CommRev Cases

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G.R. No. 172652
E. 5. CROSSED CHECKS AND EFFECTS OF CROSSING A CHECK

7 CASES
November 26, 2014
METROPOLITAN BANK AND TRUST COMPANY, Petitioner, vs.

WILFRED N. CHIOK, Respondent.
LEONARDO-DE CASTRO, J.:
The three consolidated petitions herein all assail the Decision 1 of
the Court of Appeals in CA-G.R. CV No. 77508 dated May 5, 2006,
and the Resolution2 in the same case dated November 6, 2006.
Respondent Wilfred N. Chiok (Chiok) had been engaged in dollar
trading for several years. He usually buys dollars from Gonzalo B.
Nuguid (Nuguid) at the exchange rate prevailing on the date of the
sale. Chiok pays Nuguid either in cash or managers check, to be
picked up by the latter or deposited in the latters bank account.
Nuguid delivers the dollars either on the same day or on a later
date as may be agreed upon between them, up to a week later.
Chiok and Nuguid had been dealing in this manner for about six to
eight years, with their transactions running into millions of pesos.
For this purpose, Chiok maintained accounts with petitioners
Metropolitan Bank and Trust Company (Metrobank) and Global
Business Bank, Inc. (Global Bank), the latter being then referred to
as the Asian Banking Corporation (Asian Bank). Chiok likewise
entered into a Bills Purchase Line Agreement (BPLA) with Asian
Bank. Under the BPLA, checks drawn in favor of, or negotiated to,
Chiok may be purchased by Asian Bank. Upon such purchase, Chiok
receives a discounted cash equivalent of the amount of the check
earlier than the normal clearing period.
On July 5, 1995, pursuant to the BPLA, Asian Bank "bills purchased"
Security Bank & Trust Company (SBTC) Managers Check (MC) No.
037364 in the amount of P25,500,000.00 issued in the name of
Chiok, and credited the same amount to the latters Savings
Account No. 2-007-03-00201-3.
On the same day, July 5, 1995, Asian Bank issued MC No. 025935 in
the amount of P7,550,000.00 and MC No. 025939 in the amount
of P10,905,350.00 to Gonzalo Bernardo, who is the same person as
Gonzalo B. Nuguid. The two Asian Bank managers checks, with a

total value of P18,455,350.00 were issued pursuant toChioks
instruction and was debited from his account. Likewise upon
Chioks application, Metrobank issued Cashiers Check (CC) No.
003380 in the amount of P7,613,000.00 in the name of Gonzalo
Bernardo. The same was debited from Chioks Savings Account No.
154-42504955. The checks bought by Chiok for payee Gonzalo
Bernardo are therefore summarized as follows:
Drawee
Bank/Check No.
Amount (P)
Asian Bank MC
No. 025935
7,550,000.00
Asian Bank MC
No. 025939
10,905,350.0
0
(aggregate
value of
Asian Bank
MCs:
18,455,350.0
0)
Metrobank CC
No. 003380
TOTAL
7,613,000.00
Source of fund
Chioks Asian Bank Savings

Account No. 2-007-0300201-3,
which had been credited with
the
value of SBTC MC No. 037364
(P25,500,000.00) when the
latter was purchased by Asian
Bank from Chiok pursuant to
their BPLA.
Chioks Metrobank Savings
Account No. 154-425049553
26,068,350.0
0
Chiok then deposited the three checks (Asian Bank MC Nos. 025935
and 025939, and Metrobank CC No. 003380), with an aggregate
value of P26,068,350.00 in Nuguids account with Far East Bank &
Trust Company (FEBTC), the predecessor-in-interest of petitioner
Bank of the Philippine Islands (BPI). Nuguid was supposed to deliver
US$1,022,288.50,4 the dollar equivalent of the three checks as
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agreed upon, in the afternoon of the same day. Nuguid, however,

failed to do so, prompting Chiok to request that payment on the
three checks be stopped. Chiok was allegedly advised to secure a
court order within the 24-hour clearing period. On the following
day, July 6, 1995, Chiok filed a Complaint for damages with
application for ex parte restraining order and/or preliminary
injunction with the Regional Trial Court (RTC) of Quezon City against
the spouses Gonzalo and Marinella Nuguid, and the depositary
banks, Asian Bank and Metrobank, represented by their respective
managers, Julius de la Fuente and Alice Rivera. The complaint was
docketed as Civil Case No. Q-95-24299 and was raffled to Branch
96. The complaint was later amended 5 to include the prayer of
Chiok to be declared the legal owner of the proceeds of the subject
checks and to be allowed to withdraw the entire proceeds thereof.
be affected by any prior transaction between the purchaser (Chiok)

and the payee (Nuguid).
On the same day, July 6, 1995, the RTC issued a temporary

restraining order (TRO) directing the spouses Nuguid to refrain from
presenting the said checks for payment and the depositary banks
from honoring the sameuntil further orders from the court. 6
On July 25, 1995, the RTC issued an Order directing the issuance of
a writ of preliminary prohibitory injunction:
Asian Bank refused to honor MC Nos. 025935 and 025939 in

deference to the TRO. Metrobank claimed that when it received the
TRO on July 6, 1995, it refused to honor CC No. 003380 and stopped
payment thereon. However, in a letter also dated July 6, 1995, Ms.
Jocelyn T. Paz of FEBTC, Cubao-Araneta Branch informed Metrobank
that the TRO was issued a day after the check was presented for
payment. Thus, according to Paz, the transaction was already
consummated and FEBTC had already validly accepted the same. In
another letter, FEBTC informed Metrobank that "the restraining
order indicates the name of the payee of the check as GONZALO
NUGUID, but the check isin fact payable to GONZALO BERNARDO.
We believe there is a defect in the restraining order and as such
should not bind your bank."7 Alice Rivera of Metrobank replied to
said letters, reiterating Metrobanks position tocomply with the TRO
lest it be cited for contempt by the trial court. However, as would
later be alleged in Metrobanks Answer before the trial court,
Metrobank eventually acknowledged the check when it became
clear that nothing more can be done to retrieve the proceeds of the
check. Metrobank furthermore claimed that since it is the issuer of
CC No. 003380, the check is its primary obligation and should not
In the meantime, FEBTC, as the collecting bank, filed a complaint

against Asian Bank before the Philippine Clearing House
Corporation (PCHC) Arbitration Committee for the collection of the
value of Asian Bank MC No. 025935 and 025939, which FEBTC had
allegedly allowed Nuguid to withdraw on July 5, 1995, the same day
the checks were deposited. The case was docketed as Arbicom
Case No. 95-082. The PCHC Arbitration Committee later relayed, in
a letter dated August 4, 1995, its refusal to assume jurisdiction over
the case on the ground that any step it may take might be
misinterpreted as undermining the jurisdiction of the RTC over the
case or a violation of the July 6, 1995 TRO.
WHEREFORE, upon filing by the plaintiff of a sufficient bond in the

amount of P26,068,350.00, to be executed in favor of the
defendants under the condition that the same shall answer for
whatever damages they may sustain by reason of this injunction
should the Court ultimately determine that he was not entitled
thereto, let a writ of preliminary prohibitory injunction issue
restraining and preventing during the pendency of the case:
a) Defendant Asian Bank frompaying Managers Checks No.
025935 in the amount of P7,550,000.00 and No. 025939 in
the amount of P10,905,350.00; and
b) Defendant Metro Bank frompaying Cashiers Check No.
003380 in the amount of P7,613,000.00.
The application for preliminary mandatory injunctionis hereby
denied and the order issued on July 7, 1995 directing defendant
Metro Bank (Annapolis, Greenhills Branch) to allow the plaintiff to
withdraw the proceeds of Cashiers Check No. 003380 in the
amount of P7,613,000.00 is hereby set aside.
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The plaintiffs urgent motion todeclare defendants Asian Bank and

Metro Bank in contempt of court filed last July 13, 1995 is hereby
denied for lack of legal basis.
claimed that Asian Bank exhibited bad faith when, in anticipation of

the TRO, it opted to float the checks until it received the TRO at
12:00 noon of July 6, 1995 to justify the nonpayment thereof.
The writ of preliminary prohibitory injunction and a copy of this

order shall be served on the defendants by Deputy Sheriff Jose
Martinez of this Branch.8
In their own Answer, the spouses Nuguid claimed that Gonzalo

Nuguid had delivered much more dollars than what was required
for the three checks at the time of payment. By way of special
affirmative defense, the spouses Nuguid also claims that since the
subject checks had already been paid to him, Chiok is no longer
entitled to an injunction (to hold the payment of the subject
checks), and Civil Case No. Q-95-24299 has already become moot.
Upon the filing by Chiok of the requisite bond, the Writ was
subsequently issued on July 26, 1995.
Before the RTC, Asian Bank pointed out that SBTC returned and
issued a Stop Payment Order on SBTC MC No. 037364 (payable to
Chiok in the amount of P25,500,000.00) on the basis of an Affidavit
of Loss & Undertaking executed by a certain Helen Tan. Under said
Affidavit of Loss & Undertaking, Tan claims that she purchased
SBTC MC No. 037364 from SBTC, but the managers check got lost
on that day. Asian Bank argued that Chiok would therefore be liable
for the dishonor of the managers check under the terms of the
BPLA, which provides for recourse against the seller (Chiok) of the
check when it is dishonored by the drawee (SBTC) for any reason,
whether valid or not.
On October 18, 1995, FEBTC filed a Complaint-in-Intervention in
Civil Case No. Q-95-24299. On February6, 1996, the RTC initially
denied FEBTCs intervention in the case. On Motion for
Reconsideration, however, the RTC, on April 15, 1996, reversed
itself and allowed the same.
In the Complaint-in-Intervention, FEBTC claimed that it allowed the
immediate withdrawal of the proceeds of Asian Bank MC Nos.
025935 and 025939 on the ground that, as managerschecks, they
were the direct obligations of Asian Bank and were accepted in
advance by Asian Bank by the mere issuance thereof. FEBTC
presented the checks for payment on July 5, 1995 through the
PCHC. Asian Bank, as admitted in its Answer before the RTC,
received the same on that day. Consequently, Asian Bank was
deemed to have confirmed and booked payment of the subject
checks in favor of FEBTC or, at the latest, during the first banking
hour of July 6, 1995, when payment should have been made. FEBTC
On August 29, 2002, the RTC rendered its Decision, the dispositive
portion of which states:
WHEREFORE, judgment is rendered:
1. Declaring as permanent the writ of preliminary injunction
issued under the Order of July 25, 1995;
2. Ordering Global Business Bank, Inc.to pay the plaintiff
[Chiok]:
a.) The
amount
of P34,691,876.71
(less
the
attorneys fees of P255,000.00 which shall remain
with Global Business Bank, Inc.), plus interest at
the legal rate of 12%/p.a. from September 30,
1999 until fully paid;
b.) The amount of P215,000.00, representing the
excess amount debited from the plaintiffs
deposit in his account with Global Business Bank,
Inc. on July 7, 1995, plus interest of 12%/p.a. from
July 7, 1995, until fully paid;
c.) Attorneys fees equivalentof 5% of the total
amount due; and
3. Ordering Metropolitan Bank & Trust Companyto pay the
plaintiff:
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7 CASES
a. The amount of his deposit of P7,613,000.00, plus

interest of 12%/p.a. from July 5, 1995 until said
amount is fully paid; and
b. Attorneys fees of 5%of the total amount due;
4. Ordering Spouses Gonzalo B. Nuguid and Marinella O.
Nuguid liable jointly and severally with Global Business
Bank, Inc. and Metropolitan Bank & Trust Company, Inc. for
the respective attorneys fees;
5. Dismissing the complaint-in-interventionof BPI for lack of
merit;
6. Ordering the defendantsand the intervenorto pay, jointly
and severally, the costs of suit.9
(Emphases supplied.)
The RTC held that Nuguid failed to prove the delivery of dollars to
Chiok. According to the RTC, Nuguids claim that Chiok was still
liable for seven dishonored China Banking Corporation (CBC)
checks with a total worth ofP72,984,020.00 is highly doubtful since
such claim was not presented as a counterclaim in the case.
Furthermore, the court ruled that the certification of CBC stating
the reasons10 for the stop payment order "are indicative of Chioks
non-liability to Nuguid." The RTC further noted that there was a
criminal case filed by Chiok against Nuguid on March 29, 1996 for
estafa and other deceit on account of Nuguids alleged failure to
return the originals of the seven CBC checks.11
The RTC went on to rule that managers checks and cashiers
checks may be the subject of a Stop Payment Order from the
purchaser on the basis of the payees contractual breach. As
explanation for this ruling, the RTC adopted its pronouncements
when it issued the July 25, 1995 Order:
Defendant Nuguids argument that the injunction could render
managers and cashierschecks unworthy of the faith they should
have and could impair their nature as independent undertakings of
the issuing banks is probably an undistinguished simplification.
While the argument may be applicable to such checks in general, it

does not adequately address the situation, as here, when specific
managers and cashiers checks are already covered by reciprocal
undertakings between their purchaser and their payee, in which the
latter allegedly failed to perform. The agreement herein was
supposedly one in which Nuguid would deliver the equivalent
amount in US dollars ($1,022,288.23) "on the same date" that the
plaintiff purchased and delivered the managers and cashiers
checks (P26,068,350.00). Assuming that such a reciprocity was
true, the purchaser should have the legal protection of the
injunctive writ (which, after all, the legal departments of the issuing
banks themselves allegedly advised the plaintiff to obtain), since
the usual order or instruction to stop payment available in case of
ordinary checks did not avail. This was probably the reason that
Asian
Bank
has
expressly
announced
in
its
own
comment/opposition of July 14, 1995 that it was not opposing the
application for the prohibitory injunction.
The dedication of such checks pursuantto specific reciprocal
undertakings between their purchasers and payees authorizes
rescission by the former to prevent substantial and material
damage to themselves, which authority includes stopping the
payment of the checks.12 According to the RTC, both managers and
cashiers checks are still subject to regular clearing under the
regulations of the Bangko Sentral ng Pilipinas. Since managers and
cashiers checks are the subject of regular clearing, they may
consequently be refused for cause by the drawee, which refusal is
in fact provided for in the PCHC Rule Book.
The RTC found the argument by BPI that the managers and
cashiers checks are pre-cleared untenable under Section 60 of the
New Central Bank Act and Article 1249 of the Civil Code, which
respectively provides:
Section 60. Legal Character. Checks representing demand
deposits do not have legal tender power and their acceptance in
the payment of debts, both public and private, is at the option of
the creditor; Provided, however, that a check which has been
cleared and credited to the account of the creditor shall be
equivalent to a delivery to the creditor of cash in an amount equal
to the amount credited to his account.
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Art. 1249. The payment of debts inmoney shall be made in the

currency stipulated, and if it is not possible to deliver such
currency, then in the currency which is legal tender in the
Philippines. The delivery of promissory notes payable to order, or
bills of exchange or other mercantile documents shall produce the
effect of payment only when they have been cashed, or when
through the fault of the creditor they have been impaired.
1) That Metro Bank paid the amount of CC No. 003280;

2) That the payment on July 12, 1995 was made while the
TRO of July 5, 1995 was in force;
3) [That] the payment on July 12, 1995 was on the third
clearing of CC No. 003380; and
4) That the PCHC Rule book was the authority on the rules
and regulations on the clearing operations of banks.
In the meantime, the action derived from the original obligation

shall be held in the abeyance. The RTC went on to rule that due to
the timely service of the TRO and the injunction, the value of the
three checks remained with Global Bank and Metrobank. 13 The RTC
concluded that since Nuguid did not have a valid title to the
proceeds of the managers and cashiers checks, Chiok is entitled
to be paid back everything he had paid to the drawees for the
checks.14
The payment to FEBTC by Metro Bank of CC No. 003380 on July 12,

1995 was an open defiance of the TRO of July 6, 1995. Metro Banks
Branch Manager Alice Rivera, through her letter of July 10, 1995 to
FEBTC as the collecting bank, returned the CC to FEBTC in
compliance with the TRO which was received about 12:10 noon of
July 6, 1999. Hence, Metro Bank should not have paid because the
TRO was served within the 24-hour period to clear checks.
Moreover, the payment, being made on third clearing, was
unjustified for violating existing regulations, particularly paragraph
1 of the Clearing House Operating Memo (CHOM), effective
September 1, 1984, which prohibited the reclearing of a check after
its first presentation if it was returned for the reason of "stop
payment" or "closed account."
With respect to Global Bank, the RTC ruled that the entire amount
of P34,691,876.71 it recovered from SBTC from the September 15,
1997 PCHC Decision, as reflected in the September 29, 1999
Charge Slip No. 114977, less the sum of P225,000.00 awarded by
the arbitration committees decision as attorneys fees, should be
paidto Chiok, with interest at 12% per annum from September 30,
1999 until full payment. The RTC likewise ordered Global Bank to
pay Chiok the amount of P215,390.00, an amount debited from
Chioks account as payment for outstanding bills purchase.15
With respect to Metrobank, the RTC ruled that it should pay
Chiok P7,613,000.00, the amount paid by Chiok to purchase the CC,
plus interest of 12 percent per annum from July 5,1995 until full
payment. The RTC explained this finding as follows:
The same conclusion is true with respect to Metro Bank, with whom
the funds amounting to P7,613,000.00 for the purchase of CC No.
003380 has remained. According to Chiok, Metro Bank used such
funds in its operations.
In the hearing on May 17, 2001, Lita Salonga Tan was offered as a
witness for Metro Bank, but in lieu ofher testimony, the parties
agreed to stipulate on the following as her testimony, to wit:
It also seems that Metro Bank paid the CC without first checking
whether, in fact, any actual payment of the 3 checks had been
made on July 5, 1995 to the payee when the checks were deposited
in payees account with FEBTC on July 5, 1995. The records show no
such payment was ever made to render the TRO of July 6, 1995 or
the writ of preliminary injunction applied for moot and academic.
Jessy A. Degaos adopted by Metro Bank as its own witness in
injunction hearing of July 24, 1995 stated that the payment of the
3 checks consisted of the accounting entry made at the PCHC
during the presenting process by debiting the respective accounts
of the drawees and crediting the account of collecting bank FEBTC.
Yet, as already found hereinabove, such process was reversed due
to the return by the drawees of the checks which they dishonored
on account of the TRO.
Also, Degaos, testifying on January 17, 2002 for intervenor BPI,
was asked in what form was the withdrawal of the amounts of the
checks made by Nuguid on July 5, 1995, that is, whether:- 1) cash
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withdrawal; or 2) credit to Nuguids account; or 3) draft issued to

