NIL Cases 5

METROPOLITAN BANK AND TRUST COMPANY,
Petitioner, v. JUNNEL'S MARKETING
CORPORATION, PURIFICACION DELIZO, AND BANK OF COMMERCE, Respondents.
G.R. No. 235565, June 20, 2018
BANK OF COMMERCE, Petitioner, v. JUNNEL'S MARKETING CORPORATION,

PURIFICACION DELIZO, AND METROPOLITAN BANK AND TRUST
COMPANY, Respondents.
DECISION
VELASCO JR., J.:
At bench are two appeals1 assailing the Decision2 dated 22 March 2017 and Resolution3 dated
19 October 2017 of the Court of Appeals (CA) in CA-G.R. CV No. 102462. The first appeal was
filed by the Metropolitan Bank and Trust Company (Metrobank), while the second by the Bank
of Commerce (Bankcom).
The facts are as follows:
Respondent Junnel's Marketing Corporation (JMC) is a domestic corporation engaged in the

business of selling wines and liquors. It has a current account with Metrobank 4 from which it
draws checks to pay its different suppliers. Among JMC's suppliers are Jardine Wines and
Spirits (Jardine) and Premiere Wines (Premiere).
In 2000, during an audit of its financial records,5 JMC discovered an anomaly involving eleven
(11) checks (subject checks) it had issued to the orders of Jardine and Premiere on various
dates between October 1998 to May 1999. As it was, the subject checks had already been
charged against JMC's current account but were, for some reason, not covered by any official
receipt from Jardine or Premiere. The subject checks, which are all crossed checks and
amounting to P1,481,292.00 in total, are as follows:
Checks Payable to the Order of Jardine:
1. Check No. 3010048953 - issued on 11 October 1998 in the amount of P181,440.00
2. Check No. 3010048955 - issued on 24 October 1998 in the amount of P195,840.00
3. Check No. 3010069098 - issued on 18 May 1999 in the amount of P58,164.56

7. Check No. 3010048954 - issued on 29 December 1998 in the amount of P195,840.00
Checks Payable to the Order of Premiere:
3. Check No. 3010049410 - issued on 18 April 1999 in the amount of P189,336.00.
4. Check No. 3010049150 - issued on 27 November 1998 in the amount of P136,220.00
Examination of the dorsal portion of the subject checks revealed that all had been deposited
with Bankcom, Dau branch, under Account No. 0015-32987-7.6 Upon inquiring with Jardine and
Premiere, however, JMC was able to confirm that neither of the said suppliers owns Bankcom
Account No. 0015-32987-7.
Meanwhile, on 30 April 2000, respondent Purificacion Delizo (Delizo), a former accountant of

JMC, executed a handwritten letter7 addressed to one Nelvia Yusi, President of JMC. In the said
letter, Delizo confessed that, during her time as an accountant for JMC, she stole several
company checks drawn against JMC's current account. She professed that the said checks
were never given to the named payees but were forwarded by her to one Lita Bituin (Bituin).
Delizo further admitted that she, Bituin and an unknown bank manager colluded to cause the
deposit and encashing of the stolen checks and shared in the proceeds thereof.
JMC surmised that the subject checks are among the checks purportedly stolen by Delizo.
On 28 January 2002, JMC filed before the Regional Trial Court (RTC) of Pasay City a complaint
for sum of money8 against Delizo, Bankcom and Metrobank. The complaint was raffled to
Branch 115 and was docketed as Civil Case No. 02-0193.
In its complaint, JMC alleged that the wrongful conversion of the subject checks was caused by
a combination of the "tortious and felonious" scheme of Delizo and the "negligent and unlawful
acts" of Bankcom and Metrobank, to wit:9
1. Delizo, by her own admission, stole the company checks of JMC. Among these checks,
as confirmed by JMC's audit, are the subject checks.
2. After stealing the subject checks, Delizo and her accomplices, Bituin and an unknown
bank manager, caused the subject checks to be deposited in Bankcom, Dau branch,
under Account No. 0015-32987-7. Bankcom, on the other hand, negligently accepted the
subject checks for deposit under the said account despite the fact that they are crossed
checks payable to the orders of Jardine and Premiere and neither of them owns the
concerned account.
3. Thereafter, Bankcom presented the subject checks for payment to Metrobank which,
also in negligence, decided to honor the said checks even though Bankcom Account No.
0015-32987-7 belongs to neither Jardine nor Premiere.
On the basis of the foregoing averments, JMC prayed that Delizo, Bankcom and Metrobank be
held solidarily liable in its favor for the amount of the subject checks.
Delizo, Bankcom and Metrobank filed their individual answers denying liability. 10 Incorporated in
Metrobank's answer, moreover, is a cross-claim against Bankcom and Delizo wherein
Metrobank asks for the right to be reimbursed in the event it is ordered liable in favor of JMC. 11
On 28 May 2013, the RTC rendered a decision12 holding both Bankcom and Metrobank liable to
JMC-on a 2/3 to 1/3 ratio, respectively-for the amount of subject checks plus interest as well as
attorney's fees, but absolving Delizo from any liability.13 The trial court, in the same decision,
also dismissed Metrobank's cross-claim against Bankcom. The dispositive portion of the
decision reads:14
WHEREFORE, judgment is rendered against defendants [Bankcom] and [Metrobank] for the
total value of the 11 checks. [Bankcom] and Metrobank are adjudged solidarily liable to pay
[JMC] at the ratios of 2/3 and 1/3, respectively:
1. The actual loss of P 1,481,292 including 6% legal interest from the filing of the complaint;
2. Plus 12% interest on the principal of P 1,481,292 including 6% interest on the principal, from
the date this Decision becomes final and executory;
3. The attorney's fees of 15% of the total of number one and two above;
4. Costs against [Bankcom] and Metrobank.
Metrobank's cross-claim against [Bankcom] is DISMISSED, both being negligent.
SO ORDERED.
The RTC's decision was hinged on the following findings:15
1. The subject checks were complete and not forged. They were, however, stolen by
unknown malefactors and were wrongfully encashed due to the negligence of Bankcom
and Metrobank.
2. Delizo's complicity in the acquisition and negotiation of the subject checks was not
proven. No direct evidence linking Delizo to the deeds was presented. Moreover,
Delizo's supposed handwritten confession must be discredited for being made under
duress, intimidation and threat. It was established during trial that Delizo was only forced
by Yusi to confess about the missing checks and to execute the handwritten confession.
Hence, Delizo must be absolved from any liability.
3. The involvement of Bankcom and Metrobank on the wrongful encashment of the subject
checks, however, were clearly established:
a. Bankcom accepted the subject checks for deposit under Account No. 0015-
32987-7, endorsed them and sent them for clearance with the Philippine Clearing
House Corporation (PCHC). Bankcom did all these despite the fact that the
subject checks were ll crossed checks and that Account No. 0015-32987-7
neither belongs to Jardine nor Premiere-the payees named in the subject checks.
In this regard, Bankcom was clearly negligent.
b. Metrobank, on the other hand, is also negligent for its failure to scrutinize the
subject checks before clearing and honoring them. Had Metrobank done so, it
would have noticed that Bankcom's ID band stamped at the back of the subject
checks did not contain any initials and are, therefore, defective. In this regard,
Metrobank was remiss in its duty to ensure that the subject checks are paid only
to the named payees.
In view of the comparative negligence of Bankcom and Metrobank, they should be held

liable to JMC, on a 2/3 to 1/3 ratio, respectively, for the amount of subject checks plus
interest.
Bankcom and Metrobank filed their respective appeals with the CA.
On 22 March 2017, the CA rendered its decision16 affirming, albeit with modification, the
decision of the RTC. The disposition of the decision reads:17
WHEREFORE, the Decision dated 28 May 2013 of the [RTC] in Civil Case NO. 02-0193 is
AFFIRMED with MODIFICATION in that: (a) the award of attorney's fees is DELETED; and (b)
[Bankcom] and [Metrobank] are ordered to pay interest at the rate of 12% per annum on the
principal of P 1,481,292 including 6% interest on the principal, from the date of the Decision (28
May 2013) until June 2013 and 6% per annum from 1 July 2013 until full satisfaction. The
Decision is affirmed in all other respects.
SO ORDERED.
The CA agreed with the RTC that Bankcom and Metrobank should be held liable to JMC, on a
2/3 to 1/3 ratio, respectively, for the amount of subject checks. The appellate court, however,
differed with the trial court with respect to the basis of Metrobank's liability. According to the CA,
Metrobank's negligence consisted, not in its inability to notice that Bankcom's ID band does not
contain any initials, but in its failure to ascertain that only four (4) out of the 11 subject checks
were stamped by Bankcom with the express guarantees "ALL PRIOR ENDORSEMENTS
AND/OR LACK OF ENDORSEMENT GUARANTEED" and "NON-NEGOTIABLE" as required
by Section 17 of the PCHC Rules and Regulations. 18
The CA also sustained the ruling of the RTC anent the absolution of Delizo and the dismissal of
Metrobank's cross-claim.
Finally, the CA modified the rate of interest due on the amount of the subject checks that was
fixed by the RTC and also deleted the RTC's award of attorney's fees in favor of JMC.19
Bankcom and Metrobank filed their motions for reconsideration, but the CA remained steadfast.
Hence the present consolidated appeals.
Both Metrobank and Bankcom pray for absolution but they differ in the arguments they raise in
support of their prayer:20
1. Metrobank posits that it should be absolved because it had exercised absolute diligence
in verifying the genuineness of the subject checks. Metrobank argues that the RTC erred
in holding it negligent on its failure to ascertain that only four (4) out of the 11 subject
checks were stamped with Bankcom's express guarantees. Metrobank claims that while
Section 17 of the PCHC Rules and Regulations does require all checks cleared through
the PCHC to contain the collecting bank's express guarantees, the same provision
precludes it, as a drawee bank, to return any checks presented to it for payment just
because the same does not contain such express guarantees "for as long as there is
evidence appearing on the cheque itself that the same had been deposited with the
[collecting] [b]ank e.g., PCHC machine sprayed tracer/ID band." In this regard,
Metrobank points out that all the subject checks had been stamped in their dorsal portion
with PCHC's tracer ID for Bankcom.
Metrobank submits that, under the circumstances, it should be Bankcom-as the last
indorser of the subject checks-that should bear the loss and be held solely liable to JMC.
2. Bankcom, on the other hand, argues that it should be absolved because it was never a
party to the wrongful encashment of the subject checks. It claims that Account No. 0015-
32987-7 does not exist in its system and, therefore, denies that the subject checks were
ever deposited with it.
Bankcom proffers the view that it is JMC that should bear the loss of the subject checks.
Bankcom argues that it was JMC's faulty accounting procedures which led to the subject
checks being stolen and misappropriated.
Our Ruling
The consolidated appeals must be denied as neither Metrobank nor Bankcom are entitled to
absolution.
Be that as it may, there is a need to modify the decision of the CA and the RTC with respect to
the manner by which Metrobank and Bankcom are held liable under the circumstances. Instead
of holding both Metrobank and Bankcom liable to JMC in accordance with a fixed ratio, we find
that the two banks should have been ordered sequentially liable for the entire amount of the
subject checks pursuant to the seminal case of Bank of America v. Associated Citizens Bank.21
Accordingly, we rule: (1) Metrobank liable to return to JMC the entire amount of the subject
checks plus interest and (2) Bankcom liable to reimburse Metrobank the same amount plus
interest.
The Rule on Sequence of Recovery in Cases of Unauthorized Payment of Checks; The

Case of Bank of America
The instant case involves the unauthorized payment of valid checks, i.e., the payment of checks
to persons other than the payee named therein or his order. The subject checks herein are
considered valid because they are complete and bear genuine signatures.
Bank of America is the leading jurisprudence that illustrates the respective liabilities of a
collecting bank and a drawee bank in cases of unauthorized payment of valid checks. Notably,
the facts of Bank America are parallel to the facts of the present case. Both Bank of
America and the present case involved crossed checks payable to the order of a specified
payee that were deposited in a collecting bank under an account not belonging to the
payee or his indorsee but which, upon presentment, were subsequently honored by the
drawee bank, thus:
1. Bank of America involved four (4) crossed checks drawn against the Bank of America
(the drawee bank) and made payable to the order of a Miller Offset Press, Inc. (the
designated payee). These checks were then deposited to the Associated Citizens Bank
(the collecting bank) under a joint bank account of one Ching Uy Seng and a certain Uy
Chung Guan Seng (an account that does not belong to the payee or its indorsee). The
checks were then presented to the Bank of America, which honored it, resulting to loss
on the part of BA Finance Corporation (the drawer.)
2. The instant case involves eleven (11) crossed checks that were drawn against
Metrobank (the drawee bank) and made payable to the orders of Jardine and Premiere
(the designated payees). These checks were deposited with Bankcom (the collecting
bank) under Account No. 0015-32987-7 (an account that does not belong to either
payee or their indorsees). The checks were then presented to Metrobank, which
honored it, resulting to loss on the part of JMC (the drawer.)
Bank of America held that, in cases involving the unauthorized payment of valid checks, the
drawee bank becomes liable to the drawer for the amount of the checks but the drawee
bank, in turn, can seek reimbursement from the collecting bank. The rationale of this rule
on sequence of recovery lies in the very basis and nature of the liability of a drawee bank and a
collecting bank in said cases. As the recent case of BDO Unibank v. Lao22 explains:
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. (Citations omitted).
This rule should have been applied to the case at bench.
Metrobank is Liable to JMC
Metrobank, as drawee bank, is liable to return to JMC the amount of the subject checks.
A drawee bank is contractually obligated to follow the explicit instructions of its drawer-clients
when paying checks issued by them.23 The drawer's instructions-including the designation of the
payee or to whom the check should be paid-are reflected on the face and by the terms
thereof.24 When a drawee bank pays a person other than the payee named on the check, it
essentially commits a breach of its obligation and renders the payment it made
unauthorized.25 In such cases and under normal circumstances, the drawee bank may be held
liable to the drawer for the amount charged against the latter's account.26
The liability of the drawee bank to the drawer in cases of unauthorized payment of checks has
been regarded in jurispn1dence to be strict by nature.27 This means that once an unauthorized
payment on a check has been made, the resulting liability of the drawee bank to the drawer for
such payment attaches even if the former had acted merely upon the guarantees of a collecting
bank.28 Indeed, it is only when the unauthorized payment of a check had been caused or was
attended by the fault or negligence of the drawer himself can the drawee bank be excused,
whether wholly or partially, from being held liable to the drawer for the said payment. 29
In the present case, it is apparent that Metrobank had breached JMC's instructions when it paid
the value of the subject checks to Bankcom for the benefit of a certain Account No. 0015-32987-
7. The payment to Account No. 0015-32987-7 was unauthorized as it was established that the
said account does not belong to Jardine or Premiere, the payees of the subject checks, or to
their indorsees. In addition, causal or concurring negligence on the part of JMC had not been
proven. Under such circumstances, Metrobank is clearly liable to return to JMC the amount of
the subject checks.
Metrobank's insistence that it should be absolved for it merely complied with Section 17 of the
PCHC Rules and Regulations and thereby only relied upon the concomitant guarantees of
Bankcom when it paid the subject checks, cannot stand insofar as JMC is concerned. In Bank
of America, we rejected a similar argument interposed by a drawee bank (Bank of America)
precisely on the ground of the latter's strict liability to its drawer (BA-Finance) viz:30
Bank of America denies liability for paying the amount of the four checks issued by BA-Finance
to Miller, alleging that it (Bank of America) relied on the stamps made by Associated Bank
stating that all prior endorsement and/or lack of endorsement guaranteed, through which
Associated Bank assumed the liability of a general endorser under Section 66 of the
Negotiable Instruments Law. Moreover, Bank of America contends that the proximate cause
of BA-Finances injury, if any, is the gross negligence of Associated Bank which allowed Ching
Uy Seng (Robert Ching) to deposit the four checks issued to Miller in the personal joint bank
account of Ching Uy Seng and Uy Chung Guan Seng.
We are not convinced.
The bank on which a check is drawn, known as the drawee bank, is under strict liability,
based on the contract between the bank and its customer (drawer), to pay the check only
to the payee or the payee's order. x x x.
x x x x
In this case, the four checks were drawn by BA-Finance and made payable to the Order of
Miller Offset Press, Inc. The checks were also crossed and issued For Payee's Account Only.
Clearly, the drawer intended the check for deposit only by Miller Offset Press, Inc. in the latter's
bank account. Thus, when a person other than Miller, i.e., Ching Uy Seng, a.k.a. Robert
Ching, presented and deposited the checks in his own personal account (Ching Uy
Sengs joint account with Uy Chung Guan Seng), and the drawee bank, Bank of America,
paid the value of the checks and charged BA-Finances account therefor, the drawee
Bank of America is deemed to have violated the instructions of the drawer, and therefore,
is liable for the amount charged to the drawer's account (Citations omitted. Emphasis
supplied).
Accordingly, we find Metrobank liable to return to JMC the amount of the subject checks.
Bankcom is Liable to Metrobank
While Metrobank's reliance upon the guarantees of Bankcom does not excuse it from being
liable to JMC, such reliance does enable Metrobank to seek reimbursement from Bankcom-the
collecting bank.
A collecting or presenting bank-i.e., the bank that receives a check for deposit and that presents
the same to the drawee bank for payment-is an indorser of such check. 31 When a collecting
bank presents a check to the drawee bank for payment, the former thereby assumes the same
warranties assumed by an indorser of a negotiable instrument pursuant to Section 66 of the
Negotiable Instruments Law. These warranties are: (1) that the instrument is genuine and in all
respects what it purports to be; (2) that the indorser has good title to it; (3) that all prior parties
had capacity to contract; and (4) that the instrument is, at the time of the indorsement, valid and
subsisting.32 If any of the foregoing warranties turns out to be false, a collecting hank becomes
liable to the drawee bank for payments made under such false warranty.
Here, it is clear that Bankcom had assumed the warranties of an indorser when it forwarded the
subject checks to PCHC for presentment to Metrobank. By such presentment, Bankcom
effectively guaranteed to Metrobank that the subject checks had been deposited with it to an
account that has good title to the same. This guaranty, however, is a complete falsity because
the subject checks were, in truth, deposited to an account that neither belongs to the payees of
the subject checks nor to their indorsees. Hence, as the subject checks were paid under
Bankcom's false guaranty, the latter-as collecting bank-stands liable to return the value of such
checks to Metrobank.
Bankcom's assertion that it should be absolved as the subject checks were allegedly never
deposited with it must fail. Such allegation is readily disproved by the fact that the subject
checks all contained, at their dorsal side, a stamp bearing Bankcom's tracer/ID band.33 Under
the PCHC Rules and Regulations, the stamped tracer/ID band of Bankcom signifies that the
checks had been deposited with it and that Bankcom indorsed the said checks and sent them to
PCHC.34 As observed by the RTC:35
Record shows that the pieces of evidence presented by [JMC], particularly the 11 subject
checks were endorsed and were allowed to be encashed by [Bankcom], as indicated in the
dorsal portion of the checks where [PCHC] machine's tracer, or the ID band of [Bankcom] was
stamped. And this stamped tracer ID band of [Bankcom] signifies that [Bankcom] certified that
the checks were deposited to [Bankcom] and [Bankcom] endorsed these checks and sent them
to PCHC.
Neither do we find the liability of Bankcom to be affected by the fact that only four (4) out of the
eleven (11) subject checks were actually stamped with the guarantees "ALL PRIOR
ENDORSEMENTS AND/OR LACK OF ENDORSEMENT GUARANTEED" and "NON-
NEGOTIABLE" as required under Section 17 of the PCHC Rules and Regulations. The
stamping of such guarantees is not necessary to fix the liability of Bankcom as an indorser for
all the subject checks.
To begin with, jurisprudence has it that a collecting bank's mere act of presenting a check for
payment to the drawee bank is itself an assertion, on the part of the former, that it had done its
duty to ascertain the validity of prior indorsements. Hence, in Banco De Oro v. Equitable
Banking Corporation,36 we stated:
Apropos the matter of forgery in endorsements, this Court has presently succinctly emphasized
that the 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. This is
laid down in the case of PNB v. National City Bank. (Citations omitted. Emphasis supplied).
More than such pronouncement, however, Section 17 of the PCHC Rules and Regulations
expressly provides that checks "cleared through the PCHC" that do not bear the mentioned
guarantees shall nonetheless "be deemed guaranteed by the [collecting bank] as to all prior
endorsements and/or lack of endorsement" such that "no drawee bank shall return any [check]
received by it through clearing by reason only of the absence or lack of such guarantee ... as
long as there is evidence appearing on the [check] itself that the same had been deposited with
the [collecting bank] x x x." The full provision reads:
Sec. 17. Bank Guarantee. All checks cleared through the PCHC shall bear the guarantee
affixed thereto by the Presenting Bank/Branch which shall read as follows:
Cleared thru the Philippine Clearing House Corporation all prior endorsements and/or lack of
endorsement guaranteed NAME OF BANK/BRANCH BRSTN (Date of Clearing). Checks to
which said guarantee has not been affixed shall, nevertheless, be deemed guaranteed by
the Presenting Bank as to all prior endorsement and/or lack of endorsement.
No drawee bank shall return any cheque received by it through clearing by reason only
of the absence or lack of such guarantee stamped at the back of said cheque, for as long
as there is evidence appearing on the cheque itself that the same had been deposited
with the Presenting Bank, e.g. PCHC machine sprayed tracer/ID band. (Emphasis supplied)
In the present case, all the subject checks have been transmitted by Bankcom to the PCHC for
clearing and presentment to Metrobank. As earlier adverted to, all of the said checks also bear
the PCHC machine sprayed tracer/ID band of Bankcom. Such circumstances, pursuant to
prevailing banking practices as laid out under the PCHC Rules and Regulations, are enough to
fix the liability of Bankcom as an indorser of the subject checks even sans the stamp "ALL
PRIOR ENDORSEMENTS AND/OR LACK OF ENDORSEMENT GUARANTEED" and "NON--
NEGOTIABLE." As the stamping of such guarantees are not required before the warranties of
an indorser could attach against Bankcom, we find the latter liable to reimburse Metrobank the
value of all the subject checks.
Recourse of Bankcom
The sequence of recovery in cases of unauthorized payment of checks, however, does not
ordinarily stop with the collecting bank. In the event that it is made to reimburse the drawee
bank, the collecting bank can seek similar reimbursement from the very persons who caused
the checks to be deposited and received the unauthorized payments.37 Such persons are the
ones ultimately liable for the unauthorized payments and their liability rests on their absolute
lack of valid title to the checks that they were able to encash.
Verily, Bankcom ought to have a right of recourse against the persons that caused the
anomalous deposit of the subject checks and received payments therefor. Unfortunately-as
none of such persons were impleaded in the case before us-no pronouncement as to this matter
can be made in favor of Bankcom.
At this juncture, we express our concurrence to the absolution of Delizo. The RTC and the CA
were uniform in their finding that the participation of Delizo-as the supposed thief of the subject
checks-had not been established in this case. We reviewed the evidence on hand and saw no
cogent reason to deviate from this factual finding.
Doctrine of Comparative Negligence Does Not Apply to the Instant Case
Instead of applying the rule on the sequence of recovery to the case at bench, the RTC and the
CA held both Metrobank and Bankcom liable to JMC in accordance with a fixed ratio. In so
doing, the RTC and the CA seemingly relied on the doctrine of comparative negligence 38 as
applied in the cases of Bank of the Philippine Islands v. Court of Appeals39 and Allied Banking
Corporation v. Lio Sim Wan.40 In both cases, the Court held the drawee bank and collecting
bank liable for the wrongful encashment of checks under a 60% and 40% ratio.
It must be emphasized, however, that the factual contexts of Bank of the Philippine
Islands and Allied Banking Corporation are starkly different from the instant case:
1. Bank of the Philippine Islands involved two (2) cashier's checks issued by the Bank of the
Philippine Islands (BPI) in favor of a certain Eligia Fernando (Eligia). The checks are supposed
to represent the proceeds of a pre-terminated money market placement of Eligia with BPI. BPI
issued the checks upon the mere phone request of a person who introduced herself as Eligia.
The checks were subsequently deposited with the China Banking Corporation (CBC) under an
account that was opened by a person who identified herself as Eligia. This person thereafter
encashed the checks.
It was later established, however, that Eligia never requested the pre-termination of her money
market placement nor opened an account with the CBC. It was an impostor who did so.
2. Allied Banking Corporation, on the other hand, involved a manager's check issued by the
Allied Banking Corporation (ABC) in favor of a certain Lim Sio Wan (Lim). The check is
supposed to represent the proceeds of a pre-terminated money market placement of Lim with
ABC. ABC issued the checks upon the mere phone request of a person who introduced herself
as Lim. The checks, now bearing an indorsement of Lim, were then deposited with the
Metrobank under the account of a certain Filipinas Cement Corporation. The checks were
eventually encashed.
It was later established, however, that Lim never requested the pre-termination of his money
market placement and that his indorsement in the check was forged.
A glaring peculiarity in the cases of Bank of the Philippine Islands and Allied Banking
Corporation is that the drawee bank-which is essentially also the drawer in the scenario-is
not only guilty of wrongfully paying a check but also of negligence in issuing such
check. Indeed, this is the very reason why the drawee bank in the two cases were adjudged co-
liable with the collecting bank under a fixed ratio and the former was not allowed to claim
reimbursement from the latter.41 The drawee bank cannot claim that its participation in the
wrongful payment of a check was merely limited to its reliance on the guarantees of the
collecting bank. In other words, the drawee bank was held liable in its own right because it was
the one that negligently issued the checks in the first place.
That, however, is clearly not the situation in the case at bench. Here, no negligence similar to
that committed by the drawee banks in Bank of the Philippine Islands and Allied Banking
Corporation-whether in type or in magnitude-can be attributed to Metrobank. Metrobank, though
guilty of the unauthorized check payments, only acted upon the guarantees deemed made by
Bankcom under prevailing banking practices. While Metrobank's reliance upon the guarantees
of Bankcom did not excuse it from being answerable to JMC, such reliance does enable
Metrobank to seek reimbursement from Bankcom on the ground of the breach in the latter's
warranties as a collecting bank. Under such circumstances, we cannot deny Metrobank's right
to seek reimbursement from Bankcom.
Hence, given the differences in the factual milieu between this case on one hand arid the cases
of Bank of the Philippine Islands and Allied Banking Corporation on the other, we find that the
doctrine of comparative negligence cannot be applied so as to apportion the respective liabilities
of Metrobank and Bankcom. The liabilities of Metrobank and Bankcom, as already discussed in
length, must be governed by the rule on sequential recovery pursuant to Bank of America.
Interests
As a final matter, we also saw it fit to impose legal interest upon the respective principal
liabilities of Metrobank and Bankcom.
In Nacar v. Gallery Frames,42 wlaid out the following guidelines for the imposition and
computation of legal interests:
To recapitulate and for future guidance, the guidelines laid down in the case of Eastern
Shipping Lines are accordingly modified to embody BSP MB Circular No. 799, as follows:
I. When an obligation, regardless of its source, i.e., law, contracts, quasicontracts, delicts or

