Form and Interpretation Class Digest (Sept.

2, 2020)

Lozano vs. Martinez, 146 SCRA 323 3

Firestone Tire & Rubber Company of the Philippines vs. Court of Appeals and Luzon Development
Bank, G.R. No. 113236 March 5, 2001 6

Consolidated Plywood Industries, Inc., et al. vs. IFC Leasing and Acceptance Corporation, G.R. No.
72593 April 30, 1987 7

Government Service Insurance System vs. CA and Racho, 170 SCRA 533 (1989) 9

Salas vs. CA, et al., 181 SCRA 296 (1990) 11

Caltex [Phil.], Inc. vs. CA, 212 SCRA 448 (1992) 12

Traders Royal Bank vs. CA, et al., G.R. No. 93397 March 3, 1997 13

Juan Casabuena vs. CA, et al., G.R. No. 115410 February 27, 1998 14

Rivera vs. Spouses Chua, G.R. No. 184458 January 14, 2015 16

Nicolas and Matias vs. Matias, et al., G.R. No. L-8093 October 29, 1955 19

Republic Resources and Development Corporation vs. CA, et al., G.R. No. L- 33438 October 28, 1991 20

Metropolitan Bank & Trust Company vs. CA, et al., G.R. No. 88866 February 18, 1991 22

Ponce de Leon vs. Rehabilitation Finance Corporation, et al., G.R. No. L- 24571 December 18, 1970 24

Consolidated Plywood Industries, Inc., et al. vs. IFC Leasing and Acceptance Corporation, G.R. No.
72593 April 30, 1987 26

Philippine National Bank vs. Rodriguez, et al., 566 SCRA 513 (2008) 29

People vs. Wagas, 705 SCRA 17 (2013) 30

Pacifica Jimenez vs. Dr. Jose Bucoy, G.R. No. L-10221 February 28, 1958 31

Borromeo v. Sun, 317 SCRA 176 32

Pacheco v. CA, G.R. No. 126670, December 2, 1999 33

People vs. Yabut, G.R. No. L-42847 April 29, 1977 34

People vs. Gorospe, G.R. No. L-74053-54 January 20, 1988 35

State Investment House, Inc. vs. CA and Nora Moulic, G.R. No. 101163 January 11, 1993 36

Development Bank of Rizal v. Wei, et al., 219 SCRA 736 (March 9, 1993) 38

De La Victoria v. Burgos, G.R. No. 111190 June 27, 1995 39

Lim v. CA, G.R. No. 107898 December 19, 1995 40

RCBC v. Hi-Tri Development Corporation, et al., G.R. No. 192413 June 13, 2012 41

PNB v. Concepcion Mining Co., Inc., G.R. No. L-16968, July 31, 1962 42

1
Republic Planters Bank v. CA, G.R. No. 93073 December 21, 1992 43

The Philippine Bank of Commerce v. Aruego, G.R. Nos. L-25836-37 January 31, 1981 44

Republic Planters Bank v. CA, G.R. No. 93073 December 21, 1992 45

Chiang Yia Min v. CA, RCBC, et al., G.R. No. 137932 March 28, 2001 46

Philippine National Bank v. Quimpo, et al., G.R. No. L-53194 March 14, 1988 47

Gempesaw v. CA and PBCom, G.R. No. 92244 February 9, 1993 49

Associated Bank v. Court of Appeals, et al., G.R. No. 107382 January 31, 1996 50

Francisco v. Court of Appeals, et al., G.R. No. 116320 November 29, 1999 51

Samsung Construction Company Philippines, Inc. v. Far East Bank and Trust Company and CA, G.R.
No. 129015 August 13, 2004 52

2
Lozano vs. Martinez, 146 SCRA 323
Topic

Checks as a money substitute; the issuance of a bouncing check destroys the integrity of the banking system.

Recit Ready Synopsis

This is a consolidation of a number of cases assailing the constitutionality of BP 22 (Bouncing check law) on the ground
that it is against the constitutional provision prohibiting imprisonment for debt.

The Court upheld the constitutionality of BP 22 because what it is penalizing is the act of creating the useless check
and not the non-payment of debts, and is thus constitutional. The Court noted the importance of a check as a
convenient substitute for currency in commercial and financial transactions, and how it is inimical to public interest to
destroy the integrity of the banking system by issuing bouncing or worthless checks.

BP 22 seeks to protect the integrity of the banking system which includes the issuance of checks. On its face value a
check should be respected and should be as good as money, but not real tender. When you issue bouncing checks
it tends to demine, delimit, and demean the integrity of the checks and thereby demeaning the integrity of the
banking system.

Relevant Provisions / Concepts / Doctrines

Check
- A bill of exchange drawn on a bank and payable on demand
- A written order on a bank, purporting it to be drawn against a deposit of funds for the payment of all events, of
a sum of money to a certain person therein named or to his order or to cash and payable on demand
- It is not like a mere promissory note (just an undertaking to pay an amount of money) because it partakes of the
representation that the drawer has funds on deposit sufficient to ensure payment upon its presentation to the
bank
- There is an element of certainty or assurance that the instrument will be paid upon presentation

FACTS

This is a collection of eight cases involving prosecution of offenses under Batas Pambansa Bilang 22 or the Bouncing
Check Law. The defendants in these cases moved to quash the Informations against them on the ground that the acts
charged under BP 22 did not constitute an offense, claiming that the statute is unconstitutional.

Under BP 22:
- It punishes a person "who makes or draws and issues any check on account or for value, knowing at the time
of issue that he does not have sufficient funds in or credit with the drawee bank for the payment of said check
in full upon presentment, which check is subsequently dishonored by the drawee bank for insufficiency of funds
or credit or would have been dishonored for the same reason had not the drawer, without any valid reason,
ordered the bank to stop payment."

- It also penalizes "any person who, having sufficient funds in or credit with the drawee bank when he makes or
draws and issues a check, shall fail to keep sufficient funds or to maintain a credit to cover the full amount of
the check if presented within a period of ninety (90) days from the date appearing thereon, for which reason it is
dishonored by the drawee bank."

An essential element of the offense is "knowledge" on the part of the maker or drawer of the check of the
insufficiency of his funds in or credit with the bank to cover the check upon its presentment. Since this involves a state
of mind difficult to establish, the statute itself creates a prima facie presumption of such knowledge where payment of
the check "is refused by the drawee because of insufficient funds in or credit with such bank when presented within

3
ninety (90) days from the date of the check.”

BP 22 was enacted primarily because the previous provision in Penal Code does not cover checks issued in payment of
pre-existing obligations, again relying on the concept underlying the crime of estafa through false pretenses or deceit
—which is, that the deceit or false pretense must be prior to or simultaneous with the commission of the fraud.

BP 22 addresses the problem of bouncing or worthless checks directly without attaching to the existing provisions on
estafa. It frontally makes the act of issuing a worthless check malum prohibitum (an act prohibited by law).

Petitioners now question the constitutionality of BP 22 and argue that:

1. It offends the constitutional provision forbidding imprisonment of debt (NO)
2. It impairs freedom of contract (NO)
3. It contravenes the equal protection clause (NO)
4. It unduly delegates legislative and executive powers (NO)
5. Its enactment is flawed in that during its passage the Interim Batasan violated the constitutional provision
prohibiting amendments to a bill on Third Reading

ISSUE

Is BP 22 a valid law? - YES

RULING

(Pertinent issues resolved in relation to the syllabus)

BP 22 does not violate the constitutional provision of non-imprisonment for debt

It is not a violation of the constitutional provision as what BP 22 seeks to punish is the act of the making and the
issuance of a worthless check, not the non-payment of the debt itself. The gravamen of the offense is the act of
making and issuing a worthless check or a check that is dishonoured upon its presentation for payment; it is not the
non-payment of an obligation which the law punishes.

The law is not intended to coerce a debtor to pay his debt. The thrust of the law is to prohibit, under pain of penal
sanctions, the making of worthless checks and putting them in circulation. Because of its deleterious effects on the
public interest, the law punishes the act not as an offense against property, but an offense against public order.

In the exercise of police power, the enactment of BP 22 is a declaration by the legislature that, as a matter of public
policy, the making and issuance of a worthless check is deemed a public nuisance to be abated by the imposition of
penal sanctions.

It has been reported that the approximate value of bouncing checks per day was close to 200 million pesos, and
thereafter when overdrafts* were banned by the Central Bank, it averaged between 50-80 million pesos a day.

Since checks have become a widely accepted medium of payment in trade and commerce and, although not legal
tender, have come to be perceived as convenient substitutes for currency in commercial and financial
transactions, it is inimical to public interest to destroy the integrity of the banking system by issuing bouncing
or worthless checks.

The basis of such perception for checks is confidence. If that confidence is shaken, the usefulness of checks as
currency substitutes would be greatly diminished or may become nil. Any practice therefore tending to destroy that
confidence should be deterred, for the proliferation of worthless checks can only create havoc in trade circles and
the banking community.

The effects of the issuance of a worthless check transcends the private interests of the parties directly involved in the
transaction and touches the interests of the community at large as the mischief it creates is not only a wrong to the
payee or holder but also an injury to the public. The harmful practice of putting valueless commercial checks in
circulation can pollute the channels of trade and commerce, injure the banking system, and eventually hurt the welfare
of society and the public interest.

4
 Relevant Notes

Overdrafts: The overdraft allows the account holder to continue withdrawing money even when the account has no
funds in it or has insufficient funds to cover the amount of the withdrawal.

5
Firestone Tire & Rubber Company of the Philippines vs. Court of Appeals and Luzon
Development Bank, G.R. No. 113236 March 5, 2001
Topic

Forms/ Kinds of Negotiable Instruments

Recit Ready Synopsis

Petitioner entered into an agreement with Fojas-Arca enterprises to sell their products. In order to pay for the products,
Fojas-Arca presented withdrawal slips issued by the respondent bank. When the withdrawal slips were endorsed and
accepted by Citibank which is the petitioner’s bank, most of the withdrawal slips were dishonored. When the petitioner
filed a case for collection for the sum of money, the Court ruled that the withdrawal slips cannot be considered as a
negotiable instrument since the essence of negotiability is not present.

Relevant Provisions / Concepts / Doctrines

The essence of negotiability which characterizes a negotiable paper as a credit instrument lies in its freedom to
circulate freely as a substitute for money.

FACTS

Fojas-Arca Enterprise Company is maintaining a savings account with Luzon Development Bank, the respondent.
Fojas-Arca entered into a Franchised Dealership Agreement with the petitioner, Firestone Tire and Rubber Company of
the Philippines where Fojas-Arca can purchase on credit and sell petitioners products. In order to pay the products
worth P 4, 896, 000, Fojas-Arca delivered to the petitioner 6 special withdrawal slips issued by the respondent bank.

Because of the confidence of petitioner with the withdrawal slips issued by the respondent bank, petitioner continued to
provide credit of its products to Fojas-Arca. But upon checking, a number of the withdrawal slips were dishonored with
the reason that there was no arrangement. Citibank, the petitioner’s bank debited the amount that was dishonored from
the withdrawal slips worth P 2, 078, 092.80.

The losses that the petitioner earned were because of the gross negligence of the respondent and therefore asked for
damages but the respondent bank refused. Hence, this petition.

ISSUE

Whether or not the acceptance and payment of the special withdrawal slips give the impression that it is payable upon
presentment.

RULING

No. The withdrawal slips that were presented are not considered as a negotiable instrument. The Court stated that the
essence of negotiability which characterizes a negotiable paper as a credit instrument lies in its freedom to circulate
freely as a substitute for money. Which the withdrawal slips lacked in character. In usual bank transactions, deposits will
usually be accepted by banks in either cash or check. But because petitioner, and its bank accepted the withdrawal
slips, petitioner cannot hold Fojas-Arca liable for damages.

Relevant Notes

6
- The fact that the other withdrawal slips were paid by thee respondent bank was no license for Citibank to
presume that the other withdrawal slips would be honored and paid immediately.
- Citibank must have known that the withdrawal slips are not negotiable instruments.

7
Consolidated Plywood Industries, Inc., et al. vs. IFC Leasing and Acceptance
Corporation, G.R. No. 72593 April 30, 1987
Requisites of Negotiability

CONSOLIDATED PLYWOOD INDUSTRIES, INC., HENRY WEE, and RODOLFO T. VERGARA, petitioners,

vs. IFC LEASING AND ACCEPTANCE CORPORATION, respondent.

Recit Ready Synopsis

Consolidated Plywood Industries purchased 2 tractors with a warranty under a promissory note from Atlantic Gulf &
Pacific Company of Manila, Industrial Products Marketing, and IFC Leasing and Acceptance Corp for their logging
operations. The tractors broke down and a breach of warranty ensued. SC held that the promissory note is not a
negotiable instrument for lack of “words of negotiability,” in the note and contained specific assignments and
designations. SC ordered the respondents to honor the warranty and to compensate Consolidated Plywood.

Relevant Provisions / Concepts / Doctrines

Sec 1 NIL: Form of negotiable instrument. —An instrument to be negotiable must conform to the following requirements:

a) It must be in writing and signed by the maker or drawer;

b) Must contain an unconditional promise or order to pay a sum certain in money;
c) Must be payable on demand, or at a fixed or determinable future time;
d) Must be payable to order or to bearer; and
e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty.

Sec 8 NIL: When payable to order. - The instrument is payable to order where it is drawn payable to the order of a specified person
or to him or his order. It may be drawn payable to the order of:

(a) A payee who is not maker, drawer, or drawee; or

(b) The drawer or maker; or
(c) The drawee; or
(d) Two or more payees jointly; or
(e) One or some of several payees; or
(f) The holder of an office for the time being.

Where the instrument is payable to order, the payee must be named or otherwise indicated therein with reasonable certainty

FACTS

In 1978, Consolidated Plywood had a program for logging along roads in Baganga, Manay and Caraga, Davao Oriental;
they required 2 tractors. Atlantic Gulf & Pacific Company of Manila used its marketing arm, Industrial Products
Marketing, to offer 2 “used” tractors to Plywood with a 90-day warranty on machine performance and parts. The
President and VP of Plywood, Wee and Vergara, bought the tractors for Php210k and in 03/05/78, a sales invoice for
the tractors were issued along with a deed of sale with chattel mortgage with promissory note was executed. Industrial
Products then became the “seller-assignor.”

After 14 days of use a tractor broke down; 9 days later the 2 nd tractor broke down. In 03/25/78, Vergara advised
Industrial that the tractors broke and requested repairs under warranty. Mechanics were sent but the tractors were
unserviceable despite repairs; this resulted in a delay in Plywood’s operations. In 03/07/79, Wee demanded Industrial
that the tractors be reconditioned and sold. The proceeds were to be given to Plywood with the excesses to be divided
between Industrial and Atlantic. No response was given to the demand, prompting Plywood to file against Industrial and
Atlantic.

8
The trial court ruled in favor of Plywood, ordering the defendants to compensate Plywood. Upon appeal, the CA
affirmed the trial court’s decision, holding that a breach of warranty is not a defense available to the appellants to
withdraw from a contract or demand a reduction of damages. Before SC, IFC Leasing, Industrial and Atlantic argued
that on its face, the promissory note was not a negotiable instrument since it’s neither payable to order nor to bearer.

ISSUE

Whether the promissory note is a negotiable instrument barring Plywood’s defenses against the respondent.

RULING

No, it’s not a negotiable instrument. §1 of the Negotiable Instruments Law (NIL) requires that a promissory note “must
be payable to order or bearer.” For an instrument to be negotiable, it must contain “words of negotiability,” (e.g.
“payable to order or bearer”). These words are an expression of consent that the instrument may be transferred. This
consent is indispensable since a maker assumes a greater risk under a negotiable instrument rather than under a non-
negotiable one.

Under §8 NIL, an instrument is payable to order where it is drawn payable to the order of a specified person or to him or
his order. Without the negotiable words, the instrument is only payable to the specified person designated and
is non-negotiable. This was the case for the promissory note; specified amounts and persons were designated
under the warranty. Any subsequent purchaser will not enjoy the advantages of being a holder of a negotiable
instrument but will merely step into the shoes of the person designated in the instrument.

In this case, Plywood was a victim of a warranty not honored by the maker. Industrial breached its 90-day warranty;
despite sending mechanics, Industrial’s delay and failure to comply with the warranty resulted in the tractors’ becoming
totally unserviceable. Meanwhile, Atlantic rescinded its contract with Industrial contrary to Arts 1119 and 1567 CC.
Under the provisions on warranty in Arts 1561 -1566 CC, Industrial and Atlantic are liable for a breach of warranty.

Since the promissory note isn’t negotiable, the respondent cannot be a holder in due course and remains an assignee
of the note. Even it the note was negotiable, IFC cannot be a holder in due course because it was a moving force in the
transaction and acted as a party to it. When a finance company actively participates in a transaction, IFC can’t be a
holder in due course of the note given in the transaction nor can it be a holder in good faith as per §52 and 56 NIL.

Relevant Notes

The promissory note states:

"FOR VALUE RECEIVED, I/we jointly and severally promise to pay to the INDUSTRIAL PRODUCTS MARKETING, the
sum of ONE MILLION NINETY THREE THOUSAND SEVEN HUNDRED EIGHTY NINE PESOS & 71/100 only
(P1,093,789.71), Philippine Currency, the said principal sum, to be payable in 24 monthly installments starting July 15,
1978 and every 15th of the month thereafter until fully paid

9
Government Service Insurance System vs. CA and Racho, 170 SCRA 533 (1989)
Topic

Government Service Insurance System vs. CA and Racho

Recit Ready Synopsis

Spouses Racho and Spouses Lagasca executed a deed of Mortgage in favor of GSIS for a loan. A parcel of land co-
owned by both Spouses Racho and Lagasca was then given as security. Said spouses then executed a promissory
note promising to pay GSIS. Lagasca spouses thereafter executed an instrument of “Assumption of Mortgage” wherein
they obligated themselves to assume such obligations. The amortization payments due to GSIS were not complied with
and said property was foreclosed. Spouses Racho alleged that they signed the mortgage contracts not as sureties or
guarantors for the Lagasca spouses but they merely gave their common property to the said co-owners who were solely
benefited by the loans from the GSIS. The SC held that said documents do not meet the requirements of Section 1 of
the NIL because they are neither payable to order nor to bearer. The note is payable to a specified party, the GSIS.
instead, by the provisions of the Civil Code and special laws on mortgages should govern.

Relevant Provisions / Concepts / Doctrines

Section 1. Form of negotiable instruments. - An instrument to be negotiable must conform to the following
requirements:chanroblesvirtuallawlibrary
(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum certain in money;

(c) Must be payable on demand, or at a fixed or determinable future time;

(d) Must be payable to order or to bearer; and

(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable
certainty.

Sec. 29. Liability of accommodation party. - An accommodation party is one who has signed the instrument as maker,
drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other
person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of
taking the instrument, knew him to be only an accommodation party.

FACTS

Private respondent Sps. Racho and Sps. Lagasca executed a deed of Mortgage on November 1957 in favor of GSIS in
connection with the two loans granted by the latter in the sums of P11,500.00 and P3,000.00, respectively. A parcel of
land co-owned by the mortgagor spouses was then given as security.

They then executed a promissory note which states ". . . for value received, we the undersigned . . . JOINTLY,
SEVERALLY and SOLIDARILY, promise to pay the GOVERNMENT SERVICE INSURANCE SYSTEM the sum of . . .
(P11,500.00) Philippine Currency, with interest at the rate of six (6%) per centum compounded monthly payable in . . .
(120) equal monthly installments of . . . (P127.65) each”

THe Lagasca spouses thereafter executed an instrument of “Assumption of Mortgage” wherein they obligated
themselves to assume the aforesaid obligation to the GSIS and to secure the release of the mortgage covering the
aforesaid mortgaged land belonging to herein private respondents. Such was not fulfilled.

Mortgagors failed to comply with the payment of the amortizations due and GSIS foreclosed such mortgage and sold
such at a public auction.

10
2 years after, the private respondents Racho now files a complaint against Petitioner GSIS and the Lagasca spouses
praying that such extrajudicial foreclosure on their property and all other documents done in relation to such be
declared null and void. Further, they alleged that they signed the mortgage contracts not as sureties or guarantors for
the Lagasca spouses but they merely gave their common property to the said co-owners who were solely benefited by
the loans from the GSIS.

ISSUE

Were the Deed of Mortgage and Promissory notes considered to be Negotiable Instruments?

RULING

No, they are not Negotiable Instruments

In submitting their case to this Court, both parties relied on the provisions of Section 29 of Act No. 2031, or known as
the NIL, which provide that an accommodation party is one who has signed an instrument as maker, drawer, acceptor
of indorser without receiving value therefor, but is held liable on the instrument to a holder for value although the latter
knew him to be only an accommodation party.

Such approach by both parties is misplaced, since both the documents do not comply with the fourth requisite to be
considered as such under Section 1 of Act No. 2031 because they are neither payable to order nor to bearer. The note
is payable to a specified party, the GSIS. Absent the aforesaid requisite, the provisions of Act No. 2031 would not apply,
governance shall be afforded, instead, by the provisions of the Civil Code and special laws on mortgages.

