G.R. No.

101163 January 11, 1993

STATE INVESTMENT HOUSE, INC. vs. CA and NORA B. MOULIC
(Surrender of Instrument upon discharge)
FACTS Private respondent Nora B. Moulic issued to Corazon Victoriano, as security for pieces of jewelry to be
sold on commission, two post-dated Equitable Banking Corporation checks in the amount of
P50,000.00 each. Thereafter, the payee negotiated the checks to petitioner State Investment House.
Inc. (STATE). MOULIC failed to sell the pieces of jewelry, so she returned them to the payee before
maturity of the checks. The checks, however, could no longer be retrieved as they had already been
negotiated. Consequently, before their maturity dates, MOULIC withdrew her funds from the drawee
bank. Upon presentment for payment, the checks were dishonored for insufficiency of funds. STATE
allegedly notified MOULIC of the dishonor of the checks and requested that it be paid in cash instead,
although MOULIC avers that no such notice was given her. STATE sued to recover the value of the
checks. MOULIC contends that she incurred no obligation on the checks because the jewelry was
never sold and the checks were negotiated without her knowledge and consent. She also instituted a
Third-Party Complaint against Corazon Victoriano, who later assumed full responsibility for the checks.

The trial court dismissed the Complaint. STATE elevated the order of dismissal to the CA, but the
appellate court affirmed the trial court on the ground that the Notice of Dishonor to MOULIC was made
beyond the period prescribed by the Negotiable Instruments Law and that even if STATE did serve
such notice on MOULIC within the reglementary period it would be of no consequence as the checks
should never have been presented for payment. The sale of the jewelry was never affected; the
checks, therefore, ceased to serve their purpose as security for the jewelry.
ISSUE Whether the post-dated checks issued as security can be a ground for the discharge of the instrument
as against a holder in due course.
HELD That the post-dated checks were merely issued as security is not a ground for the discharge of the
instrument as against a holder in due course. For the only grounds are those outlined in Sec. 119 of
the Negotiable Instruments Law:

Sec. 119. Instrument; how discharged. — A negotiable instrument is discharged: (a) By payment in
due course by or on behalf of the principal debtor; (b) By payment in due course by the party
accommodated, where the instrument is made or accepted for his accommodation; (c) By the
intentional cancellation thereof by the holder; (d) By any other act which will discharge a simple
contract for the payment of money; (e) When the principal debtor becomes the holder of the instrument
at or after maturity in his own right. Sec. 119 contemplates of a situation where the holder of the
instrument is the creditor while its drawer is the debtor. In the present action, the payee, Corazon
Victoriano, was no longer MOULIC's creditor at the time the jewelry was returned.

Moreover, the fact that STATE failed to give Notice of Dishonor to MOULIC is of no moment. The need
for such notice is not absolute; there are exceptions under Sec. 114 of the Negotiable Instruments
Law:

Sec. 114. When notice need not be given to drawer. — Notice of dishonor is not required to be given to
the drawer in the following cases: (a) Where the drawer and the drawee are the same person; (b)
When the drawee is a fictitious person or a person not having capacity to contract; (c) When the
drawer is the person to whom the instrument is presented for payment: (d) Where the drawer has no
right to expect or require that the drawee or acceptor will honor the instrument; (e) Where the drawer
had countermanded payment.

Indeed, MOULIC'S actuations leave much to be desired. She did not retrieve the checks when she
returned the jewelry. She simply withdrew her funds from her drawee bank and transferred them to
another to protect herself. After withdrawing her funds, she could not have expected her checks to be
honored. In other words, she was responsible for the dishonor of her checks, hence, there was no
need to serve her Notice of Dishonor, which is simply bringing to the knowledge of the drawer or
indorser of the instrument, either verbally or by writing, the fact that a specified instrument, upon proper
proceedings taken, has not been accepted or has not been paid, and that the party notified is expected
to pay it.
 G.R. No. 74917 January 20, 1988
BANCO DE ORO SAVINGS AND MORTGAGE BANK
vs.
EQUITABLE BANKING CORPORATION, PHILIPPINE CLEARING HOUSE CORPORATION, AND RTC OF
QUEZON CITY
(Checks defined)
FACTS Equitable Banking Corp. drew six crossed Manager's check and the same were deposited with BDO to
the credit of its depositor. BDO sent the checks for clearing through the Philippine Clearing House
Corporation (PCHC). Accordingly, EBC paid the checks; its clearing account was debited for the value
of the checks and BDO’s clearing account was credited for the same amount. EBC discovered that the
endorsements appearing at the back of the Checks and purporting to be that of the payees were
forged and/or unauthorized or otherwise belong to persons other than the payees. EBC presented the
checks directly to BDO for the purpose of claiming reimbursement from the latter. However, BDO
refused to accept such direct presentation and to reimburse the plaintiff for the value of the Checks.

Arbitrator: in favor of EBC.

PCHC: Affirmed the decision of the Arbiter.
RTC: Affirmed the decision of PCHC.
ISSUE
HELD In the case of Reyes vs. Chuanico (CA-G.R. No. 20813 R, Feb. 5, 1962) the Appellate Court
categorically stated that there are four kinds of checks in this jurisdiction; the regular check; the
cashier's check; the traveller's check; and the crossed check. The Court, further elucidated, that while
the Negotiable Instruments Law does not contain any provision on crossed checks, it is coon practice
in commercial and banking operations to issue checks of this character, obviously in accordance with
Article 541 of the Code of Commerce. Attention is likewise called to Section 185 of the Negotiable
Instruments Law:

Sec. 185. Check defined. — A check is a bill of exchange drawn on a bank payable on demand.
Except as herein otherwise provided, the provisions of this act applicable to a bill of exchange payable
on demand apply to a check

and the provisions of Section 61 (supra) that the drawer may insert in the instrument an express
stipulation negating or limiting his own liability to the holder. Consequently, it appears that the use of
the term "check" in the Articles of Incorporation of PCHC is to be perceived as not limited to negotiable
checks only, but to checks as is generally known in use in commercial or business transactions.