quasi-delicts is breached, the contravener can be held liable for damages. The provisions under
Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable
damages.
II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of

money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, the interest due
shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 6% per annum to be computed
from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed
at the discretion of the court at the rate of 6% per annum. No interest,
however, shall be adjudged on unliquidated claims or damages, except when or
until the demand can be established with reasonable certainty. Accordingly,
where the demand is established with reasonable certainty, the interest
shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code), but when such certainty cannot be so
reasonably established at the time the demand is made, the interest shall begin
to run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any
case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final
and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 6% per annum from such
finality until its satisfaction, this interim period being deemed to be by then
an equivalent to a forbearance of credit.
And, in addition to the above, judgments that have become final and executory
prior to July 1, 2013, shall not be disturbed and shall continue to be implemented
applying the rate of interest fixed therein. (Citations omitted. Emphasis supplied).
Applying the foregoing guidelines to the case at bench, we fix the legal interests due against
Metrobank and Bankcom thusly:
1. The liability of Metrobank to JMC consists in returning the amount it charged against
JMC's current account. Current accounts, like all bank deposits, are considered under
the law as loans.43 Normally, current accounts are interest-bearing by express contract.
However, the actual interest rate, if any, for the current account opened by JMC with
Metrobank was not given in evidence.44
Under these circumstances, we find it proper to subject Metrobank's principal liability to

JMC to a legal interest of 6% per annum from 28 January 2002 until full
satisfaction.45 The date 28 January 2002 is the date when JMC filed its complaint with
the RTC.
2. The liability of Bankcom to Metrobank, on the other hand, consists in returning the
amount it was paid by Metrobank. This stems from a breach by Bankcom of its
warranties as a collecting bank.
Accordingly, we find it proper to subject Bankcom's principal liability to Metrobank to a

legal interest of 6% per annum from 5 March 2003 until full satisfaction.46 The date 5
March 2003 is the date when Metrobank filed its answer with cross-claim against
Bankcom.
WHEREFORE, the consolidated appeals are DENIED. The Decision dated 22 March 2017 and
Resolution dated 19 October 2017 of the Court of Appeals (CA) in CA-G.R. CV No. 102462 are
herein MODIFIED with respect to the individual liabilities of the Metropolitan Bank and Trust
Company and the Bank of Commerce, as follows:
1. The Metropolitan Bank and Trust Company is adjudged liable to pay respondent
Junnel's Marketing Corporation the following:
a. The principal amount of P 1,481,292.00, and
b. Interest on the said principal at the rate of 6% per annum from 28 January 2002
until full satisfaction.
2. The Bank of Commerce is adjudged liable to pay the Metropolitan Bank and Trust
Company the following:
a. The principal amount of P 1,481,292.00, and
b. Interest on the said principal at the rate of 6% per annum from 5 March 2003 until
full satisfaction.
Other findings and pronouncements of the Court of Appeals in its Decision dated 22 March
2017 and Resolution dated 19 October 2017 in CA-G.R. CV No. 102462 that are not contrary to
this Decision are AFFIRMED.
Costs against the Metropolitan Bank and Trust Company and the Bank of Commerce.
SO ORDERED.
G.R. No. 219037, October 19, 2016
RCBC SAVINGS BANK, Petitioner, v. NOEL M. ODRADA, Respondent.
DECISION
CARPIO, J.:
The Case
Before the Court is a petition for review on certiorari1 assailing the 26 March 2014 Decision2 and
the 18 June 2015 Resolution3 of the Court of Appeals in CA-G.R. CV No. 94890.
The Facts
In April 2002, respondent Noel M. Odrada (Odrada) sold a secondhand Mitsubishi Montero
(Montero) to Teodoro L. Lim (Lim) for One Million Five Hundred Ten Thousand Pesos
(P1,510,000). Of the total consideration, Six Hundred Ten Thousand Pesos (P610,000) was
initially paid by Lim and the balance of Nine Hundred Thousand Pesos (P900,000) was financed
by petitioner RCBC Savings Bank (RCBC) through a car loan obtained by Lim.4 As a requisite
for the approval of the loan, RCBC required Lim to submit the original copies of the Certificate of
Registration (CR) and Official Receipt (OR) in his name. Unable to produce the Montero's OR
and CR, Lim requested RCBC to execute a letter addressed to Odrada informing the latter that
his application for a car loan had been approved.
On 5 April 2002, RCBC issued a letter that the balance of the loan would be delivered to Odrada
upon submission of the OR and CR. Following the letter and initial down payment, Odrada
executed a Deed of Absolute Sale on 9 April 2002 in favor of Lim and the latter took possession
of the Montero.5chanrobleslaw
When RCBC received the documents, RCBC issued two manager's checks dated 12 April 2002
payable to Odrada for Nine Hundred Thousand Pesos (P900,000) and Thirteen Thousand Five
Hundred Pesos (P13,500).6 After the issuance of the manager's checks and their turnover to
Odrada but prior to the checks' presentation, Lim notified Odrada in a letter dated 15 April 2002
that there was an issue regarding the roadworthiness of the Montero. The letter states:
chanRoblesvirtualLawlibrary
April 15, 2002
Mr. Noel M. Odrada

C/o Kotse Pilipinas
Fronting Ultra, Pasig City
Thru: Shan Mendez;.
Dear Mr. Odrada,
Please be inform[ed] that I am going to cancel or exchange the (1) one unit Montero that you
sold to me thru Mr. Shan Mendez because it did not match your representations the way Mr.
Shan Mendez explained to me like:ChanRoblesVirtualawlibrary
1. You told me that the said vehicle has not experience [d] collision. However, it is hidden, when
you open its engine cover there is a trace of a head-on collision. The condenser is smashed,;
the fender support is not align[ed], both bumper supports] connecting [the] chassis were
crippled and welded, the hood support was repaired, etc.
2. The 4-wheel drive shift is not functioning. When Mr. Mendez was asked about it, he said it
would not function until you can reach the speed of 30 miles.
3. During Mr. Mendez['s] representation, he said the odometer has still an original mileage data
but found tampered.
4. You represented the vehicle as model 1998 however; it is indicated in the front left A-pillar
inscribed at the identification plate [as] model 1997.
Therefore, please show your sincerity by personally inspecting the said vehicle at RCBC, Pacific
Bldg. Pearl Drive, Ortigas Center, Pasig City. Let us meet at the said bank at 10:00 A.M., April
17, 2002.
Meanwhile, kindly hold or do not encash the manager's check[s] issued to you by RCBC until
you have clarified and satisfied my complaints.
Sincerely yours,
Teodoro L. Lim
Cc: Dario E. Santiago, RCBC loan

Legal7
Odrada did not go to the slated meeting and instead deposited the manager's checks with
International Exchange Bank (Ibank) on 16 April 2002 and redeposited them on 19 April 2002
but the checks were dishonored both times apparently upon Lim's instruction to
RCBC.8 Consequently, Odrada filed a collection suit9 against Lim and RCBC in the Regional
Trial Court of Makati.10chanrobleslaw
In his Answer,11 Lim alleged that the cancellation of the loan was at his instance, upon discovery
of the misrepresentations by Odrada about the Montero's roadworthiness. Lim claimed that the
cancellation was not done ex parte but through a letter12 dated 15 April 2002.13 He further
alleged that the letter was delivered to Odrada prior to the presentation of the manager's checks
to RCBC.14chanrobleslaw
On the other hand, RCBC contended that the manager's checks were dishonored because Lim
had cancelled the loan. RCBC claimed that the cancellation of the loan was prior to the
presentation of the manager's checks. Moreover, RCBC alleged that despite notice of the
defective condition of the Montero, which constituted a failure of consideration, Odrada still
proceeded with presenting the manager's checks.
It was later disclosed during trial that RCBC also sent a formal notice of cancellation of the loan
on 18 April 2002 to both Odrada and Lim.15chanrobleslaw
The Regional Trial Court's Ruling
In its Decision16 dated 1 October 2009, the trial court ruled in favor of Odrada. The trial court
held that Odrada was the proper party to ask for rescission.17 The lower court reasoned that the
right of rescission is implied in reciprocal obligations where one party fails to perform what is
incumbent upon him when the other is willing and ready to comply. The trial court ruled that it
was not proper for Lim to exercise the right of rescission since Odrada had already complied
with the contract of sale by delivering the Montero while Lim remained delinquent in
payment.18 Since Lim was not ready, willing, and able to comply with the contract of sale, he
was not the proper party entitled to rescind the contract.
The trial court ruled that the defective condition of the Montero was not a supervening event that
would justify the dishonor of the manager's checks. The trial court reasoned that a manager's
check is equivalent to cash and is really the bank's own check. It may be treated as a
promissory note with the bank as maker. Hence, the check becomes the primary obligation of
the bank which issued it and constitutes a written promise to pay on demand.19 Being the party
primarily liable, the trial court ruled that RCBC was liable to Odrada for the value of the
manager's checks.
Finally, the trial court found that Odrada suffered sleepless nights, humiliation, and was
constrained to hire the services of a lawyer meriting the award of damages. 20chanrobleslaw
The dispositive portion of the Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered:ChanRoblesVirtualawlibrary
(a) Directing defendant RCBC to pay plaintiff the amount of Php 913,500.00 representing the
cash equivalent of the two (2) manager's checks, plus 12% interest from the date of filing of the
case until fully paid;
(b) Directing defendants to solidarity pay moral damages in the amount of Php 500,000.00 and
exemplary damages in the amount of Php 500,000.00;
(c) Directing defendants to solidarity pay attorney's fees in the amount of Php 300,000.00.
Finally, granting the cross-claim of defendant RCBC, Teodoro L. Lim is hereby directed to
indemnify RCBC Savings Bank for the amount adjudged for it to pay plaintiff.
SO ORDERED.21
RCBC and Lim appealed from the trial court's decision.
The Court of Appeals' Ruling
In its assailed 26 March 2014 Decision, the Court of Appeals dismissed the appeal and affirmed
the trial court's 1 October 2009 Decision.
The Court of Appeals ruled that the two manager's checks, which were complete and regular,
reached the hands of Lim who deposited the same in his bank account with Ibank. RCBC knew
that the amount reflected on the manager's checks represented Lim's payment for the remaining
balance of the Montero's purchase price. The appellate court held that when RCBC issued the
manager's checks in favor of Odrada, RCBC admitted the existence of the payee and his then
capacity to endorse, and undertook that on due presentment the checks which were negotiable
instruments would be accepted or paid, or both according to its tenor.22 The appellate court held
that the effective delivery of the checks to Odrada made RCBC liable for the
checks.23chanrobleslaw
On RCBC's defense of want of consideration, the Court of Appeals affirmed the finding of the
trial court that Odrada was a holder in due course. The appellate court ruled that the defense of
want of consideration is not available against a holder in due course.24chanrobleslaw
Lastly, the Court of Appeals found that the award of moral and exemplary damages and
attorney's fees was excessive. Hence, modification was proper.
The dispositive portion of the Decision reads:
WHEREFORE, the impugned Decision of the court a quo in Civil Case No. 02-453 is hereby
AFFIRMED with MODIFICATION insofar as the reduction of awards for moral, exemplary
damages and attorney's fees to P50,000.00, P20,000.00, and P20,000.00 respectively.
SO ORDERED.25cralawred
RCBC and Lim filed a motion for reconsideration26 on 28 April 2014. In its 18 June 2015
Resolution, the Court of Appeals denied the motion for lack of merit.27chanrobleslaw
RCBC alone28 filed this petition before the Court. Thus, the decision of the Court of Appeals
became final and executory as to Lim.
The Issues
RCBC presented the following, issues in this petition:
A. The court a quo gravely erred in finding that as between Odrada as seller and Lim as buyer
of the vehicle, only the former has the right to rescind the contract of sale finding failure to
perform an obligation under the contract of sale on the part of the latter only despite the
contested roadworthiness of the vehicle, subject matter of the sale.
1. Whether or not the court a quo erred in holding that Lim cannot cancel the auto loan despite
the failure in consideration due to the contested roadworthiness of the vehicle delivered by
Odrada to him.29
B. The court a quo gravely erred when it found that Odrada is a holder in due course of the
manager's checks in question despite being informed of the cancellation of the auto loan by the
borrower, Lim.
1. Whether or not Lim can validly countermand the manager's checks in the hands of a holder
who does not hold the same in due course.30
Odrada failed to file a comment31 within the period prescribed by this Court.32chanrobleslaw
The Ruling of this Court
We grant the petition.
Under the law on sales, a contract of sale is perfected the moment there is a meeting of the
minds upon the thing which is the object of the contract and upon the price which is the
consideration. From that moment, the parties may reciprocally demand
33
performance. Performance may be done through delivery, actual or constructive. Through
delivery, ownership is transferred to the vendee.34 However, the obligations between the parties
do not cease upon delivery of the subject matter. The vendor and vendee remain concurrently
bound by specific obligations. The vendor, in particular, is responsible for an implied warranty
against hidden defects.
Article 1547 of the Civil Code states: "In a contract of sale, unless a contrary intention appears,
there is an implied warranty that the thing shall be free from any hidden faults or
defects."35 Article 1566 of the Civil Code provides that "the vendor is responsible to the vendee
for any hidden faults or defects in the thing sold, even though he was not aware thereof."36 As a
consequence, the law fixes the liability of the vendor for hidden defects whether known or
unknown to him at the time of the sale.
The law defines a hidden defect as one which would render the thing sold unfit for the use for
which it is intended, or would diminish its fitness for such use to such an extent that, had the
vendee been aware thereof, he would not have acquired it or would have given a lower price for
it.37chanrobleslaw
In this case, Odrada and Lim entered into a contract of sale of the Montero. Following the initial
downpayment and execution of the deed of sale, the Montero was delivered by Odrada to Lim
and the latter took possession of the Montero. Notably, under the law, Odrada's warranties
against hidden defects continued even after the Montero's delivery. Consequently, a
misrepresentation as to the Montero's roadworthiness constitutes a breach of warranty against
hidden defects.
In Supercars Management & Development Corporation v. Flores,38 we held that a breach of

