Crisologo vs CA (177 SCRA 594, 15 Sept 1989)

FACTS: - The Vice-president of Mover Enterprises, Inc. issued a check drawn against Traders
Royal Bank, payable to petitioner Ernestina Crisologo-Jose, for the accommodation of his client.
Petitioner-payee was charged with the knowledge that the check was issued at the instance
and for the personal account of the President who merely prevailed upon respondent vice-
president to act as co-signatory in accordance with the arrangement of the corporation with its
depository bank. While it was the corporation's check which was issued to petitioner for the
amount involved, petitioner actually had no transaction directly with said corporation.

ISSUE: WON private respondent, one of the signatories of the check issued under the account
of Mover Enterprises, Inc., is an accommodation party under NIL and a debtor of petitioner to
the extent of the amount of said check.

HELD: Yes. To be considered an accommodation party, a person must (1) be a party to the
instrument, signing as maker, drawer, acceptor, or indorser, (2) not receive value therefor, and
(3) sign for the purpose of lending his name for the credit of some other person. It is not a valid
defense that the accommodation party did not receive any valuable consideration when he
executed the instrument.

He is liable to a holder for value as if the contract was not for accommodation, in whatever
capacity such accommodation party signed the instrument, whether primarily or secondarily.
Thus, it has been held that in lending his name to the accommodated party, the
accommodation party is in effect a surety for the latter. The foregoing notwithstanding, the
liability of an accommodation party to a holder for value, although such holder does not include
nor apply to corporations which are accommodation parties.

This is because the issue or indorsement of negotiable paper by a corporation without

consideration and for the accommodation of another is ultra vires. One who has taken the
instrument with knowledge of the accommodation nature thereof cannot recover against a
corporation where it is only an accommodation party. By way of exception, an officer or agent
of a corporation shall have the power to execute or indorse a negotiable paper in the name of
the corporation for the accommodation of a third person only if specifically authorized to do so.

Corollarily, corporate officers, such as the president and vice-president, have no power to
execute for mere accommodation a negotiable instrument of the corporation for their
individual debts or transactions arising from or in relation to matters in which the corporation
has no legitimate concern.

Since such accommodation paper cannot thus be enforced against the corporation, especially
since it is not involved in any aspect of the corporate business or operations, the signatories
thereof (president and vice-president) shall be personally liable therefor, as well as the
consequences arising from their acts in connection therewith.
Salas vs CA (22 Jan 1990)

FACTS:
February 6, 1980: Juanita Salas bought a motor vehicle from the Violago Motor Sales Corp.
(VMS) for P58,138.20 as evidence by a promissory note

This note was subsequently endorsed to Filinvest Finance &Leasing Corp. (FFLC)
May 21, 1980: Salas defaulted in her installments allegedly due to discrepancies in the engine
and chassis number of the vehicle delivered and discovery of certificate of reg. and deed of
mortgage

Petitioner bought a car from Viologo Motor Sales Company, which was secured by a
promissory note, which was later on indorsed to Filinvest Finance, which financed the
transaction. Petitioner later on defaulted in her installment payments, allegedly due to
the fraud imputed by VMS in selling her a different vehicle from what was agreed upon. This
default in payment prompted Filinvest Finance to initiate a case against petitioner. The
trial court decided in favor of Filinvest, to which the appellate court upheld by increasing
the amount to be paid.

It is the contention of petitioner that since the agreement between her and the motor
company was inexistent, none had been assigned in favor of private respondent.

Petitioner claims she be released of liability because of fraud, bad faith and misrepresentation
of Violago Motor Sales (VMS) Corporation, which delivered the motor vehicle after she
executed a promissory note with private respondent.

ISSUE

Whether or not such fraud would relieve petitioner of her liability from private respondent.

RULING

NO. The fraud in this case is with the contractual relations with VMS and not to the promissory
note. 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.

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

Accordingly, respondent corporation holds the instrument free from any defect of title of prior
parties, and free from defenses available to prior parties among themselves, and may enforce
payment of the instrument for the full amount thereof. This being so, petitioner cannot set up
against respondent the defense of nullity of the contract of sale between her and VMS.

PNB vs CA (256 SCRA 491)

FACTS:
DECS issued a check in favor of Abante Marketing containing a specific serial number,
drawn against PNB. The check was deposited by Abante in its account with Capitol and the
latter consequently deposited the same with its account with PBCOM which later
deposited it with petitioner for
clearing. The check was thereafter cleared. However, on a relevant date, petitioner PNB
returned the check on account that there had been a material alteration on it. Subsequent
debits were made but Capitol cannot debit the account of Abante any longer for the latter had
withdrawn all the money already from the account. This prompted Capitol to seek
reclarification from PBCOM and demanded the recrediting of its account. PBCOM
followed suit by doing the same against PNB. Demands unheeded,
it filed an action against PBCOM and the latter filed a third-party complaint against petitioner.

