GREAT EASTERN LIFE V.

HSBC
43 PHIL 678
FACTS:
The plaintif is an insurance corporation, which drew a check in favor of Melicor. This was stolen by
Maasim, forged the signature of Melicor and deposited the check to his account in PNB. Thereafter, PNB
endorsed the check to HSBC who later debited the account of plaintif. Plaintif believed all along that Melicor received
the payment. Upon knowledge of the debit HSBC did on its account, it demanded that the same amount be credited.

HELD:
The banks are liable. The money was in deposit with the bank and it had no legal right to pay it out to anyone except
the plaintif or its order.
The only remedy of the bank paying a check to a person who has forged the name of the payee is against the forge

PNB V. NATIONAL CITY BANK OF NY

63 PHIL 711
FACTS:
Unknown persons negotiated with Motor Services Company checks, which were part of the stipulation in payment of
automobile tires purchased from the latters store. It purported to have been issued by Pangasinan
Transportation Company. The said checks were indorsed at the back by said unknown persons, the Motor
company believing at that time that the signatures contained therein were genuine. The checks were later
deposited with the companys account in National City Bank of NY. The said checks were consequently
cleared and PNB credited National City Bank with the amounts. Thereafter, PNB discovered that the signatures
were forged and it demanded the reimbursement of the amounts for which it credited the other bank.

HELD:
A check is a bill of exchange payable on demand and only the rules governing bills of exchanges payable
on demand are applicable to it.

in view of the fact that acceptance is a step necessary insofar as negotiable

instruments are concerned, it follows that the provisions relative to acceptance are without application to
checks.

Acceptance implies subsequent negotiation of the instrument, which is not true in the case of checks

because from the moment it is paid, it is withdrawn from circulation. When the drawee banks cashes or pays a

check, the cycle of negotiation is terminated and it is illogical thereafter to speak of subsequent holders who
can invoke the warrant against the drawee.
Further, in determining the relative rights of a drawee who under a mistake of fact, has paid, a holder who has
received such payment, upon a check to which the name of the drawer has been forged, it is only fair to consider the
question of diligence and negligence of the parties in respect thereto. The responsibility of the drawee who pays
a forged check, for the genuineness of the drawers signature is absolute only in favor of one who has not, by his
own fault or negligence, contributed to the success of the
fraud or to mislead the drawee.
According to the undisputed facts, National City Bank in purchasing the papers in question from unknown
persons without making any inquiry as to the identity and authority of said persons negotiating and indorsing them,
acted negligently and contributed to the constructive loss of PNB in failing to detect the forgery. Under the
circumstances of the case, if the appellee bank is allowed to recover, there will be no change in position as to
the injury or prejudice of the appellant.

STATE INVESTMENT HOUSE V. IAC

175 SCRA 310
FACTS:
New Sikatuna requested for a loan from Spouses Chua. Latter issued post-dated crossed checks in favor of former.
Thereafter, Sikatuna sold checks to SIHI which upon deposit, checks were dishonored. The trial court decided
the case in favor of SIHI.

HELD:
Jurisprudence provides the following efects of crossing a check:
1.

The check may not be encashed but only deposited in the bank

2.

The check may be negotiated only onceto one who has an account with a bank

3.

The act of crossing the check serves the 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.
The checks in issue were crossed generally and issued payable to New Sikatuna Wood which could only
mean that the drawer has intended the same for deposit only by the rightful person.

Apparently, it was not

the payee who presented the same for payment and therefore, there was no proper presentment and the liability
didn't attach to the drawer. Thus, in the absence of due presentment, the drawer didn't become liable.
Consequently, no right of recourse is available to petitioner against the drawer of the subject checks
considering that the petitioner is the proper party authorized to make presentment of the checks in question.

Nonetheless, the holder could still collect from New Sikatuna if the latter doesn't have a valid excuse from
refusing payment.

ASSOCIATED BANK V. CA
208 SCRA 465
FACTS:
Reyes was engaged in the RTW business and held transactions with diferent department stores. She was
about to collect payments from the department stores when she was informed that the payments had already been
made, through crossed checks issued in her business name and the same were deposited with the bank. The
bank consequently allowed its transfer to Sayson who later encashed the checks. This prompted Reyes to sue the
bank and its manager for the return of the money. The trial and appellate court ruled in her favor.

HELD:
There is no doubt that the checks were crossed checks and for payees account only.

