Negotiable Instruments Case Digest 2013 Atty. Quicho Catipay. De Villa. Masculino. Mella Section 23.

. Forged Signature; effect of. When a signature is forged or made with out 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 there for, or to enforce payment thereof against any party thereto, can be acquired th rough or under such a signature, unless the party against whom it is sought to e nforce such right is precluded from setting up the forgery or want of authority. Forged Signature of Drawer BPI VS. CASA MONTESSORI INTERNATIONAL GR No. 149454 || Section 23: Forged Signature of Drawer FACTS: On November 8, 1982, CASA Monte ssori International opened Current Account with BPI with CASA's President Ma. Cari na Lebron as one of its authorized signatories. In 1991, after conducting an inv estigation, plaintiff discovered that nine of its checks had been encashed by a certain Sonny D. Santos since 1990 in the total amount of P782,000.00. It turned out that Santos with account at BPI Greenbelt Branch was a fictitious name used by third party defendant Leonardo T. Yabut who worked as external auditor of CA SA. Third party defendant voluntarily admitted that he forged the signature of L ebron and encashed the checks. In 1991, plaintiff filed Complaint for Collection with Damages against defendant bank praying that the latter be ordered to reins tate the amount of P782,500.00 with interest. BPI contends that forgery cannot b e presumed and must be proved by clear, positive and convincing evidence; and fu rthermore, that the Negotiable Instruments Law cannot apply on account of CASA's n egligence which resulted in the undetected forgery. RTC Decision: RTC rendered d ecision in favor of CASA Montessori CA Decision: CA modified decision holding CA SA as contributory negligent hence ordered Yabut to reimburse BPI half the total amount claimed and CASA, the other half. It also disallowed attorney's fees and m oral and exemplary damages. ISSUE: Whether or not there was forgery under the Ne gotiable Instruments Law HELD: The court held that there was forgery of the forg er's signature on the check. Under Section 23, a forged signature is a real or abs olute defense and a person whose signature on a negotiable instrument is forged is deemed to have never become a party thereto and to have never consented to th e contract that allegedly gave rise to it. In the present case, both CA and RTC found that respondent Yabut had volu ntarily admitted through an affidavit that he had forged the drawer's signature. M oreover the examination by the PNP-, though inconclusive was nevertheless clear, positive and convincing. Both RTC and CA conducted independent examinations of the evidence presented and arrived at reasonable and similar conclusions. They a ppositely considered testimonial and other documentary evidence. Having establis hed forgery of the drawer's signature, BPI therefore erred in making payments by v irtue thereof. Jurisprudence (San Carlos Milling Co. Ltd. v. BPI) provides that a bank is bound to know the signatures of its customers; and if it pays a forged check, it must be considered as making the payment out of its own funds, and can not ordinarily charge the amount so paid to the account of the depositor whose n ame was forged. Therefore, the forged signatures are wholly inoperative, and CASA cannot be held liable thereon. CITIBANK VS SPS. CABAMONGAN GR No. 146918 || Sec tion 23: Forged Signature of Drawer FACTS: Spouses Luis and Carmelita Cabamongan opened a joint and/or foreign currency time deposit in favor of their two child ren (Luis Jr. & Lito Cabamongan) with Citibank. On a material date, a person who claimed to be Carmelita sought the pretermination of the account. She presented identification cards (Bank of America Versatele Card, ATM Card and Mabuhay Cred it Card) to ascertain her identity to the then account officer. When she left wi th the money, she left an identification card. She filled up the necessary forms for pre-termination of deposits with the assistance of Account Officer Yeye San Pedro. While the transaction was being processed, she was casually interviewed by San Pedro about her personal circumstances and investment plans. Since the sa id person failed to surrender the original Certificate of Deposit, she had to ex ecute a notarized release and waiver document in favor of Citibank, pursuant to Citibanks internal procedure, before the money was released to her. The release

and waiver document was not notarized on that same day but the money was noneth eless given to the person withdrawing. The transaction lasted for about 40 minut es. After said person left, San Pedro realized that she left behind an identific ation card. The account officer then called up the address. Marites, the wife of Lito, received a call from San Pedro telling them of what had happened. The spo uses and their family knew of the incident. The spouses Luis and Carmelita were presently residing in the US (California) and there was a prior incident wherein they got robbed in their house with the jewelry box and cards stolen. Spouses m ade several demands for the return of the amount but Citibank refused to do so. The Spouses Cabamongan filed a case for Specific Performance. RTC Decision: RTC rendered a decision in favor of the Cabamongan spouses and against the Citibank. Citibank is ordered to pay the plaintiffs moral damages, 1|C a t i p a y . D e l o s S a n t o s . M a c a i b a y . M a s c u l i n o . M e l l a

Negotiable Instruments Case Digest 2013 Atty. Quicho Catipay. De Villa. Masculino. Mella exemplary damages, litigation expenses attorney's fees and cost of suit. The trial court ruled that for every transaction, the depositor's signature is passed upon by personnel to check and countercheck possible irregularities and therefore mus t bear the blame when they fail to detect the forgery or discrepancy. CA Decisio n: RTC decision was sustained finding that Citibank was negligent. ISSUE: Whethe r or not there Citibank was negligent in detecting the forgery HELD: The court h eld that Citibank was indeed negligent. In this case, it has been sufficiently s hown that the signatures of Carmelita in the forms for pretermination of deposit s are forgeries. Citibank, with its verification procedure, failed to detect the forgery. Its negligence consisted in the omission of that degree of diligence r equired of banks. Jurisprudence provides that a bank is bound to know the signatu res of its customers; and if it pays a forged check, it must be considered as ma king the payment out of its own funds, and cannot ordinarily charge the amount s o paid to the account of the depositor whose name was forged. The Supreme Court a ffirmed the decision of the CA with modifications as to the fees due by Citibank . CA Ratio: First, the depositor didn't present the Certificate of Deposit. This wou ld not have been an insurmountable obstacle as the bank, in the absence of such certificate, allows the termination of the deposit for as long as the depositor executes a notarized release and waiver document in favor of the bank. However, this simple procedure was not followed by the bank, as it terminated the deposit and actually delivered the money to the impostor without having the said docume nt notarized on the flimsy excuse that another department of the bank was in cha rge of notarization. Second, from the internal memorandum issued by the Account Officer, he admitted to the fact that the specimen signature was different from the one who misrepresented herself as Carmelita. San Pedro was able to detect di screpancies in the signatures but she did not exercise additional precautions to ascertain the identity of the person she was dealing with. In fact, the entire transaction took only 40 minutes to complete despite the anomalous situation. Un doubtedly, the bank could have done a better job Third, the bank kept in its rec ords pictures of its depositors. It is inconceivable how the bank was duped by a n impostor. San Pedro admitted in her testimony that the woman she dealt with di d not resemble the pictures appearing on the identification cards presented but San Pedro still went on with the sensitive transaction. She did not mind such di sturbing anomaly because she was convinced of the validity of the passport. She also considered as decisive the f act that the impostor had a mole on her face in the same way that the person in the pictures on the identification cards had a mole. These explanations do not a ccount for the disparity between the pictures and the actual appearance of the i mpostor. That said person was allowed to withdraw the money anyway is beyond bel ief. ILUSORIO VS. CA & MANILA BANKING CORP. GR N o. 139130 || Section 23: Forged Signature of Drawer FACTS: Petitioner Ramon Ilusorio was a prominent businessman (Managing Director of Multinational Investment Bancorporation and Chairman/President of several oth er corporations) who, because of different business commitments out of the count ry for several times, entrusted to his then secretary, Katherine Eugenio, the ha ndling of his credit cards and checkbooks. For a period of time, the secretary w as able to encash and deposit to her personal account 17 checks with the amount of P119,634.34 from the account of petitioner. Petitioner did not bother to chec k his statement of account until a business partner apprised him that he saw Eug enio use his credit cards. She was fired immediately and criminal actions were f iled against her. Thereafter, petitioner requested the bank to restore its money but the bank refused to do so. RTC Decision: Case was dismissed, finding no suf ficient basis for plaintiff's caus e herein against defendant bank because Ilusori o failed to present 7 more additional standard signatures to the NBI for compari son. CA Decision: The appellate court held that petitioner's own negligence was t

he proximate cause of his loss. The burden to prove forgery was upon the plainti ff which burden he failed to discharge. Petitioner Ilusorio contends that Sectio n 23 should apply in this case. He posits that under Section 23 of the NIL, a fo rged check is inoperative, and that Manila Bank had no authority to pay the forg ed check. ISSUE: Whether or not Ilusorio may request the bank to restore the mon ey since his signature was forged by his secretary HELD: Supreme Court sustained the decision of CA. The rule is that when a signature is forged or made without the authority of the person whose signature it purports to be, the check is who lly inoperative. However, the rule provides for an exception, namely: unless the party against whom it is sought to enforce such right is 2|C a t i p a y . D e l o s S a n t o s . M a c a i b a y . M a s c u l i n o . M e l l a

Negotiable Instruments Case Digest 2013 Atty. Quicho Catipay. De Villa. Masculino. Mella precluded from setting up the forgery or want of authority. In the present case, it is the exception that applies. Ilusorio is precluded from setting up the for gery, assuming there is forgery, due to his own negligence in entrusting to his secretary his credit cards and checkbook including the verification of his state ments of account. MWSS V. CA 143 SCRA 20 || Section 23: Forged Signature of Draw er FACTS: Metropolitan Waterworks and Sewerage System had an account from Philip pine National Bank. Its treasurer Jose Sanchez, auditor Pedro Aquilar, and Gener al Manager Victor Recio are the ones authorized to sign on the Account No. 6 (Ac count No. 381-777). The checks from their accounts was personalized and printed for MWSS by F. Mesina Enterprises. During the months of March, April and May 196 9, 23 checks were prepared, processed, issued and released by NWSA, all of which were paid and cleared by PNB and debited by PNB against NWSA Account No. 6. Dur ing the same months, 23 checks bearing the same numbers but different payees wer e likewise paid and cleared by PNB and debited against the account of NWSA. The amounts drawn were deposited in the accounts of the payees Raul Dizon, Arturo Si son and Antonio Mendoza with PCIB (Philippine Commercial and Industrial Bank). I t was found out though that the names stated in the drawn checks were all fictit ious. NWSA demanded the restoration of the sum debited from their account as the checks were forged and/or spurious checks. PNB refused to credit the said amoun t (amounting to more than 3M). Thus, it filed a complaint. RTC Decision: Judgmen t rendered in favor of the petitioner, MWSS. It ordered the PNB to restore the t otal sum of P3, 457, 903.00 to plaintiff's account applying Section 23 of the Nego tiable Instruments Law. CA Decision: CA reversed the decision of Court of First Instance of Manila and rendered judgment in favor of the respondent relying on S ection 24 of the NIL Petitioner's Contention: Section 24 does not apply in that it only creates a prima facie presumption which was, according to the petitioner, overcome by several documents relating to the forgery of the checks. The petitio ner contends that since the signatures of the checks were forgeries, the respond ent drawee bank must bear the loss under the rulings of this Court. ISSUE: Wheth er or not there was showing of forgery which makes PNB liable for the loss under Section 23 of the Negotiable Instruments Law HELD: The court held that there was not showing of forgery. There was no categor ical finding that the 23 checks were signed by persons other than those authoriz ed to sign. On the contrary, the NBI reports shows that the fraud was an inside j ob and that the delay in the reconciliation of the bank statements and the laxity and loss of records control in the printing of the personalized checks facilita ted the fraud. It further doesn't provide that the signatures were forgeries. Like wise, petitioner failed to provide appropriate security measures over its own re cords laying confidential records open to unauthorized persons. Forgery cannot b e presumed. It should be proven by clear, convincing and positive evidence. This wasn't done in the present case. The petitioner cannot invoke Section 23 because it was guilty of negligence not only before the questioned checks but even after the same had already been negotiated. The records show that at the time the 23 checks were prepared, negotiated and encashed, the petitioner was using its own personalized checks, instead of the official PNB commercial bank checks. In the exercise of this special privilege, the petitioner failed to provide the needed security measures. Even if the 23 checks in question are considered forgeries, c onsidering the petitioner's gross negligence, it is barred from setting up the def ense of forgery under Section 23 of the NIL. PNB vs. National City Bank of New Y ork, And Motor Service Company, Inc. 63 PHIL 711 || Section 23: Forged Signature of Drawer FACTS: On April 7 and 9, 1933, unknown persons negotiated with Motor Services Company checks, which were part of the stipulation in payment of automo bile tires purchased from the latter's store. It purported to have been issued by Pangasinan Transportation Company. The said checks were indorsed at the back by said unknown persons, the Motor company believing at that time that the signatur es contained therein were genuine The checks were later deposited with the compa

ny's account in National City Bank of NY. The said checks were consequently cleare d and PNB credited National City Bank with the amounts. Thereafter, PNB discover ed that the signatures were forged and it demanded the reimbursement of the amou nts for which it credited the other bank. MTC Decision: The case was dismissed b efore trial as to the defendant National City Bank of New York. Decision was ren dered giving plaintiff judgment for total amount of P 360.25 with interests and costs *Instant appeal was taken. Petitioner contends that the payment of the che cks in question made by the drawee bank constitutes an acceptance 3|C a t i p a y . D e l o s S a n t o s . M a c a i b a y . M a s c u l i n o . M e l l a

Negotiable Instruments Case Digest 2013 Atty. Quicho Catipay. De Villa. Masculino. Mella ISSUE: Whether or not the PNB has the right to recover from Motor Service Compan y the value of the checks on which the signatures of the drawer was forged HELD: Yes. To entitle the holder of a forged check to retain the money obtained there on, there must be a showing that the duty to ascertain the genuineness of the si gnature rested entirely upon the drawee, and that the constructive negligence of such drawee in failing to detect the forgery was not affected by any disregard of duty on the part of the holder, or by failure of any precaution which, from h is implied assertion in presenting the check as a sufficient voucher, the drawee had the right to believe he had taken. In the absence of actual fault on the pa rt of the drawee, his constructive fault in not knowing the signature of the dra wer and detecting the forgery will not preclude his recovery from one who took t he check under circumstances of suspicion and without proper precaution, or whos e conduct has been such as to mislead the drawee or induce him to pay the check without the usual scrutiny or other precautions against mistake or fraud. In the present case, the Philippine National Bank in no more chargeable with the knowl edge of the drawers signature than the appellant is, as the drawer was as much the customer of the appellant as of the appellee, the presumption that a drawee bank is bound to know more than any indorser the signature of its depositor does not hold. It not appearing that PNB did not warrant to the appellant the genuin eness of the checks in question by its acceptance thereof, nor did it perform an y act which would have induced National City Bank to believe in the genuineness of said instruments before appellant purchased them for value, it can not be sai d that the appellee is precluded from setting up the forgery and, therefore, the appellant is not entitled to retain the amount of the forged check paid to it b y PNB. According to the undisputed facts, National City Bank in purchasing the p apers in question from unknown persons without making any inquiry as to the iden tity and authority of said persons negotiating and indorsing them, acted neglige ntly and contributed to the constructive loss of PNB in failing to detect the fo rgery. PNB. VS. QUIMPO ,Presiding Judge, CFI of Rizal and Gozon II, private resp ondent GR L-53194, 14 March 1988 || Section 23: Forged Signature of Drawer FACTS: Francisco Gozon was a depositor of the Philippine National Bank (PNB Calo ocan City branch). Ernesto Santos, Gozon's friend, took a check from the latter's ch eckbook 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 rece ipt of the bank's statement of account, and requested the bank to recredit the amo unt to his account. The bank refused. Hence, the present action. CFI Rizal Decis ion: Judgment rendered in favor of the Gozon II. ISSUE: Whether or not Gozon II shall bear the loss since he put his check book into the hands of Santos HELD: T he petition of PNB is dismissed. The prime duty of a bank is to ascertain the ge nuineness of the signature of the drawer or the depositor on the check being enc ashed. It is expected to use reasonable business prudence in accepting and cashi ng 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 checkboo k in the car, where his trusted friend remained in, cannot be considered neglige nce sufficient to excuse the bank from its own negligence. The bank bears the lo ss. Philippine National Bank vs Court of Appeals & Agusto Lim 25 SCRA 693 || Sec tion 23: Forged Signature of Drawer FACTS: In November 1961, GSIS advised PNB th at a check bearing check number 645915B has been lost. On January 15, 1962, Augu sto Lim, holding GSIS Check No. 645915- B which was in the amount of P57,415.00, went to PCIB to have the check deposited in his PCIB account. Apparently, the c heck was indorsed to him Manuel Go, which was previously indorsed by Mariano Pul iod to Go. Pulido was the named payee in the check. PCIB did not encash the chec k in favor of Augusto Lim but rather it deposited the amount to Lim's PCIB account . Lim cannot withdraw the amount yet as it needs clearing. PCIB stamped the chec k with All prior indorsements and/or Lack of Endorsement Guaranteed, Philippine C ommercial and Industrial Bank. PCIB then sent the check to PNB for clearing. PNB

did not act on the check but it paid PCIB the amount of the check. PCIB consider ed this as a manifestation that the check was good hence it cleared Lim to withd raw the amount. 4|C a t i p a y . D e l o s S a n t o s . M a c a i b a y . M a s c u l i n o . M e l l a

