. Gimao went to Mesina to ask how he came to
possess the check, he said it was paid to him by Lim in a “certain
transaction” but refused to elucidate further. An information for theft was
instituted against Lim.
RULING:

1.) YES. Petitioner’s allegations hold no water. Theories and examples

advanced by petitioner on causes and effects of a cashier’s check such
as 1.) it cannot be countermanded in the hands of a holder in due course
and 2.) a cashier’s check is a bill of exchange drawn by the bank against
itself- are general principles which cannot be aptly applied to the case at
bar, without considering other things. Petitioner failed to substantiate his
claim that he is a holder in due course and for consideration or value as
shown by the established facts of the case. Admittedly, petitioner
became the holder of the cashier’s check as endorsed by Alexander Lim
who stole the check. He refused to say how and why it passed to him. He
had therefore notice of the defect of his title over the check from the
start. The holder of a cashier’s check who is not a holder in due course
cannot enforce such check against the issuing bank which dishonors the
same.
2.) YES. If a payee of a cashier’s check obtained it from the issuing bank by
fraud, or if there is some other reason why the payee is not entitled to
 collect the check, the respondent bank would, of course, have the right
to refuse payment of the check when presented by the payee, since
respondent bank was aware of the facts surrounding the loss of the check
in question. Moreover, there is no similarity in the cases cited by petitioner
since respondent bank did not issue the cashier’s check in payment of its
obligation. Jose Go bought it from respondent bank for purposes of
transferring his funds from respondent bank to another bank near his
establishment realizing that carrying money in this form is safer than if it
were in cash. The check was Go’s property when it was misplaced or
stolen, hence he stopped its payment. At the outset, respondent bank
knew it was Go’s check and no one else since Go had not paid or
indorsed it to anyone. The bank was therefore liable to nobody on the
check but Go. The bank had no intention to issue it to petitioner but only
to buyer Go. When payment on it was therefore stopped, respondent
bank was not the one who did it but Go, the owner of the check.
Respondent bank could not be drawer and drawee for clearly, Go owns
the money it represents and he is therefore the drawer and the drawee in
the same manner as if he has a current account and he issued a check
against it; and from the moment said cashier’s check was lost and/or
stolen no one outside of Go can be termed a holder in due course
because Go had not indorsed it in due course. The check in question
suffers from the infirmity of not having been properly negotiated and for
value by respondent Go who has already been said is the real owner of
said instrument.
3.) YES. Considering the aforementioned facts and circumstances,
respondent bank merely took the necessary precaution not to make a
mistake as to whom to pay and therefore interpleader was its proper
remedy. It has been shown that that the interpleader suit was filed by
respondent bank because petitioner and Go were both laying their
claims on the check, petitioner asking payment thereon and Go as the
purchaser or owner. The allegation of petitioner that respondent bank
had effectively relieved itself of its primary liability under the check by
simply filing a complaint for interpleader is belied by the willingness of
respondent bank to issue a certificate of time deposit in the amount of
P800, 000 representing the cashier’s check in question in the name of the
Clerk of Court of Manila to be awarded to whoever will be found by the
court as validly entitled to it. Said validity will depend on the strength of
the parties’ respective rights and titles thereto. Bank filed the interpleader
suit not because petitioner sued it but because petitioner is laying claim to
the same check that Go is claiming. On the very day that the bank
 instituted the case in the interpleader, it was not aware of any suit for
damages filed by petitioner against it as supported by the fact that the
interpleader case was first entitled Associated Bank v. Go and John Doe,
but later on changed to Mesina for John Doe when his name became
known to respondent bank.
4.) YES. The trial court issued an order, compelling petitioner and respondent
Go to file their answers setting forth their respective claims. Subsequently,
a pre-trial conference was set with notice to parties to submit position
papers. Petitioner argues in his memorandum that this order requiring
petitioner to file his answer was issued without jurisdiction alleging that
since he is presumably a holder in due course and for value, how can he
be compelled to litigate against Go who is not even a party to the
check? Such argument is trite and ridiculous if we have to consider that
neither his name or Go’s name appears on the check. Following such line
argument, petitioner is not a party to the check either and therefore has
no valid claim to the check. Furthermore, the order of the trial court
requiring the parties to file their answers is to all intents and purposes an
order to interplead, substantially and essentially and therefore in
compliance with the provisions of the Rule 63 of the Rules of Court. What
else is the purpose of a law suit but to litigate?
5.) YES. The records of the case show that respondent bank had to resort to
details in support of its action for interpleader. Before it resorted to
interpleader, respondent bank took all precautionary and necessary
measures to bring out the truth. On the other hand, petitioner concealed
the circumstances known to him and now that private respondent bank
brought these circumstances out in court (which eventually rendered its
decision in the light of these facts), petitioner charges it with “gratuitous
excursions into these non-issues.” Respondent IAC cannot rule on whether
respondent RTC committed an abuse of discretion or not, without being
apprised of the facts and reasons why respondent Associated Bank
instituted the interpleader case. Both parties were given an opportunity to
present their sides. Petitioner chose to withhold substantial facts.
Respondent were not forbidden to present their side-this is the purpose of
the comment of respondent to the petition. IAC decided the question by
considering both the facts submitted by petitioner and those given by
respondents. IAC did not act therefore beyond the scope of the remedy
sought in the petition.
 HI-CEMENT CORP. V. INSULAR BANK OF ASIA AND AMERICA
G.R NO. 132403
SEPTEMBER 28, 2007
ISSUES:

1.) WON the respondent bank a holder in due course.

2.) WON Hi-cement could also be made solidarily liable with Riverside and
Kanebo for the value of the check.
3.) WON that the crossing of checks should put the holder on inquiry and
upon him devolves the duty to ascertain the indorser’s title to the check or
the nature of his possession, failing in this respect, the holder is declared
guilty of gross negligence amounting to legal absence of good faith.
4.) WON in the absence of due presentment, the drawer did not become
liable.
5.) WON under the NIL does not absolutely bar a holder who is not a holder in
due course from recovering on the checks; it may recover from the party
who indorsed/encashed the checks “if the latter has no valid excuse for
refusing payment.”
RELEVANT FACTS:

 Spouses Tan were the controlling stockholders of E.T Henry and Co.,Inc.,a
company engaged in the business of processing and distributing banker
fuel. E.T Henry’s customer were Hi-Cement, Riverside Mills and Kanebo
who issued postdated checks for their purchases. Sometime in 1979:
Insular Bank and America (turned PCIB then Equitable PCIB Bank) granted
E.T Henry a credit facility known as “Purchase Short Term Receivables.”
(Re-discounting arrangement). Through this, E.T Henry was able to encash,
with the pre-deducted interest, the postdated checks of its clients. For
every transaction. E.T Henry had to execute a promissory note and a
 deed of assignment. 1979-1981: E.T Henry was able to re-discount its
client’s checks. 20 checks of Hi-Cement (which were crossed and which
bore the restriction “deposit to payee’s account only) were dishonored.
So were the checks of Riverside and Kanebo. Bank filed a complaint for
sum of money against E.T Henry, spouses Tan, Hi-Cement (including its
general manager and its treasurer as signatories of the postdated crossed
checks), Riverside and Kanebo.
RULING:

1.) NO. Absent any of the elements set forth in Sec.52, the holder is not a
holder in due course. In the case at bar, the last two requirements were
not met. In the case eat bar, respondent’s claim that it acted in good
faith when it accepted and discounted Hi-Cement’s postdated crossed
checks from E.T Henry (as payee therein) fails to convince us. Good faith
becomes inconsequential amidst proof of respondent’s grossly negligent
conduct in dealing with the subject checks. Respondent was all too
aware that the subject checks crossed and bore restrictions that they
were for deposit to payee’s account only; hence, they could not be
further negotiated to it. The records likewise reveal that respondent
completely disregard a telling sign of irregularity in the discounting of the
checks when the general manager did not acquiesce to it as only the
treasurer’s signature appeared on the deed of assignment. As a banking
institution, it behooved respondent to act with extraordinary diligence in
every transaction. Its business is impressed with public interest, thus, it was
not expected to be careless and negligent, specially so where the checks
it dealt with were crossed.
2.) NO. HI-Cements had nothing to do with the checks of these two
corporations. However, although the language of the trial court decision’s
dispositive portion seemed confusing, a reading of the decision in its
entirely reveals that the fallo was for each corporation to be liable
solidarily with E.T Henry and/or the spouses Tan for the respective values of
their checks. Furthermore, solidary liable cannot be presumed but be
established by law or contract. Neither is present here. Articles 1207 and
1208 of the Civil Code provide: Article 1207. The occurrence of two or
more debtors in one of the former and the same obligation does not imply
that each one of the former has a right to demand, or that each one of
the latter is bound to render, entire compliance with the presentation.
There is solidary liability only when the obligation expressly so states, or
when the obligation requires solidarity.
3.) YES. It is then settled that crossing of checks should put the holder on
inquiry and upon him devolves the duty to ascertain the indorser’s title to
the check or the nature of his possession. Failing in this respect, the holder
is declared guilty of gross negligence amounting to legal absence of
good faith, and as such the consensus of authority is to effect that the
holder of the check is not a holder in due course.
4.) YES. In SIHI v. IAC, 175 SCRA 310 (1989), SIHI re-discounted crossed checks
and was declared not a holder in due course. As a result, when it
presented the checks for deposit, we deemed that its presentment to the
drawee bank was not proper, hence, the liability did not attach to the
drawer of the checks. We ruled that: the three subject checks in the case
at bar had been crossed…which could only mean that the drawer had
intended the same for deposit only by the rightful person, i,e , the payee
named therein. Apparently, it was not the payee who presented the
same for payment and therefore, there was no proper presentment, and
the liability did not attach to the drawer. Thus, in the absence of due
presentment, the drawer did not become liable.
5.) YES. We ruled that it may recover from the party who indorsed/encashed
the checks “if the latter has no valid excuse for refusing payment.” Here,
there was no doubt that it was E.T Henry that re-discounted Hi-Cement’s
checks and received their value from respondent. Since E.T Henry had no
justification to refuse payment, it should pay respondent.
 STATE INVESTMENT HOUSE V. IAC
G.R NO. 72764
JULY 13, 1989
ISSUES:

1.) WON petitioner is a holder in due course.

2.) WON the payee has the duty to ascertain the holder’s title to the check or
the nature of his possession.
3.) WON a drawee should not encash a crossed check but merely accept
the same for deposit.
4.) WON there is no presentment for payment, therefore, no right of recourse
is available to petitioner against the drawer.
5.) WON a holder not in due course may not in any case recover on the
instrument.
RELEVANT FACTS:

 New Sikatuna Wood Industries, Inc., requested for a loan from private
respondent Chua. The latter agreed to grant the same subject to the
condition that the former should wait until when he would have the
money. In view of this agreement, private respondent-wife, issued 3
crossed checks payable to New Sikatuna Would Industries Inc.,
 Subsequently, New Sikatuna entered into an agreement with herein
petitioner State Investment House, Inc., whereby for and in consideration
of the sum of P1,047,402.91 under a deed of sale, the former assigned and
discounted with petitioner 11 postdated checks including the
 aforementioned 3 postdated checks issued by herein private respondent-
wife to New Sikatuna.
 When the 3 checks issued by private respondent-wife were allegedly
deposited by petitioner, these checks were dishonored by reason of
“insufficient funds,” “stop payment” and “account closed,” respectively.
 Petitioner claims that despite demands on private respondent-wife to
make good said checks, the latter failed to pay the same necessitating
the former to file an action for collection against the latter and her
husband Haris Chua.
 Private respondents-defendants filed a third party complaint against New
Sikatuna for reimbursement and indemnification in the event that they be
held liable to petitioner-plaintiff. For failure of third party defendant to
answer the third party complaint despite due service of summons, the
latter was declared in default.

RULING:

1.) NO. It results therefore that when appellee rediscounted the check
knowing that it was a crossed check he was knowingly violating the
avowed intention of crossing the check. Furthermore, his failure to inquire
from the holder, party defendant New Sikatuna the purpose for which the
3 checks were crossed, despite the warning of the crossing, prevents him
from being considered in good faith and thus he is not a holder in due
course. Being not a holder in due course, plaintiff is subject to personal
defenses, such as lack of consideration between appellants and New
Sikatuna.
2.) YES. Admittedly, the NIL regulating the issuance of negotiable checks as
well as the rights and liabilities arising therefrom, does not mention
“crosses checks”. But this Court has taken cognizance of the practice that
a check with two parallel lines in the upper left hand corner means that it
could only be deposited and may not be converted into cash.
Consequently, such circumstance should put the payee on inquiry and
upon him devolves the duty to ascertain the holder’s title to the check or
the nature of his possession. Failing in this respect, the payee is declared
guilty of gross negligence amounting to legal absence of good faith and
as such the consensus of authority is to the effect that the holder of the
check is not a holder in good faith.
3.) YES. Under usual practice, crossing a check is done by placing two
parallel lines diagonally on the left top portion of the check. The crossing
may be special wherein between the two parallel lines is written the name
 of a bank or a business institution, in which case the drawee should pay
only with the intervention of the bank or company, or crossing may be
general wherein between two parallel diagonal lines are written the
words “and Co,” or none at all as in the case at bar, in which case the
drawee should not encash the same but merely accept the same for
deposit.
4.) YES. The 3 subject checks in the case at bar had been crossed generally
and issued payable to New Sikatuna which could only mean that the
drawer had intended the same for deposit only by the rightful person., the
payee named therein. Apparently, it was not the payee who presented
the same for payment and therefore, there is no proper presentment, and
the liability did not attach to the drawer. Thus, in the absence of due
presentment, the drawer did not become liable. Consequently, no right of
recourse is available to petitioner against the drawer of the subject
checks, private respondent wife, considering that petitioner is not the
proper party authorized to make presentment of the checks in question.
5.) NO. Yet it does not follow as a legal proposition that simply because the
petitioner was not a holder in due course as found by the appellate court
for having been taken the instruments in question with notice that the
same is for deposit only to the account of payee named in the subject
checks, petitioner could not recover of the checks. The NIL does not
provide that a holder who is not in due course may not in any case
recover on the instrument for in the case at bar, petitioner may recover
from New Sikatuna if the latter has no valid excuse for refusing payment.
The only disadvantage of a holder who is not in due course is that the
negotiable instrument is subject to defenses as if it were non-negotiable.
That the subject checks had been issued subject to the condition that
private respondents on due date would make the back up deposit for
said checks but which condition apparently was not made, thus resulting
in the non-consummation of the loan intended to be granted by private
respondents to New Sikatuna constitutes a good defense against
petitioner who is not a holder in due course.
 STATE INVESTMET HOUSE V. CA
G.R NO. 101163
JANUARY 11, 1993
ISSUES:

1.) WON State Investment House a holder in due course.