Nuguid. His reply was that only the banks branch which serviced
the payees account could provide the answer. Yet, BPI did not
present any competent personnel from the branch concerned to
enlighten the Court on this material point.
This amount of P7,613,000.00, having remained with Metro Bank
since the service of the TRO of July 6, 1995 and the writ of
preliminary injunction issued under the Order of July 25, 1998,
should be returned to Chiok with interest of 12%/p.a. from July 7,
1995 until full payment.16
(Citations omitted.)
The RTC likewise denied BPIs complaint-in-intervention to recover
the value of the three checks from drawees Global Bank and
Metrobank for lack of merit. The RTC, after reprimanding Global
Bank and Metrobank for siding with BPI on this issue, held that BPI,
as a mere collecting bank of the payee with a void title to the
checks, had no valid claim as to the amounts of such checks. The
RTC explained:
Firstly: BPI, being a collecting bankin relation to the 3 checks, was
merely performing collection services as an agent of Nuguid, the
payee. If, as found hereinbefore, Nuguid could not have legal title
to the 3 checks, it follows that BPI could not stake any claim for title
better than Nuguids own void title. Consequently, BPI has no right
to claim the amounts of the 3 checks from the drawee-banks.
Secondly: The purpose of the delivery of the 3 checks to BPI which
was not even accompanied by Nuguids endorsement was solely
for deposit in the account of payee Nuguid. Assuming, for the sake
of argument, that BPI as the collecting bank paid the value of the
checks of which fact there has been no proof whatsoever BPI
was nonetheless, at best, a mere transferee whose title was no
better than the void title of the transferor, payee Nuguid. Under
such circumstance, BPI has no legal basis to demand payment of
the amounts of the 3 checks from the draweebanks.
Thirdly: Under Sec. 49, Negotiable Instruments Law, BPI, as

transferee without indorsement, was not considered a holder of the
instrument since it was neither a payee nor an indorsee. It would
become so only when and if the indorsement is actually made, and
only as of then, but not before, is the issue whether BPI was a
holder in due course or not is determined.
Consequently, any alleged payment by BPI as the collecting bank,
through the supposed though unproved withdrawal of the amounts
of the 3 checks by Nuguid upon the deposit of the checks on July 5,
1995, is not the payment which discharges liability under the 3
checks because BPI is neither the party primarily liable northe
drawee.
Such a payment, if true, is akin to, if it is not, drawing against
uncollected deposits (DAUD). In such a case, BPI was in duty bound
to send the 3 checks to the PCHC for clearing pursuant to Section
1603.c.1 of the BSP Manual of Regulations and Sec. 60, R.A. No.
7653. It serves well to note herein that Global Bank and Metro Bank
returned the checks through the PCHC on July 6, 1995, well within
the 24-hour clearing period, in compliance with the TRO of July 6,
1995. Finally: As earlier noted and discussed, there is no evidence
of any prior valid payment by the collecting bank to support its
claim of the amounts of the 3 checks against the defendant
banks.17 (Citation omitted.)
The RTC held Global Bank and Metrobank liable for attorneys fees
equivalent to 5% of the total amountdue them, while the spouses
Nuguid were held solidarily liable for said fees.
Defendants Global Bank, Metrobank, and the spouses Nuguid, and
intervenor BPI filed separate notices of appeal, which were
approved in the Order18 dated April 3, 2003. Chiok filed a Motion to
Dismiss against the appeal of Global Bank, on the ground that the
latter had ceased to operate as a banking institution.
On May 26, 2004, the Court of Appeals dismissed the appeal of the
spouses Nuguid pursuant to Section 1(e), Rule 50 of the Rules of
Court, on account of their failure to file their appellants brief. In the
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same Resolution, the Court of Appeals denied Chioks Motion to

Dismiss.
On May 5, 2006, the Court of Appeals rendered the assailed
Decision affirming the RTC Decision with modifications. The fallo of
the Decision reads:
WHEREFORE, premises considered, the Decision dated August 29,
2000 of the RTC, Branch 96, Quezon City is AFFIRMED with the
following MODIFICATIONS:
1.) The contract to buy foreign currency in the amount of
$1,022,288.50 between plaintiff-appellee Wilfred N. Chiok
and defendant Gonzalo B. Nuguid is hereby rescinded.
Corollarily, Managers Check Nos. 025935 and 025939 and
Cashiers Check No. 003380 are ordered cancelled.
2.) Global Business Holdings, Inc. is ordered to credit
Savings Account No. 2-007-03-00201-3 with:
a) The amount of P25,500,000.00, plus interest at
4% from September 29, 1999 until withdrawn by
plaintiff-appellee;
b) The amount of P215,390.00, plus interest at 4%
from July 7, 1995 until withdrawn by plaintiffappellee.
3.) Metropolitan Bank & Trust Company is ordered to credit
Savings
Account
No.
154-42504955
the
amount
of P7,613,000.00, with interest at 6% [per annum] from July
12, 1995 until the same is withdrawn;
4.) The Spouses Gonzalo B. Nuguid and Marinella O. Nuguid
are ordered to pay attorneys fees equivalent to 5% of the
total amount due to plaintiff-appellee from both depository
banks, as well as the costs of suit.19
According to the Court of Appeals, Article 1191 of the Civil Code
provides a legal basis of the right of purchasers of MCs and CCs to
make a stop payment order on the ground of the failure of the
payee to perform his obligation to the purchaser. The appellate

court ruled that such claim was impliedly incorporated in Chioks
complaint. The Court of Appeals held:
By depositing the subject checks to the account of Nuguid, Chiok
had already performed his obligation under the contract, and the
subsequent failure of Nuguid to comply with what was incumbent
upon him gave rise to an action for rescission pursuant to Article
1191 of the Civil Code, which states:
Art. 1191. The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with what is
incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in either
case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period.
xxxx
Although the complaint a quowas entitled "DAMAGES, W/ EX PARTE
RESTRAINING ORDER/INJUNCTION" when the action was really one
for rescission and damages, it is an elementary rule of procedure
that what controls or determines the nature of the action is not the
caption of the complaint but the allegations contained therein. And
even without the prayer for a specific remedy, proper relief may
nevertheless be granted by the court if the facts alleged in the
complaint and the evidence introduced so warrant.
That Chiok had intended rescission isevident from his prayer to be
declared the legal owner of the proceeds of the subject checks and
to be allowed to withdraw the same. Therefore, the argument of BPI
that the obligation on the part of Nuguid to deliver the dollars still
subsists is untenable. Article 1385 of the same Code provides that
rescission creates the obligation to return the things which were the
object of the contract, together with their fruits, and the price with
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its interest. The object of the contract herein to buy foreign

currency is the peso-value of the dollars bought but in the form of
negotiable instruments Managers Check/Cashiers Check. Hence,
respecting the negotiation thereof, and in order to afford complete
relief to Chiok, there arose the necessity for the issuance of the
injunction restraining the payment of the subject checks with the
end in view of the eventual return of the proceeds to give effect to
Article 1385. In other words, the injunctive relief was necessary in
order not to render ineffectual the judgment in the instant case. We
quote with approval the following disquisition of the trial court, to
wit:
xxxx
There is no question about the nature of managers and cashiers
checks being as good as cash, being primary obligations of the
issuing bank and accepted in advanceby their mere issuance. But
even as such nature of unconditional commitment to pay on the
part of the issuing bank may be conceded, the Court opines that
the injunctive relief cannot be denied to a party who purchased the
managers or cashiers check to stop its payment to the payee in a
suit against the payee and the issuing banks upon a claim that the
payee himself had not performed his reciprocal obligation for which
the issuance and delivery of the self-same managersor cashiers
check were, in the first place, made x x x.
It bears stressing that the subject checks would not have been
issued were it not for the contract between Chiok and Nuguid.
Therefore, they cannot be disassociated from the contract and
given a distinct and exclusive signification, as the purchase thereof
is part and parcel of the series of transactions necessary to
consummate the contract. Taken in this light, it cannot be argued
that the issuing banks are bound to honor only their unconditional
undertakings on the subject checks vis--vis the payee thereof
regardless of the failed transaction between the purchaser of the
checks and the payee on the ground that the banks were not privy
to the said transaction.
Lest it be forgotten, the purchase of the checks was funded by the
account of Chiok with the banks. As such, the banks were equally
obligated to treat the account of their depositor with meticulous
care bearing in mind the fiduciary nature of their relationship with

the depositor. Surely, the banks would not allow their depositor to
sit idly by and watch the dissipation of his livelihood considering
that the business of foreign currency exchange is a highly volatile
undertaking where the probability of losing or gaining is counted by
the ticking of the clock. With the millions of money involved in this
transaction, Chiok could not afford to be complacent and his
vigilance for his rights could not have been more opportune under
the circumstances.20 (Citations omitted.)
The Court of Appeals proceeded to sustain the dismissal of BPIs
complaint-in-intervention, which sought to recover from Global
Bank the amounts allegedly paid to Nuguid. The Court of Appeals
pointed out that BPI failed to prove the alleged withdrawal by
Nuguid of the proceeds of the two managers checks, as BPIs
representative, Jessy A. Degaos, failed to answer the question on
the form of the alleged withdrawal. Furthermore, BPI failed to prove
that it was a holder in due course of the subject managers checks,
for two reasons: (1) the checks were not indorsed to it by Nuguid;
and (2) BPI never presented its alleged bills purchase agreement
with Nuguid.21
The Court of Appeals likewise modified the order by the RTC for
Global Bank and Metrobank to pay Chiok. The Court of Appeals held
that Chioks cause of action against Global Bank is limited to the
proceeds of the two managers checks. Hence, Global Bank was
ordered to credit Chioks Savings Account No. 2-007-03-00201-3
with the amount of P25,500,000.00, the aggregate value of the two
managers checks, instead of the entireP34,691,876.71 recovered
from SBTC from the September 15, 1997 PCHC Decision. The
interest was also reduced from 12% per annum to that imposed
upon savings deposits, which was established during the trial as 4%
per annum.22
As regards Metrobank, the appellate court noted that there was no
evidence as to the interest rate imposed upon savings deposits at
Metrobank. Metrobank was ordered to credit the amount
of P7,613,000.00 to Chioks Savings Account No. 154-42504955,
with interest at 6% per annum.23
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Global Bank and BPI filed separate Motions for Reconsideration of

the May 5, 2006 Court of Appeals Decision. On November 6, 2006,
the Court of Appeals denied the Motions for Reconsideration.
Metrobank (G.R. No. 172652), BPI (G.R. No. 175302), and Global
Bank (G.R. No. 175394) filed with this Court separate Petitions for
Review on Certiorari. In Resolutions dated February 21, 2007 24 and
March 12, 2007,25 this Court resolved to consolidate the three
petitions. Metrobank submitted the following issues for the
consideration of this Court:
(A) WHETHER OR NOT THE HONORABLE COURT OF APPEALS
ERRED IN RULING THAT "IT IS LEGALLY POSSIBLE FOR A
PURCHASER OF A MANAGERS CHECK OR CASHIERS CHECK
TO STOP PAYMENT THEREON THROUGH A COURT ORDER ON
THE GROUND OF THE PAYEES ALLEGED BREACH OF
CONTRACTUAL OBLIGATION AMOUNTING TO AN ABSENCE
OF CONSIDERATION THEREFOR."
(B) GRANTING ARGUENDO THAT A MANAGERS CHECK OR
CASHIERS
CHECK,
"IN
VIEW
OF
THE
PECULIAR
CIRCUMSTANCES OF THIS CASE" MAY BE SUBJECT TO A STOP
PAYMENT ORDER BY THE PURCHASER THEREOF THROUGH A
COURT ORDER, WHETHER OR NOT THE HONORABLE COURT
OF APPEALS ERRED IN CONCLUDING THAT PETITIONER
HEREIN "HAD KNOWLEDGE OF CIRCUMSTANCES THAT
WOULD DEFEAT THE TITLE OF THE PAYEE TO THE CHECKS"
WITHOUT, HOWEVER, CITING ANY SPECIFIC EVIDENCE
WHICH WOULD PROVE THE EXISTENCE OF SUCH
KNOWLEDGE. (C) WHETHER OR NOT THE HONORABLE
COURT OF APPEALS ERRED IN SUSTAINING THE TRIAL
COURTS ORDER FOR PETITIONER HEREIN "TO PAY (TO
CHIOK) THE VALUE OF CASHIERS CHECK NO. 003380 IN THE
AMOUNT OF P7,613,000.00, WHICH WAS DEBITED AGAINST
CHIOKS SAVINGS ACCOUNT # 154-42504955 ON THE
OBSERVATION THAT THE PAYMENT TO FEBTC BY METROBANK
OF CC NO. 003380ON JULY 12, 1995 WAS AN OPEN
DEFIANCE OF THE TRO OF JULY 6, 1995."26
BPI, on the other hand, presented the following issues:
I.
II.
III.
Whether or not the Court of Appeals detracted from wellsettled concepts and principles in commercial law
regarding the nature, causes, and effects of a managers
check and cashiers checkin ruling that [the] power of
the court can be invoked by the purchaser [Chiok] in a
proper action, which the Court su[b]stantially construed
as a rescissory action or the power to rescind obligations
under Article 1191 of the Civil Code.
Whether or not the Honorable Court of Appeals erred in
ruling that where a purchaser invokes rescission due to
an alleged breach of the payees contractual obligation,
it is deemed as "peculiar circumstance" which justifies a
stop payment order issued by the purchaser or a
temporary restraining order/injunction from a Court to
prevent payment of a Managers Check or a Cashiers
Check.
Whether or not the Honorable Court of Appeals erred in
ruling that judicial admissions in the pleadings of Nuguid,
BPI, Asian Bank, Metrobank and even Chiok himself that
Nuguid had withdrawn the proceeds of the checks will
not defeat Chioks "substantial right" to restrain the
drawee bank from paying BPI, the collecting bank or
presenting bank in this case who paid the value of the
Cashiers/Managers Checks to the payee.27
Finally, Global Bank rely upon the following grounds in its petition
with this Court:
A. THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT
PETITIONER GLOBAL BANK HAD NO JUSTIFICATION FOR ITS RIGHT
OF RECOURSE AGAINST RESPONDENT CHIOK NOTWITHSTANDING
THE CLEAR AND UNMISTAKABLE PROVISIONS OF THE BILLS
PURCHASE AGREEMENT.
B. THE COURT OF APPEALS GRAVELY ERRED IN MAKING PETITIONER
GLOBAL BANK LIABLE FOR INTEREST OF 4% PER ANNUM DESPITE
THE FACT THAT:
1) RESPONDENT DID NOT ASK FOR SUCH RELIEF IN HIS
COMPLAINT;
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2) RESPONDENT HAD WAIVED HIS RIGHT TO ANY INTEREST;

AND
3) THERE IS NO EVIDENCE ON RECORD AS THE BASIS FOR
ANY INTEREST.28
Before delving into the merits of these cases, we shall first dispose
of a procedural development during their pendency with the Court.
Joint Manifestation and Motion allegedly filed by Metrobank, Global
Bank and respondent Chiok
On May 28, 2013, this Court received a Joint Manifestation and
Motion allegedly filed by petitioners Metrobank, Global Bank, and
respondent Chiok, which reads:
PETITIONERS METROPOLITAN BANK & TRUST COMPANY & GLOBAL
BUSINESS BANK, INC., and RESPONDENT WILFRED N. CHIOK, by
their respective counsels, unto this Honorable Court, respectfully
state that after a thorough consideration, the parties herein have
decided to forego their respective claims against each other,
including, past, present and/or contingent, in relation to the above
referenced cases.
PRAYER
WHEREFORE, it is respectfully prayed that no further action be
taken by this Honorable Court on the foregoing petitions, that the
instant proceedings be declared CLOSED and TERMINATED, and
that an Order be rendered dismissing the above-referenced cases
with prejudice.
In the above Joint Manifestation and Motion, respondent Chiok was
not represented by his counsel of record, Cruz Durian Alday and
Cruz-Matters, but was assisted by Espiritu Vitales Espiritu Law
Office, with Atty. Cesar D. Vitales as signatory, by way of special
appearance and assistance.
On June 19, 2013, this Court issued a Resolution requiring petitioner
BPI to comment on the Joint Manifestation and Motion filed by its
copetitioners Metrobank, Global Bank, and respondent Chiok. The

Resolution reads:
Considering the joint manifestation and motion of petitioners
Metropolitan Bank and Trust Company and Global Business Bank,
Inc., and respondent, that after a thorough consideration, they have
decided to forego their respective claims against each other,
including past, present and/or contingent, in these cases and
praying that the instant proceedings in G.R. Nos. 172652 and
175394 be declared closed and terminated, the Court resolves to
require petitioner Bank of the Philippine Islands to COMMENT
thereon within ten (10) days from notice thereof x x x.
On September 12, 2013, respondent Chiok, this time assisted by his
counsel of record, Cruz Durian Alday & Cruz-Matters, filed a Motion
for Reconsideration of our Resolution dated June 19, 2013. The
signatory to the Motion for Reconsideration, Atty. Angel Cruz,
grossly misread our Resolution requiring BPI to comment on the
Joint Manifestation and Motion, and apparently contemplated that
we are already granting said Motion. Atty. Cruz objected to the Joint
Manifestation and Motion, labeling the same as tainted with fraud.
According to Atty. Cruz, Espiritu Vitales and Espiritus failure to give
prior notice to him is in violation of Canon 8 of the Code of
Professional Responsibility. Atty. Cruz prays that Metrobank and
Global Bank be ordered to submit a document of their settlement
showing the amounts paid to Chiok, and for the June19, 2013
Resolution of this Court be reconsidered and set aside.
On October 9, 2013, BPI filed its comment to the Joint Manifestation
and Motion, opposing the samefor being an implied procedural
shortcut to a Compromise Agreement. It averred that while the
courts encourage parties to amicably settle cases, such settlements
are strictly scrutinized by the courts for approval. BPI also pointed
out that the Joint Manifestation and Motion was not supported by
any required appropriate Board Resolution of Metrobank and Global
Bank granting the supposed signatories the authority to enter into
a compromise. BPI prayed that the Joint Manifestation and Motion
of Metrobank, Global Bank, and Chiok be denied, and to render a
full Decision on the merits reversing the Decision of the Court of
Appeals.
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On January 20, 2014, Global Bank filed a Comment to Atty. Cruzs