The conclusion is clear that the PCHC Rules and Regulations should not be interpreted to be
applicable only to checks which are negotiable instruments but also to non-negotiable instruments and
that the PCHC has jurisdiction over this case even as the checks subject of this litigation are admittedly
non-negotiable.

Moreover, petitioner is estopped from raising the defense of non-negotiability of the checks in question.
It stamped its guarantee on the back of the checks and subsequently presented these checks for
clearing and it was on the basis of these endorsements by the petitioner that the proceeds were
credited in its clearing account.

The petitioner by its own acts and representation can not now deny liability because it assumed the
liabilities of an endorser by stamping its guarantee at the back of the checks.
 G.R. No. L-16106 December 30, 1961
REPUBLIC OF THE PHILIPPINES vs. PHILIPPINE NATIONAL BANK, ET AL.
(Distinguished from drafts)
FACTS Petitioner filed before the CFI a complaint for escheat of certain unclaimed bank deposits balances
under the provisions of Act No. 3936 against several banks, among them the First National City Bank
of New York. It is alleged that defendant banks forwarded to the Treasurer of the Philippines a
statement under oath of their respective managing officials of all the credits and deposits held by them
in favor of persons known to be dead or who have not made further deposits or withdrawals during the
period of 10 years or more. First National City Bank of New York claims that, while it admits that
various savings deposits, pre-war inactive accounts, and sundry accounts contained in its report
submitted to the Treasurer of the Philippines, which remained dormant for 10 years or more, are
subject to escheat however, it has inadvertently included in said report certain items amounting to
P18,589.89 which, properly speaking, are not credits or deposits within the contemplation of Act No.
3936. Hence, it prayed that said items be not included in the claim of plaintiff. After hearing, the court a
quo rendered judgment holding that cashier's is or manager's checks and demand drafts as those
which defendant wants excluded from the complaint come within the purview of Act No. 3936, but not
the telegraphic transfer payment which orders are of different category. Consequently, the complaint
was dismissed with regard to the latter. But, after a motion to reconsider was filed by defendant, the
court a quo changed its view and held that even said demand drafts do not come within the purview of
said Act and so amended its decision accordingly. Plaintiff has appealed.
ISSUE Whether the demand draft and telegraphic orders come within the meaning of the term "credits" or
"deposits" employed in the law.
HELD A demand draft is a bill of exchange payable on demand. Considered as a bill of exchange, a draft is
said to be, like the former, an open letter of request from, and an order by, one person on another to
pay a sum of money therein mentioned to a third person, on demand or at a future time therein
specified.

On the other hand, a bill of exchange within the meaning of our Negotiable Instruments Law does not
operate as an assignment of funds in the hands of the drawee who is not liable on the instrument until
he accepts it. This is the clear import of Section 127. It says: "A bill of exchange of itself does not
operate as an assignment of the funds in the hands of the drawee available for the payment thereon
and the drawee is not liable on the bill unless and until he accepts the same." In other words, in order
that a drawee may be liable on the draft and then become obligated to the payee it is necessary that
he first accepts the same. In fact, our law requires that with regard to drafts or bills of exchange there is
need that they be presented either for acceptance or for payment within a reasonable time after their
issuance or after their last negotiation thereof as the case may be (Section 71, Act 2031). Failure to
make such presentment will discharge the drawer from liability or to the extent of the loss caused by
the delay.

A cashier's check is a check of the bank's cashier on his or another bank. It is in effect a bill of
exchange drawn by a bank on itself and accepted in advance by the act of issuance. A cashier's check
issued on request of a depositor is the substantial equivalent of a certified check and the deposit
represented by the check passes to the credit of the check holder, who is thereafter a depositor to that
amount. A cashier's check, being merely a bill of exchange drawn by a bank on itself, and accepted in
advance by the act of issuance, is not subject to countermand by the payee after indorsement, and has
the same legal effects as a certificate deposit or a certified check.
 G.R. No. L-41764 December 19, 1980
NEW PACIFIC TIMBER & SUPPLY COMPANY, INC., Petitioner, vs. HON. ALBERTO V. SENERIS,
RICARDO A. TONG and EX-OFFICIO SHERIFF HAKIM S. ABDULWAHID
(Certified Check)
FACTS Herein petitioner is the defendant in a complaint for collection of a sum of money filed by the private
respondent. A compromise judgment was rendered by the respondent Judge in accordance with an
amicable settlement entered into by the parties. For failure of the petitioner to comply with his judgment
obligation, the respondent Judge, upon motion of the private respondent, issued an order for the
issuance of a writ of execution. Accordingly, writ of execution was issued for the amount of P63,130.00
pursuant to which, the Ex-Officio Sheriff levied upon the following personal properties of the petitioner
and set the auction sale thereof. Private respondent through counsel, refused to accept the check as
well as the cash deposit. Deputy Sheriff Castro sold the levied properties item by item to the private
respondent as the highest bidder in the amount of P50,000.00. As a result, thereof, the Ex-Officio
Sheriff declared a deficiency of P13,130.00. Thereafter, the Ex-Officio Sheriff issued a "Sheriff's
Certificate of Sale" in favor of the private respondent, Ricardo Tong, married to Pascuala Tong for the
total amount of P50,000.00 only. Subsequently, on January 17, 1975, petitioner filed an ex-parte
motion for issuance of certificate of satisfaction of judgment. This motion was denied by the respondent
Judge.
ISSUE Whether or not the private respondent can validly refuse acceptance of the payment of the judgment
obligation made by the petitioner consisting of P50,000.00 in Cashier's Check and P13,130.00 in cash
which it deposited with the Ex-Officio Sheriff before the date of the scheduled auction sale.
HELD It is to be emphasized in this connection that the check deposited by the petitioner in the amount of
P50,000.00 is not an ordinary check but a Cashier's Check of the Equitable Banking Corporation, a
bank of good standing and reputation. As testified to by the Ex-Officio Sheriff with whom it has been
deposited, it is a certified crossed check. 9 It is a well-known and accepted practice in the business
sector that a Cashier's Check is deemed as cash. Moreover, since the said check had been certified by
the drawee bank, by the certification, the funds represented by the check are transferred from the
credit of the maker to that of the payee or holder, and for all intents and purposes, the latter becomes
the depositor of the drawee bank, with rights and duties of one in such situation. 10 Where a check is
certified by the bank on which it is drawn, the certification is equivalent to acceptance. 11 Said
certification "implies that the check is drawn upon sufficient funds in the hands of the drawee, that they
have been set apart for its satisfaction, and that they shall be so applied whenever the check is
presented for payment. It is an understanding that the check is good then, and shall continue good,
and this agreement is as binding on the bank as its notes in circulation, a certificate of deposit payable
to the order of the depositor, or any other obligation it can assume. The object of certifying a check, as
regards both parties, is to enable the holder to use it as money."