Reyes was able to

show that she has never authorized Sayson to deposit the checks nor to encash the same; that the bank had
allowed all checks to be deposited, cleared and paid to one Sayson in
violation of the instructions in the said crossed checks that the same were for payees account only; and that
Reyes maintained a savings account with the bank which never cleared the said checks.
Under accepted banking practice, crossing a check is done by writing two parallel lines diagonally on the top left
portion of the checks. The crossing is special where the name of a bank or a business institution is written
between the two parallel lines, which means that the drawee should pay
only with the intervention of the company. The crossing is general where the words written in between are And Co.
and for payees account only, as in the case at bar. This means that the drawee bank should not encash the check
but merely accept it for deposit.
The efects of crossing a check are as follows:
1.

That the check may not be encashed but only deposited in the bank

2.

That the check may be negotiated only onceto one who has an account with a bank

3.

That the act of crossing the check serves as a warning to the holder that the check has been issued

for a definite purpose so that he must inquire if he has received the check pursuant to the
purpose
The subject checks were accepted for deposit by the bank for the account of Sayson although they were crossed
checks and the payee wasn't Sayson but Reyes.

The bank stamped thereon its guarantee that all prior

endorsements and/or lack of endorsements guaranteed.

By such deliberate and positive act, the bank had

for all legal intents and purposes treated the said checks as negotiable instruments and accordingly assumed the

warranty of the endorser.

When the bank paid the checks so indorsed notwithstanding that title has not passed to the endorser, it did so at its
peril and became liable to the payee for the value of the checks.

Ocampo vs. Gatchalian

Who is deemed to be a holder in due course?
General Rule: Every holder is deemed prima facie to be a holder in due course;
Exception: When it is shown that the title of any person who has negotiated the instrument was defective. (Sec.59)

Can a payee be a holder in due course?

There can be no doubt that a proper interpretation of NIL as a whole leads to the conclusion that a payee may be a
holder in due course under the circumstances in which he meets the requirements of Sec. 52. (De Ocampo v.
Gatchalian, G.R. No. L-15126, Nov. 30, 1961) Note: There is a contrary view on the matter, wherein it is contended
that under subsection 4 of Sec. 52, the holder in due course must have acquired the instrument through negotiation
and an instrument is issued and not negotiated to a payee.

PNB V. CA- Material Alteration

256 SCRA 491
FACTS:
DECS issued a check in favor of Abante Marketing containing a specific serial number, drawn against PNB.
The check was deposited by Abante in its account with Capitol and the latter consequently deposited the same
with its account with PBCOM which later deposited it with petitioner for
clearing. The check was thereafter cleared. However, on a relevant date, petitioner PNB returned the check on
account that there had been a material alteration on it. Subsequent debits were made but Capitol cannot debit the
account of Abante any longer for the latter had withdrawn all the money already from the account. This
prompted Capitol to seek reclarification from PBCOM and demanded the recrediting of its account. PBCOM
followed suit by doing the same against PNB. Demands unheeded,
it filed an action against PBCOM and the latter filed a third-party complaint against petitioner.

HELD:
An alteration is said to be material if it alters the efect of the instrument. It means an unauthorized change in the
instrument that purports to modify in any respect the obligation of a party or an unauthorized addition of words
or numbers or other change to an incomplete instrument relating to the obligation of the party. In other words, a
material alteration is one which changes the items which are required to be stated under Section 1 of the NIL.
In this case, the alleged material alteration was the alteration of the serial number of the check in issuewhich is
not an essential element of a negotiable instrument under Section 1. PNB alleges that the alteration was material
since it is an accepted concept that a TCAA check by its very
nature is the medium of exchange of governments, instrumentalities and agencies. As a safety measure,
every government office or agency is assigned checks bearing diferent serial numbers.
But this contention has to fail. The checks serial number is not the sole indicia of its origin. The name of the
government agency issuing the check is clearly stated therein. Thus, the checks drawer is sufficiently identified,
rendering redundant the referral to its serial number.
Therefore, there being no material alteration in the check committed, PNB could not return the check to PBCOM. It
should pay the same.

SAN CARLOS MINING V. BPI

59 PHIL 59
(FORGED SIGNATURE OF DRAWER)

FACTS:
Wilson, a principal employee of petitioner, together with Wilson, a messenger-clerk, conspired to
withdraw cash from the petitioners account through forgery of a check, in the name of the agent
authorized to sign the check.
While the authorized agent of petitioner was on vacation, Wilson and Dolores sent a cablegram
to China Banking for the transfer of $100,000. On the contract, the name of Baldwin was
forged and it was indicated therein that a certified check be issued. Thereafter, this was received and
deposited with the BPI. Upon deposit, an indorsement in the name of Baldwin was placed. The
bank account was credited. Later, a letter was sent to the bank, purporting to be signed by Baldwin
asking that it be withdrawn. This was done in supervision of Dolores. Dolores and Wilson then was
able to get the money. This eventually came to the knowledge of plaintif who filed an action against
China Banking and BPI. The trial court dismissed the case.