2.) WON Moulic can set up against State Investment House the defense that
there was a failure or absence of consideration.
3.) WON the withdrawal of the money from the drawee bank to avoid liability
on the checks cannot prejudice the rights of holders in due course.
4.) WON postdated checks were merely issued as security a ground for the
discharge of the instrument as against holder in due course.
5.) WON the failure of SIH to give notice of dishonor to Moulic make him
liable.
RELEVANT FACTS:

 Private respondent Moulic issued to Victoriano, as security for pieces of

jewelry to be sold on commission, 2 postdated Equitable Banking Corp.
checks.
 Thereafter, the payee negotiated the checks to petitioner State
Investment House. Moulic failed to sell the pieces of jewelry, so she
returned them to the payee before maturity of the checks.
  The checks, however, could no longer be retrieved as they have already
been negotiated. Consequently, before the naturity dates, Moulic
withdrew her funds from the drawee bank.
 Upon presentment for payment, the checks were dishonored for
insufficiency of funds. SIH allegedly notified Moulic of the dishonor of the
checks and requested that it be paid in cash instead, although Moulic
avers that no such notice was given to her.
 The SIH sued Moulic to recover the value of the checks, in her answer,
Moulic contends that she incurred no obligation on the checks because
the jewelry was never sold and the checks were negotiated without her
knowledge and consent. She also instituted a Thirs-Party Complaint
against Victoriano, who later assumed full responsibility of the checks.
RULING:

1.) YES. Culled from the foregoing, a prima facie presumption exists that the
holder of a negotiable instrument is a holder in due course. Consequently,
the burden of proving the SIH is not a holder in due course lies in the
person who disputes the presumption. In this regard, Moulic failed. The
evidence clearly shows that: (a) on their faces the postdated checks
were complete and regular; (b) petitioner bought these checks from the
payee, Victoriano, before their due dates; (c) petitioner took these
checks in good faith and for value, albeit at a discounted price; and (d)
petitioner was never informed nor made aware that these checks were
merely issued to payee as a security and not for value. Consequently, SIH
is indeed a holder in due course. As such, it holds the instruments free from
any defect of title of prior parties, and from defenses available to prior
parties among themselves; SIH may, therefore, enforce full payment of the
checks.
2.) NO. Moulic cannot set up against SIH the defense that there was a failure
or absence of consideration. Moulic can only invoke this defense against
SIH if it was privy to the purpose for which they were issued and therefore
is not a holder in due course.
3.) YES. The drawing and negotiation of a check have certain effects aside
from the transfer of title or the incurring of liability in regard to the
instrument by the transferor. The holder who takes the negotiated paper
makes a contract with the parties on the face of the instrument. There is
an implied representation that funds or credit are available for the
payment of the instrument in the bank upon which it is drawn.
Consequently, the withdrawal of the money from the drawee bank to
avoid liability on the checks cannot prejudice the rights of the holders in
 due course. In the instant case, such withdrawal renders the drawer,
Moulic, liable to SIH, a holder in due course.
4.) NO.That the postdated checks were merely issued as security is not a
ground for the discharge of the instrument as against a holder in due
course. For, the only grounds are those outlined in Sec.119 of the NIL.
Obviously, Moulic may only invoke par. (c) and (d) as a possible grounds
for the discharge of the instrument. But, the intentional cancellation
contemplated under par. (c) is that cancellation effected by destroying
the instrument either by tearing it up, burning it, or writing the word
“cancelled” on the instrument. The act of destroying the instrument must
also be made by the holder of the instrument intentionally. Since Moulic
failed to get back possession of the postdated checks, the intentional
cancellation of the said checks is altogether impossible.
5.) NO. The fact that SIH failed to give Notice of Dishonor to Moulic is of no
moment. The need for such notice is not absolute; there are exceptions
under Sec.114 of the NIL which provides: Notice of Dishonor is not required
to be given to the drawer in the following cases: (a) where the drawer
and the drawee are the same person; (b) when the drawee is a fictitious
person or a person not having capacity to contract: (c) when the drawer
is the person to whom the instrument is presented for payment; (d) where
the drawer has no right to expect or require that the drawee or acceptor
will honor the instrument; (e) where the drawer had countermanded
payment. Indeed, Moulic’s actuations leave much to be desired. She did
not retrieve the checks when she returned the jewelry. She simply
withdrew her funds from her drawee bank and transferred them to
another to protect herself. After withdrawing her funds, she could not
have expected her checks to be honored. In other words, she was
responsible for the dishonor of her checks, hence, there was no need to
serve her Notice of Dishonor, which is simply bringing to the knowledge of
the drawer or indorser of the instrument, either verbally by writing, the fat
that a specified instrument, upon proper proceedings taken, has not
been accepted or has not been paid, and that the party notified is
expected to pay.
 BPI V. CA
G.R NO. 104612
MAY 10, 1994
ISSUES:

1.) WON BPI a holder in due course.

2.) WON to apply the deposit to the payment of a loan is a privilege, a right
of set off which the bank has the option to exercise.
3.) WON Bank deposits are in the nature of irregular deposits; they are really
loans because they earn interests.
4.) WON when the ownership of a particular property is disputed, the
determination by a probate court of whether that property is included in
the estate of a deceased is a merely provisional in character and cannot
be subject to execution.
5.) WON payment made by the debtor to the wrong party does not
extinguish the obligation as to the creditor who is without fault or
negligence.
RELEVANT FACTS:
  Private respondents Eastern and Lim, an officer and stockholder of
Eastern, held at least one joint bank account with the CBTC, the
predecessor-in-interest of the petitioner BPI. Sometime in 1974, a joint
checking account with Lim was opened by Velasco with funds withdrawn
from the account of Eastern and/or Lim. Various amounts were later
deposited or withdrawn from the joint account of Velasco and Lim. The
money therein was placed in the money market.
 Velasco died. By virtue of an Indemnity Undertaking executed by Lim
himself and as Pres. and Gen. Manager of Eastern, one-half of this amount
was provisionally released and transferred to one of the bank accounts of
Eastern and CBTC. Thereafter, in 1978, Eastern obtained a loan from CBTC
as “Additional Working Capital” evidenced by the Disclosure Statement
signed by CBTC. The loan was payable on demand. For this loan, Eastern
issued a negotiable promissory payable on demand to the order of CBTC
and was signed by Lim. No reference to any security for the loan appears
on the note.
 In addition, Eastern and Lim, and CBTC signed another document entitled
“Holdout Agreement” wherein it was stated that “as security for the loan
(Lim and Eastern) have offered CBTC and the latter accepts a holdout on
said [Current Account in the joint names of Lim and Velasco] to the full
extent of their alleged interests therein as these may appear as a result of
final and definitive judicial action or settlement between and among the
contesting parties thereto.
 In the meantime, a case for settlement of Velasco’s estate. In the said
case, the whole balance in the aforesaid joint account of Velasco and
Lim was being claimed as part of Velasco’s estate. The intestate court
granted the urgent motion of the heirs of Velasco to withdraw the deposit
under the joint account of Lim and Velasco and authorized the heirs to
divide among themselves the amount withdrawn.
 In 1980, CBTC was merged with BPI, and in 1987 BPI filed a complaint
against Lim and Eastern demanding payment of the promissory note.
RULING:

1.) NO. It further correctly ruled that BPI was not a holder in due course
because the note was not indorsed to BPI by the payee, CBTC. Only a
negotiation by indorsement could have operated as a valid transfer to
make BPI a holder in due course. It acquired the note from CBTC by the
contract of merger or sale between the two banks. BPI, therefore, took
the note subject to the Holdout Agreement.
2.) YES. We disagree, however, with the CA in its interpretation of the Holdout
Agreement. It is clear from the par. 02 thereof that CBTC, or BPI as its
successor-in-interest, had every right to demand that Eastern and Lim
settle their liability under the promissory note. It cannot be compelled to
retain and apply the deposit in Lim and Velasco’s joint account to the
payment of the note. What the agreement conferred on CBTC was a
power, not a duty. Generally, a bank is under no duty or obligation to
make the application. To apply the deposit to the payment of a loan is a
privilege, a right of set-off which the bank has the option to exercise.
3.) YES. Article 1980 of the Civil Code expressly provides that “fixed, savings,
and current deposits of money in banks and similar institutions shall be
governed by the provisions concerning simple loan.” In Serrano v. Central
Bank of the Phil., we held that bank deposits are in nature of irregular
deposits; they are really loans because they earn interest. The relationship
then between depositor and a bank is one of creditor and debtor. The
deposit under questioned account was an ordinary bank deposit; hence,
it was payable on demand of the depositor.
4.) YES. Moreover, the order of the court in SP. Proc. No. 8959 merely
authorized the heirs of Velasco to withdraw the account. BPI was not
specifically ordered to release the account to the said heirs; hence, it was
under no judicial compulsion to do so. The authorization given to the heirs
of Velasco cannot be construed as a final determination by a probate
court of whether that property is included in the estate of a deceased is
merely provisional in character and cannot be the subject of execution.
5.) YES. Because the ownership of the deposit remained undetermined, BPI,
as the debtor with respect thereto, had no right to pay to persons other
than those in whose favor the obligation was constituted or whose right or
authority to receive payment is indisputable. The payment of the money
deposited with BPI that will extinguish its obligation to the creditor-
depositor is payment to the person of the creditor or to one authorized by
him or by the law to receive it. Payment made by the debtor to the wrong
party does not extinguish the obligation as to the creditor who is without
fault or negligence, even if the creditor, or through error included by fraud
of a third person.
 CHAN WAN V. TAN KIM
G.R NO. L- 15380
SEPTEMBER 30, 1960
ISSUES:

1.) WON Chan Wan a holder in due course.