warranty against hidden defects occurred when the vehicle, after it was delivered to respondent,
malfunctioned despite repairs by petitioner.39 In the present case, when Lim acquired
possession, he discovered that the Montero was not roadworthy. The engine was misaligned,
the automatic transmission was malfunctioning, and the brake rotor disks needed
refacing.40 However, during the proceedings in the trial court, Lim's testimony was stricken off
the record because he failed to appear during cross-examination. 41 In effect, Lim was not able to
present clear preponderant evidence of the Montero's defective condition.
RCBC May Refuse to Pay Manager's Checks
We address the legal question of whether or not the drawee bank of a manager's check has the
option of refusing payment by interposing a personal defense of the purchaser of the manager's
check who delivered the check to a third party.
In resolving this legal question, this Court will examine the nature of a manager's check and its
relation to personal defenses under the Negotiable Instruments Law.42chanrobleslaw
Jurisprudence defines a manager's check as a check drawn by the bank's manager upon the
bank itself and accepted in advance by the bank by the act of its issuance.43 It is really the
bank's own check and may be treated as a promissory note with the bank as its
maker.44 Consequently, upon its purchase, the check becomes the primary obligation of the
bank and constitutes its written promise to pay the holder upon demand. 45 It is similar to a
cashier's check46 both as to effect and use in that the bank represents that the check is drawn
against sufficient funds.47chanrobleslaw
As a general rule, the drawee bank is not liable until it accepts.48 Prior to a bill's acceptance, no
contractual relation exists between the holder49 and the drawee. Acceptance, therefore, creates
a privity of contract between the holder and the drawee so much so that the latter, once it
accepts, becomes the party primarily liable on the instrument. 50 Accordingly, acceptance is the
act which triggers the operation of the liabilities of the drawee (acceptor) under Section 62 51of
the Negotiable Instruments Law. Thus, once he accepts, the drawee admits the following: (a)
existence of the drawer; (b) genuineness of the drawer's signature; (c) capacity and authority of
the drawer to draw the instrument; and (d) existence of the payee and his then capacity to
endorse.
As can be gleaned in a long line of cases decided by this Court, a manager's check is accepted
by the bank upon its issuance. As compared to an ordinary bill of exchange where acceptance
occurs after the bill is presented to the drawee, the distinct feature of a manager's check is that
it is accepted in advance. Notably, the mere issuance of a manager's check creates a privity of
contract between the holder and the drawee bank, the latter primarily binding itself to pay
according to the tenor of its acceptance.
The drawee bank, as a result, has the unconditional obligation to pay a manager's check to a
holder in due course irrespective of any available personal defenses. However, while this Court
has consistently held that a manager's check is automatically accepted, a holder other than a
holder in due course is still subject to defenses. In International Corporate Bank v. Spouses
Gueco,52 which involves a delivered manager's check, the Court still considered whether the
check had become stale:
It has been held that, if the check had become stale, it becomes imperative that the
circumstances that caused its non-presentment be determined. In the case at bar, there is no
doubt that the petitioner bank held on the check and refused to encash the same because of the
controversy surrounding the signing of the joint motion to dismiss. We see no bad faith or
negligence in this position taken by the bank.53
In International Corporate Bank, this Court considered whether the holder presented the
manager's check within a reasonable time after its issuance - a circumstance required for
holding the instrument in due course.54chanrobleslaw
Similarly, in Rizal Commercial Banking Corporation v. Hi-Tri Development Corporation,55 the

Court observed that the mere issuance of a manager's check does not ipso facto work as an
automatic transfer of funds to the account of the payee.56 In order for the holder to acquire title
to the instrument, there still must have been effective delivery. Accordingly, the Court, taking
exception to the manager's check automatic transfer of funds to the payee, declared that: "the
doctrine that the deposit represented by a manager's check automatically passes to the payee
is inapplicable, because the instrument - although accepted in advance remains
undelivered."57 This Court ruled that the holder did not acquire the instrument in due course
since title had not passed for lack of delivery.58chanrobleslaw
We now address the main legal question: if the holder of a manager's check is not a holder in
due course, can the drawee bank interpose a personal defense of the purchaser?
Our rulings in Mesina v. Intermediate Appellate Court59 and United Coconut Planters Bank v.

Intermediate Appellate Court60 shed light on the matter.
In Mesina, Jose Go purchased a manager's check from Associated Bank. As he left the bank,
Go inadvertently left the check on top of the desk of the bank manager. The bank manager
entrusted the check for safekeeping to another bank official who at the time was attending to a
customer named Alexander Lim.61 After the bank official answered the telephone and returned
from the men's room, the manager's check could no longer be found. After learning that his
manager's check was missing, Go immediately returned to the bank to give a stop payment
order on the check. A third party named Marcelo Mesina deposited the manager's check with
Prudential Bank but the drawee bank sent back the manager's check to the collecting bank with
the words "payment stopped." When asked how he obtained the manager's check, Mesina
claimed it was paid to him by Lim in a "certain transaction."62chanrobleslaw
While this Court acknowledged the general causes and effects of a manager's check, it noted
that other factors were needed to be considered, namely the manner by which Mesina acquired
the instrument. This Court declared:
Petitioner's allegations hold no water. Theories and examples advanced by petitioner on causes
and effects of a cashier's check such as (1) it cannot be countermanded in the hands of a
holder in due course and (2) a cashier's check is a bill of exchange drawn by the bank against
itself - are general principles which cannot be aptly applied to the case at bar, without
considering other things. Petitioner failed to substantiate his claim that he is a holder in due
course and for consideration or value as shown by the established facts of the case. Admittedly,
petitioner became the holder of the cashier's check as endorsed by Alexander Lim who stole the
check. He refused to say how and why it was passed to him. He had therefore notice of the
defect of his title over the check from the start.63
Ultimately, the notice of defect affected Mesina's claim as a holder of the manager's check. This
Court ruled that the issuing bank could validly refuse payment because Mesina was not a
holder in due course. Unequivocally, the Court declared: "the holder of a cashier's check
who is not a holder in due course cannot enforce such check against the issuing bank
which dishonors the same."64chanrobleslaw
In the same manner, in United Coconut Planters Bank (UCPB),65 this Court ruled that the
drawee bank was legally justified in refusing to pay the holder of a manager's check who did not
hold the check in due course. In UCPB, Altiura Investors, Inc. purchased a manager's check
from UCPB, which then issued a manager's check in the amount of Four Hundred Ninety Four
Thousand Pesos (P494,000) to Makati Bel-Air Developers, Inc. The manager's check
represented the payment of Altiura Investors, Inc. for a condominium unit it purchased from
Makati Bel-Air Developers, Inc. Subsequently, Altiura Investors, Inc. instructed UCPB to hold
payment due to material misrepresentations by Makati Bel-Air Developers, Inc. regarding the
condominium unit.66 Pending negotiations; and while the stop payment order was in effect,
Makati Bel-Air Developers, Inc. insisted that UCPB pay the value of the manager's check. UCPB
refused to pay and filed an interpleader to allow Altiura Investors, Inc. and Makati Bel-Air
Developers, Inc. to litigate their respective claims. Makati Bel-Air Developers, Inc. also filed a
counterclaim against UCPB in the amount of Five Million Pesos (P5,000,000) based on UCPB's
violation of its warranty on its manager's check.67chanrobleslaw
In upholding UCPB's refusal to pay the value of the manager's check, this Court reasoned that
Makati Bel-Air Developers, Inc.'s title to the instrument became defective when there arose a
partial failure of consideration.68 We held that UCPB could validly invoke a personal defense of
the purchaser against Makati Bel-Air Developers, Inc. because the latter was not a holder in due
course of the manager's check:
There are other considerations supporting the conclusion reached by this Court that respondent
appellate court had committed reversible error. Makati Bel-Air was a party to the contract of sale
of an office condominium unit to Altiura, for the payment of which the manager's check was
issued. Accordingly, Makati Bel-Air was fully aware, at the time it had received the manager's
check, that there was, or had arisen, at least partial failure of consideration since it was unable
to comply with its obligation to deliver office space amounting to 165 square meters to Altiura.
Makati Bel-Air was also aware that petitioner Bank had been informed by Altiura of the claimed
defect in Makati Bel-Air's title to the manager's check or its right to the proceeds thereof. Vis-a-
vis both Altiura and petitioner Bank, Makati Bel-Air was not a holder in due course of the
manager's check.69
The foregoing rulings clearly establish that the drawee bank of a manager's check may
interpose personal defenses of the purchaser of the manager's check if the holder is not a
holder in due course. In short, the purchaser of a manager's check may validly countermand
payment to a holder who is not a holder in due course. Accordingly, the drawee bank may
refuse to pay the manager's check by interposing a personal defense of the purchaser. Hence,
the resolution of the present case requires a determination of the status of Odrada as holder of
the manager's checks.
In this case, the Court of Appeals gravely erred when it considered Odrada as a holder in due
course. Section 52 of the Negotiable Instruments Law defines a holder in due course as one
who has taken the instrument under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice that it has been
previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument
or defect in the title of the person negotiating it. (Emphasis supplied)
To be a holder in due course, the law requires that a party must have acquired the instrument in
good faith and for value.
Good faith means that the person taking the instrument has acted with due honesty with regard
to the rights of the parties liable on the instrument and that at the time he,took the instrument,
the holder has no knowledge of any defect or infirmity of the instrument.70 To constitute notice of
an infirmity in the instrument or defect in the title of the person negotiating the same, the person
to whom it is negotiated must have had actual knowledge of the infirmity or defect, or knowledge
of such facts that his action in taking the instrument would amount to bad faith.71chanrobleslaw
Value, on the other hand, is defined as any consideration sufficient to support a simple
contract.72chanrobleslaw
In the present case, Odrada attempted to deposit the manager's checks on 16 April 2002, a day
after Lim had informed him that there was a serious problem with the Montero. Instead of
addressing the issue, Odrada decided to deposit the manager's checks. Odrada's actions do not
amount to good faith. Clearly, Odrada failed to make an inquiry even when the circumstances
strongly indicated that there arose, at the very least, a partial failure of consideration due to the
hidden defects of the Montero. Odrada's action in depositing the manager's checks despite
knowledge of the Montero's defects amounted to bad faith. Moreover, when Odrada redeposited
the manager's checks on 19 April 2002, he was already formally notified by RCBC the previous
day of the cancellation of Lim's auto loan transaction. Following UCPB,73 RCBC may refuse
payment by interposing a personal defense of Lim - that the title of Odrada had become
defective when there arose a partial failure or lack of consideration.74chanrobleslaw
RCBC acted in good faith in following the instructions of Lim. The records show that Lim notified
RCBC of the defective condition of the Montero before Odrada presented the manager's
checks.75 Lim informed RCBC of the hidden defects of the Montero including a misaligned
engine, smashed condenser, crippled bumper support, and defective transmission. RCBC also
received a formal notice of cancellation of the auto loan from Lim and this prompted RCBC to
cancel the manager's checks since the auto loan was the consideration for issuing the
manager's checks. RCBC acted in good faith in stopping the payment of the manager's checks.
Section 58 of the Negotiable Instruments Law provides: "In the hands of any holder other than a
holder in due course, a negotiable instrument is subject to the same defenses as if it were non-
negotiable, x x x." Since Odrada was not a holder in due course, the instrument becomes
subject to personal defenses under the Negotiable Instruments Law. Hence, RCBC may legally
act on a countermand by Lim, the purchaser of the manager's checks.
Lastly, since Lim's testimony involving the Montero's hidden defects was stricken off the record
by the trial court, Lim failed to prove the existence of the hidden defects and thus Lim remains
liable to Odrada for the purchase price of the Montero. Lim's failure to file an appeal from the
decision of the Court of Appeals made the decision of the appellate court final and executory as
to Lim. RCBC cannot be made liable because it acted in good faith in carrying out the stop
payment order of Lim who presented to RCBC the complaint letter to Odrada when Lim issued
the stop payment order.
WHEREFORE, we GRANT the petition. We REVERSE and SET ASIDE the 26 March 2014

Decision and the 18 June 2015 Resolution of the Court of Appeals in CA-G.R. CV No. 94890
only insofar as RCBC Savings Bank is concerned.
SO ORDERED.chanRoblesvirtualLawlibrary
PHILIPPINE NATIONAL BANK, Petitioner,

vs.
SPOUSES CHEAH CHEE CHONG and OFELIA CAMACHO CHEAH, Respondents.
x-----------------------x
G.R. No. 170892
SPOUSES CHEAH CHEE CHONG and OFELIA CAMACHO CHEAH, Petitioners,

vs.
PHILIPPINE NATIONAL BANK, Respondent.
DECISION
DEL CASTILLO, J.:
Law favoreth diligence, and therefore, hateth folly and negligence.—Wingate’s Maxim.
In doing a friend a favor to help the latter’s friend collect the proceeds of a foreign check, a
woman deposited the check in her and her husband’s dollar account. The local bank accepted
the check for collection and immediately credited the proceeds thereof to said spouses’ account
even before the lapse of the clearing period. And just when the money had been withdrawn and
distributed among different beneficiaries, it was discovered that all along, to the horror of the
woman whose intention to accommodate a friend’s friend backfired, she and her bank had dealt
with a rubber check.
These consolidated1 Petitions for Review on Certiorari filed by the Philippine National Bank

(PNB)2 and by the spouses Cheah Chee Chong and Ofelia Camacho Cheah (spouses
Cheah)3 both assail the August 22, 2005 Decision4 and December 21, 2005 Resolution5 of the
Court of Appeals (CA) in CA-G.R. CV No. 63948 which declared both parties equally negligent
and, hence, should equally suffer the resulting loss. For its part, PNB questions why it was
declared blameworthy together with its depositors, spouses Cheah, for the amount wrongfully
paid the latter, while the spouses Cheah plead that they be declared entirely faultless.
Factual Antecedents
On November 4, 1992, Ofelia Cheah (Ofelia) and her friend Adelina Guarin (Adelina) were
having a conversation in the latter’s office when Adelina’s friend, Filipina Tuazon (Filipina),
approached her to ask if she could have Filipina’s check cleared and encashed for a service fee
of 2.5%. The check is Bank of America Check No. 1906 under the account of Alejandria Pineda
and Eduardo Rosales and drawn by Atty. Eduardo Rosales against Bank of America Alhambra
Branch in California, USA, with a face amount of $300,000.00, payable to cash. Because
Adelina does not have a dollar account in which to deposit the check, she asked Ofelia if she
could accommodate Filipina’s request since she has a joint dollar savings account with her
Malaysian husband Cheah Chee Chong (Chee Chong) under Account No. 265-705612-2 with
PNB Buendia Branch.
Ofelia agreed.
That same day, Ofelia and Adelina went to PNB Buendia Branch. They met with Perfecto
Mendiola of the Loans Department who referred them to PNB Division Chief Alberto Garin
(Garin). Garin discussed with them the process of clearing the subject check and they were told
that it normally takes 15 days.7 Assured that the deposit and subsequent clearance of the check
is a normal transaction, Ofelia deposited Filipina’s check. PNB then sent it for clearing through
its correspondent bank, Philadelphia National Bank. Five days later, PNB received a credit
advice8 from Philadelphia National Bank that the proceeds of the subject check had been
temporarily credited to PNB’s account as of November 6, 1992.
On November 16, 1992, Garin called up Ofelia to inform her that the check had already been
cleared.9 The following day, PNB Buendia Branch, after deducting the bank charges, credited
$299,248.37 to the account of the spouses Cheah.10 Acting on Adelina’s instruction to withdraw
the credited amount, Ofelia that day personally withdrew $180,000.00.11 Adelina was able to
withdraw the remaining amount the next day after having been authorized by Ofelia. 12 Filipina
received all the proceeds.
In the meantime, the Cable Division of PNB Head Office in Escolta, Manila received on
November 16, 1992 a SWIFT13 message from Philadelphia National Bank dated November 13,
1992 with Transaction Reference Number (TRN) 46506218, informing PNB of the return of the
subject check for insufficient funds.14 However, the PNB Head Office could not ascertain to
which branch/office it should forward the same for proper action. Eventually, PNB Head Office
sent Philadelphia National Bank a SWIFT message informing the latter that SWIFT message
with TRN 46506218 has been relayed to PNB’s various divisions/departments but was returned
to PNB Head Office as it seemed misrouted. PNB Head Office thus requested for Philadelphia
National Bank’s advice on said SWIFT message’s proper disposition. 15 After a few days, PNB
Head Office ascertained that the SWIFT message was intended for PNB Buendia Branch.
PNB Buendia Branch learned about the bounced check when it received on November 20, 1992
a debit advice,16 followed by a letter17 on November 24, 1992, from Philadelphia National Bank to
which the November 13, 1992 SWIFT message was attached. Informed about the bounced
check and upon demand by PNB Buendia Branch to return the money withdrawn, Ofelia
immediately contacted Filipina to get the money back. But the latter told her that all the money
had already been given to several people who asked for the check’s encashment. In their effort
to recover the money, spouses Cheah then sought the help of the National Bureau of
Investigation. Said agency’s Anti-Fraud and Action Division was later able to apprehend some
of the beneficiaries of the proceeds of the check and recover from them $20,000.00. Criminal
charges were then filed against these suspect beneficiaries.18
Meanwhile, the spouses Cheah have been constantly meeting with the bank officials to discuss
matters regarding the incident and the recovery of the value of the check while the cases
against the alleged perpetrators remain pending. Chee Chong in the end signed a PNB
drafted19 letter20 which states that the spouses Cheah are offering their condominium units as
collaterals for the amount withdrawn. Under this setup, the amount withdrawn would be treated
as a loan account with deferred interest while the spouses try to recover the money from those
who defrauded them. Apparently, Chee Chong signed the letter after the Vice President and
Manager of PNB Buendia Branch, Erwin Asperilla (Asperilla), asked the spouses Cheah to help
him and the other bank officers as they were in danger of losing their jobs because of the
incident. Asperilla likewise assured the spouses Cheah that the letter was a mere formality and
that the mortgage will be disregarded once PNB receives its claim for indemnity from
Philadelphia National Bank.
Although some of the officers of PNB were amenable to the proposal, 21 the same did not
materialize. Subsequently, PNB sent a demand letter to spouses Cheah for the return of the
amount of the check,22 froze their peso and dollar deposits in the amounts of ₱275,166.80 and
$893.46,23 and filed a complaint24 against them for Sum of Money with Branch 50 of the Regional
Trial Court (RTC) of Manila, docketed as Civil Case No. 94-71022. In said complaint, PNB
demanded payment of around ₱8,202,220.44, plus interests25 and attorney’s fees, from the
spouses Cheah.
As their main defense, the spouses Cheah claimed that the proximate cause of PNB’s injury
was its own negligence of paying a US dollar denominated check without waiting for the 15-day
clearing period, in violation of its bank practice as mandated by its own bank circular, i.e., PNB
General Circular No. 52-101/88.26 Because of this, spouses Cheah averred that PNB is barred
from claiming what it had lost. They further averred that it is unjust for them to pay back the
amount disbursed as they never really benefited therefrom. As counterclaim, they prayed for the
return of their frozen deposits, the recoupment of ₱400,000.00 representing the amount they
had so far spent in recovering the value of the check, and payment of moral and exemplary
damages, as well as attorney’s fees.
Ruling of the Regional Trial Court
The RTC ruled in PNB’s favor. The dispositive portion of its Decision27 dated May 20, 1999
reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff

Philippine National Bank [and] against defendants Mr. Cheah Chee Chong and Ms. Ofelia
Camacho Cheah, ordering the latter to pay jointly and severally the herein plaintiffs’ bank the
amount:
1. of US$298,950.25 or its peso equivalent based on Central Bank Exchange Rate prevailing at
the time the proceeds of the BA Check No. 190 were withdrawn or the prevailing Central Bank
Rate at the time the amount is to be reimbursed by the defendants to plaintiff or whatever is
lower. This is without prejudice however, to the rights of the defendants (accommodating
parties) to go against the group of Adelina Guarin, Atty. Eduardo Rosales, Filipina Tuazon, etc.,
(Beneficiaries- accommodated parties) who are privy to the defendants.
No pronouncement as to costs.
No other award of damages for non[e] has been proven.