HELD:
A bank is bound to know the signatures of its customers and if it pays a forged check, it must be
considered as making the payment out of its own funds, and cannot ordinarily charge the amount so paid

to the account of the depositor whose name was forged.

There is no act of the plaintif that led the bank astray. If it was in fact lulled into the false sense of
security, it was by the efrontery of Dolores, the messenger to whom it entrusted this large sum of money.
The proximate cause of the loss must therefore be due to the negligence of the bank in honoring and
cashing the two forged checks.

MWSS V. CA
143 SCRA 20
FACTS:
MWSS had an account from PNB. Its treasurer, auditor, and General Manager are the ones
authorized to sign checks. During a period of time, 23 checks were drawn and debited against the
account of petitioner. Bearing the same check numbers, the amounts stated therein were again
debited from the account of petitioner. The amounts drawn were deposited in the accounts of the payees
in PCIB. It was found out though that the names stated in the drawn checks were all fictitious. Petitioner
demanded the return of the amounts debited but the bank refused to do so. Thus, it filed a complaint.

HELD:
There was no categorical finding that the 23 checks were signed by persons other than those
authorized to sign. On the contrary, the NBI reports shows that the fraud was an inside job and
that the delay in the reconciliation of the bank statements and the laxity and loss of records
control in the printing of the personalized checks facilitated the fraud. It further doesnt provide that the
signatures were forgeries.
Forgery cannot be presumed. It should be proven by clear, convincing and positive evidence. This wasnt
done in the present case.
The petitioner cannot invoke Section 23 because it was guilty of negligence not only before the
questioned checks but even after the same had already been negotiated.

PNB V. CA - Acceptance of Checks

25 SCRA 693

FACTS:
Lim deposited in his PCIB account a GSIS check drawn against PNB. Following standard banking
procedures, the check was sent to petitioner for clearing. He didnt return said check but paid the amount to PCIB
as well as debited it against the account of GSIS. Thereafter, a demand was received from GSIS asking for the
credit of the amount since the signatures found in the check were forged. This was done by PNB and it now
comes after PCIB but the latter wouldnt want to return the money.

HELD:
Acceptance is not required for checks, for the same are payable on demand. Acceptance and payment are
distinguished with each other. The former pertains to a promise to perform an act while the latter is the actual
performance of the act.
PNB had also been negligent with the particularity that it had been guilty of a greater degree of negligence because it
had a previous and formal notice from GSIS that the check had been lost, with the request that payment be stopped.
Just as important is that it is its acts, which are the proximate cause of the loss.

PNB V. QUIMPO
158 SCRA 582
FACTS:
While Gozon was in the bank with Santos left in the car, the latter stole a check and forged the signature of the
former. He was able to encash the check. He was later apprehended by the police authorities and he admitted to
stealing the check. The court decided in favor of Gozon. The bank now posed the issue on whether Gozons act of
leaving his checkbook in the car the proximate cause of the loss.

HELD:
Where the private respondents check was removed and stolen without his knowledge and consent, he cannot be
considered negligent in this case.

GEMPESAW V. CA

218 SCRA 682

FACTS:
Gempensaw was the owner of many grocery stores. She paid her suppliers through the issuance of
checks drawn against her checking account with respondent bank. The checks were prepared
by her bookkeeper Galang. In the signing of the checks prepared by Galang, Gempensaw didn't bother
herself in verifying to whom the checks were being paid and if the issuances were necessary.
She didn't even verify the returned checks of the bank when the latter notifies her of the same. During
her two years in business, there were incidents shown that the amounts paid for were in excess of
what should have been paid. It was also shown that even if the checks were crossed, the intended
payees didn't receive the amount of the checks. This prompted Gempensaw to demand the bank
to credit her account for the amount of the forged checks. The bank refused to do so and this prompted
her
to
file
the
case
against
the
bank.

HELD:
Forgery is a real defense by the party whose signature was forged. A party whose signature was forged
was never a party and never gave his consent to the instrument.

Since his signature doesnt appear

in the instrument, the same cannot be enforced against him even by a holder in due course. The drawee
bank cannot charge the account of the drawer whose signature was forged because he never gave the
bank

the

order

to

pay.

In the case at bar the checks were filled up by petitioners employee Galang and were later given
to her for signature. Her signing the checks made the negotiable instruments complete. Prior to signing
of the checks, there was no valid contract yet.

Petitioner completed the checks by signing them

and thereafter authorized Galang to deliver the same to their respective payees.
then

indorsed,

forged

indorsements

The checks were

thereon.