Motion for Reconsideration on behalf of Chiok, praying that said
Motion be expunged from the records for failure of Atty. Cruz to
indicate the number and date of issue of his MCLE Certificate of
Compliance or Certificate of Exemption for the immediately
preceding compliance period.
As far as this Court is concerned, the counsel of record of
respondent Chiok is still Cruz Durian Alday & Cruz-Matters. The
requisites of a proper substitution of counsel of record are stated
and settled in jurisprudence:
No substitution of counsel of record is allowed unless the following
essential requisites of a valid substitution of counsel concur: (1)
there must be a written request for substitution; (2) it must be filed
with the written consent of the client; (3) it must be with the
written consent of the attorney to be substituted; and (4) in case
the consent of the attorney to be substituted cannot be obtained,
there must be at least a proof of notice that the motion for
substitution was served on him in the manner prescribed by the
Rules of Court.29 (Citation omitted.)
be intimately related to issues brought forth in the other

consolidated petitions.
Furthermore, the failure of the parties to the Joint Manifestation and
Motion to declare with particularity the terms of their agreement
prevents us from approving the same so as to allow it to attain the
effect of res judicata. A judicial compromise is not a mere contract
between the parties. Thus, we have held that:
A compromise agreement intended to resolve a matter already
under litigation is a judicial compromise. Having judicial mandate
and entered as its determination of the controversy, such judicial
compromise has the force and effect of a judgment. It transcends
its identity as a mere contract between the parties, as it becomes a
judgment that is subject to execution in accordance with the Rules
of Court. Thus, a compromise agreement that has been made and
duly approved by the court attains the effect and authority of res
judicata, although no execution may be issued unless the
agreement receives the approval of the court where the litigation is
pending and compliance with the terms of the agreement is
decreed.31 (Citation omitted.)
Therefore, while we should indeed require Atty. Cruz to indicate the

number and date of issue of his MCLE Certificate of Compliance or
Certificate of Exemption for the immediately preceding compliance
period, he is justified in pointing out the violation of Canon 8 30 of
the Code of Professional Responsibility, Rule 8.02 of which provides:
We are therefore constrained to deny the Joint Manifestation and

Motion filed with this Court on May 28, 2013 and to hereby decide
the consolidated petitions on their merits.
Rule 8.02. A lawyer shall not, directly or indirectly, encroach upon

the professional employment of another lawyer; however, it is the
right of any lawyer, without fear or favor, to give proper advice and
assistance to those seeking relief against unfaithful or neglectful
counsel.
Whether or not payment of managers and cashiers checks are

subject to the condition that the payee thereof should comply with
his obligations to the purchaser of the checks
We should also give weight to the opposition of BPI to the supposed

compromise agreement. As stated above, the consolidated
petitions filed by Metrobank, BPI, and Global Bank all assail the
Decision of the Court of Appeals in CA-G.R. CV No. 77508 dated
May 5, 2006, and the Resolution on the same case dated November
6, 2006. BPI itself has a claim against Global Bank, which appear to
The Courts ruling on the merits of these consolidated petitions
The legal effects of a managers check and a cashiers check are

the same. A managers check, like a cashiers check, is an order of
the bank to pay, drawn upon itself, committing in effect its total
resources, integrity, and honor behind its issuance. By its peculiar
character and general use in commerce, a managers check or a
cashiers check is regarded substantially to be as good as the
money it represents.32 Thus, the succeeding discussions and
jurisprudence on managers checks, unless stated otherwise, are
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applicable to cashiers checks, and vice versa. The RTC effectively

ruled that payment of managers and cashiers checks are subject
to the condition that the payee thereof complies with his
obligations to the purchaser of the checks:
The dedication of such checks pursuant to specific reciprocal
undertakings between their purchasers and payees authorizes
rescission by the former to prevent substantial and material
damage to themselves, which authority includes stopping the
payment of the checks.
Moreover, it seems to be fallacious to hold that the unconditional
payment of managers and cashiers checks is the rule. To begin
with, both managersand cashiers checks are still subject to
regular clearing under the regulations of the Bangko Sentral ng
Pilipinas, a fact borne out by the BSP manual for banks and
intermediaries, which provides, among others, in its Section 1603.1,
c, as follows:
xxxx
c. Items for clearing. All checks and documents payable on demand
and drawn against a bank/branch, institution or entity allowed to
clear may be exchanged through the Clearing Office inManila and
the Regional Clearing Units in regional clearing centers designated
by the Central Bank x x x.33
The RTC added that since managers and cashiers checks are the
subject of regular clearing, they may consequently be refused for
cause by the drawee, which refusal is in fact provided for in Section
20 of the Rule Book of the PCHC:
Sec. 20 REGULAR RETURN ITEM PROCEDURE
20.1 Any check/item sent for clearing through the PCHC on which
payment should be refused by the Drawee Bank in accordance with
long standing and accepted banking practices, such as but not
limited to the fact that:
a. it bears the forged or unauthorized signature of the

drawer(s); or
b. it is drawn against a closed account; or
c. it is drawn against insufficient funds; or
d. payment thereof has been stopped; or
e. it is post-dated or stale-dated; and
f. it is a cashiers/managers/treasurers check of the
drawee which has been materially altered;
shall be returned through the PCHC not later than the next regular
clearing for local exchanges and the acceptance of said return by
the Sending Bank shall be mandatory.
It goes without saying that under the aforecited clearing rule[,] the
enumeration of causes to return checks is not exclusive but may
include other causes which are consistent with long standing and
accepted banking practices. The reason of plaintiffs can well
constitute such a justifiable cause to enjoin payment.34
The RTC made an error at this point. While indeed, it cannot be said
that managers and cashiers checks are pre-cleared, clearing
should not be confused with acceptance. Managers and cashiers
checks are still the subject of clearing to ensure that the same have
not been materially altered or otherwise completely counterfeited.
However, managers and cashiers checks are pre-accepted by the
mere issuance thereof by the bank, which is both its drawer and
drawee. Thus, while managers and cashiers checks are still
subject to clearing, they cannot be countermanded for being drawn
against a closed account, for being drawn against insufficient funds,
or for similar reasons such as a condition not appearing on the face
of the check. Long standing and accepted banking practicesdo not
countenance the countermanding of managers and cashiers
checks on the basis of a mere allegation of failure of the payee to
comply with its obligations towards the purchaser. On the contrary,
the accepted banking practice is that such checks are as good as
cash. Thus, in New Pacific Timber & Supply Company, Inc. v. Hon.
Seneris,35 we held:
It is a well-known and accepted practice in the business sector that
a Cashier's Check is deemed as cash. Moreover, since the said
check had been certified by the drawee bank, by the certification,
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the funds represented by the check are transferred from the credit
of the maker to that of the payee or holder, and for all intents and
purposes, the latter becomes the depositor of the drawee bank,
with rights and duties of one in such situation. Where a check is
certified by the bank on which it is drawn, the certification is
equivalent to acceptance. Said certification "implies that the check
is drawn upon sufficient funds in the hands of the drawee, that they
have been set apart for its satisfaction, and that they shall be so
applied whenever the check is presented for payment. It is an
understanding that the check is good then, and shall continue
good, and this agreement is as binding on the bank as its notes in
circulation, a certificate of deposit payable to the order of the
depositor, or any other obligation it can assume. The object of
certifying a check, as regards both parties, is to enable the holder
to use it as money." When the holder procures the check to be
certified, "the check operates as an assignment of a part of the
funds to the creditors." Hence, the exception to the rule enunciated
under Section 63 of the Central Bank Act to the effect "that a check
which has been cleared and credited to the account of the creditor
shall be equivalent to a delivery to the creditor in cash in an
amount equal to the amount credited to his account" shall apply in
this case. x x x. (Emphases supplied, citations omitted.)
Even more telling is the Courts pronouncement in Tan v. Court of
Appeals,36 which unequivocally settled the unconditional nature of
the credit created by the issuance of managers or cashiers
checks:
A cashiers check is a primary obligation of the issuing bank and
accepted in advanceby its mere issuance. By its very nature, a
cashiers check is the banks order to pay drawn upon itself,
committing in effect its total resources, integrity and honor behind
the check. A cashiers check by its peculiar character and general
use in the commercial world is regarded substantially to be as good
asthe money which it represents. In this case, therefore, PCIB by
issuing the check created an unconditional creditin favor of any
collecting bank. (Emphases supplied, citations omitted.)
Furthermore, under the principle of ejusdem generis, where a
statute describes things of a particular class or kind accompanied
by words of a generic character, the generic word willusually be
limited to things of a similar nature with those particularly

enumerated, unless there be something in the context of the
statute which would repel such inference. 37 Thus, any long standing
and accepted banking practice which can be considered as a valid
cause to return managers or cashiers checks should be of a
similar nature to the enumerated cause applicable to managers or
cashiers checks: material alteration. As stated above, an example
ofa similar cause is the presentation of a counterfeit check.
Whether or not the purchaser of managers and cashiers checks
has the right to have the checks cancelled by filing an action for
rescission of its contract with the payee
The Court of Appeals affirmed the order of the RTC for Global Bank
and Metrobank to pay Chiok for the amounts of the subject
managers and cashiers checks. However, since it isclear to the
appellate court that the payment of managers and cashiers
checks cannot be considered to be subject to the condition the
payee thereof complies with his obligations to the purchaser of the
checks, the Court of Appeals provided another legal basis for such
liability rescission under Article 1191 of the Civil Code:
WHEREFORE, premises considered, the Decision dated August 29,
2000 of the RTC, Branch 96, Quezon City is AFFIRMED with the
following MODIFICATIONS:
1.) The contract to buy foreign currency in the amount of
$1,022,288.50 between plaintiff-appellee Wilfred N. Chiok and
defendant Gonzalo B. Nuguid is hereby rescinded. Corollarily,
Managers Check Nos. 025935 and 025939 and Cashiers Check No.
003380 are ordered cancelled.38
According to the Court of Appeals, while such rescission was not
mentioned in Chioks Amended Complaint, the same was evident
from his prayer to be declared the legal owner of the proceeds of
the subject checks and to be allowed to withdraw the same. Since
rescission creates the obligation to return the things which are the
object of the contract, together with the fruits, the price and the
interest,39 injunctive relief was necessary to restrain the payment of
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the subject checks with the end in view of the return of the
proceeds to Chiok.40
Thus, as it was construed by the Court of Appeals, the Amended
Complaint of Chiok was in reality an action for rescission of the
contract to buy foreign currency between Chiok and Nuguid. The
Court of Appeals then proceeded to cancel the managers and
cashiers checks as a consequence of the granting of the action for
rescission, explaining that "the subject checks would not have been
issued were it not for the contract between Chiok and Nuguid.
Therefore, they cannot be disassociated from the contract and
given a distinct and exclusive signification, as the purchase thereof
is part and parcel of the series of transactions necessary to
consummate the contract."41
We disagree with the above ruling.
The right to rescind invoked by the Court of Appeals is provided by
Article 1191 of the Civil Code, which reads:
Art. 1191. The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with what is
incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in either
case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third
persons who have acquired the thing, in accordance with Articles
1385 and 1388 and the Mortgage Law.
The cause of action supplied by the above article, however, is
clearly predicated upon the reciprocity of the obligations of the
injured party and the guilty party. Reciprocal obligations are those
which arise from the same cause, and in which each party is a
debtor and a creditor of the other, such that the obligation of one is
dependent upon the obligation of the other. They are to be
performed simultaneously such that the performance of one is
conditioned upon the simultaneous fulfillment of the other. 42 When
Nuguid failed to deliver the agreed amount to Chiok, the latter had
a cause of action against Nuguid to ask for the rescission of their
contract. On the other hand, Chiok did not have a cause of action
against Metrobank and Global Bank that would allow him to rescind
the contracts of sale of the managers or cashiers checks, which
would have resulted in the crediting of the amounts thereof back to
his accounts.
Otherwise stated, the right of rescission43 under Article 1191 of the
Civil Code can only be exercised in accordance with the principle of
relativity of contracts under Article 1131 of the same code, which
provides:
Art. 1311. Contracts take effect only between the parties, their
assigns and heirs, except in case where the rights and obligations
arising from the contract are not transmissible by their nature, or
by stipulation or by provision of law. x x x.
In several cases, this Court has ruled that under the civil law
principle of relativity of contracts under Article 1131, contracts can
only bind the parties who entered into it, and it cannot favor or
prejudice a third person, even if he is aware of such contract and
has acted with knowledge thereof. 44 Metrobank and Global Bank are
not parties to the contract to buy foreign currency between Chiok
and Nuguid. Therefore, they are not bound by such contract and
cannot be prejudiced by the failure of Nuguid to comply with the
terms thereof.
Neither could Chiok be validly granted a writ of injunction against
Metrobank and Global Bank to enjoin said banks from honoring the
subject managers and cashiers checks. It is elementary that "(a)n
injunction should never issue when an action for damages would
adequately compensate the injuries caused. The very foundation of
the jurisdiction to issue the writ of injunction rests in the fact that
the damages caused are irreparable and that damages would not
adequately compensate."45 Chiok could have and should have
proceeded directly against Nuguid to claim damages for breach of
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contract and to have the very account where he deposited the

subject checks garnished under Section 7(d) 46 and Section 8,47 Rule
57 of the Rules of Court. Instead, Chiok filed an action to enjoin
Metrobank and Global Bank from complying with their primary
obligation under checks in which they are liable as both drawer and
drawee.
It is undisputed that Chiok personally deposited the subject
managers and cashiers checks to Nuguids account.1wphi1 If the
intention of Chiok was for Nuguid to be allowed to withdraw the
proceeds of the checks after clearing, he could have easily
deposited personal checks, instead of going through the trouble of
purchasing managers and cashiers checks. Chiok therefore knew,
and actually intended, that Nuguid will be allowed to immediately
withdraw the proceeds of the subject checks. The deposit of the
checks which were practically as good as cash was willingly and
voluntarily made by Chiok, without any assurance that Nuguid will
comply with his end of the bargain on the same day. The
explanation for such apparently reckless action was admitted by
Chiok in the Amended Complaint itself:
That plaintiff [Chiok] due to the numberof years (five to seven
years) of business transactions with defendant [Nuguid] has
reposed utmost trust and confidence on the latterthat their
transactions as of June 1995 reaches millions of pesos. x x
x.48 (Emphases supplied.)
As between two innocent persons, one of whom must suffer the
consequences of a breach of trust, the one who made it possible by
his act of confidence must bear the loss. 49 Evidently, it was the
utmost trust and confidence reposed by Chiok to Nuguid that
caused this entire debacle, dragging three banks into the
controversy, and having their resources threatened because of an
alleged default in a contract they were not privy to.
Whether or not the peculiar circumstances of this case justify the
deviation from the general principles on causes and effects of
managers and cashiers checks
The Court of Appeals, while admitting that the general principles on

the causes and effects of managers and cashiers checks do not
allow the countermanding of such checks on the basis of an alleged
failure of consideration of the payee to the purchaser, nevertheless
held that the peculiar circumstances of this case justify a deviation
from said general principles, applying the aforementioned case of
Mesina. The Court of Appeals held:
At the core of the appeal interposed by the intervenor BPI, as well
as the depository banks, Global Bank and Metrobank, is the issue of
whether or not it is legally possible for a purchaser of a Managers
Check or Cashiers Check to stop payment thereon through a court
order on the ground of the payees alleged breach of contractual
obligation amounting to an absence of consideration therefor.
In view of the peculiar circumstances of this case, and in the
interest of substantial justice, We are constrained to rule in the
affirmative.
xxxx
In the case of Mesina v. Intermediate Appellate Court, cited by BPI
in its appeal brief, the Supreme Court had the occasion to rule that
general principles on causes and effects of a cashiers check, i.e.,
that it cannot be countermanded in the hands of a holder in due
course and that it is a bill of exchange drawn by the bank against
itself, cannot be applied without considering that the bank was
aware of facts (in this case, the cashiers check was stolen) that
would not entitle the payee thereof to collect on the check and,
consequently, the bank has the right to refuse payment when the
check is presented by the payee.
While the factual milieu of the Mesinacase is different from the case
at bench, the inference drawn therein by the High Court is
nevertheless applicable. The refusal of Nuguid to deliver the dollar
equivalent of the three checks in the amount of $1,022,288.50 in
the afternoon of July 5, 1995 amounted to a failure of consideration
that would not entitle Nuguid to collect on the subject checks.
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Let it be emphasized that in resolving the matter before Us, We do