HELD:
An alteration is said to be material if it alters the effect of the instrument. It means an
unauthorized change in the instrument that purports to modify in any respect the obligation
of a party or an unauthorized addition of words or numbers or other change to an
incomplete instrument relating to the obligation of the party. In other words, a material
alteration is one which changes the items which are required to be stated under Section 1 of
the NIL.

In this case, the alleged material alteration was the alteration of the serial number of the
check in issue—which is not an essential element of a negotiable instrument under Section
1. PNB alleges that the alteration was material since it is an accepted concept that a TCAA
check by its very
nature is the medium of exchange of governments, instrumentalities and agencies. As a
safety measure, every government office or agency is assigned checks bearing different
serial numbers.

But this contention has to fail. The check’s serial number is not the sole indicia of its origin.
The name of the government agency issuing the check is clearly stated therein. Thus, the
check’s drawer is sufficiently identified, rendering redundant the referral to its serial number.
Therefore, there being no material alteration in the check committed, PNB could not return the
check to PBCOM. It should pay the same.

Great Eastern vs Hongkong Shanghai Bank (23 Aug 1922)

FACTS:
The plaintiff is an insurance corporation, which drew a check in favor of Melicor. This
was stolen by Maasim, forged the signature of Melicor and deposited the check to his
account in PNB. Thereafter, PNB endorsed the check to HSBC who later debited the account of
plaintiff. Plaintiff believed all along that Melicor received the payment. Upon knowledge of the
debit HSBC did on its account, it demanded that the same amount be credited.

May 3, 1920: Great Eastern Life Ins. Co. (Eastern) drew its check for P2,000 on the Hongkong
and Shanghai Banking Corporation (HSBC) payable to the order of Lazaro Melicor.

E. M. Maasim fraudulently obtained possession of the check, forged Melicor's signature, as an

endorser, and then personally endorsed and presented it to the Philippine National Bank (PNB)
and it was placed to his credit.

Next day: PNB endorsed the check to the HSBC who paid it

HSBC sent a bank statement to the Eastern showing the amount of the check was charged to its
account, and no objection was made

4 months after the check was charged, it developed that Lazaro Melicor, to whom the check
was made payable, had never received it, and that his signature, as an endorser, was forged by
Maasim,

Eastern promptly made a demand upon the HSBC to credit the amount of the forged check

Eastern filed against HSBC and PNB

RTC: dismissed the case

ISSUES: W/N Eastern has the right to recover the amount of the forged check

HELD: YES. lower court is reversed. Eastern against HSBC who can claim against PNB
forgery was that of Melicor (payees and NOT the maker)

Eastern received it banks statement, it had a right to assume that Melicor had personally
endorsed the check, and that, otherwise, the bank would not have paid it
Section 23 of Negotiable Instruments Law:

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.
The Philippine National Bank had no license or authority to pay the money to Maasim or
anyone else upon a forge signature.

Its remedy is against Maasim to whom it paid the money.

Republic vs Ebrada (31 July 1975)

FACTS: Natividad Gempesaw issued checks, prepared by her bookkeeper, a total of 82 checks in
favor of several supplies. Most of the checks for amounts in excess of actual obligations as
shown in their corresponding invoices. It was only after the lapse of more than 2 years did she
discovered the fraudulent manipulations of her bookkeeper.

It was also learned that the indorsements of the payee were forged, and the checks were
brought to the chief accountant of Philippine Bank of Commerce (the Drawee Bank, Buendia
Branch) who deposited them in the accounts of Alfredo Romero and Benito Lam. Gempesaw
made demand upon the bank to credit the amount charged due the checks. The bank refused.
Hence, the present action.

ISSUE: Who shall bear the loss resulting from the forged indorsements?

HELD: Under Sec. 23 of the Negotiable Instruments Law, a forged signature is “wholly
inoperative, no one can gain title to the instrument through such forged indorsement. Such an
indorsement prevents any subsequent party from acquiring any right as against any party
whose name appears prior to the forgery. Such forged indorsement cuts-off the rights of all
subsequent parties as against parties prior to the forgery.

No. Applying the principle of Beam vs. Farrel, 135 Iowa 670, 113 N.W. 590, it can be safely
concluded that it is only the negotiation predicated on the forged indorsement that should be
declared inoperative. This means that the negotiation of the check in question from Martin
Lorenzo, the original payee, to Ramon R. Lorenzo, the 2nd indorser, should be declared of no
effect,

But the negotiation of the aforesaid check from Ramon R. Lorenzo to Adelaida Dominguez, the
3rd indorser, and from Adelaida Dominguez to the defendant-appellant who did not know of
the forgery, should be considered valid and enforceable, barring any claim of forgery. Being the
last indorser, however, Ebrada warrants that she has good title to the check subject of this
action. The petitioner, drawee of the check can recover from the holder [Ebrada] the money
paid to the latter on a forged instrument.

