PHILIPPINE EDUCATION CO., INC. vs.
 MAURICIO A. transactions but merely exercises a governmental
SORIANO, ET AL.,  power for the public benefit.
Facts:
Enrique Montinola purchased from the Manila Post
Office ten (10) money orders of P200.00 each payable
to E.P. Montinola. Montinola offered to pay with private
checks that were not generally accepted in payment of
money orders. So, the teller advised him to see the
Chief of the Money Order Division, but instead of doing
so, Montinola managed to leave building with his own
check and the ten(10) money orders without the
knowledge of the teller.
Upon discovery of the disappearance of the unpaid
money orders, an urgent message was sent to all
postmasters, and all banks, instructing them not to pay
anyone of the money orders aforesaid if presented for
payment.
Sometime later, one of the irregularly-issued money
orders was received by appellant (Phil Education) as
part of its sales receipts. It deposited the same with the
Bank of America and cleared it with the Bureau of Posts
and received from the latter its face value of P200.00.
Appellee Soriano, Chief of the Money Order Division of
the Manila Post Office, notified the Bank of America
that the money order has been irregularly issued and
that the amount it represented had been deducted
from the bank's clearing account. For its part,the Bank
of America debited appellant's account with the same
amount and gave it advice thereof by means of a debit
memo.
Appellant requested the Postmaster General to
reconsider the action taken by his office deducting the
sum of P200.00 from the clearing account of the Bank
of America, but his request was denied.
Issue: WON the postal money order in question is a
negotiable instrument; and that money orders, once
issued, create a contractual relationship of debtor and
creditor, respectively, between the government, on the
one hand, and the remitters payees or endorses, on the
other.
Ruling: The weight of authority in the United States is
that postal money orders are not negotiable
instruments. The reason behind this rule being that, in
establishing and operating a postal money order
system, the government is not engaging in commercial
It is to be noted in this connection that some of the
restrictions imposed upon money orders by postal laws
and regulations are inconsistent with the character of
negotiable instruments. For instance, such laws and
regulations usually provide for not more than one
endorsement; payment of money orders may be
withheld under a variety of circumstances.
Caltex vs. CA
Facts:
Defendant, a commercial banking institution, issued 280
certificates of time deposit (CTDs) in favor of one Angel
dela Cruz who deposited with herein defendant the
aggregate amount of P1,120,000.00.
Angel dela Cruz delivered the said certificates of time
(CTDs) to herein plaintiff (Caltex) in connection with his
purchased of fuel products from the latter.
Sometime later, Angel dela Cruz informed the Bank that
he lost all the certificates of time deposit. Angel dela
Cruz executed and delivered to defendant bank the
required Affidavit of Loss. On the basis of said affidavit
of loss, 280 replacement CTDs were issued in favor of
said depositor.
Subsequently, Angel dela Cruz negotiated and obtained
a loan from defendant bank in the amount of
P875,000.00.
Plaintiff Caltex went to the defendant bank and
presented for verification the CTDs declared lost by
Angel dela Cruz alleging that the same were delivered
to herein plaintiff "as security for purchases made with
Caltex Philippines, Inc." by said depositor. Defendant
bank rejected the plaintiff's demand and claim for
payment of the value of the CTDs.
Plaintiff filed the instant complaint, praying that
defendant bank be ordered to pay it the aggregate
value of the certificates of time deposit of
P1,120,000.00.
Issues:
WON the CTDs are negotiable
WON the Bank is liable to pay plaintiff Caltex
Ruling:
1) The CTDs are negotiable instruments.
The documents provide that the amounts deposited
shall be repayable to the depositor. And who, according
to the document, is the depositor? It is the "bearer."
The documents do not say that the depositor is Angel
de la Cruz and that the amounts deposited are
repayable specifically to him. Rather, the amounts are
to be repayable to the bearer of the documents or, for
that matter, whosoever may be the bearer at the time
of presentment.
If it was really the intention of respondent bank to pay
the amount to Angel de la Cruz only, it could have been
so expressed in clear and categorical terms in the
documents, instead of having the word "BEARER"
stamped on the space provided for the name of the
depositor in each CTD. On the wordings of the
documents, therefore, the amounts deposited are
repayable to whoever may be the bearer thereof.
Thus, petitioner's aforesaid witness merely declared
that Angel de la Cruz is the depositor "insofar as the
bank is concerned," but obviously other parties not
privy to the transaction between them would not be in
a position to know that the depositor is not the bearer
stated in the CTDs. Hence, the situation would require
any party dealing with the CTDs to go behind the plain
import of what is written thereon to unravel the
agreement of the parties thereto through
facts aliunde. This need for resort to extrinsic evidence
is what is sought to be avoided by the Negotiable
Instruments Law and calls for the application of the
elementary rule that the interpretation of obscure
words or stipulations in a contract shall not favor the
party who caused the obscurity. 12
2) There was no valid negotiation.
The records reveal that Angel de la Cruz delivered the
CTDs amounting to P1,120,000.00 to petitioner without
informing respondent bank thereof at any time.
Unfortunately for petitioner, although the CTDs are
bearer instruments, a valid negotiation thereof requires
both delivery and indorsement. The CTDs were in reality
delivered to it as a security for De la Cruz' purchases of
its fuel products. Any doubt as to whether the CTDs
were delivered as payment for the fuel products or as a
security has been dissipated and resolved in favor of the
latter by petitioner's own authorized and responsible
representative himself.
If it were true that the CTDs were delivered as payment
and not as security, petitioner's credit manager could
have easily said so, instead of using the words "to
guarantee" in the letter aforequoted.
Metrobank v CA
FACTS:
Eduardo Gomez opened an account with Golden
Savings and deposited over a period of two months 38
treasury warrants with a total value of P1,755,228.37.
They were all drawn by the Philippine Fish Marketing
Authority and purportedly signed by its General
Manager and countersigned by its Auditor. Six of these
were directly payable to Gomez while the others
appeared to have been indorsed by their respective
payees, followed by Gomez as second indorser.
All warrants were subsequently indorsed by Gloria
Castillo as Cashier of Golden Savings and deposited to
its Savings account in Metrobank branch in Calapan,
Mindoro. They were sent for clearance. Meanwhile,
Gomez is not allowed to withdraw from his account,
later, however, “exasperated” over Floria repeated
inquiries and also as an accommodation for a “valued”
client Metrobank decided to allow Golden Savings to
withdraw from proceeds of the warrants. In turn,
Golden Savings subsequently allowed Gomez to make
withdrawals from his own account. Metrobank
informed Golden Savings that 32 of the warrants had
been dishonored by the Bureau of Treasury and
demanded the refund by Golden Savings of the amount
it had previously withdrawn, to make up the deficit in
its account. The demand was rejected. Metrobank then
sued Golden Savings.
ISSUE:
1. Whether or not Metrobank can demand refund
agaist Golden Savings with regard to the amount
withdraws to make up with the deficit as a result of
the dishonored treasury warrants.
2. Whether or not treasury warrants are negotiable
instruments
RULING:
1. No. Metrobank is negligent in giving Golden
Savings the impression that the treasury warrants had
been cleared and that, consequently, it was safe to
allow Gomez to withdraw. Without such assurance,
Golden Savings would not have allowed the
withdrawals. Indeed, Golden Savings might even have
incurred liability for its refusal to return the money that
all appearances belonged to the depositor, who could
therefore withdraw it anytime and for any reason he
saw fit.
It was, in fact, to secure the clearance of the
treasury warrants that Golden Savings deposited them
to its account with Metrobank. Golden Savings had no
clearing facilities of its own. It relied on Metrobank to
determine the validity of the warrants through its own
services. The proceeds of the warrants were withheld
from Gomez until Metrobank allowed Golden Savings
itself to withdraw them from its own deposit.
The argument of Metrobank that Golden Savings
should have exercised more care in checking the
personal circumstances of Gomez before accepting his
deposit does not hold water. It was Gomez who was
entrusting the warrants, not Golden Savings that was
extending him a loan; and moreover, the treasury
warrants were subject to clearing, pending which the
depositor could not withdraw its proceeds. There was
no question of Gomez's identity or of the genuineness
of his signature as checked by Golden Savings. In fact,
the treasury warrants were dishonored allegedly
because of the forgery of the signatures of the
drawers, not of Gomez as payee or indorser. Under the
circumstances, it is clear that Golden Savings acted
with due care and diligence and cannot be faulted for
the withdrawals it allowed Gomez to make. By
contrast, Metrobank exhibited extraordinary
carelessness. The amount involved was not trifling —
more than one and a half million pesos (and this was
1979). There was no reason why it should not have
waited until the treasury warrants had been cleared; it
would not have lost a single centavo by waiting.
Metrobank cannot contend that by indorsing the
warrants in general, Golden Savings assumed that they
were genuine and in all respects what they purport to
be,” in accordance with Sec. 66 of NIL. The simple
reason that NIL is not applicable to non-negotiable
instruments, like treasury warrants.
2. No. The treasury warrants are not negotiable
instruments. Clearly stamped on their face is the word:
non negotiable.” Moreover, and this is equal
significance, it is indicated that they are payable from a
particular fund, to wit, Fund 501. An instrument to be
negotiable instrument must contain an unconditional
promise or orders to pay a sum certain in money. As
provided by Sec 3 of NIL an unqualified order or
promise to pay is unconditional though coupled with:
1st, an indication of a particular fund out of which
reimbursement is to be made or a particular account to
be debited with the amount; or 2nd, a statement of the
transaction which give rise to the instrument. But an
order to promise to pay out of particular fund is not
unconditional.
The indication of Fund 501 as the source of the
payment to be made on the treasury warrants makes
the order or promise to pay “not conditional” and the
warrants themselves non-negotiable. There should be
no question that the exception on Section 3 of NIL is
applicable in the case at bar. This conclusion conforms
to Abubakar vs. Auditor General11 where the Court
held:
The petitioner argues that he is a holder in
good faith and for value of a negotiable
instrument and is entitled to the rights and
privileges of a holder in due course, free from
defenses. But this treasury warrant is not
within the scope of the negotiable instrument
law. For one thing, the document bearing on
its face the words "payable from the
appropriation for food administration, is
actually an Order for payment out of "a
particular fund," and is not unconditional and
does not fulfill one of the essential
requirements of a negotiable instrument (Sec.
3 last sentence and section [1(b)] of the
Negotiable Instruments Law).
Metrobank cannot contend that by indorsing the
warrants in general, Golden Savings assumed that they
were "genuine and in all respects what they purport to
be," in accordance with Section 66 of the Negotiable
Instruments Law. The simple reason is that this law is
not applicable to the non-negotiable treasury warrants.
Sesbreno v CA
FACTS:
Petitioner Sesbreno made a money market
placement in the amount of P300,000 with the
Philippine Underwriters Finance Corporation
(PhilFinance), with a term of 32 dayswould mature 13
March 1981, Philfinance, also on 9 February 1981,
issued the following documents to petitioner:
(a) the Certificate of Confirmation of Sale,
"without recourse," No. 20496 of one (1)
Delta Motors Corporation Promissory Note
("DMC PN") No. 2731 for a term of 32 days at
17.0% per annum;
(b) the Certificate of securities Delivery Receipt
No. 16587 indicating the sale of DMC PN No.
2731 to petitioner, with the notation that the
said security was in custodianship of Pilipinas
Bank, as per Denominated Custodian Receipt
("DCR") No. 10805 dated 9 February 1981;
and
(c) post-dated checks payable on 13 March 1981
(i.e., the maturity date of petitioner's
investment), with petitioner as payee,
Philfinance as drawer, and Insular Bank of Asia
and America as drawee, in the total amount of
P304,533.33.
On the date of maturity of his investment,
Sesbreño sought to encash the checks given to him.
They were however dishonored for having been drawn
against insufficient funds. Later Philfinance approached
Sesbreño delivering to him a letter stating that the
promissory note (from Delta) assigned to him can be
claimed from Pilipinas Bank upon his demand. Sesbreño
made such demand from Pilipinas Bank and
subsequently he was able to inspect the promissory
note from Delta and he discovered that on
the face of the instrument is stamped the words “NON
NEGOTIABLE”. Later, Pilipinas Bank rejected
delivering the promissory note to Sesbreño stating that
they were awaiting instructions from Philfinance. As
Sesbreño was unable to collect his investment and
interest thereon, he filed an action for damages against
Delta Motors and Pilipinas Bank
ISSUE:
Whether the non-negotiability of a promissory note
prevents its assignment.
RULING:
A negotiable instrument may not be negotiated but may
be assigned or transferred, absent an express
prohibition against assignment or transfer written in the
face of the instrument. The Promissory Note, although
marked “non-negotiable,” was not at the same time
stamped “non-transferrable” or “non-assignable.” It
contained no stipulation which prohibited Philfinance
from transferring or assigning, in whole or in part, that
note. Neither is the consent of Delta necessary for the
validity and enforceability of the assignment in favor of
petitioner.
However, petitioner still cannot collect on the said
promissory note. The rights of an assignee are not any
greater than the rights of the assignor, since the
assignee is merely substituted in the place of the
assignor and that the assignee acquires his rights
subject to the equities (i.e., the defenses) which the
debtor could have against the original assignor before
notice of the assignment was given to the debtor.
Petitioner notified Delta of his rights as assignee only
after compensation had taken place by operation of law
because the offsetting instruments (the obligation of
Philfinance and that of Delta under the promissory
note) had both reached maturity. At the time that Delta
was first put to notice of the assignment in petitioner’s
favor, the note had already been discharged by
compensation. Delta cannot be compelled to pay its
debt twice. The Court ruled that it is Pilipinas Bank who
should be liable to pay Sesbreño the amount for its
refusal to deliver the note to Sesbreño upon his
demand. Such failure caused prejudice against the
petitioner. Pilipinas Bank had no right to refuse delivery
of the note to Sesbreño, such failure was clearly a
breach of its duty as custodian. The conclusion reached
by the court is of course without prejudice to the right
of Pilipinas Bank to be reimbursed by Philfinance.
Firestone Tire & Rubber v. CA & Luzon Development
Bank
FACTS: Defendant is a banking corporation. It operates
under a certificate of authority issued by the Central
Bank, and among its activities, it accepts savings and
time deposits. Said defendant had as one of its client-
depositors the Fojas-ArcaEnterprised Company. Fojas-
Arca maintaining a special savings account with the
defendant, the latter authorized and allowed
withdrawals of funds therefrom through the medium of
special withdrawal slips. These are supplied by the
defendant to Fojas-Arca.
In January 1978, plaintiff and Fojas-Arca entered into a
franchise dealership agreement whereby Fojas-Arca has
the privilege to purchase on credit and sell plaintiff’s
products. From January to May, pursuant to the
agreement, Fojas-Arca purchased on credit Firestone
products from plaintiff in the amount of P4,896,000. In