not detract from well-settled concepts and principles in commercial
law regarding the nature, causes and effects of a managers check
and cashiers check. Such checks are primary obligations of the
issuing bank and accepted in advance by the mere issuance
thereof. They are a banks order to pay drawn upon itself,
committing in effect its total resources, integrity, and honor. By
their peculiar character and general use in the commercial world,
they are regarded substantially as good as the money they
represent. However, in view of the peculiar circumstances of the
case at bench, We are constrained to set aside the foregoing
concepts and principles in favor of the exercise of the right to
rescind
a
contract
upon
the
failure
of
consideration
thereof.50 (Emphases ours, citations omitted.)
In deviating from general banking principles and disposing the case
on the basis of equity, the courts a quo should have at least
ensured that their dispositions were indeed equitable. This Court
observes that equity was not served in the dispositions below
wherein Nuguid, the very person found to have violated his
contract by not delivering his dollar obligation, was absolved from
his liability, leaving the banks who are not parties to the contract to
suffer the losses of millions of pesos.
The Court of Appeals reliance in the 1986 case of Mesina was
likewise inappropriate. In Mesina, respondent Jose Go purchased
from Associated Bank a cashiers check for P800,000.00, payable to
bearer.51 Jose Go inadvertently left the check on the top desk of the
bank manager
when he left the bank. The bank manager entrusted the check for
safekeeping to a certain bank official named Albert Uy, who then
had a certain Alexander Lim as visitor. Uy left his deskto answer a
phone call and to go to the mens room. When Uy returned to his
desk, Lim was gone. Jose Go inquired for his check from Uy, but the
check was nowhereto be found. At the advice of Uy, Jose Go
accomplished a Stop Payment Order and executed an affidavit of
loss. Uy reported the loss to the police. Petitioner Marcelo Mesina
tried to encash the check with Prudential Bank, but the check was
dishonored by Associated Bank by sending it back to Prudential
Bank with the words "Payment Stopped" stamped on it. When the
police asked Mesina how he came to possess the check, he said it

was paid to him by Alexander Lim in a "certain transaction"but
refused to elucidate further. Associated Bank filed an action for
Interpleader against Jose Go and Mesina to determine which of
them is entitled to the proceeds of the check. It was in the appeal
on said interpleader case that this Court allowed the deviation from
the general principles on cashiers checks on account of the banks
awareness of certain facts that would prevent the payee to collect
on the check.
There is no arguing that the peculiar circumstances in Mesina
indeed called for such deviation on account of the drawee banks
awareness of certain relevant facts. There is, however, no
comparable peculiar circumstance in the case at bar that would
justify applying the Mesina disposition. In Mesina, the cashiers
check was stolen while it was in the possession of the drawee bank.
In the case at bar, the managers and cashiers checks were
personally deposited by Chiok in the account of Nuguid. The only
knowledge that can be attributed to the drawee banks is whatever
was relayed by Chiok himself when he asked for a Stop Payment
Order. Chiok testified on this matter, to wit:
Q: Now, Mr. witness, since according to you the defendant
failed to deliver [this] amount of P1,023,288.23 what action
have you undertaken to protect yourinterest Mr. witness?
A: I immediately call my lawyer, Atty. Espiritu to seek his
legal advise in this matter.
Q: Prior to that matter that you soughtthe advise of your
lawyer, Atty. Espiritu insofar as the issuing bank is
concerned, namely, Asian Bank, what did you do in order to
protect your interest? A: I immediately call the bank asking
them if what is the procedure for stop payment and the
bank told me that you have to secure a court order as soon
as possible before the clearing of these checks. 52 (Emphasis
supplied.)
Asian Bank, which is now Global Bank, obeyed the TRO and denied
the clearing of the managers checks. As such, Global Bank may not
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be held liable on account of the knowledge of whatever else Chiok

told them when he asked for the procedure to secure a Stop
Payment Order. On the other hand, there was no mention that
Metrobank was ever notified of the alleged failure of consideration.
Only Asian Bank was notified of such fact. Furthermore, the mere
allegation of breach on the part of the payee of his personal
contract with the purchaser should not be considered a sufficient
cause to immediately nullify such checks, thereby eroding their
integrity and honor as being as good as cash.
In view of all the foregoing, we resolve that Chioks complaint
should be denied insofar as it prayed for the withdrawal of the
proceeds of the subject managers and cashiers checks.
Accordingly, the writ of preliminary prohibitory injunction enjoining
Metrobank and Global Bank from honoring the subject managers
and cashiers checks should be lifted.
Since we have ruled that Chiok cannot claim the amounts of the
checks from Metrobank and Global Bank, the issue concerning the
setting off of Global Banks judgment debt to Chiok with the
outstanding obligations of Chiok is hereby mooted. We furthermore
note that Global Bank had not presented 53 such issue as a
counterclaim in the case at bar, preventing us from ruling on the
same.
BPIs right to the proceeds of the managers checks from Global
Bank
While our ruling in Mesinais inapplicable to the case at bar, a much
more relevant case as regards the effect of a Stop Payment Order
upon a managers check would be Security Bank and Trust
Company v. Rizal Commercial Banking Corporation,54 which was
decided by this Court in 2009. In said case, SBTC issued a
managers check forP8 million, payable to "CASH," as proceeds of
the loan granted to Guidon Construction and Development
Corporation (GCDC). On the same day, the managers check was
deposited by Continental Manufacturing Corporation (CMC) in its
current account with Rizal Commercial Banking Corporation (RCBC).
RCBC immediately honored the managers check and allowed CMC
to withdraw the same. GCDC issued a Stop Payment Order to SBTC
on the next day, claiming that the check was released to a third
party by mistake. SBTC dishonored and returned the managers

check to RCBC. The check was returned back and forth between the
two banks, resulting in automatic debits and credits in each banks
clearing balance. RCBC filed a complaint for damages against SBTC.
When the case reached this Court, we held:
At the outset, it must be noted that the questioned check issued by
SBTC is not just an ordinary check but a managers check. A
managers check is one drawn by a banks manager upon the bank
itself. It stands on the same footing as a certified check, which is
deemed to have been accepted by the bank that certified it. As the
banks own check, a managers check becomes the primary
obligation of the bank and is accepted in advance by the act of its
issuance.
In this case, RCBC, in immediately crediting the amount of P8
million to CMCs account, relied on the integrity and honor of the
check as it is regarded in commercial transactions. Where the
questioned check, which was payable to"Cash," appeared regular
on its face, and the bank found nothing unusual in the transaction,
as the drawer usually issued checks in big amounts made payable
to cash, RCBC cannot be faulted in paying the value of the
questioned check.
In our considered view, SBTC cannot escape liability by invoking
Monetary Board Resolution No. 2202 dated December 21, 1979,
prohibiting drawings against uncollected deposits. For we must
point out that the Central Bank at that timeissued a Memorandum
dated July 9, 1980, which interpreted said Monetary Board
Resolution No. 2202. In its pertinent portion, saidMemorandum
reads:
MEMORANDUM TO ALL BANKS
July 9, 1980
For the guidance of all concerned, Monetary Board Resolution No.
2202 dated December 31, 1979 prohibiting, as a matter of policy,
drawing against uncollected deposit effective July 1, 1980,
uncollected
deposits
representing
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managers/cashiers/treasurerschecks, treasury warrants, postal

money orders and duly funded "on us" checks which may be
permitted at the discretion of each bank, covers drawings against
demand deposits as well as withdrawals from savings deposits.
Thus, it is clear from the July 9, 1980 Memorandum that banks were
given the discretion to allow immediate drawings on uncollected
deposits of managers checks, among others. Consequently, RCBC,
in allowing the immediate withdrawal against the subject
managers check, only exercised a prerogative expressly granted to
it bythe Monetary Board.
Moreover, neither Monetary Board Resolution No. 2202 nor the July
9, 1980 Memorandum alters the extraordinary nature of the
managers check and the relativerights of the parties thereto.
SBTCs liability as drawer remains the same by drawing the
instrument, it admits the existence of the payee and his then
capacity to indorse; and engages that on due presentment, the
instrument will be accepted, or paid, or both, according to its
tenor.55(Emphases supplied, citations omitted.)
passbook itself, which would indubitably show that money actually

changed hands at the crucial period before the issuance of the TRO.
But it did not.56
We disagree with this ruling. As provided for in Section 4, Rule 129
of the Rules of Court, admissions in pleadings are judicial
admissions and do not require proof:
Section 4. Judicial admissions. An admission, verbal or written,
made by a party in the course of the proceedings in the same case,
does not require proof. The admission may be contradicted only by
showing that it was made through palpable mistake or that no such
admission was made.
As in SBTC, BPI in the case at bar relied on the integrity and honor
of the managers and cashiers checks asthey are regarded in
commercial transactions when it immediately credited their
amounts to Nuguids account.
Nuguid has admitted that FEBTC (now BPI) has paid him the value
of the subject checks.57 This statement by Nuguid is certainly
against his own interest as he can be held liable for said amounts.
Unfortunately, Nuguid allowed his appeal with the Court of Appeals
to lapse, without taking steps to have it reinstated. This course of
action, which is highly unlikely if Nuguid had not withdrawn the
value of the managers and cashiers checks deposited into his
account, likewise prevents us from ordering Nuguid to deliver the
amounts of the checks to Chiok. Parties who did not appeal will not
be affected by the decision of an appellate court rendered to
appealing parties.58
The Court of Appeals, however, sustained the dismissal of BPIs

complaint-in-intervention to recover the amounts of the managers
checks from Global Bank on account of BPIs failure to prove the
supposed withdrawal by Nuguid of the value of the checks:
Another reason given by the Court of Appeals for sustaining the

dismissal of BPIs complaint-in-intervention was that BPI failed to
prove that it was a holder in due course with respect to the
managers checks.59
BPIs cause of action against Asian Bank (now Global Bank) is

derived from the supposed withdrawal by Nuguid of the proceeds of
the two Managers Checks it issued and the refusal of Asian Bank to
make good the same. That the admissions in the pleadings to the
effect that Nuguid had withdrawn the said proceeds failed to satisfy
the trial court is understandable. Such withdrawal is anessential
fact that, if properly substantiated, would have defeated Chioks
right toan injunction. BPI could so easily have presented withdrawal
slips or, with Nuguids consent, statements of account orthe
We agree with the finding of the Court of Appeals that BPI is not a
holder in due course with respect to managers checks. Said checks
were never indorsed by Nuguid to FEBTC, the predecessor-ininterest of BPI, for the reason that they were deposited by Chiok
directly to Nuguids account with FEBTC. However, inview of our
ruling that Nuguid has withdrawn the value of the checks from his
account, BPI has the rights of an equitable assignee for value under
Section 49 of the Negotiable Instruments Law, which provides:
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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 vests in the transferee suchtitle as
the transferor had therein, and the transferee acquires in addition,
the right to have the indorsement of the transferor. But for the
purpose of determining whether the transferee is a holder in due
course, the negotiation takes effect as of the time when the
indorsement is actually made.
appeal with the Court of Appeals to lapse, without taking steps

tohave it reinstated. As stated above, parties who did not appeal
will not be affected by the decision of the appellate court rendered
to appealing parties.63 Moreover, since Nuguid was not impleaded
as a party to the present consolidated cases, he cannot be bound
by our judgment herein. Respondent Chiok should therefore pursue
his remedy against Nuguid in a separate action to recover the
amounts of the checks.
As an equitable assignee, BPI acquires the instrument subject to

defenses and equities available among prior parties 60 and, in
addition, the right to have the indorsement of Nuguid. Since the
checks in question are managers checks, the drawer and the
drawee thereof are both Global Bank. Respondent Chiok cannot be
considered a prior party as he is not the checks drawer, drawee,
indorser, payee or indorsee. Global Bank is consequently primarily
liable upon the instrument, and cannot hide behind respondent
Chioks defenses. As discussed above, managers checks are preaccepted. By issuing the managers check, therefore, Global Bank
committed in effect its total resources, integrity and honor towards
its payment.61
Despite the reversal of the Court of Appeals Decision, the liability of

Nuguid therein to respondent Chiok for attorneys fees equivalent
to 5% of the total amount due remains valid, computed from the
amounts stated in said Decision. This is a consequence of the
finality of the Decision of the Court of Appeals with respect to him.
Resultantly, Global Bank should pay BPI the amount

of P18,455,350.00, representing the aggregate face value ofMC No.
025935 and MC No. 025939. Since Global Bank was merely
following the TRO and preliminary injunction issued by the RTC, it
cannot be held liable for legal interest during the time said amounts
are in its possession. Instead, we are adopting the formulation of
the Court of Appeals that the amounts be treated as savings
deposits in Global Bank. The interest rate, however, should not be
fixed at 4% as determined by the Court of Appeals, since said rates
have fluctuated since July 7, 1995, the date Global Bank refused to
honor the subject managers checks. Thus, Global Bank should pay
BPI interest based on the rates it actually paid its depositors from
July 7, 1995 until the finality of this Decision, in accordance with the
same compounding rules it applies to its depositors. The legal rate
of6% per annum shall apply after the finality of this Decision. 62
We have to stress that respondent Chiok is not left without
recourse. Respondent Chioks cause of action to recover the value
of the checks is against Nuguid. Unfortunately, Nuguid allowed his
WHEREFORE, the Court resolves to DENY the Joint Manifestation

and Motion filed with this Court on May 28, 2013.
The petitions in G.R. No. 172652 and G.R. No. 175302 are
GRANTED. The Decision of the Court of Appeals in CA-G.R. CV No.
77508 dated May 5, 2006, and the Resolution on the same case
dated November 6, 2006 are hereby REVERSED AND SET ASIDE,
and a new one is issued ordering the DENIAL of the Amended
Complaint in Civil Case No. Q-95-24299 in Branch 96 of the
Regional Trial Court of Quezon City for lack of merit. The Writ of
Preliminary Prohibitory Injunction enjoining Asian Banking
Corporation (now Global Business Bank, Inc.) from honoring MC No.
025935 and MC No. 025939, and Metropolitan Bank & Trust
Company from honoring CC No. 003380, is hereby LIFTED and SET
ASIDE.
Global Business Bank, Inc. is ORDERED TO PAY the Bank of the
Philippine Islands, as successor-in-interest of Far East Bank & Trust
Company, the amount of P18,455,350.00, representing the
aggregate face value of MC No. 025935 and MC No. 025939, with
interest based on the rates it actually paid its depositors from July
7, 1995 until the finality of this Decision, in accordance with the
same compounding rules it applies to its depositors.
The petition in G.R. No. 175394 is hereby rendered MOOT.
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The liabilities of spouses Gonzalo B. Nuguid and Marinella O. Nuguid

under the Decision and Resolution of the Court of Appeals in CAG.R.
CV No. 77508 remain VALID and SUBSISTING, computed from the
amounts adjudged by the Court of Appeals, without prejudice to
any further action that may be filed by Wilfred N. Chiok. SO
ORDERED.
G.R. No. 168842
August 11, 2010
VICENTE GO, Petitioner, vs. METROPOLITAN BANK AND TRUST

CO., Respondent.
NACHURA, J.:
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Before the Court is a petition for review on certiorari under Rule 45

of the Rules of Court, assailing the Decision1dated May 27, 2005
and the Resolution2 dated August 31, 2005 of the Court of Appeals
(CA) in CA-G.R. CV No. 63469.
[petitioners] suppliers, were filled up and dated September

22, 1990 and September 7, 1990 in the amount
of P30,000.00 and P50,000.00 respectively, and were
deposited with defendant Chuas aforestated account with
Metrobank;
The Facts
The facts of the case are as follows:
Petitioner filed two separate cases before the Regional Trial Court
(RTC) of Cebu. Civil Case No. CEB-9713 was filed by petitioner
against Ma. Teresa Chua (Chua) and Glyndah Tabaag (Tabaag) for
a sum of money with preliminary attachment. Civil Case No. CEB9866 was filed by petitioner for a sum of money with damages
against herein respondent Metropolitan Bank and Trust Company
(Metrobank) and Chua.3
In both cases, petitioner alleged that he was doing business under
the name "Hope Pharmacy" which sells medicine and other
pharmaceutical products in the City of Cebu. Petitioner had in his
employ Chua as his pharmacist and trustee or caretaker of the
business; Tabaag, on the other hand, took care of the receipts and
invoices and assisted Chua in making deposits for petitioners
accounts in the business operations of Hope Pharmacy. 4
In CEB-9713, petitioner claimed that there were unauthorized
deposits and encashments made by Chua and Tabaag in the total
amount of One Hundred Nine Thousand Four Hundred Thirty-three
Pesos and Thirty Centavos (P109,433.30). He questioned
particularly the following:
(1) FEBTC Check No. 251111 dated April 29, 1990 in the
amount of P22,635.00 which was issued by plaintiffs
[petitioners] customer Loy Libron in payment of the stocks
purchased was deposited under Metrobank Savings Account
No. 420-920-6 belonging to the defendant Ma. Teresa Chua;
(2) RCBC Checks Nos. 330958 and 294515, which were in
blank but pre-signed by him (plaintiff [petitioner] Vicente
Go) for convenience and intended for payment to plaintiffs
(3) PBC Check No. 005874, drawn by Elizabeth Enriquez

payable to the Hope Pharmacy in the amount ofP6,798.30
was encashed by the defendant Glyndah Tabaag;
(4) There were unauthorized deposits and encashments in
the total sum of P109,433.30;5
In CEB-9866, petitioner averred that there were thirty-two (32)
checks with Hope Pharmacy as payee, for varying sums, amounting
to One Million Four Hundred Ninety-Two Thousand Five Hundred
Ninety-Five Pesos and Six Centavos (P1,492,595.06), that were not
endorsed by him but were deposited under the personal account of
Chua with respondent bank,6 and these are the following:
CHECK NO.
DATE
AMOUNT
FEBTC 251166
5-23-90
P 65,214.88
FEBTC 239399
5-08-90
24,917.75
FEBTC 251350
7-24-90
212,326.56
PBC 279887
6-27-90
2,000.00
PBC 162387
1-24-90
6,300.00
PBC 162317
12-22-89
3,300.00
PBC 279881
6-23-90
7,650.00
PBC 009005
7-21-89
3,584.00
PBC 279771
5-14-90
3,600.00
PBC 279726
4-25-90
2,000.00
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PBC 168004
3-22-90
2,800.00
PBC 167963
3-07-90
1,700.00
FEBTC 267793
8-20-90
80,085.66
FEBTC 267761
7-21-90
45,304.63
FEBTC 251252
6-03-90
64,000.00
FEBTC 267798
8-15-90
40,078.67
PBC 367292
8-06-90
2,100.00
PBC 376445
9-26-90
1,125.00
PBC 009056
8-07-89
2,500.00
PBC 376402
9-12-90
12,105.40
BPI 197074
7-17-90
5,240.00
BPI 197051
7-06-90
1,350.00
BPI 204358
9-19-90
5,402.60
BPI 204252
7-31-90
6,715.60
FEBTC 251171
6-27-90
83,175.54
FEBTC 251165
6-28-90
231,936.10
FEBTC 251251
6-30-90
47,087.25
FEBTC 251163
6-21-90
170,600.85
FEBTC 251170
5-23-90
16,440.00
FEBTC 251112
5-31-90
211,592.69
FEBTC 239400
6-15-90
47,664.03
FEBTC 251162
6-22-90
82,697.85
P1,492,595.067
Petitioner claimed that the said checks were crossed checks
payable to Hope Pharmacy only; and that without the participation
and connivance of respondent bank, the checks could not have
been accepted for deposit to any other account, except petitioners
account.8
Thus, in CEB-9866, petitioner prayed that Chua and respondent
bank be ordered, jointly and severally, to pay the principal amount
of P1,492,595.06, plus interest at 12% from the dates of the
checks, until the obligation shall have been fully paid; moral
damages of Five Hundred Thousand Pesos (P500,000.00);
exemplary damages ofP500,000.00; and attorneys fees and costs
in the amount of P500,000.00.9
On February 23, 1995, the RTC rendered a Joint Decision, 10 the
dispositive portion of which reads:
WHEREFORE, premises considered, the Court hereby renders
judgment dismissing plaintiff Vicente Gos complaint against the
defendant Ma. Teresa Chua and Glyndah Tabaag in Civil Case No.
CEB-9713, as well as plaintiffs complaint against the same
defendant Ma. Teresa Chua in Civil Case No. CEB-9866.
Plaintiff Vicente Go is moreover sentenced to pay P50,000.00 in
attorneys fees and litigation expenses to the defendants Ma.
Teresa Chua and Glyndah Tabaag in Civil Case No. CEB-9713.
Defendant Metrobank in Civil Case No. CEB-9866 is hereby
condemned to pay unto plaintiff Vicente Go/Hope Pharmacy the
amount of P50,000.00 as moral damages, and attorneys fees and
litigation expenses in the aggregate sum of P25,000.00.
The defendant Metrobanks crossclaim against its co-defendant Ma.
Teresa Chua in Civil Case No. CEB-9866 is dismissed for lack of
merit.
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No special pronouncement as to costs in both instances.