2.) WON a drawer become liable in the absence of due presentment.
3.) WON a holder who is not a holder in due course cannot recover on the
check.
4.) WON the questioned checks were crossed checks.
5.) WON the drawee is liable to the true owner, in case of payment to person
not entitled thereto.
RELEVANT FACTS:

 Such checks payable to “cash or bearer” and drawn by defendant Tan

Kim upon the Equitable banking Corporation, were presented for
payment by Chan Wan to the to the drawee bank, but they “were all
 dishonored and returned to him unpaid due to insufficiency of funds
and/or causes attributable to the drawer.”
 At the hearing of the case, the plaintif did not take the witness stand. On
the other hand, Tan Kim declared without contradiction that the checks
had been issued to two persons for some shoes the former had promise to
make and “were intended as mere receipts.”
 In view of such circumstances, the court declined to order paymet for two
principal reasons: (a) plaintiff failed to prove he was a holder in due
course, and (b) the checks being crossed checks should not have been
presented to the drawee for “payment,” but should have been deposited
instead with the bank mentioned in the crossing.
 It may be stated in this connection, that the defendants asserted
counterclaim, the court dismissed it for failure of proof, and from such
dismissal they did not appeal.
RULING:

1.) NO. The circumstances would seem to show deposit of the checks with
China and subsequent presentation by the latter through the clearing
office; but as drawee had no funds, they were unpaid and returned,
some of them stamped “account closed”. How they reached his hands,
plaintiff did not indicate. Most probably, as the trial court surmised,-this is
not a finding of fact-he got them after they had been returned, because
they presented them in court with such “account closed”, stamps, without
bothering to explain. Naturally and rightly, the lower court held him not a
holder in due course under the circumstances, since he knew, upon
taking them up, that the checks had already been dishonored.
2.) NO. The drawer in drawing the check engaged that if it be dishonored,
he will pay the amount thereof to the holder. Wherefore, in the absence
of due presentment, the drawer did not become liable.
3.) NO. The NIL does not provide that a holder who is not a holder in due
course, may not in any case, recover on the instrument. The only
disadvantage of a holder who is not a holder in due course is that the
negotiable instrument is subject to defenses as if it were non-negotiable.
Inasmuch as Chan Wan did not present them for payment himself in
Manila court said- there was no proper presentment, and the liability did
not attach to the drawer
4.) YES. 8 of the checks here in question bears across their face two parallel
transverse lines between which these words are written: non-negotiable
 China Banking Corp. These checks have, therefore, been crosses
especially to China Banking Corp., and should have been presented for
payment by China and not by Chan Wan
5.) YES. Where a check is crossed especially in favor of a certain bank, the
check is generally deposited with the bank mentioned in the crossing, so
that the latter may take charge of the collection. If it is not presented by
said bank for payment, the drawee is liable to the true owner, in case of
payment to persons entitled thereto.

YANG V. CA
G.R NO. 138074
AUGUST 15, 2003
ISSUES:

1.) WON respondent David a holder in due course.

2.) WON David gave Chandiramani any consideration of value in exchange
for the aforementioned checks.
3.) WON David was s privy to the transaction between petitioner and
Chandarimani.
4.) WON the subject checks that were crossed, the Court has taken judicial
cognizance of the practice that a check with two parallel lines in the
upper left corner means that it could only be deposited and not
converted into cash.
5.) WON David and PCIB are entitled to damages and attorney’s fees.
RELEVANT FACTS:

 Petitioner Yang and private respondent Chandiramani entered into an

agreement whereby the latter was to give Yang a PCIB manager’s check
in the amount of P4.4 M in exchange for 2 of Yang’s manager’s checks,
each in the amount of P2.087 M, both payable to the order of private
respondent David. Yang and Chandiramani agreed that the difference of
P26, 000.00 in the exchange would be their profit to be divided equally
between them.
 Yang and Chandiramani also further agreed that the former would secure
from FEBTC a dollar draft in the amount of US$200,000.00, payable to PCIB
which Chandiramani would exchange for another dollar draft the same
amount to be issued by Hang Seng Bank Ltd, of Honghong.
 Chandiramani did not appear at the rendezvous and Ranigo (Liong’s
messenger) allegedly lost the two cashier’s checks and the dollar draft
bought by petitioner. Ranigo reported the alleged loss of the checks and
the dollar draft to Liong (Yang’s business partner). Liong, in turn, informed
Yang, and the loss was then reported to the police.
 It transpired, however, that the checks and the dollar draft were not lost,
for Chandiramani was able to get hold of the said instruments, without
delivering the exchange consideration consisting of the PCIB manager’s
check and the Hang Seng Bank dollar draft.
 Chandiramani delivered to respondent David the ff: FEBTC Cashier’s
check and Equitable Cashier’s check, and in exchange Chandiramani
got US$ 360,000.00 from David. Yang requested FEBTC and Equitable to
stop payment on the instruments she believed to be lost. Both banks
complied with the request, but upon the representation of PCIB, FEBTC
subsequently lifted the stop payment order on FEBTC Dollar Draft, thus
enabling the holder of PCIB to receive the amount of US$200,000.00.
 Thus, Yang instituted a Complaint against Equitable, FEBTC, PCIB,
Chandiramani and David.
RULING:

1.) YES. Every holder of a negotiable instrument is deemed prima facie a

holder in due course. However, this presumption arises only in favor of a
person who is a holder in due course as defined in Sec.191 of the NIL,
meaning a “payee or indorsee of a bill or note, who is in possession of it, or
the bearer thereof.” In the present case, it is not disputed that David was
the payee of the checks in question. The weight of authority sustains the
view that a payee may be a holder in due course. Hence, the
presumption that he is a holder in due course applies in his favor.
 However, said presumption may be rebutted. Hence, what is vital to the
resolution of this issue is whether David took possession of the checks
under the conditions provided for in Sec.52 of the NIL. All the requisites
provided for in Sec.52 must concur in David’s case; otherwise he cannot
be deemed a holder in due course.
2.) YES. With respect to consideration, Sec.24 of the NIL creates a
presumption that every party to an instrument acquired the same for a
consideration or for value. Thus, the law itself creates a presumption in
David’s favor that he gave valuable consideration for the checks in
question. In alleging otherwise, the petitioner has the onus to prove that
David got hold of the checks absent said consideration. In other words,
the petitioner must present convincing evidence to overthrow the
presumption. Our scrutiny of the records, however, shows that the
petitioner failed to discharge her burden of proof. The petitioner’s
averment that David did not give valuable consideration when he took
possession of the checks is unsupported, devoid of any concrete proof to
sustain it.
3.) NO. Petitioner fails to point any circumstance which should have put
David on inquiry as the why and wherefore of the possession of the
checks by Chandirami. David was not a privy to the transaction between
petitioner and Chandirami. Instead, Chandirami and David had a
separate dealing in which it was precisely Chandirami’s duty to deliver the
checks to David as payee. The evidence shows that Chandirami
performed said task to the letter. Petitioner admits that David took the
step of asking the manager of his bank to verify from FEBTC and Equitable
as to the genuineness of the checks and only accepted the same after
being assured that there was nothing wrong with the checks. At that time,
David was not aware of any “stop payment” order. Under this
circumstances, David thus had no obligation to ascertain from
Chandirami what the nature of the latter’s title to the checks was, if any,
or the nature of his possession. Thus, we cannot hold him guilty of gross
neglect amounting to legal absence of good faith, absent any showing
that there was something amiss about Chandirami’s acquisition or
possession of the checks. David did not close his eyes deliberately to the
nature or particulars of a fraud allegedly committed by Chandirami upon
the petitioner, absent any knowledge on his part that the action in action
in taking the instruments amounted in bad faith.
4.) YES. The NIL is silent with respect to crossed checks, although the Code of
Commerce makes reference to such instruments. Nonetheless, this Court
has taken cognizance of the practice that a check with two parallel lines
 in the upper left corner means that it could only be deposited and not
converted into cash. The effects of crossing check, thus, relates to the
mode of payment, meaning that the drawer had intended the check for
deposit only by the rightful person, I,.e the payee named therein.
5.) YES. The appellate court likewise found that like David, PCIB was dragged
into this case on unfounded and baseless grounds. Both were thus
compelled to litigate to protect their interests, which makes an award of
attorney’s fees justified under Art.2208 (2) of the Civil Code. Hence, we
rule that the award of attorney’s fees to David and PCIB was proper.