It is not supposed to be its duty to ascertain whether the signatures of the payee or indorsers
are genuine or not. This is because the indorser is supposed to warrant to the drawee that the
signatures of the payee and previous indorsers are genuine, warranty not extending only to
holders in due course. Ebrada, upon receiving the check in question from Dominguez, was duty-
bound to ascertain whether the check in question was genuine before presenting it to plaintiff
Bank for payment.

Indorsers own credulity or recklessness or misplaced confidence was the sole cause of the loss.
Why should he be permitted to shift the loss due to his own fault in assuming the risk, upon the
drawee, simply because of the accidental circumstance that the drawee afterwards failed to
detect the forgery when the check was presented for payment.

PNB vs Quimpo (14 March 1988)

FACTS: Francisco Gozon was a depositor of the Philippine National Bank (PNB Caloocan City
branch). Ernesto Santos, Gozon’s friend, took a check from the latter’s checkbook which was
left in the car, filled it up for the amount of P5,000, forged Gozon’s signature, and encashed it.
Gozon learned about the transaction upon receipt of the bank’s statement of account, and
requested the bank to recredit the amount to his account. The bank refused. Hence, the
present action.

Issue: Whether or not the bank shall bear the loss resulting from the forged check.

Held: Yes. The prime duty of a bank is to ascertain the genuineness of the signature of the
drawer or the depositor on the check being encashed. It is expected to use reasonable business
prudence in accepting and cashing a check being encashed or presented to it. Payment in
neglect of duty places upon him the result of such negligence. Still, Gozon’s act in leaving his
checkbook in the car, where his trusted friend remained in, cannot be considered negligence
sufficient to excuse the bank from its own negligence. The bank bears the loss.

Gempesaw vs CA (9 Feb 1993)

FACTS:
Gempesaw owns and operates four grocery stores
to pay their debts of her supplies, she draws checks against her account
she signed each and every crossed 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.
although the Bank notified her of all checks presented to and paid by the bank, petitioner did
not verify he correctness of the returned checks, much less check if the payees actually
received the checks in payment for the supplies she received
It was only after the lapse of more 2 years that petitioner found out about the fraudulent
manipulations of her bookkeeper
November 7, 1984: 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 account
January 23, 1985: Gempesaw filed against Philippine Bank of Communications (drawee Bank)
for recovery of the money value of 82 checks charged against the Gempesaw's account on the
ground that the payees' indorsements were forgeries
RTC: dismissed the complaint
CA: affirmed
Gempesaw gross negligence = promixate cause of the loss
ISSUE: W/N Gempesaw has a right to recover the amount attributable to the forgeries

HELD: NO. 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.
Petitioner completed the checks by signing them as drawer and thereafter authorized her
employee Alicia Galang to deliver to payees
GR: 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
EX: where the drawer is guilty of such negligence which causes the bank to honor such a check
or checks.
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.

PCIB vs CA (350 SCRA 446)

FACTS:

These consolidated petitions involve several fraudulently negotiated checks. The original
actions a quo were instituted by Ford Philippines to recover from the drawee bank, CITIBANK,
N.A. (Citibank) and collecting bank, Philippine Commercial International Bank (PCIBank)
[formerly Insular Bank of Asia and America], the value of several checks payable to the
Commissioner of Internal Revenue, which were embezzled allegedly by an organized syndicate.
The plaintiff Ford drew and issued its Citibank check in favor of the Commissioner of Internal
Revenue as payment of plaintiff’s percentage or manufacturer’s sales taxes. The aforesaid
check was deposited with the defendant IBAA (now PCIBank) and was subsequently cleared at
the Central Bank. Upon presentment with the defendant Citibank, the proceeds of the check
was paid to IBAA as collecting or depository bank. The proceeds of the same Citibank check of
the plaintiff was never paid to or received by the payee thereof, the Commissioner of Internal
Revenue.

In a letter by the acting CIR, Ford was informed that its check was not paid to the government
or its authorized agent but was encashed by unauthorized persons. An investigation revealed
that Ford’s general ledger accountant had recalled the check purportedly because of an error in
the computation of tax due. With his instruction, PCIBank replaced the check with two of its
own Manager’s Checks which were subsequently deposited with another bank.

ISSUE:

Whether PCIB is liable to reimburse Ford for the payment of the crossed check.

RULING:

Yes. Indeed, the crossing of the check with the phrase “Payee’s Account Only,” is a warning that
the check should be deposited only in the account of the CIR. Thus, it is the duty of the
collecting bank PCIBank to ascertain that the check be deposited in payee’s account only.
Therefore, it is the collecting bank (PCIBank) which is bound to scruninize the check and to
know its depositors before it could make the clearing indorsement “all prior indorsements
and/or lack of indorsement guaranteed”.