SO ORDERED.11
In striking down the complaint of the petitioner against Chua and
Tabaag in CEB-9713, the RTC made the following findings:
(1) FEBTC Check No. 251111, dated April 29, 1990, in the
amount of P22,635.00 payable to cash, was drawn by Loy
Libron in payment of her purchases of medicines and other
drugs which Ma. Teresa Chua was selling side by side with
the medicines and drugs of the Hope Pharmacy, for which
she (Maritess) was granted permission by its owner, Mr.
Vicente Chua. These medicines and drugs from Thailand
were Maritess sideline, and were segregated from the
stocks of Hope Pharmacy; x x x.
The trial court absolved Chua in CEB-9866 because of the finding

that the subject checks in CEB-9866 were payments of petitioner
for his loans or borrowings from the parents of Ma. Teresa Chua,
through Ma. Teresa, who was given the total discretion by petitioner
to transfer money from the offices of Hope Pharmacy to pay the
advances and other obligations of the drugstore; she was also
given the full discretion where to source the funds to cover the
daily overdrafts, even to the extent of borrowing money with
interest from other persons.13
While the trial court exonerated Chua in CEB-9866, it however
declared respondent bank liable for being negligent in allowing the
deposit of crossed checks without the proper indorsement.
Petitioner filed an appeal before the CA. On May 27, 2005, the CA
rendered a Decision,14 the fallo of which reads:
(2) RCBC Check Nos. 294519 and 330958 were checks

belonging to plaintiff Vicente Go payable to cash x x x; these
checks were replacements of the sums earlier advanced by
Ma. Teresa Chua, but which were deposited in the account of
Vicente Go with RCBC, as shown by the deposit slips x x x,
and confirmed by the statement of account of Vicente Go
with RCBC.
WHEREFORE, except for the award of attorneys fees and litigation

expenses in favor of defendants Chua and Tabaag which is hereby
deleted, the decision of the lower court is hereby AFFIRMED.
(3) Check No. PCIB 005374 drawn by Elizabeth Enriquez

payable to Hope Pharmacy/Cash in the amount ofP6,798.30
dated September 6, 1990, was admittedly encashed by the
defendant, Glyndah Tabaag. As per instruction by Vicente
Go, Glyndah requested the drawer to insert the word "Cash,"
so that she could encash the same with PCIB, to meet the
Hope Pharmacys overdraft.
The Issue
The listings x x x, made by Glyndah Tabaag and Flor Ouano will

show that the corresponding amounts covered thereby were in fact
deposited to the account of Mr. Vicente Go with RCBC; the Bank
Statement of Mr. Go x x x, confirms defendants claim
independently of the deposit slip[s] x x x.12
SO ORDERED.15
Hence, this petition.
Petitioner presented this sole issue for resolution:

The Court of Appeals Erred In Not Holding Metrobank Liable For
Allowing The Deposit, Of Crossed Checks Which Were Issued In
Favor Of And Payable To Petitioner And Without Being Indorsed By
The Petitioner, To The Account Of Maria Teresa Chua.16
The Ruling of the Court
A check is a bill of exchange drawn on a bank payable on
demand.17 There are different kinds of checks. In this case, crossed
checks are the subject of the controversy. A crossed check is one
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7 CASES
where two parallel lines are drawn across its face or across the
corner thereof. It may be crossed generally or specially.18
A check is crossed specially when the name of a particular banker
or a company is written between the parallel lines drawn. It is
crossed generally when only the words "and company" are written
or nothing is written at all between the parallel lines, as in this
case. It may be issued so that presentment can be made only by a
bank.19
In order to preserve the credit worthiness of checks, jurisprudence
has pronounced that crossing of a check has the following effects:
(a) the check may not be encashed but only deposited in the bank;
(b) the check may be
negotiated only once to one who has an account with a bank;
and (c) the act of crossing the check serves as warning to the
holder that the check has been issued for a definite purpose so that
he must inquire if he has received the check pursuant to that
purpose, otherwise, he is not a holder in due course.20
The Court has taken judicial cognizance of the practice that a check
with two parallel lines in the upper left hand corner means that it
could only be deposited and not converted into cash. The effect of
crossing a check,
thus, relates to the mode of payment, meaning that the drawer had
intended the check for deposit only by the rightful person, i.e., the
payee named therein.21 The crossing of a check is a warning that
the check should be deposited only in the account of the payee.
Thus, it is the duty of the collecting bank to ascertain that the
check be deposited to the payees account only.22
In the instant case, there is no dispute that the subject 32 checks
with the total amount of P1,492,595.06 were crossed checks with
petitioner as the named payee. It is the submission of petitioner
that respondent bank should be held accountable for the entire
amount of the checks because it accepted the checks for deposit
under Chuas account despite the fact that the checks were crossed
and that the payee named therein was not Chua.
In its defense, respondent bank countered that petitioner is not

entitled to reimbursement of the total sum ofP1,492,595.06 from
either Maria Teresa Chua or respondent bank because petitioner
was not damaged thereby.23
Respondent banks contention is meritorious. Respondent bank
should not be held liable for the entire amount of the checks
considering that, as found by the RTC and affirmed by the CA, the
checks were actually given to Chua as payments by petitioner for
loans obtained from the parents of Chua. Furthermore, petitioners
non-inclusion of Chua and Tabaag in the petition before this Court
is, in effect, an admission by the petitioner that Chua, in
representation of her parents, had rightful claim to the proceeds of
the checks, as payments by petitioner for money he borrowed from
the parents of Chua. Therefore, petitioner suffered no pecuniary
loss in the deposit of the checks to the account of Chua.ten.lihpwal
However, we affirm the finding of the RTC that respondent bank
was negligent in permitting the deposit and encashment of the
crossed checks without the proper indorsement. An indorsement is
necessary for the proper negotiation of checks specially if the
payee named therein or holder thereof is not the one depositing or
encashing it. Knowing fully well that the subject checks were
crossed, that the payee was not the holder and that the checks
contained no indorsement, respondent bank should have taken
reasonable steps in order to determine the validity of the
representations made by Chua. Respondent bank was amiss in its
duty as an agent of the payee. Prudence dictates that respondent
bank should not have merely relied on the assurances given by
Chua.1avvphi1
Respondent presented Jonathan Davis as its witness in the trial
before the RTC. He was the officer-in-charge and ranked second to
the assistant vice president of the bank at the time material to this
case. Davis testimony was summarized by the RTC as follows:
Davis also testified that he allowed Ma. Teresa Chua to deposit the
checks subject of this litigation which were payable to Hope
Pharmacy. According to him, it was a privilege given to valued
customers on a highly selective case to case basis, for marketing
purposes, based on trust and confidence, because Ma. Teresa
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[Chua] told him that those checks belonged to her as payment for
the advances she extended to Mr. Go/Hope Pharmacy. x x x
Davis stressed that Metrobank granted the privilege to Ma. Teresa
Chua that for every check she deposited with Metrobank, the same
would be credited outright to her account, meaning that she could
immediately make use of the amount credited; this arrangement
went on for about three years, without any complaint from Mr.
Go/Hope Pharmacy, and Ma. Teresa Chua made warranty that she
would reimburse Metrobank if Mr. Go complained. He did not
however call or inform Mr. Go about this arrangement, because
their bank being a Chinese bank, transactions are based on trust
and confidence, and for him to inform Mr. Vicente Go about it, was
tantamount to questioning the integrity of their client, Ma. Teresa
Chua. Besides, this special privilege or arrangement would not
bring any monetary gain to the bank.24
Negligence was committed by respondent bank in accepting for
deposit the crossed checks without indorsement and in not
verifying the authenticity of the negotiation of the checks. The law
imposes a duty of extraordinary diligence on the collecting bank to
scrutinize checks deposited with it, for the purpose of determining
their genuineness and regularity.25 As a business affected with
public interest and because of the nature of its functions, the banks
are under obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of the
relationship.26 The fact that this arrangement had been practiced
for three years without Mr. Go/Hope Pharmacy raising any objection
does not detract from the duty of the bank to exercise
extraordinary diligence. Thus, the Decision of the RTC, as affirmed
by the CA, holding respondent bank liable for moral damages is
sufficient to remind it of its responsibility to exercise extraordinary
diligence in the course of its business which is imbued with public
interest.
WHEREFORE, the Decision dated May 27, 2005 and the Resolution
dated August 31, 2005 of the Court of Appeals in CA-G.R. CV No.
63469 are hereby AFFIRMED.
SO ORDERED.
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Gregorio C. Roxas, respondent, is a trader. Sometime in March
1993, he delivered stocks of vegetable oil to spouses Rodrigo and
Marissa Cawili. As payment therefor, spouses Cawili issued a
personal check in the amount ofP348,805.50. However, when
respondent tried to encash the check, it was dishonored by the
drawee bank. Spouses Cawili then assured him that they would
replace the bounced check with a cashiers check from the Bank of
the Philippine Islands (BPI), petitioner.
On March 31, 1993, respondent and Rodrigo Cawili went to
petitioners branch at Shaw Boulevard, Mandaluyong City where
Elma Capistrano, the branch manager, personally attended to
them. Upon Elmas instructions, Lita Sagun, the bank teller,
prepared BPI Cashiers Check No. 14428 in the amount
of P348,805.50, drawn against the account of Marissa Cawili,
payable to respondent. Rodrigo then handed the check to
respondent in the presence of Elma.
The following day, April 1, 1993, respondent returned to petitioners
branch at Shaw Boulevard to encash the cashiers check but it was
dishonored. Elma informed him that Marissas account was closed
on that date.
G.R. No. 157833
October 15, 2007
BANK OF THE PHILIPPINE ISLANDS, Petitioner, vs. GREGORIO

C. ROXAS, Respondent.
SANDOVAL-GUTIERREZ, J.:
For our resolution is the instant Petition for Review on Certiorari
assailing the Decision1 of the Court of Appeals (Fourth Division)
dated February 13, 2003 in CA-G.R. CV No. 67980.
The facts of the case, as found by the trial court and affirmed by
the Court of Appeals, are:
Despite respondents insistence, the bank officers refused to

encash the check and tried to retrieve it from respondent. He then
called his lawyer who advised him to deposit the check in his
(respondents) account at Citytrust, Ortigas Avenue. However, the
check was dishonored on the ground "Account Closed."
On September 23, 1993, respondent filed with the Regional Trial
Court, Branch 263, Pasig City a complaint for sum of money against
petitioner, docketed as Civil Case No. 63663. Respondent prayed
that petitioner be ordered to pay the amount of the check,
damages and cost of the suit.
In its answer, petitioner specifically denied the allegations in the
complaint, claiming that it issued the check by mistake in good
faith; that its dishonor was due to lack of consideration; and that
respondents remedy was to sue Rodrigo Cawili who purchased the
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7 CASES
check. As a counterclaim, petitioner prayed that respondent be

ordered to pay attorneys fees and expenses of litigation.
Petitioner filed a third-party complaint against spouses Cawili. They
were later declared in default for their failure to file their answer.
After trial, the RTC rendered a Decision, the dispositive portion of
which reads:
WHEREFORE, in view of the foregoing premises, this Court hereby
renders judgment in favor of herein plaintiff and orders the
defendant, Bank of the Philippine Islands, to pay Gerardo C. Roxas:
Petitioner ascribes to the Court of Appeals the following errors: (1)

in finding that respondent is a holder in due course; and (2) in
holding that it (petitioner) is liable to respondent for the amount of
the cashiers check.
Section 52 of the Negotiable Instruments Law provides:
SEC. 52. What constitutes a holder in due course. A holder in due
course is a holder who has taken the instrument under the
following conditions:
(a) That it is complete and regular upon its face;
1) The sum of P348,805.50, the face value of the cashiers

check, with legal interest thereon computed from April 1,
1993 until the amount is fully paid;
(b) That he became the holder of it before it was overdue and

without notice that it had been previously dishonored, if such was
the fact;
2) The sum of P50,000.00 for moral damages;
(c) That he took it in good faith and for value;
3) The sum of P50,000.00 as exemplary damages to serve

as an example for the public good;
(d) That at the time it was negotiated to him, he had no notice of

any infirmity in the instrument or defect in the title of person
negotiating it.
4) The sum of P25,000.00 for and as attorneys fees; and

the
5) Costs of suit.
As to the third-party complaint, third-party defendants Spouses
Rodrigo and Marissa Cawili are hereby ordered to indemnify
defendant Bank of the Philippine Islands such amount(s) adjudged
and actually paid by it to herein plaintiff Gregorio C. Roxas,
including the costs of suit.
SO ORDERED.
On appeal, the Court of Appeals, in its Decision, affirmed the trial
courts judgment.
As a general rule, under the above provision, every holder is

presumed prima facie to be a holder in due course. One who claims
otherwise has the onus probandi to prove that one or more of the
conditions required to constitute a holder in due course are lacking.
In this case, petitioner contends that the element of "value" is not
present, therefore, respondent could not be a holder in due course.
Petitioners contention lacks merit. Section 25 of the same law
states:
SEC. 25. Value, what constitutes. Value is any consideration
sufficient to support a simple contract. An antecedent or preexisting debt constitutes value; and is deemed as such whether the
instrument is payable on demand or at a future time.

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In Walker Rubber Corp. v. Nederlandsch Indische & Handelsbank,

N.V. and South Sea Surety & Insurance Co., Inc.,2 this Court ruled
that value "in general terms may be some right, interest, profit or
benefit to the party who makes the contract or some forbearance,
detriment, loan, responsibility, etc. on the other side." Here, there
is no dispute that respondent received Rodrigo Cawilis cashiers
check as payment for the formers vegetable oil. The fact that it
was Rodrigo who purchased the cashiers check from petitioner will
not affect respondents status as a holder for value since the check
was delivered to him as payment for the vegetable oil he sold to
spouses Cawili. Verily, the Court of Appeals did not err in concluding
that respondent is a holder in due course of the cashiers check.
Furthermore, it bears emphasis that the disputed check is a
cashiers check. In International Corporate Bank v. Spouses
Gueco,3 this Court held that a cashiers check is really the banks
own check and may be treated as a promissory note with the bank
as the maker. The check becomes the primary obligation of the
bank which issues it and constitutes a written promise to
pay upon demand. In New Pacific Timber & Supply Co. Inc. v.
Seeris,4 this Court took judicial notice of the "well-known and
accepted practice in the business sector that a cashiers check is
deemed as cash." This is because the mere issuance of a
cashiers check is considered acceptance thereof.
In view of the above pronouncements, petitioner bank became
liable to respondent from the moment it issued the cashiers check.
Having been accepted by respondent, subject to no condition
whatsoever, petitioner should have paid the same upon
presentment by the former.1wphi1
WHEREFORE, the petition is DENIED. The assailed Decision of the
Court of Appeals (Fourth Division) in CA-G.R. CV No. 67980
is AFFIRMED. Costs against petitioner.
SO ORDERED.
G.R. No. 72764 July 13, 1989

STATE INVESTMENT
APPELLATE COURT,
CHUA, respondents.
HOUSE, petitioner, vs. INTERMEDIATE

ANITA PEA CHUA and HARRIS
FERNAN, C.J.:
Petitioner State Investment House seeks a review of the decision of
respondent Intermediate Appellate Court (now Court of Appeals) in
AC-G.R. CV No. 04523 reversing the decision of the Regional Trial
Court of Manila, Branch XXXVII dated April 30, 1984 and dismissing
the complaint for collection filed by petitioner against private
respondents Spouses Anita Pena Chua and Harris Chua.
It appears that shortly before September 5, 1980, New Sikatuna
Wood Industries, Inc. requested for a loan from private respondent
Harris Chua. The latter agreed to grant the same subject to the
condition that the former should wait until December 1980 when he
would have the money. In view of this agreement, private
respondent-wife, Anita Pena Chua issued three (3) crossed checks
payable to New Sikatuna Wood Industries, Inc. all postdated
December 22, 1980 as follows:
DRAWEE BANK
CHECK NO.
DATE
AMOUNT
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Harris Chua before the Regional Trial Court of Manila, Branch XXXVII
docketed as Civil Case No. 82-10547.
1. China Banking
Corporation
2. International
Corporate Bank
3.
Metropolitan
Bank & Trust Co.
589053
04045549
036512
Dec. 22, 1980
Dec. 22, 1980
Dec. 22, 1980
P98,750.0
0
102,313.0
0
98,387.00
The total value of the three (3) postdated checks amounted to P