When the holder procures the check to be certified, "the check operates as an assignment of a part of
the funds to the creditors." 13 Hence, the exception to the rule enunciated under Section 63 of the
Central Bank Act to the effect "that a check which has been cleared and credited to the account of the
creditor shall be equivalent to a delivery to the creditor in cash in an amount equal to the amount
credited to his account" shall apply in this case.
 G.R. No. L-43596 October 31, 1936
PHILIPPINE NATIONAL BANK
vs.
THE NATIONAL CITY BANK OF NEW YORK, and MOTOR SERVICE COMPANY, INC., defendants.
MOTOR SERVICE COMPANY, INC.
(Certified Check)
FACTS An unknown person or persons negotiated with defendant Motor Service Company, Inc., the checks,
which are made parts of the stipulation, in payment for automobile tires purchased from said
defendant's stores, against the PNB and in favor of the International Auto Repair Shop. Said checks
were indorsed by said unknown persons in the manner indicated at the back thereof, the Motor Service
Co., Inc., believing at the time that the signature of J. L. Klar, Manager and Treasurer of the
Pangasinan Transportation Co., Inc., on both checks were genuine. The checks were then indorsed for
deposit by the defendant Motor Service Company, Inc, at the National City Bank of New York and the
former was accordingly credited with the amounts. The said checks were cleared at the clearing house
and the Philippine National Bank credited the National City Bank of New York for the amounts thereof,
believing at the time that the signatures of the drawer were genuine, that the payee is an existing entity
and the endorsement at the back thereof regular and genuine.
ISSUE Whether the appellee has the right to recover from the appellant, under the circumstances of this case,
the value of the checks on which the signatures of the drawer were forged.
HELD There is, however, nothing in the law or in, business practice against the presentation of checks for
acceptance, before they are paid, in which case we have a "certification" equivalent to "acceptance"
according to section 187, which provides that "where a check is certified by the bank on which it is
drawn, the certification is equivalent to an acceptance", and it is then that the warranty under section
62 exists. This certification or acceptance consists in the signification by the drawee of his assent to
the order of the drawer, which must not express that the drawee will perform his promise by any other
means than the payment of money. (Sec. 132.) When the holder of a check procures it to be accepted
or certified, the drawer and all indorsers are discharged from liability thereon (sec. 188), and then the
check operates as an assignment of a part of the funds to the credit of the drawer with the bank. (Sec.
189.) There is nothing in the nature of the check which intrinsically precludes its acceptance, in like
manner and with like effect as a bill of exchange or draft may be accepted. The bank may accept if it
chooses; and it is frequently induced by convenience, by the exigencies of business, or by the desire to
oblige customers, voluntarily to incur the obligation. The act by which the bank places itself under
obligation to pay to the holder the sum called for by a check must be the expressed promise or
undertaking of the bank signifying its intent to assume the obligation, or some act from which the law
will imperatively imply such valid promise or undertaking. The most ordinary form which such an act
assumes is the acceptance by the bank of the check, or, as it is perhaps more often called, the
certifying of the check.

A certified check has a distinctive character as a species of commercial paper, and performs important
functions in banking and commercial business. When a check is certified, it ceases to possess the
character, or to perform the functions, of a check, and represents so much money on deposit, payable
to the holder on demand. The check becomes a basis of credit — an easy mode of passing money
from hand to hand, and answers the purposes of money.

In the light of the foregoing discussion, we conclude:

1. That where a check is accepted or certified by the bank on which it is drawn, the bank is estopped to
deny the genuineness of the drawer's signature and his capacity to issue the instrument;

2. That if a drawee bank pays a forged check which was previously accepted or certified by the said
bank it cannot recover from a holder who did not participate in the forgery and did not have actual
 notice thereof;

3. That the payment of a check does not include or imply its acceptance in the sense that this word is
used in section 62 of the Negotiable Instruments Law;