Negotiable Instruments Case Digest 2013 Atty. Quicho Catipay. De Villa. Masculino. Mella On January 31, 1962, GSIS demanded PNB to restore the amount and PNB complied. P NB then demanded PCIB to refund the amount of the check but PCIB refused. RTC De cision: .The lower court ruled in favor of PCIB. CA Decision: Court of Appeals a ffirmed. PNB argued that the indorsements are forged hence it has no liability. ISSUE: Whether or not PCIB should refund the amount to PNB. HELD: No. The questi on whether or not the indorsements have been falsified is immaterial to PNB's liab ility as a drawee or to its right to recover from the PCIB for, as against the d rawee, the indorsement of an intermediate bank does not guarantee the signature of the drawer, since the forgery of the indorsement is not the cause of the loss . With respect to the warranty on the back of the check, it should be noted that the PCIB thereby guaranteed all prior indorsements, not the authenticity of the s ignatures of the officers of the GSIS who signed on its behalf, because the GSIS is no tan indorser of the check, but its drawer. Further, PNB has been negligen t. It has been notified months before about the lost check. Republic vs. Equitab le Bank G.R. No. L-15894 || Section 23: Forged Signature FACTS: The corporation had acquired 24 treasury warrants by accommodating its former trusted employee w ho asked the corporation to cash the warrants, alleging it was difficulty to do directly with the government and that his wife expected a sort of commission for the encashment. The corporation acceded to the request provided that it be firs t cleared and that the corporation would receive the amount before paying for it . The warrants were then cleared but later on, at different periods of time, the treasurer returned 24 warrants to the CB on the ground that they have forged. T he bank refused to return the cash. The clearing of the checks, it should be not ed, was in accordance to the 24-hour clearing rule by the CB CFI Ruling: dismiss ed the case CA Ruling: affirmed the decision of CFI ISSUE: Whether or not treasury is negligent on their part HELD: Yes, The gross nature o f the negligence of the Treasury becomes more apparent when we consider that eac h one of the twenty-four (24) warrants was for over P5,000, and, hence; beyond t he authority of the auditor of the Treasury whose signature thereon had been for ged to approve. In other words, the irregularity of said warrants was apparent t he face thereof, from the viewpoint of the Treasury. Moreover, the same had not advertised the loss of genuine forms of its warrants San Carlo Milling Co. vs. B PI and China bank G.R no. L-37467 || Section 23: Forged Signature FACTS: The pla intiff gave a general power of attorney to Baldwin relative to the dealings with BPI, one of the banks in Manila in which plaintiff maintained a deposit. Wilson , a principal employee of the plaintiff, conspiring with a messenger-clerk in pl aintiffs Manila office, requested a telegraphic transfer from its principal off ice in Hawaii, to the China Banking Corporation of Manila of $100,000, likewise a bank in which plaintiff maintained. Upon its receipt, the China Banking Corpor ation issued a managers check payable to plaintiff or order following the instruc tions of a letter affixed with the forged signature of Baldwin. A managers chec k on the China Banking Corporation payable to plaintiff or order was receipted f or by the messenger-clerk of the plaintiff which was indorsed to BPI again under a forged signature of Baldwin as an agent. BPI thereupon credited the current a ccount of plaintiff and passed the cashiers check in the ordinary course of bus iness through the clearing house, where it was paid by the China Banking Corpora tion. The next day, Dolores presented a check to BPI for the sum of P200,000, pu rporting to be signed by Baldwin as agent. Shortly thereafter the crime was disc overed, and upon the defendant bank refusing to credit plaintiff with the amount withdrawn this suit was brought. RTC Ruling: ruled in favor of the defendant CA Ruling: Judgement was reversed ISSUE: Whether BPI and China Banking Corporation should be held liable to plaintiff. HELD: Only BPI. China Banking Corporation, drew its check payable to the order of plaintiff and delivered it to plaintiffs agent who was authorized to receive it. A bank that cashes a check must know to whom it pays. In connection with the 5|C a t i p a y . D e l o s S a n t o s . M a c a i b a y . M a s c u l i n o .

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Negotiable Instruments Case Digest 2013 Atty. Quicho Catipay. De Villa. Masculino. Mella cashiers check, this duty was therefore upon the Bank of the Philippine Islands , and the China Banking Corporation was not bound to inspect and verify all endo rsements of the check, even if some of them were also those of depositors in the bank. It had a right to rely upon the endorsement of the Bank of the Philippine Islands when it gave the latter bank credit for its own cashiers check. Even i f it is treated that China Banking Corporations cashiers check be the same as the check of a depositor and hold the China Banking Corporation indebted to plai ntiff, the Court at the same time has to hold that BPI was indebted to the China Banking Corporation in the same amount. As, however, the money was in fact paid to plaintiff corporation, the Court must hold that the China Banking Corporatio n is indebted neither to plaintiff nor to BPI, and the judgment as it absolved t he China Banking Corporation from responsibility is affirmed. As to BPI, a bank is bound to know the signatures of its customers; and if it pays a forged check, it must be considered as making the payment out of its own funds, and cannot or dinarily charge the amount so paid to the account of the depositor whose name wa s forged. The bank paid out its money because it relied upon the genuineness of the purported signatures of Baldwin. The proximate cause of loss was due to the negligence of the Bank of the Philippine Islands in honoring and cashing the two forged checks. Forged Indorsement Associated Bank vs. CA G.R No. 107612 || Sect ion 23: Forged Indorsement FACTS: The Province of Tarlac maintains a current acc ount with the Philippine National Bank (PNB Tarlac Branch) where the provincial funds are deposited. Portions of the funds were allocated to the Concepcion Emer gency Hospital. Checks were issued to it and were received by the hospitals admin istrative officer and cashier (Fausto Pangilinan). Pangilinan, through the help of Associated Bank but after forging the signature of the hospitals chief (Adena Canlas), was able to deposit the checks in his personal account. All the checks bore t he stamp All prior endorsement guaranteed Associated Bank. Through post-aud it, the province discovered that the hospital did not receive several allotted c hecks, and sought the restoration of the debited amounts from PNB. In turn, PNB demanded reimbursement from Associated Bank. Both banks resisted payment. Hence, the present action. Lower court Ruling: in favor of plaintiff Province of Tarla c and against defendant Philippine National Bank (PNB), ordering the latter to p ay to the former, the sum of Two Hundred Three Thousand Three Hundred (P203,300.00) Pesos with legal inter est thereon from March 20, 1981 until fully paid CA Ruling: the proportionate sh aring of fifty percent - fifty percent (50%-50%). Due to the negligence of the P rovince of Tarlac in releasing the checks to an unauthorized person (Fausto Pang ilinan), in allowing the retired hospital cashier to receive the checks for the payee hospital for a period close to three years and in not properly ascertainin g why the retired hospital cashier was collecting checks for the payee hospital in addition to the hospital's real cashier, respondent Province contributed to the loss amounting to. P203,300.00 and shall be liable to the PNB for fifty (50%) p ercent thereof. In effect, the Province of Tarlac can only recover fifty percent (50%) of P203,300.00 from PNB. SC Ruling: affirmed decision of CA on proportion ate sharing ISSUE: Who shall bear the loss resulting from the forgery HELD: PNB is not negligent as it is not required to return the check to the collecting ban k within 24 hours as the banks involved are covered by Central Bank Circular 580 and not the rules of the Philippine Clearing House. Associated Bank, and not PN B, is the one duty-bound to warrant the instrument as genuine, valid and subsist ing at the time of indorsement pursuant to Section 66 of the Negotiable Instrume nts Law. The stamp guaranteeing prior indorsement is not an empty rubric; the co llecting bank is held accountable for checks deposited by its customers. However , due to the fact that the Province of Tarlac is equally negligent in permitting Pangilinan to collect the checks when he was no longer connected with the hospi tal, it shares the burden of loss from the checks bearing a forged indorsement. Therefore, the Province can only recover 50% of the amount from the drawee bank

(PNB), and the collecting bank (Associated Bank) is liable to PNB for 50% of the same amount. Associated Bank vs. CA, 1992 252 SCRA 620 || Section 23: Forged Indorsement FACT S: Melissa's RTW(ready to wear) customers issued cross checks payable to Melissa's R TW, which its proprietor Merle Reyes did not receive. It was learned that the ch ecks had been deposited with the Associated Bank by one Rafael Sayson. Sayson wa s not authorized by Reyes to deposit and encash said checks. Reyes filed an acti on for the recovery of the total value of the checks plus damages. 6|C a t i p a y . D e l o s S a n t o s . M a c a i b a y . M a s c u l i n o . M e l l a

Negotiable Instruments Case Digest 2013 Atty. Quicho Catipay. De Villa. Masculino. Mella RTC Ruling: private respondent had a valid cause of action against the petitione rs and that the latter are indeed liable to her for their unauthorized encashmen t of the subject checks. CA Ruling: petition denied ISSUE: Whether the bank was negligent for the loss. HELD: Crossing a check means that the drawee bank should not encash the check but merely accept it for deposit, that the check may be ne gotiated only once by one who has an account in a bank, and that the check serve s as warning that it was issued for a definite purpose so that he must inquire i f he has received the check pursuant to that purpose. The effect, thus, relate t o the mode of its presentment for payment, in accordance with Section 72 of the Negotiable Instruments Law. The bank paid the checks notwithstanding that title had not passed to the indorser, as the checks had been crossed and issued for pay ee's account only. It does did so in its own peril and became liable to the payee f or the value of the checks. The failure of the bank to make an inquiry as to Say son's authority was a breach of its duty. The bank is negligent and is thus liable to Reyes. Banco De Oro v. Equitable Bank GR. NO. 74917 || Section 23: Forged In dorsement FACTS: Banco De Oro drew six crossed Managers check payable to certai n member establishments of Visa Card. The Checks were deposited with Equitable B ank to the credit of its depositor, a certain Aida Trencio. After stamping at th e back of the Checks the usual endorsements: All prior and/or lack of endorseme nt guaranteed the defendant sent the checks for clearing through the Philippine Clearing House Corporation (PCHC). Banco De Oro paid the Checks and its clearin g account was debited for the value of the Checks and Equitable Bank s clearing a ccount was credited for the same amount. Thereafter, Banco De Oro discovered tha t 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 ot her than the payees. Banco De Oro presented the Checks directly to Equitable Ban k for the purpose of claiming reimbursement from the latter. However, defendant refused to accept such direct presentation and to reimburse Banco De Oro for the value of the Checks. Hence, this case. CA Ruling: estopped from claiming non-ne gotiability SC Ruling: petition dismissed for lack of merit ISSUE: Whether Banco De Oro coul d collect reimbursement from Equitable Bank. HELD: Yes. The petitioner having st amped its guarantee of "all prior endorsements and/or lack of endorsements" is n ow estopped from claiming that the checks under consideration are not negotiable instruments. It led the said respondent to believe that it was acting as endors er of the checks and on the strength of this guarantee said respondent cleared t he checks in question and credited the account of the petitioner. Petitioner is now barred from taking an opposite posture by claiming that the disputed checks are not negotiable instrument. A commercial bank cannot escape the liability of an endorser of a check and which may turn out to be a forged endorsement. Whenev er any bank treats the signature at the back of the checks as endorsements and t hus logically guarantees the same as such there can be no doubt said bank has co nsidered the checks as negotiable. The collecting bank or last endorser generall y suffers the loss because it has the duty to ascertain the genuineness of all p rior endorsements considering that the act of presenting BPI vs CA 216 SCRA 51|| Section 23: Forged Indorsement FACTS: Fernando called up BPI, requesting for th e pre-termination of her money market placement with the bank. The person who to ok the call didnt bother to verify with Fernando's office if whether or not she r eally intended to preterminate her money market placement. Instead, he relied on the verification stated by the caller. He proceeded with the processing of the termination. Thereafter, the caller gave delivery instructions that instead of d elivering the checks to her office, it would be picked up by her niece and it in deed happen as such. It was found out later on that the person impersonated Fern ando and her alleged niece in getting the checks. The dispatcher also didnt bot her to get the promissory note evincing the placement when he gave the checks to the impersonated niece. This was aggravated by the fact that this impersonator

opened an account with the bank and deposited the subject checks. It then withdr ew the amounts. The day of the maturity of the money market placement happened a nd the real Fernando surfaced herself. She denied preterminating the money marke t placements and though she was the payee of the checks in issue, she didnt rec eive any of its proceeds. This prompted the bank to surrender to CBC 7|C a t i p a y . D e l o s S a n t o s . M a c a i b a y . M a s c u l i n o . M e l l a

Negotiable Instruments Case Digest 2013 Atty. Quicho Catipay. De Villa. Masculino. Mella (China Bank Corporation) the checks and asking for reimbursement on alleged forg ery of payee's indorsements. RTC Ruling: ruled in favor to respondent CBC CA Rulin g: affirmed RTC decision SC Ruling: Petitioner Bank of the Philippine Islands sh all be responsible for sixty percent (60%) while respondent China Banking Corpor ation shall share forty percent (40%) of the loss of TWO MILLION FOUR HUNDRED TH IRTEEN THOUSAND, TWO HUNDRED FIFTEEN PESOS and SIXTEEN CENTAVOS (2,413,215.16) a nd the arbitration costs of SEVEN THOUSAND, TWO HUNDRED FIFTY PESOS (7,250.00). The Philippine Clearing House Corporation is hereby directed to effect the corre sponding entries to the banks clearing accounts in accordance with this decisio n. Costs in the same proportion against the Bank of the Philippine Islands and t he China Banking Corporation. ISSUE: Whether or not CBC is held liable HELD: The general rule shall apply in this case. Since the payee's indorsement has been for ged, the instrument is wholly inoperative. However, underlying circumstances of the case show that the general rule on forgery isn't applicable. The issue as to w ho between the parties should bear the loss in the payment of the forged checks necessitates the determination of the rights and liabilities of the parties invo lved in the controversy in relation to the forged checks. The acts of the employ ees of BPI were tainted with more negligence if not criminal than the acts of CB C. First, the act of disclosing information about the money market placement ove r the phone is a violation of the General Banking Law. Second, there was failure on the bank's part to even compare the signatures during the termination of the p lacement, opening of a new account with the specimen signature in file of Fernan do. And third, there was failure to ask the surrender of the promissory note evi dencing the placement. The acts of BPI employees was the proximate cause to the loss. Nevertheless, the negligence of the employees of CBC should be taken also into consideration. They closed their eyes to the suspicious large amount withdr awals made over the counter as well as the opening of the account. Gempesaw vs. CA 218 SCRA 628 || Section 23: Forged Indorsement FACTS: Petitioner issued a total of 82 checks in favor of several suppliers. The checks were prepared and filled up as to all material particulars by her trusted bookkeeper, The completed check s were submitted to the petitioner for her signature, together with the correspo nding invoice receipts which indicate the correct obligations due and payable to her suppliers. Petitioner signed each and every check without bothering to veri fy the accuracy of the checks against the corresponding invoices because she rep osed 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. But the payees did not receive nor even see the subject checks. All the 82 check s with forged signatures of the payees, making it appear that they were all indo rsed by the payees namen therein, were brought instead directly to the Chief Acc ountant of respondent drawee Bank, who, without authority therefor, accepted the m all for deposit in the accounts of Alfredo Y. Romero and Benito Lam. Although the respondent drawee Bank notified petitioner of all checks presented to and pa id by the bank, petitioner did not verify the correctness of the returned checks , much less check if the payees actually received the checks in payment for the supplies she received. It was only after the lapse of more than two (2) years th at petitioner found out about the fraudulent manipulations of her bookkeeper. Pe titioner made a written demand on respondent drawee Bank to credit her account w ith the money value of the 82 checks for having been wrongfully charged against her account. Respondent drawee Bank refused to grant petitioners demand and thu s petitioner filed the complaint against drawee Bank. RTC Ruling: dismissed comp laint as well as respondent drawee bank's counterclaim CA Ruling: affirmed decisio n of RTC SC Ruling: respondent drawee bank is adjudged liable to share the loss with petitioner on a 50-50 ratio ISSUE: Whether petitioner could recover from th e respondent drawee bank on the money value of all the 82 checks. HELD: Responde nt drawee Bank is adjudged liable to share the loss with the petitioner on a fif

ty-fifty ratio. As a rule, a drawee bank who has paid a check on which an indors ement has been forged cannot charge the drawers account for the amount of said check. An 8|C a t i p a y . D e l o s S a n t o s . M a c a i b a y . M a s c u l i n o . M e l l a

Negotiable Instruments Case Digest 2013 Atty. Quicho Catipay. De Villa. Masculino. Mella exception to this rule is where the drawer is guilty of such negligence which ca uses the bank to honor such a check or checks. A different situation arises wher e the indorsement was forged by an employee or agent of the drawer, or done with the active participation of the latter. The negligence of a depositor which wil l prevent recovery of an unauthorized payment is based on failure of the deposit or to act as a prudent businessman would under the circumstances. In the case at bar, the petitioner relied implicitly upon the honesty and loyalty of her bookk eeper, and did not even verify the accuracy of the amounts of the checks she sig ned against the invoices attached thereto. Furthermore, although she regularly r eceived her bank statements, she apparently did not carefully examine the same n or the check stubs and the returned checks, and did not compare them with the sa les invoices. Otherwise, she could have easily discovered the discrepancies betw een the checks and the documents serving as bases for the checks. 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 h er account with the amount of such checks. Under Section 23 of the NIL, she is n ow precluded from using the forgery to prevent the banks debiting of her accoun t. However, the fact that the respondent drawee Bank did not discover the irregu larity with respect to the acceptance of checks with second indorsement for depo sit even without the approval of the branch manager despite periodic inspection conducted by a team of auditors from the main office constitutes negligence on t he part of the bank in carrying out its obligations to its depositors. When it v iolated its internal rules that second endorsements are not to be accepted witho ut the approval of its branch managers and it did accept the same upon the mere approval of Boon, a chief accountant, it contravened the tenor of its obligation at the very least, if it were not actually guilty of fraud or negligence. Great Eastern vs HSBC and PNB G.R. No. 18657. | Forged Indorsement (Sec 23) FACTS: Ma y 3, 1920, the plaintiff drew its check for P2,000 on the Hongkong and Shanghai Banking Corporation with whom it had an account, payable to the order of Lazaro Melicor. E.M. Maasim fraudulently obtained possession of the check, forged Melic ors signature, as an endorser, and then personally endorsed and presented it to the Philippine National Bank where the amount of the check was placed to his cr edit. About four months after the check was charged to the account of the plaintiff, i t developed that Lazaro Melicor, to whom the check was made payable, had never r eceived it, and that his signature, as an endorser, was forged by Maasim, who pr esented and deposited it to his private account in the Philippine National Bank. With this knowledge, the plaintiff promptly made a demand upon the Hongkong and Shanghai Banking Corporation that it should be given credit for the amount of t he forged check, which the bank refused to do, and the plaintiff commenced this action to recover the P2,000 which was paid on the forged check. On the petition of the Shanghai Bank, the Philippine National Bank was made defendant. The Shan ghai Bank denies any liability, but prays that, if a judgment should be rendered against it, in turn, it should have like judgment against the Philippine Nation al Bank which denies all liability to either party. RTC Ruling: Ruled in favor o f the defendants (HSBC and PNB) CA Ruling: Walang sinabi sa case. So, baka in-af firm ng CA yung judgment ng Lower Court. ISSUE: Whether or not the defendant ban ks (HSBC and PNB) are liable to pay the plaintiff (Great Eastern). HELD: Yes. Th at the HSBC was liable to Great Eastern for the amount of the check, and that th e PNB was in turn liable to the HSBC. Plaintiffs check was drawn on the Shangha i Bank payable to the order of Melicor. In other words, the plaintiff authorized and directed the Shanghai Bank to pay Melicor, or his order, P2,000. It did not authorize or direct the bank to pay the check to any other person than Melicor, or his order, and the testimony is undisputed that Melicor never did part with his title or endorse the check, and never received any of its proceeds. Neither

is the plaintiff estopped or bound by the bank statement, which was made to it b y the Shanghai Bank. This is not a case where the plaintiffs own signature was forged to one of its checks. In such a case, the plaintiff would have known of t he forgery, and it would have been its duty to have promptly notified the bank o f any forged signature, and any failure on its part would have released the bank from any liability. That is not this case. Here, the forgery was that of Melico r, who was the payee of the check, and the legal presumption is that the bank wo uld not honor the check without the genuine endorsement of Melicor. In other wor ds, when the plaintiff received its bank statement, it had a right to assume tha t Melicor had personally endorsed the check, and that, otherwise, the bank would not have paid it. 9|C a t i p a y . D e l o s S a n t o s . M a c a i b a y . M a s c u l i n o . M e l l a