The mere fact that the forgery was committed by a drawer-payors confidential employee or
agent, who by virtue of his position had unusual facilities for perpetrating the fraud and
imposing the forged paper upon the bank, does NOT entitle the bank to shift the loss to the
drawer-payor, in the absence of some circumstance raising estoppel against the drawer. This
rule likewise applies to the checks fraudulently negotiated or diverted by the confidential
employees who hold them in their possession.

In this case, there was no evidence presented confirming the conscious participation of PCIBank
in the embezzlement. As a general rule, however, a banking corporation is liable for the
wrongful or tortuous acts and declarations of its officers or agents within the course and scope
of their employment. A bank will be held liable for the negligence of its officers or agents when
acting within the course and scope of their employment. It may be liable for the tortuous acts
of its officers even as regards that species of tort of which malice is an essential element. In this
case, we find a situation where the PCIBank appears also to be the victim of the scheme
hatched by a syndicate in which its own management employees had participated.
A bank holding out its officers and agents as worthy of confidence will not be permitted to
profit by the frauds these officers or agents were enabled to perpetrate in the apparent course
of their employment; nor will it be permitted to shirk its responsibility for such frauds, even
though no benefit may accrue to the bank therefrom. For the general rule is that a bank is liable
for the fraudulent acts or representations of an officer or agent acting within the course and
apparent scope of his employment or authority. And if an officer or employee of a bank, in his
official capacity, receives money to satisfy an evidence of indebtedness lodged with his bank for
collection, the bank is liable for his misappropriation of such sum.

Lastly, banking business requires that the one who first cashes and negotiates the check must
take some precautions to learn whether or not it is genuine. And if the one cashing the check
through indifference or other circumstance assists the forger in committing the fraud, he should
not be permitted to retain the proceeds of the check from the drawee whose sole fault was
that it did not discover the forgery or the defect in the title of the person negotiating the
instrument before paying the check. For this reason, a bank which cashes a check drawn upon
another bank, without requiring proof as to the identity of persons presenting it, or making
inquiries with regard to them, cannot hold the proceeds against the drawee when the proceeds
of the checks were afterwards diverted to the hands of a third party. In such cases the drawee
bank has a right to believe that the cashing bank (or the collecting bank) had, by the usual
proper investigation, satisfied itself of the authenticity of the negotiation of the checks. Thus,
one who encashed a check which had been forged or diverted and in turn received payment
thereon from the drawee, is guilty of negligence which proximately contributed to the success
of the fraud practiced on the drawee bank. The latter may recover from the holder the money
paid on the check.

Papa vs AU Valencia (284 SCRA 643)

FACTS:

The respondents, A.U Valencia & Penarroyo, filed a complaint for specific performance against
petitioner Papa to deliver the title and turn over the accrued rentals. The case arose from a sale
of a parcel of land allegedly made to Penarroyo by petitioner acting as attorney-in-fact of Anne
Butte. The purchaser, through Valencia, made a check payment in the amount of P40,000 and
in cash, P5,000. Both were accepted by petitioner as evidenced by various receipts. It appeared
that the said property has already been mortgaged to the bank previously together with other
properties of Butte.

On appeal, the petitioner argued that alleged sale of the subject property had not been
consummated because he did not encashed the check (in the amount of P40,000.00), which did
not produce the effect of payment as in Art. 1249 of the Civil Code.

ISSUE:
Whether payments by check shall produce the effect of payment only when cashed?

RULING:

It is an undisputed fact that respondents Valencia and Peñarroyo had given petitioner Myron C.
Papa the amounts of Five Thousand Pesos (P5,000.00) in cash on 24 May 1973, and Forty
Thousand Pesos (P40,000.00) in check on 15 June 1973, in payment of the purchase price of the
subject lot.

Petitioner himself admits having received said amounts, and having issued receipts therefor.
Petitioner’s assertion that he never encashed the aforesaid check is not substantiated and is at
odds with his statement in his answer that “he can no longer recall the transaction which is
supposed to have happened 10 years ago.”

After more than ten (10) years from the payment in party by cash and in part by check, the
presumption is that the check had been encashed. As already stated, he even waived the
presentation of oral evidence.

Granting that petitioner had never encashed the check, his failure to do so for more than ten
(10) years undoubtedly resulted in the impairment of the check through his unreasonable and
unexplained delay.

While it is true that the delivery of a check produces the effect of payment only when it is
cashed, pursuant to Art. 1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced
by the creditor’s unreasonable delay in presentment.