G.R. No. 89802 May 7, 1992

ASSOCIATED BANK and CONRADO CRUZ vs. HON. CA, and MERLE V. REYES
(Effect of crossing a check)
FACTS The private respondent is engaged in the business of ready-to-wear garments under the firm name
"Melissa's RTW." She deals with, among other customers, Robinson's Department Store, Payless
Department Store, Rempson Department Store, and the Corona Bazaar. These companies issued in
payment of their respective accounts crossed checks payable to Melissa's RTW. When she went to
these companies to collect on what she thought were still unpaid accounts, she was informed of the
issuance of the above-listed crossed checks. Further inquiry revealed that the said checks had been
deposited with the Associated Bank (hereinafter, "the Bank") and subsequently paid by it to one Rafael
Sayson, one of its "trusted depositors," in the words of its branch manager and co-petitioner, Conrado
Cruz, Sayson had not been authorized by the private respondent to deposit and encash the said
checks. The private respondent sued the petitioners in the Regional Trial Court of Quezon City for
recovery of the total value of the checks plus damages. After trial, judgment was rendered requiring
them to pay the private respondent the total value of the subject checks in the amount of P15,805.00
plus 12% interest, P50,000.00 actual damages, P25,000.00 exemplary damages, P5,000.00 attorney's
fees, and the costs of the suit
ISSUE Whether or not the private respondent has a cause of action against the petitioners for their
encashment and payment to another person of certain crossed checks issued in her favor.
HELD Under accepted banking practice, crossing a check is done by writing two parallel lines diagonally on
the left top portion of the checks. The crossing is special where the name of a bank or a business
institution is written between the two parallel lines, which means that the drawee should pay only with
the intervention of that company. The crossing is general where the words written between the two
parallel lines are "and Co." or "for payee's account only," as in the case at bar. This means that the
drawee bank should not encash the check but merely accept it for deposit.

In State Investment House vs. IAC, this Court declared that "the effects of crossing a check are: (1)
that the check may not be encashed but only deposited in the bank; (2) that the check may be
negotiated only once –– to one who has an account with a bank; and (3) that the act of crossing the
check serves as a warning to the holder that the check has been issued for a definite purpose so that
he must inquire if he has received the check pursuant to that purpose."

The effects therefore of crossing a check relate to the mode of its presentment for payment. Under
Sec. 72 of the Negotiable Instruments Law, presentment for payment, to be sufficient, must be made
by the holder or by some person authorized to receive payment on his behalf. Who the holder or
authorized person is depends on the instruction stated on the face of the check.

There being no evidence that the crossed checks were actually received by the private respondent,
she would have a right of action against the drawer companies, which in turn could go against their
respective drawee banks, which in turn could sue the herein petitioner as collecting bank. In a similar
situation, it was held that, to simplify proceedings, the payee of the illegally encashed checks should be
allowed to recover directly from the bank responsible for such encashment regardless of whether or
not the checks were actually delivered to the payee. 11 We approve such direct action in the case at
bar.
 G.R. No. 93048 March 3, 1994
BATAAN CIGAR AND CIGARETTE FACTORY, INC. vs. CA and STATE INVESTMENT HOUSE, INC.
(Effect of crossing a check)
FACTS Petitioner, a corporation involved in the manufacturing of cigarettes, engaged one of its suppliers, King
Tim Pua George to deliver 2,000 bales of tobacco leaf. In consideration thereof, BCCFI issued crossed
checks post-dated in the total amount of P820,000.00. Relying on the supplier's representation that he
would complete delivery within three months from December 5, 1978, petitioner agreed to purchase
additional 2,500 bales of tobacco leaves, despite the supplier's failure to deliver in accordance with
their earlier agreement. Again petitioner issued post-dated crossed checks. During these times,
George King was simultaneously dealing with private respondent SIHI. On July 19, 1978, he sold at a
discount check TCBT 5518265 bearing an amount of P164,000.00, post dated March 31, 1979, drawn
by petitioner, naming George King as payee to SIHI. On December 19 and 26, 1978, he again sold to
respondent checks TCBT Nos. 608967 & 608968,6 both in the amount of P100,000.00, post-dated
September 15 & 30, 1979 respectively, drawn by petitioner in favor of George King. Efforts of SIHI to
collect from BCCFI having failed, it instituted the present case, naming only BCCFI as party defendant.
The trial court pronounced SIHI as having a valid claim being a holder in due course. It further said that
the non-inclusion of King Tim Pua George as party defendant is immaterial in this case, since he, as
payee, is not an indispensable party.
ISSUE Whether SIHI, a second indorser, a holder of crossed checks, is a holder in due course, to be able to
collect from the drawer, BCCFI.
HELD Crossed check is one where two parallel lines are drawn across its face or across a corner thereof. It
may be crossed generally or specially. A check is crossed specially when the name of a particular
banker or a company is written between the parallel lines drawn. It is crossed generally when only the
words "and company" are written or nothing is written at all between the parallel lines. It may be issued
so that the presentment can be made only by a bank.

In order to preserve the credit worthiness of checks, jurisprudence has pronounced that crossing of a
check should have the following effects: (a) the check may not be encashed but only deposited in the
bank; (b) the check may be negotiated only once — to one who has an account with a bank; (c) and
the act of crossing the check serves as warning to the holder that the check has been issued for a
definite purpose so that he must inquire if he has received the check pursuant to that purpose,
otherwise, he is not a holder in due course.

It is then settled that crossing of checks should put the holder on inquiry and upon him devolves the
duty to ascertain the indorser's title to the check or the nature of his possession. Failing in this respect,
the holder is declared guilty of gross negligence amounting to legal absence of good faith, contrary to
Sec. 52(c) of the Negotiable Instruments Law, 13 and as such the consensus of authority is to the
effect that the holder of the check is not a holder in due course.

In the present case, BCCFI's defense in stopping payment is as good to SIHI as it is to George King.
Because, really, the checks were issued with the intention that George King would supply BCCFI with
the bales of tobacco leaf. There being failure of consideration, SIHI is not a holder in due course.
Consequently, BCCFI cannot be obliged to pay the checks.
 G.R. No. 92244 February 9, 1993
NATIVIDAD GEMPESAW vs. CA and PHILIPPINE BANK OF COMMUNICATIONS
(Effect of crossing a check)
FACTS Petitioner owns and operates four grocery stores. To facilitate payment of debts to her suppliers,
petitioner draws checks against her checking account with the respondent bank as drawee. The
checks were prepared and filled up as to all material particulars by her trusted bookkeeper, Alicia
Galang. The completed checks were submitted to the petitioner for her signature, together with the
corresponding invoice receipts which indicate the correct obligations due and payable to her suppliers.
Petitioner signed each and every check without bothering to verify the accuracy of the checks against
the corresponding invoices because she reposed full and implicit trust and confidence on her
bookkeeper. The issuance and delivery of the checks to the payees named therein were left to the
bookkeeper. In the course of her business operations, petitioner issued, following her usual practice
stated above, a total of eighty-two (82) checks in favor of several suppliers. Respondent drawee Bank
correspondingly debited the amounts thereof against petitioner's checking account. All the checks
issued and honored by the respondent drawee bank were crossed checks.