payment, Fojas-Arca delivered to plaintiff 6 special
withdrawal slips. In turn, these were deposited by
plaintiff to Citibank. All of them were honored and paid.
This circumstance made plaintiff believe all succeeding
special withdrawal slips drawn upon defendant would
be sufficiently funded. Relying on this, plaintiff extended
other purchases to Fojas-Arca on credit.
Fojas-Arca then purchased products on credit on 4
other occasions, and delivered corresponding special
withdrawal slips. These were likewise deposited by
plaintiff with Citibank. Out of these 4, only 1 was
honored. Citibank informed plaintiff that the checks
were dishonored 6 months later. As a consequence,
Citibank debited plaintiff’s account the amount of
P2,078,092.80. Counsel of plaintiff then demanded
payment upon defendant, but to no avail. Due to
defendant’s refusal to pay, plaintiff filed a complaint
with the RTC of Pasay City. The RTC case was dismissed.
Upon appeal to CA, defendant averred that respondent
bank was liable under Article 2176 in relation to Articles
19 and 20. The CA denied the appeal and affirmed the
trial court judgment.
ISSUE: WON respondent bank should be held liable for
damages suffered by petitioner due to its allegedly
belated notice of non-payment of the withdrawal slips
HELD: NO.
At the outset, we note that petitioner admits that the
withdrawal slips in question were non-negotiable.
Hence, the rules governing the giving of immediate
notice of dishonor of negotiable instruments do not
apply in this case. Petitioner itself concedes this point.
Thus, respondent bank was under no obligation to give
immediate notice that it would not make payment on
the subject withdrawal slips. Citibank should have
known that withdrawal slips were not negotiable
instruments. It could not expect these slips to be
treated as checks by other entities.
In the case at bar, it appears Citibank, with the
knowledge that respondent had honored and paid
previous withdrawal slips, automatically credited
petitioners current account with the amount of the
withdrawal slips, then merely waited for the same to be
honored and paid by respondent bank. It presumed the
withdrawal slips to be good. It bears stressing that
Citibank could not have missed the non-negotiable
nature of the withdrawal slips. The essence of
negotiability which characterizes a negotiable paper as
a credit instrument lies in its freedom to circulate freely
as a substitute for money. The withdrawal slips in
question lacked this character.
The withdrawal slips deposited with petitioner’s current
account with Citibank were not checks, as petitioner
admits. Citibank was not bound to accept the
withdrawal slips as a valid mode of deposit. But having
erroneously accepted them as such, Citibank, and
petitioner as account-holder, must bear the risks
attendant to the acceptance of these instruments.
Petitioner and Citibank could not now shift the risk and
hold private respondent liable for their admitted
mistake.
Serrano v. CA and Long Life Pawnshop
FACTS: Sometime in early March 1968, petitioner
Serrano bought some pieces of jewelry for 48,500 from
NicetaRibaya. On March 21, petitioner, then in need of
money, instructed her private secretary, Josefina Rocco,
to pawn the jewelry. Josefina Rocco went to private
respondent pawnshop, pledged the jewelry for 22,000
with is principal owner and General Manager, Yu
AnKiong, and then absconded with said amount and the
pawn ticket. The pawnshop ticket issued stipulated that
it was redeemable “on presentation by the bearer”.
3 months later, Gloria Duque and Amanda Celeste
informed Ribaya that a pawnshop ticket issued by
private respondent was being offered for sale. They told
Ribaya the ticket probably covered jewelry once owned
by the latter which was pawned by Josefina Rocco.
Suspecting that it was the same jewelry she had sold to
petitioner, Ribaya informed the latter of this offer and
suggested that petitioner go to the Long Life Pawnshop
to check the matter out. Petitioner claims she went to
the pawnshop, verified that indeed her missing jewelry
was pledged there and told Yu AnKiong not to permit
anyone to redeem the jewelry because she was the
lawful owner thereof. Petitioner claims Kiong agreed.
Petitioner then went to the Manila Police Department
to report the loss, and a complaint for estafa was filed
against Rocco. On the same date, Detective Mateo on
the police went to the pawnshop and left Kiong a note
asking him to hold the jewelry and notify the police in
case someone tried to redeem the same. The next day,
Kiong allowed a Tomasa de Leon, exhibiting the
pawnshop ticket, to redeem the jewelry.
Petitioner then filed a complaint with the CFI of Manila
for damages against private respondent for failure to
hold the jewelry and for allowing its redemption
without first notifying the petitioner or the police. After
trial, the judge rendered a decision in favor of
petitioner. The decision was reversed by the CA.
ISSUE: WON private respondent pawnshop can be held
liable for allowing de Leon to redeem a “bearer”
instrument
HELD: (naani discussion about civil procedure di
nakoapilon)
Turning to the substantive legal rights and duties of the
parties, we believe, and so hold that, having been
notified by petitioner and the police that jewelry
pawned to it was either stolen or involved in an
embezzlement of the proceeds of the pledge, private
respondent pawnbroker became duty bound to hold
the things pledged and to give notice to petitioner and
the police of any effort to redeem them. Such a duty
was imposed by Article 21 of the Civil Code. The
circumstance that the pawn ticket was redeemable by
the bearer, did not dissolve that duty. The pawn ticket
was NOT a negotiable instrument under the NIL not a
negotiable document of title under Article 1507 of the
CC. If the 3rd person, Tomasa De Leon, who redeemed
the things pledged a day after petitioner and the police
had notified Long Life, claimed to be the owner thereof,
the prudent recourse of the pawnbroker was to file an
interpleader suit, impleading both Tomasa de Leon and
petitioner. The respondent pawnbroker, was of course,
entitled to demand payment of the loan extended on
the security of the pledge before surrendering the
jewelry, upon the assumption that it had given the loan
in good faith and was not a “fence” for stolen articles
that had not conspired with the faithless Rocco or de
Leon. Respondent pawnbroker acted in reckless
disregard of that duty in the instant case and must bear
the consequences, without prejudice to its right to
recover damages from Rocco.
Note: To summarize lang, basically ang point aninga
case is that ni argue ang pawnshop nga we should not
be held liable for letting de leon redeem the jewelry
because the ticket was a bearer instrument, and
whoever the bearer was kaypwede mu redeem. The
Court held that giinformnamansyasa police not to let
anyone redeem the jewelry, but he still did so dhaiyang
liability. He should have filed an interpleader suit daw.
PNB v MANILA OIL
FACTS: The question of first impression raised in this
case concerns the validity in this jurisdiction of a
provision in a promissory note whereby in case the
same is not paid at maturity, the maker authorizes any
attorney to appear and confess judgment thereon for
the principal amount, with interest, costs, and
attorney's fees, and waives all errors, rights to
inquisition, and appeal, and all property exceptions.
On May 8, 1920, the manager and the treasurer of the
Manila Oil Refining & By-Products Company, Inc.,
executed and delivered to the Philippine National Bank,
a written instrument contains such provision.
The Manila Oil Refining and By-Products Company, Inc.
failed to pay the promissory note on demand. The
Philippine National Bank brought action in the Court to
recover the amount of the note, together with interest
and costs. Mr. Elias N. Rector, an attorney associated
with the Philippine National Bank, entered his
appearance in representation of the defendant, and
filed a motion confessing judgment. The defendant,
however, in a sworn declaration, objected strongly to
the unsolicited representation of attorney Recto.
ISSUE: Whether a judgment note is recognozed under
our law.
RULING: NO
Neither the Code of Civil Procedure nor any other
remedial statute expressly or tacitly recognizes a
confession of judgment commonly called a judgment
note. On the contrary, the provisions of the Code of Civil
Procedure, in relation to constitutional safeguards
relating to the right to take a man's property only after a
day in court and after due process of law, contemplate
that all defendants shall have an opportunity to be
heard.
The attorney for the appellee contends that the
Negotiable Instruments Law (Act No. 2031) expressly
recognizes judgment notes, and that they are enforcible
under the regular procedure. The Negotiable
Instruments Law, in section 5, provides that "The
negotiable character of an instrument otherwise
negotiable is not affected by a provision which ". . . (b)
Authorizes a confession of judgment if the instrument
be not paid at maturity." We do not believe, however,
that this provision of law can be taken to sanction
judgments by confession, because it is a portion of a
uniform law which merely provides that, in jurisdiction
where judgment notes are recognized, such clauses
shall not affect the negotiable character of the
instrument. Moreover, the same section of the
Negotiable Instruments. Law concludes with these
words: "But nothing in this section shall validate any
provision or stipulation otherwise illegal."
Judgments by confession as appeared at common law
were considered an amicable, easy, and cheap way to
settle and secure debts. They are a quick remedy and
serve to save the court's time. They also save the time
and money of the litigants and the government the
expenses that a long litigation entails.
On the other hand, are disadvantages to the commercial
world which outweigh the considerations just
mentioned. Such warrants of attorney are void as
against public policy, because they enlarge the field for
fraud, because under these instruments the promissor
bargains away his right to a day in court, and because
the effect of the instrument is to strike down the right of
appeal accorded by statute. The recognition of such a
form of obligation would bring about a complete
reorganization of commercial customs and practices,
with reference to short-term obligations. It can readily
be seen that judgement notes, instead of resulting to
the advantage of commercial life in the Philippines
might be the source of abuse and oppression, and make
the courts involuntary parties thereto. If the bank has a
meritorious case, the judgement is ultimately certain in
the courts.
We are of the opinion that warrants of attorney to
confess judgment are not authorized nor contemplated
by our law. We are further of the opinion that provisions
in notes authorizing attorneys to appear and confess
judgments against makers should not be recognized in
this jurisdiction by implication and should only be
considered as valid when given express legislative
sanction.
JUANITA SALAS v CA
FACTS: Records disclose that Juanita Salas bought a
motor vehicle from the Violago Motor Sales Corporation
(VMS for brevity) for P58,138.20 as evidenced by a
promissory note. This note was subsequently endorsed
to Filinvest Finance & Leasing Corporation (private
respondent) which financed the purchase.
Petitioner defaulted in her installments allegedly due to
a discrepancy in the engine and chassis numbers of the
vehicle delivered to her and those indicated in the sales
invoice, certificate of registration and deed of chattel
mortgage, which fact she discovered when the vehicle
figured in an accident.
This failure to pay prompted private respondent to
initiate a civil case for a sum of money against petitioner
before the RTC.
RTC: In favor of private respondents. CA affirmed.
In the petition before us, petitioner assigns 12 errors
which focus on the alleged fraud, bad faith and
misrepresentation of Violago Motor Sales Corporation in
the conduct of its business and which fraud, bad faith
and misrepresentation supposedly released petitioner
from any liability to private respondent who should
instead proceed against VMS.
Petitioner argues that in the light of the provision of the
law on sales by description which she alleges is
applicable here, no contract ever existed between her
and VMS and therefore none had been assigned in favor
of private respondent.
ISSUE: Whether the promissory note in question is a
negotiable instrument which will bar completely all the
available defenses of the petitioner against private
respondent.
RULING: Promissory note is negotiable. Petitioner is
liable.
Petitioner's liability on the promissory note, the due
execution and genuineness of which she never denied
under oath is, under the foregoing factual milieu, as
inevitable as it is clearly established.
The records reveal that involved herein is not a simple
case of assignment of credit as petitioner would have it
appear, where the assignee merely steps into the shoes
of, is open to all defenses available against and can
enforce payment only to the same extent as, the
assignor-vendor.
A careful study of the questioned promissory note
shows that it is a negotiable instrument, having
complied with the requisites under the law as follows:
[a] it is in writing and signed by the maker Juanita Salas;
[b] it contains an unconditional promise to pay the
amount of P58,138.20; [c] it is payable at a fixed or
determinable future time which is "P1,614.95 monthly
for 36 months due and payable on the 21 st day of each
month starting March 21, 1980 thru and inclusive of
Feb. 21, 1983;" [d] it is payable to VMS corp , or
order and as such, [e] the drawee is named or indicated
with certainty.
It was negotiated by indorsement in writing on the
instrument itself payable to the Order of Filinvest
Finance and Leasing Corporation and it is an
indorsement of the entire instrument.
Under the circumstances, there appears to be no
question that Filinvest is a holder in due course, having
taken the instrument under the following conditions: [a]
it is complete and regular upon its face; [b] it became
the holder thereof before it was overdue, and without
notice that it had previously been dishonored; [c] it took
the same in good faith and for value; and [d] when it
was negotiated to Filinvest, the latter had no notice of
any infirmity in the instrument or defect in the title of
VMS Corporation.
Accordingly, respondent corporation holds the
instrument free from any defect of title of prior parties,
and free from defenses available to prior parties among
themselves, and may enforce payment of the
instrument for the full amount thereof. This being so,
petitioner cannot set up against respondent the defense
of nullity of the contract of sale between her and VMS.
Dom: so bahalag void kunuhay ang contract
between nila sa namaligyag motor, ang
promissory note since n assign n ani Filinvest,
kay binding ghpon kay free from defenses man
kay negotiable and holder in due course si
Filinvest.
Even assuming for the sake of argument that there is an
iota of truth in petitioner's allegation that there was in
fact deception made upon her in that the vehicle she
purchased was different from that actually delivered to
her, this matter cannot be passed upon in the case
before us, where the VMS was never impleaded as a
party.
Whatever issue is raised or claim presented against VMS
must be resolved in the "breach of contract" case.
Consolidated Plywood vs IFC Leasing
FACTS: Petitioner is a corporation engaged in the
logging business. It had for its program of logging
activities the opening of additional roads and logging.
For this purpose, it needed 2 additional units of
tractors.
Cognizant of petitioner-corporation's need,
Industrial Products Marketing (the "seller-assignor"), 
offered to sell to petitioner 2 "Used" tractors. Seller-
assignor assured petitioner-corporation that the "Used"
tractors being offered were fit for the job and gave the
corresponding warranty of 90 days performance of the
machines and availability of parts.  promise to pay to the INDUSTRIAL PRODUCTS
With said assurance and warranty, and relying
on the seller-assignor's skill and judgment, petitioner-
corporation through petitioners Wee and Vergara,
president and vice- president, respectively, agreed to
purchase on installment said 2 units of "Used" Tractors.
A deed of sale with chattel mortgage with promissory
note was executed.
Simultaneously with the execution of the deed
of sale with chattel mortgage with promissory note, the
seller-assignor assigned its rights and interest in the
chattel mortgage in favor of the respondent.
Barely 14 days had elapsed after their delivery
when one of the tractors broke down and after another
9 days, the other tractor likewise broke down. Vergara
formally advised the seller-assignor of the fact that the
tractors broke down and requested for the seller-
assignor's usual prompt attention under the warranty.