The acceptance of a check implies an undertaking of due diligence in presenting it for payment,
and if he from whom it is received sustains loss by want of such diligence, it will be held to
operate as actual payment of the debt or obligation for which it was given. It has, likewise, been
held that if no presentment is made at all, the drawer cannot be held liable irrespective of loss
or injury unless presentment is otherwise excused.

This is in harmony with Article 1249 of the Civil Code under which payment by way of check or
other negotiable instrument is conditioned on its being cashed, except when through the fault
of the creditor, the instrument is impaired.

The payee of a check would be a creditor under this provision and if its no-payment is caused
by his negligence, payment will be deemed effected and the obligation for which the check was
given as conditional payment will be discharged. Considering that respondents Valencia and
Peñarroyo had fulfilled their part of the contract of sale by delivering the payment of the
purchase price, said respondents, therefore, had the right to compel petitioner to deliver to
them the owner’s duplicate of TCT No. 28993 of Angela M. Butte and the peaceful possession
and enjoyment of the lot in question.
Far East Realty vs CA (166 SCRA 256, 1988)

FACTS: On September 13, 1960, the private respondents, because of business needs, applied
for an accommodation loan in the amount of Php4,500.00 with petitioner Far East Realty
Investment Inc. They promised to pay jointly and severally, in one month time and delivered to
petitioner a check dated September 13, 1960, for P4,500.00, drawn by Dy Hian Tat, and signed
by them at the back. They assured the petitioner that they would redeem the said check by
paying in cash the said amount after a month from September 13, 1960, or that the said check
could be presented for payment on or after a month from the date indicated on the check.

The accommodation loan was extended to the respondents, however, on March 5, 1964, when
the check was presented for payment to the the China Banking Corporation, said check
bounced because the current account of the drawer had already been closed. Demand for
payment failed so the petitioner filed an action for the collection and payment of P4,500.00
representing the face value of the unpaid and dishonored check.

ISSUE: Whether or not presentment for payment and notice of dishonor of the questioned
check were made within reasonable time.

HELD:
Where the instrument is not payable on demand, presentment must be made on the day
it falls due. Where it is payable on demand, presentment must be made within a reasonable
time after issue, except that in case of a bill of exchange, presentment for payment is
sufficient if made within
reasonable time after the last negotiation thereof.

Notice may be given as soon as instrument has been dishonored and unless delay is
excused must be given within the time fixed by law.

In this case, presentment and notice of dishonor were not made within reasonable time.

September 1960—date when the check was drawn

March 1964—presented to drawee bank
April 1968—notice of dishonor

RULING: The Court ruled that, in this case, presentment and notice of dishonor were not made
within a reasonable time. The check was issued on September 13, 1960, but was presented to
the drawee bank only on March 5, 1964, and dishonored on the same date. After dishonor by
the drawee bank, a formal notice of dishonor was made by the petitioner through a letter dated
April 27, 1968. The petitioner failed to exercise prudence and diligence on what he ought to do
as required by law. Likewise, it failed to show any justification for the unreasonable delay.
Reasonable time” has been defined as so much time as is necessary under the circumstances
for a reasonable prudent and diligent man to do, conveniently, what the contract or duty
requires should be done, having a regard for the rights, and possibility of loss, if any, to the
other party (Citizens’ Bank Bldg. v. L & E. Wertheirmer 189 S.W. 361, 362, 126 Ark, 38, Ann. Cas.
1917 E, 520).

NOTES:

Where an instrument is payable on demand, presentment must be made within a reasonable

time after issue; Reasonable time depends upon the peculiar facts and circumstances in each
case. – Where the instrument is not payable on demand, presentment must be made on the
day it falls due. Where it is payable on demand, presentment must be made within a
reasonable time after issue, except that in the case of a bill of exchange, presentment for
payment will be sufficient if made within a reasonable time after the last negotiation thereof.
(Section 71, Negotiable Instruments Law).

Notice may be given as soon as the instrument is dishonored; and unless delay is excused must
be given within the time fixed by the law (Section 102, Negotiable Instruments Law).

No hard and fast demarcation line can be drawn between what may be considered as a
reasonable or an unreasonable time, because “reasonable time” depends upon the peculiar
facts and circumstances in each case (Tolentino, Commentaries and Jurisprudence on
Commercial Laws of the Philippines, Vol. I, Eighth Edition, p. 327).