All the eighty-two (82) checks with forged signatures of the payees were brought to Ernest L. Boon,
Chief Accountant of respondent drawee Bank, who, without authority therefor, accepted them all for
deposit to the credit and/or in the accounts of Alfredo Y. Romero and Benito Lam. Petitioner made a
written demand on respondent drawee Bank to credit her account with the money value of the eighty-
two (82) checks totalling P1,208.606.89 for having been wrongfully charged against her account.
Respondent drawee Bank refused to grant petitioner's demand.

RTC: Dismissed the complaint.

CA: Appealed the RTC decision. It rendered that petitioner’s gross negligence in issuing the checks
was the proximate cause of the loss.
ISSUE
HELD Petitioner argues that respondent drawee Bank should not have honored the checks because they
were crossed checks. Issuing a crossed check imposes no legal obligation on the drawee not to honor
such a check. It is more of a warning to the holder that the check cannot be presented to the drawee
bank for payment in cash. Instead, the check can only be deposited with the payee's bank which in turn
must present it for payment against the drawee bank in the course of normal banking transactions
between banks. The crossed check cannot be presented for payment but it can only be deposited and
the drawee bank may only pay to another bank in the payee's or indorser's account.

A crossed check is defined as a check crossed with two (2) lines, between which are either the name
of a bank or the words "and company," in full or abbreviated. In the former case, the banker on whom it
is drawn must not pay the money for the check to any other than the banker named; in the latter case,
he must not pay it to any other than a banker.

Thus, petitioner's negligence was the proximate cause of her loss. And since it was her negligence
which caused the respondent drawee Bank to honor the forged checks or prevented it from recovering
the amount it had already paid on the checks, petitioner 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.

Petitioner likewise contends that banking rules prohibit the drawee bank from having checks with more
than one indorsement. The banking rule banning acceptance of checks for deposit or cash payment
with more than one indorsement unless cleared by some bank officials does not invalidate the
 instrument; neither does it invalidate the negotiation or transfer of the said check. In effect, this rule
destroys the negotiability of bills/checks by limiting their negotiation by indorsement of only the payee.
Under the NIL, the only kind of indorsement which stops the further negotiation of an instrument is a
restrictive indorsement which prohibits the further negotiation thereof.

G.R. No. 72764 July 13, 1989

STATE INVESTMENT HOUSE vs. IAC, ANITA PEÑA CHUA and HARRIS CHUA
(Effect of crossing a check)
FACTS New Sikatuna Wood Industries, Inc. requested for a loan from private respondent Harris Chua. The
latter agreed to grant the same subject to the condition that the former should wait until December
1980 when he would have the money. In view of this agreement, private respondent-wife, Anita Pena
Chua issued three crossed post-dated checks payable to New Sikatuna Wood Industries, Inc.
Subsequently, New Sikatuna Wood Industries, Inc. entered into an agreement with petitioner State
Investment House, Inc. under a deed of sale, the New Sikatuna assigned and discounted with
petitioner eleven postdated checks including the aforementioned three postdated checks issued by
herein private respondent-wife Anita Peña Chua to New Sikatuna.

When the three checks issued by private respondent Anita Pena Chua were allegedly deposited by
petitioner, these checks were dishonored by reason of "insufficient funds", "stop payment" and
"account closed", respectively. Petitioner claims that despite demands on private respondent Anita
Peña to make good said checks, the latter failed to pay the same necessitating the former to file an
action for collection against the latter and her husband Harris Chua before the RTC Manila.

RTC: Rendered judgment in favor of petitioner.

CA: Rendered judgment in favor of respondent-spouses.
ISSUE Whether petitioner is a holder in due course as to entitle it to proceed against private respondents for
the amount stated in the dishonored checks.
HELD Admittedly, the Negotiable Instruments Law regulating the issuance of negotiable checks as well as the
lights and liabilities arising therefrom, does not mention "crossed checks". But this Court has taken
cognizance of the practice that a check with two parallel lines in the upper left-hand corner means that
it could only be deposited and may not be converted into cash. Consequently, such circumstance
should put the payee on inquiry and upon him devolves the duty to ascertain the holder's title to the
check or the nature of his possession. Failing in this respect, the payee is declared guilty of gross
negligence amounting to legal absence of good faith and as such the consensus of authority is to the
effect that the holder of the check is not a holder in good faith.

Relying on the ruling in Ocampo v. Gatchalian (supra), the Intermediate Appellate Court (now CA),
correctly elucidated that the effects of crossing a check are: the check may not be encashed but only
deposited in the bank; the check may be negotiated only once to one who has an account with a bank;
and the act of crossing the check serves as a warning to the holder that the check has been issued for
a definite purpose so that he must inquire if he has received the check pursuant to that purpose,
otherwise he is not a holder in due course.

It results therefore that when appellee rediscounted the check knowing that it was a crossed check he
was knowingly violating the avowed intention of crossing the check. Furthermore, his failure to inquire
from the holder, party defendant New Sikatuna Wood Industries, Inc., the purpose for which the three
checks were cross despite the warning of the crossing, prevents him from being considered in good
faith and thus he is not a holder in due course. Being not a holder in due course, plaintiff is subject to
personal defenses, such as lack of consideration between appellants and New Sikatuna Wood
Industries. Note that under the facts the checks were postdated and issued only as a loan to New
Sikatuna Wood Industries, Inc. if and when deposits were made to back up the checks. Such deposits
were not made; hence no loan was made, hence the three checks are without consideration (Sec. 28,
Negotiable Instruments Law).
 Likewise New Sikatuna Wood Industries negotiated the three checks in breach of faith in violation of
Article (sic) 55, Negotiable Instruments Law, which is a personal defense available to the drawer of the
check.