Relevant Notes

11
Salas vs. CA, et al., 181 SCRA 296 (1990)
Topic

Full title of the case

Juanita Salas v. Honorable Court of Appeals and First Finance & Leasing Corporation

Recit Ready Synopsis

Petitioner Salas bought a motor vehicle from Violago Motor Sales Corporation, as evidenced by a promissory note. This
note was then endorsed to Private Respondent Fillinvest, who initially financed the purchase. However, Petitioner Salas
later on defaulted on payment and this prompted Private Respondent to file a case for a sum of money. On the issue
whether or not the promissory note in question is a negotiable instrument, the Court ruled that it was indeed a
negotiable instrument, saying that

“The questioned promissory note shows that it is a negotiable instrument, having complied with the requisites under the
law as follows: [a] it is in writing and signed by the maker Juanita Salas; [b] it contains an unconditional promise to pay
the amount of P58,138.20; [c] it is payable at a fixed or determinable future time which is "P1,614.95 monthly for 36
months due and payable on the 21st day of each month starting March 21, 1980 thru and inclusive of Feb. 21, 1983;"
[d] it is payable to Violago Motor Sales Corporation, or order and as such, [e] the drawee is named or indicated with
certainty.”

Relevant Provisions / Concepts / Doctrines

(See Ruling)

FACTS

● Petitioner Juanita Salas bought a motor vehicle from the Violago Motor Sales Corporation, as evidenced by a
promissory note.
● This note was subsequently endorsed to Private Respondent Fillinvest Finance & Leasing Corporation who
financed the purchase.
● Petitioner defaulted in her installments allegedly due to a discrepancy in the engine and chassis numbers of the
vehicle delivered to her and those indicated in the sales invoice, certificate of registration and deed of chattel
mortgage, which fact she discovered when the vehicle figured in an accident.
● As a result, Private Respondent initiated a civil case for a sum of money against petitioner.
● Petitioner argues that in light of the provision of the law on sales by description which she alleges is applicable
here, no contract ever existed between her and VMS and therefore none had been assigned in favor of pirate
respondent.

ISSUE

Whether or not the promissory note in question is a negotiable instrument?

RULING

12
Yes, the promissory note in question is a negotiable instrument.

The questioned promissory note shows that it is a negotiable instrument, having complied with the requisites under the
law as follows: [a] it is in writing and signed by the maker Juanita Salas; [b] it contains an unconditional promise to pay
the amount of P58,138.20; [c] it is payable at a fixed or determinable future time which is "P1,614.95 monthly for 36
months due and payable on the 21st day of each month starting March 21, 1980 thru and inclusive of Feb. 21, 1983;"
[d] it is payable to Violago Motor Sales Corporation, or order and as such, [e] the drawee is named or indicated with
certainty.

In the case of Consolidated Plywood Industries Inc. v. IFC Leasing and Acceptance Corp., this Court had the occasion
to clearly distinguish between a negotiable and a non-negotiable instrument. Among others, the instrument in order to
be considered negotiable must contain the so-called "words of negotiability — i.e., must be payable to 'order' or
'bearer.'" Under Section 8 of the Negotiable Instruments Law, there are only two ways by which an instrument may be
made payable to order. There must always be a specified person named in the instrument and the bill or note is to be
paid to the person designated in the instrument or to any person to whom he has indorsed and delivered the same.
Without the words "or order" or "to the order of", the instrument is payable only to the person designated therein and is
therefore non-negotiable. Any subsequent purchaser thereof will not enjoy the advantages of being a holder of a
negotiable instrument, but will merely "step into the shoes" of the person designated in the instrument and will thus be
open to all defenses available against the latter.

A holder in due course, having taken the instrument under the following conditions: [a] it is complete and regular upon
its face; [b] it became the holder thereof before it was overdue, and without notice that it had previously been
dishonored; [c] it took the same in good faith and for value; and [d] when it was negotiated to Filinvest, the latter had no
notice of any infirmity in the instrument or defect in the title of VMS Corporation.

Respondent corporation holds the instrument free from any defect of title of prior parties, and free from defenses
available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof.
This being so, petitioner cannot set up against respondent the defense of nullity of the contract of sale between her and
VMS. Even assuming for the sake of argument that there is an iota of truth in petitioner's allegation that there was in
fact deception made upon her in that the vehicle she purchased was different from that actually delivered to her, this
matter cannot be passed upon in the case before us, where the VMS was never impleaded as a party.

Relevant Notes

13
Caltex [Phil.], Inc. vs. CA, 212 SCRA 448 (1992)
Topic

Full title of the case

Caltex (Phils.) Inc. V. CA

Recit Ready Synopsis

Security bank issued Certificates of Time Deposits to Angel dela Cruz. The same were given by Dela Cruz to
petitioner in connection to his purchase of fuel products of the latter. On a later date, Dela Cruz approached the bank
manager, communicated the loss of the certificates and requested for a reissuance.Upon compliance with
some formal requirements, he was issued replacements. Thereafter, he secured a loan from the bank where he
assigned the certificates as security. Here comes the petitioner, averred that the certificates were not actually
lost but were given as security for payment for fuel purchases. The bank demanded some proof of the agreement
but the petitioner failed to comply. The loan matured and the time deposits were terminated and then applied to
the payment of the loan.Petitioner demands the payment of the certificates but to no avail .

Relevant Provisions / Concepts / Doctrines

Sec. 1 An instrument to be negotiable must conform to the following requirements:

(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum certain in money;

(c) Must be payable on demand, or at a fixed or determinable future time;

(d) Must be payable to order or to bearer; and

(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable
certainty.

FACTS

1.Security Bank and Trust Co. issued 280 certificates of time deposit (CTD) in favor of one Mr. Angel dela
Cruz who deposited with the bank P1.12 million.
2. Dela Cruz delivered the CTDs to Caltex in connection with his purchase of fuel products from the latter.
Subsequently, Dela Cruz informed the bank that he lost all the CTDs, and thus executed an affidavit of loss
to facilitate the issuance of the replacement CTDs.
3.When Caltex presented said CTDs for verification with the bank and formally informed the bank of its
decision to preterminate the same, the bank rejected Caltex’ claim and demand as Caltex failed to furnish
copies of certain requested documents.
4. In 1983, dela Cruz’ loan matured and the bank set-off and applied the time deposits as payment for the
loan. Caltex filed a complaint which was dismissed on the ground that the subject certificates of deposit are
non-negotiable.

ISSUE

14
Whether the Certificates of Time Deposit (CTDs) are negotiable instruments [YES]

RULING

The CTDs in question are negotiable instruments as they meet the requirements of the law for negotiability as provided
for in Section 1 of the Negotiable Instruments Law. The documents provide that the amounts deposited shall be
repayable to the depositor. And according to the document, the depositor is the "bearer." The documents do not say
that the depositor is Angel de la Cruz and that the amounts deposited are repayable specifically to him. Rather, the
amounts are to be repayable to the bearer of the documents or, for that matter, whosoever may be the bearer at the
time of presentment. However, petitioner cannot recover on the CTDs. Although the CTDs are bearer instruments, a
valid negotiation thereof for the true purpose and agreement between it and dela Cruz, as ultimately ascertained,
requires both delivery and indorsement. In this case, there was no indorsement as the CTDs were delivered not as
payment but only as a security for dela Cruz' fuel purchases.

Relevant Notes

Negotiability or non-negotiability of an instrument is determined from the writing, that is, from the face of the
instrument itself. The CTDs in question are negotiable instruments as they meet the requirements of the
law for negotiability as provided for in Section 1 of the Negotiable Instruments Law. The documents provide
that the amounts deposited shall be repayable to the depositor. And according to the document, the
depositor is the "bearer."

15
Traders Royal Bank vs. CA, et al., G.R. No. 93397 March 3, 1997
Topic

Topic: Requisites of Negotiability

TRADERS ROYAL BANK , petitioner, vs. COURT OF APPEALS,

FILRITERS GUARANTY ASSURANCE CORPORATION and CENTRAL

BANK of the PHILIPPINES, respondents.

Recit Ready Synopsis

Filriters is the registered owner of Central Bank Certificate of Indebtedness (CBCI). Filriters transferred it to Philfinance
(Respondent) by one of its officers without authorization from the company. Subsequently, Philfinance transferred same
CBCI to Petitioner Traders Royal Bank (TRB) under a repurchase agreement. When Philfinance failed to do so, TRB
tried to register its name in the CBCI. The Central Bank did not want to recognize the transfer.

RTC: Transfer is null and void.

CA: The appellate court ruled that the subject CBCI is not a negotiable instrument. Philfinance acquired no title or rights
under CBCI No. D891 which it could assign or transfer to Traders Royal Bank and which the latter can register with the
Central Bank. Thus, the transfer of the instrument from Philfinance to TRB was merely an assignment, and is not
governed by the negotiable instruments law.

Relevant Provisions / Concepts / Doctrines

Section 1 of Act no. 2031

An instrument to be negotiable must conform to the following requirements: (a) It must be in writing and signed by the
maker or drawer; (b) Must contain an unconditional promise or order to pay a sum certain in money; (c) Must be
payable on demand, or at a fixed or determinable future time; (d) Must be payable to order or to bearer; and (e) Where
the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty.

Section 3, Article V of Rules and Regulations Governing Central Bank Certificates of Indebtedness
The assignment of registered certificates shall not be valid unless made at the office where the same have been issued
and registered or at the Securities Servicing Department, Central Bank of the Philippines, and by the registered owner
thereof, in person or by his representative, duly authorized in writing. For this purpose, the transferee may be
designated as the representative of the registered owner.

Doctrine:
The language of negotiability which characterize a negotiable paper as a credit instrument is its freedom to circulate as
a substitute for money. Hence, freedom of negotiability is the touchstone relating to the protection of holders in due
course, and the freedom of negotiability is the foundation for the protection which the law throws around a holder in due
course. This freedom in negotiability is totally absent in a certificate of indebtedness as it merely acknowledges to pay a
sum of money to a specified person or entity for a period of time.

FACTS

● Filriters Guaranty Assurance Corporation (Filriters) executed a "Detached Assignment” whereby Filriters, as
registered owner, transferred unto Philippine Underwriters Finance Corporation (Philfinance) all its rights and

16
 title to Central Bank Certificates of Indebtedness (CBCI) without authorization from the company.
● The Detached Assignment contained an express authorization executed by the transferor intended to complete
the assignment through the registration of the transfer in the name of PhilFinance.
● Subsequently, Petitioner Traders Royal Bank (Traders) entered into a Repurchase Agreement w/ Respondent
PhilFinance. Respondent then sold the CBCI to the petitioner. Later, Respondent attempted to repurchase the
CBCI from Petitioner, but failed to do so due to being in default (Respondent failed to repurchase on the agreed
date of maturity, April 27, 1981).
● Respondent then transferred and assigned all its rights and title in the CBCI to Petitioner. Later, Petitioner
(Traders) requested Philfinance to effect the transfer of the CBCI on its books and to issue a new certificate in
the name of petitioner (Trader) as absolute owner thereof;
● Respondent (Philfinance) failed and refused to register the transfer as requested, and continues to do so
notwithstanding petitioner's valid and just title over the same and despite repeated demands in writing.
● Petitioner then prayed for the registration by the Central Bank of the subject CBCI in its name.
● CA affirmed RTC: subsequent assignment in favor of Petitioner Traders Royal Bank null and void and of no
force and effect.
● Respondent Philfinance acquired no title or rights under CBCI which it could assign or transfer to Petitioner
Traders and which it can register with the Central Bank.
● The instrument is payable only to Filriters, the registered owner.

ISSUE

Is the CBCI a negotiable instrument?

RULING

NO. The CBCI is not a negotiable instrument.

The appellate court ruled that the subject CBCI is not a negotiable instrument, stating that the instrument clearly stated
that it was payable to Filriters, the registered owner, whose name was inscribed thereon, and that the certificate lacked
the words of negotiability which serve as an expression of consent that the instrument may be transferred by
negotiation.

The language of negotiability which characterize a negotiable paper as a credit instrument is its freedom to circulate as
a substitute for money. Hence, freedom of negotiability is the touchstone relating to the protection of holders in due
course, and the freedom of negotiability is the foundation for the protection which the law throws around a holder in due
course. This freedom in negotiability is totally absent in a certificate of indebtedness as it merely acknowledges to pay a
sum of money to a specified person or entity for a period of time.

Thus, the transfer of the instrument from Philfinance to TRB was merely an assignment, and is not governed by the
negotiable instruments law. The pertinent question then is—was the transfer of the CBCI from Filriters to
Philfinance and subsequently from Philfinance to TRB, in accord with existing law, so as to entitle TRB to have the
CBCI registered in its name with the Central Bank?

The CA’s pronouncements:

“Clearly shown in the record is the fact that Philfinance’s title over CBCI is defective since it acquired the
instrument from Filriters fictitiously. Although the deed of assignment stated that the transfer was for ‘value received‘,
there was really no consideration involved. What happened was Philfinance merely borrowed CBCI from
Filriters, a sister corporation. Thus, for lack of any consideration, the assignment made is a complete nullity.”

Relevant Notes

17
Juan Casabuena vs. CA, et al., G.R. No. 115410 February 27, 1998
Sec.1: Requisites of Negotiability

JUAN CASABUENA, Petitioner, v. HON. COURT OF APPEALS and SPOUSES CIRIACO URDANETA AND
OFELIA IPIL-URDANETA, Respondents.

Recit Ready Synopsis

Urdaneta assigned his rights and interest over a parcel of land to Benin. Benin assigned her rights and interests to
petitioner Casabuena and his brother. Petitioner became Benin’s rental collector, but their relationship eventually turned
sour. Benin filed an ejectment case against Casabuena. Urdaneta, upon learning of the said litigation, asked them both
to vacate the property. Casabuena contends that the assignment to him by Benin was made in Benin’s capacity as
creditor of the Urdanetas; thus, Benin can transfer ownership to her assignees. The Court ruled that a deed of
assignment cannot transfer ownership of the property to the assignee. An assignment of credit involves no transfer of
ownership but merely effects the transfer of rights which the assignor has at the time to the assignee. Not having
acquired any right over the land in question, Benin thus conveyed nothing to the Casabuenas with respect to the
property. The spouses Urdaneta remain as the owners of the property.

Relevant Provisions / Concepts / Doctrines

An assignment of credit is an agreement by virtue of which the owner of a credit, known as the assignor, by a legal
cause, transfers his credit and its accessory rights to another, known as the assignee, who acquires the power to
enforce it to the same extent as the assignor could have enforced it against the debtor.

FACTS

● The Spouses Urdaneta are grantees of a parcel of land purchased by the City of Manila through its land reform
program.
● They assigned the rights and interests in one-half (1/2) of the lot to Arsenia Benin covering full payment of the
indebtedness.
● Having incurred an additional debt, Ciriaco Urdaneta executed another deed of assignment involving the whole
lot, with assignee Benin agreeing to shoulder all obligations including the payment of amortization to the City, in
accordance with the contract between them.
● Meanwhile, the administration of the property was assigned to brothers Candido and petitioner Juan
Casabuena, to whom Benin had transferred her right, title and interest for a consideration.
○ Casabuena became Benin’s rental collector.
○ Their relationship turned sour, prompting Benin to file an ejectment case against Casabuena.
● Upon learning of the litigation between petitioner and Benin, Urdaneta asked them to vacate the property and
surrender to him possession thereof.
○ The Urdaneta spouses succeeded in having the Court declare them as the true and lawful owners with
the deed of assignment to Benin merely serving as evidence of Ciriaco’s indebtedness to her in view of
the prohibition against the sale of the land imposed by the City government.
● Petitioner files this petition for review on certiorari, arguing that the assignment by Benin was made in her
capacity as creditor of the spouses, thus allowing her to transfer ownership of the property to her assignees.

ISSUE

Can a deed of assignment transfer ownership of the property to the assignee? - NO.

RULING

● An assignment of credit pertains to the process of transferring the right of the assignor to the assignee, who
would then be allowed to proceed against the debtor.
○ It involves no transfer of ownership but merely effects the transfer of rights which the assignor has at

18
 the time, to the assignee.
● Benin, having been deemed subrogated to the rights and obligations of the spouses, she was bound by exactly
the same conditions to which the latter were bound.
○ Thus, she and the Casabuenas were bound to respect the prohibition against selling the property within
the five-year period imposed by the City government.
● The act of assignment could not have operated to efface liens or restrictions burdening the right assigned,
because an assignee cannot acquire a greater right than that pertaining to the assignor.
○ In the case at bar, the Casabuenas merely stepped into Benin's shoes, who was as a mere assignee of
the rights of her debtors.
○ Not having acquired any right over the land in question, it follows that Benin conveyed nothing to the
Casabuenas with respect to the property.
● The spouses Urdaneta remain as the owners of the property.

Relevant Notes

19
Rivera vs. Spouses Chua, G.R. No. 184458 January 14, 2015
Topic

G..R. No. 184458, January 14, 2015 - RODRIGO RIVERA, Petitioner, v. SPOUSES SALVADOR CHUA AND
S. VIOLETA CHUA, Respondents.

G.R. NO. 184472 - SPS. SALVADOR CHUA AND VIOLETA S. CHUA, Petitioners, v. RODRIGO RIVERA,
Respondent.

Recit Ready Synopsis

PROMISSORY NOTE

120,000.00

FOR VALUE RECEIVED, I, RODRIGO RIVERA promise to pay spouses SALVADOR C. CHUA and
VIOLETA SY CHUA, the sum of One Hundred Twenty Thousand Philippine Currency (P120,000.00) on
December 31, 1995.

It is agreed and understood that failure on my part to pay the amount of (P120,000.00) One Hundred Twenty
Thousand Pesos on December 31, 1995. (sic) I agree to pay the sum equivalent to FIVE PERCENT (5%)
interest monthly from the date of default until the entire obligation is fully paid for.

Should this note be referred to a lawyer for collection, I agree to pay the further sum equivalent to twenty
percent (20%) of the total amount due and payable as and for attorney’s fees which in no case shall be less
than P5,000.00 and to pay in addition the cost of suit and other incidental litigation expense.

Any action which may arise in connection with this note shall be brought in the proper Court of the City of
Manila.

Manila, February 24, 1995[.]

(SGD.) RODRIGO RIVERA4

Relevant Provisions / Concepts / Doctrines

FACTS

The parties were kumpadres of long standing having known each other for a long time.

Rivera obtained a loan from the Spouses Chua amounting to Php 120,000 with 5%interest monthly from the date of
default until the entire obligation is fully paid for (please refer to the promissory note). Three years after the date of
payment stipulates in the promissory note, Rivera, as a partial payment, issued and delivered to the Spouses Chua a
check amounting to Php 25,000. Another check was issued by Rivera to Spouses CHua but blank as to payee and
amount. Upon presentment, the two check was dishonored for the reason “account closed”.
As of May 31, 1999, the amount due to the Spouses Chua was pegged at Php 366,000 covering the principal amount
and the interest per month covering January 1, 1996 to May 31, 1999.

20
 ISSUE

Whether or not the promissory note is valid

RULING

No, the promissory note is not valid.

The subject promissory note is not a negotiable instrument and the provisions of the NIL do not apply to this
case. Section 1 of the NIL requires the concurrence of the following elements to be a negotiable instrument:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and (e) Where the instrument is addressed to a drawee, he must
be named or otherwise indicated therein with reasonable certainty.
On the other hand, Section 184 of the NIL defines what negotiable promissory note is: SECTION 184.
Promissory Note, Defined.—A negotiable promissory note within the meaning of this Act is an unconditional
promise in writing made by one person to another, signed by the maker, engaging to pay on demand, or at a
fixed or determinable future time, a sum certain in money to order or to bearer. Where a note is drawn to the
maker’s own order, it is not complete until endorsed by him.

The Promissory Note in this case is made out to specific persons, herein respondents, the Spouses Chua,
and not to order or to bearer, or to the order of the Spouses Chua as payees.

However, even if Rivera’s Promissory note is not a negotiable instrument and outside the coverage of
Section 70 of NIL which provides that presentment for payment is not necessary to charge the person liable
on the instrument, Rivera is still liable under the terms of the Promissory Note that he issued

The Promissory Note is unequivocal about the date when the obligation falls due and becomaes
demandable. As of January 1996, Rivera had already incurred in delay when he failed to pay Spouses Chua.

Under Article 1169 of the Civil Code, there are four (4) instances when demand is not necessary to
constitute the debtor in default: (1) when there is an express stipulation to that effect; (2) where the law so
provides; (3) when the period is the controlling motive or the principal inducement for the creation of the
obligation; and (4) where demand would be useless. In the first two paragraphs, it is not sufficient that the
law or obligation fixes a date for performance; it must further state expressly that after the period lapses,
default will commence. In the case at bar, the promissory note expressly requires the debtor (Rivera) to pay
a 5% monthly interest from the “date of default” until the entire obligation is fully paid for. The parties
evidently agreed that the maturity of the obligation at a date certain, 31 December 1995, will give rise to the
obligation to pay interest. The Promissory Note expressly provided that after 31 December 1995, default
commences and the stipulation on payment of interest starts.