Negotiable Instruments Case Digest 2013 Atty. Quicho Catipay. De Villa. Masculino. Mella The Philippine National Bank had no license or authority to pay the money to Maa sim or anyone else upon a forged signature. It was its legal duty to know that M elicors endorsement was genuine before cashing the check. Its remedy is against Maasim to whom it paid the money. Jai Alai vs BPI G.R. No. L-29432 || Forged In dorsement (Sec 23) FACTS: From April 2, 1959 to May 18, 1959, ten checks with a total face value of P8,030.58 were deposited by the petitioner in its current ac count with the respondent bank. All the foregoing checks, which were acquired by the petitioner from one Antonio J. Ramirez, a sales agent of the Inter-Island G as and a regular bettor at jai-alai games, were, upon deposit, temporarily credi ted to the petitioners account in accordance with the clause printed on the dep osit slips issued by the respondent. About the latter part of July 1959, after R amirez had resigned from the InterIsland Gas and after the checks had been submi tted to inter-bank clearing, the Inter-Island Gas discovered that all the indors ements made on the checks purportedly by its cashiers, Santiago Amplayo and Vice nta Mucor (who were merely authorized to deposit checks issued payable to the sa id company) as well as the rubber stamp impression thereon reading "Inter-Island Gas Service, Inc.," were forgeries. In due time, the Inter-Island Gas advised t he petitioner, the respondent, the drawers and the drawee-banks of the said chec ks about the forgeries, and filed a criminal complaint against Ramirez with the Office of the City Fiscal of Manila. The respondents cashier, Ramon Sarthou, up on receipt of the latter of InterIsland Gas dated August 31, 1959, called up the petitioners cashier, Manuel Garcia, and advised the latter that in view of the circumstances he would debit the value of the checks against the petitioners a ccount as soon as they were returned by the respective drawee-banks. In view of these circumstances, the respondent Bank debited the petitioners current accoun t and forwarded to the latter the checks containing the forged indorsements, whi ch petitioner refused to accept. On October 8, 1959 the petitioner drew against its current account with the respondent a check for P135,000 payable to the orde r of the Mariano Olondriz y Cia in payment of certain shares of stock. The check was, however, dishonored by the respondent as its records showed that as of Oct ober 8, 1959 the current account of the petitioner, after netting out the value of the checks P8,030.58) with the forged indorsements, had a balance of only P12 8,257.65. Hence, the petitioner filed a complaint against the respondent. RTC ruling: Dismissed the complaint filed by the petitioner. CA ruling: Dismisse d the complaint. ISSUE: Whether or not the petitioner is entitled for damages fr om the because the respondent had improperly debited the petitioners current ac count. HELD: No. The respondent acted within legal bounds when it debited the pe titioners account. When the petitioner deposited the checks with the respondent , the nature of the relationship created at that stage was one of agency, that i s, the bank was to collect from the drawees of the checks the corresponding proc eeds. It is true that the respondent had already collected the proceeds of the c hecks when it debited the petitioners account the respondent acted within legal bounds when it debited the petitioners account. When the petitioner deposited the checks with the respondent, the nature of the relationship created at that s tage was one of agency, that is, the bank was to collect from the drawees of the checks the corresponding proceeds. It is true that the respondent had already c ollected the proceeds of the checks when it debited the petitioners account. A forged signature in a negotiable instrument is wholly inoperative and no right t o discharge it or enforce its payment can be acquired through or under the forge d signature except against a party who cannot invoke the forgery, it stands to r eason, upon the facts of record, that the respondent, as a collecting bank which indorsed the checks to the drawee-banks for clearing, should be liable to the l atter for reimbursement, for, as found by the court a quo and by the appellate c ourt, the indorsements on the checks had been forged prior to their delivery to the petitioner. In legal contemplation, therefore, the payments made by the draw ee-banks to the respondent on account of the said checks were ineffective; and,

such being the case, the relationship of creditor and debtor between the petitio ner and the respondent had not been validly effected, the checks not having been properly and legitimately converted into cash. Manila Lighter vs CA and China B anking Corporation G.R. No. L-50373 | Forged Indorsement (Sec. 23) FACTS: The complaint alleged that the checks were issued by customers of the petitioner in payment of brokerage/lighterage services and were all delivered, without pet itioners knowledge, to its collector, Augusto Perez. Upon forged indorsements o f the petitioners general manager, the checks found their way into 10 | C a t i p a y . D e l o s S a n t o s . M a c a i b a y . M a s c u l i n o . M e l l a

Negotiable Instruments Case Digest 2013 Atty. Quicho Catipay. De Villa. Masculino. Mella the accounts of third persons in the respondent bank and the proceeds were later withdrawn, to the damage of the petitioner who sought reimbursement or restorat ion by said bank of the value of the checks. Respondent Bank denied liability fo r the petitioners loss which was due to its own negligence. It alleged that pet itioner is estopped from denying its collectors authority to receive the checks from the drawers/customers; that petitioner failed to give defendant Bank and t he drawee Banks notice of the alleged forged or unauthorized indorsements within a reasonable time; and that its loss was occasioned by its own failure to obser ve the proper degree of diligence in the supervision of its employees, particula rly its collector, Augusto Perez. The lower court found both parties equally neg ligent, the petitioner, for allowing a state of affairs in which its employees c ould appropriate the checks and falsify the indorsement thereon of its manager w ith impunity, and the private respondent, for not detecting the falsification ma de by the plaintiffs employees when the checks were presented to it. RTC Ruling : Ruled against the petitioner. CA Ruling: DISMISSED the petition for reversal o f decision filed by petitioner. Thereby, AFFIRMING the previous judgment of the lower court. ISSUE: Whether or not the respondent bank should be entirely liable for the loss resulting from its negligence. HELD: No. SC ruled against the peti tioner and the petition for review is denied for lack of merit. Since the petiti oner was not a client of respondent Bank, i.e., did not maintain an account in s aid Bank, the latter had no way of ascertaining the authenticity of its indorsem ents on the checks which were deposited in the accounts of the third-party defen dants in said Bank. Respondent Bank was not negligent because, in accordance wit h banking practice, it caused the checks to pass through the clearing house befo re it allowed their proceeds to be withdrawn by the depositors (third-party defe ndants in the lower court). The Supreme Court decides appeals which only involve questions of law. It is not the function of the Supreme Court to analyze or wei gh the evidence all over again, its jurisdiction being limited to resolving erro rs of law that might have been committed by the lower court. Republic Bank vs Eb rada G.R. No. L-40796 || Forged Indorsement (Sec 23) FACTS: On or about February 27, 1963 defendant Mauricia T. Ebrada, encashed Back Pay Check No. 508060 dated January 15, 1963 for P1,246.08 at the main office of the plaintiff Republic Bank at Escolta, Manila. The check was issued by the Bur eau of Treasury. Plaintiff Bank was later advised by the said bureau that the al leged indorsement on the reverse side of the aforesaid check by the payee, "Mart in Lorenzo" was a forgery since the latter had allegedly died as of July 14, 195 2. Plaintiff Bank was then requested by the Bureau of Treasury to refund the amo unt of P1,246.08. To recover what it had refunded to the Bureau of Treasury, pla intiff Bank made verbal and formal demands upon defendant Ebrada to account for the sum of P1,246.08, but said defendant refused to do so. So plaintiff Bank sue d defendant Ebrada before the City Court of Manila. On July 11, 1966, defendant Ebrada filed her answer denying the material allegations of the complaint and as affirmative defenses alleged that she was a holder in due course of the check i n question, or at the very least, has acquired her rights from a holder in due c ourse and therefore entitled to the proceeds thereof. She also alleged that the plaintiff Bank has no cause of action against her; that it is in estoppel, or so negligent as not to be entitled to recover anything from her. The check in ques tion was delivered to defendant-appellant by Adelaida Dominguez for the purpose of encashment and that her signature was affixed on said check when she cashed i t with the plaintiff Bank. Likewise it is admitted that defendantappellant was t he last indorser of the said check. As such indorser, she was supposed to have w arranted that she has good title to said check Lower court ruling: in favor of p laintiff Bank against defendant Ebrada. CA Ruling: ruled against Ebrada. ISSUE: Whether or not the existence of one forged signature in the check will render vo id all the other negotiations of the check with respect to the other parties who se signature are genuine. HELD: No. where a check has several indorsements on it

, it was held that it is only the negotiation based on the forged or unauthorize d signature which is inoperative. Applying this principle to the case before us, it can be safely concluded that it is only the negotiation predicated on the fo rged indorsement that should be declared inoperative. This means that the negoti ation of the check in question from Martin Lorenzo, the original payee, to Ramon R. Lorenzo, the second indorser, should be declared of no effect, but the negot iation of the aforesaid check from Ramon R. Lorenzo to Adelaida Dominguez, the t hird indorser, and from Adelaida Dominguez to the defendant-appellant who did no t 11 | C a t i p a y . D e l o s S a n t o s . M a c a i b a y . M a s c u l i n o . M e l l a

Negotiable Instruments Case Digest 2013 Atty. Quicho Catipay. De Villa. Masculino. Mella know of the forgery, should be considered valid and enforceable, barring any cla im of forgery. In the case before Us, the defendant-appellant, upon receiving th e check in question from Adelaida Dominguez, was duty-bound to ascertain whether the check in question was genuine before presenting it to plaintiff Bank for pa yment. Her failure to do so makes her liable for the loss and the plaintiff Bank may recover from her the money she received for the check. As reasoned out abov e, had she performed the duty of ascertaining the genuineness of the check, in a ll probability the forgery would have been detected and the fraud defeated. The fact that immediately after receiving the cash proceeds of the check in question in the amount of P1,246.08 from the plaintiff Bank, defendantappellant immediat ely turned over said amount to Adelaida Dominguez (ThirdParty defendant and the Fourth-Party plaintiff) who in turn handed the amount to Justina Tinio on the sa me date would not exempt her from liability because by doing so, she acted as an accommodation party in the check. SC affirmed the previous ruling of the lower court. Westmont Bank vs Ong G.R. No. 132560 || Forged Indorsement (Sec 23) CA ruling: Affirmed the decision of the lower court. Hence, in favor of the peti tioner. ISSUE: 1. whether or not respondent Ong has a cause of action against pe titioner Westmont Bank. 2. whether or not Ong is barred to recover the money fro m Westmont Bank due to laches. HELD: 1. Yes. Since the signature of the payee, i n the case at bar, was forged to make it appear that he had made an indorsement in favor of the forger, such signature should be deemed as inoperative and ineff ectual. Petitioner, as the collecting bank, grossly erred in making payment by v irtue of said forged signature. The payee, herein respondent, should therefore b e allowed to recover from the collecting bank. The collecting bank is liable to the payee and must bear the loss because it is its legal duty to ascertain that the payees endorsement was genuine before cashing the check. As a general rule, a bank or corporation who has obtained possession of a check upon an unauthoriz ed or forged indorsement of the payees signature and who collects the amount of the check from the drawee, is liable for the proceeds thereof to the payee or o ther owner, notwithstanding that the amount has been paid to the person from who m the check was obtained. The theory of the rule is that the possession of the c heck on the forged or unauthorized indorsement is wrongful, and when the money h ad been collected on the check, the bank or other person or corporation can be h eld as for moneys had and received, and the proceeds are held for the rightful o wners who may recover them. The position of the bank taking the check on the for ged or unauthorized indorsement is the same as if it had taken the check and col lected the money without indorsement at all and the act of the bank amounts to c onversion of the check. 2. No. In the case at bar, it cannot be said that respon dent sat on his rights. He immediately acted after knowing of the forgery by pro ceeding to seek help from the Tanlimco family and later the Central Bank, to rem edy the situation and recover his money from the forger, Paciano Tanlimco. Only after he had exhausted possibilities of settling the matter amicably with the fa mily of Tanlimco and through the CB, about five months after the unlawful transa ction took place, did he resort to making the demand upon the petitioner and eve ntually before the court for recovery of the FACTS: Respondent Eugene Ong maintained a current account with petitioner, forme rly the Associated Banking Corporation, but now known as Westmont Bank. Sometime in May 1976, he sold certain shares of stocks through Island Securities Corpora tion. To pay Ong, Island Securities purchased two (2) Pacific Banking Corporatio n managers checks, both dated May 4, 1976, issued in the name of Eugene Ong as payee. Before Ong could get hold of the checks, his friend Faciano Tanlimco got hold of them, forged Ongs signature and deposited these with petitioner, where Tanlimco was also a depositor. Even though Ongs specimen signature was on file, petitioner accepted and credited both checks to the account of Tanlimco, withou t verifying the signature indorsements appearing at the back thereof. Tanlimco

then immediately withdrew the money and absconded. Instead of going straight to the bank to stop or question the payment, Ong first sought the help of Tanlimco s family to recover the amount. Later, he reported the incident to the Central Bank, which like the first effort, unfortunately proved futile. RTC Ruling: In f avor of the petitioner 12 | C a t i p a y . D e l o s S a n t o s . M a c a i b a y . M a s c u l i n o . M e l l a

Negotiable Instruments Case Digest 2013 Atty. Quicho Catipay. De Villa. Masculino. Mella money value of the two checks. These acts cannot be construed as undue delay in or abandonment of the assertion of his rights. Section 124. Alteration of instru ment; effect of. Where a negotiable instrument is materially altered without the assent of all the parties liable thereon, it is avoided, except as against a pa rty who has himself made, authorized or assented to the alteration and subsequen t indorsers. But when an instrument has been materially altered and is in the ha nds of a holder in due course not a party to the alteration, he may enforce paym ent thereof according to its original tenor. Section 125. What constitutes a mat erial alteration. Any alteration which changes: (a) The date; (b) The sum payabl e, either for principal or interest (c) The time or place of payment (d) The num ber or the relations of the parties; (e) The medium or currency in which payment is to be made; (f) Or which adds a place of payment where no place of payment i s specified, or any other change or addition which alters the effect of the inst rument in any respect, is a material alteration Bank of America vs Philippine Ra cing Club G.R. NO. 150228 || SEC 124 FACTS: On or about the 2nd week of December 1988, the President and Vice President of plaintiff-appellee corporation were s cheduled to go out of the country in connection with the corporations business. In order not to disrupt operations in their absence, they pre-signed several ch ecks relating to Current Account No. 58891-012. The intention was to insure cont inuity of plaintiffappellees operations by making available cash/money especial ly to settle obligations that might become due. These checks were entrusted to t he accountant with instruction to make use of the same as the need arose. The in ternal arrangement was, in the event there was need to make use of the checks, t he accountant would prepare the corresponding voucher and thereafter complete th e entries on the pre-signed checks. It turned out that on December 16, 1988, a J ohn Doe presented to defendant-appellant bank for encashment a couple of plainti ff-appellee corporations checks (Nos. 401116 and 401117) with the indicated val ue of P110,000.00 each. It is admitted that these 2 checks were among those pres igned by plaintiff-appellee corporations authorized signatories. The two (2) checks had similar entries with similar infirmities and irregulariti es. On the space where the name of the payee should be indicated (Pay To The Ord er Of) the following 2-line entries were instead typewritten: on the upper line was the word "CASH" while the lower line had the following typewritten words, vi z.: "ONE HUNDRED TEN THOUSAND PESOS ONLY". Despite the highly irregular entries on the face of the checks, defendant-appellant bank, without as much as verifyin g and/or confirming the legitimacy of the checks considering the substantial amo unt involved and the obvious infirmity/defect of the checks on their faces, enca shed said checks. A verification process, even by was of a telephone call to PRC I office, would have taken less than ten (10) minutes. But this was not done by BA. Investigation conducted by plaintiffappellee corporation yielded the fact th at there was no transaction involving PRCI that call for the payment of P220,000 .00 to anyone. The checks appeared to have come into the hands of an employee of PRCI (one Clarita Mesina who was subsequently criminally charged for qualified theft) who eventually completed without authority the entries on the pre-signed checks. PRCIs demand for defendant-appellant to pay fell on deaf ears. Hence, t he complaint. RTC Ruling: In favor of the respondent CA Ruling: Affirmed the dec ision of the trial court ISSUE: Whether or not the proximate cause of the wrongf ul encashment of the checks in question was due to petitioners failure to make a verification regarding the said checks with the respondent in view of the misp lacement of entries on the face of the checks. HELD: Yes. SC ruled in favor of t he defendant and against the petitioner. In the case at bar, petitioner cannot e vade responsibility for the loss by attributing negligence on the part of respon dent because, even if we concur that the latter was indeed negligent in pre-sign ing blank checks, the former had the last clear chance to avoid the loss. To rei terate, petitioners own operations manager admitted that they could have called up the client for verification or confirmation before honoring the dubious chec

ks. Verily, petitioner had the final opportunity to avert the injury that befell the respondent. Failing to make the necessary verification due to the volume of banking transactions on that particular day is a flimsy and unacceptable excuse , considering that the "banking business is so impressed with public interest wh ere the trust and confidence of the public in general is of paramount importance such that the appropriate standard of diligence must be a high degree of dilige nce, if not the utmost diligence." 13 | C a t i p a y . D e l o s S a n t o s . M a c a i b a y . M a s c u l i n o . M e l l a

