Philippine National Bank v.

Rodriguez
G.R. No. 170325
September 26, 2008
When Instrument is Payable to Bearer
FACTS: Respondents Spouses Rodriguez maintained
savings and demand/checking accounts as well as
demand deposits (Checkings/Current Account) with
petitioner PNB. They are also engaged in the informal
lending business of discounting arrangement with
Philnabank Employees Savings and Loan Association
(PEMSLA), an association of PNB. PEMSLA regularly
granted loans to its member and Spouses would
rediscount the apostate checks issued to members
whenever the association was short of funds. At the same
time, the spouses would replace the postdated checks
with their own checks issued in the same name.
PEMSLAs policy would not approve applications with
outstanding debts and in order to subvert this they created
a scheme to obtain additional loans in the names of
unknowing members without their knowledge and consent.
PEMSLA checks were then given to spouses for
rediscounting and were carried out by forging the
endorsement of the named payees in the checks.
Rodriguez checks were deposited directly to PEMSLA

without any endorsement from the named payees.

Petitioner found out about the fraudulent acts, and took
measures by closing the current account of PEMSLA.
Since PEMSLA checks were dishonored and returned the
respondents incurred losses from the rediscounting
transactions. Spouses filed a civil complaint against
PEMSLA and PNB, the court rendering judgment in favor
of respondent.
ISSUE/S: Whether or not the disputed checks were
payable to bearer and order making petitioner liable if it is
of the latter and respondent liable is it is the former.
HELD. The checks were payable to order, making
petitioner liable for the losses. As a rule, if the payee is
fictitious or not intended to be the true recipient of the
proceeds of the check it is considered as a bearer
instrumentaccording to Sections 8 and 9 of the
Negotiable Instruments Law. The distinction lies in the
manner of their negotiation. An order instrument from the
payee or holder requires endorsement. A bearer
instrument does not required endorsementnegotiable by
mere delivery. However, under Section 9 of the same law,
a checks is payable to a specified payee may nevertheless
be considered as a bearer instrument if it is payable to the

order of a fictitious or non-existing person, and such fact is

known to the person making it so payable. According to
US jurisprudence, an actual, existing and living payee may
also be fictitious if the maker of the check did not intend
for the payee to receive the check. If such a case happens
then the check is a bearer instrument. In a fictitious-payee
situation, the drawee bank is absolved from liability and
the drawer bears the loss. However, if there is showing of
commercial bad faith on the part of the drawee bank, or
any transferee of the check for that matter, will work to strip
it of this defense. PNBs failure to show that the payees
were fictitious, the fictitious-payee rule does not apply
making the instrument payable to order. Also, PNB was
remiss in its duty as the drawee bank since its employees
were the one who crested the whole fraudulent scheme.