In response, mechanics were sent for the
repairs but the tractors did not come out to be what
they should because the units were no longer
serviceable. As such, the road building and
simultaneous logging operations of petitioner-
corporation were delayed.
Since the tractors were no longer serviceable,
petitioner Wee asked the seller-assignor to pull out the
units and have them reconditioned, and thereafter to
offer them for sale but there was no response from
seller-assignor.
Thereafter, a complaint was filed by the
respondent against the petitioners for the recovery of
the principal sum of P1M+. RTC & CA ruled in favor of
respondent hence the case at bar.
ISSUE: WON the promissory note in question is a
negotiable instrument so as to bar completely all the
available defenses of the petitioner against the
respondent-assignee
RULING: NO. The promissory note in question is not a
negotiable instrument hence petitioner may raise
against the respondent all defenses available to it as
against the seller-assignor Industrial Products
Marketing. The pertinent portion of the note is as
follows:
FOR VALUE RECEIVED, I/we jointly and severally
MARKETING, the sum of (P 1,093,789.71,
Philippine Currency, the said principal sum, to
be payable in 24 monthly installments starting
July 15, 1978 and every 15th of the month
thereafter until fully paid.
Considering that paragraph (d), Section 1 of the
Negotiable Instruments Law requires that a promissory
note "must be payable to order or bearer, " it cannot be
denied that the promissory note in question is not a
negotiable instrument.
The instrument in order to be considered
negotiablility-i.e. must contain the so-called 'words of
negotiable, must be payable to 'order' or 'bearer'.
These words serve as an expr ession of consent that
the instrument may be transferred xxx Without the
words "or order" or"to the order of, "the instrument is
payable only to the person designated therein and is
therefore non-negotiable. Any subsequent purchaser
thereof will not enjoy the advantages of being a holder
of a negotiable instrument but will merely "step into the
shoes" of the person designated in the instrument and
will thus be open to all defenses available against the
latter.
Therefore, considering that the subject
promissory note is not a negotiable instrument, it
follows that the respondent can never be a holder in
due course but remains a mere assignee of the note in
question. Thus, the petitioner may raise against the
respondent all defenses available to it as against the
seller-assignor Industrial Products Marketing.
Ang Tek Lian vs CA
FACTS: For having issued a rubber check, Ang Tek Lian
was convicted of estafa. It appears that, knowing he
had no funds therefor, Ang Tek Lian drew a check upon
the China Banking Corporation for the sum of P4K,
payable to the order of "cash". He delivered it to Lee
Hua Hong in exchange for money which the latter
handed in act.
The next day, the check was presented by Lee
Hua Hong to the drawee bank for payment, but it was
dishonored for insufficiency of funds. A case was filed
and Ang Tek was convicted of estafa before the lower
courts hence the case at bar.
ISSUE: WON under the facts found, estafa had been
accomplished.
RULING: YES. The Chigga is liable for estafa. Article
315, paragraph (d), subsection 2 of the RPC, punishes
swindling committed "By post dating a check, or issuing
such check in payment of an obligation the offender
knowing that at the time he had no funds in the bank,
or the funds deposited by him in the bank were not
sufficient to cover the amount of the check, and
without informing the payee of such circumstances".
We believe that under this provision of law Ang
Tek Lian was properly held liable.
It is argued, however, that as the check had
been made payable to "cash" and had not been
endorsed by Ang Tek Lian, the defendant is not guilty of
the offense charged. 
Instances have undoubtedly occurred wherein
the Bank required the indorsement of the drawer
before honoring a check payable to "cash." But cases
there are too, where no such requirement had been
made.
Under the Negotiable Instruments Law (sec. 9
[d], a check drawn payable to the order of "cash" is a
check payable to bearer, and the bank may pay it to
the person presenting it for payment without the
drawer's indorsement.
A check payable to bearer is authority for
payment to holder. Where a check is in the ordinary
form, and is payable to bearer, so that no indorsement
is required, a bank, to which it is presented for
payment, need not have the holder identified, and is
not negligent in falling to do so.
Anyway, it is significant, and conclusive, that
the form of the check was totally unconnected with its
dishonor. The Court of Appeals declared that it was
returned unsatisfied because the drawer had
insufficient funds— not because the drawer's
indorsement was lacking. WHEREFORE certiorari is
denied.
FRANCISCO VS CA
FACTS: The company A. Francisco Realty and
Development Corporation (AFRDC) through its
president Adalia Francisco, entered into a contract with
Herby Commercial and Construction Corporation
(HCCC).The president of HCCC is Jaime Ong. The
contract was a Land Development and Construction
Contract for the creation of 35 houses and development
of 35 hectares of land. Such contract was to be financed
by GSIS. GSIS and AFRDC created an account with the
Insular Bank of Asia and America from which checks for
the payment of construction will be issued and co-
signed by Francisco and GSIS Vice President Armando
Diaz. GSIS gave the custody of the checks to Francisco.
(So, AFRDC – Francisco; HCCC – Ong; GSIS - Diaz)
In a memorandum agreement, GSIS acknowledged that
it is still indebted to HCCC to the amount of P500K, but
such will be paid only once HCCC finishes some
deficiencies and defects in the housing. It was also
provided that HCCC was indebted to AFRDC for the
amount of P180K in order to obviate the risk of the non-
completion of the project. (Summary so far – GSIS
indebted to HCCC Construction; while HCCC is indebted
to AFRDC due to a loan used to construct the houses)
After examination of the records, Ong found out that
Diaz and Francisco issued seven checks payable to
HCCC. Ong, however, claims that such checks were not
delivered but instead Francisco forged his signature at
the dorsal portion of the check to make it appear that
HCCC indorsed the check. She then indorsed her check
by signing her name and deposited it in her own savings
account.
Because of this, Ong filed a criminal case against
Francisco for estafa through falsification of commercial
documents. Francisco raised the defence that she was
allegedly authorized by HCCC through a certification to
collect the debt or receivables from GSIS (remember
nga utangan ang GSIS to HCCC). The trial court believed
Francisco and the case was dismissed. Hence, Ong filed
a civil case for recovery of the seven checks. This time,
handwriting experts from NBI held that Francisco forged
the checks. Trial court and CA ruled in favour of Ong
and declared Francisco and the Insurance Bank of Asia
and America as jointly and severally liable.
ISSUE:The pivotal issue in this case is whether or not
Francisco forged the signature of Ong on the seven
checks.
RULING: YES, Francisco is a forger and she must be held
liable.
The lower courts found that Francisco was able to easily
conceal from private respondents even the fact of the
issuance of the checks since she was a co-signatory
thereof. We also note that Francisco had custody of the
checks, as proven by the check vouchers bearing her
uncontested signature.
As regards the forgery, we concur with the lower courts'
finding that Francisco forged the signature of Ong.
Forgery was satisfactorily established in the trial court
upon the strength of the findings of the NBI handwriting
expert. Other than petitioner's self-serving denials,
there is nothing in the records to rebut the NBI's
findings. Well-entrenched is the rule that findings of
trial courts which are factual in nature, especially when
affirmed by the Court of Appeals, deserve to be
respected and affirmed by the Supreme Court, provided
it is supported by substantial evidence on record, 11 as
it is in the case at bench.
Petitioner claims that she was, in any event, authorized
to sign Ong's name on the checks by virtue of the
Certification executed by Ong in her favor giving her the
authority to collect all the receivables of HCCC from the
GSIS, including the questioned checks. 12 Petitioner's
alternative defense must similarly fail. The Negotiable
Instruments Law provides that where any person is
under obligation to indorse in a REPRESENTATIVE
capacity, he may indorse in such terms as to negative
personal liability. 13 An agent, when so signing, should
indicate that he is merely signing in behalf of the
principal and must disclose the name of his principal;
otherwise he shall be held PERSONALLY liable. 14 Even
assuming that Francisco was authorized by HCCC to
sign Ong's name, still, Francisco did not indorse the
instrument in accordance with law. Instead of signing
Ong's name, Francisco should have signed her own
name and expressly indicated that she was signing as
an agent of HCCC. Thus, the Certification cannot be
used by Francisco to validate her act of forgery.
BONUS TOPIC – DAMAGES
Every person who, contrary to law, wilfully or
negligently causes damage to another, shall indemnify
the latter for the same. 15 Due to her forgery of Ong's
signature which enabled her to deposit the checks in
her own account, Francisco deprived HCCC of the
money due it from the GSIS pursuant to the Land
Development and Construction Contract. Thus, we
affirm respondent court's award of compensatory
damages in the amount of P370,475.00, but with a
modification as to the interest rate which shall be six
percent (6%) per annum, to be computed from the date
of the filing of the complaint since the amount of
damages was alleged in the complaint; 16 however, the
rate of interest shall be twelve percent (12%) per
annum from the time the judgment in this case
becomes final and executory until its satisfaction and
the basis for the computation of this twelve percent
(12%) rate of interest shall be the amount of
P370,475.00.
(1958) JIMENEZ VS. BUCOY
FACTS: In this intestate of Luther Young and Pacita
Young who died in 1954 and 1952 respectively, Pacifica
Jimenez presented for payment four promissory notes
signed by Pacita for different amounts totalling twenty-
one thousand pesos (P21,000).
Acknowledging receipt by Pacita during the Japanese
occupation, in the currency then prevailing, the
administrator manifested willingness to pay provided
adjustment of the sums be made in line with the
Ballantyne schedule.
The claimant objected to the adjustment insisting on
full payment in accordance with the notes.
Applying doctrines of this Court on the matter, the Hon.
Primitivo L. Gonzales, Judge, held that the notes should
be paid in the currency prevailing after the war, and
that consequently plaintiff was entitled to recover
P21,000 plus attorneys fees for the sum of P2,000.
Executed in the month of August 1944, the first
promissory note read as follows:
"Received from Miss Pacifica Jimenez the total amount
of P10,000) ten thousand pesos payable six months
after the war, without interest."
The other three notes were couched in the same terms,
except as to amounts and dates.
Hence, this appeal. (Mao ra ni ang mga facts pre, gi-
copy nalang nako tanan)
ISSUE: Is the instrument negotiable?
RULING: YES. The appellant administrator calls attention
to the fact that the notes contained no express promise
to pay a specified amount. We declare the point to be
without merit. In ac cordance with doctrines on the
matter, the note herein-above quoted amounted in
effect to "a promise to pay ten thousand pesos six
months after the war, without interest." And so of the
other notes.
"An acknowledgment may become a promise by the
addition of words by which a promise of payment is
naturally implied, such as, "payable," "payable" on a
given day, "payable on demand," "paid . . . when
called for," . . . . (10 Corpus Juris Secundum p. 523.).
"To constitute a good promissory note, no precise
words of contract are necessary, provided they
amount, in legal effect, to a promise to pay. In other
words, if over and above the mere acknowledgment of
the debt there may be collected from the words used a
promise to pay it, the instrument may be regarded as a
promissory note. 1 Daniel, Neg. Inst. sec. 36 et seq.;
Byles, Bills, 10, 11, and cases cited . . .. "Due A. B. $325,
payable on demand," or, "I acknowledge myself to be
indebted to A in $109, to be paid on demand, for value
received," or, "I O. U. $85 to be paid on May 5th," are
held to be promissory notes, significance being given to
words of payment as indicating a promise to pay." 1
Daniel Neg. Inst. see. 39, and cases cited. (Cowan vs.
Hallack, (Colo.) 13 Pacific Reporter 700, 703.).
BONUS TOPIC - BALLANTYNE SCALE APPLIED FOR LOANS
CONTRACTED DURING THE JAPANESE OCCUPATION
There can be no serious question that the notes were
promises to pay "six months after the war," the
amounts mentioned.
This matter of payment of loans contracted during the
Japanese occupation has received our attention in many
litigations after the liberation. The gist of our
adjudications, in so far as material here, is that if the
loan could be paid during the Japanese occupation, the
Ballantyne schedule should apply with corresponding
reduction of the amount.1 However, if the loan was
expressly agreed to be payable only after the war or
after liberation, or became payable after those dates,
no reduction could be effected, and peso-for-peso
payment shall be ordered in Philippine currency. 2 "The
Ballantyne Conversion Table does not apply where the
monetary obligation, under the contract, was not
payable during the Japanese occupation but until after
one year counted from the date of ratification of the
Treaty of Peace concluding the Greater East Asia War."
BONUS TOPIC – CHANGE OF THEORY ON APPEAL
Another argument of appellant is that as the deceased
Luther Young did not sign these notes, his estate is not
liable for the same. This defense, however, was not
interposed in the lower court. There the only issue
related to the amount to be paid, considering that the
money had been received in Japanese money. It is now
unfair to put up this new defense, because had it been
raised in the court below, appellees could have proved,
what they now allege, that Pacita contracted the
obligation to support and maintain herself, her son and
her husband (then concentrated at Santo Tomas
University) during the hard days of the occupation.
It is now settled practice that on appeal a change of
theory is not permitted.
REPUBLIC BANK V MAURICIA EBRADA (appellant)
FACTS:
On Feb. 1963, Ebrada encashed a Back Pay
Check dated Jan. 15, 1963, for P1,246 at Rep. Bank. Said
check was issued by the Bureau of Treasury. Bank was
later advised by Bureau that the indorsement at the
back by payee “Martin Lorenzo” was a forgery since he
allegedly died as of July 14, 1952. To recover what it had
refunded to the Bureau of Treasury, Bank demanded
upon Ebrada for the said amount, but the latter refused.
So a complaint was filed. As a defense, she alleged that
she was a holder in due course of the check in question,
or at the very least, has acquired her rights from a
holder in due course and therefore entitled to the
proceeds thereof. Ebrada then file a 3 rd party complaint
against Adelaida Dominguez, who filed a 4 th party
complaint against Justina Tinio. City court of Manila
ruled in favour of Bank, as well as 3 rd and 4th party
plaintiff. On appeal to CFI of Manila, said court
sustained the ruling. Hence, the petition.
ISSUE:
WON Ebrada is liable to pay the face value of
the check plus interest. YES
know of the forgery, should be considered valid and
enforceable, barring any claim of forgery.
> Since discovery of forgery was made after
encashment, can drawee bank (Rep Bank) recover from
the one who encased (Edraba)? YES
The drawee of a check can recover from the
holder the money paid to him on a forged instrument. It
is not supposed to be its duty to ascertain whether the
signatures of the payee or indorsers are genuine or not.
This is because the indorser is supposed to warrant to
the drawee that the signatures of the payee and
previous indorsers are genuine, warranty not extending
only to holders in due course. One who purchases a
check or draft is bound to satisfy himself that the paper
is genuine and that by indorsing it or presenting it for
payment or putting it into circulation before
presentation he impliedly asserts that he has performed
his duty and the drawee who has paid the forged check,
without actual negligence on his part, may recover the
money paid from such negligent purchasers.
In short, Edraba should have performed her
duty in ascertaining WON the check was genuine before
presenting it to Rep Bank for payment. Her failure
makes her liable for the loss.