McGuire vs Province of Samar (GR No. L8155, 23 October 1956)

Facts:
• A check was issued by Province of Samar to Paulino M. Santos drawn against the
Philippine National Bank Cebu Branch.
• The payee negotiated the check with James McGuire.
• James McGuire presented the check to the municipal treasurer of Borongan for
payment, but the latter (who merely noted it) was not able or did not choose to pay the
same.
• Upon seeking payment of the check with Philippine National Bank, the latter
requested the Bureau of Posts to furnish it with photostatic copies of the check and
requested James McGuire to present the check to the provincial treasurer and the provincial
auditor for certification.
• Before the check could be certified, the province of Samar, withdraw its money with
PNB and left an insufficient balance to cover the check.
• James McGuire transferred his rights to the check to the herein plaintiffs who, unable
to cash it, filed in the Court of First Instance of Samar.
Issue:
Whether PNB is liable for the amount of the Check.
Ruling:
Yes. An implied acceptance of the check by the appellant bank was thereby created. The
request by the appellant bank from the Bureau of Posts for photostatic copies of the check
and the subsequent requirement by it for its presentation by James McGuire to the
provincial treasurer and the provincial auditor for certification, would be an empty gesture if
the appellant did not thereby mean to assume the obligation of paying the check and
holding sufficient deposit of the drawer for the purpose. Even so, appellant's resulting
obligation is merely subsidiary, the province of Samar being primarily liable to pay the
check.

Asia Banking vs Javier (GR No. 19051, April 1923)

Doctrine:
When a negotiable instrument is dishonored for non-acceptance or non-payment, notice
thereof must be given to the drawer and each of the indorsers, and those who are not notified
shall be discharged from liability, except as provided otherwise.

It is incumbent upon a person, who seeks to enforce the indorser’s liability, to establish said
liability by proving that notice was within the time, and in the manner, required by the law.

Facts:
Salvador B. Chaves drew a check on the Philippine National Bank for P11,000 in favor of La
Insular. This check was indorsed by the limited partners of La Insular, and then deposited by
Salvador B. Chaves in his current account with the plaintiff, Asia Banking Corporation. Another
check was drawn and deposited in similar fashion.

The amount represented by both checks was used by Salvador B. Chaves after they were
deposited in the plaintiff bank, by drawing checks on the plaintiff. Subsequently these checks
were presented by the plaintiff to the Philippine National Bank for payment, but the latter
refused to pay on the ground that the drawer, Salvador B. Chaves, had no funds therein.

The lower court sentenced the defendant, as indorser, to pay the plaintiff P11,000. From this
judgment the defendant appealed.

Issue:
Whether or not the defendant’s liability as an indorser is extinguished for lack of notice

Held:
Yes. Section 89 of the Negotiable Instruments Law (Act No. 2031) provides that, when a
negotiable instrument is dishonored for non-acceptance or non-payment, notice thereof must
be given to the drawer and each of the indorsers, and those who are not notified shall be
discharged from liability, except where this act provides otherwise.
According to this, the indorsers are not liable unless they are notified that the document was
dishonored. Then, under the general principle of the law of procedure, it will be incumbent
upon the plaintiff, who seeks to enforce the defendant’s liability upon these checks as indorser,
to establish said liability by proving that notice was given to the defendant within the time, and
in the manner, required by the law that the checks in question had been dishonored. If these
facts are not proven, the plaintiff has not sufficiently established the defendant’s liability. There
is no proof in the record tending to show that plaintiff gave any notice whatsoever to the
defendant that the checks in question had been dishonored, and there it has not established its
cause of action.

Gullas vs PNB (GR 43191, 13 Nov 1935)

Treasury warrants were indorsed by A and B. These were presented for encashment by PNB.
Subsequently, these were dishonored by the Insular Treasurer. Because of the dishonor, PNB
applied A’s deposit in the PNB for payment of the warrant.

Is the application of the deposit of A properly enforced?

No. The general indorser of a negotiable instrument engages that if it be dishonored and the
necessary proceedings of dishonor be duly taken, he will pay the amount thereof to the holder.
In this connection, it has been held that notice of dishonor is necessary in order to charge an
indorser and that the right of action against him does not accrue until the notice is given (Gullas
v. PNB, G.R. No. L-43191, Nov. 13, 1935)

Facts:

Petitioner Gullas maintains a current account with herein respondent PNB. He together with
one Pedro Lopez signed as endorsers of a Warrant issued by the US Veterans Bureau payable to
the order of one Francisco Bacos. PNB cashed the check but was subsequently dishonored by
the Insular Treasurer. PNB then sent notices to petitioner which could not be delivered to him
at the time because he was in Manila. PNB in the letter informed the petitioner the outstanding
balance on his account was applied to the part payment of the dishonored check. Upon
petitioner’s return, he received the notice of dishonor and immediately paid the unpaid balance
of the warrant. As a consequence of these, petitioner was inconvenienced when his insurance
was not paid due to lack of funds and was publicized widely at his area to his mortification.

Issue:

Whether or not PNB has the right to apply petitioner’s deposit to his debt to the bank.
Ruling: NO.