Relevant Notes

Penal Clause
The penal clause is generally undertaken to insure performance and works as either, or both, punishment
and reparation. It is an exception to the general rules on recovery of losses and damages. As an exception
to the general rule, a penal clause must be specifically set forth in the obligation. In high relief, the stipulation
in the Promissory Note is designated as payment of interest, not as a penal clause, and is simply an
indemnity for damages incurred by the Spouses Chua because Rivera defaulted in the payment of the
amount of P120,000.00. The measure of damages for the Rivera’s delay is limited to the interest stipulated in
the Promissory Note. In apt instances, in default of stipulation, the interest is that provided by law.

21
22
Nicolas and Matias vs. Matias, et al., G.R. No. L-8093 October 29, 1955
Topic

DOMINADOR NICOLAS and OLIMPIA MATIAS, plaintiffs-appellants, vs.

VICENTA MATIAS, AMADO CORNEJO, JR., JOSE POLICARPIO and MATILDE MANUEL, defendants-appellees.

Recit Ready Synopsis

Petitioners loaned P30,000 from the spouses payable in 5 years, with interest- said amount was received in the form of
Japanese notes. Not long after the former wanted to pay off the entirety of the debt, but the spouses refused. Hence the
petitioners consigned the amount to the courts, which gave rise to the question of whether the amount to be paid should
be in Japanese notes or in Philippine peso. The Court stated that it should be in Philippine peso as the parties to an
agreement are deemed to have intended that the amount stated in the contract be paid in such currency as may be
legal tender at the time when the obligation becomes due.

Relevant Provisions / Concepts / Doctrines

The parties to an agreement are deemed to have intended that the amount stated in the contract be paid in such
currency as may be legal tender at the time when the obligation becomes due.

FACTS

Vicenta and her son Amado, mortgaged to the spouses Matias, 4 parcels of land in the province of Nueva Ecija, to
guarantee the payment of the sum of P30,000, which the former borrowed and was received in the form of Japanese
notes. The civil case arose from the fact that the petitioners had attempted to pay the entire amount of the obligation,
which was suppose to be paid in the span of 5 years. The spouses refused payment, to which the petitioners were
forced to consign the said amount in court. The consignation was initially deemed invalid as prior notice of consignation
was not done by the petitioners. However, the CA reversed said ruling and held that the consignation of the entire
amount was indeed valid. Upon reaching the Supreme Court, and because of the difference in currencies, it opened the
issue of whether or not the sum of money owed should be paid in philippine currency, or in Japanese military notes.

ISSUE

Whether the sum owed by the petitioners, which was lent as Japanese war notes, should be paid by such in Philippine
currency?

RULING

YES, the Court stated that the sum owed should be paid in Philippine peso. Although it is setted that (1) the contracting
parties are free to stipulate on the currency in which their respective obligations shall be settled, and (2) that whenever,
pursuant to the terms of an agreement, an obligation assumed during the Japanese occupation is not payable until after
liberation of the Philippines, the parties to the agreement are deemed to have intended that the amount stated in
the contract be paid in such currency as may be legal tender at the time when the obligation becomes due.
Hence, in the case at bar, the deed in question provides that the obligation shall be paid one year after the expiration of
5 years from 1944, which is the date of the instrument. And at that time, the legal tender was that of Philippine peso.
Hence, the obligation involved in the present case must be satisfied, peso to peso, in Philippine currency.

Relevant Notes

23
- Consignation was invalid as the mortgagees cannot be compelled and were under no obligation to accept the
tender of payments that were not yet due and demandable.

24
Republic Resources and Development Corporation vs. CA, et al., G.R. No. L- 33438
October 28, 1991
Topic

REPUBLIC RESOURCES AND DEVELOPMENT CORPORATION, petitioner, vs.

COURT OF APPEALS and UNITED GEOPHYSICAL COMPANY, S.A. (Costa Rica), respondent.

Recit Ready Synopsis

A seismograph service contract was executed between the parties in which the respondent will conduct geological work
for the petitioner. After several demands were made upon the petitioner to pay its total liability of $38,622.66, a partial
payment only in the sum of $10,000 was made. Thus, a balance of $28,622.26. Trial ensued and the CA ruled in favor
of the respondent. Hence, this appeal contending that the CA erred in holding that the petitioner’s $28,622.26 obligation
should be paid at the rate of exchange prevailing at the time of the payment.

Thus, the issue is w/n petitioner's $28,622.26 obligation should be paid at the rate of exchange prevailing at the time
of the payment and not at the time the obligation was incurred. YES. Obligations which incurred AFTER R.A. 529,
the rate of exchange should be that prevailing at the time of payment.

R.A. 529 was effective on June 16, 1950 and in this case, the obligation between the parties was incurred on Dec. 15,
1959 or AFTER the enactment of R.A. 529. Therefore, the obligation should be paid at the rate of exchange prevailing
at the time of the payment.

Relevant Provisions / Concepts / Doctrines

Sec. 2. What constitutes certainty as to sum. - The sum payable is a sum certain within the meaning of this Act,
although it is to be paid:
(a) with interest; or
(b) by stated installments; or
(c) by stated installments, with a provision that, upon default in payment of any installment or of interest, the whole shall
become due; or
(d) with exchange, whether at a fixed rate or at the current rate; or
(e) with costs of collection or an attorney's fee, in case payment shall not be made at maturity.

As to the rate of exchange, a distinction has to be made between obligations incurred prior to Section 1 of R.A. No. 529
and after its enactment:
Sec. 1, RA 529: If the obligation was incurred prior to the enactment of the Act, and required payment in a particular
kind of coin or currency other than Philippine currency, it shall be discharged in Philippine currency measured at the
prevailing rates of exchange at the time the obligation was incurred.
Kalalo v. Luz: As to obligations incurred after the enactment, the rate of exchange should be that prevailing at the time
of payment.

FACTS

The respondent in this case, United Geophysical Company (United Costa Rica), is engaged in geological and
geophysical work in the Philippines. It is the successor-in-interest of the United Geophysical Company (United
Venezuela). In 1959, United Venezuela and petitioner Republic Resources (Republic) executed a seismograph
service contract wherein the former will conduct geophysical surveys in the Philippines for oil and gas. In return,
Republic will pay 23,000 U.S. Dollars and will reimburse the cost of the equipment used in the surveys. Furthermore,
half of the contract fee will be paid in U.S. dollars, and the other half will be in Philippine pesos.

Unfortunately, the Republic failed to pay the contract fees payable in dollars corresponding to the period from part of
August to December of 1960, amounting the liability to $34,908.33 and the sum of $3,713.33 representing the cost
plus 5% of returning the equipment from the Philippines to Australia. After several demands, United Costa Rica was
prompted to file a case to recover the balance since out of $38,621.66, only $10,000 was paid by the Republic. Thus,
there is a balance of $28,622.26.

25
The Republic then proposed to reduce its debt to $20,000 payable in two equal installments in which the United agreed
with the condition that the proposed settlement will be submitted to the Court for approval and it will be secured by a
surety bond. The Republic did not act upon this and trial ensued between the parties. The Court of Appeals ruled
in favor of the United Costa Rica. Hence, this appeal by the Republic contending that the CA erred in holding that
petitioner’s $28,622.26 obligation should be paid at the rate of exchange prevailing at the time of the payment.

ISSUE

W/N petitioner’s $28,622.26 obligation should be paid at the rate of exchange prevailing at the time of the payment
and not at the time the obligation was incurred.

W/N their agreement is valid in which the obligation will be partially settled in U.S. dollars.

RULING

First issue: Yes, petitioner’s $28,622.26 obligation should be paid at the rate of exchange prevailing at the time
of the PAYMENT, not at the time the obligation was incurred.

Section 1 of the R.A. 529 explicitly provides that:

“x x x if the obligation was incurred PRIOR to the enactment of the Act, and required payment in a particular kind of coin
or currency other than Philippine currency, it shall be discharged in Philippine currency measured at the prevailing rates
of exchange at the time the obligation was incurred, except in case of a loan made in a foreign currency stipulated to
be payable in the same currency, in which case the rate of exchange prevailing at the time of the stipulated date of
payment shall prevail.” As to obligations incurred AFTER enactment, Kalalo vs. Luz ruled that the rate of exchange
should be that prevailing at the time of payment.

R.A. 529 was effective on June 16, 1950 and in this case, the obligation between the parties was incurred on Dec. 15,
1959 or AFTER the enactment of R.A. 529. Therefore, the obligation should be paid at the rate of exchange prevailing
at the time of the payment.

Second issue: No, under RA 529, any provision in a contract which gives the creditor the right to require
payment in a particular kind of coin currency other than Philippine currency is void. However, this law was later
repealed by RA 8183 and Section 2(d) of NIL refers to Instruments that are payable in foreign currency. The promise or
order to pay "with exchange" does not destroy negotiability.

WHEREFORE, IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered DISMISSING the petition

Relevant Notes

Please take note that the second issue is not part of the decision itself since this was ruled years before the
enactment of RA 8183, but the issue is more relevant to the topic (so just in case Sir asks). RA 529 is now
repealed by RA 8183 which provides that every monetary obligation must be paid in Philippine currency which
is legal tender in the Philippines. However, the parties may agree that the obligation or transaction shall be
settled in any other currency at the time of payment.

26
Metropolitan Bank & Trust Company vs. CA, et al., G.R. No. 88866 February 18, 1991

Topic

METROPOLITAN BANK & TRUST COMPANY, petitioner, vs. COURT OF APPEALS, GOLDEN SAVINGS & LOAN
ASSOCIATION, INC., LUCIA CASTILLO, MAGNO CASTILLO and GLORIA CASTILLO, respondents.

Recit Ready Synopsis

Gomez deposited treasury warrants to Golden Savings which in turn deposited the same to Metrobank for clearing
since the former did not have its own clearing facilities. Metrobank was exasperated from the repeated inquiries of
Golden Savings which led it to allow Golden Savings to withdraw which led the latter to allow Gomez to withdraw. Later
on, Metrobank demands from Golden Savings the return of the amounts withdrawn.

Relevant Provisions / Concepts / Doctrines

Section 3. Unconditional Promise or Order to Pay. - Since the treasury warrants in itself provide that they are non-
negotiable and that it be payable from a particular fund in contrast with Section 3 of NIL, they are then not subject to the
provisions of the NIL in relation to indorsement (for the genuineness of the warrants). Because of this, Golden Savings
cannot be demanded to return the amount withdrawn.

FACTS

● Eduardo Gomez opened an account with Golden Savings and deposited over a period of two months 38
treasury warrants with a total value of P1,755,228.37. They were all drawn by the Philippine Fish Marketing
Authority.
● All these warrants were subsequently indorsed by by Gloria Castillo as Cashier of Golden Savings and
deposited to its savings account in the Metrobank. These warrants were then sent for clearing before the
principal office of Metrobank and to the Bureau of Treasury later on for special clearing.
● These warrants were stamped with the word “non-negotiable in its face.” Furthermore, it is also indicated
therein that are payable from a particular fund.
● More than two weeks after the deposits, Gloria asked several times whether the warrants had been cleared.
After her repeated inquiries, Metrobank finally decided to allow Golden Savings to withdraw from the proceeds
of the warrants. Golden Savings subsequently allowed Gomez to make withdrawals from his own account.
● Metrobank later on informed Golden Savings that 32 of the warrants had been dishonored by the Bureau of
Treasury because of the forgery of the signatures of the drawers, not of Gomez as payee or indorser.
● Metrobank contends that by indorsing the warrants in general, Golden Savings assumed that they were
“genuine and in all respects what they purport to be,” in accordance with Section 66 of the Negotiable
Instruments Law.
● Having done so, Metrobank demands from Golden Savings the total amount it withdrew from them in
accordance with the conditions printed on the dorsal side of the deposit slips through which the treasury
warrants were deposited (the deposit slip provides that Metrobank is allowed to charge to Golden Savings any
amount previously credited which are unpaid due to insufficiency of funds, forgery, etc.) --- (Extra: Metrobank
claims that Golden Savings claimed that the treasury warrants are genuine even if they are “forged,” which
caused them millions so they now demand for the return of the amount withdrawn).
● The demand was rejected by the Golden Savings.

ISSUE

Whether the treasury warrants are negotiable in the first place?

RULING

No, the treasury warrants are non-negotiable and should not be governed by the Negotiable Instruments Law.

27
First, the treasury warrants were clearly stamped on their face with the word “non-negotiable.” Secondly, it is indicated
that they are payable from a particular fund, to wit, Fund 501.

Section 1 of the NIL provides that for an instrument to be negotiable, it must contain an unconditional promise or order
to pay a sum certain in money. Furthermore, Section 3 of the same law provides that an order or promise to pay out of
a particular fund is not unconditional.

In this case, the indication of Fund 501 as the source of the payment to be made on the treasury warrants makes the
order or promise to pay “not unconditional” and the warrants themselves non-negotiable.

Since the treasury warrants are non-negotiable, Metrobank cannot invoke Section 66 of the NIL. The indorsement made
by Gloria was not for the purpose of guaranteeing the genuineness of the warrants but merely to deposit them with
Metrobank for clearing.

Therefore, Golden Savings cannot be demanded to return the amounts which was withdrawn on account of
Metrobank’s negligence.

Relevant Notes

The Court held that Metrobank was negligent in allowing Golden Savings to withdraw even without the proper
clearance. Golden Savings had no clearing facilities of its own. It relied on Metrobank to determine the validity of the
warrants through its own services. Metrobank was merely exasperated due to the persistent inquiries of Gloria and just
presumed that the warrants have been cleared simply because of the lapse of one week.

As for the claim of forgery, the Court held that it was not proven by clear, positive, and convincing evidence.

28
Ponce de Leon vs. Rehabilitation Finance Corporation, et al., G.R. No. L- 24571
December 18, 1970
Topic

Form and Interpretation: Section 7 - Payable on Demand

Full title of the case

Ponce de Leon v Rehabilitation Finance Corporation et al.

Recit Ready Synopsis

Jose Ponce de Leon and Francisco Soriano loaned P10,000 from PNB and secured it with a parcel of land. De Leon
filed another loan with RFC. As a security, he mortgaged parcels of land--including the one he mortgaged to PNB with
Soriano. The loan was approved and he signed a promissory note with Soriano.

After failing to pay, RFC foreclosed the property. In his defense, Soriano claimed that the promissory note is not yet
overdue because the installments stipulated in the said promissory note have “no fixed or determined dates of
payment.” De Leon insisted that RFC should have first asked the court to determine the terms conditions, and periods
of maturity thereof.

The Court held that when a promissory note expresses no time for payment it is deemed payable on demand.

Relevant Provisions / Concepts / Doctrines

Sec 7. When Payable on Demand. - An instrument is payable on demand:

a) When it is so expressed to be payable on demand, or at sight, or on presentation; or
b) In which no time for payment is expressed.
Where an instrument is issued, accepted, or indorsed when overdue, it is, as regards the person so issuing, accepting,
or indorsing it, payable on demand.

FACTS

Jose Ponce de Leon and Francisco Soriano loaned P10,000 from Philippine National Bank and mortgaged a parcel of
land as security. De Leon gave P2,000 to Soriano from the proceeds of the loan.

Six years later, de Leon applied for an industrial loan for putting up a sawmill with Rehabilitation Finance Corporation
(RFC). He again mortgaged parcels of land as security, including the parcel he and Soriano mortgaged to PNB.
Application was approved and the parties signed a promissory note. The mortgage deed stipulated that the proceeds
shall be exclusively used for purchase of machinery and equipment, construction of buildings, and payment of
obligations, and that release of amounts loaned shall be at the discretion of RFC.

Upon failing to pay the loan, RFC sought extra-judicial foreclosure. In his defense, de Leon claimed that his promissory
note was not yet overdue when the mortgage was foreclosed because the installments stipulated in the said promissory
note have “no fixed or determined dates of payment.” De Leon insisted that RFC should have first asked the court to
determine the terms conditions, and periods of maturity thereof.

The maturity date was left blank. However, the promissory note states that the “date of maturity was to be fixed as of
the date of the last release” of P495,000 lent by RFC. De Leon claims that the loan has not been fully released.

ISSUE

29
WON the promissory note was already due. YES.

RULING

When a promissory note expresses no time for payment it is deemed payable on demand. RFC has the authority, under
the Negotiable Instruments Law, to fix the date of maturity of the installments therein stipulated.

De Leon’s claim that the complete P495,000 has yet to be released is contrary to the facts of record. During trial, his
counsel admitted that part of the loan was delivered to de Leon and Soriano’s creditors as agreed upon by them, in
payment of their outstanding obligations. The remaining balance was then turned over to de Leon with the written
authorization and conformity of Soriano. Records show that the loan was completely released to de Leon and Soriano
and that the first installment under the promissory note was indeed due that month.

Relevant Notes

30
Consolidated Plywood Industries, Inc., et al. vs. IFC Leasing and Acceptance
Corporation, G.R. No. 72593 April 30, 1987
Topic

CONSOLIDATED PLYWOOD INDUSTRIES, INC., HENRY WEE, and RODOLFO T. VERGARA, petitioners, vs.
IFC LEASING AND ACCEPTANCE CORPORATION, respondent. Carpio, Villaraza & Cruz Law Offices for
petitioners. Europa, Dacanay & Tolentino for respondent.

Recit Ready Synopsis

Plywood bought two tractors from Atlantic Gulf on installment evidenced by 2 promissory notes with chattel mortgage
for the balance. Atlantic Gulf then assigned its rights and interest to the note in IFC Leasing’s favor by means of a
deed of assignment.
However, the tractors broke down and Atlantic refused to honor the warranty. Consolidated Plywood then rescinded
the contract of purchase and demanded a refund. Atlantic Gulf made no move to refund Consolidated Plywood. IFC
Leasing then filed a suit to recover the amount of the promissory note.
RTC and CA ruled for IFC, positing that even though there was a breach of warranty this shouldn’t affect IFC, as it
was not a party to that agreement; and that IFC is a holder in due course and the instrument is a negotiable one.
Is the promissory note a negotiable instrument? No. The promissory note isn’t payable to order or bearer. A
negotiable instrument must contain the words of negotiability such as ‘order’ or ‘bearer.’ Without the words ‘or order’
or ‘to the order of’ then the instrument is payable only to that person and no one else, therefore non-negotiable. Any
subsequent holder of the note will only step into the shoes of the person designated in the instrument and will be
open to all the defenses available against the latter. He doesn’t enjoy the benefits of being a holder in due course of a
negotiable instrument. Other issues – There was a breach in warranty so there was a failure of consideration
between plywood and Atlantic.

Relevant Provisions / Concepts / Doctrines

A negotiable instrument must contain the words of negotiability such as ‘order’ or ‘bearer.’ Without the words ‘or
order’ or ‘to the order of’ then the instrument is payable only to that person and no one else, therefore non-negotiable.

FACTS

(1) Engaged in the logging business, Consolidated Plywood Industries (Plywood) bought 2 units of tractors for
their project.
o Atlantic gulf (Atlantic) offered 2 used tractors to Plywood through its sister company, Industrial Products
Marketing (the seller-assignor).
o Site inspections were done to make sure that these tractors were fit for the job. Then it was sold with a 90-
day warranty for performance and parts replacement.

(2) Plywood paid using installments and made a down payment of 210,000. The deed of sale was accompanied
by 2 promissory notes and a chattel mortgage.
o Among the documents executed was a deed of assignment by Industrial Products Marketing in favor
of IFC leasing corp transferring the rights of the 2 PNS & chattel mortgage.

(3) One of the tractors broke down barely 14 days after the delivery and the other one likewise broke down after
another 9 days. The seller-assignor IPM tried to fix it but it was still broken. Plywood delayed its payment until
Atlantic fulfills its obligation under the warranty.

31
 (4) Atlantic didn’t respond and IFC (the assignee financing corporation) eventually filed a suit to recover the
amounts of the PNS from Consolidated Plywood.

(5) RTC ruled for the assignee, IFC; CA affirmed that even though there was a breach of warranty this shouldn’t
affect IFC, as it was not a party to that agreement. IFC is a holder in due course and the instrument is a
negotiable one.

ISSUE

WON the promissory note in question is a negotiable instrument so as to bar completely all the available defenses of
the petitioner Plywood against the respondent-assignee IFC.

RULING

No, it is not a negotiable instrument so Plywood doesn’t have to pay.