RULING: DECISION AFFIRMED IN TOTO.

> Stipulation of facts in the lower court admits
that Dominguez delivered said check to Ebrada and she
had her signature in said check. Ebrada was also the last
indorser of the check. As such, she was supposed to
have warranted that she has good title to said check
under Section 65 of the Negotiable Instruments Law.

> Under Sec 23 NIL, where the signature on a

negotiable instrument if forged, the negotiation of the
check is without force or effect. Take note that Martin
Lorenzo’s signature, supposed original payee, was
forged coz he was already dead almost 11 years.

> So will the forgery now render all other

negotiations void? NO

It is only the negotiation predicated on the

forged indorsement that should be declared
inoperative. This means that the negotiation of the
check in question from Martin Lorenzo, the original
payee, to Ramon R. Lorenzo, the second indorser,
should be declared of no affect, but the negotiation of
the aforesaid check from Ramon R. Lorenzo to Adelaida
Dominguez, the third indorser, and from Adelaida
Dominguez to the defendant-appellant who did not
MWSS V CA, AYALA and MWSS V COUNTRY CLUB,
SILHOUETTE TRADING CORP
FACTS:
On 1965, MWSS, formerly NAWASA, 128
hectares of its land (Land) to Country Club (CC) for 25
years and renewable for another 15 years or until 2005
with a right of first refusal should it be sold. Pursuant to
LOI of then Pres. Marcos to terminate the lease to
dispose the Land, MWSS informed CC of its preferential
right to buy the property since it was for sale. CC agreed
to buy it and Pres Marcos approved the sale. The Land
was then sold to Silhouette at P40/sqm, assignee of CC,
at the appraised value of P50M. P25M to be paid after
approval by Marcos of the contract and the balance
within 1 year after transfer of title. Later, Silhouette sold
about 67 hectares to Ayala for P110/sqm or P74M.
Ayala developed the land now known as the Ayala
Heights Subdivision. Almost a decade later, MWSS filed
an action for the declaration of nullity of the MWSS-
SILOUETTE sale, subsequent sales. RTC of Quezon
dismissed the complaint on the grounds of prescription,
laches, estoppels and non-joinder of indispensable
parties. MWSS reconsideration was denied. On appeal,
CA decided against MWSS, hence the petition.
ISSUE:
WON the sale of the land is void
RULING:
1. PRESCRIPTION – ACTION OF MWSS HAS
ALREADY PRESCRIBED COZ BEING A VOIDABLE
CONTRACT (MWSS-SILHOUETTE SALE),
PRESCRIPTIVE PERIOD IS 4 YEARS
MWSS alleges that the sale of the land was void coz
among others; the public officers allegedly allowed
themselves to be induced and influenced to approve
the sale. Also, it alleged that while it consented to the
sale, such consent was unduly influenced by Pres.
Marcos.
The allegations of MWSS only point out to the fact
that the contract of sale was not void, but merely
voidable, coz all three elements of a contract (consent,
object, consideration) are present. The alleged vitiation
of MWSS' consent did not make the sale null and void
ab initio. Thus, "a contract where consent is given
through mistake, violence, intimidation, undue
influence or fraud, is voidable." Prior annulment of a
voidable contract, it remains effective and obligatory
between the parties.
> Since it is voidable, prescriptive period is 4 years:
(intimidation, violence or undue influence – from time
the defect of the consent ceases) or (mistake or fraud –
from time of the discovery).
Complaint was filed on March 26, 1993
> Claim of undue influence – more than 3 years
have already passed from the time MWSS filed its
complaint (Feb 26, 1986 – date of Marcos’ death to Feb
26, 1990)
> If by Fraud – more than 5 years have passed (Sale
was on 1983, registration was on 1984 – MWSS ought
to discover the fraud on these times coz it was a party
to the contract)
The principle on prescription of actions is designed
to cover situations such as the case at bar, where there
have been a series of transfers to innocent purchasers
for value. To set aside these transactions only to
accommodate a party who has slept on his rights is
anathema to good order
2. LACHES – MWSS TARRIED FOR ALMOST 10
YEARS
The defense of laches applies independently of
prescription. Laches is different from the statute of
limitations. Prescription is concerned with the fact of
delay, whereas laches is concerned with the effect of
delay. Prescription is a matter of time; laches is
principally a question of inequity of permitting a claim
to be enforced, this inequity being founded on some
change in the condition of the property or the relation
of the parties.
ELEMENTS:
(1) conduct on the part of the defendant, or one under
whom he claims, giving rise to the situation that led to
the complaint and for which the complaint seeks a
remedy;
(2) delay in asserting the complainant's rights, having
had knowledge or notice of the defendant's conduct
and having been afforded an opportunity to institute a
suit;
(3) lack of knowledge or notice on the part of the
defendant that the complainant would assert the right
on which he bases his suit; and
(4) injury or prejudice to the defendant in the event
relief is accorded to the complainant, or the suit is not
held barred

> Focus on delay ra (2nd element), all other elements

present - second element of delay is evident from the
fact that petitions tarried for almost ten (10) years from
the conclusion of the sale sometime in 1983 before
formally laying claim to the subject property in 1993.

3. RATIFICATION – the Board of MWSS ratified the sale

when it approved the sale of the land and authorized
Mr. Ilustre to sign in behalf of MWSS.

4. NON-JOINDER OF INDISPENSABLE PARTIES – resident

owners should have been included coz they will be
adversely affected. DENIED.
Gempesaw v. CA & Phil bank of
Communications
Gempesaw (thru Galang) > 82 suppliers > drawee bank
Galang however forged 63 of 82 checks and made it
payable to Romero and Lam. So, Gempesaw filed a case
against his drawee for recovery of her money.
Note: not a material alteration since it was Galang who
made the instrument. That’s why material alteration is
not the issue. It was forgery because the amount was in
excess of what should have been given and the
signatures of the payees were forged. Payees received
more than they should. The excess of the amount is
given to Galang, by reason of deceit.
Ruling:
GR: Forgery is a real defense and it can be raised by
prior parties.
Exception: instances where the party is precluded (e.g.
negligence.
Negligence of Drawer
In the case at bar, the petitioner relied implicitly upon
the honesty and loyalty of her bookkeeper, and did not
even verify the accuracy of the amounts of the checks
she signed against the invoices attached thereto.
Thus, it is clear that under the NIL, petitioner is
precluded from raising the defense of forgery by
reason of her gross negligence. (kay sa 2 years wala cya
nag check sa mga withdrawals. Iya rang gipasagdaan.
Dili unta to siya ma liable kay forged man pero kay nag
tanga2 man cya, liable na cya
Negligence of Drawee
it violated its internal rules that second endorsements
are not to be accepted without the approval of its
branch managers and it did accept the same upon the
mere approval of Boon, a chief accountant, it
contravened the tenor of its obligation at the very least,
if it were not actually guilty of fraud or negligence.
Atty: Galang was in connivance on 2 officers of the
bank. That’s why the bank did not go through the
standard procedures. In effect, they were negligent.
Atty: In forgery of indorser’s signature, the Drawer
should be liable. Tip: just go back. That’s why in a
collecting bank v drawee bank, it is the collecting bank
that’s liable. In a indorser and drawer, the drawer
should be held liable. But exception was applied since in
the part of drawee there was a negligent.
Facts: Petitioner is an owner of four grocery stores. At
the same time, petitioner also maintains a checking
account with respondent drawee Bank (PBC). To
facilitate payment of debts to her suppliers, petitioner
draws checks against her checking account with the
respondent bank as drawee. The checks were prepared
and filled up by her trusted bookkeeper, Alicia Galang,
an employee for more than eight (8) years.
After the bookkeeper prepared the checks, the
completed checks were submitted to the petitioner for
her signature, together with the corresponding invoice
receipts which indicate the correct obligations due and
payable to her suppliers. Petitioner signed each and
every check without bothering to verify the accuracy of
the checks against the corresponding invoices because
she reposed full and implicit trust and confidence on
her bookkeeper. The issuance and delivery of the
checks to the payees named therein were left to the
bookkeeper. Petitioner admitted that she did not make
any verification as to whether or not the checks were
actually delivered to their respective payees. Although
the respondent drawee Bank notified her of all checks
presented to and paid by the bank, petitioner did not
verify the correctness of the returned checks, much less
check if the payees actually received the checks in
payment for the supplies she received. In the course of
her business operations covering a period of two years,
petitioner issued, following her usual practice stated
above, a total of eighty-two (82) checks in favor of
several suppliers. These checks were all presented by
the indorsees as holders thereof to, and honored by,
the respondent drawee Bank. Respondent drawee Bank
correspondingly debited the amounts thereof against
petitioner.
Practically, all the checks issued and honored by the
respondent drawee Bank were crossed checks. Aside
from the daily notice given to the petitioner by the
respondent drawee Bank, the latter also furnished her
with a monthly statement of her bank transactions,
attaching thereto all the cancelled checks she had
issued and which were debited against her current
account. It was only after the lapse of more than two (2)
years that petitioner found out about the fraudulent
manipulations of her bookkeeper. All the eighty-two
(82) checks with forged signatures of the payees were
brought to Ernest L. Boon, Chief Accountant of
respondent drawee Bank, who, without authority
therefor, accepted them all for deposit at the Buendia
branch to the credit of Alfredo Y. Romero and Benito
Lam. Ernest L. Boon was a very close friend of Alfredo Y.
Romero. Sixty-three (63) out of the eighty-two (82)
checks were deposited in Savings Account of Alfredo Y.
Romero at the respondent drawee Bank's Buendia
branch, and four (4) checks in his Savings Account at its
Ongpin branch. The rest of the checks were deposited
in Account No. 0443-4, under the name of Benito Lam
at the Elcano branch of the respondent drawee Bank.
About thirty (30) of the payees whose names were
specifically written on the checks testified that they did
not receive nor even see the subject checks and that
the indorsements appearing at the back of the checks
were not theirs.
This prompted petitioner to file a case against
respondent bank for damages.
Issue: WON petitioner may still recover from
respondent bank?
Ruling: The applicable law is the Negotiable Instruments
Law (heretofore referred to as the NIL). Section 23 of
the NIL provides:
"When a signature is forged or made without
the authority of the person whose signature it
purports to be, it is wholly inoperative, and no
right to retain the instrument, or to give a
discharge therefor, or to enforce payment
thereof against any party thereto, can be
acquired through or under such signature,
unless the party against whom it is sought to
enforce such right is precluded from setting up
the forgery or want of authority."
Under the aforecited provision, forgery is a real or
absolute defense by the party whose signature is
forged. A party whose signature to an instrument was
forged was never a party and never gave his consent to
the contract which gave rise to the instrument. Since his
signature does not appear in the instrument, he cannot
be held liable thereon by anyone, not even by a holder
in due course. Thus, if a person's signature is forged as a
maker of a promissory note, he cannot be made to pay
because he never made the promise to pay. Or where a
person's signature as a drawer of a check is forged, the
drawee bank cannot charge the amount thereof against
the drawer's account because he never gave the bank
the order to pay. And said section does not refer only to
the forged signature of the maker of a promissory note
and of the drawer of a check.
As a matter of practical significance, problems arising
from forged indorsements of checks may generally be
broken into two types of cases: (1) where forgery was
accomplished by a person not associated with the
drawer — for example a mail robbery; and (2) where
the indorsement was forged by an agent of the drawer.
This difference in situations would determine the effect
of the drawer's negligence with respect to forged
indorsements. While there is no duty resting on the
depositor to look for forged indorsements on his
cancelled checks in contrast to a duty imposed upon
him to look for forgeries of his own name, a depositor is
under a duty to set up an accounting system and a
business procedure as are reasonably calculated to
prevent or render difficult the forgery of indorsements,
particularly by the depositor's own employees. And if
the drawer (depositor) learns that a check drawn by him
has been paid under a forged indorsement, the drawer
is under duty promptly to report such fact to the
drawee bank. For his negligence or failure either to
discover or to report promptly the fact of such forgery
to the drawee, the drawer loses his right against the
drawee who has debited his account under the forged
indorsement. In other words, he is precluded from using
forgery as a basis for his claim for recrediting of his
account.
GR: Forgery is a real defense and it can be raised by
prior parties
Exception: instances where the party is precluded (e.g.
negligence.
Negligence of Drawer (Depositor)
The negligence of a depositor which will prevent
recovery of an unauthorized payment is based on
failure of the depositor to act as a prudent businessman
would under the circumstances. In the case at bar, the
petitioner relied implicitly upon the honesty and loyalty
of her bookkeeper, and did not even verify the accuracy
of the amounts of the checks she signed against the
invoices attached thereto. Furthermore, although she
regularly received her bank statements, she apparently the very least, if it were not actually guilty of fraud or
did not carefully examine the same nor the check stubs negligence.
and the returned checks, and did not compare them
Furthermore, the fact that the respondent drawee Bank
with the sales invoices. Otherwise, she could have easily
did not discover the irregularity with respect to the
discovered the discrepancies between the checks and
acceptance of checks with second indorsement for
the documents serving as bases for the checks. With
deposit even without the approval of the branch
such discovery, the subsequent forgeries would not
manager despite periodic inspection conducted by a
have been accomplished. It was not until two years
team of auditors from the main office constitutes
after the bookkeeper commenced her fraudulent
negligence on the part of the bank in carrying out its
scheme that petitioner discovered that eighty-two (82)
obligations to its depositors. Article 1173 provides —
checks were wrongfully charged to her account, at
which time she notified the respondent drawee "The fault or negligence of the obligor consists
Bank.|||  in the omission of that diligence which is
required by the nature of the obligation and
Thus, it is clear that under the NIL, petitioner is
correspondents with the circumstance of the
precluded from raising the defense of forgery by
persons, of the time and of the place. . . ."
reason of her gross negligence. (kay sa 2 years wala cya
nag check sa mga withdrawals. Iya rang gipasagdaan. We hold that banking business is so impressed with
Dili unta to siya ma liable kay forged man pero kay nag public interest where the trust and confidence of the
tanga2 man cya, liable na cya) public in general is of paramount importance such that
the appropriate standard of diligence must be a high
But under Section 196 of the NIL, any case not provided
degree of diligence, if not the utmost diligence. Surely,
for in the Act shall be governed by the provisions of
respondent drawee Bank cannot claim it exercised such
existing legislation. Under the laws of quasi-delict, she
a degree of diligence that is required of it. There is no
cannot point to the negligence of the respondent
way We can allow it now to escape liability for such
drawee Bank in the selection and supervision of its
negligence. Its liability as obligor is not merely vicarious
employees as being the cause of the loss because her
but primary wherein the defense of exercise of due
negligence is the proximate cause thereof and under
diligence in the selection and supervision of its
Article 2179 of the Civil Code, she may not be awarded
employees is of no moment.
damages. However, under Article 1170 of the same
Code the respondent drawee Bank may be held liable
for damages. The article provides —

"Those who in the performance of their

obligations are guilty of fraud, negligence or
delay, and those who in any manner contravene
the tenor thereof, are liable for damages." 