As a general rule, a bank has a right of set off of the deposits in its hands for the payment of any
indebtedness to it on the part of a depositor. The Civil Code contains provisions regarding
compensation (set off) and deposit. The portions of Philippine law provide that compensation
shall take place when two persons are reciprocally creditor and debtor of each other. In this
connection, it has been held that the relation existing between a depositor and a bank is that of
creditor and debtor. [General Rule]

Starting, therefore, from the premise that the Philippine National Bank had with respect to the
deposit of Gullas a right of set off, we next consider if that remedy was enforced properly. The
fact we believe is undeniable that prior to the mailing of notice of dishonor, and without
waiting for any action by Gullas, the bank made use of the money standing in his account to
make good for the treasury warrant.

Gullas was merely an indorser and had issued in good faith. As to an indorser, the situation is
different and notice should actually have been given him in order that he might protect his
interests. We accordingly are of the opinion that the action of the bank was prejudicial to
Gullas.

Nyco Sales vs BA Finance (200 SCRA 637, 1991)

FACTS:
NYCO Sales Corp extended a credit accommodation to the Fernandez Brothers. The brothers,
acting in behalf of Sanshell Corp, discounted a BPI check for P60,000 with NYCO, which then
indorsed the said check to BA Finance accompanied by a Deed of Assignment. BA Finance, in
turn, released the funds,which were used by the brothers. The BPI check was dishonored. The
brothers issued a substitute check,which was also dishonored. Now BA Finance goes after
NYCO, which disclaims liability.

ISSUE:
W/N NYCO, as the assignor, is liable for breach of warranties.

HELD:
YES. The assignor (NYCO) warrants both the existence and legality of the credit, as well as the
solvency of the debtor. If there is a breach of any of the2 warranties, the assignor is liable to the
assignee. That being the case, NYCO cannot evade liability. So long as the credit remains
unpaid, the assignor remains liable notwithstanding failure to give notice of dishonor that is
because the liability of NYCO stems form the assignment, not on the checks alone.
Great Asian Sales vs CA (GR No 105774, 25 April 2002)

FACTS:

Great Asian is engaged in the business of buying and selling household appliances. In March
1981, the board of directors of Great Asian approved a resolution authorizing its Treasurer and
GM, Arsenio Lim Piat, Jr. to secure a loan from Bancasia in an amount not to exceed P1M and
also authorized Arsenio to sign all papers, documents or promissory notes necessary to secure
the loan. In Feb. 1982, the board of directors of Great Asian approved a 2nd resolution
authorizing Great Asian to secure a discounting line with Bancasia in an amount not exceeding
P2M and also designated Arsenio as the authorized signatory to sign all instruments,
documents and checks necessary to secure the discounting line.

In March 1981 and 1982, Tan Chong Lin signed 2 Surety Agreements in favor of Bancasia to
guarantee, solidarily, the debts of Great Asian to Bancasia. Great Asian, through Arsenio, signed
4 Deeds of Assignment of Receivables, assigning to Bancasia 15 postdated checks issued by
various customers in payment for appliances and other merchandise. Arsenio endorsed all the
15 checks by signing his name at the back of the checks. Eight of the dishonored checks bore
the endorsement of Arsenio below the stamped name of “Great Asian Sales Center”, while the
rest of the dishonored checks just bore the signature of Arsenio. The drawee banks dishonored
the fifteen checks on maturity when deposited for collection by Bancasia, with any of the
following as reason for the dishonor: “account closed”, “payment stopped”, “account under
garnishment”, and “insufficiency of funds”. After the drawee bank dishonored the checks,
Bancasia sent letters to Tan Chong Lin, notifying him of the dishonor and demanding payment
from him. Neither Great Asian nor Tan Chong Lin paid Bancasia the dishonored checks.

In June 1982, Bancasia filed a complaint for collection of a sum of money against Great Asian
and Tan Chong Lin. Great Asian raised the alleged lack of authority of Arsenio to sign the Deeds
of Assignment as well as the absence of consideration and consent of all the parties to the
Surety Agreements signed by Tan Chong Lin.

ISSUE:

WON Great Asian is liable to Bancasia under the Deeds of Assignment for breach of contract
pursuant to the civil code, independent of the negotiable instruments law.

RULING:

YES. Bancasia’s complaint against Great Asian is founded on the latter’s breach of contract
under the Deeds of Assignment. The Deeds of Assignment uniformly provided for one vital
suspensive condition: in case the drawers fail to pay the checks on maturity, Great Asian
obligated itself to pay Bancasia the full face value of the dishonored checks, including penalty
and attorney’s fees. The failure of the drawers to pay the checks is a suspensive condition, the
happening of which gives rise to Bancasia’s right to demand payment from Great Asian. This
conditional obligation of Great Asian arises from its written contracts with Bancasia as
embodied in the Deeds of Assignment.