● Considering that paragraph (d), Section 1 of the Negotiable Instruments Law requires that a promissory note
"must be payable to order or bearer," it cannot be denied that the promissory note in question is not a negotiable
instrument.
● The pertinent portion of the note is as follows:
FOR VALUE RECEIVED, I/we jointly and severally promise to pay to the INDUSTRIAL PRODUCTS
MARKETING, the sum of ONE MILLION NINETY THREE THOUSAND SEVEN HUNDRED EIGHTY NINE
PESOS & 71/100 only (P 1,093,789.71), Philippine Currency, the said principal sum, to be payable in 24
monthly installments starting July 15, 1978 and every 15th of the month thereafter until fully paid...
● "The instrument in order to be considered negotiable must contain the so called 'words of negotiability' — i.e.,
must be payable to 'order' or 'bearer'. These words serve as an expression of consent that the instrument
may be transferred. This consent is indispensable since a maker assumes greater risk under a negotiable
instrument than under a non-negotiable one.
● "When instrument payable to order. — "SEC. 8. WHEN PAYABLE TO ORDER. — The instrument is payable
to order where it is drawn payable to the order of a specified person or to him or his order. " These are the
only two ways by which an instrument may be made payable to order.
● There must always be a specified person named in the instrument. It means that the bill or note is to be paid
to the person designated in the instrument or to any person to whom he has indorsed and delivered the
same. Without the words 'or order' or 'to the order of,' the instrument is payable only to the person
designated therein and is therefore non-negotiable. Any subsequent purchaser thereof will not enjoy the
advantages of being a holder of a negotiable instrument, but will merely 'step into the shoes' of the person
designated in the instrument and will thus be open to all defenses available against the latter."
● Therefore, considering that the subject promissory note is not a negotiable instrument, it follows that the
respondent IFC can never be a holder in due course but remains a mere assignee of the note in question.
Thus, the petitioner may raise against the respondent all defenses available to it as against the seller assignor,
Industrial Products Marketing.

● WHAT IF IT WAS A NEGOTIABLE INSTRUMENT, IS PLYWOOD LIABLE? -- NO, because respondent IFC is in
bad faith, and is therefore not a holder in due course. As such, the respondent IFC is subject to all defenses
which petitioners Plywood may raise against the seller- assignor, IPM.

● The evidence presented in the instant case shows that prior to the sale on installment of the tractors, there was an
arrangement between the seller-assignor (Industrial Products Marketing) and the respondent IFC whereby the latter
would pay the seller-assignor the entire purchase price and the seller assignor, in turn, would assign its rights to
respondent IFC which acquired the right to collect the price from the buyer, herein petitioner Consolidated Plywood
Industries, Inc.
● Therefore, the respondent had actual knowledge of the fact that the seller-assignor's right to collect the purchase

32
price was not unconditional, and that it was subject to the condition that the tractors sold were not defective.
● The respondent knew that when the tractors turned out to be defective, it would be subject to the defense of failure
of consideration and cannot recover the purchase price from the petitioners. The respondent’s actual knowledge of
the foregoing facts so that its action in taking the instrument amounted to bad faith, is not a holder in due
course. As such, the respondent is subject to all defenses which the petitioners may raise against the seller-
assignor, IPM.
● Respondent failed to present any evidence to prove that it had no knowledge of any fact, which would justify its
act of taking the promissory note as not amounting to bad faith.
● "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:"(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.
● "SEC. 56. WHAT CONSTITUTES NOTICE OF DEFECT. — 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 amounts to bad faith."
● Section 58 of the Negotiable Instruments Law provides that "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.

Relevant Notes

33
Philippine National Bank vs. Rodriguez, et al., 566 SCRA 513 (2008)
Topic

PHILIPPINE NATIONAL BANK, petitioner, vs. ERLANDO T. RODRIGUEZ and NORMA RODRIGUEZ,
respondents.

Recit Ready Synopsis

Relevant Provisions / Concepts / Doctrines

“FICTITIOUS PERSON”

- PNB v. RODRIGUEZ:
- As a rule, when the payee is fictitious or not intended to be the true recipient of the proceeds, the check
is considered as a bearer instrument. A check is "a bill of exchange drawn on a bank payable on
demand". It is either an order or a bearer instrument. A check that is payable to a specified payee is an
order instrument. However, under Section 9 (c) of the NIL, a check payable to a specified payee may
nevertheless be considered as a bearer instrument if it is payable to the order of a fictitious or non-
existing person, and such fact is known to the person making it so payable. Thus, checks issued to
"Prinsipe Abante" or "Si Malakas at si Maganda", who are well-known characters in Philippine
mythology, are bearer instruments because the named payees are fictitious and non-existent. (SEE
SEC. 8 AND 9)
- It can also be an actual, existing, living payee. If the payee is not the intended recipient of the proceeds
of the check, the payee is considered a "fictitious" payee and the check is a bearer instrument.
- MUELLER & MARTIN V. LIBRARY INSURANCE BANK:
- The US Supreme Court held in Mueller that when the person making the check so payable did not
intend for the specified payee to have any part in the transactions, the payee is considered as a
fictitious payee. The check is then considered as a bearer instrument to be validly negotiated by mere
delivery.
- GETTY PETROLEUM CORP. V. AMERICAN EXPRESS TRAVEL RELATED SERVICE COMPANY INC.
(Exception to the GR):
- However, there is a commercial bad faith exception to the fictitious- payee rule. A showing of
commercial bad faith on the part of the drawee bank, or any transferee of the check for that matter, will
work to strip it of this defense. The exception will cause it to bear the loss. Commercial bad faith is
present if the transferee of the check acts dishonestly, and is a party to the fraudulent scheme.

SEC. 8. When payable to order. — The instrument is payable to order where it is drawn payable to the order of a specified person or to him or his
order. It may be drawn payable to the order of —
(a) A payee who is not maker, drawer, or drawee; or (b) The drawer or maker; or
(c) The drawee; or
(d) Two or more payees jointly; or
(e) One or some of several payees; or
(f) The holder of an office for the time being.

Where the instrument is payable to order, the payee must be named or otherwise indicated therein with reasonable certainty.
SEC. 9. When payable to bearer. — The instrument is payable to bearer —
(a) When it is expressed to be so payable; or
(b) When it is payable to a person named therein or bearer; or
(c) When it is payable to the order of a fictitious or non-existing person, and such fact is known to the person making it so payable; or
(d) When the name of the payee does not purport to be the name of any person
(e) Where the only or last indorsement is an indorsement in blank.

FACTS
34
Respondents-Spouses are clients of petitioner PNB and they are maintaining savings and demand/checking accounts
in the said bank. They were engaged in the informal lending business and had discounting arrangements with the
Philnabank Employees Savings and Loan Association (PEMSLA), an association of PNB Employees. Naturally,
PEMSLA was likewise a client of PNB.

PEMSLA regularly granted loans to its members. Spouses Rodriguez would rediscount the postdated checks issued to
members whenever the association was short of funds. As was customary, the spouses would replace the postdated
checks with their own checks issued in the name of the members.

Since the Respondents-Spouses do not approve application for loans of members with outstanding debts, the PEMSLA
officers devised a scheme to obtain additional loans despite their outstanding loan account. They took out loans in the
names of unknowing members, without the knowledge or consent of the latter. The PEMSLA checks issued for these
loans were then given to the spouses for rediscounting. The officers carried this out by forging the indorsement of the
named payees in the checks.

In return, the spouses issued their personal checks (Rodriguez checks) in the name of the members and delivered the
checks to an officer of PEMSLA. The PEMSLA checks, on the other hand, were deposited by the spouses to their
account.

Meanwhile, the Rodriguez checks were deposited directly by PEMSLA to its savings account without any indorsement
from the named payees. (Rodreiguez checks should have been given to payees or the employees and not directly to
PMESLA savings). This was an irregular procedure made possible through the facilitation of Edmundo Palermo, Jr.,
treasurer of PEMSLA and bank teller in the PNB Branch. It appears that this became the usual practice for the parties.

For the period November 1998 to February 1999, the spouses issued sixty nine (69) checks, in the total amount of
P2,345,804.00. These were payable to forty seven (47) individual payees who were all members of PEMSLA.

When PNB eventually found out about this, it closed the current account of PEMSLA. As a result, the PEMSLA checks
deposited by the spouses were returned or dishonored for the reason "Account Closed". The corresponding Rodriguez
checks, however, were deposited as usual to the PEMSLA savings account. The amounts were duly debited from the
Rodriguez account. Thus, because the PEMSLA checks given as payment were returned, spouses Rodriguez incurred
losses from the rediscounting transactions.

Spouses Rodriguez filed a civil complaint for damages against PEMSLA, Multi-Purpose Cooperative of PhilnaBankers,
and petitioner PNB. RTC ruled in favor of spouses and denied PNB’s motion to dismiss. CA ruled that the defendant-
aoppelant PNB is liable to plaintiff-appelees Sps. Rodriguez.

ISSUE

Whether the subject checks are payable to order or to bearer who bears the loss?

RULING

Verily, the subject checks are presumed order instruments. This is because, as found by both lower courts, PNB failed
to present sufficient evidence to defeat the claim of respondents-spouses that the named payees were the intended
recipients of the checks' proceeds. The bank failed to satisfy a requisite condition of a fictitious- payee situation — that
the maker of the check intended for the payee to have no interest in the transaction.

Because of a failure to show that the payees were "fictitious" in its broader sense, the fictitious-payee rule does not
apply. Thus, the checks are to be deemed payable to order. Consequently, the drawee bank bears the loss. PNB was
remiss in its duty as the drawee bank. It does not dispute the fact that its teller or tellers accepted the 69 checks for
deposit to the PEMSLA account even without any indorsement from the named payees. It bears stressing that order
instruments can only be negotiated with a valid indorsement.

In the case at bar, respondents-spouses were the bank's depositors. The checks were drawn against respondents-
spouses' accounts. PNB, as the drawee bank, had the responsibility to ascertain the regularity of the indorsements, and
the genuineness of the signatures on the checks before accepting them for deposit. Lastly, PNB was obligated to pay

35
the checks in strict accordance with the instructions of the drawers. Petitioner miserably failed to discharge this burden.

The checks were presented to PNB for deposit by a representative of PEMSLA absent any type of indorsement, forged
or otherwise. The facts clearly show that the bank did not pay the checks in strict accordance with the instructions of the
drawers, respondents-spouses. Instead, it paid the values of the checks not to the named payees or their order, but to
PEMSLA, a third party to the transaction between the drawers and the payees.

PNB's tellers and officers, in violation of banking rules of procedure, permitted the invalid deposits of checks to the
PEMSLA account. Indeed, when it is the gross negligence of the bank employees that caused the loss, the bank should
be held liable.

Relevant Notes

For the fictitious-payee rule to be available as a defense, PNB must show that the makers did not intend for the named
payees to be part of the transaction involving the checks. At most, the bank's thesis shows that the payees did not have
knowledge of the existence of the checks. This lack of knowledge on the part of the payees, however, was not
tantamount to a lack of intention on the part of respondents-spouse that payees would not receive the checks. The
spouses relied on the information that the PEMLA officers gave, and not the individual payees.

36
People vs. Wagas, 705 SCRA 17 (2013)
Sec. 9 and 191 Par. 14: Payable to bearer-Who is a Fictitious Person

People of the Philippines v Gilbert Wagas

Recit Ready Synopsis

Gilbert Wagas ordered 200 bags of rice from Alberto Ligaray over the telephone. He issued a check worth P200,000 but
it was dishonored due to lack of funds. Wagas refused to pay despite Ligaray’s demands. Ligaray admitted that he and
Wagas were not acquainted with each other prior to the transaction.

Was Ligaray able to authenticate Wagas’ identity in the telephone conversation? NO.

Although the check in question can be negotiated without indorsement, Ligaray was not able to properly identify Wagas’
identity in the conversation. Transactions via phone calls must be authenticated before it can be received as evidence.
The caller must be identified by voice recognition must be satisfactorily identified by voice recognition or by other
means. In this case, Ligaray was not able to provide any concrete proof that would establish that it was indeed Wagas
who he was conversing with. In addition to this,

Relevant Provisions / Concepts / Doctrines

Section 9. When payable to bearer.– The instrument is payable to bearer:

a. When it is expressly so payable
b. When it is payable to a person named therein or bearer; or
c. When it is payable to the order of a fictitious or nonexistent person, and such fact was known to the person
making it so payable
d. When the name of the payee does not purport to be the name of any person;
e. When the only or last indorsement is an indorsement bank

US v Orozco-Santillan
“The mere statement of his identity by the party calling is not in itself sufficient proof of such identity, in the absence of
corroborating circumstances so as to render the conversation admissible. However, circumstances preceding or
following the conversation may serve sufficiently identify the caller. The completeness of the identification goes to the
weight of the evidence rather than its admissibility, and the responsibility lies in the first instance with the district court to
determine within its sound discretion whether the threshold of admissibility has been met.”

FACTS

Gilbert Wagas ordered 200 bags of rice from Alberto Ligaray over the telephone. He issued a check worth P 200,000 as
mode of payment for the goods. However, the check was dishonored due to insufficient funds. Despite Ligaray’s
repeated demands, Wagas refused to pay.

Ligaray admitted that he and Wagas have not met personally and that they transacted only through the telephone.
Furthermore, he admitted that he released the bags of rice to Robert Cañada, Wagas’ brother-in-law.

On the other hand, Wagas admitted that he issued the check in question to Cañada. However, he denied having
conversed or having any business with Ligaray. Wagas stated that the check was supposed to be for a payment of a
portion of a land that he wanted to buy from Cañada, but after finding out that the check was dishonored, he no longer
funded it.

ISSUE

1. Whether or not Ligaray was able to authenticate Wagas’ identity in the telephone conversation [NO]

RULING
37
The check in question was payable to bearer under the Negotiable Instruments Law. Hence, it can be negotiated by
mere delivery without the need for indorsement. In this case, it is possible that Wagas issued the check to someone
else, such as his brother in law Cañada, who subsequently negotiated the check to Ligaray.

However, Ligaray was not able to explain how he identified the caller as Wagas, whom he has not met or known. Thus,
the Court stated that transactions via telephone conversations must be first authenticated before it can be received in
evidence. The caller must be identified by voice recognition must be satisfactorily identified by voice recognition or by
other means.
The caller must first be reliably identified before a telephone communication is accorded probative weight. The caller’s
identity must be proven by direct or circumstantial evidence.

Ligaray was not able to provide any plausible proof that would establish that it was indeed Wagas who he was
conversing with. Furthermore, his claim that “he knows” Wagas is vague and unreliable for not assuring the certainty of
the identification, and should not support a finding of Ligaray’s familiarity with Wagas as the caller by his voice. In fact,
Wagas was not even acquainted with Ligaray before.

The letter of Wagas served as rebuttal evidence in order to convince the Court that he had a transaction with Ligaray.

Relevant Notes

1. Note that while Wagas was acquitted from estafa, he may still be held civilly liable. He was legally liable to pay
Ligaray as the owner of the check.

38
Pacifica Jimenez vs. Dr. Jose Bucoy, G.R. No. L-10221 February 28, 1958
Topic

Section 10: Sufficiency of Terms

Recit Ready Synopsis

Relevant Provisions / Concepts / Doctrines

Negotiable Instruments; Promissory Notes; When Acknowledgement becomes a promise to pay. - An

acknowledgement of a debt becomes a promise to pay by the addition of words implying a promise of payment, such as
“payable”, “payable on a given day”, “payable on demand”.

FACTS

Luther Young and Pacita Young died intestate in 1954 and 1952 respectively, Pacifica Jimenez presented 4 promissory
notes signed by Pacita for different amounts. Pacita, as the administrator, manifested willingness to pay provided
adjustment of the sums be made in line with the Ballantyne schedule (currency conversion during the Japanese
Occupation). Bucoy objected to the adjustment insisting on full payment in accordance with the notes. Moreover,
Pacifica calls to attention the fact that the notes contained no express promise to pay a specified amount.

The promissory notes read as follows: “Received from Miss Pacifica Jimenez the total amount of (P10,000) ten
thousand pesos payable six months AFTER the war, without interest”. The other three notes were couched in the same
terms, except as to amounts and dates.

ISSUE

W/N Pacifica should pay the sum in accordance with the Ballantyne Schedule?
W/N Pacifica is correct in contesting that there was no express promise to pay? (main issue)

RULING

No.

The SC ruled that if the loan could be paid during the Japanese occupation, the Ballantyne schedule should apply with
corresponding reduction of the amount. However, if the loan was expressly agreed to be payable only after the war or
after liberation, or became payable after those dates, no reduction could be effected, and peso-for-peso payment shall
be ordered in Philippine currency.

No.

As of the above stated promissory note, the SC held that “an acknowledgement may become a promise by the addition
of words by which a promise of payment is naturally implied, such as, “payable,” “payable” on a given day, “payable on
demand,” “paid… when called for,”. To constitute a good promissory note, no precise words of contract are necessary,
provided they amount, in legal effect, to a promise to pay. In other words, if over and above the mere acknowledgement
of the debt may be collected from the words used a promise to pay it, the instrument may be regarded as a promissory
note.

39
Relevant Notes

40
Borromeo v. Sun, 317 SCRA 176
Sec. 14: Mechanically incomplete but delivered instrument

FEDERICO O. BORROMEO, LOURDES O. BORROMEO and FEDERICO O. BORROMEO, INC, petitioners

vs. AMANCIO SUN and the COURT OF APPEALS, respondents.

Recit Ready Synopsis

Relevant Provisions / Concepts / Doctrines

Sec. 14. Blanks; when may be filled. - Where the instrument is wanting in any material particular, the person in
possession thereof has a prima facie authority to complete it by filling up the blanks therein. And a signature on
a blank paper delivered by the person making the signature in order that the paper may be converted into a negotiable
instrument operates as a prima facie authority to fill it up as such for any amount. In order, however, that any such
instrument when completed may be enforced against any person who became a party thereto prior to its completion, it
must be filled up strictly in accordance with the authority given and within a reasonable time. But if any such instrument,
after completion, is negotiated to a holder in due course, it is valid and effectual for all purposes in his hands, and he
may enforce it as if it had been filled up strictly in accordance with the authority given and within a reasonable time.

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 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.

FACTS

Amancio Sun (respondent) brought before the then CFI of Rizal an action against the Borromeos of Federico O.
Borromeo Inc. (FOB) to compel the transfer to his name in the books of FOB 23,223 shares of stock registered in the
name of Federico O. Borromeo.

Sun is compelling for the transfer of the stocks in his name as he claims that all those stocks belong to him as the said
shares were placed in the name of Borromeo only to give him personality and importance in the business world.
According to Sun, on Jan. 16, 1974, Borromeo executed in his favor a Deed of Assignment with respect to the 23,223
shares of stock.

On the other hand, Borromeo disclaimed any participation in the execution of the Deed of Assignment, claiming that his
supposed signature in the Deed was forged. The CFI held that the questioned signature was the genuine signature of
Borromeo, saying that it is the signature of Borromeo from the years 1954-1957 but definitely not his signature in 1974
for by then he had already changed his signature.

On appeal by the petitioners, the CA reversed the decision and held that the signature was forged. However, they
reversed their decision when it was discovered that the expert witness presented by the Borromeos was not a credible
witness as he never finished any degree in Criminology, thus destroying his credibility in examining whether the
signature was forged or not.
41
Both parties then agreed to have the Deed of Assignment examined by the Philippine Constabulary Crime Laboratory
which found that the signature was indeed genuine. The Deed of Assignment was dated Jan. 16, 1974 but the PCCL
found that the signature was genuine as it matched Borromeo’s other signatures from the years 1950-1957 and stated
that the Deed of Assignment could have been signed anytime between those years.

The CA then held that the signature was indeed genuine due to the findings of the PCCL. Hence, this petition.

ISSUE

W / N the CA erred in holding that the questioned document was signed in 1954 but was dated in 1974 (NO)

RULING

That the Deed of Assignment is dated Jan. 16, 1974 while the questioned signature was found to be circa 1954-
1957, and not that of 1974, is of no moment.

It does not necessarily mean that the deed is a forgery. Pertinent records reveal that the subject Deed of Assignment is
embodied in blank form for the assignment of shares with authority to transfer such shares in the books of the
corporation. It was clearly intended to be signed in blank to facilitate the assignment of shares from one person
to another at any future time.

This is similar to Sec. 14 of the Negotiable Instruments Law where the blanks may be filled up by the holder, the
signing in blank being with the assumed authority to do so. Indeed, as the shares were registered in the name of
Borromeo just to give him personality and standing in the business community, Sun had to have a counter evidence of
ownership of the shares involved.

Thus, the execution of the Deed of Assignment in blank, to be filled up whenever needed. The same explains the
discrepancy between the date of the Deed of Assignment and the date when the signature was affixed thereto. The
Court then ruled that the signature was indeed genuine.

Relevant Notes

In this case, the Court considered that 20 years is still a reasonable amount of time.

42
Pacheco v. CA, G.R. No. 126670, December 2, 1999
Topic

ERNESTO T. PACHECO and VIRGINIA O. PACHECO, petitioners, vs. HON. COURT OF APPEALS and PEOPLE OF
THE PHILIPPINES, respondents.