G.R. No. 75954 October 22, 1992

PEOPLE OF THE PHILIPPINES
vs.
HON. DAVID G. NITAFAN, Presiding Judge, Regional Trial Court, Branch 52, Manila, and K.T. LIM alias
MARIANO LIM
(Memorandum and Traveler’s Check)
FACTS Private respondent K.T. Lim was charged before respondent court with violation of B.P. 22. private
respondent moved to quash the Information of the ground that the facts charged did not constitute a
felony as B.P. 22 was unconstitutional and that the check he issued was a memorandum check which
was in the nature of a promissory note, perforce, civil in nature. Private respondent contends that
although a memorandum check may not differ in form and appearance from an ordinary check, such a
check is given by the drawer to the payee more in the nature of memorandum of indebtedness and,
should be sued upon in a civil action.
ISSUE Whether a memorandum check issued postdated in partial payment of a pre-existing obligation is
within the coverage of B.P. 22.
HELD A memorandum check is in the form of an ordinary check, with the word "memorandum", "memo" or
"mem" written across its face, signifying that the maker or drawer engages to pay the bona fide holder
absolutely, without any condition concerning its presentment. Such a check is an evidence of debt
against the drawer, and although may not be intended to be presented, has the same effect as an
ordinary check, and if passed to the third person, will be valid in his hands like any other check.

From the above definition, it is clear that a memorandum check, which is in the form of an ordinary
check, is still drawn on a bank and should therefore be distinguished from a promissory note, which is
but a mere promise to pay. If private respondent seeks to equate memorandum check with promissory
note, as he does to skirt the provisions of B.P. 22, he could very well have issued a promissory note,
and this would be have exempted him form the coverage of the law. In the business community a
promissory note, certainly, has less impact and persuadability than a check.

A memorandum check, upon presentment, is generally accepted by the bank. Hence it does not matter
whether the check issued is in the nature of a memorandum as evidence of indebtedness or whether it
was issued is partial fulfillment of a pre-existing obligation, for what the law punishes is the issuance
itself of a bouncing check 15 and not the purpose for which it was issuance. The mere act of issuing a
worthless check, whether as a deposit, as a guarantee, or even as an evidence of a pre-existing debt,
is malum prohibitum.

A memorandum check must therefore fall within the ambit of B.P. 22 which does not distinguish but
merely provides that "[a]ny person who makes or draws and issues any check knowing at the time of
issue that he does not have sufficient funds in or credit with the drawee bank . . . which check is
subsequently dishonored . . . shall be punished by imprisonment . . ."
 G.R. No. 105836 March 7, 1994
SPS. GEORGE MORAN and LIBRADA P. MORAN vs. THE HON. CA and CITYTRUST BANKING CORP.
(Relationship between Payee, Drawer, Drawee)
FACTS Petitioner spouses George and Librada Moran are the owners of the Wack-Wack Petron gasoline
station. Petitioners maintained three joint accounts, namely one current account and two savings
accounts, with the Citytrust Banking Corporation. As a special privilege to the Morans, whom it
considered as valued clients, the bank allowed them to maintain a zero balance in their current
account. Transfers from Saving Account to their current account could be made only with their prior
authorization, but they gave written authority to Citytrust to automatically transfer funds from their
Savings Account to their Current Account at any time whenever the funds in their current account were
insufficient to meet withdrawals from said current account. Such arrangement for automatic transfer of
funds was called a pre-authorized transfer (PAT) agreement. Petitioners, through Librada Moran, drew
a check for P50,576.00 payable to Petrophil
Corporation. The next day, petitioners issued another in the amount of P56,090.00 in favor of the same
corporation. The total sum of the two checks was P106,666.00. Petrophil Corporation deposited the
two aforementioned checks to its account with the PNB, the collecting bank. In turn, PNB presented
them for clearing with the PCHC. The records show that the Current Account had a zero balance, while
Savings Account had an available balance of P26,104.306 and the other Savings Account had an
available balance of P43,268.39. George Moran was informed by his wife Librada, that Petrophil
refused to deliver their orders on a credit basis because the two checks they had previously issued
were dishonored upon presentment for payment. Apparently, the bank dishonored the checks due to
"insufficiency of funds."
ISSUE
HELD The relationship between the bank and the depositor is that of a debtor and creditor. By virtue of
the contract of deposit between the banker and its depositor, the banker agrees to pay checks drawn
by the depositor provided that said depositor has money in the hands of the bank. A bank is not liable
for its refusal to pay a check on account of insufficient funds, notwithstanding the fact that a deposit
may be made later in the day. Before a bank depositor may maintain a suit to recover a specific
amount from his bank, he must first show that he had on deposit sufficient funds to meet his demand.

Under similar circumstances, it was held in Whitman vs. First National Bank that a bank performs its
full duty where, upon the receipt of a check drawn against an account in which there are insufficient
funds to pay it in full, it endeavors to induce the drawer to make good his account so that the check can
be paid, and failing in this, it protests the check on the following morning and notifies its correspondent
bank by the telegraph of the protest. It cannot, therefore, be held liable to the payee and holder of the
check for not protesting it upon the day when it was received. In fact, the court added that the bank did
more that it was required to do by making an effort to induce the drawer to deposit sufficient money to
make the check good, and by notifying its correspondent of the dishonor of the check by telegram.