Negotiable Instruments Case Digest 2013 Atty. Quicho Catipay. De Villa. Masculino. Mella HSBC vs People's Bank G.R. No. L-28226 || Sec 124 FACTS: On March 8, 1965, the Phi lippine Long Distance Telephone Company drew the check on the Hongkong & Shangha i Banking Corporation and in favor of the same bank in the sum of P14,608.05. Th is check was sent by mail to the Payee. Somehow or other, the check fell in the hands of a certain Florentino Changco, who was able to erase the name of the pay ee Bank and instead typed his own name on the check. Four days before, Changco h ad opened a current account with Defendant Peoples Bank and Trust Company and on March 16, 1965, he deposited the altered check in his name. This check was pres ented by the Peoples Bank for clearing wherein the Peoples Bank made the followi ng indorsement: For clearance, clearing office. All prior endorsements and/or l ack of endorsements guaranteed. Peoples Bank and Trust Company. The check was d uly cleared by the Hongkong Shanghai Bank, so that the Peoples Bank credited Cha ngco with the amount of the check. Beginning March 17, 1965, Changco began to wi thdraw from his account and on March 31, 1965 he closed his account. In the mean time, the cancelled check went the route of the regular routine and on April 12, 1965 it was returned to the Philippine Long Distance Telephone Company when the alteration in the name of the payee was discovered. On that same date, Peoples Bank was notified of the alteration, so that the Hongkong Shanghai Bank requeste d Peoples Bank to refund to it the sum of P14,608.05 which had been previously c redited by Plaintiff Bank in favor of Defendant Bank. Upon its refusal to do so, this case has been filed. But Plaintiff Bank insists that Defendant Bank is lia ble on its indorsement during clearing house operations. The indorsement, itself , is very clear when it begins with the words For clearance, clearing office . . .. In other words, such an indorsement must be read together with the 24 hour regulation on clearing House Operations of the Central Bank. Once that 24-hour period is over, the liability on such an indorsement has ceased. This being so, Plaintiff Bank has not made out a case for relief." RTC ruling: Dismissed the pe tition of the plaintiff CA Ruling: Affirmed the previous decision of RTC. ISSUE: Whether or not Peoples Bank should refund the amount of the check to HSBC. HELD : No. The SC ruled that the 24 hour rule applies. It considered as decisive the fact that plaintiff Bank allowed 27 days to elapse after clearing before notifying d efendant Bank as to such alteration, the applicable Central Bank regulation prov iding for a 24-hour period. The Peoples Bank relies on the 24-hour regulation of the Central Bank that requires after a clearing, that all cleared items must be returned not later than 3:00 PM of the following business day. And since the Hongkong Shanghai Bank only advised the Peoples Bank as to the alteration on Apr il 12, 1965 or 27 days after clearing, the Peoples Bank claims that it is now to o late to do so. This regulation of the Central Bank as to 24 hours is challenge d by Plaintiff Bank as being merely part of an ingenious device to facilitate ba nking transactions. Be that what it may as both Plaintiff as well as Defendant B anks are part of our banking system and both are subject to regulations of the C entral Bank they are both bound by such regulations. Montinola v. PNB GR No. L-2 861 February 26, 1951 || Section 124 & 125 FACTS: In April and May 1942, Ubaldo D. Laya was the Provincial Treasurer of Misamis Oriental and an ex officio agent of the Philippine National Bank Branch in that province. Through the recommenda tion of Laya, his assistant agent Mariano V. Ramos was inducted as disbursing of ficer of the United States Armed Forces in the Far East. Ramos went to Lanao to procure a cash advance in the amount of P800,000 for the use of USAFFE in Cagaya n de Misamis. Pedro Encarnacion (Provincial Treasurer of Lanao) did not have the amount in cash, so he gave Ramos P300,000 in emergency notes and a check of P50 0,000. Ramos went to Laya to encash the said check who in turn gave him P400,000 emergency notes and a check in the amount of P100,000 drawn on the Philippine N ational Bank as he did not have enough cash with him. Ramos had no opportunity t o encash the check as he was made a prisoner of war by the Japanese forces, unti l he was released on February 12, 1943 and resumed his status as civilian. About

the last days of December, 1944 or early January 1945, the said check was alleg edly indorsed to Enrique P. Montinola. According to Montinola, Ramos offered to sell him the check for P850,000 Japanese military notes with which to buy foodst uffs and medicine. The P450,000 was to be paid in five installments and P400,000 was to be paid in kind. Ramos allegedly indorsed the check to him, the indorsem ent of which was stamped at the back of the check which had the words pay to the order of Enrique P. Montinola 517 Isabel Street and a signature of Ramos in green ink but made in handwriting. The check as presented was badly damaged or heavily mu tilated which was to Montinola's defense the doing of Ramos as he demanded the ret urn of the check threatening Montinola with bodily harm. According to Ramos, the agreement between himself and Montinola regarding 14 | C a t i p a y . D e l o s S a n t o s . M a c a i b a y . M a s c u l i n o . M e l l a

Negotiable Instruments Case Digest 2013 Atty. Quicho Catipay. De Villa. Masculino. Mella the transfer of the check was that he was selling only P30,000 of the check and for this reason, at the back of the document he wrote in longhand: Pay to the ord er of Enrique P Montinola P30,000 only. The balance to be deposited in the Phili ppine National Bank to be deposited to the credit of M.V. Ramos Ramos further sai d that in exchange for this assignment of P30,000, Montinola would pay him P90,0 00 in Japanese military notes, however Montinola only gave him two checks of P20 ,000 and P25,000. Montinola filed an action against PNB to collect the amount of the aforesaid check. However, when the check was presented there now appears on the face of said check the words in parenthesis Agent, Phil. National Bank under the signature of Laya purportedly showing that Laya issued the check as an agent of the Philippine National Bank. Trial Court Ruling: (The Supreme Court agrees that) The trial court held that the original writing of Ramos on the back of the check was to the effect that he was assigning only P30,000 of the value of the document. This writing was in some mysterious way obliterated, and in its place was placed the present indorsement appearing thereon. The complaint was dismisse d. CA Ruling: No decision. After dismissal of complaint by trial court, it was a ppealed directly to the SC as the amount in controversy exceeds P50,000. ISSUE: Whether or not a material alteration was made to the instrument HELD: The court held there was material alteration made on the document. The words Agent, Phil. N ational Bank now appearing on the face of the check as agent were added or place d in the instrument after it was issued by the Provincial Treasurer Laya to Ramo s. The check was issued by Laya only as Provincial Treasurer and as an official of the Government, who was under obligation to provide the USAFFE with advance f unds, and not as agent of the bank, wherein he had no such obligation. The addit ion of those words was made after the check has been transferred to Montinola. T he insertion of the words converts the bank from a mere drawee to a drawer and t herefore changes its liability, and thus constitutes a material alteration of th e instrument without the consent of the parties liable thereon, and so discharge s the instrument. Metropolitan Bank and Trust Company v. Cabilzo GR No. 154469 D ecember 6, 2006 || Section 124 & 125 FACTS: On November 12, 1994, Cabilzo issued a Metrobank check No. 985988 payable to CASH and postdated on November 1994 in the amount of P1, 000.00. The check was presented to Westmont Bank for payment. After the entries were examined, includ ing the availability of funds and the authenticity of the signature of the drawe r, Metrobank cleared the check for encashment in accordance with Philippine Clea ring House Corporation (PCHC) Rules. On November 16, 1994, Cabilzo's representativ e was asked if Cabilzo had issued a check in the amount of P91,000.00 to which t he representative answered in the negative. On the afternoon of the same date, C abilzo called Metrobank to reiterate that he did not issue a check amounting to P91, 000.00 and requested that the said check be returned to him for verificatio n, to which the bank complied. Upon receipt of the check, Cabilzo discovered tha t Metrobank check no. 985988 which he issued on November 12, 1994 in the amount of P1,000 was altered to P91,000.00 and the date 24 November 1994 was changed to 14 November 1994. Cabilzo demanded Metrobank that the P90,000.00 be re-credited to his account, but the latter refused to comply. Cabilzo filed a civil action for damages against Metrobank. Metrobank claims that Cabilzo was partly responsi ble in leaving spaces on the check, which made the fraudulent insertion of the a mount and figures thereon, possible. On account of his negligence in the prepara tion and issuance of the check, Metrobank claims that Cabilzo cannot claim indem nity by virtue of the doctrine of equitable estoppel. Furthermore, Metrobank cla ims that as a collecting bank and the last indorser, Westmont Bank should be hel d liable for the value of the check. That by reason of its unqualified indorseme nt, Westmont Bank warranted that the check in question is genuine, valid and sub sisting and that upon presentment the check shall be accepted according to its t enor. RTC Ruling: Metrobank is ordered to pay Cabizo the value of the check stre ssing the negligence of the drawee bank in failing to detect an apparent alterat

ion on the check. Metrobank further claimed that the entries in the check were r egular and authentic and alteration could not be determined even upon close exam ination. CA Ruling: The CA affirmed the decision of the RTC. ISSUE: Whether or n ot there was material alteration which would make Metrobank liable HELD: The cou rt held that there was material alteration done to the check. The court held tha t an alteration is said to be material if it changes the effect of the instrumen t. It means that an unauthorized change in an instrument that purports 15 | C a t i p a y . D e l o s S a n t o s . M a c a i b a y . M a s c u l i n o . M e l l a

Negotiable Instruments Case Digest 2013 Atty. Quicho Catipay. De Villa. Masculino. Mella to modify in any respect the obligation of a party or an unauthorized addition o f words or number or other change to an incomplete instrument relating to the ob ligation of a party. In other words, a material alteration is one which changes the items which are required under Section 1 of the Negotiable Instruments Law. In the case at bar, the check was altered so that the amount was increased from P1,000.00 to P91, 000.00 and the date was changed from 24 November 1994 to 14 No vember 1994. Apparently since the entries altered were among those enumerated un der Section 1 and 125, namely, the sum of money payable and the date of the chec k, then it is material alteration. Under Section 124 of the Negotiable Instrumen ts Law, Where a negotiable instrument is materially altered without assent of all parties thereon, it is avoided, except as against a party who has himself made, authorized and assented to the alteration and subsequent indorsers. Cabilzo was not the one who made nor authorized such alteration. This should have the effect of avoiding the said instrument, however Metrobank still paid the amount notwit hstanding the alteration therefore they should pay for the value of the check. P hilippine National Bank v. CA GR No. 116181 April 25, 1996 || Section 124 & 125 FACTS: A check with serial number 7-3666-223-3, dated August 7, 1981 in the amou nt of P97, 650.00 was issued by the Ministry of Education and Culture (now DECS) payable to F. Abante Marketing and drawn against Philippine National Bank. F. A bante Marketing deposited the check to Capitol City Development Bank which in tu rn deposited the same in its account with Philippine Bank of Communications (PBC om). PBCom sent the check to PNB for clearing. PNB cleared the check as good, bu t PNB returned the check to PBCom and debited PBCom's account for the amount cover ed by the check, the reason being that there was a material alteration of the chec k number. PBCom debited the amount from Capitol's account, but Capitol cannot debi t the same amount to F. Abante Marketing's account as the same had already been wi thdrawn. Capitol demanded for recrediting from PBCom who in turn requested the s ame from PNB. Since the demands of Capitol were not heeded, Capitol filed a civi l case against PBCom who initiated a third-party complaint against PNB. PNB also filed a fourth-party complaint against F. Abante Marketing. RTC Ruling: The tri al court held that there was material alteration therefore the banks should be r e-credited for the amount. The court asked PBCom to recredit Capitol, PNB to rec redit PBCom and F. Abante to recredit PNB. CA Ruling: The Court of Appeals held that the check should be honored as there was no material alteration. ISSUE: Whether or not an alteration of the serial number of a check is a materia l alteration under the Negotiable Instruments Law HELD: The court held that ther e was no material alteration in the case at bar. What was altered is the serial number of the check in question, an item which is not an essential requisite for negotiability under Section 1 of the Negotiable Instruments Law. It is a well s ettled rule that an alteration is said to be material if it changes the effect o f the instrument. It means that an unauthorized change in an instrument that pur ports to modify in any respect the obligation of a party or an unauthorized addi tion of words or number or other change to an incomplete instrument relating to the obligation of a party. In other words, a material alteration is one which ch anges the items which are required under Section 1 of the Negotiable Instruments Law. In the case at bar, the alteration did not change the relations between th e parties, and no other alterations were made except for the serial number. Even though PNB insists that alteration of the serial number is material as is used to determine which particular office or agency of the government issued the same , the court held that the check's serial number is not the sole indication of its origin. Thus, PNB cannot refuse to accept the heck in question on the ground tha t the serial number was altered, the same being an immaterial or innocent one. A s Justice Vitug opined in his book, an innocent alteration (generally, changes on items other than those required to be stated under Sec. 1, NIL) and spoliation (alterations done by a stranger) will not avoid the instrument, but the holder m ay enforce it only according to its original tenor. Republic Bank v. CA GR No. 42

725 April 22, 1991 || Section 124 & 125 FACTS: On January 25, 1966, San Miguel C orporation issued a dividend check for P240 in favor of J. Roberto Delgado who i s a stockholder of the same corporation. After the check had been delivered to D elgado, the amount was fraudulently and without authority of the drawer, SMC, al tered by increasing it from P240 to P9,240. The check was indorsed and deposited by Delgado in his account with Republic Bank. Republic accepted the check witho ut ascertaining its genuineness and regularity. Later, Republic presented the ch eck to First National City Bank for clearing and FNCB paid the amount believing the check was genuine. On April 19, 1966, San Miguel Corporation notified First National Bank of the material alteration of the amount. FNCB recredited the P9, 240 to San Miguel Corporation and informed Republic Bank that there was an alter ation made, however Delgado had already withdrawn his account from the republic. FNCB demanded that Republic refund the amount but Republic refused claiming tha t there was already delay in giving 16 | C a t i p a y . D e l o s S a n t o s . M a c a i b a y . M a s c u l i n o . M e l l a

Negotiable Instruments Case Digest 2013 Atty. Quicho Catipay. De Villa. Masculino. Mella notice to the alteration and that it was SMC's fault in drawing the check in such a way as to permit the insertion of numerals increasing the amount. FNCB filed a case against Republic. RTC Ruling: The trial court held that Republic should pa y the amount to FNCB as there clearly was an alteration made to the check. CA Ru ling: The court affirmed the trial court's ruling ISSUE: Whether or not Republic B ank should be held liable for the amount HELD: The court held that although ther e was material alteration of the amount in the check, Republic Bank should not b e held liable in refunding the amount to the First National Bank. It is true tha t when an endorsement is forged, the collecting bank or last endorser, as a gene ral rule, bears the loss. However, the unqualified endorsement of the collecting bank on the check should be read together with the 24-hour regulation on cleari ng house operation. Thus, when the drawee bank fails to return a forged or alter ed check to the collecting bank within the 24-hour clearing period the collectin g bank is absolved from liability. The International Corporate Bank v. CA and PN B GR No. 129910 September 5, 2006 || Section 124 & 125 CA Ruling: (October 10, 1991 Decision) The Court of Appeals held that PNB should be liable for the value of the fifteen checks specified. The court ruled that t he checks have been materially altered and should have been returned within 24 h ours after discovery of alteration. Although the checks were returned within the 24-hour period, it does not absolve the bank from liability. The bank could sti ll be liable if it fails to exercise due diligence in verifying the alterations made. [In this case, the CA reversed its October 10, 1991 decision and dismissed the complaint on the ground that the rule on the return of altered checks withi n 24 hours should be applied.] ISSUE: Whether the checks were materially altered HELD: The court held that the alterations in the checks were made on their seri al numbers. Jurisprudence (PNB v. CA Case) provides that the alteration made on the serial number of a check is not a material alteration. Since there were no m aterial alterations on the checks, respondent as drawee bank has no right to dis honor them and return them to the petitioner, the collecting bank. Thus, Philipp ine National Bank is liable to The International Corporate Bank for the value of the checks. Section 24. Presumption of Consideration. Every negotiable instrume nt is deemed prima facie to have been issued for a valuable consideration; and e very person whose signature appears thereon to have become a party thereto for v alue. Cayanan v. North Star GR No. 172954 October 5, 2011 || Section 24 FACTS: V irginia Balagtas, general manager of North Star International Travel Incorporate d, sent the amount of US$ 60, 000 to View Sea Ventures Ltd. from her personal ac count in accommodation and upon the instruction of Engr. Jose E. Cayanan. On Mar ch 29, 1994, Virginia again sent US$ 40,000 to View Sea Ventures by telegraphic transfer with US$ 15,000 coming from Cayanan. The total amount of indebtedness u nder the credit extensions reached P 510, 035. 47. To cover payment of the foreg oing obligations, the Cayanan issued five checks to North Star. When presented f or payment, the checks were 2 were dishonored for insufficiency of funds and the other three were dishonored because of stop payment order from the petitioner. North Star demanded payment, but petitioner failed to settle his obligations. No rth Star filed a criminal case against Cayanan. 17 | C a t i p a y . D e l o s S a n t o s . M a c a i b a y . M a s c u l i n o . M e l l a FACTS: The Ministry of Education and Culture issued 15 checks drawn against Phil ippine National Bank which The International Corporate Bank accepted for deposit on various dates. After 24 hours from submission of the checks to respondent fo r clearing, petitioner paid the value of the checks and allowed withdrawals of t he deposits. However, on October 14 1981, respondent returned all the checks to The International Corporate Bank without clearing them on the ground that they w ere materially altered. Thus, petitioner instituted an action for collection of sums of money against Philippine National Bank to recover the value of the check

s. RTC Ruling: The trial court held that PNB cannot be faulted for the delay in clearing the checks considering the ingenuity in which the alterations were affe cted. The International Corporate Bank, as collecting bank, could have inquired from PNB about the status of the checks before paying their value. Since the imm ediate cause of petitioner's loss was the lack of caution of its personnel, the tr ial court held that petitioner is not entitled to recover the value of the check s from the respondent.