Negligence of Drawee

There is no question that there is a contractual relation

between petitioner as depositor (obligee) and the
respondent drawee bank as the obligor. In the
performance of its obligation, the drawee bank is bound
by its internal banking rules and regulations which form
part of any contract it enters into with any of its
depositors. When it violated its internal rules that
second endorsements are not to be accepted without
the approval of its branch managers and it did accept
the same upon the mere approval of Boon, a chief
accountant, it contravened the tenor of its obligation at
Associated Bank V. CA
Tarlac > Pangilinan (supposed to be given to Concepcion
but forged) > Associated Bank (collecting) > PNB
(drawee)
Tarlac issued checks to Pangilinan, to hold for
Concepcion Hospital but this was not received by it
because Pangilinan encashed it into his own savings
account in Associated Bank. Associated Bank went to
PNB to collect. PNB paid.
Ruling: Tarlac and Associated Bank are liable.
Negligence of Drawer
Negligence of the Province of Tarlac in releasing
the checks to an unauthorized person (Fausto
Pangilinan), in allowing the retired hospital cashier
to receive the checks for the payee hospital for a
period close to three years
Breach of Warranty by Indorser-Collecting Bank
The collecting bank, Associated Bank, shall be liable to
PNB for fifty (50%) percent of P203,300.00. It is liable on
its warranties as indorser of the checks which were
deposited by Fausto Pangilinan, having guaranteed the
genuineness of all prior indorsements, including
that of the chief of the payee hospital, Dr. Adena
Canlas. Associated Bank was also remiss in its duty to
ascertain the genuineness of the payee's indorsement.
Atty: Forgery of indorser’s signature, the collecting bank
is liable as indorser.
Facts: The Province of Tarlac maintains a current
account with the Philippine National Bank (PNB) where
the provincial funds are deposited. Checks issued by the
Province are signed by the Provincial Treasurer and
countersigned by the Provincial Auditor or the
Secretary of the Sangguniang Bayan.
The allotment checks for said government
hospital are drawn to the order of "Concepcion
Emergency Hospital, Concepcion, Tarlac" or "The Chief,
Concepcion Emergency Hospital, Concepcion, Tarlac."
The checks are released by the Office of the Provincial
Treasurer and received for the hospital by its
administrative officer and cashier.
Subsequently, the books of account of the
Provincial Treasurer were post-audited by the Provincial
Auditor. It was then discovered that the hospital did not
receive several allotment checks drawn by the Province.
The Provincial Treasurer learned that 30 checks
amounting to P203,300.00 were encashed by one
Fausto Pangilinan, with the Associated Bank acting as
collecting bank. He claimed to be assisting or helping
the hospital follow up the release of the checks and had
official receipts. Pangilinan sought to encash the first
check with Associated Bank. However, the
manager of Associated Bank refused and suggested that
Pangilinan deposit the check in his personal savings
account with the same bank. Pangilinan was able to
withdraw the money when the check was cleared and
paid by the drawee bank, PNB.
After forging the signature of Dr. Adena Canlas who was
chief of the payee hospital, Pangilinan followed the
same procedure for the second check, in the
amount of P5,000.00 and dated April 20, 1978, as well
as for twenty-eight other checks of various amounts
and on various dates. All the checks bore the
stamp of Associated Bank which reads "All prior
endorsements guaranteed ASSOCIATED BANK."
This prompted the provincial treasurer to demand
reimbursement from PNB (drawee) which in turn
demanded reimbursement from petitioner bank
(collecting bank).
Associated Bank also claims that since PNB already
cleared and paid the value of the forged checks in
question, it is now estopped from asserting the defense
that Associated Bank guaranteed prior indorsements.
The drawee bank (PNB) allegedly has the primary duty
to verify the genuineness of payee's indorsement
before paying the check.
Issue: WON petitioner bank is liable?
Ruling: Yes. Petitioner is liable. The case at bench
concerns checks payable to the order of Concepcion
Emergency Hospital or its Chief. They were properly
issued and bear the genuine signatures of the drawer,
the Province of Tarlac. The infirmity in the questioned
checks lies in the payee's (Concepcion Emergency
Hospital) indorsements which are forgeries. At the
time of their indorsement, the checks were order
instruments. 
Checks having forged indorsements should be
differentiated from forged checks or checks bearing the
forged signature of the drawer.
Section 23 of the Negotiable Instruments Law (NIL)
provides:
Sec. 23. FORGED SIGNATURE, EFFECT OF. —
When a signature is forged or made without
authority of the person whose signature it
purports to be, it is wholly inoperative, and
no right to retain the instrument, or to give a
discharge therefor, or to enforce payment
thereof against any party thereto, can be
acquired through or under such signature
unless the party against whom it is sought to
enforce such right is precluded from setting
up the forgery or want of authority.  holder's indorsement, the collecting bank is held liable,
A forged signature, whether it be that of the drawer or
the payee, is wholly inoperative and no one can gain
title to the instrument through it. A person whose
signature to an instrument was forged was never a
party and never consented to the contract which
allegedly gave rise to such instrument. Section 23 does
not avoid the instrument but only the forged signature.
Thus, a forged indorsement does not operate as the
payee's indorsement.
The exception to the general rule in Section 23 is where
"a party against whom it is sought to enforce a right is
precluded from setting up the forgery or
want of authority." Parties who warrant or admit the
genuineness of the signature in question and those
who, by their acts, silence or negligence are estopped
from setting up the defense of forgery, are precluded
from using this defense. Indorsers, persons negotiating
by delivery and acceptors are warrantors of the
genuineness of the signatures on the instrument.
Where the instrument is payable to order at the
time of the forgery, such as the checks in this case, the
signature of its rightful holder (here, the payee hospital)
is essential to transfer title to the same instrument.
When the holder's indorsement is forged, all parties
prior to the forgery may raise the real
defense of forgery against all parties subsequent
thereto.
An indorser of an order instrument warrants "that the
instrument is genuine and in all respects what it
purports to be; that he has a good title to it; that all
prior parties had capacity to contract; and that the
instrument is at the time of his indorsement valid and
subsisting." He cannot interpose the defense that
signatures prior to him are forged.  that of the chief of the payee hospital, Dr. Adena
A collecting bank where a check is deposited and which
indorses the check upon presentment with the
drawee bank, is such an indorser. So even if the
indorsement on the check deposited by the banks'
client is forged, the collecting bank is bound by his
warranties as an indorser and cannot set up the
defense of forgery as against the drawee bank
In this case, the checks were indorsed by the
collecting bank (Associated Bank) to the
drawee bank (PNB). The former will necessarily be liable
to the latter for the checks bearing forged
indorsements. If the forgery is that of the payee's or
without prejudice to the latter proceeding against the
forger.
Since a forged indorsement is inoperative, the
collecting bank had no right to be paid by the
drawee bank. The former must necessarily return the
money paid by the latter because it was paid
wrongfully.
Applying these rules to the case at bench, PNB, the
drawee bank, cannot debit the current account of the
Province of Tarlac because it paid checks which bore
forged indorsements.
Negligence of Drawer
The Court finds as reasonable, the proportionate
sharing of fifty percent-fifty percent (50%-50%). Due to
the negligence of the Province of Tarlac in releasing the
checks to an unauthorized person (Fausto Pangilinan),
in allowing the retired hospital cashier to receive the
checks for the payee hospital for a period close to
three years and in not properly ascertaining why the
retired hospital cashier was collecting checks for the
payee hospital in addition to the hospital's real cashier,
respondent Province contributed to the loss amounting
to P203,300.00 and shall be liable to the PNB for fifty
(50%) percent thereof. In effect, the Province of Tarlac
can only recover fifty percent (50%) of P203,300.00
from PNB.
Liability of Indorser – Collecting Bank
The collecting bank, Associated Bank, shall be liable to
PNB for fifty (50%) percent of P203,300.00. It is liable on
its warranties as indorser of the checks which were
deposited by Fausto Pangilinan, having guaranteed the
genuineness of all prior indorsements, including
Canlas. Associated Bank was also remiss in its duty to
ascertain the genuineness of the payee's indorsement.
 Republic Bank vs CA, G.R. No. 42725
SMC > A > materially altered from 240 to P9,240 > Rep
Bank (collecting) > FNCB (drawee)
SMC issued a dividend check to its stockholders for 240.
It was materially altered to 9240 by the stockholder.
Then, it was deposited to the collecting bank. FNCB paid
to the collecting bank 9240. SMC later found that it was
altered so FNCB asked for reimbursement from
collecting bank.
Ruling: FNCB cannot ask for reimbursement since it
violated the 24-hour clearing period.
General Rule: When an endorsement is forged, the
collecting bank or last endorser bears the loss.
Exception: When the drawee bank fails to return a
forged or altered check to the collecting bank within the
24-hour clearing period. (In which case, the collecting
bank is absolved from liability).
Atty: failure to comply clearing rules that is negligence.
But some cases this was disregarded since even if liable
on 24-hour forgery would’ve still happened.
Facts: San Miguel Corporation made a dividend check
in favor of one of its stockholders for P240 with its
drawee bank First National City Bank (FNCB). After its
issue, the amount payable on the face of the check was
fraudulently changed from P240 to P9,240.
Thereafter, the stockholder upon which the said check
was issued deposited the check on its bank account
with petitioner bank. Petitioner accepted and deposited
such check without ascertaining its genuineness and
regularity.
Eventually, when petitioner bank endorsed the check to
FNCB and after the P9,240 was paid by FNCB, San
Miguel Corp. found out about the material alteration
and forgery. With this, FNCB demanded the
reimbursement of the P9,240 from petitioner bank but
petitioner bank refused claiming that there was a
delay made by FNCB in reporting about the material
alteration.
Issue: WON petitioner bank is obliged to reimburse
the amount.
Held: No, petitioner is protected by the 24-hour
clearing house rule embodied in Section 4(c) of Central
Bank Circular No. 9 and hence, it is absolved from any
liability.
The 24-hour clearing house rule embodied in Section
4(c) of Central Bank Circular No. 9, as amended,
provides:
"Items which should be returned for any reason
whatsoever shall be returned directly to the bank,
institution or entity from which the item was
received. For this purpose, the Receipt for Returned
Checks (Cash Form No. 9) should be used. The
original and duplicate copies of said Receipt shall be
given to the Bank, institution or entity which
returned the items and the triplicate copy should be
retained by the bank, institution or entity whose
demand is being returned. At the following clearing,
the original of the Receipt for Returned Checks shall
be presented through the Clearing Office as a
demand against the bank, institution or entity whose
item has been returned. Nothing in this section shall
prevent the returned items from being settled by
direct reimbursement to the bank, institution or
entity returning the items. All items cleared at 11:00
o’clock A.M. shall be returned not later than 2:00
o’clock P.M. on the same day and all items cleared at
3:00 o’clock P.M. shall be returned not later than
8:30 A.M. of the following business day except for
items cleared on Saturday which may be returned
not later than 8:30 A.M. of the following day."
General Rule: When an endorsement is forged, the
collecting bank or last endorser bears the loss.
Exception: When the drawee bank fails to return a
forged or altered check to the collecting bank within the
24-hour clearing period. (In which case, the collecting
bank is absolved from liability).
The validity of the 24-hour clearing house regulation
has been upheld by this Court in Republic v. Equitable
Banking Corporation, 10 SCRA 8 (1964). As held therein,
since both parties are part of our banking system, and
both are subject to the regulations of the Central Bank,
they are bound by the 24-hour clearing house rule of
the Central Bank.
 Phil. Commercial Bank vs CA, G.R. No. 121413
Ford > CIR > recalled > issued 2 new checks > stolen by
Syndicate > PCI Bank > Citibank (drawee)
Ford issued check to CIR but it was not received by the
latter since Ford’s employees recalled the check and in
lieu thereof issued 2 managers check crossed check to
CIR. However, somehow, the syndicate were able to
encash it before the collecting bank.
Ruling: Collecting bank liable.
The crossing of the check with the phrase Payees
Account Only, is a warning that the check should be
deposited only in the account of the CIR. Thus, it is the
duty of the collecting bank PCIBank to ascertain that the
check be deposited in payees account only. Therefore, it
is the collecting bank (PCIBank) which is bound to
scrutinize the check and to know its depositors before it
could make the clearing indorsement all prior
indorsements and/or lack of indorsement guaranteed.
Having established that the collecting banks negligence
is the proximate cause of the loss, we conclude that
PCIBank is liable in the amount corresponding to the
proceeds of Citibank Check No. SN-04867. (Liable siya
kay crossed-check man to so dapat I deposit ra ni CIR.
Pero nadeposit man sa lain).
Facts: Ford Philippines Inc. issued a check in favor of
the Commissioner of Internal Revenue for the payment
of its percentage and sales taxes amounting to
P4,746,114.41 with its drawee bank, Citibank. The check
was then deposited and paid to petitioner bank which
was then cleared by the Central bank.
However, the proceeds of the check never reached the
Commissioner of Internal Revenue and because of this,
Ford PH was forced to make a second payment to
satisfy its tax obligations.
Ford then sued Citibank asking for reimbursement of
the check it issued that never reached the
Commissioner of Internal Revenue.
The lower court ordered both petitioner bank and
Citibank to pay the P4,746,114,41 jointly and severally
to Ford PH but both banks appealed the decision.
An investigation by the National Bureau of Investigation
(NBI) revealed that Citibank Check No. SN-04867 was
recalled by Godofredo Rivera, the General Ledger
Accountant of Ford. He purportedly needed to hold
back the check because there was an error in the
computation of the tax due to the Bureau of Internal
Revenue (BIR). With Riveras instruction, PCIBank
replaced the check with two of its own Managers
Checks (MCs). Alleged members of a syndicate later
deposited the two MCs with the Pacific Banking
Corporation.
Issue: WON Ford PH can recover the amount.
Held: Yes, Ford PH can recover the amount and it is
petitioner bank who is liable.
Note that in these cases, the checks were drawn against
the drawee bank, but the title of the person negotiating
the same was allegedly defective because the
instrument was obtained by fraud and unlawful means,
and the proceeds of the checks were not remitted to
the payee. It was established that instead of paying the
checks to the CIR, for the settlement of the appropriate
quarterly percentage taxes of Ford, the checks were
diverted and encashed for the eventual distribution
among the members of the syndicate. As to the
unlawful negotiation of the check the applicable law is
Section 55 of the Negotiable Instruments Law (NIL),
which provides:
When title defective -- The title of a person who
negotiates an instrument is defective within the
meaning of this Act when he obtained the
instrument, or any signature thereto, by fraud,
duress, or force and fear, or other unlawful means,
or for an illegal consideration, or when he negotiates
it in breach of faith or under such circumstances as
amount to a fraud.
Pursuant to this provision, it is vital to show that
the negotiation is made by the perpetrator in breach of
faith amounting to fraud. The person negotiating the
checks must have gone beyond the authority given by
his principal. If the principal could prove that there was
no negligence in the performance of his duties, he may
set up the personal defense to escape liability and
recover from other parties who, through their own
negligence, allowed the commission of the crime.
In this case, we note that the direct perpetrators of
the offense, namely the embezzlers belonging to a
syndicate, are now fugitives from justice. They have,
even if temporarily, escaped liability for the
embezzlement of millions of pesos. We are thus left
only with the task of determining who of the present
parties before us must bear the burden of loss of these
millions. It all boils down to the question of liability the check be deposited in payees account
based on the degree of negligence among the parties only. Therefore, it is the collecting bank (PCIBank) which
concerned. is bound to scrutinize the check and to know its
It appears that although the employees of Ford depositors before it could make the clearing
initiated the transactions attributable to an organized indorsement all prior indorsements and/or lack of
syndicate, in our view, their actions were not the indorsement guaranteed.
proximate cause of encashing the checks payable to the
Lastly, banking business requires that the one who
CIR. The degree of Fords negligence, if any, could not be
first cashes and negotiates the check must take some
characterized as the proximate cause of the injury to
precautions to learn whether or not it is genuine. And if
the parties.
the one cashing the check through indifference or other
The Board of Directors of Ford, we note, did not circumstance assists the forger in committing the fraud,
confirm the request of Godofredo Rivera to recall he should not be permitted to retain the proceeds of
Citibank Check No. SN-04867. Riveras instruction to the check from the drawee whose sole fault was that it
replace the said check with PCIBanks Managers Check did not discover the forgery or the defect in the title of
was not in the ordinary course of business which could the person negotiating the instrument before paying
have prompted PCIBank to validate the same. the check. For this reason, a bank which cashes a check
drawn upon another bank, without requiring proof as to
As to the preparation of Citibank Checks Nos. SN-
the identity of persons presenting it, or making inquiries
10597 and 16508, it was established that these checks
with regard to them, cannot hold the proceeds against
were made payable to the CIR. Both were crossed
the drawee when the proceeds of the checks were
checks. These checks were apparently turned around by
afterwards diverted to the hands of a third party. In
Fords employees, who were acting on their own
such cases the drawee bank has a right to believe that
personal capacity.
the cashing bank (or the collecting bank) had, by the
Given these circumstances, the mere fact that the usual proper investigation, satisfied itself of the
forgery was committed by a drawer-payors confidential authenticity of the negotiation of the checks. Thus, one
employee or agent, who by virtue of his position had who encashed a check which had been forged or
unusual facilities for perpetrating the fraud and diverted and in turn received payment thereon from
imposing the forged paper upon the bank, does not the drawee, is guilty of negligence which proximately
entitle the bank to shift the loss to the drawer-payor, in contributed to the success of the fraud practiced on the
the absence of some circumstance raising estoppel drawee bank. The latter may recover from the holder
against the drawer.[21] This rule likewise applies to the the money paid on the check.[26]
checks fraudulently negotiated or diverted by the
Having established that the collecting banks
confidential employees who hold them in their
negligence is the proximate cause of the loss, we
possession.
conclude that PCIBank is liable in the amount
corresponding to the proceeds of Citibank Check No.
SN-04867. (Liable siya kay crossed-check man to so
Negligence of Indorser - Collecting Bank dapat I deposit ra ni CIR. Pero nadeposit man sa lain).
With respect to the negligence of PCIBank in the
payment of the three checks involved, separately, the
trial courts found variations between the negotiation of
Citibank Check No. SN-04867 and the misapplication of
total proceeds of Checks SN-10597 and
16508. Therefore, we have to scrutinize, separately,
PCIBanks share of negligence when the syndicate
achieved its ultimate agenda of stealing the proceeds of
these checks.
Indeed, the crossing of the check with the phrase
Payees Account Only, is a warning that the check should
be deposited only in the account of the CIR. Thus, it is
the duty of the collecting bank PCIBank to ascertain that
Ramon Ilusorio VS CA
Petitioner > Eugenio 17 checks > Manila Bank (drawee)
Eugenio made it appear that petitioner drew checks
into his favor. Eugenio encashed this before Manila
Bank. Petitioner found out so he filed a case against
Eugenio and requested the drawee bank to restore the
amounts given.
Ruling:
Drawee-Bank exercised diligence
The evidence on both sides indicates that TMBCs
employees exercised due diligence before encashing
the checks. Its verifiers first verified the drawers
signatures thereon as against his specimen signature
cards, and when in doubt, the verifier went further,
such as by referring to a more experienced verifier for
further verification.
Petitioner “drawer” is negligent. Therefore, he is
precluded to raise the real defense of forgery.
In the instant case, it is the exception that applies. In
our view, petitioner is precluded from setting up the
forgery, assuming there is forgery, due to his own
negligence in entrusting to his secretary his credit cards
and checkbook including the verification of his
statements of account.
Facts:
Petitioner was the Managing Director of Multinational
Investment Bancorporation and the Chairman and/or
President of several other corporations. He was a
depositor in good standing of respondent bank, the
Manila Banking Corporation. As he was always out of
the country, he entrusted to his secretary, Katherin E.
Eugenio, his credit cards and his checkbook with blank
checks.
Between the dates September 5, 1980 and January 23,
1981, Eugenio was able to encash and deposit to her
personal account about seventeen (17) checks drawn
against the account of the petitioner at the respondent
bank, with an aggregate amount of P119,634.34.
Petitioner never bothered to check personally his
statement of accounts it was only until a business
partner informed him that he saw Eugenio use his
creditcards. Petitoner instituted criminal actions and
immediately fired Eugenio.
Petitioner then requested the respondent bank to credit
back and restore to its account the value of the checks
which were wrongfully encashed but respondent bank
refused. Hence, petitioner filed the instant case.
When trial ensued, Manila Bank sought the expertise of
the NBI in determining the genuineness of the
signatures. However, NBI failed to provide an opinion
due to the lack of specimen signatures as petitioner also
failed to provide such specimens when prodded.
RTC then dismissed his petitioner due to the finding of
no sufficient basis for the petitioners cause. This was
affirmed by the CA.
Issue: WON petitioner has a cause of action against
respondent
Held: No cause of Action.
To be entitled to damages, petitioner has the burden of
proving negligence on the part of the bank for failure to
detect the discrepancy in the signatures on the checks.
Curiously though, petitioner failed to submit additional
specimen signatures as requested by the National
Bureau of Investigation from which to draw a conclusive
finding regarding forgery. The Court of Appeals found
that petitioner, by his own inaction, was precluded
from setting up forgery. We cannot fault the court a quo
for such declaration, considering that the plaintiffs
evidence on the alleged forgery is not convincing
enough. He did not even submit his own specimen
signatures, taken on or about the date of the
questioned checks, for examination and comparison
with those of the subject checks.
Drawee-Bank exercised diligence
Moreover, petitioners contention that Manila Bank was
remiss in the exercise of its duty as drawee lacks factual
basis. The banks employees in the present case did not
have a hint as to Eugenios modus operandi because she
was a regular customer of the bank, having been
designated by petitioner himself to transact in his
behalf. The evidence on both sides indicates that TMBCs
employees exercised due diligence before encashing
the checks. Its verifiers first verified the drawers
signatures thereon as against his specimen signature
cards, and when in doubt, the verifier went further,
such as by referring to a more experienced verifier for
further verification. Of course it is possible that the
verifiers of TMBC might have made a mistake in failing
to detect any forgery -- if indeed there was. However, a
mistake is not equivalent to negligence if they were
honest mistakes such as what happened in the instant
case.