A bank is under no obligation to make part payment on a check, up to only the amount of the drawer's
funds, where the check is drawn for an amount larger than what the drawer has on deposit. Such a
practice of paying checks in part has never existed. Upon partial payment, the check holder could not
be called upon to surrender the check, and the bank would be without a voucher affording a certain
means of showing the payment. The rule is based on commercial convenience, and any rule that
would work such manifest inconvenience should not be recognized. A check is intended not only to
transfer a right to the amount named in it, but to serve the further purpose of affording evidence for the
bank of the payment of such amount when the check is taken up.
 Petitioner had no reason to complain, for they alone were at fault. A drawer must remember his
responsibilities every time he issues a check. He must personally keep track of his available balance in
the bank and not rely on the bank to notify him of the necessity to fund certain check she previously
issued. A check, as distinguished from an ordinary bill of exchange, is supposed to be drawn against a
previous deposit of funds for it is ordinarily intended for immediately payment.

G.R. No. 159590 October 18, 2004

HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED vs. CECILIA DIEZ CATALAN
(Relationship between Payee, Drawer, Drawee)
FACTS Frederick Arthur Thomson drew 5 checks payable to defendant Cecilia. Catalan presented these
checks to Hongkong and Shanghai Banking Corporation Limited (HSBANK). The checks were
dishonored for having insufficient funds. Thomson demanded that the checks be made good because
he, in fact, had sufficient funds. Still, HSBANK did not accept the checks.

Subsequently, Thomson died but Catalan was not paid yet. The account was transferred to HSBC
International Trustee Limited (TRUSTEE). Catalan then requested TRUSTEE to pay her but still
refused and even asked her to submit back to them the original checks for verification.

Catalan and her lawyer went to Hong Kong on their own expense to personally submit the checks.
They still were not honored, leading Catalan to file a suit against HSBC to collect the money.
ISSUE Whether the CA committed serious error in not holding that the amended complaint states no cause of
action against HSBANK, as drawee bank.
HELD The Court is convinced that the allegations therein are in the nature of an action based on tort under
Article 19 of the Civil Code. It is evident that Catalan is suing HSBANK and HSBC TRUSTEE for
unjustified and willful refusal to pay the value of the checks.

HSBANK is being sued for unwarranted failure to pay the checks notwithstanding the repeated
assurance of the drawer Thomson as to the authenticity of the checks and frequent directives to pay
the value thereof to Catalan. Her allegations in the complaint that the gross inaction of HSBANK on
Thomson’s instructions, as well as its evident failure to inform Catalan of the reason for its continued
inaction and non-payment of the checks, smack of insouciance on its part, are sufficient statements of
clear abuse of right for which it may be held liable to Catalan for any damages she incurred resulting
therefrom. HSBANK’s actions, or lack thereof, prevented Catalan from seeking further redress with
Thomson for the recovery of her claim while the latter was alive.

HSBANK claims that Catalan has no cause of action because under Section 189 of the Negotiable
Instruments Law, "a check of itself does not operate as an assignment of any part of the funds to the
credit of the drawer with the bank, and the bank is not liable to the holder unless and until it accepts or
certifies it." However, HSBANK is not being sued on the value of the check itself but for how it
acted in relation to Catalan’s claim for payment despite the repeated directives of the drawer
Thomson to recognize the check the latter issued. Catalan may have prayed that she be paid the
value of the checks but it is axiomatic that what determines the nature of an action, as well as which
court has jurisdiction over it, are the allegations of the complaint, irrespective of whether or not the
plaintiff is entitled to recover upon all or some of the claims asserted therein.

Anent HSBC TRUSTEE, it is being sued for the baseless rejection of Catalan’s claim. When Catalan
parted with the checks as a requirement for the processing of her claim, even going to the extent of
traveling to Hongkong to deliver personally the checks, HSBC TRUSTEE summarily disapproved her
claim with nary a reason. HSBC TRUSTEE gave no heed to Catalan’s incessant appeals for an
explanation. Her pleas fell on deaf and uncaring corporate ears. Clearly, HSBC TRUSTEE’s acts are
anathema to the prescription for human conduct enshrined in Article 19 of the Civil Code.
 G.R. No. 70145 November 13, 1986
MARCELO A. MESINA vs. IAC, JOSE GO, and ALBERT UY
(Iron clad rule for cashier's checks)
FACTS Jose Go purchased from Associated Bank a cashier's check for P800,000.00. Unfortunately, he left
said check on the top of the desk of the bank manager when he left the bank. The bank manager
entrusted the check for safekeeping to a bank official, a certain Albert Uy. While Uy went to the men's
room, the check was stolen by his visitor in the person of Alexander Lim. Upon discovering that the
check was lost, Jose Go accomplished a "STOP PAYMENT" order. Two days later, Associated Bank
received the lost check for clearing from Prudential Bank. After dishonoring the same check twice,
Associated Bank received summons and copy of a complaint for damages of Marcelo Mesina who was
in possession of the lost check and is demanding payment. Petitioner claims that a cashier's check
cannot be countermanded in the hands of a holder in due course.
ISSUE Whether the IAC erred in ruling that a cashier's check can be countermanded even in the hands of a
holder in due course.
HELD The holder of a cashier's check who is not a holder in due course cannot enforce such check against
the issuing bank which dishonors the same. If a payee of a cashier's check obtained it from the issuing
bank by fraud, or if there is some other reason why the payee is not entitled to collect the check, the
respondent bank would, of course, have the right to refuse payment of the check when presented by
the payee, since respondent bank was aware of the facts surrounding the loss of the check in question.

Petitioner failed to substantiate his claim that he is a holder in due course and for consideration or
value as shown by the established facts of the case. Admittedly, petitioner became the holder of the
cashier's check as endorsed by Alexander Lim who stole the check. He refused to say how and why it
was passed to him. He had therefore notice of the defect of his title over the check from the start.