Negotiable Instruments Case Digest 2013 Atty. Quicho Catipay. De Villa. Masculino. Mella MeTC Ruling: Found him guilty of violation of BP 22 and asked to pay the amount of the total value of the checks in question as civil liability. RTC Ruling: The re is no basis for the civil liability on the petitioner as the checks were pres ented beyond the period of 90 days and therefore, there is no violation of BP Bl g. 22. There being no offense committed, accused is not criminally liable and th us not be civilly liable. CA Ruling: Although Cayanan was acquitted of the crimi nal charges, he may still be held civilly liable for the checks he issued since he never denied having issued the five postdated checks which were dishonored. C ayanan's Contention: He should not be civilly liable for the value of the checks s ince North Star did not give any valuable consideration for the checks. He insis ts that the US$ 85,000 sent to View Sea Ventures was not sent for the account of North Star but for account of Virginia as her investment. ISSUE: Whether or not Cayanan should be civilly liable for the checks HELD: The court held that Cayan an should be civilly liable for the checks. In the absence of evidence to the co ntrary, it is presumed that the same was issued for valuable consideration which may consist either in some right, interest, profit or benefit accruing to the p arty who makes the contract, or some forbearance, detriment, loss or some respon sibility, to act, or labor or service given, suffered or undertaken by the other side. Under the Negotiable Instruments Law (Section 24), it is presumed that ev ery party to an instrument acquires the same for consideration or for value. As petitioner alleged that there was no consideration for the issuance of the subje ct checks, it devolved upon him to present convincing evidence to overthrow the presumption and prove that the checks were in fact issued without valuable consi deration. However, petitioner did not present any credible evidence to rebut the presumption, as well as North Star's assertion that the checks were issued as pay ment for the US$ 85, 000 petitioner owned. Furthermore, it was evident that Virg inia sent the money upon the agreement that petitioner will give North Star the peso equivalent of the amount remitted plus interest. Virginia Balagtas' participa tion was merely to send money through telegraphic transfer in exchange for the c hecks issued by petitioner to North Star. The transaction between petitioner and North Star is actually in the nature of a loan and the checks were issued as pa yment of the principal and the interest. FACTS: On January 10, 2002, Pacifico Brobio died intestate, leaving 3 parcels of land. He was survived by Eufrocina Brobio and seven children, three of which we re illegitimate; Carmela Brobio Mangahas is one of the illegitimate children. In the settlement of the estate of Pacifico, Pacifico's other children waived and ce ded their respective shares over the land in favor of respondent. Carmela claims that Eufrocina promised to give her an additional amount for her share in her f at her's estate. Thus, after signing the deed, petitioner demanded from respondent the promised additional amount, but respondent refused to pay, claiming that sh e had no more money. Left with no more original copy of the Deed, Eufrocina aske d Carmela to countersign a copy of the Deed but Carmela refused demanding that s he first give the additional amount that she promised. Because she did not have the money at that time, Eufrocina executed a promissory note which stated that Th is is a promise that I will give Financial Asistance to Carmela B. Mangahas the amount of P600,000.00 Six Hundred Thousand Only on June 15, 2003. When the promis sory note fell due, respondent failed and refused to pay despite demand. Carmela filed a complaint for specific performance against Eufrocina. Eufrocina contend s that the undertaking was not supported by any consideration. RTC Ruling: The p romissory note was an additional consideration for the waiver of petitioner's shar e in the three properties in favor of respondent. This was based on the fact tha t the promissory note was executed after negotiation and haggling between the pa rties. CA Ruling: The CA found that there was a complete absence of consideratio n in the execution of the promissory note, which made it inexistent and without any legal force and effect. The court noted that financial assistance was not the real reason why respondent executed the promissory note, but only to secure peti

tioner's signature. Furthermore, the waiver of Carmela was also not the considerat ion considering that the petitioner signed the Deed way back in 2002 and she had already received the consideration of P150,000.00 for signing the same. ISSUE: Whether or not the promissory note was without consideration HELD: The court hel d that the promissory note was definitely with consideration. According to Secti on 24 of the Negotiable Instruments law, a contract is presumed to be supported by cause or consideration. The presumption that a contract has sufficient consid eration cannot be overthrown by a mere assertion that it has no 18 | C a t i p a y . D e l o s S a n t o s . M a c a i b a y . M a s c u l i n o . M e l l a Carmela Mangahas v. Eufrocina Brobio GR No. 153852 October 20, 2010 || Section 2 4

Negotiable Instruments Case Digest 2013 Atty. Quicho Catipay. De Villa. Masculino. Mella consideration. To overcome the presumption, the alleged lack of consideration mu st be shown by preponderance of evidence. The burden of proof rests upon whoever alleges the insufficiency of the consideration, in the present case, the respon dent. In the case at bar, Eufrocina failed to prove that the promissory note was not supported by any consideration. It is clear that the promissory note was is sued for a cause or consideration, which was the Carmela's signature on the Deed. Even though such consideration may be considered inadequate, the contract would still not be invalidated unless there has been fraud, mistake or undue influence . In this case however, none of these grounds had been proven. Jesus Pineda v. J ose Dela Rama GR No. L-31831 April 28, 1983 || Section 24 FACTS: Dela Rama is a practicing lawyer whose services were retained by Pineda for the purpose of maki ng representations with the general manager of National Rice and Corn Administra tion (NARIC) to stop or delay the institution of criminal changes against Pineda who allegedly misappropriated 11,000 cavans of palay. According to Dela Rama, P ineda borrowed the P9,300 because he had used up all his funds. This was evidenc ed by a promissory note which states that This represents the cash advances made by him in connection with my case for which he is my attorney-in-law. Jesus Pined a signed a promissory note for P9,300 only because Dela Rama had told him that t his amount had already been advanced to grease the palms of the Chairman and Gen eral Manager of NARIC in order to save Pineda from criminal jurisdiction. Dela R ama filed an action to collect from Pineda the amount of the promissory note and attorney's fees being Pineda's counsel in the case being investigated by NARIC. RTC Ruling: Dela Rama has no right to recover the said amount as the purpose or con sideration of the promissory note was illegal, null and void. CA Ruling: Reverse d the trial court's decision and argued that being a person of more than average i ntelligence, Pineda would not have signed the document unless he was fully aware of the contents thereof. The court ruled that no rule is more fundamental than that which declares that obligations arising from contracts have the force of la w between the contracting parties and should be complied with in good faith. Sec tion 24 of the Negotiable Instruments Law (Act no. 2031) explicitly provides tha t every negotiable instrument is deemed prima facie to have been issued for a va luable consideration, and every person whose signature appears thereon to have b ecome a party thereto for value. ISSUE: Whether or not there was promissory note was for consideration HELD: The court held that the promissory note was executed for an illegal consid eration. The terms of the note sustain the version of Pineda that he signed the P9,300.00 promissory note because he believed Dela Rama's story that these amounts had already been advanced by Dela Rama as gifts for the NARIC officials. The Co urt of Appeals' reliance on Section 24 of the Negotiable Instruments Law is mispla ced. The presumption that a negotiable instrument is issued for a valuable consi deration is only prima facie and can be rebutted by proof to the contrary. Thus, whether or not the supposed cash advances reached their destination is of no mo ment. The consideration for the promissory note to influence public officers in the performance of their duties is contrary to law and public policy. Thus, the promissory note is void ab initio in accordance with Article 1409 and 1412 of th e Civil Code, and no cause of action for the collection cases can arise from it. Travel-on Inc. v. CA & Arturo Miranda GR No. L-56169 June 1992 || Section 24 FACTS: Travel-On is a travel agency selling airline tickets on commission basis for and in behalf of different airline companies. Miranda had a revolving credit line with petitioner. Miranda issued 6 checks to Travel-On. Miranda contends th at he had issued the postdated checks for purposes of accommodation, as he had i n the past accorded similar favors to the petitioner. He issued the said checks in the name of Travel-On in order that its General Manager, Elita Montilla, coul d how to TravelOn's Board of Directors that the accounts receivable of the company was still good. RTC Ruling: The trial court ruled that Miranda's indebtedness to

petitioner was not satisfactorily established and that the postdated checks were issued not for the purpose of encashment to pay his indebtedness but to accommo date the General Manager of Travel-On to enable her to show to the Board of Dire ctors that Travel-On was financially stable. CA Ruling: The CA affirmed the deci sion of the trial court that the checks are not evidence of indebtedness on the ground that the statements of account prepared by petitioner did not show that M iranda had an outstanding balance of P115, 000.00. Travel-On contends that the p ostdated checks are per se evidence of liability on the part of the private resp ondent. Petitioner further argues that even assuming that the checks were for ac commodation, private respondent is still liable thereunder considering that peti tioner is a holder for value. 19 | C a t i p a y . D e l o s S a n t o s . M a c a i b a y . M a s c u l i n o . M e l l a

Negotiable Instruments Case Digest 2013 Atty. Quicho Catipay. De Villa. Masculino. Mella ISSUE: Whether or not the checks are evidence of liability HELD: The court held that the checks are the all important evidence of Travel-On's case as these checks clearly establish private respondent's indebtedness to petitioner. A check which is regular on its face is deemed prima facie to have been issued for a valuable consideration and every person whose signature appears thereon is deemed to have become a party thereto for value (Section 24, NIL). Thus, the mere introduction of the instrument sued on in evidence prima facie entitles the plaintiff to rec overy. Furthermore, jurisprudence (Pineda v. Dela Rama) provides that a negotiab le instrument is presumed to have been given or indorsed for a sufficient consid eration unless otherwise contradicted and overcome by other competent evidence. The court held that Miranda was unable to rebut satisfactorily this legal presum ption. The fact that all the checks issued by private respondent to the petition er were presented for payment by the latter would lead to no other conclusion th an that these checks were intended for encashment. There is nothing in the check s themselves that states otherwise. Section 29. Liability of Accomodation Party. An accommodation party is one who has signed the instrument as maker, drawer, a cceptor, or indorser, without receiving value therefor, and for the purpose of l ending his name to some other person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of taking the in strument, knew him to be only an accommodation party. Aglibot vs. Santia G.R. No . 185945. December 5, 2012 FACTS: Private respondent-complainant Engr. Santia lo aned the amount of P2, 500,00.00 to Pacific Lending and Capital Corporation (PLC C) through its manager, petitioner Fideliza Aglibot. The loan was evidenced by a promissory note issued by Aglibot in behalf of PLCC payable in 1 year to intere st at 24% per annum. Allegedly as a guaranty or security for the payment of the note, Aglibot also issued and delivered 11 post-dated personal checks drawn from her own demand account maintained at Metrobank. Upon presentment of checks, the y were dishonored by the bank for having been drawn against insufficient funds o r closed account. Santia thus demanded payment from PLCC and Aglibot of the face value of checks but neither of them regarded his demand. 11 informations for vi olation of BP 22 were filed against Aglibot. MTCC Ruling: Aglibot was acquitted of all counts of the crime of violation of BP 22. However, he is ordered to pay the sum of the total face value of 11 checks RTC Ruling: Aglibot was absolved from any civil liability CA Ruling: Aglibot was ordered to personally pay Santia P3,000,000 ISSUE: Whether or not Aglibot must is personally liable for issuing 11 postdated checks to Santia, since she did so in behalf of her employer, PLCC HELD: Aglibot is an accommodation party and the refore liable to Santia. The relation between an accommodation party and the par ty accommodated is, in effect, one of principal and surety the accommodation par ty being the surety. It is a settled rule that a surety is bound equally and abs olutely with the principal and is deemed an original promisor and debtor from th e beginning. The liability is immediate and direct. It is not a valid defense th at the accommodation party did not receive any valuable consideration when he ex ecuted the instrument; nor is it correct to say that the holder for value is not a holder in due course merely because at the time he acquired the instrument, h e knew that the indorser was only an accommodation party. Agro Conglomerates vs. CA G.R. No. 117660, December 18, 2000 FACTS: On July 17, 1982, petitioner Agro Conglomerates, Inc. sold two parcels of farmland to Wonderland Food Industries, Inc. The parties executed a Memorandum of Agreement which provides that the P5 m illion as purchase. On July 19, 1982, Agro Conglomerate, Inc. as vendor, Wonderl and Food Industries as vendee, and the herein respondent Regent Savings and Loan Bank executed as Addendum to the previous Memorandum of Agreement to the effect that the vendee authorized the vendor to obtain a loan from the respondent bank for the total amount of the initial payments and that the vendee undertook to a ssume the settlement of the said loan. Petitioner Mario Soriano signed several p romissory notes and received the proceeds in behalf of Agro Conglomerates, Inc.

However, the sale of the said farmland did not materialize which resulted to a r escission of contract of sale between the Agro Conglomerates, Inc. and Wonderlan d Food Industries, Inc. Subsequently, petitioners Agro Conglomerates, Inc. and M ario Soriano failed to meet their obligations as they fell due. Thus, after seve ral opportunities given to petitioner to settle their accounts, the respondent b ank filed three separate complaints for Collection of Sums of Money before the R egional Trial Court of 20 | C a t i p a y . D e l o s S a n t o s . M a c a i b a y . M a s c u l i n o . M e l l a

Negotiable Instruments Case Digest 2013 Atty. Quicho Catipay. De Villa. Masculino. Mella Manila against the petitioners. In their answer, petitioners interposed the defe nse of novation and insisted that there was a valid substitution of debtor based on the executed addendum. Trial Court Ruling: Judgment rendered in favor of the respondent bank CA Ruling: Trial court ruling was affirmed in toto. ISSUE: Whet her or not petitioners are exempted from any liability over the promissory notes HELD: A subsidiary contract of suretyship had taken effect since petitioners si gned the promissory notes as maker and accommodation party for the benefit of Wo nderland. Petitioners became liable as accommodation party. He has the right, af ter paying the holder, to obtain reimbursement from the party accommodated, sinc e the relation between them has in effect become one of principal and surety, th e accommodation party being the surety. Suretyship is defined as the relation wh ich exists where one person has undertaken an obligation and another person is a lso under the obligation or other duty to the obligee, who is entitled to but on e performance, and as between the two who are bound, one rather than the other s hould perform. The suretys liability to the creditor or promisee of the princip al is said to be direct, primary and absolute; in other words, he is directly an d equally bound with the principal. And the creditor may proceed against any one of the solidary debtors. *Petitioners assertion cannot be given any credence t hat, as provided by the addendum, their obligation to pay the promissory notes w as novated by "substitution" of a new debtor, Wonderland. Contrary to petitioner s contention, the attendant facts herein do not make a case of novation. Toms A ng vs. Associated Bank and Antonio Ange Eng Liong G.R. No.146511, September 5, 2 007 FACTS: Associated Bank alleged that the defendants obtained a loan by 2 prom issory notes. Tomas Ang agreed to be jointly and severally liable under the 2 prom issory notes that he co-signed with Antonio Ang Eng Liong as the principal debto r. Antonio Ang Eng Liong only admitted to have secured a loan amounting to P80,0 00. Despite repeated demands for payment, the defendants failed and refused to s ettle their obligation. Petitioner Tomas Ang contends that the bank knew that he did not receive and valuable consideration for affixing his signatures on the n otes but merely lent his name as an accommodation party and thus should not be h eld liable. Trial Court ruling: Antonio Ang Eng Liong was ordered to pay the principal amoun t of P80,000 plus interest. CA Ruling: Tomas Ang, in his capacity as an accommod ation party, shall pay the plaintiff Associated Bank being the holder in due cou rse ISSUE: Whether or not Tomas Ang is liable as accommodation party even withou t consideration and his co-accommodation party was granted accommodation w/o his knowledge HELD: Yes. In issuing the two promissory notes, petitioner as accommo dating party warranted to the holder in due course that he would pay the same ac cording to its tenor. It is no defense to state on his part that he did not rece ive any value therefore because the phrase "without receiving value therefor" us ed in Sec. 29 of the NIL means "without receiving value by virtue of the instrum ent" and not as it is apparently supposed to mean, "without receiving payment fo r lending his name." It is enough that value was given for the note at the time of its creation. As in the instant case, a sum of money was received by virtue o f the notes, hence, it is immaterial so far as the bank is concerned whether one of the signers, particularly petitioner, has or has not received anything in pa yment of the use of his name. Bautista vs. Auto Plus Traders, Inc. and CA G.R. N o. 166405, August 6, 2008 FACTS: Petitioner Claude P. Bautista, in his capacity as President and Presiding Officer of Cruiser Bus Lines and Transport Corporatio n, purchased various spare parts from private respondent Auto Plus Traders, Inc. and issued two postdated checks to cover his purchases. The checks were subsequ ently dishonored. Private respondent then executed an affidavit-complaint for vi olation of Batas Pambansa Blg. 22 against petitioner. Consequently, two informat ions for violation of BP Blg. 22 were filed with the Municipal Trial Court in Ci ties (MTCC) of Davao City against the petitioner. RTC Ruling: Bautista was direc ted to pay and/or reimburse the sum representing the value of 2 checks. CA Rulin

g: CA affirmed the RTC's ruling. Bautista's contention: He asserts that BP 22 pertai ns to his criminal liability and that the corporation which has a separate perso nality is solely liable for the value of the 2 checks. 21 | C a t i p a y . D e l o s S a n t o s . M a c a i b a y . M a s c u l i n o . M e l l a