Recit Ready Synopsis

● Petitioners spouses Ernesto T. Pacheco and Virginia O. Pacheco obtained a series of loans from Mrs. Luz
Vicencio which amounted to P85,000.00 at an interest of 10%.
● Instead of merely requiring a note of indebtedness, her husband Mr. Romualdo Vicencio required petitioners to
issue an undated check as evidence of the loan which allegedly will not be presented to the bank.
● Despite being informed by petitioners that their bank account no longer had any funds, Mrs. Vicencio insisted
that they issue the check, which according to her was only for formality. Thus, Virginia issued six undated
RCBC checks. When the remaining balance of P15,000.00 on the loan became due and demandable,
petitioners were not able to pay despite demands to do so.
● On August 3, 1992, Mrs. Vicencio and her daughter persuaded Virginia to place the date August 15, 1992, on
two checks. Later, petitioners were surprised to receive a demand letter from Mr. Vicencio informing them that
the checks when presented for payment on August 25, 1992 were dishonored by the bank due to "Account
Closed".
● Mr. Vicencio filed two informations for estafa against petitioners.
● RTC: Guilty of Estafa; CA: Affirmed the decision of the RTC.
● RULING: NOT GUILTY OF ESTAFA. The Supreme Court held that a check has the character of negotiability
and at the same time it constitutes an evidence of indebtedness. By mutual agreement of the parties, the
negotiable character of a check may be waived and the instrument may be treated simply as proof of an
obligation. There cannot be deceit on the part of the obligor , petitioners herein, because they agreed with
the obligee at the time of the issuance and postdating of the checks that the same shall not be
encashed or presented to the banks . As per assurance of the lender, the checks are nothing but evidence of
the loan or security thereof in lieu of and for the same purpose as a promissory note. The checks became
mere evidence of indebtedness. It has been ruled that a drawer who issues a check as security or
evidence of investment is not liable for estafa. In the absence of the essential element of deceit, no
estafa was committed by petitioners.

Relevant Provisions / Concepts / Doctrines

● A check has the character of negotiability and at the same time, it constitutes an evidence of indebtedness. By
mutual agreement of the parties, the negotiable character of a check may be waived and the instrument may be
treated simply as proof of an obligation.
● SECTION 14. Blanks; When May Be Filled. — Where the instrument is wanting in any material particular,
the person in possession thereof has a prima facie authority to complete it by filling up the blanks
therein. And a signature on a blank paper delivered by the person making the signature in order that the paper
may be converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any
amount. In order, however, that any such instrument when completed may be enforced against any person who
became a party thereto prior to its completion, it must be filled up strictly in accordance with the authority given
and within a reasonable time. But if any such instrument, after completion, is negotiated to a holder in due
course, it is valid and effectual for all purposes in his hands, and he may enforce it as if it had been filled up
strictly in accordance with the authority given and within a reasonable time.

FACTS

43
In 1989, Petitioner spouses Ernesto Pacheco and Virginia Pacheco obtained a loan of P10,000.00 from Mrs. Luz
Vicencio. Instead of merely requiring a note of indebtedness, her husband Mr. Romualdo Vicencio required
petitioners to issue an undated check as evidence of the loan which allegedly will not be presented to the bank.
Despite being informed by petitioners that their bank account no longer had any funds, Mrs. Vicencio insisted
that they issue the check, which according to her was only for formality. Mrs. Vicencio also required petitioner
Ernesto Pacheco, to sign the check on the same understanding that the check is not to be encashed but merely
intended as an evidence of indebtedness which cannot be negotiated.

Thereafter, petitioners obtained a series of other loans from Mrs. Vicencio, in which they were required to issue undated
checks. Petitioners were not amenable to these requirements, however, Mrs. Vicencio insisted that they issue the same
assuring them that the checks will not be presented to the banks but will merely serve as guarantee for the loan
since there was no promissory note required of them.

All the checks were undated at the time petitioners handed them to Mrs. Vicencio. The six checks represent a total
obligation of P85,000.00. Petitioners were able to settle and pay only P60,000.00, thus, they have a remaining balance
of P15,000.00.

When the loans became due and demandable, petitioners were not able to pay despite demands to do so. Thus, Mrs.
Vicencio made them place a date on the two checks corresponding to the balance despite being informed by
the petitioner that their account had been closed as early as August 17, 1989. Mrs. Vicencio and her daughter
insisted that she place a date on the checks allegedly so that it will become evidence of their indebtedness. The
petitioners obliged. However, petitioners were surprised to receive a demand letter from Mr. Vicencio informing them
that the checks, when presented for payment, were dishonored due to "Account Closed". So, upon the complaint of Mr.
Vicencio, two informations for estafa were filed against them.

ISSUE

Whether or not petitioners Ernesto Pacheco and Virginia Pacheco can be held liable for estafa? [NO]

RULING

No, they cannot be held liable since not all elements of the crime of estafa are not present . The Supreme Court held
that a check has the character of negotiability and at the same time it constitutes an evidence of indebtedness.
By mutual agreement of the parties, the negotiable character of a check may be waived and the instrument may
be treated simply as proof of an obligation.

There cannot be deceit on the part of the obligor , petitioners herein, because they agreed with the obligee at the
time of the issuance and postdating of the checks that the same shall not be encashed or presented to the
banks. As per assurance of the lender, the checks are nothing but evidence of the loan or security thereof in lieu
of and for the same purpose as a promissory note.

By their own covenant, therefore, the checks became mere evidence of indebtedness. It has been ruled that a
drawer who issues a check as security or evidence of investment is not liable for estafa. Mrs. Vicencio could not
have been deceived nor defrauded by petitioners in order to obtain the loans because she was informed that they no
longer have funds in their RCBC accounts. In the absence of the essential element of deceit, no estafa was
committed by petitioners.

Furthermore, the Court stated that Mrs. Vicencio’s husband should have known that he need not even ask the
petitioners to place a date on the check, because as holder of the check, he could have inserted the date pursuant to
Section 13 of the Negotiable Instruments Law (NIL). Moreover, as stated in Section 14 of the NIL, complainant, as
the person in possession of the check, has prima facie authority to complete it by filling up the blanks therein .
Besides, pursuant to Section 12 of the same law, a negotiable instrument is not rendered invalid by reason only that it is
antedated or postdated. Thus, the allegation of Mrs. Vicencio that the date to be placed by Virginia was necessary so as
to make the check evidence of indebtedness is nothing but a ploy. Petitioners openly disclosed and never hid the fact

44
 that they no longer have funds in the bank as their bank account was already closed. Knowledge by the complainant
that the drawer does not have sufficient funds in the bank at the time it was issued to him does not give rise to
a case for estafa through bouncing checks.

Relevant Notes

People vs. Yabut, G.R. No. L-42847 April 29, 1977

Topic

Full title of the case

THE PEOPLE OF THE PHILIPPINES, petitioner, vs. CECILIA QUE YABUT and HON. JESUS DE VEGA, as Judge
of the Court of First Instance of Bulacan, Branch II, respondents.

Recit Ready Synopsis

Relevant Provisions / Concepts / Doctrines

● The Court noted that what is of decisive importance is the delivery thereof. The delivery of the instrument is the
final act essential to its consummation as an obligation. The delivery signifies that transfer of possession,
whether actual or constructive, from one person to another with intent to transfer title thereto.

FACTS

● Private respondent Cecilia Que Yabut was accused of estafa by means of false pretenses before the CFI,
Bulacan.
● The Information stated that as the treasurer of Yabut Transit Line, she prepared, issued, and made checks
worth P6,568.94 despite knowing that she had insufficient funds. The checks were drawn against Merchants
Banking Corporation, payable to Freeway Tires Supply. The checks were dishonored and she still failed to pay
despite repeated demands from Alicia Andan, owner of Freeway.
● Yabut filed a motion to quash contending that the acts charged: (1) do not constitute the offense as there is no
allegation that the postdated checks were issued and delivered to the complainant prior to or simultaneously
with the delivery of the merchandise; that estafa was not indictable when checks are postdated or issued in
payment of a pre-existing obligation; and (2) she should have been charged in the City of Caloocan and not
Malolos, Bulacan because the former is where the postdated checks were issued and delivered.
● Judge Jesus de Vega quashed the information because the proper venue in the case is Caloocan and not
Bulacan.
● On the other hand, another case was filed against Geminiano Yabut, Jr., husband of Cecilia of the crime of
estafa. The Information stated that P37,206 worth of checks were drawn by Germiniano against Merchants
Banking Corporation and Manufacturers Bank and Trust Company, payable to Freeway, despite him knowing
that he had insufficient funds. The checks were also dishonored.
● Germiniano also filed a motion to quash stating the same reasons that her wife posed.

45
● Judge Paras quashed the information because the elements of the crime alleged took place in the territorial
jurisdiction of Bulacan and not Caloocan City.
● People moved for reconsideration, thus this case

ISSUE

1. W/N the Court in Malolos, Bulacan has jurisdiction over the case? YES.
2. W/N the postdating or issuing of a worthless check in payment of a pre-existing obligation constitutes estafa?
Court did not rule due to lack of evidence

RULING

● Estafa by postdating or issuing a bad check may be a transitory or continuing offense. Its basic elements of
deceit and damage may arise in separate places, thus the institution of criminal action in either place is legally
allowed.
● The Revised Rules of Court stated that, “In all criminal prosecutions the action shall be instituted and tried in the
Court of the municipality of province wherein the offense was committed or any one of the essential ingredients
thereof took place.” However, if all the essential elements of the crime were committed in one place, it shall be
tried only in that place.
● The Court stated that the estafa in the two Informations are transitory or continuing in nature. The deceit took
place in Bulacan, while the damage in Caloocan, where the checks were dishonored. Jurisdiction can
therefore be tried either in Malolos or Caloocan.
● However, the Court noted that what is of decisive importance is the delivery thereof. The delivery of the
instrument is the final act essential to its consummation as an obligation. The delivery signifies that transfer of
possession, whether actual or constructive, from one person to another with intent to transfer title
thereto.
● The element of deceit through issuance and delivery of the worthless checks took place in Malolos, conferring
upon the Court in that locality jurisdiction to try the case.
● Despite Modesto Yambao’s receipt of the bad checks from the Yabut spouses in Caloocan, it cannot be taken
as delivery of check to the complainant Andan because he did not take delivery of the checks as holder (i.e.
payee or indorsee). There was no contract of agency between Yambao and Andan to bind the latter to the acts
of the former.
● Yambao is merely Andan’s messenger or part-time employee. There was no fiduciary relationship that
permeated their dealings. Therefore, there was no consent. Absent any consent, there can be no contract of
agency.
● In addition, if the undertaking is to deliver a determinate thing, the payment shall be made wherever the thing
might be at the moment the obligation was constitution. The receipt of the transaction of the tires and gas
supplies was at Bulacan. This signifies the consummation of the contract between the parties.
● Appealed orders of respondent trial courts ordering the quashal of estafa informations against the respondents
are set aside

Relevant Notes

46
People vs. Gorospe, G.R. No. L-74053-54 January 20, 1988
Topic

PEOPLE OF THE PHILIPPINES and SAN MIGUEL CORPORATION, petitioners, vs. NATHANIEL M. GROSPE,
Presiding Judge, Branch 44, Regional Trial Court of Pampanga and MANUEL PARULAN, respondents.

Recit Ready Synopsis

Relevant Provisions / Concepts / Doctrines

Section 14 (a) of Rule 110 of the Revised Rules of Court, which has been carried over in Section 15(a) of Rule 110 of
the 1985 Rules of Criminal Procedure, specifically provides:

"SEC. 14. Place where action is to be instituted. —

(a) In all criminal prosecutions the action shall be instituted and tried in the court of the municipality or province wherein
the offense was committed or any one of the essential ingredients thereof took place."

FACTS

· Respondent-Accused Grospe is an authorized wholesale dealer of petitioner San Miguel Corporation

(SMC) in Bulacan
· In a Criminal Case in the RTC of Pampanga, Respondent-Accused was charged of BP 22 for having
issued a check on 13 June 1983 for P86,071.20 in favor of SMC but which was dishonored for having been
drawn against "insufficient funds"
· In another Criminal case of the same court accused was charged with Estafa under Article 315,
paragraph 2(d) of the Revised Penal Code for having made out a check on 18 June 1983 in the sum of
P11,918.80 in favor of SMC in payment of beer he had purchased, but which check was refused payment
for "insufficient funds nd, in spite of repeated demands, for having failed and refused to redeem said check
to the damage and prejudice of SMC.
· The cases were tried jointly and based form the facts, the respondent judge ruled that
o The two checks involved herein were issued and signed by the accused in connection with the beer
purchases made by him on various occasions at the Guiguinto sales office of SMC at Guiguinto,
Bulacan
o Did not believe claim of the accused that the checks were delivered to Sales Supervisor of
SMC, Mr. Cornelio, in blank and were filled out without the accused’s knowledge of the amounts
appearing therein
o However, Respondent Judge explains that the two essential elements that make up the
offenses involving dishonored checks, did not occur within the territorial jurisdiction of his
Court in Pampanga, but rather in Bulacan where false assurances were given by
Respondent- accused and where the checks he had issued were dishonored.
· Petition for Certiorari in case herein challenges the dismissal of the 2 criminal cases on the ground that
they were issued with grave abuse of discretion amounting to lack of jurisdiction
· Take note that there are two dishonored checks involved
o (1) On June 13, 1983, Respondent-accused issued a check (P86,071.20 ) to SMC, received by the
SMC Supervisor at Guiguinto, Bulacan. The check was forwarded to the SMC Regional Office at
San Fernando, Pampanga then delivered to the SMC Finance Officer, who then deposited the
check to (BPI), San Fernando Branch, which is the SMC depository bank. SMC depository
bank received a notice of dishonor of the said check for "insufficiency of funds" from the PDB –
VIOLATION OF BP 22
o (2) On June 18, 1983, Respondent-accused likewise issued a check (P11,918.80) to SMC, then
47
 received by SMC Supervisor at Guiguinto, Bulacan, the forwarded to forwarded by the SMC
Supervisor to the SMC Regional Office in San Fernando, Pampanga, then delivered to Finance
officer who deposited check at SMC depository bank in San Fernando, Pampanga. SMC
depositary bank then received a notice of dishonor from drawee bank PDB in Sta. Maria Bulacan. -
subject of the prosecution for Estafa by post-dating or issuing a bad check under Article 315,
paragraph 2(d)

ISSUE

Which court has jurisdiction over the case?

RULING

The crime was committed in San, Fernando Pampanga and the Respondent judge ordered to REASSUME jurisdiction
over the criminal cases.

The court cited Section 14 (a) of Rule 110 of the ROC and explained that a person charged with a transitory crime
may be validly tried in any municipality or province where the offense was in part committed. In transitory or
continuing offenses in which some acts material and essential to the crime and requisite to its consummation
occur in one province and some in another, the Court of either province has jurisdiction to try the case, it being
understood that the first Court taking cognizance of the Case will exclude the others.

Estafa by postdating or issuing a bad check, may be a transitory or continuing offense. Its basic elements of
deceit and damage may arise independently in separate places. In this case, deceit took place in San Fernando,
Pampanga, while the damage was inflicted in Bulacan where the check was dishonored by the drawee bank in
that place Jurisdiction may, therefore, be entertained by either the Bulacan Court or the Pampanga Court.

For while the subject check was issued in Guiguinto, Bulacan, it was not completely drawn thereat, but in San
Fernando, Pampanga, where it was uttered and delivered. What is of decisive importance is the delivery thereof.
The delivery of the instrument is the final act essential to its consummation as an obligation.

For although the check was received by the SMC Sales Supervisor at Guiguinto, Bulacan, that was not the
delivery in contemplation of law to the payee, SMC. Said supervisor was not the person who could take the check
as a holder, that is, as a payee or indorsee thereof, with the intent to transfer title thereto. The rule is that the
issuance as well as the delivery of the check must be to a person who takes it as a holder, which means "the
payee or indorsee of a bill or note, who is in possession of it, or the bearer, thereof"

Thus, said representative had to forward the check to the SMC Regional Office in San Fernando, Pampanga,
which was delivered to the Finance Officer thereat who, in turn, deposited it at the SMC depository bank in San
Fernando, Pampanga. The element of deceit, therefore, took place in San Fernando, Pampanga, where the rubber
check was legally issued and delivered so that jurisdiction could properly be laid upon the Court in that locality.

Relevant Notes

48
State Investment House, Inc. vs. CA and Nora Moulic, G.R. No. 101163 January 11,
1993
Mechanically Complete but Undelivered Instrument

STATE INVESTMENT HOUSE, INC., petitioner, vs. COURT OF APPEALS and NORA B. MOULIC, respondents.

Recit Ready Synopsis

Nora Moulic issued to Corazon Victoriano, as security for pieces of jewelry to be sold on commission, 2 post-dated
checks which she then gave to State Investment. She failed to sell the jewels and returned them to Corazon. Since the
checks couldn’t be retrieved, Nora instead withdrew the funds from the bank. The checks were dishonored when State
investment attempted to collect which led to State suing Nora; the checks were complete and without defect, but were
ultimately undelivered. SC then ruled that State Investment was a holder of the checks in due course after satisfying the
requirements under §52 of the Negotiable Instruments Law

Relevant Provisions / Concepts / Doctrines

Sec 52 NIL: 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

Sec 114 NIL: 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.

FACTS

Nora Moulic issued as security jewelry to be sold on commission to Corazon Victoriano. Nora issued 2 post-dated
checks for Php50k each dated 08/30/79 and 09/30/79 respectively. Nora then negotiated the checks to State
Investment House. Nora failed to sell the jewels, so she returned them to Corazon before the checks’ maturity;
however, the checks couldn’t be retrieved since they’ve already been negotiated, instead, Nora withdrew her funds from
the bank.

When State presented the checks, the checks were dishonored for lack of funds. State notified Nora of the dishonored
checks and asked to be paid in cash instead, but Nora denied that she ever received a notification. On 10/06/83, State
sued Nora to recover the checks’ value. Nora argued that she incurred no obligation on the checks since the jewels
were never sold and the checks were negotiated without her knowledge and consent. Nora also issued a 3 rd party
complaint against Corazon who assumed full responsibility for the checks.

The trial court dismissed both State’s and Nora’s complaint. Upon appeal, the CA affirmed the dismissal on the ground
that the notice of dishonor was given to Nora beyond the prescribed period in the Negotiable Instruments Law (NIL).
The CA held that the checks should’ve never been presented for payment; the sale of the jewels was never effected,
thus, the checks ceased to serve their purpose as security for the jewelry. Before SC, the parties agreed that the
checks were negotiable and to limit the issue to one thing.

ISSUE

49
Whether State Investment House Inc. was a holder of the checks in due course.

RULING

Yes, State holds the instruments free from any defect of title from prior parties and from defenses available to prior
parties among themselves; State may enforce the payment of the checks.

§52 NIL states that 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

From this provision, there’s a prima facie presumption that the holder of a negotiable instrument is a holder in
due course. The burden of proving one is not a holder in due course lies upon the person challenging this presumption.
In this case, Nora failed. Evidence shows that:

a. On their faces the post-dated checks were complete and regular

b. State bought these checks from payee Corazon before their due dates
c. State took these checks in good faith and for value, albeit at a discounted price
d. State was never informed or made aware that these checks were merely issued to payee as
security and not for value

Nora can’t argue that there was a failure or absence of consideration on State’s part. This defense can only be invoked
if State was privy to the purpose for which the checks were issued. The fact that State failed to give a notice of dishonor
to Nora is immaterial. §114 NIL states that the need for a notice isn’t absolute; Nora was responsible for the
dishonor of her checks, thus, there’s no need for a notice.

Wherefore, petition granted.

Relevant Notes

50
Development Bank of Rizal v. Wei, et al., 219 SCRA 736 (March 9, 1993)
Topic

Development Bank of Rizal v. Wei, et al., G.R. No. 85419, March 9, 1993

Recit Ready Synopsis

Wei issued two crossed checks payable to DBR. For unknown reasons, Huat obtained physical possession
of the check and deposited it to the account of Plastic Corp. in Producers Bank, without the indorsement of
DBR. Producers Bank accepted the checks relying only on the assurance of Tung, the President of Plastic
Corp., even if the subject checks were crossed and payable to DBR and there was no indorsement of the
latter. DBR sued them for the checks.

W/N DBR has cause of action against respondents insofar as the checks were concerned.

No. DBR acquired no right or interest with respect to the checks because they were not delivered to DBR.
Sec. 16 states that to give effect to a negotiable instrument, it must be delivered to the payee. Hence, DBR
has no cause of action against the respondents insofar as the checks were concerned.

Relevant Provisions / Concepts / Doctrines

The payee of a negotiable instrument acquires no interest with respect thereto until its delivery to him. Sec.
16 of the NIL states that “Every contract on a negotiable instrument is incomplete and revocable until
delivery of the instrument for the purpose of giving effect thereto. . . .” Without the initial delivery of the
instrument from the drawer to the payee, there can be no liability on the instrument.

Delivery of an instrument means transfer of possession, actual or constructive, from one person to another.

FACTS

● Sima Wei obtained a loan from DBR evidenced by a PN which states Wei to pay DBR or order the
amount of 1.8M on or before June 24, 1983 with interest at 32% per annum.
● In Nov. 1983, Wei issued two crossed checks payable to DBR against Chinabank for the payment of
the remaining balance of the drawer’s (Wei) account evidenced by the PN.
● However, the two checks were not delivered to DBR or to any of its authorized representatives.
● Apparently, the checks came into the possession of Lee Kian Huat, for unknown reasons, who
deposited the checks without the petitioner-payee’s (DBR) indorsement to the account of Plastic
Corporation at Producers Bank.
● Producers Bank relied on the assurance of Samson Tung, the President of Plastic Corp., that the
transaction was regular even if the checks were crossed and payable to DBR and bore no
indorsement of the latter.
● DBR then filed a complaint for a sum of money against Wei, et. al. on two causes of action: (1) to
enforce the PNs, and (2) to enforce the subject checks to pay the balance due on the PNs.