At the outset, respondent bank knew it was Jose Go's check and no one else since Go had not paid or
indorsed it to anyone. The bank was therefore liable to nobody on the check but Jose Go. The bank
had no intention to issue it to petitioner but only to buyer Jose Go. When payment on it was therefore
stopped, respondent bank was not the one who did it but Jose Go, the owner of the check.
Respondent bank could not be drawer and drawee for clearly, Jose Go owns the money it represents
and he is therefore the drawer and the drawee in the same manner as if he has a current account and
he issued a check against it; and from the moment said cashier's check was lost and/or stolen no one
outside of Jose Go can be termed a holder in due course because Jose Go had not indorsed it in due
course. The check in question suffers from the infirmity of not having been properly negotiated and for
value by respondent Jose Go who as already been said is the real owner of said instrument.
 G.R. No. 139292 December 5, 2000
JOSEPHINE DOMAGSANG, Petitioner, v. CA and PEOPLE OF THE PHILIPPINES
(Crimes involving checks; BP 22)
FACTS Petitioner was convicted by the RTC Makati of having violated Batas Pambansa ("B.P.") Blg. 22. It
would appear that petitioner approached complainant Ignacio Garcia, an Assistant Vice President of
METROBANK, to ask for financial assistance. Garcia accommodated petitioner and gave the latter a
loan in the sum of P573,800.00. In exchange, petitioner issued and delivered to the complainant 18
postdated checks for the repayment of the loan. When the checks were, in time, deposited, the
instruments were all dishonored by the drawee bank for this reason: "Account closed." The
complainant demanded payment allegedly by calling up petitioner at her office. Failing to receive any
payment for the value of the dishonored checks, the complainant referred the matter to his lawyer who
supposedly wrote petitioner a letter of demand but that the latter ignored the demand.
ISSUE Whether or not an alleged verbal demand to pay sufficient to convict herein petitioner for the crime of
violation of B.P. Blg. 22.
HELD The law enumerates the elements of the crime to be (1) the making, drawing and issuance of any
check to apply for account or for value; (2) the knowledge of the maker, drawer, or issuer that at the
time of issue he does not have sufficient funds in or credit with the drawee bank for the payment of the
check in full upon its presentment; and (3) the subsequent dishonor of the check by the drawee bank
for insufficiency of funds or credit or dishonor for the same reason had not the drawer, without any
valid cause, ordered the bank to stop payment.

There is deemed to be a prima facie evidence of knowledge on the part of the maker, drawer or issuer
of insufficiency of funds in or credit until the drawee bank of the check issued if the dishonored check is
presented within 90 days from the date of the check and the maker or drawer fails to pay thereon or to
make arrangement with the drawee bank for that purpose. The statute has created the prima facie
presumption evidently because "knowledge" which involves a state of mind would be difficult to
establish. The presumption does not hold, however, when the maker, drawer or issuer of the check
pays the holder thereof the amount due thereon or makes arrangement for payment in full by the
drawee bank of such check within 5 banking days after receiving notice that such check has not been
paid by the drawee bank.

While, indeed, Section 2 of B.P. Bb. 22 does not state that the notice of dishonor be in writing, taken in
conjunction, however, with Section 3 of the law, i.e., "that where there are no sufficient funds in or
credit with such drawee bank, such fact shall always be explicitly stated in the notice of
dishonor or refusal,” mere oral notice or demand to pay would appear to be insufficient for conviction
under the law. The Court is convinced that both the spirit and letter of the Bouncing Checks Law would
require for the act to be punished thereunder not only that the accused issued a check that is
dishonored, but that likewise the accused has actually been notified in writing of the fact of dishonor.
The consistent rule is that penal statutes have to be construed strictly against the State and liberally in
favor of the accused. Without the written notice of dishonor, there can be no basis, considering what
has heretofore been said, for establishing the presence of "actual knowledge of insufficiency of funds."
 G.R. No. 124354 December 29, 1999
ROGELIO E. RAMOS and ERLINDA RAMOS, in their own behalf and as natural guardians of the minors,
ROMMEL RAMOS, ROY RODERICK RAMOS and RON RAYMOND RAMOS
vs.
CA, DELOS SANTOS MEDICAL CENTER, DR. ORLINO HOSAKA and DRA. PERFECTA GUTIERREZ
(Check Kiting (Art. 315 [1] [b], RPC))
FACTS Plaintiff Erlinda Ramos was experiencing occasional pains allegedly caused by stones in her gall
bladder. She was told to undergo an operation and after some tests and exams, she was indicated fit
for surgery. Dr. Orlino Hozaka, defendant, decided that Erlinda should undergo a “cholecystectomy”
operation. Rogelio, husband of Erlinda, asked Dr. Hosaka to look for a good anesthesiologist.
Herminda (sister-in-law of Erlinda) accompanied Erlinda to the operating room and saw Dr. Gutierrez,
the other defendant, who was to administer anesthesia. Dr. Hosaka only arrived around 12:15 PM,
three hours late. Nonetheless, the operation continued and Herminda then saw Dr. Gutierrez intubating
the patient and heard her saying “and hirap ma-intubate nito, mali yata ang pagkakapasok”. Thereafter,
bluish discoloration of the nailbeds appeared on the patient. Hence, Dr. Hosaka issued an order for
someone to call Dr. Calderon, another anesthesiologist. The patient was placed in a trendelenburg
position for decrease of blood supply in her brain. At 3:00 PM, the patient was taken to the ICU.

Four months after, the patient was released from the hospital. However, the patient has been in a
comatose condition.

Hence, the petition filed a civil case for damages against herein private respondents alleging
negligence in the management and care of Erlinda Ramos.

Petitioners contended that the faulty management of her airway casused the lack of oxygen in the
patient’s brain. On the respondent’s part, they contended that the brain damage was Erlinda's allergic
reaction to the anesthetic agent.
ISSUE
HELD