Negotiable Instruments Case Digest 2013 Atty. Quicho Catipay. De Villa. Masculino. Mella ISSUE: Whether or not Bautista is personally liable of the value of 2 checks HEL D: No. He cannot be considered liable as an accommodation party. Negotiable Inst ruments Law defines an accommodation party as a person "who has signed the instr ument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person." As gleaned from the text, an accommodation party is one who meets all the three requisites, .: ( 1) he must be a party to the instrument, signing as maker, drawer, acceptor, or indorser; (2) he must not receive value therefor; and (3) he must sign for the p urpose of lending his name or credit to some other person. An accommodation part y lends his name to enable the accommodated party to obtain credit or to raise m oney; he receives no part of the consideration for the instrument but assumes li ability to the other party/ies thereto. The first two elements are present here, however there is insufficient evidence presented in the instant case to show th e presence of the third requisite. All that the evidence shows is that petitione r signed Check No. 58832, which is drawn against his personal account. The said check, dated December 15, 2000, corresponds to the value of 24 sets of tires rec eived by Cruiser Bus Lines and Transport Corporation on August 29, 2000. There i s no showing of when petitioner issued the check and in what capacity. In the ab sence of concrete evidence it cannot just be assumed that petitioner intended to lend his name to the corporation. Hence, petitioner cannot be considered as an accommodation party. Atty. Gregorio Caneda(petitioner) vs CA(respondent) , RTC of Davao FNCB Finance, & Buenaventura Gueson 181 SCRA 762 Ponente: J. Paras FACTS: This is a petition for certiorari and prohibition with preliminary injunction seeking the cancellat ion of the entry of judgment of the CA. On November 8, 1977, Buenaventura Gueson executed a promissory note for the sum of P18,960.00 in favor of Gregorio Caned a, Jr. promising to pay a monthly installment of P790.00 for 24 months with 14% interest per annum; that to secure the obligation Gueson executed a chattel mort gage and used a Toyota Jiffy jeep as a collateral; default in the payment of any installment will make the entire obligation due and demandable. This promissory note and chattel mortgage was assigned by Gregorio Caneda in favor of Investors Finance Corporation (FNCB). Defendant Gues on defaulted in his obligation and as of September 24, 1980 had an outstanding b alance of P11,230.00 exclusive of interest and other charges. Despite repeated d emands Gueson failed and refused to pay.Hence, FNCB on December, 1980 filed a co mplaint for replevin and/or sum of money against Buenaventura Gueson and John Do e(Caneda). FNCB prayed for the seizure of the Toyota Jiffy jeep,and the payment of 25% of the total amount due as attorneys fees plus 10% thereof as liquidated damages and costs. Buenaventura Gueson filed his answer with third party compla int. He interposed the defense that he did not receive any value for the promiss ory note he executed as he merely accommodated the real debtor Gregorio Caneda, Jr.; that as the accommodated party Caneda, Jr, Caneda shouuld be primarily liab le because he executed an "undertaking whereby he bound himself to pay and assu me the obligation stipulated in the promissory note and chattel mortgage; Gueson also said that FNCB is not a holder in due course of the promissory note nor an assignee in good faith; Gregorio D. Caneda, Jr. answered and denied that he is the real debtor or the party accommodated. He alleged that he had not incurred a ny monetary obligation in favor of FNCB. He pointed out that Gueson agreed to bu y his Jiffy jeep, but since he has no cash, they agreed that Gueson will apply f or financing with FNCB; that he with FNBCs consent executed a deed of sale on t he condition that if the financing will not be approved the sale shall not mater ialize and Gueson shall deed back the jeep to him; that since the loan was appro ved the "counter deed of sale" was rendered moot and academic; that Gueson was n ot relieved of his obligation to FNCB since the "undertaking" was "with recourse to Buenaventura Gueson in case of default"; that under Section 19 of the Negoti

able Instruments Law, Gueson is still liable to FNCB even assuming that he is me rely an accommodation party. Accordingly, he prayed for the dismissal of the com plaint against him. RTC Ruling: Buenaventura Gueson was merely an accommodation party for the benefit of Caneda, Jr.; that there was novation in the form of sub stitution of debtors when Gregorio Caneda, Jr. executed the undertaking assuming the liability of B. Gueson in favor of FNCB; that the phrase "With recourse to Buenaventura Gueson in case of default" found in the undertaking was inserted on ly after Caneda and FNCB had already signed the undertaking and without the know ledge of B. Gueson and that 22 | C a t i p a y . D e l o s S a n t o s . M a c a i b a y . M a s c u l i n o . M e l l a

Negotiable Instruments Case Digest 2013 Atty. Quicho Catipay. De Villa. Masculino. Mella Caneda was in bad faith in trying to evade payment of a justly-secured legal obl igation. Caneda is liable for 11,230 pesos plus interest and damages(exemplary a nd moral damages) CA Ruling: Affirmed RTC decision and made an entry of judgment of its decision as it became final and executory. Petitioners Contention: Cane da claimed that the Court of Appeals denial of his motion to cancel entry of ju dgment is tantamount to a denial of his fundamental right to due process of law. ISSUE: What is the effect of the assignment on the obligations of Gueson and Ca neda to FNCB. HELD: As to the effect: There is no novation, whether express or i mplied. There is no express novation since the undertaking executed on October 2 , 1980 does not state in clear terms that the promissory note and chattel mortga ge executed by Gueson is extinguished and in lieu thereof the undertaking will b e substituted. Neither is there substitution of debtors. Petitioner Caneda in ex ecuting the undertaking assuming the liability with FNCB, merely confirmed that he is the real or principal debtor while Gueson in signing the promissory note a nd the chattel mortgage accommodated Caneda in his obligation with FNCB. Otherwi se stated, he became a surety. Thus, this Court has ruled, that a person who has signed the instrument as maker, drawer, acceptor, or indorser, without receivin g value therefor, and for the purpose of lending his name to some other person i s liable on the instrument to a holder for value, notwithstanding the fact that such holder at the time of taking the instrument knew him to be only an accommod ation party. Nonetheless, after paying the holder, such accommodation party has the right to obtain reimbursement from the party accommodated, since the relatio n between them is in effect that of principal and surety, the accommodation part y being the surety.r In resume, FNCB can go against both Caneda, the principal d ebtor and Gueson as the surety or either of them. But the lower court erred in d ismissing the claim against Gueson. FNCB did not however, appeal thereby rendering this case moot as against Gueson. It does not however, follow that FNCB cannot recover the full amount from Caneda being the accommodated part y. By not appealing the decision of the lower court, FNCB merely opted to recove r its credit from Caneda and waived its right to recover from Gueson. PREMISES C ONSIDERED, the appeal of petitioner is hereby ALLOWED, but considering this case on the merits, the assailed decision of the Court of Appeals of November 28, 19 86 making Caneda, Jr. liable to FNCB, is hereby AFFIRMED. R.N. Clark(Plaintiff) vs George Sellner(Defendant) 42 Phil 384 || Section 29 Ponente: Romualdez, J. FA CTS: George Sellner has signed a promissory note along with two other persons: " P12,000.00MANILA, July 1, 1914. "Six months after date, for value received, we j ointly and severally promise to pay to the order of R. N. Clark at his office in the city of Manila, the sum of twelve thousand pesos, Philippine currency, with interest thereon in like currency from date until paid at the rate of ten per c ent per annum, payable quarterly. "If suit is necessary to collect this note, we hereby agree to pay as attorneys fees ten per centum of the amount found due. (Sgd.) "W. H. CLARKE, [INTERNAL REVENUE STAMP.]"JOHN MAYE. "BY W. H. CLARKE, his attorney. "GEO C. SELLNER." Eventually, the note matured and the amount was not paid. Sellners counsel allege that he did not receive any part of the amount o f the debt and was not even presented to him for payment. He contended that as a n accommodation party he is not liable unless the note is negotiated which was n ot done. 23 | C a t i p a y . D e l o s S a n t o s . M a c a i b a y . M a s c u l i n o . M e l l a

Negotiable Instruments Case Digest 2013 Atty. Quicho Catipay. De Villa. Masculino. Mella RTC Ruling: Ruled in Favor of Sellner and did not make him liable. Clarks failu re to enforce guaranty for the payment of the debt and his delay in instituting this action constitute laches(lapse of 4 years from the date on which the paymen t fell due), which had the effect of extinguishing his right of action. ISSUE: W hether or not Sellner is an accommodation party and what are his liabilties? HEL D: Sellner is not an accommodation party but that of a joint surety. He may at a ny time after the maturity of the note, make payment, thus subrogating himself i n the place of the creditor with the right to enforce the guaranty against the o ther signers of the note for the reimbursement. The mere delay of the creditor i n enforcing the guaranty has not by any means impaired his action against the de fendant. It should not be lost sight of that the defendants signature on the no te is an assurance to the creditor that the collateral guaranty will remain good , and that otherwise, he, the defendant, will be personally responsible for the payment. His mere inaction indulgence, passiveness, or delay in proceeding again st he principal debtor, or the fact that he did not enforce the guaranty or appl y on the payment of such funds as were available, constitute no defense at all f or the surety, unless the contract expressly requires diligence and promptness o n he part of the creditor, which is not the case in the present action. As to th e liability being one of the signers of the note is not dependent on whether or not he received any part of the amount of the debt. The defendant is really and expressly one of the several debtors of the note. It should be noted that the ph rase "without receiving value therefor" as used in section 29 means "without rec eiving value by virtue of the instrument" and not "without receiving payment for lending his name." The Supreme Court reversed the judgment. Clark can recover f rom Sellner the princial debt of 12,000 and the sum agreed for attorney fees 1,2 00 plus interest. Ernesita Crisologo - Jose (petitioner) vs CA and Ricardo Santos, VP for Salses o f Mover Enterprises(respondents) 177 SCRA 594 || Section 29 Ponente: Regalado. J FACTS: Ricardo S. Santos, Jr. was the vice-president of Mover Enterprises, Inc. in-charge of marketing and sales; and the president of the said corporation was Atty. Oscar Z. Benares. Atty. Benares issued Check No. 093553 drawn against Tra ders Royal Bank, dated June 14, 1980, in the amount of P45,000.00 (Exh. 1) pay able to defendant Ernestina CrisologoJose. Since the check was under the account of Mover Enterprises, Inc., the same was to be signed by its president, Atty. O scar Z. Benares, and the treasurer of the said corporation. However, since at th at time, the treasurer of Mover Enterprises was not available, Atty. Benares pre vailed upon the plaintiff, Ricardo S. Santos, Jr., to sign the aforesaid check a s an alternate signatory. Plaintiff Ricardo S. Santos, Jr. did sign the check. T he check was issued to defendant Ernestina Crisologo-Jose in consideration of th e waiver or quitclaim by said defendant over a certain property which the Govern ment Service Insurance System (GSIS) agreed to sell to the clients(Ong Spouses) of Atty. Oscar Benares, with the understanding that upon approval by the GSIS of the compromise agreement with the spouses Ong, the check will be encashed accor dingly. However, since the compromise agreement was not approved within the expe cted period of time, the aforesaid check for P45,000.00 was replaced by Atty. Be nares with another Traders Royal Bank check bearing No. 379299 dated August 10, 1980, in the same amount of P45,000.00 , also payable to the defendant Jose. Thi s replacement check was also signed by Atty. Oscar Z. Benares and by the plainti ff Ricardo S. Santos, Jr. When defendant deposited this replacement check with h er account at Family Savings Bank, Mayon Branch, it was dishonored for insuffici ency of funds. This prompted the petitioner to file a case against Atty. Bernare s and Santos for violation of BP22. Meanwhile, during the preliminary investigat ion, Santos tried to tender a cashier's check for the value of the dishonored chec k but petitioner refused to accept such. This was consigned by Santos with the c lerk of court and he instituted charges against petitioner.

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Negotiable Instruments Case Digest 2013 Atty. Quicho Catipay. De Villa. Masculino. Mella RTC Ruling: The Trial Court held that the consignation was not applicable in the case at bar. CA Ruling: Reversed and set aside the RTCs judgment of dismissal ISSUE: Whether or not Mover Enterprises may be held liable on the accommodation instrument, that is, the check issued in favor of herein petitioner. HELD: SC mo dified the decision of respondent court in CA by setting aside and declaring wit hout force and effect its pronouncements and findings insofar as the merits of C riminal Case and the liability of the accused therein are concerned. Affirmed th e CA decision. Section 29 of the Negotiable Instruments Law which holds an accom modation party liable on the instrument to a holder for value, although such hol der at the time of taking the instrument knew him to be only an accommodation pa rty, does not include nor apply to corporations which are accommodation parties. This is because the issue or indorsement of negotiable paper by a corporation w ithout consideration and for the accommodation of another is ultra vires. Hence, one who has taken the instrument with knowledge of the accommodation nature the reof cannot recover against a corporation where it is only an accommodation part y. If the form of the instrument, or the nature of the transaction, is such as t o charge the indorsee with knowledge that the issue or indorsement of the instru ment by the corporation is for the accommodation of another, he cannot recover a gainst the corporation thereon. By way of exception, an officer or agent of a co rporation shall have the power to execute or indorse a negotiable paper in the n ame of the corporation for the accommodation of a third person only if specifica lly 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 arisin g from or in relation to matters in which the corporation has no legitimate conc ern. Since such accommodation paper cannot thus be enforced against the corporat ion, especially since it is not involved in any aspect of the corporate business or operations, the inescapable conclusion in law and in logic is that the signatories thereof shall be personally liable therefor, as well as the consequences arising from their a cts in connection therewith. The fact that for lack of capacity the corporation is not bound by an accommodation paper does not thereby absolve, but should rend er personally liable, the signatories of said instrument where the facts show th at the accommodation involved was for their personal account, undertaking or pur pose and the creditor was aware thereof. Fernando Maulini et al(plantiffs) vs An tonio G Serrano(defendant) 28 Phil 640 || Section 29 Ponente: Moreland. J. FACTS : The action was brought by the plaintiff upon the contract of indorsement alleg ed to have been made in his favor by the defendant upon the following promissory note: "P3,000Due 5th of September, 1912. "We jointly and severally agree to pay to the order of Don Antonio G. Serrano on or before the 5th day of September, 1 912, the sum of three thousand pesos (P3,000) for value received for commercial operations. Notice and protest renounced. If the sum herein mentioned is not com pletely paid on the 5th day of September, 1912, this instrument will draw intere st at the rate of 1 per cent per month from the date when due until the date of i ts complete payment. The makers hereof agree to pay the additional sum of P500 a s attorneys fees in case of failure to pay the note. "Manila, June 5, 1912. (Sg d.) "For Padern, Moreno & Co., by F. Moreno, member of the firm. For Jose Padern , by F. Moreno. Angel Gimenez." The note was indorsed on the back as follows: "P ay to the order of Don Fernando Maulini, value received. Manila, June 5, 1912.(S gd.) A. G. Serrano." The defendant was a broker doing business in the city of Ma nila and that part of his business consisted in looking up and ascertaining pers ons who had money to loan as well as those who desired to borrow money and, 25 | C a t i p a y . D e l o s S a n t o s . M a c a i b a y . M a s c u l i n o . M e l l a

Negotiable Instruments Case Digest 2013 Atty. Quicho Catipay. De Villa. Masculino. Mella acting as a mediary, negotiate a loan between the two. the procedure in this par ticular case, the broker delivered the money personally to the borrower, took th e note in his own name and immediately transferred it by indorsement to the lend er. In the case at bar this was done at the special request of the indorsee and simply as a favor to him, the latter stating to the broker that he did not wish his name to appear on the books of the borrowing company as a lender of money an d that he desired that the broker take the note in his own name, immediately tra nsferring to him title thereto by indorsement. This was done, the note being at once transferred to the lender. According to the evidence referred to, there nev er was a moment when Serrano was the real owner of the note. It was always the n ote of the indorsee, Maulini, he having furnished the money which was the consid eration for the note directly to the maker and being the only person who had the slightest interest therein, Serrano, the broker, acting solely as an agent, a v ehicle by which the naked title to the note passed from the borrower to the lend er. The only payment that the broker received was for his services in negotiatin g the loan. He was paid absolutely nothing for becoming responsible as an indors er on the paper, nor did the indorsee lose, pay or forego anything, or alter his position thereby. CFI Ruling: By verbal agreement between the indorser and the indorsee, the indorser, in making the indorsement, was acting as agent for the i ndorsee, as a mere vehicle for the transference of naked title, and that his ind orsement was wholly without consideration. The court also held that it was immat erial whether there was a consideration for the transfer or not, as the indorser , under the evidence offered, was an accommodation indorser. ISSUE: Whether or n ot an indorser of a promissory note may be liable even if the indorser acted as agent for the indorsee for which he received no consideration HELD: No, the defe ndant is NOT an accommodation indorser. The trial court misunderstood this defin ition. The accommodation to which reference is made in the section quoted is not one to the person who takes the note that is, the payee or indorsee, but one to the maker or indorser of the note. It is true that in the case at bar it was an accommodation to the plaintiff, in a popular sense, to have the defendant indorse the note; but it wa s not the accommodation described in the law, but, rather, a mere favor to him a nd one which in no way bound Serrano. In cases of accommodation indorsement the indorser makes the indorsement for the accommodation of the maker. Such an indor sement is generally for the purpose of better securing the payment of the note t hat is, he lends his name to the maker, not to the holder. Putting it in another way: An accommodation note is one to which the accommodation party has put his name, without consideration, for the purpose of accommodating some other party w ho is to use it and is expected to pay it. The credit given to the accommodation party is sufficient consideration to bind the accommodation maker. Where, howev er, an indorsement is made as a favor to the indorsee, who requests it, not the better to secure payment, but to relieve himself from a distasteful situation, a nd where the only consideration for such indorsement passes from the indorser to the indorsee, the situation does not present one creating an accommodation indo rsement, nor one where there is a consideration sufficient to sustain an action on the indorsement. There never existed a consideration upon which such an agree ment could be founded. The evidence was not offered to vary, alter, modify, or c ontradict the terms of an agreement which it is admitted existed between the par ties, but to deny that there ever existed any agreement whatever; to wipe out al l apparent relations between the parties, and not to vary, alter or contradict t heterms of a relation admittedly existing; in other words, the purpose of the pa rol evidence was to demonstrate, not that the indorser did not intend to make th e particular indorsement which he did make; not that he did not intend to make t he indorsement in the terms made; but, rather, to deny the reality of any indors ement; that a relation of any kind whatever was created or existed between him a nd the indorsee by reason of the writing on the back of the instrument; that no

consideration ever passed to sustain an indorsement of any kind whatsoever. PNB vs. Maza and Mecenas G.R. No. 24224, November 3, 1925 FACTS: Maza and Mecenas executed a t paid at maturity. And to recover ory notes, PNB initiated an action 26 | C a t i p a y . D e l o s S a . M e l l a total of five promissory notes. These were no the amounts stated on the face of the promiss against the two.PNB.The special n t o s . M a c a i b a y . M a s c u l i n o