Further, it appears that petitioner accorded his

secretary unusual degree of trust and unrestricted
access to his credit cards, passbooks, check books, bank
statements, including custody and possession of
cancelled checks and reconciliation of accounts. Thus,
the said secretary became a familiar figure in the bank.
What is worse, whenever the bank verifiers call the
office of the appellant, it is the same secretary who
answers and confirms the checks.

Also, His testimony did not indicate that he was out of

the country during the period covered by the checks.
Thus, he had all the opportunities to verify his account
as well as the cancelled checks issued thereunder --
month after month. But he did not, until his partner
asked him whether he had entrusted his credit card to
his secretary because the said partner had seen her use
the same. It was only then that he was minded to verify
the records of his account.

Forgery

Lastly, Petitioner further contends that under Section 23

of the Negotiable Instruments Law a forged check is
inoperative, and that Manila Bank had no authority to
pay the forged checks. True, it is a rule that when a
signature is forged or made without the authority of the
person whose signature it purports to be, the check is
wholly inoperative. No right to retain the instrument, or
to give a discharge therefor, or to enforce payment
thereof against any party, can be acquired through or
under such signature. However, the rule does provide
for an exception, namely: unless the party against
whom it is sought to enforce such right is precluded
from setting up the forgery or want of authority.

In the instant case, it is the exception that applies. In

our view, petitioner is precluded from setting up the
forgery, assuming there is forgery, due to his own
negligence in entrusting to his secretary his credit cards
and checkbook including the verification of his
statements of account.
Samsung VS FEBTC
Samsung > Pay to Cash (Gonzaga is the bearer) > FEBTC
Sempio forged the check made it appear that Samsung
issued a check into Gonzaga’s favor by forging Jong’s
signature, the Project Manager. He went to FEBTC to
encash this. FEBTC conducted many due diligence (e.g.
requiring 2 officers to verify the check, etc.) but it then
allowed the encashment not knowing the forgery.
Samsung found out because one of the checks the
accountant had was missing. So, it asked FEBTC to
restore the amount encashed to the forger.
Ruling: FEBTC must encash.
No Negligence of Drawer
Drawer Samsung is not liable since it can set up the real
defense of forgery (general rule). The exception, that
the party can’t raise forgery by reason of negligence,
cannot be applied since the actions of Samsung’s
employees are not its negligence. “Employers do not
possess the preternatural gift of cognition as to the evil
that may lurk within the hearts and minds of their
employees.”
Atty: no negligence because FEBTC did not allege
negligence on the part of Samsung.
Negligence of Drawee
Reason why drawee-bank is liable: Despite due
diligence, still naa man sa iya ang signature sa drawer
therefore iyang ma compare ang signature sa check og
sa tinuod na signature.
Atty: General Rule applies: If there is signature of the
drawer, drawee liable.
Was there forgery? How? Finding of NBI and PNP. NBI
prevailed because RTC ruled that way. And being a trier
of facts, ofc that should be what CA shall apply.
And also the testimony of Jong since Jong said there
was forgery. Since there were no other evidence
presented, SC had to believe Jong.
Facts:
Plaintiff Samsung Construction maintained a current
account with defendant FEBTC. The sole signatory to
Samsung Constructions account was Jong, its Project
Manager, while the checks remained in the custody of
the company’s accountant, Kyu.
A certain Roberto Gonzaga presented for payment
FEBTC Check No. 432100 to the bank. The check
amounted to P999,500.00. The bank teller Justiniani
first checked thereafter if the petitioner had enough
funds in the count. After confirming, she compared the
signature appearing on the check with the specimen
signature of Jong as contained in the specimen
signature card with the bank and was satisfied. At the
same time, Justiani forwarded the check to the branch
Senior Assistant Cashier Gemma Velez, as it was bank
policy that two bank branch officers approve checks
exceeding One Hundred Thousand Pesos, for payment
or encashment. He too concluded that it was genuine.
Velez then forwarded the check and signature card to
Shirley Syfu, another bank officer, for approval. Syfu
then noticed that Jose Sempio III (Sempio), the assistant
accountant of Samsung Construction, was also in the
bank. Sempio was well-known to Syfu and the other
bank officers, he being the assistant accountant of
Samsung Construction. Syfu showed the check to
Sempio, who vouched for the genuineness of Jongs
signature. The check was then allowed to be encashed.
Dom: bsta ang FEBTC nag due diligence jud. Pero
later ma rule ra na not enough.
The following day, the accountant of Samsung
Construction, Kyu, examined the balance of the bank
account and discovered that a check in the amount of
P999,500.00 had been encashed. Aware that he had not
prepared such a check for Jong’s signature, Kyu perused
the checkbook and found that the last blank check was
missing. (negligence of Samsung’s employee)
Subsequently, the proper criminal charges were filed.
Samsung Construction demanded that FEBTC credit to it
the amount of P999,500.00. In response, FEBTC said
that it was still conducting an investigation on the
matter. Unsatisfied, Samsung Construction filed a
Complaint for violation of Section 23 of the Negotiable
Instruments Law.
RTC chose to believe the findings of the NBI expert and
decided the case in favour of the petitioner.
CA on the other hand reversed the decision arguing that
the contradictory findings of the NBI and the PNP
created doubt as to whether there was forgery and that
the forgery occurred due to the negligence of Samsung
Construction, imputing blame on the accountant Kyu for
lack of care and prudence in keeping the checks, which
if observed would have prevented Sempio from gaining
access thereto.
Issue: WON CA erred in reversing the RTC Decision
Held: CA was wrong.
The general rule is to the effect that a forged signature
is wholly inoperative, and payment made through or
under such signature is ineffectual or does not
discharge the instrument. If payment is made based on
the forged instrument, the drawee cannot charge it to
the drawers account (UNLESS there be negligence on
the drawer). The traditional justification for the result is
that the drawee is in a superior position to detect a
forgery because he has the makers signature and is
expected to know and compare it. The rule has a
healthy cautionary effect on banks by encouraging care
in the comparison of the signatures against those on the
signature cards they have on file. Moreover, the very
opportunity of the drawee to insure and to distribute
the cost among its customers who use checks makes
the drawee an ideal party to spread the risk to
insurance.
Under Section 23 of the Negotiable Instruments Law,
forgery is a real or absolute defense by the party whose
signature is forged. On the premise that Jongs signature
was indeed forged, FEBTC is liable for the loss since it
authorized the discharge of the forged check. Such
liability attaches even if the bank exerts due diligence
and care in preventing such faulty discharge.
It is important to note that in a forgery trial, this
presumption must be overcome but this can only be
done by convincing testimony and effective illustrations.
CA was erroneous when the reliance was placed merely
on the fact that there are colliding opinions of two
experts, both clothed with the presumption of official
duty, in order to draw a conclusion, especially one
which is extremely crucial. Doing so is tantamount to a
jurisprudential cop-out.
The court arrived at the conclusion that the testimony
of the NBI document examiner is more credible. FEBTC
lays undue emphasis on the fact that the PNP examiner
did compare the questioned signature against the bank
signature cards. The crucial fact in question is whether
or not the check was forged, not whether the bank
could have detected the forgery. The latter issue
becomes relevant only if there is need to weigh the
comparative negligence between the bank and the
party whose signature was forged.
Also, We recognize that Section 23 of the Negotiable
Instruments Law bars a party from setting up the
defense of forgery if it is guilty of negligence. Yet, we
are unable to conclude that Samsung Construction was
guilty of negligence in this case. The bare fact that the
forgery was committed by an employee of the party
whose signature was forged cannot necessarily imply
that such party’s negligence was the cause for the
forgery. Employers do not possess the preternatural gift
of cognition as to the evil that may lurk within the
hearts and minds of their employees.
Still, in the absence of evidence to the contrary, we can
conclude that there was no negligence on Samsung
Constructions part. The drawee who has paid upon the
forged signature is held to bear the loss, because he has
been negligent in failing to recognize that the
handwriting is not that of his customer.
Given the circumstances, extraordinary diligence
dictates that FEBTC should have ascertained from Jong
personally that the signature in the questionable check
was his.
Still, even if the bank performed with utmost diligence,
the drawer whose signature was forged may still
recover from the bank as long as he or she is not
precluded from setting up the defense of forgery
(meaning: drawer not negligent). After all, Section 23 of
the Negotiable Instruments Law plainly states that no
right to enforce the payment of a check can arise out of
a forged signature. Since the drawer, Samsung
Construction, is not precluded by negligence from
setting up the forgery, the general rule should apply.
Consequently, if a bank pays a forged check, it must be
considered as paying out of its funds and cannot charge
the amount so paid to the account of the depositor. A
bank is liable, irrespective of its good faith, in paying a
forged check.
Dom: drawee bank is liable since drawer-Samsung can
set up the real defense of forgery (general rule).The
exception, that the party cant raise forgery by reason of
negligence, cannot be applied since the actions of
Samsung’s employees are not its negligence.
“Employers do not possess the preternatural gift of
cognition as to the evil that may lurk within the hearts
and minds of their employees.”