By express provision in the Deeds of Assignment, Great Asian unconditionally obligated itself to
pay Bancasia the full value of the dishonored checks. In short, Great Asian sold the postdated
checks on with recourse basis against itself. This is an obligation that Great Asian is bound to
faithfully comply because it has the force of law as between Great Asian and Bancasia, as
provided in Art 1159 of the Civil Code. Great Asian and Bancasia agreed on this specific with
recourse stipulation, despite the fact that the receivables were negotiable instruments with the
endorsement of Arsenio. The contracting parties had the right to adopt the stipulation which is
separate and distinct from the warranties of an endorser under the Negotiable Instruments
Law.

The explicit with recourse stipulation against Great Asian effectively enlarges, by agreement of
the parties, the liability of Great Asian beyond that of a mere endorser of a negotiable
instrument. Thus, whether or not Bancasia gives notice of dishonor to Great Asian, the latter
remains liable to Bancasia because of the with recourse stipulation which is independent of the
warranties of an endorser under the Negotiable Instruments Law.

There is nothing in the Negotiable Instruments Law or in the Financing Company Act, that
prohibits Great Asian and Bancasia parties from adopting the with recourse stipulation
uniformly found in the Deeds of Assignment. Instead of being negotiated, a negotiable
instrument may be assigned. Assignment of a negotiable instrument is actually the principal
mode of conveying accounts receivable under the Financing Company Act. Since in discounting
of receivables the assignee is subrogated as creditor of the receivable, the endorsement of the
negotiable instrument becomes necessary to enable the assignee to collect from the drawer.
This is particularly true with checks because collecting banks will not accept checks unless
endorsed by the payee. The purpose of the endorsement is merely to facilitate collection of the
proceeds of the checks.

The exercise by Bancasia of its option to sue for breach of contract under the Civil Code will not
leave Great Asian holding an empty bag. Great Asian, after paying Bancasia, is subrogated back
as creditor of the receivables. Great Asian can then proceed against the drawers who issued the
checks. Even if Bancasia failed to give timely notice of dishonor, still there would be no
prejudice whatever to Great Asian. Under the Negotiable Instruments Law, notice of dishonor is
not required if the drawer has no right to expect or require the bank to honor the check, or if
the drawer has countermanded payment. In the instant case, all the checks were dishonored
for any of the following reasons: “account closed”, “account under garnishment”, insufficiency
of funds”, or “payment stopped”. In the first three instances, the drawers had no right to
expect or require the bank to honor the checks, and in the last instance, the drawers had
countermanded payment.
Luis Wong vs CA (GR No. 117857, 2 Feb 2001)

Facts:

Petitioner Wong was an agent of Limtong Press Inc. (LPI), a manufacturer of calendars. LPI
would print sample calendars, then give them to agents to present to customers. The agents
would get the purchase orders of customers and forward them to LPI. After printing the
calendars,... LPI would ship the calendars directly to the customers. Thereafter, the agents
would come around to collect the payments. Petitioner, however, had a history of unremitted
collections

Hence, petitioner's customers were required to issue postdated checks before LPI would accept
their purchase orders.

Wong issued six (6) postdated checks totaling P18,025.00, all dated December 30, 1985 and
drawn payable to the order of LPI

These checks were initially intended to guarantee the calendar orders of customers who failed
to issue post-dated checks. However, following company policy, LPI refused to accept the
checks as guarantees. Instead, the parties agreed to apply the checks to the payment of...
petitioner's unremitted collections for 1984 amounting to P18,077.07.

LPI waived the P52.07 difference.

Before the maturity of the checks, petitioner prevailed upon LPI not to deposit the checks and
promised to replace them within 30 days

However, petitioner reneged on his promise. Hence,... LPI deposited the checks with Rizal
Commercial Banking Corporation (RCBC).

The checks were returned for the reason "account closed."... complainant... notified the
petitioner of the dishonor. Petitioner failed to make arrangements for payment within five (5)
banking days.

petitioner was charged with three (3) counts of violation of B.P. Blg. 22

Issues:

May the prosecution apply the prima facie presumption of "knowledge of lack of funds" against
the drawer if the checks were belatedly deposited by the complainant 157 days after maturity,
or will it be then necessary for the prosecution to show actual... proof of "lack of funds" during
the 90-day term?
Ruling:

Petitioner avers that since the complainant deposited the checks

157 days after the December 30, 1985 maturity date, the presumption of knowledge of lack of
funds under Section 2 of B.P. Blg. 22 should not apply to him. He further claims that he should
not be... expected to keep his bank account active and funded beyond the ninety-day period.

Under Section 186 of the Negotiable Instruments Law, "a check must be presented for payment
within a reasonable time after its issue or the drawer will be discharged from liability thereon to
the extent of the loss caused by the delay." By current banking practice, a... check becomes
stale after more than six (6) months,[... or 180 days. Private respondent herein deposited the
checks 157 days after the date of the check. Hence said checks cannot be considered stale.