Negotiable Instruments Case Digest 2013 Atty. Quicho Catipay. De Villa. Masculino. Mella defense posed by the two is that the promissory notes were delivered to them in blank by Enrique Enchaus with the request that they sign them so that he, Echaus , might negotiate them with PNB. They also alleged that they never negotiated th e notes with the bank nor have they received a value thereof and that it was Ech aus who is the real party in interest. They also prayed that Enchaus be impleade d in the complaint but such was denied. RTC Ruling: Judgment was rendered in fav or of PNB and against the defendants jointly and severally for a total of P65,20 7.73, with interest. ISSUE: Whether or not defendants are liable on the value of 5 promissory notes HELD: Yes. Maza and Mecenas appear as the makers of the prom issory notes and as such, they must keep their engagement and pay as promised. T hey are also considered as accommodation parties. Thus, having signed the instru ments without receiving value therefor and for the purpose of lending their name s to some other person, they are still liable on the instruments. The law now is that the accommodation party can claim no benefit as such, but he is liable acc ording to the face of his undertaking, the same as if he were himself financiall y interested in the transaction. *It may properly be remarked that when the acco mmodation parties make payment to the holder of the notes, they have the right t o sue the accommodated party for reimbursement, since the relation between them is in effect that of principal and sureties, the accommodation parties being the sureties. Prudencio v. CA 143 SCRA 7 || Section 29 Ponente: Guittierez, Jr FACTS: Eulalio and Elisa(E&E) Prudencio are the registered owners of a parcel of land l ocated in Sampaloc, Manila and this property was mortgaged to the Philippine Nat ional Bank(PNB)to guarantee a loan of P1,000.00 extended to Domingo Prudencio. "Sometime in 1955, the Concepcion & Tamayo Construction Company, hereinafter cal led Company, had a pending contract with the Bureau of Public Works, for the con struction of the municipal building in Puerto Princesa, Palawan, in the amount o f P36,800.00 and, as said Company needed funds for said construction, Jose Torib io, appellants relative, and attorney-in-fact of the Company, approached E&E Pr udencio asking them to mortgage their property to secure the loan of P10,000.00 which the Company was negotiating with the PNB. E&E Prudencios signed the Amend ment of Real Estate Mortgage, mortgaging their said property to the PNB to guar anty the loan of P10,000.00 extended to the Company. The promissory note coverin g the loan of P10,000.00 dated December 29, 1955, maturing on April 27, 1956, wa s signed by Jose Toribio, as attorney-in-fact of the Company, and by the appella nts. Appellants also signed the portion of the promissory note indicating that t hey are requesting the PNB to issue the Check covering the loan to the Company. On the same date (December 23, 1955) that the Amendment of Real Estate was exe cuted, Jose Toribio, in the same capacity as attorney-in-fact of the Company, ex ecuted also the Deed of Assignment assigning all payments to be made by the Bu reau to the Company on account of the contract for the construction of the Puert o Princesa building in favor of the PNB. "The Company abandoned the work, as a c onsequence of which on June 30, 1956, the Bureau rescinded the construction cont ract and assumed the work of completing the building. On November 14. 1958, appe llants wrote the PNB contending that since the PNB authorized payments to the Co mpany instead of on account of the loan guaranteed by the mortgage there was a c hange in the conditions of the contract without the knowledge of appellants, whi ch entitled the latter to a cancellation of their mortgage contract. "Failing in their bid to have the real estate mortgage cancelled, appellants filed on June 27, 1959 this action against the PNB, the Company, the latters attorney-in-fact Jose Toribio, and the District Engineer of Puerto Princesa, Palawan, seeking th e cancellation of their real estate mortgage. The complaint was amended to exclu de the Company as defendant, it having been shown that its life as a partnership had already expired and, in lieu thereof, Ramon Concepcion and Manuel M. Tamayo

, partners of the defunct Company, were impleaded in their private capacity as d efendants." 27 | C a t i p a y . D e l o s S a n t o s . M a c a i b a y . M a s c u l i n o . M e l l a

Negotiable Instruments Case Digest 2013 Atty. Quicho Catipay. De Villa. Masculino. Mella RTC Ruling: The trial court held them still liable together with their comakers the sum of P11,900.19 with interest at the rate of 6% per annum from the date of the filing of the complaint on June 27, 1959 until fully paid and P1,000.00 att orneys fees.It has also been held that if the judgment is not satisfied within a period of time, the mortgaged properties would be foreclosed and sold in publi c auction. CA Ruling: The Court of Appeals affirmed the trial courts decision i n toto stating that, as accommodation makers, the petitioners liability is that of solidary co-makers and that since "the amounts released to the construction company were used therein and, therefore, were spent for the successful accompli shment of the work constructed for, the authorization made by the Philippine Nat ional Bank of partial payments to the construction company which was also one of the solidary debtors cannot constitute a valid defense on the part of the other solidary debtors. Contention of Petitioners: As accommodation makers, the natur e of their liability is only that of mere sureties instead of solidary co-debtor s such that a material alteration in the principal contract, effected by the cre ditor without the knowledge and consent of the sureties, completely discharges t he sureties from all liabilities on the contract of suretyship. ISSUE: 1. Whethe r the Prudencios were solidary co-debtors or sureties as a result of being accom modation makers 2. Whether or not PNB is a holder in due course HELD: The petiti on is GRANTED. The decision of the Court of Appeals affirming the decision of th e trial court is hereby REVERSED and SET ASIDE and a new one entered absolving t he petitioners from liability on the promissory note and under the mortgage cont ract. The Philippine National Bank is ordered to release the real estate mortgag e constituted on the property of the petitioners and to pay the amount of THREE THOUSAND PESOS (P3,000.00) as attorneys fees. 1. As accommodation makers, petit ioners would be primarily and unconditionally liable on the promissory note to a holder for value, regardless of whether they stand as sureties or solidary co-d ebtors since such distinction would be entirely immaterial and inconsequential a s far as a holder for value is concerned. Consequently, the petitioners cannot claim t o have been released from their obligation simply because the time of payment of such obligation was temporarily deferred by PNB without their knowledge and con sent. There has to be another basis for their claim of having been freed from th eir obligation. The question which should be resolved in this instant petition, therefore, is whether or not PNB can be considered a holder for value under Sect ion 29 of the Negotiable Instruments Law such that the petitioners must be neces sarily barred from setting up the defense of want of consideration or some other personal defenses which may be set up against a party who is not a holder in du e course. 2. A holder for value is one who meets the requirement of being a hold er in due course except the notice for want of consideration. In the case at bar , PNB may not be considered as a holder for value. Not only was PNB an immediate party or privy to the promissory note, knowing fully well that petitioners only signed as accommodation parties, but more importantly it was the Deed of Assign ment which moved the petitioners to sign the promissory note. Petitioners also r elied on the belief that there will be no alterations to the terms of the agreem ent. The deed provided that there will no further conditions which could possibl y alter the agreement without the consent of the petitioner such as the grant of greater priority to obligations other than the payment of the loan. This notwit hstanding, the bank approved the release of payments to the Company instead of t he same to the bank. This was in violation of the deed of assignment and prejudi ced the rights of petitioners. The bank was not in good faitha requisite for a ho lder to be one in due course. Sadaya vs. Sevilla 19 SCRA 924 || Section 29 FACTS : On March 28, 1949, Victor Sevilla, Oscar Varona and Simeon Sadaya executed, jo intly and severally, in favor of the Bank of the Philippine Islands, or its orde r, a promissory note for P15,000.00 with interest at 8% per annum, payable on de mand. The entire amount of P15,000.00 proceeds of the promissory note, was recei

ved from the bank by Oscar Varona alone. Victor Sevilla and Simeon Sadaya signed the promissory note as comakers only as a favor to Oscar Varona. Payments were made on 28 | C a t i p a y . D e l o s S a n t o s . M a c a i b a y . M a s c u l i n o . M e l l a

Negotiable Instruments Case Digest 2013 Atty. Quicho Catipay. De Villa. Masculino. Mella account. As of June 15, 1950, the outstanding balance stood at P4,850.00. No pay ment was thereafter made. On October 6, 1962, the bank collected from Sadaya the foregoing balance which, together with interest, totalled P5,746.12. Varona fai led to reimburse Sadaya despite repeated demands. Victor Sevilla died. Intestate estate proceedings were started in the Court of First Instance of Rizal, Specia l Proceeding No. 1518. Francisco Sevilla was named administrator. In Special Pro ceeding No. 1518, Sadaya filed a creditors claim for the above sum of P5,746.12 , plus attorneys fees in the sum of P15,000.00. The administrator resisted the claim upon the averment that the deceased Victor Sevilla "did not receive any am ount as consideration for the promissory note," but signed it only "as surety fo r Oscar Varona RTC Ruling: trial court issued an order admitting the claim of Si meon Sadaya in the amount of P5,746.12 CA ruling: voted to set aside the order a ppealed from and to disapprove and disallow "appellees claim of P5,746.12 again st the intestate estate" ISSUE: whether or not Sadaya may claim from the estate of Sevilla. HELD: No. The Supreme Court affirmed the decision of Court of Appeal s, thus, Sadaya cannot claim from Sevillas estate. All of the foregoing postula te the following rules: (1) A joint and several accommodation maker of a negotia ble promissory note may demand from the principal debtor reimbursement for the a mount that he paid to the payee; and (2) a joint and several accommodation maker who pays on the said promissory note may directly demand reimbursement from his co-accommodation maker without first directing his action against the principal debtor provided that (a) he made the payment by virtue of a judicial demand or (b) the principal debtor is insolvent. The Court of Appeals found that Sadayas payment to the bank "was made voluntarily and without any judicial demand," and that "there is an absolute absence of evidence showing that Varona is insolvent" . This combination of fact and lack of fact epitomizes the fatal distance betwee n payment by Sadaya and Sadayas right to demand of Sevilla "the share which is proportionately owing from him Town Savings and Loan Bank, Inc. v. CA & Sps. Hipolito GR No. 106011 (1993) || S ection 29 FACTS: Sps. Hipolitos applied for and was granted a loan by Town Savin gs and Loan Bank for which they executed a promissory note. They failed to keep their monthly payments on account and demands for payment were sent but ignored. Town Savings filed an action to recover the unpaid obligation (now amounting to 1M). The Hipolitos denied being liable on the P700,000.00 they executed. The lo an was allegedly for the account of Pilarita H. Reyes, the sister of Miguel Hipo lito. The Hipolitos, not having received any part of the loan, were mere guarant ors of Pilarita. The insist that they are mere guarantors. RTC Ruling: The court held that Sps. Hipolito was liable to Town Savings as accommodation parties on the promissory note. CA Ruling: The court held that the Hipolitos did not accomm odate Pilarita but the TSLB, whose lending authority was restricted by the size of its loan portfolio. The Hipolitos were relieved from any liability to TSLB. I SSUE: Whether or not the Sps. Hipolito were considered as an accommodation party HELD: The court held that the Hipolitos should be considered as an accommodatio n party. There is no question that the Hipolitos signed the promissory note to e nable Reyes to borrow from TSLB. The Hipolitos accommodated her by signing a pro missory note for half of the loan that she applied for because TLSB may not lend any single borrower more than the authorized limit of its loan portfolio. Under Section 29 of the Negotiable Instruments Law, the Hipolitos are liable to the b ank on the promissory note that they signed to accommodate Pilarita. The conside ration of the note signed by the Hipolitos was received by them through Pilarita . They acted as agents of Pilarita and not of the bank. It was Pilarita whom the y accommodated. 29 | C a t i p a y . D e l o s S a n t o s . M a c a i b a y . M a s c u l i n o . M e l l a

Negotiable Instruments Case Digest 2013 Atty. Quicho Catipay. De Villa. Masculino. Mella Section 30. What constitutes negotiation. An instrument is negotiated when it is transferred from one person to another in such manner as to constitute the tran sferee the holder thereof. If payable to bearer, it is negotiated by delivery; i f payable to order it is negotiated by the indorsement of the holder and complet ed by delivery. Caltex vs Court of Appeals and Security Bank and Trust Company G .R. No. 97753 | Section 30 FACTS: On various dates, defendant, a commercial bank ing institution, through its Sucat Branch issued 280 certificates of time deposi t (CTDs) in favor of one Angel dela Cruz who deposited with herein defendant the aggregate amount of P1,120,000.00. Angel dela Cruz delivered the said certifica tes of time deposit (CTDs) to herein plaintiff in connection with his purchase o f fuel products from the latter. Sometime in March 1982, Angel dela Cruz informe d Mr. Timoteo Tiangco, the Sucat Branch Manager, that he lost all the certificat es of time deposit in dispute. Mr. Tiangco advised said depositor to execute and submit a notarized Affidavit of Loss, as required by defendant banks procedure , if he desired replacement of said lost CTDs. On March 18, 1982, Angel dela Cru z executed and delivered to defendant bank the required Affidavit of Loss. On th e basis of said affidavit of loss, 280 replacement CTDs were issued in favor of said depositor. On March 25, 1982, Angel dela Cruz negotiated and obtained a loa n from defendant bank in the amount of Eight Hundred Seventy Five Thousand Pesos (P875,000.00). On the same date, said depositor executed a notarized Deed of As signment of Time Deposit which stated, among others, that he (dela Cruz) surrend ers to defendant bank `full control of the indicated time deposits from and afte r date of the assignment and further authorizes said bank to pre-terminate, setoff and apply the said time deposits to the payment of whatever amount or amoun ts may be due on the loan upon its maturity. Sometime in November, 1982, Mr. Ar anas, Credit Manager of plaintiff Caltex (Phils.) Inc. went to the defendant ban ks Sucat branch and presented for verification the CTDs declared lost by Angel dela Cruz alleging that the same were delivered to herein plaintiff `as security for purchases made with Caltex Philippines, Inc. by said depositor. On Novembe r 26, 1982, defendant received a from herein plaintiff formally informing it of its possession of the CTDs in question and of its decision to preterminate the same. On December 8, 1982, plaintiff was reque sted by herein defendant to furnish the former a copy of the document evidencin g the guarantee agreement with Mr. Angel dela Cruz as well as the details of M r. Angel dela Cruz obligations against which plaintiff proposed to apply the t ime deposits. No copy of the requested documents was furnished herein defendant. Accordingly, defendant bank rejected the plaintiffs demand and claim for payme nt of the value of the CTDs. In April 1983, the loan of Angel dela Cruz with the defendant bank matured and fell due and on August 5, 1983, the latter set-off a nd applied the time deposits in question to the payment of the matured loan. In view of the foregoing, plaintiff filed the instant complaint, praying that defen dant bank be ordered to pay it the aggregate value of the certificates of time d eposit of P1,120,000.00 plus accrued interest and compounded interest therein at 16% per annum, moral and exemplary damages as well as attorneys fees. RTC Ruli ng: Dismissed the complaint of Caltex CA Ruling: Affirmed the decision of RTC IS SUE (IN RELATION TO SECTION 30): Whether or not the CTDs in question were validl y negotiated as Angel Dela Cruz's payment to Caltex Philippines. HELD: No. The Sup reme Court affirmed the ruling of the Court of Appeals. Petitioners insistence that the CTDs were negotiated to it begs the question. Under the Negotiable Inst ruments Law, an instrument is negotiated when it is transferred from one person to another in such a manner as to constitute the transferee the holder thereof, and a holder may be the payee or indorsee of a bill or note, who is in possessio n of it, or the bearer thereof, In the present case, however, there was no negot iation in the sense of a transfer of the legal title to the CTDs in favor of pet itioner in which situation, for obvious reasons, mere delivery of the bearer CTD s would have sufficed. Here, the delivery thereof only as security for the purch

ases of Angel de la Cruz (and we even disregard the fact that the 30 | C a t i p a y . D e l o s S a n t o s . M a c a i b a y . M a s c u l i n o . M e l l a

Negotiable Instruments Case Digest 2013 Atty. Quicho Catipay. De Villa. Masculino. Mella amount involved was not disclosed) could at the most constitute petitioner only as a holder for value by reason of his lien. Accordingly, a negotiation for such purpose cannot be effected by mere delivery of the instrument since, necessaril y, the terms thereof and the subsequent disposition of such security, in the eve nt of non-payment of the principal obligation, must be contractually provided fo r. The pertinent law on this point is that where the holder has a lien on the in strument arising from contract, he is deemed a holder for value to the extent of his lien. Manuel and Rosita Lim vs CA and People of the Philippines G.R. No. 10 7898 | Section 30 FACTS: Spouses Manuel and Rosita Lim, conspiring together, pur chased goods from Linton Commercial Company, Inc. (LINTON), and with deceit issu ed seven Consolidated Bank and Trust Company (SOLIDBANK) checks simultaneously w ith the delivery as payment therefor. When presented to the drawee bank for paym ent the checks were dishonored as payment on the checks had been stopped and/or for insufficiency of funds to cover the amounts. Despite repeated notice and dem and the Lim spouses failed and refused to pay the checks or the value of the goo ds. On the basis of the same checks, Manuel and Rosita Lim were also charged wit h seven (7) counts of violation of B.P. Blg. 22, otherwise known as the Bouncing Checks Law. In substance, the Informations alleged that the Lims issued the che cks with knowledge that they did not have sufficient funds or credit with the dr awee bank for payment in full of such checks upon presentment. When presented fo r payment within ninety (90) days from date thereof the checks were dishonored b y the drawee bank for insufficiency of funds. Despite receipt of notices of such dishonor the Lims failed to pay the amounts of the checks or to make arrangemen ts for full payment within five (5) banking days. Manuel Lim and Rosita Lim are the president and treasurer, respectively, of Rigi Bilt Industries, Inc. (RIGI). RIGI had been transacting business with LINTON for years, the latter supplying the former with steel plates, steel bars, flat bars and purlin sticks which it u ses in the fabrication, installation and building of steel structures. As office rs of RIGI the Lim spouses were allowed 30, 60 and sometimes even to 90 days cre dit. On 27 May 1983 the Lims ordered 100 pieces of mild steel plates worth P51,815.00 from LINTON which were delivered on the same day at their place of business at 666 7th Avenue, 8th Street, Kalookan City. To pay LINTON for the delivery the Li ms issued SOLIDBANK Check No. 027700 postdated 3 September 1983 in the amount of P51,800.00. On 30 May 1983 the Lims ordered another 65 pieces of mild steel pla tes worth P63,455.00 from LINTON which were delivered at the place of business o n the same day. They issued as payment SOLIDBANK Check No. 027699 in the amount of P63,455.00 postdated 20 August 1983. The Lim spouses also ordered 2,600 "Z" p urlins worth P241,800 which were delivered to them on various dates, to wit: 15 and 22 April 1983; 11, 14, 20, 23, 25, 28 and 30 May 1983; and, 2 and 9 June 198 3. To pay for the deliveries, they issued seven SOLIDBANK checks. William Yu Bin , Vice President and Sales Manager of LINTON, testified that when those seven (7 ) checks were deposited with the Rizal Commercial Banking Corporation they were dishonored for "insufficiency of funds" with the additional notation "payment st opped" stamped thereon. Despite demand Manuel and Rosita refused to make good th e checks or pay the value of the deliveries. Manuel Lim admitted having issued t he seven (7) checks in question to pay for deliveries made by LINTON but denied that his companys account had insufficient funds to cover the amounts of the ch ecks. He presented the bank ledger showing a balance of P65,752.75. Also, he cla imed that he ordered SOLIDBANK to stop payment because the supplies delivered by LINTON were not in accordance with the specifications in the purchase orders. R TC Ruling: Spouses Lim were guilty of estafa and violation of B.P.22 CA Ruling: Acquitted accused-appellants of estafa on the ground that indeed the checks were not made in payment of an obligation contracted at the time of their issuance. However it affirmed the finding of the trial court that they were guilty of havi ng violated B.P. Blg. 22. ISSUE: Whether or not Spouses Lim are guilty of violat

ing B.P. 22. HELD: 31 | C a t i p a y . D e l o s S a n t o s . M a c a i b a y . M a s c u l i n o . M e l l a