ISSUE

W/N the DBR has cause of action against the respondents insofar as the checks were concerned.

RULING

51
No. Sec. 16 of the Negotiable Instruments Law states delivery is essential so as to give effect to instrument.
The payee of a negotiable instrument acquires no interest with respect to the instrument until it is delivered
to him. In this case, the subject checks are not delivered to DBR. Without delivery, DBR did not acquire any
right or interest therein and cannot assert any cause of action, founded on said checks, against the
respondents.

Relevant Notes

Wei averred that he had paid the obligation on the PNs using the checks, but the Court did not agree to the
theory: the checks were not delivered to DBR. Even if assumed that there was delivery, it will not effect
payment until the checks were cashed or their value is impaired through the creditor's fault. The Court
remanded the case for the first cause of action (enforcement of the PNs).

52
De La Victoria v. Burgos, G.R. No. 111190 June 27, 1995
Topic

Full title of the case

LORETO D. DE LA VICTORIA, as City Fiscal of Mandaue City and in his personal capacity
as garnishee, petitioner, vs. HON. JOSE BURGOS, Presiding Judge, RTC, and RAUL H.
SESBREÑO, respondents.

Recit Ready Synopsis

Raul Sesbreno filed a complaint for damages against Assistant City Fiscal Mabanto. Judgment was rendered ordering
Mabanto to pay 11,000 and a notice of garnishment was served on petitioner City Fiscal de la Victoria (as releaser of
salary of Mabanto). The notice ordered petitioner not to disburse, transfer, release or convey to any other person except
to the deputy sheriff concerned the salary checks, monies, or cash due or belonging to Mabanto, Jr., under penalty of
law. However, this was contested by petitioner saying that he was not in possession of any money, funds, credit,
property or anything of value belonging to Mabanto, Jr., except his salary and RATA checks, but that said checks were
not yet properties of Mabanto, Jr., until delivered to him. He further claimed that, as such, they were still public funds
which could not be subject to garnishment.

The Court sided with petitioner ruling that inasmuch as said checks had not yet been delivered to Mabanto, Jr., they did
not belong to him and still had the character of public funds. As a necessary consequence of being public fund, the
checks may not be garnished to satisfy the judgment.The rationale behind this doctrine is obvious consideration of
public policy.

Relevant Provisions / Concepts / Doctrines

As a necessary consequence of being public fund, the checks may not be garnished to satisfy the judgment.The
rationale behind this doctrine is obvious consideration of public policy.

FACTS

■ Raul Sesbreño led a complaint for damages against Assistant City Fiscals Bienvenido N. Mabanto, Jr., and
Dario D. Rama, Jr., before the Regional Trial Court of Cebu City.
■ After trial Judgment was rendered ordering the defendants to pay P11,000.00 to the plaintiff, private respondent
herein. The decision having become final and executory, on motion of the latter, the trial court ordered its
execution. This order was questioned by the defendants before the Court of Appeals.
■ A writ of execution was issued and a notice of garnishment was served on petitioner Loreto D. de la Victoria
as City Fiscal of Mandaue City where defendant Mabanto, Jr., was then detailed.
■ The Notice directed petitioner not to disburse, transfer, release or convey to any other person except to the
deputy sheriff concerned the salary checks, monies, or cash due or belonging to Mabanto, Jr., under penalty of
law.
■ As a result, private respondent filed a motion before the trial court for examination of the garnishees.
■ The petition pending before the Court of Appeals was dismissed. Thus the trial court, finding no more legal
obstacle to act on the motion for examination of the garnishees, directed petitioner to submit his report showing
the amount of the garnished salaries of Mabanto, Jr., within (15) days from receipt taking into consideration the
provisions of Sec. 12, pars. (f) and (i), Rule 39 of the Rules of Court.
■ However, petitioner failed to comply and private respondent led a motion to require petitioner to explain why he
should not be cited in contempt of court for failing to comply with the said order.
■ Petitioner moved to quash the notice of garnishment claiming that he was not in possession of any money,
funds, credit, property or anything of value belonging to Mabanto, Jr., except his salary and RATA checks, but
53
 that said checks were not yet properties of Mabanto, Jr., until delivered to him. He further claimed that, as such,
they were still public funds which could not be subject to garnishment.

Trial Court:

● Denied both motions and ordered petitioner to immediately comply with the order.
● It opined that the checks of Mabanto, Jr., had already been released through petitioner by the Department of
Justice duly signed by the officer concerned. Upon service of the writ of garnishment, petitioner as custodian of
the checks was under obligation to hold them for the judgment creditor. Petitioner became a virtual party to, or a
forced intervenor in, the case and the trial court hereby acquired jurisdiction to bind him to its orders and
processes with a view to the complete satisfaction of the judgment.
● Additionally there was no sufficient reason for petitioner to hold the checks because they were no longer
government funds and presumably delivered to the payee, conformably with the last sentence of Sec. 16 of
the Negotiable Instruments Law.
● With regard to the contempt charge, the trial court was not morally convinced of petitioner's guilt. For, while his
explanation suffered from procedural infirmities nevertheless he took pains in enlightening the court by sending
a written explanation dated 22 July 1992 requesting for the lifting of the notice of garnishment on the ground
that the notice should have been sent to the Finance Officer of the Department of Justice. Petitioner insists that
he had no authority to segregate a portion of the salary of Mabanto, Jr. The explanation however was not
submitted to the trial court for action since the stenographic reporter failed to attach it to the record.
● The motion for reconsideration was denied. The trial court explained that it was not the duty of the garnishee to
inquire or judge for himself whether the issuance of the order of execution, writ of execution and notice of
garnishment was justified. His only duty was to turn over the garnished checks to the trial court which issued
the order of execution.

Petitioner:
Petitioner reiterates his position that the salary checks were not owned by Mabanto, Jr., because they were not yet
delivered to him, and that petitioner as garnishee has no legal obligation to hold and deliver them to the trial court to be
applied to Mabanto, Jr.' s judgment debt. The thesis of petitioner is that the salary checks still formed part of public
funds and therefore beyond the reach of garnishment proceedings.

ISSUE

1. Whether a check still in the hands of the maker or its duly authorized representative is owned by the payee before
physical delivery to the latter; and, (NO, a check still in the hands of the maker or its duly authorized representative is
NOT owned by the payee before physical delivery to the latter.)
2. Whether the salary check of a government official or employee funded with public funds can be subject to
garnishment. (NO, salary check of a government official or employee funded with public funds CANNOT be subject to
garnishment.)

RULING

1. Garnishment is considered as a species of attachment for reaching credits belonging to the Judgment debtor owing
to him from a stranger to the litigation. Emphasis is laid on the phrase "belonging to the judgment debtor" since it is the
focal point in resolving the issues raised.

As Assistant City Fiscal, the source of the salary of Mabanto, Jr., is public funds. He receives his compensation in the
form of checks from the Department of Justice through petitioner as City Fiscal of Mandaue City and head of office.

Under Sec. 16 of the Negotiable Instruments Law, every contract on a negotiable instrument is incomplete and
revocable until delivery of the instrument for the purpose of giving effect thereto.

As ordinarily understood, delivery means the transfer of the possession of the instrument by the maker or the drawer
with intent to transfer title to the payee and recognize him as the holder thereof.

According to the trial court, the checks of Mabanto, Jr., were already released by the Department of Justice duly signed
by the officer concerned through petitioner and upon service of the writ of garnishment by the sheriff, petitioner was
under obligation to hold them for the judgment creditor. It recognized the role of petitioner as custodian of the checks. At
the same time however it considered the checks as no longer government funds and presumed delivered to the payee
based on the last sentence of Sec. 16 of the Negotiable Instruments Law.

54
 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.

Yet, the presumption is not conclusive because the last portion of the provision says "until the contrary is proved."
However this phrase was deleted by the trial court for no apparent reason. Proof to the contrary is its own finding that
the checks were in the custody of petitioner. Inasmuch as said checks had not yet been delivered to Mabanto, Jr.,
they did not belong to him and still had the character of public funds.

2. As a necessary consequence of being public fund, the checks may not be garnished to satisfy the
judgment.The rationale behind this doctrine is obvious consideration of public policy.

In denying petitioner's motion for reconsideration, the trial court expressed the additional ratiocination that it was not
the duty of the garnishee to inquire or judge for himself whether the issuance of the order of execution, the writ of
execution, and the notice of garnishment was justified, citing our ruling in Philippine Commercial Industrial Bank v.
Court of Appeals.

Our precise ruling in that case that "[I]t is not incumbent upon the garnishee to inquire or to judge for itself whether or
not the order for the advance execution of a judgment is valid." But that is invoking only the general rule. We have also
established therein the compelling reasons, as exceptions thereto, which were not taken into account by the trial court,
e.g., a defect on the face of the writ or actual knowledge by the garnishee of lack of entitlement on the part of the
garnisher. It is worth to note that the ruling referred to the validity of advance execution of judgments, but a careful
scrutiny of that case and similar cases reveals that it was applicable to a notice of garnishment as well.

In the case at bench, it was incumbent upon petitioner to inquire into the validity of the notice of garnishment
as he had actual knowledge of the non-entitlement of private respondent to the checks in question.
Consequently, we find no difficulty concluding that the trial court exceeded its jurisdiction in issuing the notice
of garnishment concerning the salary checks of Mabanto, Jr., in the possession of petitioner.

Relevant Notes

DISPOSITIVE:
WHEREFORE, the petition is GRANTED. The orders of 9 March 1993 and 20 April 1993 of the Regional Trial Court of
Cebu City, Br. 17, subject of the petition are SET ASIDE. The notice of garnishment served on petitioner dated 3
February 1992 is ordered DISCHARGED.

55
Lim v. CA, G.R. No. 107898 December 19, 1995
Topic

Full title of the case

MANUEL LIM and ROSITA LIM, petitioners, vs. COURT OF APPEALS and PEOPLE OF THE PHILIPPINES,
respondents.

Recit Ready Synopsis

Spouses Lim were charged with estava and violation of BP 22 after allegedly conspiring together to purchase goods
from LINTON and with deceit issued 7 SOLIDBANK checks with the delivery as payment. However, the checks
were dishonored due to the insufficiency of funds. Despite repeated notice and demand the Lim spouses failed
and refused to pay the checks or the value of the goods. Petitioner argued that his company had sufficient funds
and that the RTC Malabon does not have jurisdiction over the case. The court disagrees, ruling that according to
the NIL, the act of “issuing” the checks is committed when the first delivery of the instrument completes in form to
a person who takes it as a holder. In this case, although LINTON collected the checks from their Company in
Kalookan, they were in fact issued in Navotas, the place of business of LINTON, clearly within the jurisdiction of
the RTC Malabon.

Relevant Provisions / Concepts / Doctrines

Sec. 191, NIL. “Issue” means the first delivery of the instrument, complete in form, to a person who takes it as a holder;

FACTS

Spouses Lim were charged with 3 counts of estafa and violation of BP 22 after they allegedly conspired together
to purchase goods from Linton and with deceit issued 7 SOLIDBANK checks with the delivery as payment.
However, the checks were dishonored due to the insufficiency of funds. Despite repeated notice and demand the
Lim spouses failed and refused to pay the checks or the value of the goods.

Manuel and Rosita are the president and treasurer of RIGI who has been transacting with LINTON for years,
LINTON supplying them with steel plates, steel bars, flat bars and purlin sticks which it uses in fabrication,
installation and building of steel structures. As officers of RIGI, they were allowed up to 90 days of credit as
officers of the said company.

Petitioner denied that his company's account had insufficient funds to cover the amounts of the checks. He also
claimed that he ordered SOLIDBANK to stop payment because the supplies delivered by LINTON were not in
accordance with the specifications in the purchase orders.

RTC held them both as guilty for both offenses

CA acquitted them of estafa because the checks were not made in payment of an obligation contracted at the
time of their issuance, but the CA affirmed their guilt of having violated BP 22

Petitioner argues that the RTC of Malabon lacks jurisdiction because the prosecution failed to prove that any
essential elements of the crime of BP 22 was committed under its jurisdiction. They claim that what was proved
was that all the elements of the offense were committed in Kalookan City. The checks were issued at their place

56
of business, received by a collector of LINTON, and dishonored by the drawee bank, all in Kalookan City.

ISSUE

Does RTC Malabon have jurisdiction? YES.

RULING

YES. The court disagrees with the petitioner, the gravamen of the offense is knowingly issuing a worthless check.
Petitioners, with knowledge of the insufficiency of funds, issued the check in Navotas City, clearly within the
jurisdiction of the court.

Under the NIL the term "issue" means the first delivery of the instrument complete in form to a person who takes it
as a holder. On the other hand, the term "holder" refers to the payee or indorsee of a bill or note who is in
possession of it or the bearer thereof.

Although LINTON sent a collector who received the checks from petitioners at their place of business in Kalookan
City, they were actually issued and delivered to LINTON at its place of business in Balut, Navotas. The receipt of
the checks by the collector of LINTON is not the issuance and delivery to the payee in contemplation of law. The
collector was not the person who could take the checks as a holder. Neither could the collector be deemed an
agent of LINTON with respect to the checks because he was a mere employee.

Relevant Notes

57
RCBC v. Hi-Tri Development Corporation, et al., G.R. No. 192413 June 13, 2012
Topic

Full title of the case

Rizal Commercial Banking Corporation vs. Hi-Tri Development Corporation and Luz R. Bakunawa

Recit Ready Synopsis

The case before the RTC involved the Complaint for Escheat filed by the Republic of the Philippines 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 and credited in favor of the Republic. The assailed RTC judgments involve an
unclaimed balance in the amount of ₱ 1,019,514.29

Relevant Provisions / Concepts / Doctrines

● 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.
● 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.

FACTS

1. Spouses Bakunawa are registered owners of six parcels of land.These lots were sequestered by the
Presidential Commission on Good Government
2. Sometime in 1990, Teresita 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.
The Spouses Bakunawa gave to Millan the Owner’s Copies of TCTs of the 6 parcels of land and made a
downpayment of ₱ 1,019,514.29
3. 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 downpayment of ₱ 1,019,514.29 but
Millan refused
4. Spouses Bakunawa, through their company, the Hi-Tri Development Corporation took out, 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 RTC praying that Millan accept the
manager’s check and return the TCT’s of the 6 parcels of land.All throughout the proceedings, 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.
5. During the pendency of the above mentioned case and without the knowledge of Hi-Tri and Spouses
Bakunawa RCBC reported the ₱ 1,019,514.29-credit existing in favor of Rosmil to the Bureau of Treasury
as among its "unclaimed balances"

58
 6. 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. It is at this point that they discovered that the
managers check amounting to ₱ 1,019,514.29 was already subjected to escheat proceedings
7. Rulings:
RTC: The trial court ordered the deposit of the escheated balances with the Treasurer and credited in
favor of the Republic.
CA: Reversed RTC decision.They 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.

ISSUE

Whether or not escheat of the account in RCBC is proper [NO]

RULING

● 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, Sec. 16 of NIL
is applicable
● When Rosmil did not accept the Manager’s Check offered by respondents, the Sps Bakunawa 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.
● 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.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.

Relevant Notes

● 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.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

ordinary check manager’s or cashier’s check

● refers to a bill of exchange drawn by a ● bills of exchange drawn by the bank’s

depositor (drawer) on a bank (drawee), manager or cashier, in the name of the bank,
requesting the latter to pay a person against the bank itself.
named therein (payee) or to the order of ● Typically, a manager’s or a cashier’s check
the payee or to the bearer, a named sum is procured from the bank by allocating a
of money. particular amount of funds to be debited from
● The issuance of the check does not of the depositor’s account or by directly paying
itself operate as an assignment of any or depositing to the bank the value of the
part of the funds in the bank to the credit check to be drawn.
of the drawer. ● Since the bank issues the check in its name,
● Here, the bank becomes liable only after with itself as the drawee, the check is
it accepts or certifies the check. deemed accepted in advance.
● After the check is accepted for payment, ● Ordinarily, the check becomes the primary
the bank would then debit the amount to obligation of the issuing bank and constitutes
be paid to the holder of the check from its written promise to pay upon demand
the account of the depositor-drawer.

59
60
PNB v. Concepcion Mining Co., Inc., G.R. No. L-16968, July 31, 1962
Topic

Rules of Construction

Recit Ready Synopsis

Relevant Provisions / Concepts / Doctrines

SEC. 17. Construction where instrument is ambiguous. — Where the language of the instrument is ambiguous or there
are omissions therein, the following rules of construction apply:
(g) Where an instrument containing the word “I promise to pay” is signed by two or more persons, they are deemed to
be jointly and severally liable thereon.

ART. 1216. The creditor may proceed against any one of the solidary debtors or some of them simultaneously. The
demand made against one of them shall not be an obstacle to those which may subsequently be directed against the
others so long as the debt has not been fully collected.

FACTS

A promissory note dated march 12, 1954 was executed by Vicente Legarda, president of Concepcion Mining Company,
and Jose Sarte. On the face of the promissory note partially reads:
NINETY DAYS after date, for value received, I promise to pay to the order of the Philippine National Bank . . . . The
promissory note matured and without payment from the makers. PNB sued Concepcion Mining and Sarte.

Upon the filing of the complaint the defendants presented their answer in which they allege that the co-maker the
promissory note Don Vicente L. Legarda died on February 24, 1946 and his estate is in the process of judicial
determination in Special Proceedings No. 29060 of the Court of First Instance of Manila. On the basis of this allegation
it is prayed, as a special defense, that the estate of said deceased Vicente L. Legarda be included as party-defendant.
The court in its decision ruled that the inclusion of said defendant is unnecessary and immaterial

ISSUE

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

RULING

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

SEC. 17. Construction where instrument is ambiguous. — Where the language of the instrument is ambiguous or
there are omissions therein, the following rules of construction apply:
(g) Where an instrument containing the word “I promise to pay” is signed by two or more persons, they are deemed to
be jointly and severally liable thereon.

And Article 1216 of the Civil Code of the Philippines also provides as follows:

61
ART. 1216. The creditor may proceed against any one of the solidary debtors or some of them simultaneously. The
demand made against one of them shall not be an obstacle to those which may subsequently be directed against the
others so long as the debt has not been fully collected.

In view of the above quoted provisions, and as the promissory note was executed jointly and severally by the same
parties, namely, Concepcion Mining Company, Inc. and Vicente L. Legarda and Jose S. Sarte, the payee of the
promissory note had the right to hold any one or any two of the signers of the promissory note responsible for the
payment of the amount of the note. This judgment of the lower court should be affirmed.

Relevant Notes

62
Republic Planters Bank v. CA, G.R. No. 93073 December 21, 1992
Topic

REPUBLIC PLANTERS BANK, petitioner, vs. COURT OF APPEALS and FERMIN CANLAS, respondents.

Recit Ready Synopsis

Relevant Provisions / Concepts / Doctrines

FACTS

Shozo Yamaguchi and Fermin Canlas were President/Chief Operating Officer ans Treasurer respectively, of Worldwide
Garment Manufacturing, Inc. By virtue of Board Resolution dated Augusut 1, 1979, Shozo Yamaguchi and Fermin
Canlas were authorized apply for credit facilities with the Republic Planters Bank in the forms of export advances and
letters of credit/trust receipts accommodations.Petitioner bank issued nine promissory notes uniformly worded in the
following manner:
“_________________, after date, for value received, I/we, jointly and severally promise to pay to the ORDER of the
Republic Planters Bank, at its office in Manila, Philippines, the sum of _________ Pesps, Philippine Curreny…”

On the right bottom margin of the promissory notes appeared the signature of Shozo Yamaguchi and Fermin Canlas
above their printed names with the phrase “ and (jn) his capacity” typewritten below. At the bottom of the promisottu
notes appeared” “ Please credit proceeds of this note to:

_____ Savin Account_____Xx Current account no. _____ of Worldwide Garment Mfg. Corp.

ISSUE

Whether or not Canlas is personally liable as an agent?

RULING

As a general rule, officers or directors under the old corporate name bear no personal liability for acts done or contracts
entered into by oBcers of the corporation, if duly authorized. Inasmuch as such oBcers acted in their capacity as agent
of the old corporation and the change of name meant only the continuation of the old juridical entity, the corporation
bearing the same name is still bound by the acts of its agents if authorized by the Board. Under the Negotiable
Instruments Law, the liability of a person signing as an agent is specifically provided for in Section 20 thereof. Where
the instrument contains or a person adds to his signature words indicating that he signs for or on behalf of a principal, or
in a representative capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of words
describing him as an agent, or as filling a representative character, without disclosing his principal, does not exempt him
from personal liability.

63
Under the Negotiable Instruments Law, persons who write their names on the face of promissory notes are makers and
are liable as such. By signing the notes, the maker promises to pay to the order of the payee or any holder according to
the tenor thereof. Based on the above provisions of law, there is no denying that private respondent Fermin Canlas is
one of the co-makers of the promissory notes. As such, he cannot escape liability arising therefrom.