SO ORDERED.28
The RTC held that spouses Cheah were guilty of contributory negligence.
Because Ofelia trusted a friend’s friend whom she did not know and considering the amount of
the check made payable to cash, the RTC opined that Ofelia showed lack of vigilance in her
dealings. She should have exercised due care by investigating the negotiability of the check and
the identity of the drawer. While the court found that the proximate cause of the wrongful
payment of the check was PNB’s negligence in not observing the 15-day guarantee period rule,
it ruled that spouses Cheah still cannot escape liability to reimburse PNB the value of the check
as an accommodation party pursuant to Section 29 of the Negotiable Instruments Law.29 It
likewise applied the principle of solutio indebiti under the Civil Code. With regard to the award of
other forms of damages, the RTC held that each party must suffer the consequences of their
own acts and thus left both parties as they are.
Unwilling to accept the judgment, the spouses Cheah appealed to the CA.
Ruling of the Court of Appeals
While the CA recognized the spouses Cheah as victims of a scam who nevertheless have to
suffer the consequences of Ofelia’s lack of care and prudence in immediately trusting a
stranger, the appellate court did not hold PNB scot-free. It ruled in its August 22, 2005
Decision,30 viz:
As both parties were equally negligent, it is but right and just that both parties should equally
suffer and shoulder the loss. The scam would not have been possible without the negligence of
both parties. As earlier stated, the complaint of PNB cannot be dismissed because the Cheah
spouses were negligent and Ms. Cheah took an active part in the deposit of the check and the
withdrawal of the subject amounts. On the other hand, the Cheah spouses cannot entirely bear
the loss because PNB allowed her to withdraw without waiting for the clearance of the check.
The remedy of the parties is to go after those who perpetrated, and benefited from, the scam.
WHEREFORE, the May 20, 1999 Decision of the Regional Trial Court, Branch 5, Manila, in Civil
Case No. 94-71022, is hereby REVERSED and SET ASIDE and another one entered
DECLARING both parties equally negligent and should suffer and shoulder the loss.
Accordingly, PNB is hereby ordered to credit to the peso and dollar accounts of the Cheah
spouses the amount due to them.
SO ORDERED.31
In so ruling, the CA ratiocinated that PNB Buendia Branch’s non-receipt of the SWIFT message
from Philadelphia National Bank within the 15-day clearing period is not an acceptable excuse.
Applying the last clear chance doctrine, the CA held that PNB had the last clear opportunity to
avoid the impending loss of the money and yet, it glaringly exhibited its negligence in allowing
the withdrawal of funds without exhausting the 15-day clearing period which has always been a
standard banking practice as testified to by PNB’s own officers, and as provided in its own
General Circular No. 52/101/88. To the CA, PNB cannot claim from spouses Cheah even if the
latter are accommodation parties under the law as the bank’s own negligence is the proximate
cause of the damage it sustained. Nevertheless, it also found Ofelia guilty of contributory
negligence. Thus, both parties should be made equally responsible for the resulting loss.
Both parties filed their respective Motions for Reconsideration32 but same were denied in a
Resolution33 dated December 21, 2005.
Hence, these Petitions for Review on Certiorari.
Our Ruling
The petitions for review lack merit. Hence, we affirm the ruling of the CA.
PNB’s act of releasing the proceeds of the check prior to the lapse of the 15-day clearing period
was the proximate cause of the loss.1âwphi1
"Proximate cause is ‘that cause, which, in natural and continuous sequence, unbroken by any
efficient intervening cause, produces the injury and without which the result would not have
occurred.’ x x x To determine the proximate cause of a controversy, the question that needs to
be asked is: If the event did not happen, would the injury have resulted? If the answer is no,
then the event is the proximate cause."34
Here, while PNB highlights Ofelia’s fault in accommodating a stranger’s check and depositing it
to the bank, it remains mum in its release of the proceeds thereof without exhausting the 15-day
clearing period, an act which contravened established banking rules and practice.
It is worthy of notice that the 15-day clearing period alluded to is construed as 15 banking days.
As declared by Josephine Estella, the Administrative Service Officer who was the bank’s
Remittance Examiner, what was unusual in the processing of the check was that the "lapse of
15 banking days was not observed."35 Even PNB’s agreement with Philadelphia National
Bank36 regarding the rules on the collection of the proceeds of US dollar checks refers to
"business/ banking days." Ofelia deposited the subject check on November 4, 1992. Hence, the
15th banking day from the date of said deposit should fall on November 25, 1992. However,
what happened was that PNB Buendia Branch, upon calling up Ofelia that the check had been
cleared, allowed the proceeds thereof to be withdrawn on November 17 and 18, 1992, a week
before the lapse of the standard 15-day clearing period.
This Court already held that the payment of the amounts of checks without previously clearing
them with the drawee bank especially so where the drawee bank is a foreign bank and the
amounts involved were large is contrary to normal or ordinary banking practice.37 Also, in
Associated Bank v. Tan,38 wherein the bank allowed the withdrawal of the value of a check prior
to its clearing, we said that "[b]efore the check shall have been cleared for deposit, the
collecting bank can only ‘assume’ at its own risk x x x that the check would be cleared and paid
out." The delay in the receipt by PNB Buendia Branch of the November 13, 1992 SWIFT
message notifying it of the dishonor of the subject check is of no moment, because had PNB
Buendia Branch waited for the expiration of the clearing period and had never released during
that time the proceeds of the check, it would have already been duly notified of its dishonor.
Clearly, PNB’s disregard of its preventive and protective measure against the possibility of being
victimized by bad checks had brought upon itself the injury of losing a significant amount of
money.
It bears stressing that "the diligence required of banks is more than that of a Roman pater
familias or a good father of a family. The highest degree of diligence is expected."39 PNB
miserably failed to do its duty of exercising extraordinary diligence and reasonable business
prudence. The disregard of its own banking policy amounts to gross negligence, which the law
defines as "negligence characterized by the want of even slight care, acting or omitting to act in
a situation where there is duty to act, not inadvertently but wilfully and intentionally with a
conscious indifference to consequences in so far as other persons may be affected." 40 With
regard to collection or encashment of checks, suffice it to say that the law imposes on the
collecting bank the duty to scrutinize diligently the checks deposited with it for the purpose of
determining their genuineness and regularity. "The collecting bank, being primarily engaged in
banking, holds itself out to the public as the expert on this field, and the law thus holds it to a
high standard of conduct."41 A bank is expected to be an expert in banking procedures and it has
the necessary means to ascertain whether a check, local or foreign, is sufficiently funded.
Incidentally, PNB obliges the spouses Cheah to return the withdrawn money under the principle
of solutio indebiti, which is laid down in Article 2154 of the Civil Code:42
Art. 2154. If something is received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises.
"[T]he indispensable requisites of the juridical relation known as solutio indebiti, are, (a) that he
who paid was not under obligation to do so; and (b) that the payment was made by reason of an
essential mistake of fact.43
In the case at bench, PNB cannot recover the proceeds of the check under the principle it
invokes. In the first place, the gross negligence of PNB, as earlier discussed, can never be
equated with a mere mistake of fact, which must be something excusable and which requires
the exercise of prudence. No recovery is due if the mistake done is one of gross negligence.
The spouses Cheah are guilty of contributory negligence and are bound to share the loss with
the bank
"Contributory negligence is conduct on the part of the injured party,
contributing as a legal cause to the harm he has suffered, which falls below the standard to
which he is required to conform for his own protection."44
The CA found Ofelia’s credulousness blameworthy. We agree. Indeed, Ofelia failed to observe
caution in giving her full trust in accommodating a complete stranger and this led her and her
husband to be swindled. Considering that Filipina was not personally known to her and the
amount of the foreign check to be encashed was $300,000.00, a higher degree of care is
expected of Ofelia which she, however, failed to exercise under the circumstances. Another
circumstance which should have goaded Ofelia to be more circumspect in her dealings was
when a bank officer called her up to inform that the Bank of America check has already been
cleared way earlier than the 15-day clearing period. The fact that the check was cleared after
only eight banking days from the time it was deposited or contrary to what Garin told her that
clearing takes 15 days should have already put Ofelia on guard. She should have first verified
the regularity of such hasty clearance considering that if something goes wrong with the
transaction, it is she and her husband who would be put at risk and not the accommodated
party. However, Ofelia chose to ignore the same and instead actively participated in
immediately withdrawing the proceeds of the check. Thus, we are one with the CA in ruling that
Ofelia’s prior consultation with PNB officers is not enough to totally absolve her of any liability. In
the first place, she should have shunned any participation in that palpably shady transaction.
In any case, the complaint against the spouses Cheah could not be dismissed. As PNB’s client,
Ofelia was the one who dealt with PNB and negotiated the check such that its value was
credited in her and her husband’s account. Being the ones in privity with PNB, the spouses
Cheah are therefore the persons who should return to PNB the money released to them.
All told, the Court concurs with the findings of the CA that PNB and the spouses Cheah are
equally negligent and should therefore equally suffer the loss. The two must both bear the
consequences of their mistakes.
WHEREFORE, premises considered, the Petitions for Review on Certiorari in G.R. No. 170865
and in G.R. No. 170892 are both DENIED. The assailed August 22, 2005 Decision and
December 21, 2005 Resolution of the Court of Appeals in CA-G.R. CV No. 63948 are hereby
AFFIRMED in toto.
SO ORDERED.
VICENTE GO, Petitioner, v. METROPOLITAN BANK AND TRUST CO., Respondent.
DECISION
NACHURA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court,
assailing the Decision1cra1aw dated May 27, 2005 and the Resolution2cra1aw dated August 31,
2005 of the Court of Appeals (CA) in CA-G.R. CV No. 63469.
The Facts
The facts of the case are as follows:chan robles virtual law library
Petitioner filed two separate cases before the Regional Trial Court (RTC) of Cebu. Civil Case
No. CEB-9713 was filed by petitioner against Ma. Teresa Chua (Chua) and Glyndah Tabañag
(Tabañag) for a sum of money with preliminary attachment. Civil Case No. CEB-9866 was filed
by petitioner for a sum of money with damages against herein respondent Metropolitan Bank
and Trust Company (Metrobank) and Chua.3cra1aw
In both cases, petitioner alleged that he was doing business under the name "Hope Pharmacy"
which sells medicine and other pharmaceutical products in the City of Cebu. Petitioner had in
his employ Chua as his pharmacist and trustee or caretaker of the business; Tabañag, on the
other hand, took care of the receipts and invoices and assisted Chua in making deposits for
petitioner's accounts in the business operations of Hope Pharmacy.4cra1aw
In CEB-9713, petitioner claimed that there were unauthorized deposits and encashments made
by Chua and Tabañag in the total amount of One Hundred Nine Thousand Four Hundred Thirty-
three Pesos and Thirty Centavos (P109,433.30). He questioned particularly the following:
(1) FEBTC Check No. 251111 dated April 29, 1990 in the amount of P22,635.00 which was
issued by plaintiff's [petitioner's] customer Loy Libron in payment of the stocks purchased was
deposited under Metrobank Savings Account No. 420-920-6 belonging to the defendant Ma.
Teresa Chua;
(2) RCBC Checks Nos. 330958 and 294515, which were in blank but pre-signed by him (plaintiff
[petitioner] Vicente Go) for convenience and intended for payment to plaintiff's [petitioner's]
suppliers, were filled up and dated September 22, 1990 and September 7, 1990 in the amount
of P30,000.00 and P50,000.00 respectively, and were deposited with defendant Chua's
aforestated account with Metrobank;
(3) PBC Check No. 005874, drawn by Elizabeth Enriquez payable to the Hope Pharmacy in the
amount of P6,798.30 was encashed by the defendant Glyndah Tabañag;
(4) There were unauthorized deposits and encashments in the total sum
of P109,433.30;5cra1aw
In CEB-9866, petitioner averred that there were thirty-two (32) checks with Hope Pharmacy as
payee, for varying sums, amounting to One Million Four Hundred Ninety-Two Thousand Five
Hundred Ninety-Five Pesos and Six Centavos (P1,492,595.06), that were not endorsed by him
but were deposited under the personal account of Chua with respondent bank,6cra1aw and
these are the following:
CHECK NO. DATE AMOUNT

FEBTC 251166 5-23-90 P 65,214.88
FEBTC 239399 5-08-90 24,917.75
FEBTC 251350 7-24-90 212,326.56
PBC 279887 6-27-90 2,000.00
PBC 162387 1-24-90 6,300.00
PBC 162317 12-22-89 3,300.00
PBC 279881 6-23-90 7,650.00
PBC 009005 7-21-89 3,584.00
PBC 279771 5-14-90 3,600.00
PBC 279726 4-25-90 2,000.00
PBC 168004 3-22-90 2,800.00
PBC 167963 3-07-90 1,700.00
FEBTC 267793 8-20-90 80,085.66
FEBTC 267761 7-21-90 45,304.63
FEBTC 251252 6-03-90 64,000.00
FEBTC 267798 8-15-90 40,078.67
PBC 367292 8-06-90 2,100.00
PBC 376445 9-26-90 1,125.00
PBC 009056 8-07-89 2,500.00
PBC 376402 9-12-90 12,105.40
BPI 197074 7-17-90 5,240.00
BPI 197051 7-06-90 1,350.00
BPI 204358 9-19-90 5,402.60
BPI 204252 7-31-90 6,715.60
FEBTC 251171 6-27-90 83,175.54
FEBTC 251165 6-28-90 231,936.10
FEBTC 251251 6-30-90 47,087.25
FEBTC 251163 6-21-90 170,600.85
FEBTC 251170 5-23-90 16,440.00
FEBTC 251112 5-31-90 211,592.69
FEBTC 239400 6-15-90 47,664.03
FEBTC 251162 6-22-90 82,697.85
P1,492,595.067cra1aw
Petitioner claimed that the said checks were crossed checks payable to Hope Pharmacy only;
and that without the participation and connivance of respondent bank, the checks could not
have been accepted for deposit to any other account, except petitioner's account.8cra1aw
Thus, in CEB-9866, petitioner prayed that Chua and respondent bank be ordered, jointly and
severally, to pay the principal amount of P1,492,595.06, plus interest at 12% from the dates of
the checks, until the obligation shall have been fully paid; moral damages of Five Hundred
Thousand Pesos (P500,000.00); exemplary damages of P500,000.00; and attorney's fees and
costs in the amount of P500,000.00.9cra1aw
On February 23, 1995, the RTC rendered a Joint Decision, 10cra1aw the dispositive portion of
which reads:
WHEREFORE, premises considered, the Court hereby renders judgment dismissing plaintiff
Vicente Go's complaint against the defendant Ma. Teresa Chua and Glyndah Tabañag in Civil
Case No. CEB-9713, as well as plaintiff's complaint against the same defendant Ma. Teresa
Chua in Civil Case No. CEB-9866.
Plaintiff Vicente Go is moreover sentenced to pay P50,000.00 in attorney's fees and litigation

expenses to the defendants Ma. Teresa Chua and Glyndah Tabañag in Civil Case No. CEB-
9713.
Defendant Metrobank in Civil Case No. CEB-9866 is hereby condemned to pay unto plaintiff
Vicente Go/Hope Pharmacy the amount of P50,000.00 as moral damages, and attorney's fees
and litigation expenses in the aggregate sum of P25,000.00.
The defendant Metrobank's crossclaim against its co-defendant Ma. Teresa Chua in Civil Case
No. CEB-9866 is dismissed for lack of merit.
No special pronouncement as to costs in both instances.
SO ORDERED.11cra1aw
In striking down the complaint of the petitioner against Chua and Tabañag in CEB-9713, the
RTC made the following findings:chan robles virtual law library
(1) FEBTC Check No. 251111, dated April 29, 1990, in the amount of P22,635.00 payable to
cash, was drawn by Loy Libron in payment of her purchases of medicines and other drugs
which Ma. Teresa Chua was selling side by side with the medicines and drugs of the Hope
Pharmacy, for which she (Maritess) was granted permission by its owner, Mr. Vicente Chua.
These medicines and drugs from Thailand were Maritess' sideline, and were segregated from
the stocks of Hope Pharmacy; x x x.
(2) RCBC Check Nos. 294519 and 330958 were checks belonging to plaintiff Vicente Go
payable to cash x x x; these checks were replacements of the sums earlier advanced by Ma.
Teresa Chua, but which were deposited in the account of Vicente Go with RCBC, as shown by
the deposit slips x x x, and confirmed by the statement of account of Vicente Go with RCBC.
(3) Check No. PCIB 005374 drawn by Elizabeth Enriquez payable to Hope Pharmacy/Cash in
the amount of P6,798.30 dated September 6, 1990, was admittedly encashed by the defendant,
Glyndah Tabañag. As per instruction by Vicente Go, Glyndah requested the drawer to insert the
word "Cash," so that she could encash the same with PCIB, to meet the Hope Pharmacy's
overdraft.
The listings x x x, made by Glyndah Tabañag and Flor Ouano will show that the corresponding
amounts covered thereby were in fact deposited to the account of Mr. Vicente Go with RCBC;
the Bank Statement of Mr. Go x x x, confirms defendants' claim independently of the deposit
slip[s] x x x.12cra1aw
The trial court absolved Chua in CEB-9866 because of the finding that the subject checks in
CEB-9866 were payments of petitioner for his loans or borrowings from the parents of Ma.
Teresa Chua, through Ma. Teresa, who was given the total discretion by petitioner to transfer
money from the offices of Hope Pharmacy to pay the advances and other obligations of the
drugstore; she was also given the full discretion where to source the funds to cover the daily
overdrafts, even to the extent of borrowing money with interest from other persons.13cra1aw
While the trial court exonerated Chua in CEB-9866, it however declared respondent bank liable
for being negligent in allowing the deposit of crossed checks without the proper indorsement.
Petitioner filed an appeal before the CA. On May 27, 2005, the CA rendered a
Decision,14cra1aw the fallo of which reads:
WHEREFORE, except for the award of attorney's fees and litigation expenses in favor of
defendants Chua and Tabañag which is hereby deleted, the decision of the lower court is
hereby AFFIRMED.
SO ORDERED.15cra1aw
Hence, this petition.
The Issue
Petitioner presented this sole issue for resolution:
The Court of Appeals Erred In Not Holding Metrobank Liable For Allowing The Deposit, Of
Crossed Checks Which Were Issued In Favor Of And Payable To Petitioner And Without Being
Indorsed By The Petitioner, To The Account Of Maria Teresa Chua.16cra1aw
The Ruling of the Court
A check is a bill of exchange drawn on a bank payable on demand.17cra1aw There are different