ATRIUM MANAGEMENT V. CA
G.R NO. 109491
FEBRUARY 28, 2001
ISSUES:

1.) WON petitioner Atrium was not a holder in due course.

2.) WON the said checks were not issued for consideration.
3.) WON Lourdes were personally liable for the checks issued as corporate
officers and authorized signatories of the check.
4.) WON a holder not in due course may still recover on the instrument.
5.) WON a holder not in due course is subject to defenses.
RELEVANT FACTS:
  Atrium filed with the RTC Manila an action for collection of the proceeds
of the 4 postdated checks in the total amount of P2M.
 Hi-Cement through its corporate signatories, petitioner Lourdes, treasure
and the late Antonio chairman, issued a checks in favor of E.T Henry as
payee. E.T Henry in turn, endorsed the 4 checks to petitioner Atrium for
valuable consideration.
 Upon presentment for payment, the drawee bank dishonored all 4 checks
for the common reason “payment stopped”. Atrium, thus, instituted this
action after its demand for payment of the value of the checks was
denied.
 The trial court ordered Lourdes, her husband, E.T Henry and Hi-Cement to
pay petitioner Atrium, jointly and severally, the amount of P2M
corresponding to the value of the 4 checks, plus interest and attorney’s
fees.
 On appeal, the CA modified the trial court’s decision absolving Hi-
Cement from liability and dismissing the complaint against it.
RULING:

1.) YES. In the instant case, the checks were crossed checks and specially
indorsed for deposit to payees account only. From the beginning, Atrium
was aware of the fact that the checks were all for deposit only to payee’s
account, meaning E.T Henry. Clearly then, Atrium could not be
considered a holder in due course.
2.) NO. Hi-Cement, however, maintains that the checks were not issued for
consideration and that Lourdes and E.T Henry engaged in a “kiting
operation” to raise funds for E.T Henry, who admittedly was in need of
financial assistance. The Court finds that there was no sufficient evidence
to show that such is the case. Lourdes is the treasurer of the corporation
and is authorized to sign checks for the corporation. At the time of the
issuance of the checks, there were sufficient funds in the bank to cover
payment of the amount of P2M pesos. It is, however, our view that there is
basis to rule that the act of issuing the checks was well within the ambit of
a valid corporate act, for it was for securing a loan to finance the
activities of the corporation, hence, not an ultra vires act.
3.) YES. In the case at bar, Lourdes and Antonio as treasurer and Chairman of
Hi-Cement were authorized to issue the checks. However, Lourdes was
negligent when she signed the confirmation letter requested by Mr. Yap
of Atrium and Mr. Henry and E.T Henry for the rediscounting of the crossed
checks were strictly endorsed for deposit only to payees account and not
to be further negotiated. What is more, the confirmation letter contained
 a clause that was not true, that is, “that the checks issued to E.T Henry
were in payment of Hydro oil bought by Hi-Cement from E.T Henry.” Her
negligence resulted in damage to the corporation. Hence, Lourdes may
be held personally liable therefor.
4.) YES. It does not follow as a legal proposition that simply because
petitioner Atrium was not a holder in due course for having taken the
instruments in question with notice that the same was for deposit only to
the account of payee E.T Henry that it was altogether precluded from
recovering on the instrument. The NIL does not provide that a holder not in
due course cannot recover on the instrument.
5.) YES. The disadvantage of Atrium in not being a holder in due course is that
the negotiable instrument is subject to defenses as if were non-negotiable.
One such defense is absence or failure of consideration.

BPI V. ROXAS
G.R NO. 157833
OCTOBER 15, 2007
ISSUES:
1.) WON respondent Roxas a holder in due course.
2.) WON petitioner BPI is liable to respondent for the amount of the cashier’s
check.
3.) WON respondent Roxas a holder for value.
4.) WON cashier’s check is really the bank’s own check and may be treated
as a promissory note with the bank as the maker.
5.) WON BPI is liable to Roxas.
RELEVANT FACTS:

 Roxas, respondent, is a trader. He delivered stocks of vegetable oil to

spouses Cawili. As payment therefor, spouses Cawili issued a personal
check in the amount of P348, 805.50.However, when respondent tried to
encash the check, it was dishonored by the drawee bank. Spouses Cawili
then assured him that they would replace the bounced check with a
cashier’s check from BPI, petitioner.
 Respondent and Cawili went to petitioner’s branch in Mandaluyong City
where Capistrano, the branch manager, personally attended to them.
The bank teller prepared BPI Cashier’s Check drawn against the account
of Cawili, payable to respondent.
 Respondent returned to petitioner’s branch to encash the cashier’s check
but it was dishonored. Capistrano informed him that the Cawili’s account
was closed.
 Despite respondent insistence, the bank officers refused to encash the
check and tried to retrieve it from respondent. Respondent filed a
complaint for sum of money against petitioner.
 In its answer, petitioner specifically denied the allegations in the
complaint, claiming that it issued the check by mistake in good faith; that
it dishonor was due to lack of consideration ; and that the respondent’s
remedy was to sue Cawili who purchased the check. Petitioner filed a
third party complaint against spouses Cawili. They were later declared in
default for their failure to file their answer.

RULING:
1.) YES. As a general rule, every holder is presumed prima facie to be a
holder in due course. One who claims otherwise has the onus probandi to
prove that one or more of the conditions required to constitute a holder in
due course are lacking. In this case, petitioner contends that the element
of “value” is not present, therefore, respondent could not be holder in due
course. Petitioner’s contention lacks of merit. Sec.25 of NIL states: Value is
any consideration sufficient to support a simple contract. An antecedent
or pre-existing debt constitute value; and is deemed as such whether the
instrument is payable on demand or at a future time.
2.) YES. In view of the above pronouncement, petitioner bank became liable
to respondent from the moment it issued the cashier’s check. Having
 been accepted by respondent, subject to no condition whatsoever,
petitioner should have paid the same upon presentment by the former.
3.) YES. Here, there is no dispute that respondent received Cawili’s cashier’s
check as payment for the former’s vegetable oil. That fact that it was
Rodrigo Cawili who purchased the cashier’s check from petitioner will not
affect respondent’s status as a holder in value since the check was
delivered to him as payment for the vegetable oil he sold to spouses
Cawili. Verily, the CA did not err in concluding that respondent is a holder
in due course of the cashier’s check.
4.) YES. It bears emphasis that the disputed check is a cashier’s check. In ICB
v. Spouses Gueco, this court held that a cashier’s check is really the
bank’s own check and may be treated as promissory note with the bank
as the maker. The check becomes the primary obligation of the bank
which issues it and constitutes a written promise to pay upon demand. In
NPTSCI v. Seneris, this Court took judicial notice of the “well known and
accepted practice in the business sector that a cashier’s check is
deemed as cash.” This is because the mere issuance of the cashier’s
check is considered acceptance thereof.
5.) YES. In view of the above pronouncements, petitioner bank became
liable to respondents from the moment it issued the cashier’s check.
Having been accepted by respondent, subject to no condition
whatsoever, petitioner should have paid the same upon presentment by
the former.