Jointly and Severally liable

Where an instrument containing the words "I promise to pay" is signed by two or more persons, they are deemed to be
jointly and severally liable thereon. An instrument which begins with "I", "We", or "Either of us" promise to pay, when
signed by two or more persons, makes them solidarily liable. The fact that the singular pronoun is used indicates that
the promise is individual as to each other; meaning that each of the co-signers is deemed to have made an independent
singular promise to pay the notes in full.

In the case at bar, the solidary liability of private respondent Fermin Canlas is made clearer and certain, without reason
for ambiguity, by the presence of the phrase "Joint and several" as describing the unconditional promise to pay to the
order of Republic Planters Bank. A joint and several note is one in which the makers bind themselves both jointly and
individually to the payee so that all may be sued together for its enforcement, or the creditor may select one or more as
the object of the suit. A joint and several obligation in common law corresponds to a civil law solidary obligation; that is,
one of several debtors bound in such wise that each is liable for the entire amount, and not merely for his proportionate
share. By making a joint and several promise to pay to the order of Republic Planters Bank, private respondent Fermin
Canlas assumed the solidary liability of a debtor and the payee may choose to enforce the notes against him alone or
jointly with Yamaguchi and Pinch Manufacturing Corporation as solidary debtors.

Finally, the respondent Court made a grave error in holding that an amendment in a corporation's Articles of
Incorporation effecting a change of corporate name, in this case from Worldwide Garment Manufacturing, Inc. to Pinch
Manufacturing Corporation, extinguished the personality of the original corporation. The corporation, upon such change
in its name, is in no sense a new corporation, nor the successor of the original corporation. It is the same corporation
with a different name, and its character is in no respect changed. A change in the corporate name does not make a new
corporation, and whether effected by special act or under a general law, has no effect on the identity of the corporation,
or on its property, rights, or liabilities. The corporation continues, as before, responsible in its new name for all debts or
other liabilities which it had previously contracted or incurred.

Relevant Notes

64
The Philippine Bank of Commerce v. Aruego, G.R. Nos. L-25836-37 January 31, 1981
Section 19 and 20: Signature by and Liability of an Agent

THE PHILIPPINE BANK OF COMMERCE, plaintiff-appellee,

vs.

JOSE M. ARUEGO, defendant-appellant.

Recit Ready Synopsis

Aruego obtained a credit accommodation from Philippine Bank of Commerce (PBC) to pay for the printing of World
Current Events, a periodical which Aruego was publishing. Thus, for every printing of the periodical, the printer, Encal
Press and Photo Engraving, collected the cost of printing by drawing a draft against PBC. The said draft is then sent to
Aruego for acceptance. Aruego also executed a trust receipt in favor of PBC as an added security for the payment of
the amounts advanced to Encal Press. Aruego, however, was not able to pay back PBC. As such, PBC instituted an
action against Aruego for the recovery of the sum he owed. Aruego, however, argues that he merely signed as an
accommodation party; hence, he should be made liable only after a showing that the drawer is incapable of paying. The
issue in this case is whether or not Aruego can be held liable by PBC although he signed only as an accommodation
party. The court ruled in the affirmative. Section 20 of the Negotiable Instruments Law provides that “Where the
instrument contains or a person adds to his signature words indicating that he signs for or on behalf of a principal or in a
representative capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of words
describing him as an agent or as filing a representative character, without disclosing his principal, does not exempt him
from personal liability.” An inspection of the drafts accepted by the defendant shows that nowhere has he disclosed that
he was signing as a representative of the Philippine Education Foundation Company. He merely signed as follows:
“JOSE ARUEGO (Acceptor) (SGD) JOSE ARUEGO.” For failure to disclose his principal, Aruego is personally liable for
the drafts he accepted.

Relevant Provisions / Concepts / Doctrines

Section 20 of the Negotiable Instruments Law provides that “Where the instrument contains or a person adds to his
signature words indicating that he signs for or on behalf of a principal or in a representative capacity, he is not liable on
the instrument if he was duly authorized; but the mere addition of words describing him as an agent or as filing a
representative character, without disclosing his principal, does not exempt him from personal liability.”

FACTS

● From August 28, 1950 to March 14, 1951, Jose M. Aruego obtained a credit accommodation from the Philippine
Bank of Commerce (PBC).
● For every printing of the “World Current Events,” the printer, Encal Press and Photo-Engraving, collected the
cost of printing by drawing a draft against the Philippine Bank of Commerce. The said draft was sent later to
Jose M. Aruego for acceptance.
● As an added security for the payment of the amounts advanced to Encal Press and Photo-Engraving, the
Philippine Bank of Commerce required Jose Aruego to execute a trust receipt in favor of the bank wherein Jose
Aruego undertook to hold in trust for the bank the periodicals and to sell the same with the promise to turn over
to the bank the proceeds of the sale of said publication to answer for the payment of all obligations arising from
the draft.
● On December 1, 1959, the Philippine Bank of Commerce instituted against Jose Aruego a complaint for the
recovery of the total sum of P35,000.00 before the Manila CFI. The complaint filed by the Philippine Bank of
Commerce contains 22 causes of action referring to 22 transactions entered into by the said Bank and Aruego.
○ On December 14, 1959, Jose Aruego filed an urgent motion for extension of time to plead which was denied during hearing. On
December 17, 1959, Jose Aruego filed a Motion to Dismiss the complaint on the ground of lack of cause of action on account of
him being merely an accommodating party.
○ On December 22, 1959, the complaint was dismissed. However, upon a motion for reconsideration by the bank, the trial court set
aside its order dismissing the complaint and set the case for hearing.
○ On March 19, 1960 the trial court declared the defendant in default. On March 22, 1960 the defendant filed a motion to set aside

65
 the order of default. On March 25, 1960, the trial court denied the Jose Aruego’s motion.
● On May 6, 1960, the trial court rendered judgment sentencing Jose Aruego to pay the bank the sum of
P35,444.35. The trial court and CA denied appeal. Hence, this appeal.
○ The first defense of the defendant is that he signed the supposed bills of exchange as an agent of the
Philippine Education Foundation Company where he is president.

ISSUE

Whether Aruego is personally liable for the drafts he accepted although he signed only as an accommodation party -
YES

RULING

● Section 20 of the Negotiable Instruments Law provides that “Where the instrument contains or a person
adds to his signature words indicating that he signs for or on behalf of a principal or in a representative
capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of words describing
him as an agent or as filing a representative character, without disclosing his principal, does not exempt him
from personal liability.”
○ An inspection of the drafts accepted by the defendant shows that nowhere has he disclosed that he
was signing as a representative of the Philippine Education Foundation Company.
○ He merely signed as follows: “JOSE ARUEGO (Acceptor) (SGD) JOSE ARUEGO.” For failure to
disclose his principal, Aruego is personally liable for the drafts he accepted.
● An accommodation party is one who has signed the instrument as maker, drawer, indorser, without receiving
value therefor and for the purpose of lending his name to some other person. Such person is liable on the
instrument to a holder for value, notwithstanding such holder, at the time of the taking of the instrument knew
him to be only an accommodation party.
○ In lending his name to the accommodated party, the accommodation party is in effect a surety for the
latter. He lends his name to enable the accommodated party to obtain credit or to raise money. He
receives no part of the consideration for the instrument but assumes liability to the other parties thereto
because he wants to accommodate another.
○ In the instant case, the defendant signed as a drawee/acceptor. Under the Negotiable Instrument Law,
a drawee is primarily liable. Thus, if the defendant who is a lawyer, he should not have signed as an
acceptor/drawee. In doing so, he became primarily and personally liable for the drafts.

Relevant Notes

Other issues:
1. Whether the drafts were mere evidence of indebtedness - NO
● Under the Negotiable Instruments Law, a bill of exchange is an unconditional order in writing addressed
by one person to another, signed by the person giving it, requiring the person to whom it is addressed
to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer.
● As long as a commercial paper conforms with the definition of a bill of exchange, that paper is
considered a bill of exchange. The nature of acceptance is important only in the determination of the
kind of liabilities of the parties involved, but not in the determination of whether a commercial paper is a
bill of exchange or not.

66
Republic Planters Bank v. CA, G.R. No. 93073 December 21, 1992
Topic

Full title of the case

Recit Ready Synopsis

Relevant Provisions / Concepts / Doctrines

FACTS

ISSUE

RULING

Relevant Notes

67
Chiang Yia Min v. CA, RCBC, et al., G.R. No. 137932 March 28, 2001
Topic: burden of proof to show forgery

CHIANG YIA MIN vs. COURT OF APPEALS, RIZAL COMMERCIAL BANKING CORPORATION,
PAPERCON (PHILIPPINES), INC. and TOM PEK

Recit Ready Synopsis

Relevant Provisions / Concepts / Doctrines

Under either theory of fraud or negligence, it is incumbent upon petitioner to show that the withdrawals
were not authorized by him. If he is unable to do so, his allegations of fraud or negligence are
unsubstantiated and the presumption that he authorized the said withdrawals will apply.

FACTS

Petitioner:
In 1979, $100,000 was sent by Hang Lung Bank of Hong Kong to RCBC; the remittance was for petitioner’s
own account and was intended to qualify him as a foreign investor under Philippine laws; he sent it
himself prior to his arrival in the Philippines. He said when he checked on it in 1985, he found that the dollar
deposit was transferred to the Shaw Blvd branch of RCBC and converted to a peso account, which had
a balance of only P1,362.10 as of October, 1979. A letter from RCBC in 1985 said that the account was
opened with an initial deposit of P729,752.20, and a total of P728,390 was withdrawn by way of 5
checks apparently issued by petitioner in favor of Papercon and Tom Pek. Thus, the balance of
P1,362.10. Petitioner insists he did not cause the transfer of his money to the Shaw Blvd branch, nor its
conversion to pesos and the subsequent withdrawals, nor did he authorize anyone to perform these acts.

RCBC, after petitioner adduced his evidence, filed a third-party complaint against Papercon and Tom
Pek, admitting that plaintiff conclusively appeared to have deposited the sum of US$100k with the bank and
said foreign currency deposit was converted, adopting the prevailing rate of interest at the time, to P730k
and deposited to plaintiff’s Current Account No. 12-2009 which he opened with Shaw Boulevard branch,
after which plaintiff issued Check No. 492327 to third-party defendant Papercon. for the amount of P700k
and Check NO. 492328 to third-party defendant Tom Pek for the amount of P12,700.00. Respondent bank
thus contended that should it be made liable to petitioner, said third-party defendants as payees and
beneficiaries of the issued checks should be held solidarily liable with it.

Tom Pek and Papercon did not deny receiving the checks worth P712.7k but argued that unless proven
otherwise, the said checks should be presumed to have been issued in their favor for a sufficient and
valuable consideration.

TC: RCBC is liable for the $100k, saying that the withdrawals were not made by petitioner nor authorized by
him. The court also concluded that the withdrawals couldn’t have been possible without the collusion of
68
officers and employees of RCBC. It held RCBC solely culpable and exonerated the other private
respondents. After MR, the decision was amended to hold Papercon and Tom Pek solidarily liable with
RCBC.

CA: reversed the decision, finding that the opening of the account and the withdrawals were authorized by
petitioner. Defendant and third-party defendants were absolved of any liability.

Petitioner is now seeking the reversal of the CA decision, maintaining that the withdrawals on his account
were unauthorized by him and that respondent bank connived with third persons to defraud him.

ISSUE

WON petitioner has proved that respondent bank connived with private respondents and third party
defendants Papercon and Tom Pek in allowing the withdrawals, knowing them to be unauthorized by the
petitioner, and with the purpose of defrauding him? NO.

RULING

NO, there is no evidence to demonstrate that respondent bank RCBC and Papercon and Tom Pek colluded
to defraud petitioner of his money. What the evidence establishes is that the opening of the account and the
withdrawals were authorized by petitioner, and the signatures appearing on the checks were petitioners.

Under either theory of fraud or negligence, it is incumbent upon petitioner to show that the withdrawals
were not authorized by him. If he is unable to do so, his allegations of fraud or negligence are
unsubstantiated and the presumption that he authorized the said withdrawals will apply. Petitioner’s
allegation that he did not authorize the opening of the current account and the issuance of the checks was
countered by private respondents through the testimony of Catalino Reyes, the accountant of Pioneer
Business Forms, Inc. (another business venture of Tom Pek) to the effect that the opening of Current
Account No. 12-2009 and the issuance of the questioned checks were all upon the instructions of petitioner.

Reyes stated that he first met petitioner in January or February 1979 when the latter was introduced to him
by Tom Pek. He and his fellow employees were advised by Tom Pek to "personally help (Chiang Yia Min) in
all his personal accounts." Reyes was charged with working on the incorporation of Philippine Color
Scanning, a new business venture where petitioner will be the GM. He also assisted petitioner when the
latter applied for a change of visa from tourist to special non-immigrant. Reyes testified that on the first week
of February 1979, petitioner asked him to pick up the US$100k which he caused to be remitted in
compliance with the capital requirements for foreign investors at Pacific Banking Corporation. Bringing with
him the letter of advise from the bank, Reyes did as he was told and the bank released to him a cashier’s
check representing the peso equivalent of the US$100k. Reyes then showed the check to petitioner and
upon the latter’s instructions, he went to the Shaw Boulevard branch of respondent bank to open a checking
account in petitioner’s name, using the proceeds of the check as initial deposit. Reyes describes the opening
of the current account as having been done in haste, since petitioner was in a hurry to have the proceeds of
the remittance credited to his checking account. Because Reyes was well-known to the officers and
employees of RCBC-Shaw Boulevard, he was allowed to bring out of the bank the application form,
depositor’s card, and other forms which required petitioner’s signature as depositor. He then filled out the
forms, and brought them to petitioner for signing. He witnessed petitioner sign the forms. Then he brought
the signed forms, and petitioner’s passport, back to the bank, which approved the opening of the current
account upon a comparison of the signatures on the forms and the passport.

69
The documentary evidence accurately supports Reyes’s statements. Pacific Banking Corporation confirmed
receipt of the US$100k from Hang Lung Bank, Ltd. by telegraphic transfer on Feb 7, 1979. It had instructions
to transmit the money "to Rizal Commercial Banking Corporation, Head Office, for (the) account of Chiang
Yia Min"; however, the records also show that on Feb 8, 1979 Pacific Banking Corporation released the
money to petitioner by way of Cashier’s Check No. DD 244955, representing the peso equivalent of the
US$100k, which check was in turn presented before the Board of Special Inquiry of the Bureau of
Immigration as proof of petitioner’s compliance with the requirements for change of status from tourist to
special non-immigrant, i.e., foreign investor. On the same day, Feb 8, 1979, Current Account No. 12-2009, in
the name of Chiang Yia Min, was opened in RCBC-Shaw Boulevard with an initial deposit of P729,752.20,
"representing proceeds of inward remittance received from Pacific Banking Corporation."

There were five issued checks: two made payable to Papercon, and three made payable to cash (these
three checks were all negotiated to Tom Pek). Catalino Reyes testified that on two separate instances,
petitioner asked him to prepare two of the five checks questioned in this case, specifically, the check for
P700k dated Feb 19, 1979 and payable to Papercon, and the check for P12,700.00, dated Feb 23, 1979 and
payable to cash. He witnessed petitioner study the information typed on the checks, sign the checks, and
hand them over to Tom Pek. The microfilm copies of these checks were submitted in evidence. They all bear
the signature of petitioner. No shred of evidence was presented to show that the signatures were not
petitioner’s.

Upon finding that the checks issued to Papercon and Tom Pek were in order, there being no
indication that respondent bank colluded in paying the checks to them for any unlawful cause, or
was otherwise deceive or misled into doing the same, the presumption lies that they were holders for
value and in good faith.

Dispositive: decision of CA is affirmed

Relevant Notes

70
Philippine National Bank v. Quimpo, et al., G.R. No. L-53194 March 14, 1988
Topic

Form and Interpretation: Persons precluded from raising defense of forgery

Full title of the case

Philippine National Bank v Quimpo, et al.

Recit Ready Synopsis

Franciso Gozon II left his friend and classmate Ernesto Santos in the car and went inside PNB Caloocan. Santos saw
that Gozon left his checkbook. He then took a check therefrom, filled it up for P5,000 and enchashed the check. Santos
later admitted to the forgery after being apprehended by the police. Santos filed for recovery but PNB refused, claiming
that Gozon was negligent in leaving his check book in the car and therefore could no longer set up the defense of
forgery or want of authority.

The Court ruled in favor of Gozon. PNB failed to carefully examine the signature of the drawer. A bank is bound to know
the signature of its customers. If it pays a forged check, it must be considered as making the payment out of its own
funds.

Relevant Provisions / Concepts / Doctrines

Sec 23. Forged signature; Effect of. - When a signature is forged or made without the authority of the person
whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge
therefor, or to enforce payment thereof against any party thereto, can be acquired through or under such
signature, unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or
want of authority.

FACTS

Francisco Gozon II went to PNB Caloocan. Ernesto Santos, his friend and classmate, was left in the car. Santos saw
that Gozon left his check book. He took a check therefrom, filled it up for P5,000, and encashed the check in the bank
on the same day. Upon receipt of his statement of account, Gozon asked for the money bank, claiming that it was
forged. PNB refused.

Santos later admitted that he forged Gozon’s signature after being apprehended by the police. Gozon filed for recovery
of P5,000. PNB, however, insisted that Gozon was negligent in leaving his check book in the car and therefore could no
longer set up the defense of forgery or want of authority.

ISSUE

WON Gozon can recover from PNB due to the latter’s negligence. YES.

RULING

The prime duty of a bank is to ascertain the genuineness of the signature of the drawer on the check being enchashed.

A bank is bound to know the signature of its customers. If it pays a forged check, it must be considered as making the
payment out of its own funds. (San Carlos Milling Co. v BPI)

It is not only a question of payment under mistake, but payment in neglect of duty which the commercial law places
upon him. The result of his negligence must rest upon him.

71
In the case at bar, PNB failed to carefully examine the signature of the drawer. It was pointed out that even the trial
court, by merely examining pictorial reports, found a marked difference between the two signatures.

Gozon, also could not have expected to know that Santos, being a friend and a classmate, would remove a check from
his checkbook and breach his trust. He cannot be considered negligent under circumstances of the case.

Relevant Notes

72
Gempesaw v. CA and PBCom, G.R. No. 92244 February 9, 1993
Section 23: Forgery

NATIVIDAD GEMPESAW, petitioner, vs. THE HONORABLE COURT OF APPEALS and PHILIPPINE BANK
OF COMMUNICATIONS, respondents.

Recit Ready Synopsis

Petitioner was fraudulently manipulated by her bookkeeper when the latter forged the signatures of the payees in 82
checks. Thus the petitioner demanded from the bank to return the value of the 82 checks amounting to 1.2M. The
bank refused. The RTC and the CA ruled in favor of the drawee bank. The SC denied her defense of forgery ruling that
her negligence was the proximate cause of her loss.

Relevant Provisions / Concepts / Doctrines

Problems arising from forged indorsements of checks may generally be broken into two types of cases: (1) where
forgery was accomplished by a person not associated with the drawer—for example a mail robbery; and (2) where the
indorsement was forged by an agent of the drawer.

While there is no duty resting on the depositor to look for forged indorsements on his cancelled checks in contrast to
a duty imposed upon him to look for forgeries of his own name, a depositor is under a duty to set up an accounting
system and a business procedure as are reasonably calculated to prevent or render difficult the forgery of
indorsements, particularly by the depositor's own employees. And if the drawer (depositor) learns that a check drawn
by him has been paid under a forged indorsement, the drawer is under duty promptly to report such fact to the
drawee bank. For his negligence or failure either to discover or to report promptly the fact of such forgery to the
drawee, the drawer loses his right against the drawee who has debited his account under the forged indorsement. In
other words, he is precluded from using forgery as a basis for his claim for recrediting of his account.

The negligence of a depositor which will prevent recovery of an unauthorized payment is based on failure of the
depositor to act as a prudent businessman would under the circumstances.

FACTS

Petitioner Natividad Gempesaw owns and operates four grocery stores and maintains a checking account with the
Philippine Bank of Communications (drawee Bank) for easier payment of debts to her suppliers.

Her customary practice of issuing checks in payment of her suppliers was as follows:
Checks were prepared by her trusted bookkeeper, Alicia Galang, an employee for more than 8 years; Checks,
together with the invoice receipts reflecting her obligations with the suppliers, were submitted to her for signature;
That she signs all the checks without bothering to verify the accuracy of the checks against the corresponding
invoices considering the trust and confidence she reposed upon her bookkeeper; Issuance and delivery of the
checks to the payees were left to the bookkeeper; that she did not verify whether checks were actually delivered
to their respective payees.

Although the drawee Bank notified her of all checks presented to and paid by the bank, Gempesaw did not verify the
correctness of the returned checks nor if the payees actually received the checks in payment for the supplies
she received. Gempesaw issued 82 checks in favor of several suppliers for the span of 2 years and the d rawee bank
debited the total amount of P1,208,606.89 against her checking account since all of the issued checks were honored
by the drawee bank. These checks were all crossed checks.

It was only after the lapse of more than 2 years that Gempesaw found out about the fraudulent manipulations
of her bookkeeper. Gempesaw made a written demand on respondent drawee Bank to credit her account with
the money value of the 82 checks totalling P1,208,606.89 for having been wrongfully charged against her

73
account. Drawee Bank refused to grant her demand.