kinds of checks. In this case, crossed checks are the subject of the controversy. A crossed
check is one where two parallel lines are drawn across its face or across the corner thereof. It
may be crossed generally or specially.18cra1aw
A check is crossed specially when the name of a particular banker or a company is written
between the parallel lines drawn. It is crossed generally when only the words "and company"
are written or nothing is written at all between the parallel lines, as in this case. It may be issued
so that presentment can be made only by a bank.19cra1aw
In order to preserve the credit worthiness of checks, jurisprudence has pronounced that
crossing of a check has the following effects: (a) the check may not be encashed but only
deposited in the bank; (b) the check may be
negotiated only once - to one who has an account with a bank; and (c) the act of crossing the
check serves as 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, otherwise, he is not
a holder in due course.20cra1aw
The Court has taken judicial cognizance of the practice that a check with two parallel lines in the
upper left hand corner means that it could only be deposited and not converted into cash. The
effect of crossing a check,
thus, relates to the mode of payment, meaning that the drawer had intended the check for
deposit only by the rightful person, i.e., the payee named therein. 21cra1aw The crossing of a
check is a warning that the check should be deposited only in the account of the payee. Thus, it
is the duty of the collecting bank to ascertain that the check be deposited to the payee's account
only.22cra1aw
In the instant case, there is no dispute that the subject 32 checks with the total amount
of P1,492,595.06 were crossed checks with petitioner as the named payee. It is the submission
of petitioner that respondent bank should be held accountable for the entire amount of the
checks because it accepted the checks for deposit under Chua's account despite the fact that
the checks were crossed and that the payee named therein was not Chua.
In its defense, respondent bank countered that petitioner is not entitled to reimbursement of the
total sum of P1,492,595.06 from either Maria Teresa Chua or respondent bank because
petitioner was not damaged thereby.23cra1aw
Respondent bank's contention is meritorious. Respondent bank should not be held liable for the
entire amount of the checks considering that, as found by the RTC and affirmed by the CA, the
checks were actually given to Chua as payments by petitioner for loans obtained from the
parents of Chua. Furthermore, petitioner's non-inclusion of Chua and Tabañag in the petition
before this Court is, in effect, an admission by the petitioner that Chua, in representation of her
parents, had rightful claim to the proceeds of the checks, as payments by petitioner for money
he borrowed from the parents of Chua. Therefore, petitioner suffered no pecuniary loss in the
deposit of the checks to the account of Chua.
However, we affirm the finding of the RTC that respondent bank was negligent in permitting the
deposit and encashment of the crossed checks without the proper indorsement. An indorsement
is necessary for the proper negotiation of checks specially if the payee named therein or holder
thereof is not the one depositing or encashing it. Knowing fully well that the subject checks were
crossed, that the payee was not the holder and that the checks contained no indorsement,
respondent bank should have taken reasonable steps in order to determine the validity of the
representations made by Chua. Respondent bank was amiss in its duty as an agent of the
payee. Prudence dictates that respondent bank should not have merely relied on the
assurances given by Chua.
Respondent presented Jonathan Davis as its witness in the trial before the RTC. He was the
officer-in-charge and ranked second to the assistant vice president of the bank at the time
material to this case. Davis' testimony was summarized by the RTC as follows:chan robles
virtual law library
Davis also testified that he allowed Ma. Teresa Chua to deposit the checks subject of this
litigation which were payable to Hope Pharmacy. According to him, it was a privilege given to
valued customers on a highly selective case to case basis, for marketing purposes, based on
trust and confidence, because Ma. Teresa [Chua] told him that those checks belonged to her as
payment for the advances she extended to Mr. Go/Hope Pharmacy. x x x
Davis stressed that Metrobank granted the privilege to Ma. Teresa Chua that for every check
she deposited with Metrobank, the same would be credited outright to her account, meaning
that she could immediately make use of the amount credited; this arrangement went on for
about three years, without any complaint from Mr. Go/Hope Pharmacy, and Ma. Teresa Chua
made warranty that she would reimburse Metrobank if Mr. Go complained. He did not however
call or inform Mr. Go about this arrangement, because their bank being a Chinese bank,
transactions are based on trust and confidence, and for him to inform Mr. Vicente Go about it,
was tantamount to questioning the integrity of their client, Ma. Teresa Chua. Besides, this
special privilege or arrangement would not bring any monetary gain to the bank.24cra1aw
Negligence was committed by respondent bank in accepting for deposit the crossed checks
without indorsement and in not verifying the authenticity of the negotiation of the checks. The
law imposes a duty of extraordinary diligence on the collecting bank to scrutinize checks
deposited with it, for the purpose of determining their genuineness and regularity.25cra1aw As a
business affected with public interest and because of the nature of its functions, the banks are
under obligation to treat the accounts of its depositors with meticulous care, always having in
mind the fiduciary nature of the relationship.26cra1aw The fact that this arrangement had been
practiced for three years without Mr. Go/Hope Pharmacy raising any objection does not detract
from the duty of the bank to exercise extraordinary diligence. Thus, the Decision of the RTC, as
affirmed by the CA, holding respondent bank liable for moral damages is sufficient to remind it
of its responsibility to exercise extraordinary diligence in the course of its business which is
imbued with public interest.
WHEREFORE, the Decision dated May 27, 2005 and the Resolution dated August 31, 2005 of
the Court of Appeals in CA-G.R. CV No. 63469 are hereby AFFIRMED.
SO ORDERED.
BANK OF THE PHILIPPINE ISLANDS, Petitioner, v. GREGORIO C. ROXAS, Respondent.
DECISION
SANDOVAL-GUTIERREZ, J.:
For our resolution is the instant Petition for Review on Certiorari assailing the Decision1 of the
Court of Appeals (Fourth Division) dated February 13, 2003 in CA-G.R. CV No. 67980.
The facts of the case, as found by the trial court and affirmed by the Court of Appeals, are:
Gregorio C. Roxas, respondent, is a trader. Sometime in March 1993, he delivered stocks of

vegetable oil to spouses Rodrigo and Marissa Cawili. As payment therefor, spouses Cawili
issued a personal check in the amount of P348,805.50. However, when respondent tried to
encash the check, it was dishonored by the drawee bank. Spouses Cawili then assured him that
they would replace the bounced check with a cashier's check from the Bank of the Philippine
Islands (BPI), petitioner.
On March 31, 1993, respondent and Rodrigo Cawili went to petitioner's branch at Shaw
Boulevard, Mandaluyong City where Elma Capistrano, the branch manager, personally attended
to them. Upon Elma's instructions, Lita Sagun, the bank teller, prepared BPI Cashier's Check
No. 14428 in the amount of P348,805.50, drawn against the account of Marissa Cawili, payable
to respondent. Rodrigo then handed the check to respondent in the presence of Elma.
The following day, April 1, 1993, respondent returned to petitioner's branch at Shaw Boulevard
to encash the cashier's check but it was dishonored. Elma informed him that Marissa's account
was closed on that date.
Despite respondent's insistence, the bank officers refused to encash the check and tried to
retrieve it from respondent. He then called his lawyer who advised him to deposit the check in
his (respondent's) account at Citytrust, Ortigas Avenue. However, the check was dishonored on
the ground "Account Closed."
On September 23, 1993, respondent filed with the Regional Trial Court, Branch 263, Pasig City
a complaint for sum of money against petitioner, docketed as Civil Case No. 63663.
Respondent prayed that petitioner be ordered to pay the amount of the check, damages and
cost of the suit.
In its answer, petitioner specifically denied the allegations in the complaint, claiming that it
issued the check by mistake in good faith; that its dishonor was due to lack of consideration;
and that respondent's remedy was to sue Rodrigo Cawili who purchased the check. As a
counterclaim, petitioner prayed that respondent be ordered to pay attorney's fees and expenses
of litigation.
Petitioner filed a third-party complaint against spouses Cawili. They were later declared in
default for their failure to file their answer.
After trial, the RTC rendered a Decision, the dispositive portion of which reads:
WHEREFORE, in view of the foregoing premises, this Court hereby renders judgment in favor
of herein plaintiff and orders the defendant, Bank of the Philippine Islands, to pay Gerardo C.
Roxas:
1) The sum of P348,805.50, the face value of the cashier's check, with legal interest thereon
computed from April 1, 1993 until the amount is fully paid;
2) The sum of P50,000.00 for moral damages;
3) The sum of P50,000.00 as exemplary damages to serve as an example for the public good;
4) The sum of P25,000.00 for and as attorney's fees; and the
5) Costs of suit.
As to the third-party complaint, third-party defendants Spouses Rodrigo and Marissa Cawili are
hereby ordered to indemnify defendant Bank of the Philippine Islands such amount(s) adjudged
and actually paid by it to herein plaintiff Gregorio C. Roxas, including the costs of suit.
SO ORDERED.
On appeal, the Court of Appeals, in its Decision, affirmed the trial court's judgment.
Hence, this petition.
Petitioner ascribes to the Court of Appeals the following errors: (1) in finding that respondent is
a holder in due course; and (2) in holding that it (petitioner) is liable to respondent for the
amount of the cashier's check.
Section 52 of the Negotiable Instruments Law provides:

SEC. 52. What constitutes a holder in due course. - A holder in due course is a holder who has
taken the instrument under the following conditions:
(b) That he became the holder of it before it was overdue and without notice that it had been
(d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument
or defect in the title of person negotiating it.
As a general rule, under the above provision, every holder is presumed prima facie to be a

holder in due course. One who claims otherwise has the onus probandi to prove that one or
more of the conditions required to constitute a holder in due course are lacking. In this case,
petitioner contends that the element of "value" is not present, therefore, respondent could not be
a holder in due course.
Petitioner's contention lacks merit. Section 25 of the same law states:
SEC. 25. Value, what constitutes. - Value is any consideration sufficient to support a simple
contract. An antecedent or pre-existing debt constitutes value; and is deemed as such whether
the instrument is payable on demand or at a future time.
In Walker Rubber Corp. v. Nederlandsch Indische & Handelsbank, N.V. and South Sea Surety
& Insurance Co., Inc.,2 this Court ruled that value "in general terms may be some right, interest,
profit or benefit to the party who makes the contract or some forbearance, detriment, loan,
responsibility, etc. on the other side." Here, there is no dispute that respondent received
Rodrigo Cawili's cashier's check as payment for the former's vegetable oil. The fact that it was
Rodrigo who purchased the cashier's check from petitioner will not affect respondent's status as
a holder for value since the check was delivered to him as payment for the vegetable oil he sold
to spouses Cawili. Verily, the Court of Appeals did not err in concluding that respondent is a
holder in due course of the cashier's check.
Furthermore, it bears emphasis that the disputed check is a cashier's check. In International
Corporate Bank v. Spouses Gueco,3 this Court held that a cashier's check is really the bank's
own check and may be treated as a promissory note with the bank as the maker. The check
becomes the primary obligation of the bank which issues it and constitutes a written
promise to pay upon demand. In New Pacific Timber & Supply Co. Inc. v. SeÃ±eris,4 this
Court took judicial notice of the "well-known and accepted practice in the business sector that a
cashier's check is deemed as cash." This is because the mere issuance of a cashier's check
is considered acceptance thereof.
In view of the above pronouncements, petitioner bank became liable to respondent from the
moment it issued the cashier's check. Having been accepted by respondent, subject to no
condition whatsoever, petitioner should have paid the same upon presentment by the
former.Ï‚Î·Î±Ã±rÎ¿blÎµÅ¡ Î½Î¹râ€ Ï…Î±l lÎ±Ï‰ lÎ¹brÎ±rÃ¿
WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Appeals (Fourth
Division) in CA-G.R. CV No. 67980 is AFFIRMED. Costs against petitioner.
SO ORDERED.
STATE INVESTMENT HOUSE, INC., petitioner,

vs.
COURT OF APPEALS and NORA B. MOULIC, respondents.
Escober, Alon & Associates for petitioner.
Martin D. Pantaleon for private respondents.
BELLOSILLO, J.:
The liability to a holder in due course of the drawer of checks issued to another merely as
security, and the right of a real estate mortgagee after extrajudicial foreclosure to recover the
balance of the obligation, are the issues in this Petition for Review of the Decision of respondent
Court of Appeals.
Private respondent Nora B. Moulic issued to Corazon Victoriano, as security for pieces of
jewelry to be sold on commission, two (2) post-dated Equitable Banking Corporation checks in
the amount of Fifty Thousand Pesos (P50,000.00) each, one dated 30 August 1979 and the
other, 30 September 1979. Thereafter, the payee negotiated the checks to petitioner State
Investment House. Inc. (STATE).
MOULIC failed to sell the pieces of jewelry, so she returned them to the payee before maturity
of the checks. The checks, however, could no longer be retrieved as they had already been
negotiated. Consequently, before their maturity dates, MOULIC withdrew her funds from the
drawee bank.
Upon presentment for payment, the checks were dishonored for insufficiency of funds. On 20
December 1979, STATE allegedly notified MOULIC of the dishonor of the checks and requested
that it be paid in cash instead, although MOULIC avers that no such notice was given her.
On 6 October 1983, STATE sued to recover the value of the checks plus attorney's fees and
expenses of litigation.
In her Answer, MOULIC contends that she incurred no obligation on the checks because the
jewelry was never sold and the checks were negotiated without her knowledge and consent.
She also instituted a Third-Party Complaint against Corazon Victoriano, who later assumed full
responsibility for the checks.
On 26 May 1988, the trial court dismissed the Complaint as well as the Third-Party Complaint,
and ordered STATE to pay MOULIC P3,000.00 for attorney's fees.
STATE elevated the order of dismissal to the Court of Appeals, but the appellate court affirmed
the trial court on the ground that the Notice of Dishonor to MOULIC was made beyond the
period prescribed by the Negotiable Instruments Law and that even if STATE did serve such
notice on MOULIC within the reglementary period it would be of no consequence as the checks
should never have been presented for payment. The sale of the jewelry was never effected; the
checks, therefore, ceased to serve their purpose as security for the jewelry.
We are not persuaded.
The negotiability of the checks is not in dispute. Indubitably, they were negotiable. After all, at
the pre-trial, the parties agreed to limit the issue to whether or not STATE was a holder of the
checks in due course.1
In this regard, Sec. 52 of the Negotiable Instruments Law provides —
Sec. 52. What constitutes a holder in due course. — A holder in due course is a

holder who has taken the instrument under the following conditions: (a) That it is
complete and regular upon its face; (b) That he became the holder of it before it
was overdue, and without notice that it was previously dishonored, if such was
the fact; (c) That he took it in good faith and for value; (d) That at the time it was
negotiated to him he had no notice of any infirmity in the instrument or defect in
the title of the person negotiating it.
Culled from the foregoing, a prima facie presumption exists that the holder of a negotiable
instrument is a holder in due course.2 Consequently, the burden of proving that STATE is not a
holder in due course lies in the person who disputes the presumption. In this regard, MOULIC
failed.
The evidence clearly shows that: (a) on their faces the post-dated checks were complete and
regular: (b) petitioner bought these checks from the payee, Corazon Victoriano, before their due
dates;3 (c) petitioner took these checks in good faith and for value, albeit at a discounted price;
and, (d) petitioner was never informed nor made aware that these checks were merely issued to
payee as security and not for value.
Consequently, STATE is indeed a holder in due course. As such, it holds the instruments free
from any defect of title of prior parties, and from defenses available to prior parties among
themselves; STATE may, therefore, enforce full payment of the checks.4
MOULIC cannot set up against STATE the defense that there was failure or absence of
consideration. MOULIC can only invoke this defense against STATE if it was privy to the
purpose for which they were issued and therefore is not a holder in due course.
That the post-dated checks were merely issued as security is not a ground for the discharge of
the instrument as against a holder in due course. For the only grounds are those outlined in
Sec. 119 of the Negotiable Instruments Law:
Sec. 119. Instrument; how discharged. — A negotiable instrument is discharged:

(a) By payment in due course by or on behalf of the principal debtor; (b) By
payment in due course by the party accommodated, where the instrument is
made or accepted for his accommodation; (c) By the intentional cancellation
thereof by the holder; (d) By any other act which will discharge a simple contract
for the payment of money; (e) When the principal debtor becomes the holder of
the instrument at or after maturity in his own right.
Obviously, MOULIC may only invoke paragraphs (c) and (d) as possible grounds for the
discharge of the instrument. But, the intentional cancellation contemplated under paragraph (c)
is that cancellation effected by destroying the instrument either by tearing it up, 5 burning it,6 or
writing the word "cancelled" on the instrument. The act of destroying the instrument must also
be made by the holder of the instrument intentionally. Since MOULIC failed to get back
possession of the post-dated checks, the intentional cancellation of the said checks is altogether
impossible.
On the other hand, the acts which will discharge a simple contract for the payment of money
under paragraph (d) are determined by other existing legislations since Sec. 119 does not
specify what these acts are, e.g., Art. 1231 of the Civil Code7 which enumerates the modes of
extinguishing obligations. Again, none of the modes outlined therein is applicable in the instant
case as Sec. 119 contemplates of a situation where the holder of the instrument is the creditor
while its drawer is the debtor. In the present action, the payee, Corazon Victoriano, was no
longer MOULIC's creditor at the time the jewelry was returned.
Correspondingly, MOULIC may not unilaterally discharge herself from her liability by the mere
expediency of withdrawing her funds from the drawee bank. She is thus liable as she has no
legal basis to excuse herself from liability on her checks to a holder in due course.
Moreover, the fact that STATE failed to give Notice of Dishonor to MOULIC is of no moment.
The need for such notice is not absolute; there are exceptions under Sec. 114 of the Negotiable
Instruments Law:
Sec. 114. When notice need not be given to drawer. — Notice of dishonor is not
required to be given to the drawer in the following cases: (a) Where the drawer
and the drawee are the same person; (b) When the drawee is a fictitious person
or a person not having capacity to contract; (c) When the drawer is the person to
whom the instrument is presented for payment: (d) Where the drawer has no
right to expect or require that the drawee or acceptor will honor the instrument;
(e) Where the drawer had countermanded payment.
Indeed, MOULIC'S actuations leave much to be desired. She did not retrieve the checks when
she returned the jewelry. She simply withdrew her funds from her drawee bank and transferred
them to another to protect herself. After withdrawing her funds, she could not have expected her
checks to be honored. In other words, she was responsible for the dishonor of her checks,
hence, there was no need to serve her Notice of Dishonor, which is simply bringing to the
knowledge of the drawer or indorser of the instrument, either verbally or by writing, the fact that
a specified instrument, upon proper proceedings taken, has not been accepted or has not been
paid, and that the party notified is expected to pay it.8
In addition, the Negotiable Instruments Law was enacted for the purpose of facilitating, not
hindering or hampering transactions in commercial paper. Thus, the said statute should not be
tampered with haphazardly or lightly. Nor should it be brushed aside in order to meet the
necessities in a single case.9
The drawing and negotiation of a check have certain effects aside from the transfer of title or the
incurring of liability in regard to the instrument by the transferor. The holder who takes the
negotiated paper makes a contract with the parties on the face of the instrument. There is an
implied representation that funds or credit are available for the payment of the instrument in the
bank upon which it is drawn.10 Consequently, the withdrawal of the money from the drawee
bank to avoid liability on the checks cannot prejudice the rights of holders in due course. In the
instant case, such withdrawal renders the drawer, Nora B. Moulic, liable to STATE, a holder in
due course of the checks.
Under the facts of this case, STATE could not expect payment as MOULIC left no funds with the
drawee bank to meet her obligation on the checks,11 so that Notice of Dishonor would be futile.
The Court of Appeals also held that allowing recovery on the checks would constitute unjust
enrichment on the part of STATE Investment House, Inc. This is error.
The record shows that Mr. Romelito Caoili, an Account Assistant, testified that the obligation of
Corazon Victoriano and her husband at the time their property mortgaged to STATE was
extrajudicially foreclosed amounted to P1.9 million; the bid price at public auction was only P1
million.12 Thus, the value of the property foreclosed was not even enough to pay the debt in full.
Where the proceeds of the sale are insufficient to cover the debt in an extrajudicial foreclosure
of mortgage, the mortgagee is entitled to claim the deficiency from the debtor.13 The step thus
taken by the mortgagee-bank in resorting to an extra-judicial foreclosure was merely to find a
proceeding for the sale of the property and its action cannot be taken to mean a waiver of its
right to demand payment for the whole debt. 14 For, while Act 3135, as amended, does not
discuss the mortgagee's right to recover such deficiency, it does not contain any provision
either, expressly or impliedly, prohibiting recovery. In this jurisdiction, when the legislature
intends to foreclose the right of a creditor to sue for any deficiency resulting from foreclosure of
a security given to guarantee an obligation, it so expressly provides. For instance, with respect
to pledges, Art. 2115 of the Civil Code15 does not allow the creditor to recover the deficiency
from the sale of the thing pledged. Likewise, in the case of a chattel mortgage, or a thing sold on
installment basis, in the event of foreclosure, the vendor "shall have no further action against
the purchaser to recover any unpaid balance of the price. Any agreement to the contrary will be
void".16
It is clear then that in the absence of a similar provision in Act No. 3135, as amended, it cannot
be concluded that the creditor loses his right recognized by the Rules of Court to take action for
the recovery of any unpaid balance on the principal obligation simply because he has chosen to
extrajudicially foreclose the real estate mortgage pursuant to a Special Power of Attorney given
him by the mortgagor in the contract of mortgage.17
The filing of the Complaint and the Third-Party Complaint to enforce the checks against
MOULIC and the VICTORIANO spouses, respectively, is just another means of recovering the
unpaid balance of the debt of the VICTORIANOs.
In fine, MOULIC, as drawer, is liable for the value of the checks she issued to the holder in due
course, STATE, without prejudice to any action for recompense she may pursue against the
VICTORIANOs as Third-Party Defendants who had already been declared as in default.
WHEREFORE, the petition is GRANTED. The decision appealed from is REVERSED and a
new one entered declaring private respondent NORA B. MOULIC liable to petitioner STATE
INVESTMENT HOUSE, INC., for the value of EBC Checks Nos. 30089658 and 30089660 in the
total amount of P100,000.00, P3,000.00 as attorney's fees, and the costs of suit, without
prejudice to any action for recompense she may pursue against the VICTORIANOs as Third-
Party Defendants.
Costs against private respondent.
SO ORDERED
G.R. No. 93048 March 3, 1994
BATAAN CIGAR AND CIGARETTE FACTORY, INC., petitioner,

vs.
THE COURT OF APPEALS and STATE INVESTMENT HOUSE, INC., respondents.
Teresita Gandiongco Oledan for petitioner.
Acaban & Sabado for private respondent.
NOCON, J.:
For our review is the decision of the Court of Appeals in the case entitled "State Investment
House, Inc. v. Bataan Cigar & Cigarette Factory Inc.,"1 affirming the decision of the Regional
Trial Court2 in a complaint filed by the State Investment House, Inc. (hereinafter referred to as
SIHI) for collection on three unpaid checks issued by Bataan Cigar & Cigarette Factory, Inc.
(hereinafter referred to as BCCFI). The foregoing decisions unanimously ruled in favor of SIHI,
the private respondent in this case.
Emanating from the records are the following facts. Petitioner, Bataan Cigar & Cigarette
Factory, Inc. (BCCFI), a corporation involved in the manufacturing of cigarettes, engaged one of
its suppliers, King Tim Pua George (herein after referred to as George King), to deliver 2,000
bales of tobacco leaf starting October 1978. In consideration thereof, BCCFI, on July 13, 1978
issued crossed checks post dated sometime in March 1979 in the total amount of P820,000.00.3
Relying on the supplier's representation that he would complete delivery within three months
from December 5, 1978, petitioner agreed to purchase additional 2,500 bales of tobacco leaves,
despite the supplier's failure to deliver in accordance with their earlier agreement. Again
petitioner issued post dated crossed checks in the total amount of P1,100,000.00, payable
sometime in September 1979.4
During these times, George King was simultaneously dealing with private respondent SIHI. On
July 19, 1978, he sold at a discount check TCBT 551826 5 bearing an amount of P164,000.00,
post dated March 31, 1979, drawn by petitioner, naming George King as payee to SIHI. On
December 19 and 26, 1978, he again sold to respondent checks TCBT Nos. 608967 &
608968,6 both in the amount of P100,000.00, post dated September 15 & 30, 1979 respectively,
drawn by petitioner in favor of George King.
In as much as George King failed to deliver the bales of tobacco leaf as agreed despite
petitioner's demand, BCCFI issued on March 30, 1979, a stop payment order on all checks
payable to George King, including check TCBT 551826. Subsequently, stop payment was also
ordered on checks TCBT Nos. 608967 & 608968 on September 14 & 28, 1979, respectively,
due to George King's failure to deliver the tobacco leaves.
Efforts of SIHI to collect from BCCFI having failed, it instituted the present case, naming only
BCCFI as party defendant. The trial court pronounced SIHI as having a valid claim being a
holder in due course. It further said that the non-inclusion of King Tim Pua George as party
defendant is immaterial in this case, since he, as payee, is not an indispensable party.
The main issue then is whether SIHI, a second indorser, a holder of crossed checks, is a holder
in due course, to be able to collect from the drawer, BCCFI.
The Negotiable Instruments Law states what constitutes a holder in due course, thus:
Sec. 52 — A holder in due course is a holder who has taken the instrument
under the following conditions:
(b) That he became the holder of it before it was overdue, and without notice that
it had been previously dishonored, if such was the fact;
(d) That at the time it was negotiated to him he had no notice of any infirmity in
the instrument or defect in the title of the person negotiating it.
Section 59 of the NIL further states that every holder is deemed prima facie a holder in due
course. However, when it is shown that the title of any person who has negotiated the
instrument was defective, the burden is on the holder to prove that he or some person under
whom he claims, acquired the title as holder in due course.
The facts in this present case are on all fours to the case of State Investment House, Inc. (the
very respondent in this case) v. Intermediate Appellate Court 7 wherein we made a discourse on
the effects of crossing of checks.
As preliminary, a check is defined by law as a bill of exchange drawn on a bank payable on

demand. 8 There are a variety of checks, the more popular of which are the memorandum
check, cashier's check, traveler's check and crossed check. Crossed check is one where two
parallel lines are drawn across its face or across a corner thereof. It may be crossed generally
or specially.
A check is crossed specially when the name of a particular banker or a company is written
between the parallel lines drawn. It is crossed generally when only the words "and company"
are written or nothing is written at all between the parallel lines. It may be issued so that the
presentment can be made only by a bank. Veritably the Negotiable Instruments Law (NIL) does
not mention "crossed checks," although Article 541 9 of the Code of Commerce refers to such
instruments.
According to commentators, the negotiability of a check is not affected by its being crossed,
whether specially or generally. It may legally be negotiated from one person to another as long
as the one who encashes the check with the drawee bank is another bank, or if it is specially
crossed, by the bank mentioned between the parallel lines. 10 This is specially true in England
where the Negotiable Instrument Law originated.
In the Philippine business setting, however, we used to be beset with bouncing checks, forging
of checks, and so forth that banks have become quite guarded in encashing checks, particularly
those which name a specific payee. Unless one is a valued client, a bank will not even accept
second indorsements on checks.
In order to preserve the credit worthiness of checks, jurisprudence has pronounced that
crossing of a check should have the following effects: (a) the check may not be encashed but
only deposited in the bank; (b) the check may be negotiated only once — to one who has an
account with a bank; (c) and the act of crossing the check serves as 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, otherwise, he is not a holder in due course. 11
The foregoing was adopted in the case of SIHI v. IAC, supra. In that case, New Sikatuna Wood
Industries, Inc. also sold at a discount to SIHI three post dated crossed checks, issued by Anita
Peña Chua naming as payee New Sikatuna Wood Industries, Inc. Ruling that SIHI was not a
holder in due course, we then said:
The three checks in the case at bar had been crossed generally and issued
payable to New Sikatuna Wood Industries, Inc. which could only mean that the
drawer had intended the same for deposit only by the rightful person, i.e. the
payee named therein. Apparently, it was not the payee who presented the same
for payment and therefore, there was no proper presentment, and the liability did
not attach to the drawer. Thus, in the absence of due presentment, the drawer
did not become liable. Consequently, no right of recourse is available to
petitioner (SIHI) against the drawer of the subject checks, private respondent
wife (Anita), considering that petitioner is not the proper party authorized to make
presentment of the checks in question.
xxx xxx xxx
That the subject checks had been issued subject to the condition that private
respondents (Anita and her husband) on due date would make the back up
deposit for said checks but which condition apparently was not made, thus
resulting in the non-consummation of the loan intended to be granted by private
respondents to New Sikatuna Wood Industries, Inc., constitutes a good defense
against petitioner who is not a holder in due course. 12
It is then settled that crossing of checks should put the holder on inquiry and upon him devolves
the duty to ascertain the indorser's title to the check or the nature of his possession. Failing in
this respect, the holder is declared guilty of gross negligence amounting to legal absence of
good faith, contrary to Sec. 52(c) of the Negotiable Instruments Law, 13 and as such the
consensus of authority is to the effect that the holder of the check is not a holder in due course.
In the present case, BCCFI's defense in stopping payment is as good to SIHI as it is to George
King. Because, really, the checks were issued with the intention that George King would supply
BCCFI with the bales of tobacco leaf. There being failure of consideration, SIHI is not a holder in
due course. Consequently, BCCFI cannot be obliged to pay the checks.
The foregoing does not mean, however, that respondent could not recover from the checks. The
only disadvantage of a holder who is not a holder in due course is that the instrument is subject
to defenses as if it were
non-negotiable. 14 Hence, respondent can collect from the immediate indorser, in this case,
George King.
WHEREFORE, finding that the court a quo erred in the application of law, the instant petition is
hereby GRANTED. The decision of the Regional Trial Court as affirmed by the Court of Appeals
is hereby REVERSED. Cost against private respondent.
SO ORDERED.
Rizal Commercial Banking Corporation, Petitioner,