299,450.00.
Subsequently, New Sikatuna Wood Industries, Inc. entered into an
agreement with herein petitioner State Investment House, Inc.
whereby for and in consideration of the sum of Pl,047,402.91 under
a deed of sale, the former assigned and discounted with petitioner
eleven (11) postdated checks including the aforementioned three
(3) postdated checks issued by herein private respondent-wife
Anita Pea Chua to New Sikatuna Wood Industries, Inc.
When the three checks issued by private respondent Anita Pena
Chua were allegedly deposited by petitioner, these checks were
dishonored by reason of "insufficient funds", "stop payment" and
"account closed", respectively. Petitioner claims that despite
demands on private respondent Anita Pea to make good said
checks, the latter failed to pay the same necessitating the former
to file an action for collection against the latter and her husband
Private respondents-defendants filed a third party complaint

against New Sikatuna Wood Industries, Inc. for reimbursement and
indemnification in the event that they be held liable to petitionerplaintiff. For failure of third party defendant to answer the third
party complaint despite due service of summons, the latter was
declared in default.
On April 30, 1984, the lower court 1 rendered judgment against
herein private respondents spouses, the dispositive portion of
which reads:
WHEREFORE, judgment is hereby rendered in favor of the
plaintiff or against the defendants ordering the defendants
to pay jointly and severally to the plaintiff the following
amounts:
1) P 229,450.00 with interest at the rate of 12% per
annum from February 24,1981 until fully paid;
2) P 29,945.00 as and for attorney's fees; and
3) the costs of suit.
On the third party complaint, third party defendant New
Sikatuna Wood Industries, Inc. is ordered to pay third party
plaintiffs Anita Pena Chua and Harris Chua all amounts said
defendants' third- party plaintiffs may pay to the plaintiff on
account of this case. 2
On appeal filed by private respondents in AC-G.R. CV No. 04523,
the Intermediate Appellate Court 3 (now Court of Appeals) reversed
the lower court's judgment in the now assailed decision, the
dispositive portion of which reads:
WHEREFORE, finding this appeal meritorious, We Reverse
and Set Aside the appealed judgment, dated April 30, 1984
and a new judgment is hereby rendered dismissing the
complaint, with costs against plaintiff-appellee. 4
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The pivotal issue in this case is whether or not petitioner is a holder
in due course as to entitle it to proceed against private respondents
for the amount stated in the dishonored checks.
Section 52(c) of the Negotiable Instruments Law defines a holder in
due course as one who takes the instrument "in good faith and for
value". On the other hand, Section 52(d) provides that in order that
one may be a holder in due course, it is necessary that "at the time
the instrument was negotiated to him he had no notice of any x x x
defect in the title of the person negotiating it." However, under
Section 59 every holder is deemed prima facie to be a holder in due
course.
Admittedly, the Negotiable Instruments Law regulating the issuance
of negotiable checks as well as the lights and liabilities arising
therefrom, does not mention "crossed checks". But this Court has
taken cognizance of the practice that a check with two parallel lines
in the upper left hand corner means that it could only be deposited
and may not be converted into cash. Consequently, such
circumstance should put the payee on inquiry and upon him
devolves the duty to ascertain the holder's title to the check or the
nature of his possession. Failing in this respect, the payee is
declared guilty of gross negligence amounting to legal absence of
good faith and as such the consensus of authority is to the effect
that the holder of the check is not a holder in good faith. 5
Petitioner submits that at the time of the negotiation and
endorsement of the checks in question by New Sikatuna Wood
Industries, it had no knowledge of the transaction and/or
arrangement made between the latter and private respondents.
We agree with respondent appellate court.
Relying on the ruling in Ocampo v. Gatchalian (supra), the
Intermediate Appellate Court (now Court of Appeals), correctly
elucidated that the effects of crossing a check are: the check may
not be encashed but only deposited in the bank; the check may be
negotiated only once to one who has an account with a bank; and
the act of crossing the check serves as a warning to the holder that
the check has been issued for a definite purpose so that he must
inquire if he has received the check pursuant to that purpose,
otherwise he is not a holder in due course. Further, the appellate
court said:
It results therefore that when appellee rediscounted the
check knowing that it was a crossed check he was knowingly
violating the avowed intention of crossing the check.
Furthermore, his failure to inquire from the holder, party
defendant New Sikatuna Wood Industries, Inc., the purpose
for which the three checks were cross despite the warning of
the crossing, prevents him from being considered in good
faith and thus he is not a holder in due course. Being not a
holder in due course, plaintiff is subject to personal
defenses, such as lack of consideration between appellants
and New Sikatuna Wood Industries. Note that under the
facts the checks were postdated and issued only as a loan to
New Sikatuna Wood Industries, Inc. if and when deposits
were made to back up the checks. Such deposits were not
made, hence no loan was made, hence the three checks are
without consideration (Sec. 28, Negotiable Instruments
Law).
Likewise New Sikatuna Wood Industries negotiated the three
checks in breach of faith in violation of Article (sic) 55,
Negotiable Instruments Law, which is a personal defense
available to the drawer of the check. 6
In addition, such instruments are mentioned in Section 541 of the
Negotiable Instruments Law as follows:
Sec. 541. The maker or any legal holder of a check shall be
entitled to indicate therein that it be paid to a certain banker
or institution, which he shall do by writing across the face
the name of said banker or institution, or only the words
"and company."
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7 CASES
The payment made to a person other than the banker or

institution shall not exempt the person on whom it is drawn,
if the payment was not correctly made.
Under usual practice, crossing a check is done by placing two
parallel lines diagonally on the left top portion of the check. The
crossing may be special wherein between the two parallel lines is
written the name of a bank or a business institution, in which case
the drawee should pay only with the intervention of that bank or
company, or crossing may be general wherein between two parallel
diagonal lines are written the words "and Co." or none at all as in
the case at bar, in which case the drawee should not encash the
same but merely accept the same for deposit.
The effect therefore of crossing a check relates to the mode of its
presentment for payment. Under Section 72 of the Negotiable
Instruments Law, presentment for payment to be sufficient must be
made (a) by the holder, or by some person authorized to receive
payment on his behalf ... As to who the holder or authorized person
will be depends on the instructions stated on the face of the check.
Negotiable Instruments Law does not provide that a holder who is

not a holder in due course may not in any case recover on the
instrument for in the case at bar, petitioner may recover from the
New Sikatuna Wood Industries, Inc. if the latter has no valid excuse
for refusing payment. The only disadvantage of a holder who is not
in due course is that the negotiable instrument is subject to
defenses as if it were non-negotiable. 8
That the subject checks had been issued subject to the condition
that private respondents on due date would make the back up
deposit for said checks but which condition apparently was not
made, thus resulting in the non-consummation of the loan intended
to be granted by private respondents to New Sikatuna Wood
Industries, Inc., constitutes a good defense against petitioner who
is not a holder in due course.
WHEREFORE, the decision appealed from is hereby AFFIRMED with
costs against petitioner.
SO ORDERED.
The three subject checks in the case at bar had been crossed
generally and issued payable to New Sikatuna Wood Industries, Inc.
which could only mean that the drawer had intended the same for
deposit only by the rightful person, i.e., the payee named therein.
Apparently, it was not the payee who presented the same for
payment and therefore, there was no proper presentment, and the
liability did not attach to the drawer.
Thus, in the absence of due presentment, the drawer did not
become liable. 7 Consequently, no right of recourse is available to
petitioner against the drawer of the subject checks, private
respondent wife, considering that petitioner is not the proper party
authorized to make presentment of the checks in question.
Yet it does not follow as a legal proposition that simply because
petitioner was not a holder in due course as found by the appellate
court for having taken the instruments in question with notice that
the same is for deposit only to the account of payee named in the
subject checks, petitioner could not recover on the checks. The
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checks post dated sometime in March 1979 in the total amount of
P820,000.00. 3
Relying on the supplier's representation that he would complete
delivery within three months from December 5, 1978, petitioner
agreed to purchase additional 2,500 bales of tobacco leaves,
despite the supplier's failure to deliver in accordance with their
earlier agreement. Again petitioner issued post dated crossed
checks in the total amount of P1,100,000.00, payable sometime in
September 1979. 4
G.R. No. 93048 March 3, 1994

BATAAN CIGAR AND CIGARETTE FACTORY, INC., petitioner, vs.
THE COURT OF APPEALS and STATE INVESTMENT HOUSE,
INC., respondents.
NOCON, J.:
For our review is the decision of the Court of Appeals in the case
entitled "State Investment House, Inc. v. Bataan Cigar & Cigarette
Factory Inc.," 1 affirming the decision of the Regional Trial Court 2 in
a complaint filed by the State Investment House, Inc. (hereinafter
referred to as SIHI) for collection on three unpaid checks issued by
Bataan Cigar & Cigarette Factory, Inc. (hereinafter referred to as
BCCFI). The foregoing decisions unanimously ruled in favor of SIHI,
the private respondent in this case.
Emanating from the records are the following facts. Petitioner,
Bataan Cigar & Cigarette Factory, Inc. (BCCFI), a corporation
involved in the manufacturing of cigarettes, engaged one of its
suppliers, King Tim Pua George (herein after referred to as George
King), to deliver 2,000 bales of tobacco leaf starting October 1978.
In consideration thereof, BCCFI, on July 13, 1978 issued crossed
During these times, George King was simultaneously dealing with

private respondent SIHI. On July 19, 1978, he sold at a discount
check TCBT 551826 5 bearing an amount of P164,000.00, post
dated March 31, 1979, drawn by petitioner, naming George King as
payee to SIHI. On December 19 and 26, 1978, he again sold to
respondent checks TCBT Nos. 608967 & 608968, 6 both in the
amount of P100,000.00, post dated September 15 & 30, 1979
respectively, drawn by petitioner in favor of George King.
In as much as George King failed to deliver the bales of tobacco
leaf as agreed despite petitioner's demand, BCCFI issued on March
30, 1979, a stop payment order on all checks payable to George
King, including check TCBT 551826. Subsequently, stop payment
was also ordered on checks TCBT Nos. 608967 & 608968 on
September 14 & 28, 1979, respectively, due to George King's
failure to deliver the tobacco leaves.
Efforts of SIHI to collect from BCCFI having failed, it instituted the
present case, naming only BCCFI as party defendant. The trial court
pronounced SIHI as having a valid claim being a holder in due
course. It further said that the non-inclusion of King Tim Pua George
as party defendant is immaterial in this case, since he, as payee, is
not an indispensable party.
The main issue then is whether SIHI, a second indorser, a holder of
crossed checks, is a holder in due course, to be able to collect from
the drawer, BCCFI.
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The Negotiable Instruments Law states what constitutes a holder in

due course, thus:
Sec. 52 A holder in due course is a holder who has taken
the instrument under the following conditions:
a.) That it is complete and regular upon its face;
b.) That he became the holder of it before it was overdue,
and without notice that it had been previously
dishonored, if such was the fact;
c.) That he took it in good faith and for value;
d.) That at the time it was negotiated to him he had no
notice of any infirmity in the instrument or defect in the
title of the person negotiating it.
Section 59 of the NIL further states that every holder is
deemed prima facie a holder in due course. However, when it is
shown that the title of any person who has negotiated the
instrument was defective, the burden is on the holder to prove that
he or some person under whom he claims, acquired the title as
holder in due course.
The facts in this present case are on all fours to the case of State
Investment House, Inc. (the very respondent in this case) v.
Intermediate Appellate Court 7 wherein we made a discourse on the
effects of crossing of checks.
As preliminary, a check is defined by law as a bill of exchange
drawn on a bank payable on demand. 8 There are a variety of
checks, the more popular of which are the memorandum check,
cashier's check, traveler's check and crossed check. Crossed check
is one where two parallel lines are drawn across its face or across a
corner thereof. It may be crossed generally or specially.
A check is crossed specially when the name of a particular banker
or a company is written between the parallel lines drawn. It is
crossed generally when only the words "and company" are written
or nothing is written at all between the parallel lines. It may be
issued so that the presentment can be made only by a bank.
Veritably the Negotiable Instruments Law (NIL) does not mention
"crossed checks," although Article 541

refers to such instruments.
of the Code of Commerce
According to commentators, the negotiability of a check is not

affected by its being crossed, whether specially or generally. It may
legally be negotiated from one person to another as long as the one
who encashes the check with the drawee bank is another bank, or if
it is specially crossed, by the bank mentioned between the parallel
lines. 10This is specially true in England where the Negotiable
Instrument Law originated.
In the Philippine business setting, however, we used to be beset
with bouncing checks, forging of checks, and so forth that banks
have become quite guarded in encashing checks, particularly those
which name a specific payee. Unless one is a valued client, a bank
will not even accept second indorsements on checks.
In order to preserve the credit worthiness of checks, jurisprudence
has pronounced that crossing of a check should have the following
effects: (a) the check may not be encashed but only deposited in
the bank; (b) the check may be negotiated only once to one who
has an account with a bank; (c) and the act of crossing the check
serves aswarning to the holder that the check has been issued for a
definite purpose so that he must inquire if he has received the
check pursuant to that purpose, otherwise, he is not a holder in due
course. 11
The foregoing was adopted in the case of SIHI v. IAC, supra. In that
case, New Sikatuna Wood Industries, Inc. also sold at a discount to
SIHI three post dated crossed checks, issued by Anita Pea Chua
naming as payee New Sikatuna Wood Industries, Inc. Ruling that
SIHI was not a holder in due course, we then said:
The three checks in the case at bar had been crossed
generally and issued payable to New Sikatuna Wood
Industries, Inc. which could only mean that the drawer had
intended the same for deposit only by the rightful person,
i.e. the payee named therein. Apparently, it was not the
payee who presented the same for payment and therefore,
there was no proper presentment, and the liability did not
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7 CASES
attach to the drawer. Thus, in the absence of due

presentment, the drawer did not become liable.
Consequently, no right of recourse is available to petitioner
(SIHI) against the drawer of the subject checks, private
respondent wife (Anita), considering that petitioner is not
the proper party authorized to make presentment of the
checks in question.
xxx xxx xxx
That the subject checks had been issued subject to the
condition that private respondents (Anita and her husband)
on due date would make the back up deposit for said checks
but which condition apparently was not made, thus resulting
in the non-consummation of the loan intended to be granted
by private respondents to New Sikatuna Wood Industries,
Inc., constitutes a good defense against petitioner who is
not a holder in due course. 12
It is then settled that crossing of checks should put the holder on
inquiry and upon him devolves the duty to ascertain the indorser's
title to the check or the nature of his possession. Failing in this
respect, the holder is declared guilty of gross negligence amounting
to legal absence of good faith, contrary to Sec. 52(c) of the
Negotiable Instruments Law, 13 and as such the consensus of
authority is to the effect that the holder of the check is not a holder
in due course.
In the present case, BCCFI's defense in stopping payment is as
good to SIHI as it is to George King. Because, really, the checks
were issued with the intention that George King would supply BCCFI
with the bales of tobacco leaf. There being failure of consideration,
SIHI is not a holder in due course. Consequently, BCCFI cannot be
obliged to pay the checks.
The foregoing does not mean, however, that respondent could not
recover from the checks. The only disadvantage of a holder who is
not a holder in due course is that the instrument is subject to
defenses
as
if
it
were
non-negotiable. 14 Hence, respondent can collect from the
immediate indorser, in this case, George King.
WHEREFORE, finding that the court a quo erred in the application of
law, the instant petition is hereby GRANTED. The decision of the
Regional Trial Court as affirmed by the Court of Appeals is hereby
REVERSED. Cost against private respondent. SO ORDERED.
G.R. No. L-15126
November 30, 1961
VICENTE R. DE OCAMPO & CO., plaintiff-appellee, vs. ANITA