Reason why drawee-bank is liable: naa man sa iya ang

signature sa drawer therefore iyang ma compare ang
signature sa check og sa tinuod na signature.
Areza vs Express Savings Bank
Mambuay > Petitioners > ESBank > Equitable PCI
(collecting) > PVB (drawee)
Mambuay gave to Petitioners a check. Petitioners
deposited the check to its bank ESBank, then to
Equitable PCI. Upon presentment before drawee, it was
dishonored by reason of material alteration.
Ruling: Collecting bank is liable for it is an indorser.
Having breached its warranties, the drawee may collect
against it.
Facts: Petitioners were engaged in the "buy and sell" of
motor vehicles. They received an order from Gerry
Mambuay for the purchase of a second-hand Mitsubishi
Pajero and a brand-new Honda CRV.
Mambuay paid petitioners with nine (9) Philippine
Veterans Affairs Office (PVAO) checks payable to
different payees and drawn against the Philippine
Veterans Bank (drawee), each valued at P200,000 for a
total of P1,800,000.
Petitioners deposited the checks in their savings
account with Express Savings Bank (ESB). ESB then
deposited the checks with its depositary bank,
Equitable-PCI Bank in Laguna. Equitable-PCI Bank
presented the checks to the drawee, the Philippine
Veterans Bank, which honored the checks.
Months later, the checks were returned by PVAO to the
drawee because the amount on the checks was
allegedly altered from P4,000.00 to P200,000.00. The
drawee returned the checks to Equitable-PCI Bank by
way of Special Clearing Receipts. ESB was informed by
Equitable-PCI Bank that the drawee dishonored the
checks on the ground of material alterations. Equitable-
PCI Bank initially filed a protest with the Philippine
Clearing House. The latter ruled in favor of the drawee
Philippine Veterans Bank. Equitable-PCI Bank, in turn,
debited the deposit account of ESB in the amount of
P1,800,000.00.
A year later, ESB closed the Special Savings Account of
the petitioners with a balance of P1,179,659.69 and
transferred said amount to their savings account. ESB
then withdrew the amount of P1,800,000.00
representing the returned checks from petitioners'
savings account.
Issue: W/N the Bank had the right to debit
P1,800,000.00 from petitioners' accounts.
Held: NO.
Depositary bank - the bank to which a check is
transferred for deposit in an account at such bank, even
if the check is physically received and indorsed first by
another bank.
Collecting bank - any bank handling an item for
collection except the bank on which the check is drawn
When petitioners deposited the check with ESB, they
were designating the latter as the collecting bank. After
receiving the deposit, under its own rules, ESB shall
credit the amount in petitioners' account or infuse value
thereon only after the drawee bank shall have paid the
amount of the check or the check has been cleared for
deposit.
The Bank and Equitable-PCI Bank are both depositary
and collecting banks.
A depositary/collecting bank where a check is
deposited, and which endorses the check upon
presentment with the drawee bank, is an endorser.
Under Section 66 of NIL, an endorser warrants "that the
instrument is genuine and in all respects what it
purports to be; that he has good title to it; that all prior
parties had capacity to contract; and that the
instrument is at the time of his endorsement valid and
subsisting." As indorser-collecting bank, Express Savings
Bank is liable for the amount of the materially altered
checks (for having warranted warranties). It cannot
further pass the liability back to the petitioners absent
any showing in the negligence on the part of the
petitioners which substantially contributed to the loss
from alteration.
It has been repeatedly held that in check transactions,
the depositary/collecting bank or last endorser
generally suffers the loss because it has the duty to
ascertain the genuineness of all prior endorsements
considering that the act of presenting the check for
payment to the drawee is an assertion that the party
making the presentment has done its duty to ascertain
the genuineness of the endorsements. If any of the
warranties made by the depositary/collecting bank
turns out to be false, then the drawee bank may
recover from it up to the amount of the check.
LIABILITY OF THE DRAWEE
Sec. 63 of NIL provides that the acceptor, by accepting
the instrument, engages that he will pay it according to
the tenor of his acceptance. The acceptor is a drawee
who accepts the bill. Citing PNB vs CA, the payment of
the amount of a check implies not only acceptance but
also compliance with the drawee's obligation.
PNB vs CA and PCIB
GSIS > Lim (payee) > PCIB (collecting bank) > PNB
(drawee)
GSIS issued a check in favor of Lim. Lim encashed this
before PCIB which then asked PNB to pay the same.
However, 2 months before encashment by Lim, GSIS
notified PNB to not encash for the said check has been
lost (so murag kinawat kuno if nay mu encash). It was
later alleged that signatures GSIS’s officers were forged.
Ruling:
PCIB (collecting bank) not liable. PCIB only guaranteed
"all prior indorsements," not the authenticity of the
signatures of the officers of the GSIS who signed on its
behalf, because the GSIS is not an indorser of the check,
but its drawer. Said warranty is irrelevant, therefore, to
PNB's alleged right to recover from PCIB.
Dom: kay diba ang indorser mu warrant ra sa prior
indorsements. Ang pirma sa mga GSIS officers
bahalag forged dili mana one of the warranties kay
dili mana sila indorsers but drawers. So PCIB not
liable kay no breach of warranty.
PNB (drawee bank) liable. Because it had a previous
and formal notice from GSIS that the check had been
lost, with the request that payment thereof be stopped.
Just as important, if not more important and decisive, is
the fact that PNB's negligence was the main or
proximate cause for the corresponding loss.
Thus, by not returning the check to PCIB, by thereby
indicating that PNB had found nothing wrong with the
check and would honor the same, and by actually
paying its amount to PCIB, PNB induced the latter, not
only to believe that the check was genuine and good in
every respect, but, also, to pay its amount to Augusto
Lim. In other words, PNB was the primary or proximate
cause of the loss, and, hence, may not recover from
PCIB.
Facts: Augusto Lim deposited in his current account
with PCIB, a GSIS check worth P57,415.00, drawn
against the PNB. PCIB stamped the following on the
back of the check: "All prior indorsements and/or Lack
of Endorsement Guaranteed, Philippine Commercial
and Industrial Bank".
2 months before Lim deposited the check with PCIB,
GSIS had notified PNB, which acknowledged receipt of
the notice, that said check had been lost, and,
accordingly, requested that its payment be stopped.
16 days after the deposit, upon demand from GSIS, said
sum of P57,415.00 was re-credited to the latter's
account, for the reason that the signatures of its officers
on the check were forged. PNB then demanded from
PCIB the refund of said sum but the latter refused.
It is not disputed that the signatures of the General
Manager and the Auditor of GSIS on the check, as
drawer thereof, are forged.
Issue: W/N PCIB, as indorser, is liable despite the fact
that the check is forged when PNB is also negligent.
Held: NO.
1. PNB argues that, since the signatures of the drawer
are forged, so must the signatures of the supposed
indorsers be. This conclusion does not necessarily
follow from said premise. There is absolutely no
evidence, and PNB has not even tried to prove that the
aforementioned indorsements are spurious. Again, PNB
refunded the amount of the check to GSIS, on account
of the forgery in the signatures, not of the indorsers or
supposed indorsers, but of the officers of GSIS as
drawer of the instrument. In other words, the question
whether or not the indorsements have been falsified is
immaterial to the PNB's liability as a drawee, or to its
right to recover from the PCIB, for, as against the
drawee, the indorsement of an intermediate bank does
not guarantee the signature of the drawer since the
forgery of the indorsement is not the cause of the loss.
2. PCIB thereby guaranteed "all prior indorsements,"
not the authenticity of the signatures of the officers of
the GSIS who signed on its behalf, because the GSIS is
not an indorser of the check, but its drawer. Said
warranty is irrelevant, therefore, to PNB's alleged right
to recover from PCIB. It could have been availed of by a
subsequent indorsee or a holder in due course
subsequent to PCIB, but, PNB is neither. Indeed, upon
payment by PNB, as drawee, the check ceased to be a
negotiable instrument, and became a mere voucher or
proof of payment.
3. "Acceptance" is not required for checks, for the same
are payable on demand. Indeed, "acceptance" and
"payment" are essentially different things, for the
former is "a promise to perform an act," whereas the
latter is the "actual performance" thereof. In the words
of the Law, "the acceptance of a bill is the signification
by the drawee of his assent to the order of the drawer,"
which, in the case of checks, is the payment, on
demand, of a given sum of money. Upon the other
hand, actual payment of the amount of a check implies
not only an assent to said order of the drawer and a
recognition of the drawer's obligation to pay the
aforementioned sum, but, also, a compliance with such
obligation.

4. Assuming that there had been such negligence on the

part of PCIB in not discovering that the check was
forged, it is undeniable, however, that PNB has, also,
been negligent, with the particularity that PNB had
been guilty of a greater degree of negligence, because it
had a previous and formal notice from GSIS that the
check had been lost, with the request that payment
thereof be stopped. Just as important, if not more
important and decisive, is the fact that PNB's negligence
was the main or proximate cause for the corresponding
loss.

Thus, by not returning the check to PCIB, by thereby

indicating that PNB had found nothing wrong with the
check and would honor the same, and by actually
paying its amount to PCIB, PNB induced the latter, not
only to believe that the check was genuine and good in
every respect, but, also, to pay its amount to Augusto
Lim. In other words, PNB was the primary or proximate
cause of the loss, and, hence, may not recover from
PCIB.

5. Section 62 of NIL provides:

The acceptor by accepting the instrument

engages that he will pay it according to the tenor
of his acceptance; and admits:

(a) The existence of the drawer, the

genuineness of his signature, and his capacity and
authority to draw the instrument; and

(b) The existence of the payee and his then

capacity to indorse.

The prevailing view is that the same rule applies in the

case of a drawee who pays a bill without having
previously accepted it.
One liner: Actual payment by the drawee is greater than
his acceptance, which is merely a promise in writing to
pay. The payment of a check includes its acceptance. The
tenor of the acceptance is determined by the terms of the
bill as it is when the drawee accepts.
Tagoe > Gold Palace
Far East Bank and Trust Co. vs Gold Palace Jewelry Co.
Facts:
A foreigner in the name of Samuel Tagoe purchased
jewelry from Gold Palace (GP) and in payment thereof
offered a Foreign Draft issued by United Overseas Bank
(UOB) of Malaysia addressed to Land Bank (LBP) and
payable to Far East Bank (Far East). Judy Yang (Asst.
Manager) of GP inquired from Far East the nature of the
draft and she was informed that the same is similar to a
manager’s check. She was advised not to release the pieces
of jewelry until the draft is cleared. Hence an invoice was
issued to Tagoe, advising the latter that he can claim as
long as the draft was cleared. When Far East presented to
LBP, the latter cleared the same UOBs account with LBP
was debited and GP account with Far East was credited
with the amount of the stated draft. Upon ascertainment
that the draft was cleared and upon the return of Tagoe
and because the amount cleared was more than the
amount of the jewelry, a change of 122,000 thru a check
which was later encashed by Tagoe. Three weeks later, LBP
informed Far East that the amount was altered from 300
pesos to 380,000 pesos and thus it was returning the same
it is to be noted that the material alteration was
discovered by UOB after LBP had informed it that its funds
were depleted following the encashment by the subject
draft. Hence Far East refunded LBP with 380,000. GP had
already utilized the amount. Thus as the outstanding
balance of GP was inadequate with Far East, it debited
168,000 without prior notice from GP.
Far East later demanded from GP the difference between
the amount debited and the amount in the materially
altered draft. Since its demand was unheeded, Far East
instituted a civil case for sum of money. GP denied the
material allegations and stated as a defense that the
complaint has no cause of action, that the subject foreign
draft having been cleared with the GP not being the party
who made the material alteration. The RTC rendered a
decision in favor of Far East.
On appeal, the CA reversed the ruling and held mainly that
Far East failed to undergo the proccedings on the protest
of the foreign draft or to notify GP of the draft’s dishonor;
Far East could not charge GP on its secondary liability as
indorser. The drawee bank cleared the check and its
remedy should be against the party responsible for the
alteration. Hence this petition.
Issues:
Whether the CA is correct in reversing the RTC ruling?
Held:
No. Act No. 2031, or the Negotiable Instruments Law (NIL),
explicitly provides that the acceptor, by accepting the
instrument, engages that he will pay it according to the
tenor of his acceptance. This provision applies with equal
force in case the drawee pays a bill without having
previously accepted it. His actual payment of the amount
in the check implies not only his assent to the order of the
drawer and a recognition of his corresponding obligation
to pay the aforementioned sum, but also, his clear
compliance with that obligation. Actual payment by the
drawee is greater than his acceptance, which is merely a
promise in writing to pay. The payment of a check includes
its acceptance. The tenor of the acceptance is determined
by the terms of the bill as it is when the drawee accepts.
Stated simply, LBP was liable on its payment of the check
according to the tenor of the check at the time of payment,
which was the raised amount.
We note at this point that Gold Palace was not a
participant in the alteration of the draft, was not negligent,
and was a holder in due course it received the draft
complete and regular on its face, before it became overdue
and without notice of any dishonor, in good faith and for
value, and absent any knowledge of any infirmity in the
instrument or defect in the title of the person negotiating
it. Having relied on the drawee banks clearance and
payment of the draft and not being negligent (it delivered
the purchased jewelry only when the draft was cleared and
paid), respondent is amply protected by the said Section
62. Commercial policy favors the protection of any one
who, in due course, changes his position on the faith of the
drawee banks clearance and payment of a check or draft,
in line with the sound principle that where one of the two
innocent parties must suffer a loss, the law will leave the
loss where it finds.
Indeed, banking institutions can readily protect themselves
against liability on altered instruments either by qualifying
their acceptance or certification, or by relying on forgery
insurance and special paper which will make alterations
obvious. This is not to mention, but we state nevertheless
for emphasis, that the drawee bank, in most cases, is in a
better position, compared to the holder, to verify with the
drawer the matters stated in the instrument. As we have
observed in this case, were it not for LBPs communication
with the drawer that its account in the Philippines was
being depleted after the subject foreign draft had been
encashed, then, the alteration would not have been
discovered. What we cannot understand is why LBP,
having the most convenient means to correspond with
UOB, did not first verify the amount of the draft before it
cleared and paid the same. Gold Palace, on the other hand,
had no facility to ascertain with the drawer, UOB Malaysia,
the true amount in the draft. It was left with no option but
to rely on the representations of LBP that the draft was
good.

Absent any provision of the law similar to the Uniform

Commercial Code of the US that if an unaccepted draft is
presented to a drawee for payment or acceptance and the
drawee pays or accepts the draft, the person obtaining
payment or acceptance, at the time of presentment, and a
previous transferor of the draft, at the time of transfer,
warrant to the drawee making payment or accepting the
draft in good faith that the draft has not been altered, Gold
Palace is protected by Section 62 of the NIL, its collecting
agent, Far East, should not have debited the money paid
by the drawee bank from respondent companys account.
When Gold Palace deposited the check with Far East, the
latter, under the terms of the deposit and the provisions of
the NIL, became an agent of the former for the collection
of the amount in the draft.[44] The subsequent payment
by the drawee bank and the collection of the amount by
the collecting bank closed the transaction insofar as the
drawee and the holder of the check or his agent are
concerned, converted the check into a mere voucher, and,
as already discussed, foreclosed the recovery by the
drawee of the amount paid.Neither can petitioner be
considered to have acted as the representative of the
drawee bank when it debited respondents account,
because, as already explained, the drawee bank had no
right to recover what it paid. Likewise, Far East cannot
invoke the warranty of the payee/depositor who indorsed
the instrument for collection to shift the burden it brought
upon itself. This is precisely because the said indorsement
is only for purposes of collection which, under Section 36
of the NIL, is a restrictive indorsement
One liner: When the entries altered were among those
enumerated under Section 1 and 125, namely, the sum of
money payable and the date of the check, the instant
controversy therefore squarely falls within the purview of
material alteration.
Cabilzo > Marquez P1,000 but altered to P91,000 >
Westmont (collecting) > Metrobank (drawee)
Cabilzo issued to Marquez P1,000 check. However, it was
altered to P91,000 and the date from 24 to 14. Encashed
by Westmont and later Metrobank. Cablizo asked
Metrobank to restore the 90,000.
First, it is material alteration since the entries altered were
among those enumerated under Section 1 and 125,
namely, the sum of money payable and the date of the
check. The check was altered so that the amount was
increased from P1,000 to P91,000 and the date was
changed from 24 November 1994 to 14 November 1994
Drawer exercised due diligence
Cabilzo placed asterisks before and after the amount in
words and figures in order to forewarn the subsequent
holders that nothing follows before and after the amount
indicated other than the one specified between the
asterisks. Undoubtedly, Cabilzo was an innocent party in
this instant controversy. He was just an ordinary
businessman who, to facilitate his business transactions,
entrusted his money with a bank, not knowing that the
latter would yield a substantial amount of his deposit to
fraud, for which Cabilzo can never be faulted.
Metrobank vs. Cabilzo
Facts:
Cabilzo issued a Metrobank Check payable to “CASH” and
postdated on November 24. 1994 in the amount of 1,000.
This was paid to Mr. Marquez as the sales commission of
the latter and was presented to Westmont Bank for
payment. In turn, Westmont Bank indorsed the check for
appropriate clearing. After the appropriate examination of
Metrobank, the check was cleared for encashment. On one
occasion when a representative of Cabilzo went to the
Pasong Tamo Branch, he was inquired by one of the bank
personnel whether Cabilzo issued a check in the amount of
91,000, the latter replied in the negative. In the same day
Cabilzo clarified that he did not issue a check but rather in
that amount but rather it is 1,000. Cabilzo demanded that
Metrobank re-credit the amount to his account but the
bank denied responding that it has to inquire with the legal
department. Further demand was left unheeded including
its demand thru counsel. Hence a civil case for damages
was filed against Metrobank.
In its answer, Metrobank argues that the receipt of such
check, the genuineness and the authenticity of the
drawer’s signature, and there were no alterations, erasures
or superimposition. Hence it cleared the check. Metrobank
argues that Westmont Bank should be liable for the value
of the check, Westmont Bank was an unqualified indorser
by virtue of which it assumed the liability of a general
indorser and thus warranted that the instrument is
genuine and in all respect what it purports to be. Cabilzo
was partly responsible for leaving spaces in the check
which allowed the fraudulent insertions; on account of
that negligence he is the proximate cause of the loss under
the doctrine of equitable estoppel.
The RTC rendered a decision in favor of Cabilzo. Metrobank
appealed before the CA. it argued that the Westmont
being the last indorser shall bear the loss occasioned by
the fraudulent alteration of the check, by reason of
unqualified indorsement, Westmont warranted that the
check in question is genuine, valid and subsisting and that
upon presentment the check shall be accepted according
to its tenor.
The CA affirmed the RTC ruling. Hence this petition.
Issues:
Whether the CA is correct in affirming the RTC ruling?
Held:
Yes. An alteration is said to be material if it changes the
effect of the instrument. It means that an unauthorized
change in an instrument that purports to modify in any
respect the obligation of a party or an unauthorized
addition of words or numbers or other change to an
incomplete instrument relating to the obligation of a party.
In other words, a material alteration is one which changes
the items which are required to be stated under Section 1
of the Negotiable Instruments Law. In the case at bar, the
check was altered so that the amount was increased from
P1,000.00 to P91,000.00 and the date was changed from
24 November 1994 to 14 November 1994. Apparently,
since the entries altered were among those enumerated
under Section 1 and 125, namely, the sum of money
payable and the date of the check, the instant controversy
therefore squarely falls within the purview of material
alteration.
Now, having laid the premise that the present petition is a
case of material alteration, it is now necessary for us to
determine the effect of a materially altered instrument, as
well as the rights and obligations of the parties thereunder.