vs.
Hi-Tri Development Corporation and Luz R. Bakunawa, Respondents.
DECISION
SERENO, J.:
Before the Court is a Rule 45 Petition for Review on Certiorari filed by petitioner Rizal
Commercial Banking Corporation (RCBC) against respondents Hi-Tri Development Corporation
(Hi-Tri) and Luz R. Bakunawa (Bakunawa). Petitioner seeks to appeal from the 26 November
2009 Decision and 27 May 2010 Resolution of the Court of Appeals (CA), 1 which reversed and
set aside the 19 May 2008 Decision and 3 November 2008 Order of the Makati City Regional
Trial Court (RTC) in Civil Case No. 06-244.2 The case before the RTC involved the Complaint
for Escheat filed by the Republic of the Philippines (Republic) pursuant to Act No. 3936, as
amended by Presidential Decree No. 679 (P.D. 679), against certain deposits, credits, and
unclaimed balances held by the branches of various banks in the Philippines. The trial court
declared the amounts, subject of the special proceedings, escheated to the Republic and
ordered them deposited with the Treasurer of the Philippines (Treasurer) and credited in favor of
the Republic.3 The assailed RTC judgments included an unclaimed balance in the amount of ₱
1,019,514.29, maintained by RCBC in its Ermita Business Center branch.
We quote the narration of facts of the CA4 as follows:
x x x Luz [R.] Bakunawa and her husband Manuel, now deceased ("Spouses Bakunawa") are
registered owners of six (6) parcels of land covered by TCT Nos. 324985 and 324986 of the
Quezon City Register of Deeds, and TCT Nos. 103724, 98827, 98828 and 98829 of the
Marikina Register of Deeds. These lots were sequestered by the Presidential Commission on
Good Government [(PCGG)].
Sometime in 1990, a certain Teresita Millan ("Millan"), through her representative, Jerry
Montemayor, offered to buy said lots for "₱ 6,724,085.71", with the promise that she will take
care of clearing whatever preliminary obstacles there may[]be to effect a "completion of the
sale". The Spouses Bakunawa gave to Millan the Owner’s Copies of said TCTs and in turn,
Millan made a down[]payment of "₱ 1,019,514.29" for the intended purchase. However, for one
reason or another, Millan was not able to clear said obstacles. As a result, the Spouses
Bakunawa rescinded the sale and offered to return to Millan her down[]payment of ₱
1,019,514.29. However, Millan refused to accept back the ₱ 1,019,514.29 down[]payment.
Consequently, the Spouses Bakunawa, through their company, the Hi-Tri Development
Corporation ("Hi-Tri") took out on October 28, 1991, a Manager’s Check from RCBC-Ermita in
the amount of ₱ 1,019,514.29, payable to Millan’s company Rosmil Realty and Development
Corporation ("Rosmil") c/o Teresita Millan and used this as one of their basis for a complaint
against Millan and Montemayor which they filed with the Regional Trial Court of Quezon City,
Branch 99, docketed as Civil Case No. Q-91-10719 [in 1991], praying that:
1. That the defendants Teresita Mil[l]an and Jerry Montemayor may be ordered to return
to plaintiffs spouses the Owners’ Copies of Transfer Certificates of Title Nos. 324985,
324986, 103724, 98827, 98828 and 98829;
2. That the defendant Teresita Mil[l]an be correspondingly ordered to receive the amount
of One Million Nineteen Thousand Five Hundred Fourteen Pesos and Twenty Nine
Centavos (₱ 1,019,514.29);
3. That the defendants be ordered to pay to plaintiffs spouses moral damages in the
amount of ₱ 2,000,000.00; and
4. That the defendants be ordered to pay plaintiffs attorney’s fees in the amount of ₱
50,000.00.
Being part and parcel of said complaint, and consistent with their prayer in Civil Case No. Q-91-
10719 that "Teresita Mil[l]an be correspondingly ordered to receive the amount of One Million
Nineteen Thousand Five Hundred Fourteen Pesos and Twenty Nine [Centavos] ("₱
1,019,514.29")["], the Spouses Bakunawa, upon advice of their counsel, retained custody of
RCBC Manager’s Check No. ER 034469 and refrained from canceling or negotiating it.
All throughout the proceedings in Civil Case No. Q-91-10719, especially during negotiations for
a possible settlement of the case, Millan was informed that the Manager’s Check was available
for her withdrawal, she being the payee.
On January 31, 2003, during the pendency of the abovementioned case and without the
knowledge of [Hi-Tri and Spouses Bakunawa], x x x RCBC reported the "₱ 1,019,514.29-credit
existing in favor of Rosmil" to the Bureau of Treasury as among its "unclaimed balances" as of
January 31, 2003. Allegedly, a copy of the Sworn Statement executed by Florentino N.
Mendoza, Manager and Head of RCBC’s Asset Management, Disbursement & Sundry
Department ("AMDSD") was posted within the premises of RCBC-Ermita.
On December 14, 2006, x x x Republic, through the [Office of the Solicitor General (OSG)], filed
with the RTC the action below for Escheat [(Civil Case No. 06-244)].
On April 30, 2008, [Spouses Bakunawa] settled amicably their dispute with Rosmil and Millan.
Instead of only the amount of "₱ 1,019,514.29", [Spouses Bakunawa] agreed to pay Rosmil and
Millan the amount of "₱ 3,000,000.00", [which is] inclusive [of] the amount of ["]₱ 1,019,514.29".
But during negotiations and evidently prior to said settlement, [Manuel Bakunawa, through Hi-
Tri] inquired from RCBC-Ermita the availability of the ₱ 1,019,514.29 under RCBC Manager’s
Check No. ER 034469. [Hi-Tri and Spouses Bakunawa] were however dismayed when they
were informed that the amount was already subject of the escheat proceedings before the RTC.
On April 17, 2008, [Manuel Bakunawa, through Hi-Tri] wrote x x x RCBC, viz:
"We understand that the deposit corresponding to the amount of Php 1,019,514.29 stated in the
Manager’s Check is currently the subject of escheat proceedings pending before Branch 150 of
the Makati Regional Trial Court.
Please note that it was our impression that the deposit would be taken from [Hi-Tri’s] RCBC
bank account once an order to debit is issued upon the payee’s presentation of the Manager’s
Check. Since the payee rejected the negotiated Manager’s Check, presentation of the
Manager’s Check was never made.
Consequently, the deposit that was supposed to be allocated for the payment of the Manager’s
Check was supposed to remain part of the Corporation[’s] RCBC bank account, which,
thereafter, continued to be actively maintained and operated. For this reason, We hereby
demand your confirmation that the amount of Php 1,019,514.29 continues to form part of the
funds in the Corporation’s RCBC bank account, since pay-out of said amount was never
ordered. We wish to point out that if there was any attempt on the part of RCBC to consider the
amount indicated in the Manager’s Check separate from the Corporation’s bank account, RCBC
would have issued a statement to that effect, and repeatedly reminded the Corporation that the
deposit would be considered dormant absent any fund movement. Since the Corporation never
received any statements of account from RCBC to that effect, and more importantly, never
received any single letter from RCBC noting the absence of fund movement and advising the
Corporation that the deposit would be treated as dormant."
On April 28, 2008, [Manuel Bakunawa] sent another letter to x x x RCBC reiterating their
position as above-quoted.
In a letter dated May 19, 2008, x x x RCBC replied and informed [Hi-Tri and Spouses
Bakunawa] that:
"The Bank’s Ermita BC informed Hi-Tri and/or its principals regarding the inclusion of Manager’s
Check No. ER034469 in the escheat proceedings docketed as Civil Case No. 06-244, as well as
the status thereof, between 28 January 2008 and 1 February 2008.
x x x x x x x x x
Contrary to what Hi-Tri hopes for, the funds covered by the Manager’s Check No. ER034469
does not form part of the Bank’s own account. By simple operation of law, the funds covered by
the manager’s check in issue became a deposit/credit susceptible for inclusion in the escheat
case initiated by the OSG and/or Bureau of Treasury.
x x x x x x x x x
Granting arguendo that the Bank was duty-bound to make good the check, the Bank’s obligation
to do so prescribed as early as October 2001."
(Emphases, citations, and annotations were omitted.)
The RTC Ruling
The escheat proceedings before the Makati City RTC continued. On 19 May 2008, the trial court
rendered its assailed Decision declaring the deposits, credits, and unclaimed balances subject
of Civil Case No. 06-244 escheated to the Republic. Among those included in the order of
forfeiture was the amount of ₱ 1,019,514.29 held by RCBC as allocated funds intended for the
payment of the Manager’s Check issued in favor of Rosmil. The trial court ordered the deposit of
the escheated balances with the Treasurer and credited in favor of the Republic. Respondents
claim that they were not able to participate in the trial, as they were not informed of the ongoing
escheat proceedings.
Consequently, respondents filed an Omnibus Motion dated 11 June 2008, seeking the partial
reconsideration of the RTC Decision insofar as it escheated the fund allocated for the payment
of the Manager’s Check. They asked that they be included as party-defendants or, in the
alternative, allowed to intervene in the case and their motion considered as an answer-in-
intervention. Respondents argued that they had meritorious grounds to ask reconsideration of
the Decision or, alternatively, to seek intervention in the case. They alleged that the deposit was
subject of an ongoing dispute (Civil Case No. Q-91-10719) between them and Rosmil since
1991, and that they were interested parties to that case.5
On 3 November 2008, the RTC issued an Order denying the motion of respondents. The trial
court explained that the Republic had proven compliance with the requirements of publication
and notice, which served as notice to all those who may be affected and prejudiced by the
Complaint for Escheat. The RTC also found that the motion failed to point out the findings and
conclusions that were not supported by the law or the evidence presented, as required by Rule
37 of the Rules of Court. Finally, it ruled that the alternative prayer to intervene was filed out of
time.
The CA Ruling
On 26 November 2009, the CA issued its assailed Decision reversing the 19 May 2008 Decision
and 3 November 2008 Order of the RTC. According to the appellate court, 6 RCBC failed to
prove that the latter had communicated with the purchaser of the Manager’s Check (Hi-Tri
and/or Spouses Bakunawa) or the designated payee (Rosmil) immediately before the bank filed
its Sworn Statement on the dormant accounts held therein. The CA ruled that the bank’s failure
to notify respondents deprived them of an opportunity to intervene in the escheat proceedings
and to present evidence to substantiate their claim, in violation of their right to due process.
Furthermore, the CA pronounced that the Makati City RTC Clerk of Court failed to issue
individual notices directed to all persons claiming interest in the unclaimed balances, as well as
to require them to appear after publication and show cause why the unclaimed balances should
not be deposited with the Treasurer of the Philippines. It explained that the jurisdictional
requirement of individual notice by personal service was distinct from the requirement of notice
by publication. Consequently, the CA held that the Decision and Order of the RTC were void for
want of jurisdiction.
Issue
After a perusal of the arguments presented by the parties, we cull the main issues as follows:
I. Whether the Decision and Order of the RTC were void for failure to send separate
notices to respondents by personal service
II. Whether petitioner had the obligation to notify respondents immediately before it filed
its Sworn Statement with the Treasurer
III. Whether or not the allocated funds may be escheated in favor of the Republic
Discussion
Petitioner bank assails7 the CA judgments insofar as they ruled that notice by personal service
upon respondents is a jurisdictional requirement in escheat proceedings. Petitioner contends
that respondents were not the owners of the unclaimed balances and were thus not entitled to
notice from the RTC Clerk of Court. It hinges its claim on the theory that the funds represented
by the Manager’s Check were deemed transferred to the credit of the payee or holder upon its
issuance.
We quote the pertinent provision of Act No. 3936, as amended, on the rule on service of
processes, to wit:
Sec. 3. Whenever the Solicitor General shall be informed of such unclaimed balances, he shall
commence an action or actions in the name of the People of the Republic of the Philippines in
the Court of First Instance of the province or city where the bank, building and loan association
or trust corporation is located, in which shall be joined as parties the bank, building and loan
association or trust corporation and all such creditors or depositors. All or any of such creditors
or depositors or banks, building and loan association or trust corporations may be included in
one action. Service of process in such action or actions shall be made by delivery of a copy of
the complaint and summons to the president, cashier, or managing officer of each defendant
bank, building and loan association or trust corporation and by publication of a copy of such
summons in a newspaper of general circulation, either in English, in Filipino, or in a local dialect,
published in the locality where the bank, building and loan association or trust corporation is
situated, if there be any, and in case there is none, in the City of Manila, at such time as the
court may order. Upon the trial, the court must hear all parties who have appeared therein, and
if it be determined that such unclaimed balances in any defendant bank, building and loan
association or trust corporation are unclaimed as hereinbefore stated, then the court shall
render judgment in favor of the Government of the Republic of the Philippines, declaring that
said unclaimed balances have escheated to the Government of the Republic of the Philippines
and commanding said bank, building and loan association or trust corporation to forthwith
deposit the same with the Treasurer of the Philippines to credit of the Government of the
Republic of the Philippines to be used as the National Assembly may direct.
At the time of issuing summons in the action above provided for, the clerk of court shall also
issue a notice signed by him, giving the title and number of said action, and referring to the
complaint therein, and directed to all persons, other than those named as defendants therein,
claiming any interest in any unclaimed balance mentioned in said complaint, and requiring them
to appear within sixty days after the publication or first publication, if there are several, of such
summons, and show cause, if they have any, why the unclaimed balances involved in said
action should not be deposited with the Treasurer of the Philippines as in this Act provided and
notifying them that if they do not appear and show cause, the Government of the Republic of the
Philippines will apply to the court for the relief demanded in the complaint. A copy of said notice
shall be attached to, and published with the copy of, said summons required to be published as
above, and at the end of the copy of such notice so published, there shall be a statement of the
date of publication, or first publication, if there are several, of said summons and notice. Any
person interested may appear in said action and become a party thereto. Upon the publication
or the completion of the publication, if there are several, of the summons and notice, and the
service of the summons on the defendant banks, building and loan associations or trust
corporations, the court shall have full and complete jurisdiction in the Republic of the Philippines
over the said unclaimed balances and over the persons having or claiming any interest in the
said unclaimed balances, or any of them, and shall have full and complete jurisdiction to hear
and determine the issues herein, and render the appropriate judgment thereon. (Emphasis
supplied.)
Hence, insofar as banks are concerned, service of processes is made by delivery of a copy of
the complaint and summons upon the president, cashier, or managing officer of the defendant
bank.8 On the other hand, as to depositors or other claimants of the unclaimed balances, service
is made by publication of a copy of the summons in a newspaper of general circulation in the
locality where the institution is situated.9 A notice about the forthcoming escheat proceedings
must also be issued and published, directing and requiring all persons who may claim any
interest in the unclaimed balances to appear before the court and show cause why the dormant
accounts should not be deposited with the Treasurer.
Accordingly, the CA committed reversible error when it ruled that the issuance of individual
notices upon respondents was a jurisdictional requirement, and that failure to effect personal
service on them rendered the Decision and the Order of the RTC void for want of jurisdiction.
Escheat proceedings are actions in rem,10 whereby an action is brought against the thing itself
instead of the person.11 Thus, an action may be instituted and carried to judgment without
personal service upon the depositors or other claimants.12 Jurisdiction is secured by the power
of the court over the res.13 Consequently, a judgment of escheat is conclusive upon persons
notified by advertisement, as publication is considered a general and constructive notice to all
persons interested.14
Nevertheless, we find sufficient grounds to affirm the CA on the exclusion of the funds allocated
for the payment of the Manager’s Check in the escheat proceedings.
Escheat proceedings refer to the judicial process in which the state, by virtue of its sovereignty,
steps in and claims abandoned, left vacant, or unclaimed property, without there being an
interested person having a legal claim thereto.15 In the case of dormant accounts, the state
inquires into the status, custody, and ownership of the unclaimed balance to determine whether
the inactivity was brought about by the fact of death or absence of or abandonment by the
depositor.16 If after the proceedings the property remains without a lawful owner interested to
claim it, the property shall be reverted to the state "to forestall an open invitation to self-service
by the first comers."17 However, if interested parties have come forward and lain claim to the
property, the courts shall determine whether the credit or deposit should pass to the claimants
or be forfeited in favor of the state.18 We emphasize that escheat is not a proceeding to penalize
depositors for failing to deposit to or withdraw from their accounts. It is a proceeding whereby
the state compels the surrender to it of unclaimed deposit balances when there is substantial
ground for a belief that they have been abandoned, forgotten, or without an owner.19
Act No. 3936, as amended, outlines the proper procedure to be followed by banks and other
similar institutions in filing a sworn statement with the Treasurer concerning dormant accounts:
Sec. 2. Immediately after the taking effect of this Act and within the month of January of every
odd year, all banks, building and loan associations, and trust corporations shall forward to the
Treasurer of the Philippines a statement, under oath, of their respective managing officers, of all
credits and deposits held by them in favor of persons known to be dead, or who have not made
further deposits or withdrawals during the preceding ten years or more, arranged in alphabetical
order according to the names of creditors and depositors, and showing:
(a) The names and last known place of residence or post office addresses of the
persons in whose favor such unclaimed balances stand;
(b) The amount and the date of the outstanding unclaimed balance and whether the
same is in money or in security, and if the latter, the nature of the same;
(c) The date when the person in whose favor the unclaimed balance stands died, if
known, or the date when he made his last deposit or withdrawal; and
(d) The interest due on such unclaimed balance, if any, and the amount thereof.
A copy of the above sworn statement shall be posted in a conspicuous place in the premises of
the bank, building and loan association, or trust corporation concerned for at least sixty days
from the date of filing thereof: Provided, That immediately before filing the above sworn
statement, the bank, building and loan association, and trust corporation shall communicate with
the person in whose favor the unclaimed balance stands at his last known place of residence or
post office address.
It shall be the duty of the Treasurer of the Philippines to inform the Solicitor General from time to
time the existence of unclaimed balances held by banks, building and loan associations, and
trust corporations. (Emphasis supplied.)
As seen in the afore-quoted provision, the law sets a detailed system for notifying depositors of
unclaimed balances. This notification is meant to inform them that their deposit could be
escheated if left unclaimed. Accordingly, before filing a sworn statement, banks and other
similar institutions are under obligation to communicate with owners of dormant accounts. The
purpose of this initial notice is for a bank to determine whether an inactive account has indeed
been unclaimed, abandoned, forgotten, or left without an owner. If the depositor simply does not
wish to touch the funds in the meantime, but still asserts ownership and dominion over the
dormant account, then the bank is no longer obligated to include the account in its sworn
statement.20 It is not the intent of the law to force depositors into unnecessary litigation and
defense of their rights, as the state is only interested in escheating balances that have been
abandoned and left without an owner.
In case the bank complies with the provisions of the law and the unclaimed balances are
eventually escheated to the Republic, the bank "shall not thereafter be liable to any person for
the same and any action which may be brought by any person against in any bank xxx for
unclaimed balances so deposited xxx shall be defended by the Solicitor General without cost to
such bank."21 Otherwise, should it fail to comply with the legally outlined procedure to the
prejudice of the depositor, the bank may not raise the defense provided under Section 5 of Act
No. 3936, as amended.
Petitioner asserts22 that the CA committed a reversible error when it required RCBC to send
prior notices to respondents about the forthcoming escheat proceedings involving the funds
allocated for the payment of the Manager’s Check. It explains that, pursuant to the law, only
those "whose favor such unclaimed balances stand" are entitled to receive notices. Petitioner
argues that, since the funds represented by the Manager’s Check were deemed transferred to
the credit of the payee upon issuance of the check, the proper party entitled to the notices was
the payee – Rosmil – and not respondents. Petitioner then contends that, in any event, it is not
liable for failing to send a separate notice to the payee, because it did not have the address of
Rosmil. Petitioner avers that it was not under any obligation to record the address of the payee
of a Manager’s Check.
In contrast, respondents Hi-Tri and Bakunawa allege23 that they have a legal interest in the fund
allocated for the payment of the Manager’s Check. They reason that, since the funds were part
of the Compromise Agreement between respondents and Rosmil in a separate civil case, the
approval and eventual execution of the agreement effectively reverted the fund to the credit of
respondents. Respondents further posit that their ownership of the funds was evidenced by their
continued custody of the Manager’s Check.
An ordinary check refers to a bill of exchange drawn by a depositor (drawer) on a bank

(drawee),24 requesting the latter to pay a person named therein (payee) or to the order of the
payee or to the bearer, a named sum of money. 25 The issuance of the check does not of itself
operate as an assignment of any part of the funds in the bank to the credit of the drawer. 26 Here,
the bank becomes liable only after it accepts or certifies the check. 27 After the check is accepted
for payment, the bank would then debit the amount to be paid to the holder of the check from
the account of the depositor-drawer.
There are checks of a special type called manager’s or cashier’s checks. These are bills of
exchange drawn by the bank’s manager or cashier, in the name of the bank, against the bank
itself.28 Typically, a manager’s or a cashier’s check is procured from the bank by allocating a
particular amount of funds to be debited from the depositor’s account or by directly paying or
depositing to the bank the value of the check to be drawn. Since the bank issues the check in its
name, with itself as the drawee, the check is deemed accepted in advance. 29 Ordinarily, the
check becomes the primary obligation of the issuing bank and constitutes its written promise to
pay upon demand.30
Nevertheless, the mere issuance of a manager’s check does not ipso facto work as an
automatic transfer of funds to the account of the payee. In case the procurer of the manager’s or
cashier’s check retains custody of the instrument, does not tender it to the intended payee, or
fails to make an effective delivery, we find the following provision on undelivered instruments
under the Negotiable Instruments Law applicable:31
Sec. 16. Delivery; when effectual; when presumed. – Every contract on a negotiable instrument
is incomplete and revocable until delivery of the instrument for the purpose of giving effect
thereto. As between immediate parties and as regards a remote party other than a holder in due
course, the delivery, in order to be effectual, must be made either by or under the authority of
the party making, drawing, accepting, or indorsing, as the case may be; and, in such case, the
delivery may be shown to have been conditional, or for a special purpose only, and not for the
purpose of transferring the property in the instrument. But where the instrument is in the hands
of a holder in due course, a valid delivery thereof by all parties prior to him so as to make them
liable to him is conclusively presumed. And where the instrument is no longer in the possession
of a party whose signature appears thereon, a valid and intentional delivery by him is presumed
until the contrary is proved. (Emphasis supplied.)
Petitioner acknowledges that the Manager’s Check was procured by respondents, and that the
amount to be paid for the check would be sourced from the deposit account of Hi-Tri. 32 When
Rosmil did not accept the Manager’s Check offered by respondents, the latter retained custody
of the instrument instead of cancelling it. As the Manager’s Check neither went to the hands of
Rosmil nor was it further negotiated to other persons, the instrument remained undelivered.
Petitioner does not dispute the fact that respondents retained custody of the instrument.33
Since there was no delivery, presentment of the check to the bank for payment did not occur.
An order to debit the account of respondents was never made. In fact, petitioner confirms that
the Manager’s Check was never negotiated or presented for payment to its Ermita Branch, and
that the allocated fund is still held by the bank.34 As a result, the assigned fund is deemed to
remain part of the account of Hi-Tri, which procured the Manager’s Check. The doctrine that the
deposit represented by a manager’s check automatically passes to the payee is inapplicable,
because the instrument – although accepted in advance – remains undelivered. Hence,
respondents should have been informed that the deposit had been left inactive for more than 10
years, and that it may be subjected to escheat proceedings if left unclaimed.1âwphi1
After a careful review of the RTC records, we find that it is no longer necessary to remand the
case for hearing to determine whether the claim of respondents was valid. There was no
contention that they were the procurers of the Manager’s Check. It is undisputed that there was
no effective delivery of the check, rendering the instrument incomplete. In addition, we have
already settled that respondents retained ownership of the funds. As it is obvious from their
foregoing actions that they have not abandoned their claim over the fund, we rule that the
allocated deposit, subject of the Manager’s Check, should be excluded from the escheat
proceedings. We reiterate our pronouncement that the objective of escheat proceedings is state
forfeiture of unclaimed balances. We further note that there is nothing in the records that would
show that the OSG appealed the assailed CA judgments. We take this failure to appeal as an
indication of disinterest in pursuing the escheat proceedings in favor of the Republic.
WHEREFORE the Petition is DENIED. The 26 November 2009 Decision and 27 May 2010
Resolution of the Court of Appeals in CA-G.R. SP No. 107261 are hereby AFFIRMED.
SO ORDERED.
VICENTE R. DE OCAMPO & CO., plaintiff-appellee,

vs.
ANITA GATCHALIAN, ET AL., defendants-appellants.
Vicente Formoso, Jr. for plaintiff-appellee.

Reyes and Pangalañgan for defendants-appellants.
LABRADOR, J.:
Appeal from a judgment of the Court of First Instance of Manila, Hon. Conrado M. Velasquez,
presiding, sentencing the defendants to pay the plaintiff the sum of P600, with legal interest from
September 10, 1953 until paid, and to pay the costs.
The action is for the recovery of the value of a check for P600 payable to the plaintiff and drawn by
defendant Anita C. Gatchalian. The complaint sets forth the check and alleges that plaintiff received
it in payment of the indebtedness of one Matilde Gonzales; that upon receipt of said check, plaintiff
gave Matilde Gonzales P158.25, the difference between the face value of the check and Matilde
Gonzales' indebtedness. The defendants admit the execution of the check but they allege in their
answer, as affirmative defense, that it was issued subject to a condition, which was not fulfilled, and
that plaintiff was guilty of gross negligence in not taking steps to protect itself.
At the time of the trial, the parties submitted a stipulation of facts, which reads as follows:
Plaintiff and defendants through their respective undersigned attorney's respectfully submit
the following Agreed Stipulation of Facts;
First. — That on or about 8 September 1953, in the evening, defendant Anita C. Gatchalian
who was then interested in looking for a car for the use of her husband and the family, was
shown and offered a car by Manuel Gonzales who was accompanied by Emil Fajardo, the
latter being personally known to defendant Anita C. Gatchalian;
Second. — That Manuel Gonzales represented to defend Anita C. Gatchalian that he was
duly authorized by the owner of the car, Ocampo Clinic, to look for a buyer of said car and to
negotiate for and accomplish said sale, but which facts were not known to plaintiff;
Third. — That defendant Anita C. Gatchalian, finding the price of the car quoted by Manuel
Gonzales to her satisfaction, requested Manuel Gonzales to bring the car the day following
together with the certificate of registration of the car, so that her husband would be able to
see same; that on this request of defendant Anita C. Gatchalian, Manuel Gonzales advised
her that the owner of the car will not be willing to give the certificate of registration unless
there is a showing that the party interested in the purchase of said car is ready and willing to
make such purchase and that for this purpose Manuel Gonzales requested defendant Anita
C. Gatchalian to give him (Manuel Gonzales) a check which will be shown to the owner as
evidence of buyer's good faith in the intention to purchase the said car, the said check to be
for safekeeping only of Manuel Gonzales and to be returned to defendant Anita C.
Gatchalian the following day when Manuel Gonzales brings the car and the certificate of
registration, but which facts were not known to plaintiff;
Fourth. — That relying on these representations of Manuel Gonzales and with his assurance
that said check will be only for safekeeping and which will be returned to said defendant the
following day when the car and its certificate of registration will be brought by Manuel
Gonzales to defendants, but which facts were not known to plaintiff, defendant Anita C.
Gatchalian drew and issued a check, Exh. "B"; that Manuel Gonzales executed and issued a
receipt for said check, Exh. "1";
Fifth. — That on the failure of Manuel Gonzales to appear the day following and on his
failure to bring the car and its certificate of registration and to return the check, Exh. "B", on
the following day as previously agreed upon, defendant Anita C. Gatchalian issued a "Stop
Payment Order" on the check, Exh. "3", with the drawee bank. Said "Stop Payment Order"
was issued without previous notice on plaintiff not being know to defendant, Anita C.
Gatchalian and who furthermore had no reason to know check was given to plaintiff;
Sixth. — That defendants, both or either of them, did not know personally Manuel Gonzales
or any member of his family at any time prior to September 1953, but that defendant Hipolito
Gatchalian is personally acquainted with V. R. de Ocampo;
Seventh. — That defendants, both or either of them, had no arrangements or agreement