About 30 of the payees whose names were specifically written on the checks testified that they did not receive nor
even see the subject checks and that the indorsements appearing at the back of the checks were not theirs.

It was learned that all the 82 checks with forged signatures of the payees were brought to Ernest L. Boon, Chief
Accountant of drawee who, without authority therefor, accepted them all for deposit to the credit and in the accounts
of Alfredo Y. Romero and Benito Lam.

Trial ensued and the RTC rendered a decision dismissing the complaint as well as the drawee Bank's counterclaim.
On appeal, the Court of Appeals in a decision affirmed the decision of the RTC on two grounds, namely
(1) that Gempesaw’s gross negligence in issuing the checks was the proximate cause of the loss and
(2) assuming that the bank was also negligent, the loss must nevertheless be borne by the party whose negligence
was the proximate cause of the loss.

Hence, a petition for review was filed before SC.

ISSUE

W/N the Gempesaw can raise the defense of forgery, therefore the drawee bank alone shall bear the
loss. NO.

RULING

NO. Natividad Gempesaw is precluded from using forgery as a defense. Her negligence was the proximate
cause of her loss.

As a rule, a drawee bank who has paid a check on which an indorsement has been forged cannot charge the drawer's
account for the amount of said check. An exception to this rule is where the drawer is guilty of such negligence
which causes the bank to honor such a check or checks.

Had Gempesaw examined her records more carefully, she would have noticed discrepancies. Had Gempesaw been
more vigilant in going over her current account by taking careful note of the daily reports made by the drawee Bank
on her issued checks, or at least made random scrutiny of her cancelled checks returned by drawee Bank at the close
of each month, she could have easily discovered the fraud being perpetrated by Alicia Galang, and could have
reported the matter to the drawee Bank.

The drawee Bank then could have taken immediate steps to prevent further commission of such fraud. Thus,
Gempesaw's negligence was the proximate cause of her loss. And since it was her negligence which caused the
drawee Bank to honor the forged checks or prevent it from recovering the amount it had already paid on the checks,
Gempesaw cannot now complain should the bank refuse to recredit her account with the amount of such checks.
Under Section 23 of the NIL, she is now precluded from using the forgery to prevent the bank's debiting of her
account.

Section 23 of the NIL provides that "when a signature is forged or made without the authority of the person whose
signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor,
or to enforce payment thereof against any party thereto, can be acquired through or under such signature, unless the
party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority."

Two types of cases of problems arising from forged indorsements of checks

Problems arising from forged indorsements of checks may generally be broken into two types of cases:
(1) where forgery was accomplished by a person not associated with the drawer [for example a mail robbery]; and
(2) where the indorsement was forged by an agent of the drawer. This difference in situations would determine the

74
effect of the drawer's negligence with respect to forged indorsements.

Duty of drawer; Effect of negligence

A depositor is under a duty to set up an accounting system and a business procedure as are reasonably calculated to
prevent or render difficult the forgery of indorsements, particularly by the depositor's own employees. And if the
drawer (depositor) learns that a check drawn by him has been paid under a forged indorsement, the drawer is under
duty promptly to report such fact to the drawee bank. For his negligence or failure either to discover or to report
promptly the fact of such forgery to the drawee, the drawer loses his right against the drawee who has debited his
account under the forged indorsement. In other words, he is precluded from using forgery as a basis for his claim for
recrediting of his account.

Banking business impressed with public interest; Utmost diligence required

The banking business is so impressed with public interest where the trust and confidence of the public in general is of
paramount importance such that the appropriate standard of diligence must be a high degree of diligence, if not the
utmost diligence. Surely, drawee Bank cannot claim it exercised such a degree of diligence that is required of it.
There is no way that it be allowed to escape liability for such negligence. Its liability as obligor is not merely
vicarious but primary wherein the defense of exercise of due diligence in the selection and supervision of its
employees is of no moment.

In this case, respondent drawee Bank is adjudged liable to share the loss with the petitioner on a fifty-fifty ratio
in accordance with Article 172 which provides: Responsibility arising from negligence in the performance of every
kind of obligation is also demandable, but such liability may be regulated by the courts according to the
circumstances.

PREMISES CONSIDERED, the case is hereby ordered REMANDED to the trial court for the reception of evidence
to determine the exact amount of loss suffered by the petitioner, considering that she partly benefited from the
issuance of the questioned checks since the obligation for which she issued them were apparently extinguished, such
that only the excess amount over and above the total of these actual obligations must be considered as loss of which
one half must be paid by respondent drawee bank to herein petitioner. SO ORDERED.

75
Associated Bank v. Court of Appeals, et al., G.R. No. 107382 January 31, 1996
Topic

ASSOCIATED BANK v. HON. COURT OF APPEALS, PROVINCE OF TARLAC and PHILIPPINE NATIONAL BANK

Recit Ready Synopsis

The Province of Tarlac issued checks in favor of a hospital as part of its project. The said checks were then held by
Pangilinan who in turn deposited the same Associated Bank (the collecting bank). The collecting bank then indorsed to
PNB, the drawee bank, the checks after receiving them despite the fact that they were forged.

Relevant Provisions / Concepts / Doctrines

The exception to the general rule in Section 23 is where “a party against whom it is sought to enforce a right is
precluded from setting up the forgery or want of authority.” Parties who warrant or admit the genuineness of the
signature in question and those who, by their acts, silence or negligence are estopped from setting up the defense of
forgery, are precluded from using this defense. Indorsers, persons negotiating by delivery and acceptors are warrantors
of the genuineness of the signatures on the instrument. When the indorsement is a forgery, only the person whose
signature is forged can raise the defense of forgery against a holder in due course.

A collecting bank where a check is deposited and which indorses the check upon presentment with the drawee bank, is
such an indorser. So even if the indorsement on the check deposited by the bank’s client is forged, the collecting bank
is bound by his warranties as an indorser and cannot set up the defense of forgery as against the drawee bank.

FACTS

The Province of Tarlac maintains a current account with the PNB where the provincial funds are deposited. A portion of
the funds of the province is allocated to the Concepcion Emergency Hospital. The allotment checks were drawn to the
order of “Concepcion Emergency Hospital, Concepcion, Tarlac” or “The Chief, Concepcion Emergency Hospital,
Concepcion, Tarlac.” The checks are released by the Office of the Provincial Treasurer and received for the hospital by
its administrative officer and cashier.

During the post-audit conducted by the Provincial Treasurer, it was found that the hospital did not receive several
allotment checks drawn by the Province. It then requested PNB to return all of its cleared checks issued from 1977 to
1980 in order to verify the regularity of their encashment. After the checks were examined, the Provincial Treasurer
learned that 30 checks amounting to P230,000.00 were encashed by one Fausto Pangilinan, with the Associated Bank
acting as collecting bank.

To do this, at first, Pangilinan claimed to be assisting or helping the hospital to follow up the release of the checks and
had official receipts. Associated Bank instead of allowing Pangilinan to encash the check directly, suggested that he
deposit the same to his own savings account. After the check was cleared by PNB, Pangilinan was able to withdraw the
money. For the other checks, Pangilinan forged the signature of Dr. Adena Canlas, the chief of the payee hospital, and
followed the same procedure to encash the checks of various amounts.

The Provincial Treasurer wrote the manager of the PNB seeking the restoration of the various amounts debited from the
current account of the Province. PNB, in turn, demanded reimbursement from the Associated Bank. Both banks
resisted payment which led the Province of Tarlac to bring a suit against PNB which, in turn, impleaded Associated
Bank as third-party defendant. The latter then filed a fourth-party complaint against Adena Canlas and Fausto
Pangilinan.

While both banks are innocent of the forgery, Associated Bank claims that PNB was at fault and should solely bear the
loss because it cleared and paid the forged checks.

ISSUE

76
Can Associated Bank, as the collecting bank, set up against PNB the claim of forgery?

RULING

No, Associated Bank cannot set up against PNB the claim of forgery.

The exception to the general rule in Section 23 is where “a party against whom it is sought to enforce a right is
precluded from setting up the forgery or want of authority.” Parties who warrant or admit the genuineness of the
signature in question and those who, by their acts, silence or negligence are estopped from setting up the defense of
forgery, are precluded from using this defense. Indorsers, persons negotiating by delivery and acceptors are warrantors
of the genuineness of the signatures on the instrument. When the indorsement is a forgery, only the person whose
signature is forged can raise the defense of forgery against a holder in due course.

An indorser of an instrument warrants “that the instrument is genuine and in all respects what it purports to be; that he
has a good title to it; that all prior parties had capacity to contract; and that the instrument is at the time of his
indorsement valid and subsisting.” He cannot interpose the defense that signatures prior to him are forged.

A collecting bank where a check is deposited and which indorses the check upon presentment with the drawee bank, is
such an indorser. So even if the indorsement on the check deposited by the bank’s client is forged, the collecting bank
is bound by his warranties as an indorser and cannot set up the defense of forgery as against the drawee bank.

Relevant Notes

The general rule then is that the drawee bank may not debit the drawer’s account and is not entitled to indemnification
from the drawer. The risk of loss must perforce fall on the drawee bank. However, if the drawee bank can prove a
failure by the customer or drawer to exercise ordinary care that substantially contributed to the making of the forged
signature, the drawer is precluded from asserting the forgery. If at the same time the drawee bank was also negligent to
the point of substantially contributing to the loss, then such loss from the forgery can be apportioned between the
negligent drawer and the negligent bank.

In cases involving checks with forged indorsements, such as in this case, the chain of liability does not end with the
drawee bank. The drawee bank can seek reimbursement or a return of the amount it paid from the presenter bank or
person. The latter can also demand reimbursement from the person who indorsed the check to it and so on. The loss
falls on the party who took the check from the forger, or the forger himself.

In this case, the checks were indorsed by Associated Bank (collecting bank) to PNB (drawee bank). The former will
necessarily be liable to the latter for the checks being forged indorsements. If the forgery is that of the payee’s or
holder’s indorsement, the collecting bank is held liable, without prejudice to the latter proceeding against the forger.

Since the forged indorsement is inoperative, the collecting bank had no right to be paid by the drawee bank. The former
must necessarily return the money paid by the latter because it was paid wrongfully. Because the indorsement is a
forgery, the collecting bank commits a breach of this warranty and will be accountable to the drawee bank even in the
absence of negligence.

In this case, PNB can charge the Province of Tarlac because of its negligence in allowing Pangilinan to obtain the
checks. The loss incurred by PNB can then be passed to Associated Bank which presented and indorsed the checks to
it. The latter can then go after, Pangilinan, the forger.

77
Francisco v. Court of Appeals, et al., G.R. No. 116320 November 29, 1999
Section 23 - Forgery

Adalia Francisco v Court of Appeals, Herby Commercial & Construction Corporation and Jaime Ong

Recit Ready Synopsis

A. Francisco Realty & Development Corporation and HERBY Commercial & Construction entered into a Land
Development and Construction Contract pursuant to a housing project. HCCC agreed to undertake the construction of
35 housing units and the development of 35 hectares of land. ADFRC executed a Deed of Assignment in favor of
HCCC in order for them to directly collect payment from GSIS. GSIS and AFRDC put up an Executive Committee
account from which the checks would be issued and co-signed by Francisco and the GSIS Vice-President. Ong later
discovered that Francisco together with the GSIS Vice-President executed and signed seven checks payable to HCCC.
Instead of delivering the checks, Francisco forged Ong’s signature without his knowledge or consent.

Did Francisco forged Ong’s signatures on the seven checks in question to make it appear as if Ong indorsed
the checks (YES)

According to the Negotiable Instruments Law, an agent may indorse in terms as to negative personal liability. He must
disclose the name of his principal, otherwise he will be held personally liable. In this case, Francisco claimed that Ong
authorized her to sign his name on the check through the Certification that was executed by Ong in Francisco’s favor
that granted her to collect all the receivables of HCCC. Even if Francisco was indeed authorized by Ong, she failed to
comply in accordance with the law. Francisco should have signed her own name and expressly stated that she was
signing as an agent of HCCC instead of forging Ong’s signature.

Relevant Provisions / Concepts / Doctrines

The Negotiable Instruments Law provides that where any person is under obligation to indorse in a representative
capacity, he may indorse in such terms as to negative personal liability. An agent, when so signing must disclose the
name of his principal, otherwise he shall be held personally liable.

FACTS

A. Francisco Realty & Development Corporation (AFRDC) and HERBY Commercial & Construction (HCCC) entered
into a Land Development and Construction Contract in line with a housing project at San Jose del Monte financed by
GSIS. Under the contract, HCCC agreed to undertake the construction of 35 housing units and the development of 35
hectares of land which was to be paid for on a turn-key basis. Pursuant to this, AFRDC executed a Deed of Assignment
in favor of HCCC to enable them to directly collect payment from GSIS. The GSIS and AFRDC put up an Executive
Committee account from which the checks would be issued and co-signed by Francisco and the GSIS Vice-President
Armando Diaz.

Ong later discovered that Diaz and Francisco executed and signed seven checks drawn against the Insular Bank of
America (IBAA) and payable to HCCC for completed and delivered work under the contract. Francisco forged Ong’s
signature without his knowledge or consent to make it appear as if he indorsed the checks. After indorsing the checks
again for the second time, Francisco deposited the checks in her savings account with the IBAA.

This prompted Ong to file a complaint charging Francisco with estafa through falsification of commercial documents.

ISSUE

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Whether or not Francisco forged Ong’s signatures on the seven checks in question to make it appear as if Ong
indorsed the checks (YES)

RULING

Yes.

The Court concurred with the findings of the RTC based on the findings of handwriting experts from the NBI.
Furthermore, the checks in question could not have been included in the Memorandum of Agreement that was
executed in 1978 because Ong found out about the forgery a year later. The lower court also found that Francisco was
a co-signatory of the checks, hence making it easier for her to conceal even the facts of issuance of the checks.
Francisco also had custody of the checks vouchers with her signature. She acknowledged that she received the checks
intended for the HCCC. The Court also concurred with the RTC’s finding that Francisco forged Ong’s signature in order
to make it appear that Ong indorsed the checks and that after indorsing the checks, Francisco deposited them in her
savings account with IBAA.

The Negotiable Instruments Law states that “where any person is under ob1ligation to indorse in a representative
capacity, he may indorse in such terms as to negative personal liability. An agent, when so signing must disclose the
name of his principal, otherwise he shall be held personally liable.” In this case, Francisco claimed that she was
authorized to sign Ong’s name on the check by virtue of the Certification executed by Ong in her favor giving her the
authority to collect all the receivables of HCCC from the GSIS. However, even if Ong indeed authorized Francisco to
sign, the latter failed to do so in accordance with the law. Francisco should have signed her own name and expressly
stated that she was signing as an agent of HCCC instead of forging Ong’s signature.

Relevant Notes

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Samsung Construction Company Philippines, Inc. v. Far East Bank and Trust
Company and CA, G.R. No. 129015 August 13, 2004
Topic

Section 23: Forgery

Recit Ready Synopsis

The signature on a check payable to cash with amount of P950,000 of Samsung Construction’s sole signatory Jong
was forged by Sempio and Gonzaga (presented check to bank). Samsung’s accountant, Kyu, found out about it when
he checked the balance of the bank account. Filed a complaint against FEBTC for violation of Sec. 23. Samsung not
liable and FEBTC was negligent. Samsung should be paid back 950,000 with interest.

Relevant Provisions / Concepts / Doctrines

Section 23 of the Negotiable Instruments Law states:

When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly
inoperative, and no right to retain the instrument, or to give a discharge therefore, or to enforce payment thereof against
any party thereto, can be acquired through or under such signature, unless the party against whom it is sought to
enforce such right is precluded from setting up the forgery or want of authority.

FACTS

● Samsung Construction (based in Binan Laguna) held an account with Far East Bank (Bel-Air Makati Branch)
○ Jong Kyu Lee ("Jong") is the sole signatory to Samsung Construction’s account with FEBTC
○ Kyu Yong Lee ("Kyu") is in company’s accountant and in charge with the checks’ safe-keeping
● One day, a check worth P999,500 payable to case was presented by a certain Roberto Gonzaga to the Makati
Branch of Far East Bank. The check was certified to be true by Jose Sempio, the assistant accountant of
Samsung, who also happened to be present in the bank during the time that the check was presented.
● Three bank personnel (teller, Assistant Cashier, and another bank officer) examined the check and compared
the signature appearing on the check with the specimen signatures of Samsung’s President Jong. After
ascertaining that the signature was genuine, and that the account had sufficient funds, Gonzaga was asked to
submit 3 proof of his identity. Eventually, Gonzaga was able to encash the check.
● The following day, the accountant of Samsung Construction, Kyu, examined the balance of the bank account
and discovered that a check in the amount of Nine Hundred Ninety Nine Thousand Five Hundred Pesos
(P999,500.00) had been encashed. Aware that he had not prepared such a check for Jong’s signature, Kyu
perused the checkbook and found that the last blank check was missing.
● Kyu reported the matter to Jong, who then proceeded to the bank. Jong learned of the encashment of the
check, and realized that his signature had been forged. The Bank Manager reputedly told Jong that he would
be reimbursed for the amount of the check.
● When Samsung discovered the unauthorized withdrawal, a criminal case for qualified theft was filed against
Sempio before the Laguna court
● Samsung Construction demanded that FEBTC credit to it the amount of Nine Hundred Ninety Nine Thousand
Five Hundred Pesos (P999,500.00), with interest.
● FEBTC said that it was still conducting an investigation on the matter
● Unsatisfied, Samsung Construction filed a complaint against FEBTC for violation of Sec 23 of the Negotiable
Instruments Law.
● During the trial, both parties presented their respective expert witnesses:
○ Samsung presented NBI Document Examiner Roda Flores.
○ FEBTC presented PNP Crime Laboratory document Examiner Rosario Perez.
● RTC rendered judgment in favor of Samsung, holding FEBTC liable. It gave more credence to the testimony of
NBI Examiner Flores.
● CA reversed the RTC and absolved FEBTC from any liability.
● The contradictory findings of NBI and PNP created doubt as to the whether
● there was forgery.
● Assuming there was forgery, it was due to the negligence of Samsung.

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 ● As held in PNB v. National City Bank of NY, as between 2 innocent persons, loss would be borne by the
negligent party.
● Samsung Construction filed a petition for certiorari in the Supreme Court

ISSUE

Whether or not Samsung Construction could set up the defense of forgery in Sec. 23 . YES.

RULING

● The general rule is to the effect that a forged signature is wholly inoperative, and payment made through or
under such signature is ineffectual or does not discharge the instrument. If payment is made, the drawee
cannot charge it to the drawer’s account. The traditional justification for the result is that the drawee is in a
superior position to detect a forgery because he has the maker’s signature and is expected to know and
compare it.
● Under Sec 23 of the Negotiable Instruments Law, forgery is a real or absolute defense by the party whose
signature is forged. Such liability attaches even if the bank exerts due diligence and care in preventing such
faulty discharge.
● Although the Court recognized that Sec 23 bars a party from setting up the defense of forgery if it is guilty of
negligence, it was unable to conclude that Samsung was guilty of negligence.
○ The bare fact that the forgery was committed by an employee of the party whose signature was forged
cannot necessarily imply that such party’s negligence was the cause for the forgery.
○ Admittedly, the record does not establish what measures Samsung employed to safeguard its blank
checks. Jong’s testimony regarding the use of a safety box by Kyu was considered hearsay. But when
CA ruled that Samsung was negligent, it did not really explain how and why.
○ In the absence of evidence to the contrary, the court concluded that there was no negligence, the
presumption being that every person takes ordinary care of his concerns.
● The CA Decision extensively discussed the FEBTC’s efforts in establishing that there was no negligence on its
part in the acceptance and payment of the forged check. However, the degree of diligence exercised by the
bank would be irrelevant if the drawer is not precluded from setting up the defense of forgery under Sec 23 by
his own negligence.

● WON FEBTC exercised extraordinary diligence required of it by the situation – NO

○ The fact that the check was made out as nearly 1M is unusual enough to require a higher degree of
caution on the part of the bank. FEBTC confirmed this through its own internal procedures. As the
amount increases, the number of officers who need to approve it also increases.
○ Not only did the amount nearly total 1M, it was payable to cash. This should have aroused suspicion of
the banks, as it is not ordinary business practice for a check for such a large amount to be made
payable to case or to bearer, instead of to the order of a specified person.
○ Gonzaga did not carry any written proof that he was authorized by Samsung to encash the check.
○ FEBTC Senior Assistant Cashier admitted that the bank tried, but failed, to contact Jong over the phone
to verify. The bank just heavily relied on the say-so of Sempio. FEBTC Accountant Velez even admitted
that she did not personally know Sempio, and had met Sempio for the 1st time only on the day the
check was encashed.
WHEREFORE, the Petition is GRANTED. The Decision of the Court of Appeals dated 28 November 1996 is
REVERSED, and the Decision of the Regional Trial Court of Manila, Branch 9, dated 25 April 1994 is REINSTATED.
Costs against respondent.

Relevant Notes

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