Indubitably, Cabilzo was not the one who made nor

authorized the alteration. Neither did he assent to the
alteration by his express or implied acts. There is no
showing that he failed to exercise such reasonable degree
of diligence required of a prudent man which could have
otherwise prevented the loss.

The degree of diligence required of a reasonable man in

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

Verily, Metrobank cannot lightly impute that Cabilzo was

negligent and is therefore prevented from asserting his
rights under the doctrine of equitable estoppel when the
facts on record are bare of evidence to support such
conclusion. Undoubtedly, Cabilzo was an innocent party in
this instant controversy. He was just an ordinary
businessman who, to facilitate his business transactions,
entrusted his money with a bank, not knowing that the
latter would yield a substantial amount of his deposit to
fraud, for which Cabilzo can never be faulted.
One liner: A material alteration is one which changes the
items which are required to be stated under Section 1 of
the Negotiable Instrument[s] Law
MoE > Payee > ICB (collecting) > PNB (drawee)
What was altered was the serial numbers. SC ruled that it
is not material alteration because not one of those
enumerated under NIL.
International Corporate Bank vs CA
Facts:
The Ministry of Education issued 15 checks drawn against
PNB which ICB accepted for deposit on various dates. After
24 hours from submission of the checks to PNB, ICB paid
the value of the checks and allowed the withdrawals of the
deposit. However, subsequently, PNB returned all the
checks to IBP without clearing them on the ground that
they were materially altered. Thus, ICB instituted an action
for collection of sums of money against PNB to recover the
value of the checks.
The RTC ruled that PNB is expected to use reasonable
business practices in accepting and paying the checks
presented to it, it cannot be faulted for the delay in
clearing the checks considering the ingenuity in which the
alterations were effected. There was no attempt from ICB
to verify the status of the checks before it paid the value of
the checks or allowed withdrawal of the deposits. ICB, as
collecting bank, could have inquired by telephone from
respondent, as drawee bank, about the status of the
checks before paying their value.
On appeal, the CA reversed the RTC ruling, checks that
have been materially altered shall be returned within 24
hours after discovery of the alteration. However, even if
the drawee bank returns a check with material alterations
after discovery of the alteration, the return would not
relieve the drawee bank from any liability for its failure to
return the checks within the 24-hour clearing period. The
Court of Appeals rejected the trial court’s opinion that
petitioner could have verified the status of the checks by
telephone call since such imposition is not required under
Central Bank rules. On MR, the CA reversed itself. Hence
this petition.
Issue:
Whether the alterations in the serial numbers of the check
is a material alteration?
Held:
No. The alterations in the checks were made on their serial
numbers. Pursuant to Sections 124 and 125 of Act No.
2031, otherwise known as the Negotiable Instruments Law,
thus, an alteration is said to be material if it alters the
effect of the instrument. It means an unauthorized change
in an instrument that purports to modify in any respect the
obligation of a party or an unauthorized addition of words
or numbers or other change to an incomplete instrument
relating to the obligation of a party. In other words, a
material alteration is one which changes the items which
are required to be stated under Section 1 of the Negotiable
Instrument[s] Law.
In his book entitled "Pandect of Commercial Law and
Jurisprudence," Justice Jose C. Vitug opines that "an
innocent alteration (generally, changes on items other
than those required to be stated under Sec. 1, N.I.L.) and
spoliation (alterations done by a stranger) will not avoid
the instrument, but the holder may enforce it only
according to its original tenor. The case at the bench is
unique in the sense that what was altered is the serial
number of the check in question, an item which, it can
readily be observed, is not an essential requisite for
negotiability under Section 1 of the Negotiable Instruments
Law. The aforementioned alteration did not change the
relations between the parties. The name of the drawer and
the drawee were not altered. The intended payee was the
same. The sum of money due to the payee remained the
same. The check’s serial number is not the sole indication
of its origin. As succinctly found by the Court of Appeals,
the name of the government agency which issued the
subject check was prominently printed therein. The check’s
issuer was therefore sufficiently identified, rendering the
referral to the serial number redundant and
inconsequential. The check’s serial number is not the sole
indication of its origin. As succinctly found by the Court of
Appeals, the name of the government agency which issued
the subject check was prominently printed therein. The
check’s issuer was therefore sufficiently identified,
rendering the referral to the serial number redundant and
inconsequential.

BDO vs. Engr. Selving
Preamble by Dom: ako ni gi taas2 kay strict kayo si sir sa
facts og ruling ana mga pelaez
Facts:
On March 9, 1999, respondent Engineer
Selwyn S. Lao (Lao) filed before the RTC a complaint
for collection of sum of money against Equitable
Banking Corporation, now petitioner Banco de Oro
Unibank (BDO), Everlink Pacific Ventures, Inc.
(Everlink), and Wu Hsieh a.k.a. George Wu (Wu).
In his complaint, Lao alleged that he
entered into a transaction with Everlink, under
which, Everlink would supply him with "HCG
sanitary wares"; and that for the down payment, he
issued two (2) Equitable crossed checks payable to
Everlink: Check No. 0127-242249 4and Check No.
0127-242250, 5 in the amounts of P273,300.00 and
P336,500.00, respectively.
Lao further averred that when the checks
were encashed, he contacted Everlink for the
immediate delivery of the sanitary wares, but the
latter failed to perform its obligation. Later, Lao
learned that the checks were deposited in two
different bank accounts at respondent Union Bank.
He was later informed that the two bank accounts
belonged to Wu and a company named New Wave
Plastic (New Wave), represented by a certain
Antiporda. Consequently, Lao was prompted to file
a complaint against Everlink and Wu for their failure
to comply with their obligation and against BDO for
allowing the encashment of the two (2) checks. He
later withdrew his complaint against Everlink as the
corporation had ceased existing.
BDO’s Answer
BDO asserted that it had no obligation to ascertain
the owner of the account/s to which the checks
were deposited because the instruction to deposit
the said checks to the payee's account only was
directed to the payee and the collecting bank,
which in this case was Union Bank; that as the
drawee bank, its obligations consist in examining
the genuineness of the signatures appearing on the
checks, and paying the same if there were sufficient
funds in the account under which the checks were
drawn; and that the subject checks were properly
negotiated and paid in accordance with the
instruction of Lao in crossing them as they were
deposited to the account of the payee Everlink with
Union Bank, which then presented them for
payment with BDO.
Lao filed an Amended Complaint against
Union Bank as additional defendant for allowing the
deposit of the crossed checks in two bank accounts
other than the payee's, in violation of its obligation
to deposit the same only to the payee's account.
Union Bank’s Answer
Union Bank argued that Check No. 0127-242249
was deposited in the account of Everlink; that Check
No. 0127-242250 was validly negotiated by Everlink
to New Wave; that Check No. 0127-242250 was
presented for payment to BDO, and the proceeds
thereof were credited to New Wave's account; that
it was under no obligation to deposit the checks
only in the account of Everlink because there was
nothing on the checks which would indicate such
restriction; and that a crossed check continues to
be negotiable, the only limitation being that it
should be presented for payment by a bank.
Dom: no issue ang Check 0127-242249 kay
validly deposited sa payee’s bank account
(Everlink). Ang issue kay sa Check 0127-242250
kay na deposit sa person other than the payee
(na padulong ni New Wave).
RTC Ruling
RTC absolved BDO from any liability, but ordered
Union Bank to pay Lao the amount of P336,500.00,
representing the value of Check No. 0127-242250.
RTC observed that there was nothing
irregular with the transaction of Check No. 0127-
242249 because the same was deposited in
Everlink's account with Union Bank. It, however,
found that Check No. 0127-242250 was irregularly
deposited and encashed because it was not issued
for the account of Everlink, the payee, but for the
account of New Wave. The trial court noted further
that Check No. 0127-242250 was not even
endorsed by Everlink to New Wave. Thus, it opined
that Union Bank was negligent in allowing the
deposit and encashment of the said check without
proper endorsement. The RTC wrote that
considering that the subject check was a crossed
check, Union Bank failed to take reasonable steps in
order to determine the validity of the
representations made by Antiporda. In the end, it
adjudged that BDO could not be held liable because
of Union Bank's warranty when it stamped on the
 check that "all prior endorsement and/or lack of
endorsement guaranteed."
CA Ruling
It concurred with the RTC that Union Bank was
liable because of its negligence and its guarantee on
the validity of all prior endorsements or lack of it.
With regard to BDO's liability, the CA explained that
it violated its duty to charge to the drawer's account
only those authorized by the latter when it paid the
value of Check No. 0127-242250. Thus, it held that
BDO was liable for the amount charged to the
drawer's account.
|||  of the subject check the phrase "all prior
Issues: WON Union Bank and BDO are liable
Ruling: BDO is liable for encashing the check to a
person other than the payee but Union Bank is
ultimately liable for having guaranteed all prior
endorsements.
The liability of the drawee bank is based on
its contract with the drawer and its duty to charge
to the latter's accounts only those payables
authorized by him. A drawee bank is under strict
liability to pay the check only to the payee or to the
payee's order. When the drawee bank pays a
person other than the payee named in the check, it
does not comply with the terms of the check and
violates its duty to charge the drawer's account only
for properly payable items.
On the other hand, the liability of the
collecting bank is anchored on its guarantees as the
last endorser of the check. Under Section 66 of
the Negotiable Instruments Law, an endorser
warrants "that the instrument is genuine and in all
respects what it purports to be; that he has good
title to it; that all prior parties had capacity to
contract; and that the instrument is at the time of
his endorsement valid and subsisting."
It has been repeatedly held that in check
transactions, the collecting bank generally suffers
the loss because it has the duty to ascertain the
genuineness of all prior endorsements considering
that the act of presenting the check for payment to
the drawee is an assertion that the party making
the presentment has done its duty to ascertain the
genuineness of the endorsements. If any of the
warranties made by the collecting bank turns out to
be false, then the drawee bank may recover from it
up to the amount of the check. 14
In the present case, BDO paid the value of
Check No. 0127-242250 to Union Bank, which, in
turn, credited the amount to New Wave's account.
The payment by BDO was in violation of Lao's
instruction because the same was not issued in
favor of Everlink, the payee named in the check. It
must be pointed out that the subject check was not
even endorsed by Everlink to New Wave. Clearly,
BDO violated its duty to charge to Lao's account
only those payables authorized by him.
Nevertheless, even with such clear violation
by BDO of its duty, the loss would have ultimately
pertained to Union Bank. By stamping at the back
endorsements and/or lack of it guaranteed," Union
Bank had, for all intents and purposes treated the
check as a negotiable instrument and, accordingly,
assumed the warranty of an endorser. Without
such warranty, BDO would not have paid the
proceeds of the check. Thus, Union Bank cannot
now deny liability after the aforesaid warranty
turned out to be false. 
Union Bank was clearly negligent when it
allowed the check to be presented by, and
deposited in the account of New Wave, despite
knowledge that it was not the payee named
therein. Further, it could not have escaped its
attention that the subject checks were crossed
checks.
A crossed check is one where two parallel
lines are drawn across its face or across the corner
thereof. A check may be crossed generally or
specially. A check is crossed especially when the
name of a particular banker or company is written
between the parallel lines drawn. It is crossed
generally when only the words "and company" are
written at all between the parallel lines. 16 caITAC
Jurisprudence dictates that the effects of
crossing a check are: (1) that the check may not be
encashed but only deposited in the bank; (2) that
the check may be negotiated only once — to one
who has an account with a bank; and (3) that the
act of crossing the check serves as a warning to the
holder that the check has been issued for a definite
purpose so that he must inquire if he has received
the check pursuant to that purpose.  The effects of
crossing a check, thus, relate 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. 
 It is undisputed that Check No. 0127- payee, were not impleaded as parties in the suit. In
242250 had been crossed generally as nothing was this regard, it is a fundamental principle in this
written between the parallel lines appearing on the jurisdiction that a person cannot be prejudiced by a
face of the instrument. This indicated that Lao, the ruling rendered in an action or proceeding in which
drawer, had intended the same for deposit only to he has not been made a party. This principle
the account of Everlink, the payee named therein. conforms to the constitutional guarantee of due
Despite this clear intention, however, Union Bank process of law. 21 To the mind of the Court, this
negligently allowed the deposit of the proceeds of principle was a foremost underlying consideration
the said check in the account of New Wave. for allowing the direct recovery by the payee from
the negligent collecting bank.
Generally, BDO must be ordered to pay Lao
the value of the subject check; whereas, Union Bank
would be ordered to reimburse BDO the amount of
the check. The aforesaid sequence of recovery,
however, is not applicable in the present case due
to the presence of certain factual peculiarities.
Sequence of Recovery
Although the rule on the sequence of
recovery has been deeply engrained in
jurisprudence, there may be exceptional
circumstances which would justify its simplification.
Stated differently, the aggrieved party may be
allowed to recover directly from the person which
caused the loss when circumstances warrant. In
Associated Bank v. Court of Appeals  (Associated
Bank), the person who suffered the loss as a result
of the unauthorized encashment of crossed checks
was allowed to recover the loss directly from the
negligent bank despite the latter's contention of
lack of privity of contract. The Court said:
There being no evidence
that the crossed checks were
actually received by the private
respondent, she would have a right
of action against the drawer
companies, which in turn could go
against their respective drawee
banks, which in turn could sue the
herein petitioner as collecting bank.
In a similar situation, it was held
that, to simplify proceedings, the
payee of the illegally encashed
checks should be allowed to
recover directly from the bank
responsible for such encashment
regardless of whether or not the
checks were actually delivered to
the payee. We approve such direct
action in the case at bar. 20
A peculiar circumstance in Associated
Bank is the fact that the drawer companies, which
should have been directly liable to the aggrieved
 Atty’s example on phrasing questions:
A delivers a bearer instrument to B. B
specially indorses it to C who later on indorses it in
blank to D. E steals the instrument from D and
forged his signature and negotiated it to F who
knew about the forgery.
Discuss the rights of F in relation to prior
parties.
Forgery and complete but undelivered
instrument
F HNDC.
F may not enforce against ALL prior parties.
Even though bearer instrument, and sig of indorser
not essential. They may raise defenses of complete
but undelivered instrument since F is HNDC.
No shelter principle since E is perpetrator to
fraud.
---------------------------------------------------------------------

Milodas issued promissory note to

Elizabeth, or bearer, P1,000,000 POD. Elizabeth
indorsed specially to Merlin, who indorsed in blank
to Ban. Ban lost the note through theft by Dayan
who forged Ban’s signature and delivered to
Jericko. Jerick passed to King and Hawk by
delivery. From Hawk it was indorsed in blank to
Escanor.
E HNDC.
Escanor being a holder through a holder in
due course CANNOT recover from Milodas,
Elizabeth and Ban since they may raise forgery.
Further Escanor cannot enforce payment against
King and Jericko.
E may go to Hawk as immediate transferor.
E may ultimately go to perpetrator.
|||