GATCHALIAN, ET AL., defendants-appellants.
LABRADOR, J.:
Appeal from a judgment of the Court of First Instance of Manila,
Hon. Conrado M. Velasquez, presiding, sentencing the defendants
to pay the plaintiff the sum of P600, with legal interest from
September 10, 1953 until paid, and to pay the costs.
The action is for the recovery of the value of a check for P600
payable to the plaintiff and drawn by defendant Anita C.
Gatchalian. The complaint sets forth the check and alleges that
plaintiff received it in payment of the indebtedness of one Matilde
Gonzales; that upon receipt of said check, plaintiff gave Matilde
Gonzales P158.25, the difference between the face value of the
check and Matilde Gonzales' indebtedness. The defendants admit
the execution of the check but they allege in their answer, as
affirmative defense, that it was issued subject to a condition, which
was not fulfilled, and that plaintiff was guilty of gross negligence in
not taking steps to protect itself.
At the time of the trial, the parties submitted a stipulation of facts,
which reads as follows:
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7 CASES
Plaintiff
and
defendants
through
their
respective
undersigned attorney's respectfully submit the following
Agreed Stipulation of Facts;
First. That on or about 8 September 1953, in the evening,
defendant Anita C. Gatchalian who was then interested in
looking for a car for the use of her husband and the family,
was shown and offered a car by Manuel Gonzales who was
accompanied by Emil Fajardo, the latter being personally
known to defendant Anita C. Gatchalian;
Second. That Manuel Gonzales represented to defend
Anita C. Gatchalian that he was duly authorized by the
owner of the car, Ocampo Clinic, to look for a buyer of said
car and to negotiate for and accomplish said sale, but which
facts were not known to plaintiff;
Third. That defendant Anita C. Gatchalian, finding the
price of the car quoted by Manuel Gonzales to her
satisfaction, requested Manuel Gonzales to bring the car the
day following together with the certificate of registration of
the car, so that her husband would be able to see same;
that on this request of defendant Anita C. Gatchalian,
Manuel Gonzales advised her that the owner of the car will
not be willing to give the certificate of registration unless
there is a showing that the party interested in the purchase
of said car is ready and willing to make such purchase and
that for this purpose Manuel Gonzales requested defendant
Anita C. Gatchalian to give him (Manuel Gonzales) a check
which will be shown to the owner as evidence of buyer's
good faith in the intention to purchase the said car, the said
check to be for safekeeping only of Manuel Gonzales and to
be returned to defendant Anita C. Gatchalian the following
day when Manuel Gonzales brings the car and the certificate
of registration, but which facts were not known to plaintiff;
Fourth. That relying on these representations of Manuel
Gonzales and with his assurance that said check will be only
for safekeeping and which will be returned to said defendant
the following day when the car and its certificate of
registration will be brought by Manuel Gonzales to
defendants, but which facts were not known to plaintiff,

defendant Anita C. Gatchalian drew and issued a check, Exh.
"B"; that Manuel Gonzales executed and issued a receipt for
said check, Exh. "1";
Fifth. That on the failure of Manuel Gonzales to appear
the day following and on his failure to bring the car and its
certificate of registration and to return the check, Exh. "B",
on the following day as previously agreed upon, defendant
Anita C. Gatchalian issued a "Stop Payment Order" on the
check, Exh. "3", with the drawee bank. Said "Stop Payment
Order" was issued without previous notice on plaintiff not
being know to defendant, Anita C. Gatchalian and who
furthermore had no reason to know check was given to
plaintiff;
Sixth. That defendants, both or either of them, did not
know personally Manuel Gonzales or any member of his
family at any time prior to September 1953, but that
defendant Hipolito Gatchalian is personally acquainted with
V. R. de Ocampo;
Seventh. That defendants, both or either of them, had no
arrangements or agreement with the Ocampo Clinic at any
time prior to, on or after 9 September 1953 for the
hospitalization of the wife of Manuel Gonzales and neither or
both of said defendants had assumed, expressly or
impliedly, with the Ocampo Clinic, the obligation of Manuel
Gonzales or his wife for the hospitalization of the latter;
Eight. That defendants, both or either of them, had no
obligation or liability, directly or indirectly with the Ocampo
Clinic before, or on 9 September 1953;
Ninth. That Manuel Gonzales having received the check
Exh. "B" from defendant Anita C. Gatchalian under the
representations and conditions herein above specified,
delivered the same to the Ocampo Clinic, in payment of the
fees and expenses arising from the hospitalization of his
wife;
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Tenth. That plaintiff for and in consideration of fees and

expenses of hospitalization and the release of the wife of
Manuel Gonzales from its hospital, accepted said check,
applying P441.75 (Exhibit "A") thereof to payment of said
fees and expenses and delivering to Manuel Gonzales the
amount of P158.25 (as per receipt, Exhibit "D") representing
the balance on the amount of the said check, Exh. "B";
course. In support of the first contention, it is argued that

defendant Gatchalian had no intention to transfer her property in
the instrument as it was for safekeeping merely and, therefore,
there was no delivery required by law (Section 16, Negotiable
Instruments Law); that assuming for the sake of argument that
delivery was not for safekeeping merely, delivery was conditional
and the condition was not fulfilled.
Eleventh. That the acts of acceptance of the check and

application of its proceeds in the manner specified above
were made without previous inquiry by plaintiff from
defendants:
In support of the contention that plaintiff-appellee is not a holder in

due course, the appellant argues that plaintiff-appellee cannot be a
holder in due course because there was no negotiation prior to
plaintiff-appellee's acquiring the possession of the check; that a
holder in due course presupposes a prior party from whose hands
negotiation proceeded, and in the case at bar, plaintiff-appellee is
the payee, the maker and the payee being original parties. It is also
claimed that the plaintiff-appellee is not a holder in due course
because it acquired the check with notice of defect in the title of
the holder, Manuel Gonzales, and because under the circumstances
stated in the stipulation of facts there were circumstances that
brought suspicion about Gonzales' possession and negotiation,
which circumstances should have placed the plaintiff-appellee
under the duty, to inquire into the title of the holder. The
circumstances are as follows:
Twelfth. That plaintiff filed or caused to be filed with the

Office of the City Fiscal of Manila, a complaint for estafa
against Manuel Gonzales based on and arising from the acts
of said Manuel Gonzales in paying his obligations with
plaintiff and receiving the cash balance of the check, Exh.
"B" and that said complaint was subsequently dropped;
Thirteenth. That the exhibits mentioned in this stipulation
and the other exhibits submitted previously, be considered
as parts of this stipulation, without necessity of formally
offering them in evidence;
WHEREFORE, it is most respectfully prayed that this agreed
stipulation of facts be admitted and that the parties hereto
be given fifteen days from today within which to submit
simultaneously their memorandum to discuss the issues of
law arising from the facts, reserving to either party the right
to submit reply memorandum, if necessary, within ten days
from receipt of their main memoranda. (pp. 21-25,
Defendant's Record on Appeal).
No other evidence was submitted and upon said stipulation the
court rendered the judgment already alluded above.
In their appeal defendants-appellants contend that the check is not
a negotiable instrument, under the facts and circumstances stated
in the stipulation of facts, and that plaintiff is not a holder in due
The check is not a personal check of Manuel Gonzales.

(Paragraph Ninth, Stipulation of Facts). Plaintiff could have
inquired why a person would use the check of another to
pay his own debt. Furthermore, plaintiff had the "means of
knowledge" inasmuch as defendant Hipolito Gatchalian is
personally acquainted with V. R. de Ocampo (Paragraph
Sixth, Stipulation of Facts.).
The maker Anita C. Gatchalian is a complete stranger to
Manuel Gonzales and Dr. V. R. de Ocampo (Paragraph Sixth,
Stipulation of Facts).
The maker is not in any manner obligated to Ocampo Clinic
nor to Manuel Gonzales. (Par. 7, Stipulation of Facts.)
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The check could not have been intended to pay the hospital
fees which amounted only to P441.75. The check is in the
amount of P600.00, which is in excess of the amount due
plaintiff. (Par. 10, Stipulation of Facts).
It was necessary for plaintiff to give Manuel Gonzales
change in the sum P158.25 (Par. 10, Stipulation of Facts).
Since Manuel Gonzales is the party obliged to pay, plaintiff
should have been more cautious and wary in accepting a
piece of paper and disbursing cold cash.
The check is payable to bearer. Hence, any person who
holds it should have been subjected to inquiries. EVEN IN A
BANK, CHECKS ARE NOT CASHED WITHOUT INQUIRY FROM
THE BEARER. The same inquiries should have been made by
plaintiff. (Defendants-appellants' brief, pp. 52-53)
Answering the first contention of appellant, counsel for plaintiffappellee argues that in accordance with the best authority on the
Negotiable Instruments Law, plaintiff-appellee may be considered
as a holder in due course, citing Brannan's Negotiable Instruments
Law, 6th edition, page 252. On this issue Brannan holds that a
payee may be a holder in due course and says that to this effect is
the greater weight of authority, thus:
Whether the payee may be a holder in due course under the
N. I. L., as he was at common law, is a question upon which
the courts are in serious conflict. There can be no doubt that
a proper interpretation of the act read as a whole leads to
the conclusion that a payee may be a holder in due course
under any circumstance in which he meets the requirements
of Sec. 52.
The argument of Professor Brannan in an earlier edition of
this work has never been successfully answered and is here
repeated.
Section 191 defines "holder" as the payee or indorsee of a
bill or note, who is in possession of it, or the bearer thereof.
Sec. 52 defendants defines a holder in due course as "a
holder who has taken the instrument under the following

conditions: 1. That it is complete and regular on its face. 2.
That he became the holder of it before it was overdue, and
without notice that it had been previously dishonored, if
such was the fact. 3. That he took it in good faith and for
value. 4. That at the time it was negotiated to him he had no
notice of any infirmity in the instrument or defect in the title
of the person negotiating it."
Since "holder", as defined in sec. 191, includes a payee who
is in possession the word holder in the first clause of sec. 52
and in the second subsection may be replaced by the
definition in sec. 191 so as to read "a holder in due course is
a payee or indorsee who is in possession," etc. (Brannan's
on Negotiable Instruments Law, 6th ed., p. 543).
The first argument of the defendants-appellants, therefore,
depends upon whether or not the plaintiff-appellee is a holder in
due course. If it is such a holder in due course, it is immaterial that
it was the payee and an immediate party to the instrument.
The other contention of the plaintiff is that there has been no
negotiation of the instrument, because the drawer did not deliver
the instrument to Manuel Gonzales with the intention of negotiating
the same, or for the purpose of giving effect thereto, for as the
stipulation of facts declares the check was to remain in the
possession Manuel Gonzales, and was not to be negotiated, but
was to serve merely as evidence of good faith of defendants in their
desire to purchase the car being sold to them. Admitting that such
was the intention of the drawer of the check when she delivered it
to Manuel Gonzales, it was no fault of the plaintiff-appellee drawee
if Manuel Gonzales delivered the check or negotiated it. As the
check was payable to the plaintiff-appellee, and was entrusted to
Manuel Gonzales by Gatchalian, the delivery to Manuel Gonzales
was a delivery by the drawer to his own agent; in other words,
Manuel Gonzales was the agent of the drawer Anita Gatchalian
insofar as the possession of the check is concerned. So, when the
agent of drawer Manuel Gonzales negotiated the check with the
intention of getting its value from plaintiff-appellee, negotiation
took place through no fault of the plaintiff-appellee, unless it can be
shown that the plaintiff-appellee should be considered as having
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notice of the defect in the possession of the holder Manuel

Gonzales. Our resolution of this issue leads us to a consideration of
the last question presented by the appellants, i.e., whether the
plaintiff-appellee may be considered as a holder in due course.
nature of the title and possession of Manuel Gonzales, amounting

to legal absence of good faith, and it may not be considered as a
holder of the check in good faith. To such effect is the consensus of
authority.
Section 52, Negotiable Instruments Law, defines holder in due

course, thus:
In order to show that the defendant had "knowledge of such

facts that his action in taking the instrument amounted to
bad faith," it is not necessary to prove that the defendant
knew the exact fraud that was practiced upon the plaintiff
by the defendant's assignor, it being sufficient to show that
the defendant had notice that there was something wrong
about his assignor's acquisition of title, although he did not
have notice of the particular wrong that was committed.
Paika v. Perry, 225 Mass. 563, 114 N.E. 830.
A holder in due course is a holder who has taken the

instrument under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue,
and without notice that it had been previously dishonored, if
such was the fact;
(d) That at the time it was negotiated to him he had no

notice of any infirmity in the instrument or defect in the title
of the person negotiating it.
It is sufficient that the buyer of a note had notice or

knowledge that the note was in some way tainted with
fraud. It is not necessary that he should know the particulars
or even the nature of the fraud, since all that is required is
knowledge of such facts that his action in taking the note
amounted bad faith. Ozark Motor Co. v. Horton (Mo. App.),
196 S.W. 395. Accord. Davis v. First Nat. Bank, 26 Ariz. 621,
229 Pac. 391.
The stipulation of facts expressly states that plaintiff-appellee was

not aware of the circumstances under which the check was
delivered to Manuel Gonzales, but we agree with the defendantsappellants that the circumstances indicated by them in their briefs,
such as the fact that appellants had no obligation or liability to the
Ocampo Clinic; that the amount of the check did not correspond
exactly with the obligation of Matilde Gonzales to Dr. V. R. de
Ocampo; and that the check had two parallel lines in the upper left
hand corner, which practice means that the check could only be
deposited but may not be converted into cash all these
circumstances should have put the plaintiff-appellee to inquiry as to
the why and wherefore of the possession of the check by Manuel
Gonzales, and why he used it to pay Matilde's account. It was
payee's duty to ascertain from the holder Manuel Gonzales what
the nature of the latter's title to the check was or the nature of his
possession. Having failed in this respect, we must declare that
plaintiff-appellee was guilty of gross neglect in not finding out the
Liberty bonds stolen from the plaintiff were brought by the

thief, a boy fifteen years old, less than five feet tall,
immature in appearance and bearing on his face the stamp
a degenerate, to the defendants' clerk for sale. The boy
stated that they belonged to his mother. The defendants
paid the boy for the bonds without any further inquiry. Held,
the plaintiff could recover the value of the bonds. The term
'bad faith' does not necessarily involve furtive motives, but
means bad faith in a commercial sense. The manner in
which the defendants conducted their Liberty Loan
department provided an easy way for thieves to dispose of
their plunder. It was a case of "no questions asked."
Although gross negligence does not of itself constitute bad
faith, it is evidence from which bad faith may be inferred.
The circumstances thrust the duty upon the defendants to
make further inquiries and they had no right to shut their
eyes deliberately to obvious facts. Morris v. Muir, 111 Misc.
(c) That he took it in good faith and for value;
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Rep. 739, 181 N.Y. Supp. 913, affd. in memo., 191 App. Div.
947, 181 N.Y. Supp. 945." (pp. 640-642, Brannan's
Negotiable Instruments Law, 6th ed.).
The above considerations would seem sufficient to justify our ruling
that plaintiff-appellee should not be allowed to recover the value of
the check. Let us now examine the express provisions of the
Negotiable Instruments Law pertinent to the matter to find if our
ruling conforms thereto. Section 52 (c) provides that a holder in due
course is one who takes the instrument "in good faith and for
value;" Section 59, "that every holder is deemed prima facie to be a
holder in due course;" and Section 52 (d), that in order that one
may be a holder in due course it is necessary that "at the time the
instrument was negotiated to him "he had no notice of any . . .
defect in the title of the person negotiating it;" and lastly Section
59, that every holder is deemed prima facieto be a holder in due
course.
In the case at bar the rule that a possessor of the instrument
is prima faciea holder in due course does not apply because there
was a defect in the title of the holder (Manuel Gonzales), because
the instrument is not payable to him or to bearer. On the other
hand, the stipulation of facts indicated by the appellants in their
brief, like the fact that the drawer had no account with the payee;
that the holder did not show or tell the payee why he had the check
in his possession and why he was using it for the payment of his
own personal account show that holder's title was defective or
suspicious, to say the least. As holder's title was defective or
suspicious, it cannot be stated that the payee acquired the check
without knowledge of said defect in holder's title, and for this
reason the presumption that it is a holder in due course or that it
acquired the instrument in good faith does not exist. And having
presented no evidence that it acquired the check in good faith, it
(payee) cannot be considered as a holder in due course. In other
words, under the circumstances of the case, instead of the
presumption that payee was a holder in good faith, the fact is that
it acquired possession of the instrument under circumstances that
should have put it to inquiry as to the title of the holder who
negotiated the check to it. The burden was, therefore, placed upon
it to show that notwithstanding the suspicious circumstances, it
acquired the check in actual good faith.
The rule applicable to the case at bar is that described in the case
of Howard National Bank v. Wilson, et al., 96 Vt. 438, 120 At. 889,
894, where the Supreme Court of Vermont made the following
disquisition:
Prior to the Negotiable Instruments Act, two distinct lines of
cases had developed in this country. The first had its origin
in Gill v. Cubitt, 3 B. & C. 466, 10 E. L. 215, where the rule
was distinctly laid down by the court of King's Bench that
the purchaser of negotiable paper must exercise reasonable
prudence and caution, and that, if the circumstances were
such as ought to have excited the suspicion of a prudent
and careful man, and he made no inquiry, he did not stand
in the legal position of a bona fide holder. The rule was
adopted by the courts of this country generally and seem to
have become a fixed rule in the law of negotiable paper.
Later in Goodman v. Harvey, 4 A. & E. 870, 31 E. C. L. 381,
the English court abandoned its former position and adopted
the rule that nothing short of actual bad faith or fraud in the
purchaser would deprive him of the character of a bona fide
purchaser and let in defenses existing between prior parties,
that no circumstances of suspicion merely, or want of proper
caution in the purchaser, would have this effect, and that
even gross negligence would have no effect, except as
evidence tending to establish bad faith or fraud. Some of the
American courts adhered to the earlier rule, while others
followed the change inaugurated in Goodman v. Harvey. The
question was before this court in Roth v. Colvin, 32 Vt. 125,
and, on full consideration of the question, a rule was
adopted in harmony with that announced in Gill v. Cubitt,
which has been adhered to in subsequent cases, including
those cited above. Stated briefly, one line of cases including
our own had adopted the test of the reasonably prudent
man and the other that of actual good faith. It would seem
that it was the intent of the Negotiable Instruments Act to
harmonize this disagreement by adopting the latter test.
That such is the view generally accepted by the courts
appears from a recent review of the cases concerning what
constitutes notice of defect. Brannan on Neg. Ins. Law, 187201. To effectuate the general purpose of the act to make
uniform the Negotiable Instruments Law of those states
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which should enact it, we are constrained to hold (contrary

to the rule adopted in our former decisions) that negligence
on the part of the plaintiff, or suspicious circumstances
sufficient to put a prudent man on inquiry, will not of
themselves prevent a recovery, but are to be considered
merely as evidence bearing on the question of bad faith. See
G. L. 3113, 3172, where such a course is required in
construing other uniform acts.
G.R. No. 80599 September 15, 1989
It comes to this then: When the case has taken such shape
that the plaintiff is called upon to prove himself a holder in
due course to be entitled to recover, he is required to
establish the conditions entitling him to standing as such,
including good faith in taking the instrument. It devolves
upon him to disclose the facts and circumstances attending
the transfer, from which good or bad faith in the transaction
may be inferred.
Petitioner seeks the annulment of the decision 1 of respondent