with the Ocampo Clinic at any time prior to, on or after 9 September 1953 for the
hospitalization of the wife of Manuel Gonzales and neither or both of said defendants had
assumed, expressly or impliedly, with the Ocampo Clinic, the obligation of Manuel Gonzales
or his wife for the hospitalization of the latter;
Eight. — That defendants, both or either of them, had no obligation or liability, directly or
indirectly with the Ocampo Clinic before, or on 9 September 1953;
Ninth. — That Manuel Gonzales having received the check Exh. "B" from defendant Anita C.
Gatchalian under the representations and conditions herein above specified, delivered the
same to the Ocampo Clinic, in payment of the fees and expenses arising from the
hospitalization of his wife;
Tenth. — That plaintiff for and in consideration of fees and expenses of hospitalization and
the release of the wife of Manuel Gonzales from its hospital, accepted said check, applying
P441.75 (Exhibit "A") thereof to payment of said fees and expenses and delivering to Manuel
Gonzales the amount of P158.25 (as per receipt, Exhibit "D") representing the balance on
the amount of the said check, Exh. "B";
Eleventh. — That the acts of acceptance of the check and application of its proceeds in the
manner specified above were made without previous inquiry by plaintiff from defendants:
Twelfth. — That plaintiff filed or caused to be filed with the Office of the City Fiscal of Manila,
a complaint for estafa against Manuel Gonzales based on and arising from the acts of said
Manuel Gonzales in paying his obligations with plaintiff and receiving the cash balance of the
check, Exh. "B" and that said complaint was subsequently dropped;
Thirteenth. — That the exhibits mentioned in this stipulation and the other exhibits submitted
previously, be considered as parts of this stipulation, without necessity of formally offering
them in evidence;
WHEREFORE, it is most respectfully prayed that this agreed stipulation of facts be admitted
and that the parties hereto be given fifteen days from today within which to submit
simultaneously their memorandum to discuss the issues of law arising from the facts,
reserving to either party the right to submit reply memorandum, if necessary, within ten days
from receipt of their main memoranda. (pp. 21-25, Defendant's Record on Appeal).
No other evidence was submitted and upon said stipulation the court rendered the judgment already
alluded above.
In their appeal defendants-appellants contend that the check is not a negotiable instrument, under
the facts and circumstances stated in the stipulation of facts, and that plaintiff is not a holder in due
course. In support of the first contention, it is argued that defendant Gatchalian had no intention to
transfer her property in the instrument as it was for safekeeping merely and, therefore, there was no
delivery required by law (Section 16, Negotiable Instruments Law); that assuming for the sake of
argument that delivery was not for safekeeping merely, delivery was conditional and the condition
was not fulfilled.
In support of the contention that plaintiff-appellee is not a holder in due course, the appellant argues
that plaintiff-appellee cannot be a holder in due course because there was no negotiation prior to
plaintiff-appellee's acquiring the possession of the check; that a holder in due course presupposes a
prior party from whose hands negotiation proceeded, and in the case at bar, plaintiff-appellee is the
payee, the maker and the payee being original parties. It is also claimed that the plaintiff-appellee is
not a holder in due course because it acquired the check with notice of defect in the title of the
holder, Manuel Gonzales, and because under the circumstances stated in the stipulation of facts
there were circumstances that brought suspicion about Gonzales' possession and negotiation, which
circumstances should have placed the plaintiff-appellee under the duty, to inquire into the title of the
holder. The circumstances are as follows:
The check is not a personal check of Manuel Gonzales. (Paragraph Ninth, Stipulation of
Facts). Plaintiff could have inquired why a person would use the check of another to pay his
own debt. Furthermore, plaintiff had the "means of knowledge" inasmuch as defendant
Hipolito Gatchalian is personally acquainted with V. R. de Ocampo (Paragraph Sixth,
Stipulation of Facts.).
The maker Anita C. Gatchalian is a complete stranger to Manuel Gonzales and Dr. V. R. de
Ocampo (Paragraph Sixth, Stipulation of Facts).
The maker is not in any manner obligated to Ocampo Clinic nor to Manuel Gonzales. (Par. 7,
Stipulation of Facts.)
The check could not have been intended to pay the hospital fees which amounted only to
P441.75. The check is in the amount of P600.00, which is in excess of the amount due
plaintiff. (Par. 10, Stipulation of Facts).
It was necessary for plaintiff to give Manuel Gonzales change in the sum P158.25 (Par. 10,
Stipulation of Facts). Since Manuel Gonzales is the party obliged to pay, plaintiff should have
been more cautious and wary in accepting a piece of paper and disbursing cold cash.
The check is payable to bearer. Hence, any person who holds it should have been subjected
to inquiries. EVEN IN A BANK, CHECKS ARE NOT CASHED WITHOUT INQUIRY FROM
THE BEARER. The same inquiries should have been made by plaintiff. (Defendants-
appellants' brief, pp. 52-53)
Answering the first contention of appellant, counsel for plaintiff-appellee argues that in accordance
with the best authority on the Negotiable Instruments Law, plaintiff-appellee may be considered as a
holder in due course, citing Brannan's Negotiable Instruments Law, 6th edition, page 252. On this
issue Brannan holds that a payee may be a holder in due course and says that to this effect is the
greater weight of authority, thus:
Whether the payee may be a holder in due course under the N. I. L., as he was at common
law, is a question upon which the courts are in serious conflict. There can be no doubt that a
proper interpretation of the act read as a whole leads to the conclusion that a payee may be
a holder in due course under any circumstance in which he meets the requirements of Sec.
52.
The argument of Professor Brannan in an earlier edition of this work has never been
successfully answered and is here repeated.
Section 191 defines "holder" as the payee or indorsee of a bill or note, who is in possession
of it, or the bearer thereof. Sec. 52 defendants defines a holder in due course as "a holder
who has taken the instrument under the following conditions: 1. That it is complete and
regular on its face. 2. That he became the holder of it before it was overdue, and without
notice that it had been previously dishonored, if such was the fact. 3. That he took it in good
faith and for value. 4. That at the time it was negotiated to him he had no notice of any
infirmity in the instrument or defect in the title of the person negotiating it."
Since "holder", as defined in sec. 191, includes a payee who is in possession the word
holder in the first clause of sec. 52 and in the second subsection may be replaced by the
definition in sec. 191 so as to read "a holder in due course is a payee or indorsee who is in
possession," etc. (Brannan's on Negotiable Instruments Law, 6th ed., p. 543).
The first argument of the defendants-appellants, therefore, depends upon whether or not the
plaintiff-appellee is a holder in due course. If it is such a holder in due course, it is immaterial that it
was the payee and an immediate party to the instrument.
The other contention of the plaintiff is that there has been no negotiation of the instrument, because
the drawer did not deliver the instrument to Manuel Gonzales with the intention of negotiating the
same, or for the purpose of giving effect thereto, for as the stipulation of facts declares the check
was to remain in the possession Manuel Gonzales, and was not to be negotiated, but was to serve
merely as evidence of good faith of defendants in their desire to purchase the car being sold to
them. Admitting that such was the intention of the drawer of the check when she delivered it to
Manuel Gonzales, it was no fault of the plaintiff-appellee drawee if Manuel Gonzales delivered the
check or negotiated it. As the check was payable to the plaintiff-appellee, and was entrusted to
Manuel Gonzales by Gatchalian, the delivery to Manuel Gonzales was a delivery by the drawer to
his own agent; in other words, Manuel Gonzales was the agent of the drawer Anita Gatchalian
insofar as the possession of the check is concerned. So, when the agent of drawer Manuel
Gonzales negotiated the check with the intention of getting its value from plaintiff-appellee,
negotiation took place through no fault of the plaintiff-appellee, unless it can be shown that the
plaintiff-appellee should be considered as having notice of the defect in the possession of the holder
Manuel Gonzales. Our resolution of this issue leads us to a consideration of the last question
presented by the appellants, i.e., whether the plaintiff-appellee may be considered as a holder in due
course.
Section 52, Negotiable Instruments Law, defines holder in due course, thus:
A holder in due course is a holder who has taken the instrument under the following
conditions:
(b) That he became the holder of it before it was overdue, and without notice that it had been
(d) That at the time it was negotiated to him he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it.
The stipulation of facts expressly states that plaintiff-appellee was not aware of the circumstances
under which the check was delivered to Manuel Gonzales, but we agree with the defendants-
appellants that the circumstances indicated by them in their briefs, such as the fact that appellants
had no obligation or liability to the Ocampo Clinic; that the amount of the check did not correspond
exactly with the obligation of Matilde Gonzales to Dr. V. R. de Ocampo; and that the check had two
parallel lines in the upper left hand corner, which practice means that the check could only be
deposited but may not be converted into cash — all these circumstances should have put the
plaintiff-appellee to inquiry as to the why and wherefore of the possession of the check by Manuel
Gonzales, and why he used it to pay Matilde's account. It was payee's duty to ascertain from the
holder Manuel Gonzales what the nature of the latter's title to the check was or the nature of his
possession. Having failed in this respect, we must declare that plaintiff-appellee was guilty of gross
neglect in not finding out the nature of the title and possession of Manuel Gonzales, amounting to
legal absence of good faith, and it may not be considered as a holder of the check in good faith. To
such effect is the consensus of authority.
In order to show that the defendant had "knowledge of such facts that his action in taking the
instrument amounted to bad faith," it is not necessary to prove that the defendant knew the
exact fraud that was practiced upon the plaintiff by the defendant's assignor, it being
sufficient to show that the defendant had notice that there was something wrong about his
assignor's acquisition of title, although he did not have notice of the particular wrong that was
committed. Paika v. Perry, 225 Mass. 563, 114 N.E. 830.
It is sufficient that the buyer of a note had notice or knowledge that the note was in some
way tainted with fraud. It is not necessary that he should know the particulars or even the
nature of the fraud, since all that is required is knowledge of such facts that his action in
taking the note amounted bad faith. Ozark Motor Co. v. Horton (Mo. App.), 196 S.W. 395.
Accord. Davis v. First Nat. Bank, 26 Ariz. 621, 229 Pac. 391.
Liberty bonds stolen from the plaintiff were brought by the thief, a boy fifteen years old, less
than five feet tall, immature in appearance and bearing on his face the stamp a degenerate,
to the defendants' clerk for sale. The boy stated that they belonged to his mother. The
defendants paid the boy for the bonds without any further inquiry. Held, the plaintiff could
recover the value of the bonds. The term 'bad faith' does not necessarily involve furtive
motives, but means bad faith in a commercial sense. The manner in which the defendants
conducted their Liberty Loan department provided an easy way for thieves to dispose of their
plunder. It was a case of "no questions asked." Although gross negligence does not of itself
constitute bad faith, it is evidence from which bad faith may be inferred. The circumstances
thrust the duty upon the defendants to make further inquiries and they had no right to shut
their eyes deliberately to obvious facts. Morris v. Muir, 111 Misc. Rep. 739, 181 N.Y. Supp.
913, affd. in memo., 191 App. Div. 947, 181 N.Y. Supp. 945." (pp. 640-642, Brannan's
Negotiable Instruments Law, 6th ed.).
The above considerations would seem sufficient to justify our ruling that plaintiff-appellee should not
be allowed to recover the value of the check. Let us now examine the express provisions of the
Negotiable Instruments Law pertinent to the matter to find if our ruling conforms thereto. Section 52
(c) provides that a holder in due course is one who takes the instrument "in good faith and for value;"
Section 59, "that every holder is deemed prima facie to be a holder in due course;" and Section 52
(d), that in order that one may be a holder in due course it is necessary that "at the time the
instrument was negotiated to him "he had no notice of any . . . defect in the title of the person
negotiating it;" and lastly Section 59, that every holder is deemed prima facieto be a holder in due
course.
In the case at bar the rule that a possessor of the instrument is prima faciea holder in due course
does not apply because there was a defect in the title of the holder (Manuel Gonzales), because the
instrument is not payable to him or to bearer. On the other hand, the stipulation of facts indicated by
the appellants in their brief, like the fact that the drawer had no account with the payee; that the
holder did not show or tell the payee why he had the check in his possession and why he was using
it for the payment of his own personal account — show that holder's title was defective or suspicious,
to say the least. As holder's title was defective or suspicious, it cannot be stated that the payee
acquired the check without knowledge of said defect in holder's title, and for this reason the
presumption that it is a holder in due course or that it acquired the instrument in good faith does not
exist. And having presented no evidence that it acquired the check in good faith, it (payee) cannot be
considered as a holder in due course. In other words, under the circumstances of the case, instead
of the presumption that payee was a holder in good faith, the fact is that it acquired possession of
the instrument under circumstances that should have put it to inquiry as to the title of the holder who
negotiated the check to it. The burden was, therefore, placed upon it to show that notwithstanding
the suspicious circumstances, it acquired the check in actual good faith.
The rule applicable to the case at bar is that described in the case of Howard National Bank v.
Wilson, et al., 96 Vt. 438, 120 At. 889, 894, where the Supreme Court of Vermont made the following
disquisition:
Prior to the Negotiable Instruments Act, two distinct lines of cases had developed in this
country. The first had its origin in Gill v. Cubitt, 3 B. & C. 466, 10 E. L. 215, where the rule
was distinctly laid down by the court of King's Bench that the purchaser of negotiable paper
must exercise reasonable prudence and caution, and that, if the circumstances were such as
ought to have excited the suspicion of a prudent and careful man, and he made no inquiry,
he did not stand in the legal position of a bona fide holder. The rule was adopted by the
courts of this country generally and seem to have become a fixed rule in the law of
negotiable paper. Later in Goodman v. Harvey, 4 A. & E. 870, 31 E. C. L. 381, the English
court abandoned its former position and adopted the rule that nothing short of actual bad
faith or fraud in the purchaser would deprive him of the character of a bona fide purchaser
and let in defenses existing between prior parties, that no circumstances of suspicion merely,
or want of proper caution in the purchaser, would have this effect, and that even gross
negligence would have no effect, except as evidence tending to establish bad faith or fraud.
Some of the American courts adhered to the earlier rule, while others followed the change
inaugurated in Goodman v. Harvey. The question was before this court in Roth v. Colvin, 32
Vt. 125, and, on full consideration of the question, a rule was adopted in harmony with that
announced in Gill v. Cubitt, which has been adhered to in subsequent cases, including those
cited above. Stated briefly, one line of cases including our own had adopted the test of the
reasonably prudent man and the other that of actual good faith. It would seem that it was the
intent of the Negotiable Instruments Act to harmonize this disagreement by adopting the
latter test. That such is the view generally accepted by the courts appears from a recent
review of the cases concerning what constitutes notice of defect. Brannan on Neg. Ins. Law,
187-201. To effectuate the general purpose of the act to make uniform the Negotiable
Instruments Law of those states which should enact it, we are constrained to hold (contrary
to the rule adopted in our former decisions) that negligence on the part of the plaintiff, or
suspicious circumstances sufficient to put a prudent man on inquiry, will not of themselves
prevent a recovery, but are to be considered merely as evidence bearing on the question of
bad faith. See G. L. 3113, 3172, where such a course is required in construing other uniform
acts.
It comes to this then: When the case has taken such shape that the plaintiff is called upon to
prove himself a holder in due course to be entitled to recover, he is required to establish the
conditions entitling him to standing as such, including good faith in taking the instrument. It
devolves upon him to disclose the facts and circumstances attending the transfer, from which
good or bad faith in the transaction may be inferred.
In the case at bar as the payee acquired the check under circumstances which should have put it to
inquiry, why the holder had the check and used it to pay his own personal account, the duty
devolved upon it, plaintiff-appellee, to prove that it actually acquired said check in good faith. The
stipulation of facts contains no statement of such good faith, hence we are forced to the conclusion
that plaintiff payee has not proved that it acquired the check in good faith and may not be deemed a
holder in due course thereof.
For the foregoing considerations, the decision appealed from should be, as it is hereby, reversed,
and the defendants are absolved from the complaint. With costs against plaintiff-appellee.

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METROPOLITAN BANK AND TRUST COMPANY,

G.R. No. 235565, June 20, 2018

BANK OF COMMERCE, Petitioner, v. JUNNEL'S MARKETING CORPORATION,

The facts are as follows:

Respondent Junnel's Marketing Corporation (JMC) is a domestic corporation engaged in the

Checks Payable to the Order of Jardine:

1. Check No. 3010048953 - issued on 11 October 1998 in the amount of P181,440.00

2. Check No. 3010048955 - issued on 24 October 1998 in the amount of P195,840.00

3. Check No. 3010069098 - issued on 18 May 1999 in the amount of P58,164.56

4. Check No. 3010069099 - issued on 18 May 1999 in the amount of P44,651.52

5. Check No. 3010049551 - issued on 25 May 1999 in the amount of P103,680.00

6. Check No. 3010049550 - issued on 30 May 1999 in the amount of P103,680.00

Checks Payable to the Order of Premiere:

1. Check No. 3010049149 - issued on 9 December 1998 in the amount of P136,220.00

2. Check No. 3010049148 - issued on 16 December 1998 in the amount of P136,220.00

3. Check No. 3010049410 - issued on 18 April 1999 in the amount of P189,336.00.

4. Check No. 3010049150 - issued on 27 November 1998 in the amount of P136,220.00

Meanwhile, on 30 April 2000, respondent Purificacion Delizo (Delizo), a former accountant of

4. Costs against [Bankcom] and Metrobank.

Metrobank's cross-claim against [Bankcom] is DISMISSED, both being negligent.

In view of the comparative negligence of Bankcom and Metrobank, they should be held

The Rule on Sequence of Recovery in Cases of Unauthorized Payment of Checks; The

Metrobank is Liable to JMC

We are not convinced.

Bankcom is Liable to Metrobank

Doctrine of Comparative Negligence Does Not Apply to the Instant Case

I. When an obligation, regardless of its source, i.e., law, contracts, quasicontracts, delicts or

1. When the obligation is breached, and it consists in the payment of a sum of

Under these circumstances, we find it proper to subject Metrobank's principal liability to

Accordingly, we find it proper to subject Bankcom's principal liability to Metrobank to a

G.R. No. 219037, October 19, 2016

RCBC SAVINGS BANK, Petitioner, v. NOEL M. ODRADA, Respondent.

Mr. Noel M. Odrada

Thru: Shan Mendez;.

Dear Mr. Odrada,

Cc: Dario E. Santiago, RCBC loan

The Regional Trial Court's Ruling

The dispositive portion of the Decision reads:

RCBC and Lim appealed from the trial court's decision.

The Court of Appeals' Ruling

The dispositive portion of the Decision reads:

RCBC presented the following, issues in this petition:

Odrada failed to file a comment31 within the period prescribed by this Court.32chanrobleslaw

The Ruling of this Court

We grant the petition.

In Supercars Management & Development Corporation v. Flores,38 we held that a breach of

RCBC May Refuse to Pay Manager's Checks

Similarly, in Rizal Commercial Banking Corporation v. Hi-Tri Development Corporation,55 the

Our rulings in Mesina v. Intermediate Appellate Court59 and United Coconut Planters Bank v.

(c) That he took it in good faith and for value;

WHEREFORE, we GRANT the petition. We REVERSE and SET ASIDE the 26 March 2014

PHILIPPINE NATIONAL BANK, Petitioner,

G.R. No. 170892

SPOUSES CHEAH CHEE CHONG and OFELIA CAMACHO CHEAH, Petitioners,

These consolidated1 Petitions for Review on Certiorari filed by the Philippine National Bank

Ruling of the Regional Trial Court

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff

No other award of damages for non[e] has been proven.

Ruling of the Court of Appeals

Hence, these Petitions for Review on Certiorari.

"Contributory negligence is conduct on the part of the injured party,

VICENTE GO, Petitioner, v. METROPOLITAN BANK AND TRUST CO., Respondent.

CHECK NO. DATE AMOUNT