Negotiable Instruments Case Digest 2013 Atty. Quicho Catipay. De Villa. Masculino. Mella Yes. The Supreme Court affirmed the decision of the Court of Appeals, hereby dec laring that Spouses Lim are guilty of violation of B.P.22. Although LINTON sent a collector who received the checks from petitioners at their place of business in Kalookan City, they were actually issued and delivered to LINTON at its place of business in Balut, Navotas. The receipt of the checks by the collector of LI NTON is not the issuance and delivery to the payee in contemplation of law. The collector was not the person who could take the checks as a holder, i.e., as a p ayee or indorsee thereof, with the intent to transfer title thereto. Neither cou ld the collector be deemed an agent of LINTON with respect to the checks because he was a mere employee. The prima facie evidence has not been overcome by petit ioners in the cases before us because they did not pay LINTON the amounts due on the checks; neither did they make arrangements for payment in full by the drawe e bank within five (5) banking days after receiving notices that the checks had not been paid by the drawee bank. Section 32. Indorsement must be of entire inst rument. The indorsement must be an indorsement of the entire instrument. An indo rsement which purports to transfer to the indorsee a part only of the amount pay able, or which purports to transfer the instrument to two or more indorsees seve rally, does not operate as a negotiation of the instrument. But where the instru ment has been paid in part, it may be indorsed as to the residue. Montinola vs. PNB G.R. No. L-2861 | Section 32 to the office of Provincial Treasurer Laya at Misamis Oriental to encash the che ck for P500,000 which he had received from the Provincial Treasurer of Lanao. La ya did not have enough cash to cover the check so he gave Ramos P400,000 in emer gency notes and a check No. 1382 for P100,000 drawn on the Philippine National B ank. According to Laya he had previously deposited P500,000 emergency notes in t he Philippine National Bank branch in Cebu and he expected to have the check iss ued by him cashed in Cebu against said deposit. Ramos had no opportunity to cash the check because in the evening of the same day the check was issued to him, t he Japanese forces entered the capital of Misamis Oriental, and on June 10, 1942 , the USAFFE forces to which he was attached surrendered. Ramos was made a priso ner of war until February 12, 1943, after which, he was released and he resumed his status as a civilian. About the last days of December, 1944 or the first day s of January, 1945, M. V. Ramos allegedly indorsed this check No. 1382 to Enriqu e P. Montinola. The circumstances and conditions under which the negotiation or transfer was made are in controversy. ACCORDING TO MONTINOLA: Sometime in June, 1944, Ramos, needing money with which to buy foodstuffs and medicine, offered to sell him the check; to be sure that it was genuine and negotiable, Montinola, a ccompanied by his agents and by Ramos himself, went to see President Carmona of the Philippine National Bank in Manila about said check; that after examining it President Carmona told him that it was negotiable but that he should not let th e Japanese catch him with it because possession of the same would indicate that he was still waiting for the return of the Americans to the Philippines; that he and Ramos finally agreed to the sale of the check for P850,000 Japanese militar y notes, payable in installments; that of this amount, P450,000 was paid to Ramo s in Japanese military notes in five installments, and the balance of P400,000 w as paid in kind, namely, four bottles of sulphatiasole, each bottle containing 1 ,000 tablets, and each tablet valued at P100; that upon payment of the full pric e, M. V. Ramos duly indorsed the check to him. This indorsement which now appear s on the back of the document is described in detail by the trial court. FACTS: About April 26, 1942, thru the recommendation of Provincial Treasurer , Ubaldo D . Laya, his assistant agent M. V. Ramos was inducted into the United States Arme d Forces in the Far East (USAFFE) as disbursing officer of an army division. As such disbursing officer, M. V. Ramos on April 30, 1942, went to the neighboring

Province of Lanao to procure a cash advance in the amount of P800,000 for the us e of the USAFFE in Cagayan de Misamis. Pedro Encarnacion, Provincial Treasurer o f Lanao did not have that amount in cash. So, he gave Ramos P300,000 in emergenc y notes and a check for P500,000. On May 2, 1942 Ramos went 32 | C a t i p a y . D e l o s S a n t o s . M a c a i b a y . M a s c u l i n o . M e l l a

Negotiable Instruments Case Digest 2013 Atty. Quicho Catipay. De Villa. Masculino. Mella The name of M. V. Ramos is handprinted in green ink, under the signature. Accord ing to Montinola, he asked Ramos to handprint it because Ramos signature was no t clear. Ramos in his turn told the court that the agreement between himself and Montinola regarding the transfer of the check was that he was selling only P30, 000 of the check. Ramos further said that in exchange for this assignment of P30 ,000 Montinola would pay him P90,000 in Japanese military notes but that Montino la gave him only two checks of P20,000 and P25,000, leaving a balance unpaid of P45,000. In this he was corroborated by Atty. Simeon Ramos Jr. who told the cour t that the agreement between Ramos and Montinola was that the latter, for the sa le to him of P30,000 of the check, was to pay Ramos P90,000 in Japanese military notes; that when the first check for P20,000 was issued by Montinola, he (Simeo n) prepared a document evidencing said payment of P20,000; that when the second check for P25,000 was issued by Montinola, he (Simeon) prepared another document with two copies, one for Montinola and the other for Ramos, both signed by Mont inola and M. V. Ramos, evidencing said payment, with the understanding that the balance of P45,000 would be paid in a few days. RTC Ruling: The checks were nego tiated in breach of trust, hence, Ramos' transfer transfer of check checks in ques tion to Montinola is void. CA Ruling: Walang sinabi sa case. From RTC, derecho n a sa SC. ISSUE (IN RELATION TO SECTION 32): Whether or not Montinola may be rega rded as an indorsee of the checks in question. HELD: No. The Supreme Court ruled that affirmed the decision of the trial court. The insertion of the words "Agen t, Phil. National Bank" which converts the bank from a mere drawee to a drawer a nd therefore changes its liability, constitutes a material alteration of the ins trument without the consent of the parties liable thereon, and so discharges the instrument. (Section 124 of the Negotiable Instruments Law). The check was not legally negotiated within the meaning of the Negotiable Instruments Law. Section 32 of the same law provides that "the indorsement must be an indorsement of the entire instrument. An indorsement which purports to transfer to the indorsee a p art only of the amount payable, . . . (as in this case) does not operate as a ne gotiation of the instrument." Montinola may therefore not be regarded as an indo rsee. At most he may be regarded as a mere assignee of the P30,000 sold to him b y Ramos, in which case, as such assignee, he is subject to all defenses availabl e to the drawer Provincial Treasurer of Misamis Oriental and against Ramos. Neit her can Montinola be considered as a holder in due course because section 52 of said law defines a holder in due course as a holder who has taken the instrument under certain conditions, one of which is that he became the holder before it w as overdue. When Montinola received the check, it was long overdue. And, Montino la is not even a holder because section 191 of the same law defines holder as th e payee or indorsee of a bill or note and Montinola is not a payee. Neither is h e an indorsee for as already stated, at most he can be considered only as assign ee. Neither could it be said that he took it in good faith. As already stated, h e has not paid the full amount of P90,000 for which Ramos sold him P30,000 of th e value of the check. In the second place, as was stated by the trial court in i ts decision, Montinola speculated on the check and took a chance on its being pa id after the war. Montinola must have known that at the time the check was issue d in May, 1942, the money circulating in Mindanao and the Visayas was only the e mergency notes and that the check was intended to be payable in that currency. A lso, he should have known that a check for such a large amount of P100,000 could not have been issued to Ramos in his private capacity but rather in his capacit y as disbursing officer of the USAFFE, and that at the time that Ramos sold a pa rt of the check to him, Ramos was no longer connected with the USAFFE but alread y a civilian who needed the money only for himself and his family. As already st ated, as a mere assignee Montinola is subject to all the defenses available agai nst assignor Ramos. And, Ramos had he retained the check may not now collect its value because it had been issued to him as disbursing officer. As observed by t he trial court, the check was issued to M. V. Ramos not as a person but M. V. Ra

mos as the disbursing officer of the USAFFE. Therefore, he had no right to indor se it personally to plaintiff. 33 | C a t i p a y . D e l o s S a n t o s . M a c a i b a y . M a s c u l i n o . M e l l a

Negotiable Instruments Case Digest 2013 Atty. Quicho Catipay. De Villa. Masculino. Mella It was negotiated in breach of trust, hence he transferred nothing to the plaint iff. Section 38. Qualified Indorsement. A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. It may be made by addin g to the indorser's signature the words without recourse or any words of similar imp ort. Such an indorsement does not impair the negotiable character of the instrum ent. Metropol Financing & Investment Corp. v. Sambok Motors Company GR No. L-396 41 (1983) || Section 38 FACTS: Dr. Javier Villaruel executed a promissory note i n favor of Ng Sambok Sons Motors Co., Ltd., in the amount of P15, 989.00 payable in 12 installments. It was further provided that in case of non-payment of any of the installments, the total principal sum then remaining unpaid shall become due and payable with an additional interest equal to 25% of the total amount due . Sambok Motors Company (sister company of Ng Sambok Sons) negotiated and indors ed the note in favor of Metropol Financing & Investment Corporation with the wor ds Pay to the order of Metropol Bacolod Financing & Investment Corporation with r ecourse. Notice of Demand; Dishonor; Protest and Presentment are hereby waived. V illaruel defaulted payment, and Metropol notified Sambok as indorsee of the said note of the fact that the same has been dishonored and demanded payment, but Sa mbok failed to pay. Metropol filed a complaint for collection of a sum of money. Sambok did not deny liability but contended that it could not be obliged to pay until after Villaruel has been declared insolvent. Villaruel died, which led to the dismissal of the case. Metropol filed a motion for summary judgment. RTC: S ambok was made to pay Metropol CA: No CA Ruling. Appealed to SC. Sambok contends that by adding the words with recourse in the indorsement, it becomes a qualified indorser; and that being a qualified indorser, it is not liable for nonpayment by the holder. ISSUE: Whether or not Sambok should be liable HELD: The court held that Sambok is liabl e to Metropol. The court reasoned that by indorsing the note with recourse does no t make itself a qualified indorser but a general indorser who is secondarily lia ble, because by such indorsement, it agreed that if Dr. Villaruel fails to pay t he note, Metropol can go after said Sambok. The effect of such indorsement is th at the note was indorsed without qualification. Sambok's intention of indorsing th e note without qualification is made even more apparent by the fact that the not ice of demand, dishonor, protest and presentment were all waived. The words adde d by said appellant do not limit his liability but confirm his obligation as a g eneral indorser. Furthermore, as a party secondarily liable in case of nonpaymen t, Sambok ceases to be secondarily liable and becomes a principal debtor. His li ability becomes the same as that of the original obligor. Section 41. Indorsemen t where payable to two or more persons. Where an instrument is payable to the or der of two or more payees or indorsees who are not partners, all must indorse un less the one indorsing has authority to indorse for the others. Metrobank v. BA Finance Corporation GR No. 179952 (2009) || Section 41 FACTS: Lamberto Bitanga obtained a loan from BA Finance Corporation, to secure w hich, he mortgaged his car to BA Finance with a stipulation that Bitanga (as Mor tgagor) would insure the car payable to BA Finance. Bitanga had the car insured with Malayan Insurance Co., Inc. which issued a policy stipulating that if loss occurs, it shall be payable to BA Finance Corp. The car was stolen, and on Bitan ga's claim Malayan Insurance issued a check payable to BA Finance and Bitanga, and drawn against China Banking Corporation. The check was crossed with the notatio n For Deposit Payees' Account Only. Without the indorsement or authority of his copa yee BA Finance, Bitanga deposited the check to his account with the Asianbank Co rporation (now merged with Metrobank). Bitanga withdrew the entire proceeds of t he check. Bitanga's loan came past due, but he failed to settle it. BA Finance lea rned of the loss of the car and what happened to the proceeds of the check. BA F inance demanded the 34 | C a t i p a y . D e l o s S a n t o s . M a c a i b a y . M a s c u l i n o

. M e l l a

Negotiable Instruments Case Digest 2013 Atty. Quicho Catipay. De Villa. Masculino. Mella payment of the value of the check from Asianbank but Bitanga did not pay. BA Fin ance filed a case against Bitanga. RTC Ruling: Asianbank (Metrobank) and Bitanga is jointly and severally liable to BA Finance because Asianbank was negligent i n allowing Bitanga to deposit the check to his account and to withdraw the proce eds thereof, without his co-payee BA Finance having either indorsed it or author ized him to indorse it in its behalf. CA Ruling: Affirmed the trial court's decisi on Metrobank contends that it should not be liable as Bitanga is authorized to i ndorse the check as the drawer named him as one of the payees. Furthermore, his signature is not a forgery nor has he or anyone forged the signature of the repr esentative of BA Finance Corporation. ISSUE: Whether or not Metrobank is liable HELD: The court held that Metrobank should also be held liable. Section 41 provi des that where an instrument is payable to the order of two or more payees or ind orsees who are not partners, all must indorse unless the one indorsing has autho rity to indorse for the others. Bitanga alone endorsed the crossed check, and pet itioner allowed the deposit and release of the proceeds thereof, despite the abs ence of authority of Bitanga's co-payee BA Finance to endorse it on its behalf. Cl early, petitioner, through its employee was negligent when it allowed the deposi t of the crossed check despite the lone endorsement of Bitanga, ostensibly ignor ing the fact that the check did not carry the indorsement of BA Finance. Section 49. Transfer without indorsement; effect of. Where the holder of an instrument payable to his order transfers it for value without indorsing it, the transfer v ests in the transferee such title as the transferor had therein and the transfer ee acquires in addition, the right to have the indorsement of the transferor. Bu t for the purpose of determining whether the transferee is a holder in due cours e, the negotiation takes effect as of the time when the indorsement is actually made FACTS: BPI issued three checks payable to Julio R. Templonuevo. However, as clai med by Templonuevo, the said checks were deposited with the petitioner bank to p rivate respondent to Salazar's account without his knowledge and corresponding end orsement. Accepting Templonuevo's claim, BPI froze the account of A.A. Salazar and Construction and Engineering Services instead of the account where the checks w ere deposited, because this account was already closed by private respondent Sal azar or had an insufficient balance. As it appeared that Salazar was not entitle d to the funds represented by the checks which were deposited and accepted for d eposit, petitioner BPI decided to debit the amount from the A.A. Salazar and Con struction and Engineering Services account. A.A. Salazar Construction and Engine ering Services filed an action for sum of money against BPI. RTC Ruling: The tri al court held that BPI should be liable to Salazar for the payment of the amount debited to him. CA Ruling: The CA held that Salazar was entitled to the proceed s of the three checks notwithstanding the lack of endorsement thereon by the pay ee. Furthermore, the CA concluded that Salazar and Templonuevo had previously ag reed that the checks payable to JRT Construction and Trading actually belonged t o Salazar and would be deposited to her account with petitioner acquiescing to t he arrangement. ISSUE: Whether or not BPI should be held liable HELD: The court held that BPI should not be made liable to the amount of the checks. Section 49 of the Negotiable Instruments Law contemplates a situation whereby the payee or indorsee delivers a negotiable instrument for value without indorsing it. Transf erees in this situation do not enjoy the presumption of ownership in favor of ho lders since they are neither payees nor indorsees of such instruments. Thus, som ething more than mere possession by persons who are not payees or indorsers of t he instrument is necessary to authorize payment to them in the absence of 35 | C a t i p a y . D e l o s S a n t o s . M a c a i b a y . M a s c u l i n o . M e l l a BPI v. CA, Salazar and Templonuevo GR No. 136202 (2007) || Section 49

Negotiable Instruments Case Digest 2013 Atty. Quicho Catipay. De Villa. Masculino. Mella any other facts from which the authority to receive payment may be inferred. It is an exception to the general rule for a payee of an order instrument to transf er the instrument without indorsement. In this situation, it is but fair to the maker and to prior holders to require possessors to prove without the aid of an initial presumption in their favor, that they came into possession by virtue of a legitimate transaction with the last holder. Salazar failed to discharge this burden, and the return of the check proceeds to Templonuevo was therefore warran ted under the circumstances. Consequently, BPI as the collecting bank, had all t he right to debit Salazar's account for the value of the checks it previously cred ited in her favor. 36 | C a t i p a y . D e l o s S a n t o s . M a c a i b a y . M a s c u l i n o . M e l l a