Court of Appeals, promulgated on September 8, 1987, which
reversed the decision of the trial Court 2 dismissing the complaint
for consignation filed by therein plaintiff Ricardo S. Santos, Jr.
In the case at bar as the payee acquired the check under

circumstances which should have put it to inquiry, why the holder
had the check and used it to pay his own personal account, the
duty devolved upon it, plaintiff-appellee, to prove that it actually
acquired said check in good faith. The stipulation of facts contains
no statement of such good faith, hence we are forced to the
conclusion that plaintiff payee has not proved that it acquired the
check in good faith and may not be deemed a holder in due course
thereof.
In 1980, plaintiff 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.
On
April
30,
1980,
Atty.
Benares,
in
accommodation of his clients, the spouses Jaime and Clarita
Ong, issued Check No. 093553 drawn against Traders Royal
Bank, dated June 14, 1980, in the amount of P45,000.00
(Exh- 'I') payable to defendant Ernestina Crisologo-Jose.
Since the check was under the account of Mover
Enterprises, Inc., the same was to be signed by its president,
Atty. Oscar Z. Benares, and the treasurer of the said
corporation. However, since at that time, the treasurer of
Mover Enterprises was not available, Atty. Benares prevailed
upon the plaintiff, Ricardo S. Santos, Jr., to sign the aforesaid
chEck as an alternate story. Plaintiff Ricardo S. Santos, Jr. did
sign the check.
For the foregoing considerations, the decision appealed from should

be, as it is hereby, reversed, and the defendants are absolved from
the complaint. With costs against plaintiff-appellee.
ERNESTINA
CRISOLOGO-JOSE, petitioner, vs.
COURT
OF
APPEALS and RICARDO S. SANTOS, JR. in his own behalf and
as Vice-President for Sales of Mover Enterprises,
Inc., respondents.
REGALADO, J.:
The parties are substantially agreed on the following facts as found

by both lower courts:
It appears that the check (Exh. '1') was issued to defendant

Ernestina Crisologo-Jose in consideration of the waiver or
quitclaim by said defendant over a certain property which
the Government Service Insurance System (GSIS) agreed to
sell to the clients of Atty. Oscar Benares, the spouses Jaime
and Clarita Ong, with the understanding that upon approval
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by the GSIS of the compromise agreement with the spouses

Ong, the check will be encashed accordingly. However, since
the compromise agreement was not approved within the
expected period of time, the aforesaid check for P45,000.00
(Exh. '1') was replaced by Atty. Benares with another Traders
Royal Bank cheek bearing No. 379299 dated August 10,
1980, in the same amount of P45,000.00 (Exhs. 'A' and '2'),
also payable to the defendant Jose. This replacement check
was also signed by Atty. Oscar Z. Benares and by the
plaintiff Ricardo S. Santos, Jr. When defendant deposited this
replacement check (Exhs. 'A' and '2') with her account at
Family Savings Bank, Mayon Branch, it was dishonored for
insufficiency of funds. A subsequent redepositing of the said
check was likewise dishonored by the bank for the same
reason. Hence, defendant through counsel was constrained
to file a criminal complaint for violation of Batas Pambansa
Blg. 22 with the Quezon City Fiscal's Office against Atty.
Oscar Z. Benares and plaintiff Ricardo S. Santos, Jr. The
investigating Assistant City Fiscal, Alfonso Llamas,
accordingly filed an amended information with the court
charging both Oscar Benares and Ricardo S. Santos, Jr., for
violation of Batas Pambansa Blg. 22 docketed as Criminal
Case No. Q-14867 of then Court of First Instance of Rizal,
Quezon City.
Meanwhile, during the preliminary investigation of the
criminal charge against Benares and the plaintiff herein,
before Assistant City Fiscal Alfonso T. Llamas, plaintiff
Ricardo S. Santos, Jr. tendered cashier's check No. CC
160152 for P45,000.00 dated April 10, 1981 to the
defendant Ernestina Crisologo-Jose, the complainant in that
criminal case. The defendant refused to receive the cashier's
check in payment of the dishonored check in the amount of
P45,000.00. Hence, plaintiff encashed the aforesaid
cashier's check and subsequently deposited said amount of
P45,000.00 with the Clerk of Court on August 14, 1981
(Exhs. 'D' and 'E'). Incidentally, the cashier's check adverted
to above was purchased by Atty. Oscar Z. Benares and given
to the plaintiff herein to be applied in payment of the
dishonored check. 3
After trial, the court a quo, holding that it was "not persuaded to
believe that consignation referred to in Article 1256 of the Civil
Code is applicable to this case," rendered judgment dismissing
plaintiff s complaint and defendant's counterclaim. 4
As earlier stated, respondent court reversed and set aside said
judgment of dismissal and revived the complaint for consignation,
directing the trial court to give due course thereto.
Hence, the instant petition, the assignment of errors wherein are
prefatorily stated and discussed seriatim.
1. Petitioner contends that respondent Court of Appeals
erred in holding that private respondent, one of the
signatories of the check issued under the account of Mover
Enterprises, Inc., is an accommodation party under the
Negotiable Instruments Law and a debtor of petitioner to the
extent of the amount of said check.
Petitioner avers that the accommodation party in this case is Mover
Enterprises, Inc. and not private respondent who merely signed the
check in question in a representative capacity, that is, as vicepresident of said corporation, hence he is not liable thereon under
the Negotiable Instruments Law.
The pertinent provision of said law referred to provides:
Sec.
29.
Liability
of
accommodation
party
an
accommodation party is one who has signed the instrument
as maker, drawer, acceptor, or indorser, without receiving
value therefor, and for the purpose of lending his name to
some other person. Such a person is liable on the
instrument to a holder for value, notwithstanding such
holder, at the time of taking the instrument, knew him to be
only an accommodation party.
Consequently, to be considered an accommodation party, a person
must (1) be a party to the instrument, signing as maker, drawer,
acceptor, or indorser, (2) not receive value therefor, and (3) sign for
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the purpose of lending his name for the credit of some other
person.
Based on the foregoing requisites, it is not a valid defense that the
accommodation party did not receive any valuable consideration
when he executed the instrument. From the standpoint of contract
law, he differs from the ordinary concept of a debtor therein in the
sense that he has not received any valuable consideration for the
instrument he signs. Nevertheless, he is liable to a holder for value
as if the contract was not for accommodation 5 in whatever
capacity such accommodation party signed the instrument,
whether primarily or secondarily. Thus, it has been held that in
lending his name to the accommodated party, the accommodation
party is in effect a surety for the latter. 6
By way of exception, an officer or agent of a corporation shall have

the power to execute or indorse a negotiable paper in the name of
the corporation for the accommodation of a third person only if
specifically authorized to do so. 10 Corollarily, corporate officers,
such as the president and vice-president, have no power to execute
for mere accommodation a negotiable instrument of the
corporation for their individual debts or transactions arising from or
in relation to matters in which the corporation has no legitimate
concern. Since such accommodation paper cannot thus be enforced
against the corporation, especially since it is not involved in any
aspect of the corporate business or operations, the 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 acts in connection therewith.
Assuming arguendo that

Mover
Enterprises,
Inc.
is
the
accommodation party in this case, as petitioner suggests, the
inevitable question is whether or not it may be held liable on the
accommodation instrument, that is, the check issued in favor of
herein petitioner.
The instant case falls squarely within the purview of the aforesaid
decisional rules. If we indulge petitioner in her aforesaid
postulation, then she is effectively barred from recovering from
Mover Enterprises, Inc. the value of the check. Be that as it may,
petitioner is not without recourse.
We hold in the negative.
The fact that for lack of capacity the corporation is not bound by an
accommodation paper does not thereby absolve, but should render
personally liable, the signatories of said instrument where the facts
show that the accommodation involved was for their personal
account, undertaking or purpose and the creditor was aware
thereof.
The aforequoted provision of the Negotiable Instruments Law which

holds an accommodation party liable on the instrument to a holder
for value, although such holder at the time of taking the instrument
knew him to be only an accommodation party, does not include nor
apply to corporations which are accommodation parties. 7 This is
because the issue or indorsement of negotiable paper by a
corporation without consideration and for the accommodation of
another is ultra vires. 8 Hence, one who has taken the instrument
with knowledge of the accommodation nature thereof cannot
recover against a corporation where it is only an accommodation
party. If the form of the instrument, or the nature of the transaction,
is such as to charge the indorsee with knowledge that the issue or
indorsement of the instrument by the corporation is for the
accommodation of another, he cannot recover against the
corporation thereon. 9
Petitioner, as hereinbefore explained, was evidently charged with

the knowledge that the cheek was issued at the instance and for
the personal account of Atty. Benares who merely prevailed upon
respondent Santos to act as co-signatory in accordance with the
arrangement of the corporation with its depository bank. That it
was a personal undertaking of said corporate officers was apparent
to petitioner by reason of her personal involvement in the financial
arrangement and the fact that, while it was the corporation's check
which was issued to her for the amount involved, she actually had
no transaction directly with said corporation.
There should be no legal obstacle, therefore, to petitioner's claims
being directed personally against Atty. Oscar Z. Benares and
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respondent Ricardo S. Santos, Jr., president and vice-president,

respectively, of Mover Enterprises, Inc.
2. On her second assignment of error, petitioner argues that
the Court of Appeals erred in holding that the consignation
of the sum of P45,000.00, made by private respondent after
his tender of payment was refused by petitioner, was proper
under Article 1256 of the Civil Code.
Petitioner's submission is that no creditor-debtor relationship exists
between the parties, hence consignation is not proper.
Concomitantly, this argument was premised on the assumption that
private respondent Santos is not an accommodation party.
As previously discussed, however, respondent Santos is an
accommodation party and is, therefore, liable for the value of the
check. The fact that he was only a co-signatory does not detract
from his personal liability. A co-maker or co-drawer under the
circumstances in this case is as much an accommodation party as
the other co-signatory or, for that matter, as a lone signatory in an
accommodation instrument. Under the doctrine in Philippine Bank
of Commerce vs. Aruego, supra, he is in effect a co-surety for the
accommodated party with whom he and his co-signatory, as the
other co-surety, assume solidary liability ex lege for the debt
involved. With the dishonor of the check, there was created a
debtor-creditor relationship, as between Atty. Benares and
respondent Santos, on the one hand, and petitioner, on the other.
This circumstance enables respondent Santos to resort to an action
of consignation where his tender of payment had been refused by
petitioner.
We interpose the caveat, however, that by holding that the remedy

of consignation is proper under the given circumstances, we do not
thereby rule that all the operative facts for consignation which
would produce the effect of payment are present in this case. Those
are factual issues that are not clear in the records before us and
which are for the Regional Trial Court of Quezon City to ascertain in
Civil Case No. Q-33160, for which reason it has advisedly been
directed by respondent court to give due course to the complaint
for consignation, and which would be subject to such issues or
claims as may be raised by defendant and the counterclaim filed
therein which is hereby ordered similarly revived.
3. That respondent court virtually prejudged Criminal Case
No. Q-14687 of the Regional Trial Court of Quezon City filed
against private respondent for violation of Batas Pambansa
Blg. 22, by holding that no criminal liability had yet attached
to private respondent when he deposited with the court the
amount of P45,000.00 is the final plaint of petitioner.
We sustain petitioner on this score.
Indeed, respondent court went beyond the ratiocination called for
in the appeal to it in CA-G.R. CV. No. 05464. In its own decision
therein, it declared that "(t)he lone issue dwells in the question of
whether an accommodation party can validly consign the amount
of the debt due with the court after his tender of payment was
refused by the creditor." Yet, from the commercial and civil law
aspects determinative of said issue, it digressed into the merits of
the aforesaid Criminal Case No. Q-14867, thus:
Section 2 of B.P. 22 establishes the prima facie evidence of
knowledge of such insufficiency of funds or credit. Thus, the
making, drawing and issuance of a check, payment of which
is refused by the drawee because of insufficient funds in or
credit with such bank is prima facie evidence of knowledge
of insufficiency of funds or credit, when the check is
presented within 90 days from the date of the check.
It will be noted that the last part of Section 2 of B.P. 22
provides that the element of knowledge of insufficiency of
43
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7 CASES
funds or credit is not present and, therefore, the crime does

not exist, when the drawer pays the holder the amount due
or makes arrangements for payment in full by the drawee of
such check within five (5) banking days after receiving
notice that such check has not been paid by the drawee.
Based on the foregoing consideration, this Court finds that
the plaintiff-appellant acted within Ms legal rights when he
consigned the amount of P45,000.00 on August 14, 1981,
between August 7, 1981, the date when plaintiff-appellant
receive (sic) the notice of non-payment, and August 14,
1981, the date when the debt due was deposited with the
Clerk of Court (a Saturday and a Sunday which are not
banking days) intervened. The fifth banking day fell on
August 14, 1981. Hence, no criminal liability has yet
attached to plaintiff-appellant when he deposited the
amount of P45,000.00 with the Court a quo on August 14,
1981. 11
That said observations made in the civil case at bar and the
intrusion into the merits of the criminal case pending in another
court are improper do not have to be belabored. In the latter case,
the criminal trial court has to grapple with such factual issues as,
for instance, whether or not the period of five banking days had
expired, in the process determining whether notice of dishonor
should be reckoned from any prior notice if any has been given or
from receipt by private respondents of the subpoena therein with
supporting affidavits, if any, or from the first day of actual
preliminary investigation; and whether there was a justification for
not making the requisite arrangements for payment in full of such
check by the drawee bank within the said period. These are matters
alien to the present controversy on tender and consignation of

payment, where no such period and its legal effects are involved.
These are aside from the considerations that the disputed period
involved in the criminal case is only a presumptive rule, juris
tantum at that, to determine whether or not there was knowledge
of insufficiency of funds in or credit with the drawee bank; that
payment of civil liability is not a mode for extinguishment of
criminal liability; and that the requisite quantum of evidence in the
two types of cases are not the same.
To repeat, the foregoing matters are properly addressed to the trial
court in Criminal Case No. Q-14867, the resolution of which should
not be interfered with by respondent Court of Appeals at the
present posture of said case, much less preempted by the
inappropriate and unnecessary holdings in the aforequoted portion
of the decision of said respondent court. Consequently, we modify
the decision of respondent court in CA-G.R. CV No. 05464 by setting
aside and declaring without force and effect its pronouncements
and findings insofar as the merits of Criminal Case No. Q-14867 and
the liability of the accused therein are concerned.
WHEREFORE, subject to the aforesaid modifications, the judgment
of respondent Court of Appeals is AFFIRMED.
SO ORDERED.
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COMMREV - NEGO

G.R. No. 172652

E. 5. CROSSED CHECKS AND EFFECTS OF CROSSING A CHECK

METROPOLITAN BANK AND TRUST COMPANY, Petitioner, vs.

Gonzalo B. Nuguid. The two Asian Bank managers checks, with a

Chioks Asian Bank Savings

E. 5. CROSSED CHECKS AND EFFECTS OF CROSSING A CHECK

agreed upon, in the afternoon of the same day. Nuguid, however,

be affected by any prior transaction between the purchaser (Chiok)

On the same day, July 6, 1995, the RTC issued a temporary

Asian Bank refused to honor MC Nos. 025935 and 025939 in

In the meantime, FEBTC, as the collecting bank, filed a complaint

WHEREFORE, upon filing by the plaintiff of a sufficient bond in the

E. 5. CROSSED CHECKS AND EFFECTS OF CROSSING A CHECK

The plaintiffs urgent motion todeclare defendants Asian Bank and

claimed that Asian Bank exhibited bad faith when, in anticipation of

The writ of preliminary prohibitory injunction and a copy of this

In their own Answer, the spouses Nuguid claimed that Gonzalo

E. 5. CROSSED CHECKS AND EFFECTS OF CROSSING A CHECK

a. The amount of his deposit of P7,613,000.00, plus

While the argument may be applicable to such checks in general, it

E. 5. CROSSED CHECKS AND EFFECTS OF CROSSING A CHECK

Art. 1249. The payment of debts inmoney shall be made in the

1) That Metro Bank paid the amount of CC No. 003280;

In the meantime, the action derived from the original obligation

The payment to FEBTC by Metro Bank of CC No. 003380 on July 12,

E. 5. CROSSED CHECKS AND EFFECTS OF CROSSING A CHECK

withdrawal; or 2) credit to Nuguids account; or 3) draft issued to

Thirdly: Under Sec. 49, Negotiable Instruments Law, BPI, as

E. 5. CROSSED CHECKS AND EFFECTS OF CROSSING A CHECK

same Resolution, the Court of Appeals denied Chioks Motion to

payee to perform his obligation to the purchaser. The appellate

E. 5. CROSSED CHECKS AND EFFECTS OF CROSSING A CHECK

its interest. The object of the contract herein to buy foreign

care bearing in mind the fiduciary nature of their relationship with

E. 5. CROSSED CHECKS AND EFFECTS OF CROSSING A CHECK

Global Bank and BPI filed separate Motions for Reconsideration of

E. 5. CROSSED CHECKS AND EFFECTS OF CROSSING A CHECK

2) RESPONDENT HAD WAIVED HIS RIGHT TO ANY INTEREST;

copetitioners Metrobank, Global Bank, and respondent Chiok. The

E. 5. CROSSED CHECKS AND EFFECTS OF CROSSING A CHECK

On January 20, 2014, Global Bank filed a Comment to Atty. Cruzs

be intimately related to issues brought forth in the other

Therefore, while we should indeed require Atty. Cruz to indicate the

We are therefore constrained to deny the Joint Manifestation and

Rule 8.02. A lawyer shall not, directly or indirectly, encroach upon

Whether or not payment of managers and cashiers checks are

We should also give weight to the opposition of BPI to the supposed

The Courts ruling on the merits of these consolidated petitions

The legal effects of a managers check and a cashiers check are

E. 5. CROSSED CHECKS AND EFFECTS OF CROSSING A CHECK

applicable to cashiers checks, and vice versa. The RTC effectively

a. it bears the forged or unauthorized signature of the

E. 5. CROSSED CHECKS AND EFFECTS OF CROSSING A CHECK

limited to things of a similar nature with those particularly

E. 5. CROSSED CHECKS AND EFFECTS OF CROSSING A CHECK

E. 5. CROSSED CHECKS AND EFFECTS OF CROSSING A CHECK

contract and to have the very account where he deposited the

The Court of Appeals, while admitting that the general principles on

E. 5. CROSSED CHECKS AND EFFECTS OF CROSSING A CHECK

Let it be emphasized that in resolving the matter before Us, We do

police asked Mesina how he came to possess the check, he said it

E. 5. CROSSED CHECKS AND EFFECTS OF CROSSING A CHECK