REPUBLIC V. EQUITABLE
G.R NO. L- 15894
JANUARY 30, 1964
ISSUES:

1.) WON the “24 hour clearing house rule” is applicable in the case at bar.
2.) WON the Treasury was negligent in clearing the said warrants.
3.) WON forgery was committed by the Treasury in the case at bar.
4.) WON Treasury is in bad faith.
 5.) WON the PI Bank and Equitable Bank should not and cannot be
penalized.
RELEVANT FACTS:

 Republic seeks to recover (1) from the Equitable Bank the sum of P17,
100.00 representing the aggregate value of 4 treasury warrants paid to
said bank by the treasurer of the Phil. thru Clearing Office of the Central
Bank of the Phil. and (2) from the BPI the total sum of P342, 767.63,
representing the aggregate value of 24 treasury warrants similarly paid by
the treasurer to the PI Bank.
 These claims for refund are based upon a common ground-although said
28 warrants were executed on genuine government forms, the signature
thereon of the drawing office and that of the representative of the
Auditor General in that office are forged.
 The Corporacion de los Padres Dominicos had acquired 24 treasury
warrants by accommodating its former trusted employee on Jacinto
Carranza-who asked the Corporacion to cash the warrants, alleging that
it was difficult to do so directly with the government and that his wife
expected a sort of commission for the encashment; that the Corporation
acceded to Carranza’s request, provided that the warrants would first be
deposited with PI Bank, and that actual payment of the value of the
warrants would be made only after the same had been duly accepted
and cleared by the Treasurer and the proceeds thereof duly credited to
the account of the Corporacion in the PI Bank; that the warrants were,
accordingly, deposited by the Corporacion with said bank, which
accepted them “subject to collection only”; that when the warrants were
deposited with the PI Bank, each bore the indorsement of the respective
payees and that of the Corporacion; that, subsequently, the PI Bank
presented the warrants for payment to the drawee thereof-the
Government-thru the Clearing Office of the Central Bank; that after being
cleared, the warrants were paid by the Treasurer. The PI Bank credited the
proceeds of said warrants to the Corporacion, which in turn, withdrew
said proceeds by means of its own checks and eventually paid the
corresponding amounts to Carranza.
 The Treasurer returned 3 of the said warrants to the Central Bank, and
demanded, on the ground that they had been forged, 4 days later 2
more warrants and, finally, the remaining 19 warrants were returned by
the Treasury to the Central Bank for the same reason and with the same
demand. The Central Bank in turn referred said warrants, together with the
letters of demand of the Treasurer, for appropriate action to the PI Bank,
 which opposed the return of the warrants or to have the value thereof
charged against its account in the Clearing Office and requested the
Central Bank to return the warrants to the Treasurer.
 Records show that the 4 warrants involved therein were deposited with
Equitable Bank by persons known thereto as its depositors or costumers,
that, in due course, the Equitable Bank cleared said warrants, thru the
Clearing Office, then collected the corresponding amounts to the from
the Treasurer and thereafter credited said amounts to the accounts of
the respective depositors; the Treasurer notified the Equitable Bank of the
alleged defect of said warrants and demanded reimbursement of the
amounts thereof; and that this demand was rejected by the Equitable
Bank.
 Upon leave of the lower court, the PI Bank filed a third party complaint
against the Corporacion and the Equitable Bank filed a similar complaint
against Wong, Kau, and Ching (depositors)for whatever reimbursements
the PI Bank and the Equitable Bank may respectively be sentenced to
make to the Government. By agreement of the said parties, the 2 cases
were jointly heard.
 The clearing of the aforementioned 28 warrants thru the Clearing Office
was made pursuant to the “24 hour clearing house rule”, which had been
adopted by the Central Bank in a conference with representatives and
the official of the different banking institutions in the Phil.
RULING:

1.) YES. The Government maintains that it is not bound by this rule because:
(1) the Treasury is not a bank; and (2) the Treasurer has objected to the
application of the said rule to his office. This contention however,
untenable for, admittedly, the Treasury is a member of the
aforementioned Clearing Office clearly shows that the former “has
agreed to clear its clearable items through” the latter “subject to the rules
and regulations of the Central Bank.” Besides, the above quoted rules
applies not only to banks, but also to the institutions and entities therein
alluded to. Then too, the opposition of the treasurer to the “24 hour
clearing house rule” is not sufficient to exempt the Treasury from the
operation thereof.
2.) YES. At any rate, the aforementioned 28 warrants were cleared and paid
by the Treasurer, in view which the PI Bank and the Equitable Bank
credited the corresponding amounts to the respective depositors of the
warrants and then honored their checks for said amounts. Thus, the
Treasury had not only been negligent in clearing its own warrants, but
 had, also, thereby induced the PI Bank and Equitable Bank to pay the
amounts thereof to said depositors.
3.) YES. The gross nature of the negligence of the Treasury become more
apparent when we consider that each one of the 24 warrants involve was
over 5k, and hence; beyond the authority of the auditor of the Treasury-
whose signature thereon had been forged-to approve. In other words, the
irregularity of said warrants was apparent the face thereof. From the
viewpoint of the Treasury.
4.) YES. The irregularity of said warrants was apparent the face thereof. From
the viewpoint of the Treasury. Moreover, the same had not advertised the
loss of genuine forms of its warrants. Neither had the PI Bank nor the
Equitable Bank been informed of any irregularity in connection with any of
the warrants involved in these 2 cases, until after 1952-or after the warrants
had been cleared and honored- when the Treasury gave notice of the
forgeries adverted to above.
5.) YES. As a consequence, the loss of the amounts thereof is mainly
imputable to acts and omissions of the Treasury, for which the PI Bank and
Equitable bank should not and cannot be penalized. “ where a loss,
which must be borne by one of 2 parties alike innocent of forgery, can be
traced to the neglect or fault of either, it is reasonable that it would be
borne by him, even if innocent of any intentional fraud, through whose
means it has succeeded.” (PNB v. National City Bank of New York, 63 Phil.
711, 723)

DINO V. JUDAL-LOOT
G.R NO. 170912
APRIL 19, 2010
ISSUES:
 1.) WON respondents were holders in due course.
2.) WON in the absence of due presentment, the drawer did not become
liable.
3.) WON respondents can still recover in the instrument even when they were
not a holder in due course.
4.) WON there is a consideration in the issuance of the check.
5.) WON the subject check is a crossed check.
RELEVANT FACTS:

 A syndicate, one of whose members posed as an owner of several

parcels of land situated in Lapu-Lapu City, approached petitioner and
induced him to lend the group P3M to be secured by real estate
mortgage on the properties. Enticed and convinced by the syndicate’s
offer, petitioner issued 3 Metrobank checks totaling P3M payable to
Consing and/or Lobitana.
 Upon scrutinizing the documents involving the properties, petitioner
discovered that the documents covered rights over government
properties. Realizing that he had been deceived, petitioner advised
Metrobank to stop payment of his checks. However, only 1 of the issued
checks was ordered stopped. The other 2 checks were already encashed
by the payees.
 Lobitana negotiated and indorsed the said check to respondents in
exchange for cash in the sum of P948, 000.00, which respondent
borrowed from Metrobank and charged against their credit line. Before
respondents accepted the check, they first inquired from the drawee
bank, Metrobank, cebu-Mabolo Branch if the subject check was
sufficiently funded, to which Metrobank answered in the positive.
However, when respondents deposited the checks with Metrobank, the
same was dishonored by the drawee bank for reason “PAYMENT
STOPPED.”
 Respondents filed a collection suit against petitioner and Lobitana,
alleging among other things, that they are holders in due course and for
value and that they had no prior information concerning the transaction
between defendants.
 In his answer, petitioner denied respondent’s allegations that “on the face
of the subject check, no condition or limitation was imposed” and that
respondents are holders in due course and for value of the checks. For her
part, Lobitana denied the allegations in the complaint and basically
claimed that the transaction leading to the issuance of the subject check
 is a sale of a parcel of land by Consing to petitioner and that she was
made a payee of the check only to facilitate its discounting.
RULING:

1.) YES. Based on the foregoing, respondents had the duty to ascertain the
indorser’s, in this case Lobitana’s title to the check or the nature of her
possession. This respondents failed to do. Respondent’s verification from
Metrobank on the funding of the check does not maount to
determination of Lobitana’s title to the check. Failing in this respect,
respondents are guilty of gross negligence amounting to legal absence of
good faith, contrary to sec.52 (c) of the NIL. Hence, respondents are not
deemed holders in due course of the subject check.
2.) YES. In this case, there is no question that the payees of the check,
Lobitana and Consing, were not the ones who presented the check for
payment. Lobitana negotiated and indorsed the check to respondents in
exchange for P948, 000.00. It was respondents who presented the subject
check for payment; however, the check was dishonored for reason
“PAYMENT STOPPED.” In other words, it was not the payee who presented
the check for payment; and thus, there was no proper presentment. As a
result, liability did not attach to the drawer. Accordingly, no right of
recourse is available to respondents against the drawer of the check,
petitioner herein, since respondents are not the proper party authorized to
make presentment of the subject check.
3.) YES. The fact that respondents are not holders in due course does not
automatically mean that they cannot recover on the check. The NIL does
not provide that a holder who is not holder in due course may not in any
case recover on the instrument. The only disadvantage of a holder who is
not a holder in due course is that the negotiable instrument is subject to
defenses as if it were non-negotiable. Among such defenses is the
absence or failure of consideration, which petitioner sufficiently
established in this case.
4.) NO. Petitioner issued the subject check supposedly for a loan in favor of
Consing’s group, who turned out to be a syndicate defrauding gullible
individuals. Since there is in fact no valid loan to speak of, there is no
consideration for the issuance of the check. Consequently, petitioner
cannot be obliged to pay the face value of the check.
5.) YES. Indeed, petitioner did not expressly state in his answer or raise during
the trial that Metrobank Check is a crossed check. It must be stressed,
however, that petitioner consistently argues that respondents are not a
holder in due course of the subject check, which is one of the possible
effects of a crossing check. The act of crossing a check serves a warning
to the holder that the check has been issued for a definite purpose so that
that holder thereof must inquire if he has receive the check pursuant to
that purpose; otherwise, he is not a holder in due course. Contrary to
respondents’ view, petitioner never changed his theory, that respondents
are not holders in due course of the subject check, as would violate
fundamental rules of justice, fair play, and due process. Besides, the
subject check was presented and admitted as evidence during the trial
and respondents did not and in fact cannot deny that it is a crossed
check.

PNB V. SEETO
G.R NO. L-4388
AUGUST 13, 1952
ISSUES:

1.) WON unreasonable delay in presentment discharges the indorser from

liability.
2.) WON 27 days’ delay in presentment is reasonable under NIL.
3.) WON parol evidence on obligation is admissible in court.
4.) WON Secs. 143 and 114 are applicable in the case at bar.
5.) WON Sec.84 is applicable in the case at bar.
RELEVANT FACTS:

 Respondent Seeto called at the branch of the PNB, petitioner herein, at

Surigao, and presented a check in the amount of P5k payable to cash or
bearer, and drawn by one Gan Yek Kiao against Cebu branch of
Phil.Bank of Communications.
 Seeto made a general and unqualified indorsement of the check, and
petitioner’s agency accepted it and paid respondent the amount of P5k
therefore. The check was mailed to petitioner’s Cebu branch and was
presented to the drawee bank for payment, but the check was
dishonored for “insufficient funds.”
 So the check was returned to petitioner’s Surigao agency, and upon
receipt thereof by it, said branch immediately sent a letter to respondent
herein demanding immediate refund of the value of the check. A second
communication of the same tenor was sent to which respondent
answered asking that plaintiff’s contemplated suit be conferred while he
was making inquiries about the reasonable dishonor of the check.
 Thereafter, respondent refused to make the refund demanded, claiming
that at the time of the negotiation of the check the drawer had sufficient
funds in the drawee bank, and that had the petitioner’s Surigao agency
not delayed to forward the check until the drawer’s funds were
exhausted, the same would have been paid.
 Thereupon petitioner presented a complaint alleging that respondent
Seeto gave assurances to petitioner’s agency in Surigao that the drawer
of the check had sufficient funds with the drawee bank, and that upon
these assurances petitioner’s agency delivered the P5k to the respondent
after the latter had made a general and unqualified indorsement
thereon. Respondent denied having made the alleged assurances.
RULING:

1.) YES. Although the drawer of a check is discharged from liability only to the
extent of the loss caused by unreasonable delay in presenting the checks
 for payment, an indorser is wholly discharged thereby irrespective of any
question of loss or inquiry. (NIL Secs. 84, and 186)
2.) NO. Sec186 of the NIL expressly requires that a check must be presented
for payment within a reasonable time after the issue. A delay of 27 days
from the date of indorsement to that of the presentation of the check for
payment at the drawee bank, is unreasonable, and consequently,
discharges completely the indorser from liability.
3.) YES. Assurances made by an indorser that the drawer has funds, which
assurances induced the bank to cash the check, are admissible in
evidence but they are merely expressions of the obligations of the indorser
as prescribed in sec. 66 of the NIL.
4.) NO. It is true that Secs. 143 and 114 of the NIL are not applicable, because
these are provisions having to do with the presentation of a bill of
exchange for acceptance, and are not applicable to a check, as to
which presentment for acceptance is not required.
5.) YES. It is also true that Sec.84 is applicable, which provides: Subject to the
provisions of this Act, when the instrument is dishonored by nonpayment,
an immediate right of recourse to all parties secondarily liable thereon
accrues to the holder. But its application is subject to the condition
imposed by sec.186, to the effect that the check must be presented for
payment within a reasonable time after its issue.

DE OCAMPO V. GATCHALIAN
G.R NO. L-15126
NOVEMBER 30, 1961
ISSUES:

1.) WON petitioner De Ocampo a holder in due course.

2.) WON the rule that a possessor of the instrument is a prima facie a holder in
due course is applicable in the case at bar.
3.) WON petitioner De Ocampo is guilty of bad faith.
4.) WON when a holder is a holder in due course it is required for him to prove
that he is in good faith.
5.) WON there has been no negotiation of the instrument because the
drawer did not deliver the instrument to Gonzales with the intention of
negotiating the same.
RELEVANT FACTS:

 Defendant Gatchalian who was then interested in looking for a car was
shown and offered a car by Gonzales. The latter represented to the
defendant that he was duly authorized by the owner of the car, Ocampo
Clinic, to look for a buyer of said car and to negotiate for and accomplish
said sale, but which facts were not known to plaintiff.
 Gonzales requested Gatchalian to give him a check which will be shown
to the owner as evidence of buyer’s good faith in the intention to
purchase the said car, the said check to be for safekeeping only of
Gonzales and to be returned to Gatchalian the following day when
Gonzales brings the car and the certificate of registration, but which facts
were not known to plaintiff. Gatchalian drew and issued a check to
Gonzales and the latter executed and issued a receipt for the said check
to the former.
 For failure of Gonzales to bring the car and the certificate of registration
and to return the issued check Gatchalian issued a ‘Stop Payment Order’.
Gonzales having received the check from Gatchalian under the
representations and conditions delivered the same to the Ocampo Clinic,
in payment of the fees and expenses arising from the hospitalization of his
wife.
 That plaintiff for and in consideration of fees and expenses of
hospitalization and the release of the wife of Gonzales from its hospital,
accepted said check, applying P441.75 thereof to payment of said fees
and expenses and delivering to Gonzales the amount of P158.25
representing the balance on the amount of the said check.
 That the acts of acceptance of the check and application of its proceeds
in the manner specified above were made without previous inquiry by
plaintiff from defendants. The plaintiff filed or caused a complaint for
estafa against Gonzales in paying his obligation with plaintiff and
 receiving the cash balance of the check, and that said complaint was
subsequently dropped.
RULING:

1.) NO. It was payee’s duty to ascertain from the holder Gonzales what the
nature of the latter’s title to the check was or the nature of his possession.
Having failed in this respect, we must declare that plaintiff-appellee was
guilty of gross neglect in not finding out the nature of the title and
possession of Gonzales, amounting to legal absence of good faith, and it
may not be considered as a holder of the check in good faith. To such
effect is the consensus of authority.
2.) NO. In the case at bar the rule that a possessor of the instrument is a prima
facie a holder in due course does not apply because there was a defect
in the title of the holder (Gonzales), because the instrument is not payable
to him or to bearer. On the other hand, the stipulation of facts indicated
by the appellants in their brief, like the fact that the drawer had no
account with the payee; that the holder did not show or tell the payee
why he had the check in his possession and why he was using it for the
payment of his own personal account-show that holder’s title was
defective or suspicious, to say the least.
3.) YES. The stipulation of facts expressly states that plaintiff-appellee was not
aware of the circumstances under which the check was delivered to
Gonzales, but we agree with the defendants-appellants that the
circumstances indicated by them in their briefs, such as the fact that
appellants had no obligation or liability to the Ocampo Clinic; that the
amount of the check did not correspond exactly with the obligation of
Gonzales’ wife to Dr. V.R De Ocampo; and that the check had two
parallel lines in the upper left hand corner , which practice means that the
check could only be deposited but may not be converted into cash- all
these circumstances should have put the plaintiff-appellee to inquiry as to
why and wherefore the possession of the check by Gonzales, and why he
used it to pay for own personal account.
4.) YES. When the payee required the check under circumstances which
should have put it to inquiry, why the holder had the check and used it, to
pay his own personal account, the duty developed upon it to prove that
it actually acquired it in good faith.
5.) NO. Admitting that such was the intention of the drawer of the check
when she delivered it to Gonzales, it was no fault of the Plaintiff-appellee
drawee if Gonzales delivered the check or negotiated it. As a check was
payable to the plaintiff-appellee, and was entrusted to Gonzales by
Gatchalian, the delivery to Gonzales was a delivery by the drawer to his
own agent; in other word, Gonzales was the agent of the drawer
Gatchalian insofar as the possession of the check concerned. So, when
the agent of drawer Gatchalian negotiated the check with the intention
of getting its value from plaintiff-appellee, negotiation took place through
no fault of plaintiff-appellee, unless it can be shown that the plaintiff-
appellee should be considered as having notice of the defect in the
possession of the holder Gonzales.

FOSSUM V. HERMANOS
G.R NO. 19461
 MARCH 28, 1923
ISSUES:

1.) WON petitioner may hide under the “shelter rule”.

2.) WON the petitioner a holder in due course.
3.) WON PNB bank a holder in due course.
4.) WON petitioner a real party in interest.
5.) WON petitioner and PNB is in bad faith.
RELEVANT FACTS:

 Fossum was the resident agent in Manila of the American Iron Products
Compay, Inc., procured an order from Fernandez Hermanos, a general
commercial partnership engaged in business in the Phil.to deliver to said
firm a tail shaft, to be installed in the ship Romulus. It was stipulated that
the said tail shaft would be in accordance with specifications contained
in a blue print which had been placed in the hands of Fossum; and it was
further understood that the shaft should be shipped from New York in the
year 1920.
 Considerable delay seems to have been encountered in the matter of
the manufacture and shipment of the shaft; but in the autumn of 1920 it
was dispatched to Manila, having arrived in 1921.
 Meanwhile the American had drawn time draft, at 60 days, upon
Fernandez Hermanos for the purchase price of the shaft, the same being
in the amount of $2, 250, and payable to the PNB. In due course the draft
was presented to Fernandez Hermanos for acceptance, and was
accepted by said firm according to its tenor.
 Upon inspection after arrival in Manila the shaft was found not to be in
conformity with the specifications and was incapable of use for the
purpose for which it had been intended. Upon discovering this, Fernandez
Hermanos refused to pay the draft, and it remained for a time dishonored
in the hands of the PNB in Manila.
 Later the bank indorsed the draft in blank, without consideration, and
delivered it to plaintiff, Fossum, who thereupon instituted the present
action on the instrument against the acceptor, Fernandez Hermanos. And
invoke the shelter rule.

RULING:
1.) NO. While it is true that a person who is not himself a holder in due course
may yet recover against the person primarily liable where it appears that
 such holder derives his title through a holder in due course, there are
exceptions. Here, the holder was party to the contract which participated
to the defect of the instrument. Hence, shelter rule finds no application
here.
2.) NO. The plaintiff himself is far from being a holder of this draft in due
course. In the first place, he was himself a party to the contract which
supplied the consideration for the draft, albeit he there acted in a
representative capacity. In the second place, he procured the instrument
to be indorsed by the bank and delivered to himself without payment of
value, after it was overdue, and with full notice that, as between the
original parties, the consideration had completely failed. Under these
circumstances recovery of this draft by the plaintiff by virtue of any merit
in his own position is out of the question.
3.) NO. The presumption expressed in that section arises only in favor of a
person who is a holder in the sense defined in sec.191 of the NIL, that is, a
payee or indorsee who is in possession of the draft, or the bearer thereof.
Under this definition, in order to be a holder, one must be in possession of
the note or the bearer thereof. If this action had been instituted by the
bank itself, the presumption that the bank was a holder in due course
would have arisen from the tenor of the draft and the fact that it was in
the bank’s possession; but when the instrument passed out of the
possession of the bank and into the possession of the present plaintiff, no
presumption arises as to the character in which the bank held the paper.
The bank’s relation to the instrument became past history when it
delivered the document to the plaintiff; and it was incumbent upon the
plaintiff in this action to show that the bank had in fact acquired the
instrument for value and under such conditions as would constitute it a
holder in due course. In the entire absence of proof on this point, the
action must fail.
4.) YES. This is found in the fact that the plaintiff personally made the contract
which constituted the consideration for this draft. He was therefore a party
in fact, if not in law, to the transaction giving origin to the instrument; and
it is difficult to see how the plaintiff could strip himself of the character of
agent with respect to the origin of the contract and maintain this action in
his own name where his principal could not. Certainly an agent who
actually makes a contract, and who has notice of all equities emanating
therefrom, can stand on no better footing than his principal with respect
to commercial paper growing out to the transaction. To place him on any
higher plane would be incompatible with the fundamental conception
underlying the relation of principal and agent. We note that in the present
 case there is no proof that the plaintiff has ceased to be the agent of the
American Iron Products Company Inc.; and in the absence of proof the
presumption must be that he still occupies the relation of agent to that
company.
5.) YES. It appears from statements of Fossum on the witness stand that the
draft in question was indorsed and delivered to him by the bank in order
that suit might be brought thereon in his name for the use and benefit of
the bank, which is said to be the real party in interest. In addition to this it
appears that during the pendency of the cause in this court on appeal a
formal transfer, or assignment, to the bank was made by Fossum of all his
interest in the draft and in the cause of action. Assuming that the
suggestion thus made is true, and the bank is the real party in interest, the
result of the lawsuit in this court is not thereby affected, since it has not
been affirmatively shown that the bank is an innocent purchaser for
value.