As a rule, a drawee bank who has paid a check on which an indorsement has been forged cannot
debit the account of a drawer for the amount of said check.

An exception to this rule is when

the drawer is guilty of negligence which causes the bank to honor such checks. Petitioner in this case
has relied solely on the honesty and loyalty of her bookkeeper and never bothered to verify the
accuracy of the amounts of the checks she signed the invoices attached thereto. And though
she received her bank statements, she didn't carefully examine the same to double-check her
payments. Petitioner didn't exercise reasonable diligence which eventually led to the fruition of her
bookkeepers fraudulent schemes.

ASSOCIATED BANK V. CA
252 SCRA 620
FACTS:
The province of Tarlac maintains an account with PNB-Tarlac. Part of its funds is appropriated for the
benefit of Concepcion Emergency Hospital. During a post-audit done by the province, it was found out that 30 of
its checks werent received by the hospital. Upon further investigation, it was found out that the checks were
encashed by Pangilinan who was a former cashier and administrative officer of the hospital through forged
indorsements.
This prompted the provincial treasurer to ask for
reimbursement from PNB and thereafter, PNB from Associated Bank. As the two banks didn't want to
reimburse, an action was filed against them.

HELD:
There is a distinction on forged indorsements with regard bearer instruments and instruments payable to
order.
With instruments payable to bearer, the signature of the payee or holder is unnecessary to pass title to the
instrument. Hence, when the indorsement is a forgery, only the person whose signature is forged can raise
the defense of forgery against holder in due course.
In instruments payable to order, the signature of the rightful holder is essential to transfer title to the same
instrument.

When the holders signature is forged, all parties prior to the forgery may raise the real defense

of forgery against all parties subsequent thereto. In connection to this, an indorser warrants that the instrument
is genuine.

A collecting bank is such an indorser.

So even if the indorsement is forged, the collecting bank

is bound by his warranties as an indorser and cannot set up

the defense of forgery as against the drawee bank.
Furthermore, in cases involving checks with forged indorsements, such as the case at bar, the chain of liability
doesn't end with the drawee bank. The drawee bank may not debit the account of the drawer but may
generally pass liability back through the collection chain to the party who took from the forger and of course, the
forger himself, if available.

In other words, the drawee bank can seek reimbursement or a return of the amount it

paid from the collecting bank or person.

The collecting bank generally sufers the loss because it has te

duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the
check for payment to the drawee is an assertion that the party making the presentment has done its duty
to ascertain the
genuineness of the indorsements.
With regard the issue of delay, a delay in informing the bank of the forgery, which deprives it of the

opportunity to go after the forger, signifies negligence on the part of the drawee bank and will preclude it from
claiming reimbursement. In this case, PNB wasn't guilty of any negligent delay.

Its delay hasn't prejudiced

Associated Bank in any way because even if there wasn't delay, the fact that there was nothing left of the
account of Pangilinan, there couldn't be anymore reimbursement.

ILLUSORIO V. CA
393 SCRA 89
FACTS:
Petitioner was a prominent businessman who, because of diferent business commitments, entrusted to his then
secretary the handling of his credit cards and checkbooks. For a material period of time, the secretary was
able to encash and deposit in her personal account money from the account of petitioner. Upon knowledge
of her acts, she was fired immediately and criminal actions were filed against her. Thereafter, petitioner
requested the bank to restore its money but the bank refused to
do so.

HELD:
The petitioner doesnt have a course of action against the bank. To be entitled to damages, petitioner has the
burden of proving negligence on the part of the bank for failure to detect the discrepancy in the signatures on the
checks. It is incumbent upon petitioner to establish the fact of forgery. Curiously though, petitioner failed to supply
additional signature specimens as requested by the NBI. The bank was not also remiss in performance of its duties,
it practices due diligence in encashing checks. The bank didnt
have any hint of the modus operandi of Eugenio as she was a regular customer, designated by the petitioner
himself to transact on his behalf.
It was petitioner who was negligent in this case. He failed to examine his bank statements and this was the
proximate cause of his own damage. Because of this negligence, he is precluded from setting up the defense of
forgery with regard the checks.

TRADERS ROYAL BANK V. CA

269 SCRA 15
FACTS:
Filriters through a Detached Agreement transferred ownership to Philfinance a Central Bank Certificate of
Indebtedness. It was only through one of its officers by which the CBCI was conveyed without authorization from
the company. Petitioner and Philfinance later entered into a Repurchase agreement, on which petitioner
bought the CBCI from Philfinance. The latter agreed to repurchase the CBCI but failed to do so. When the

petitioner tried to have it registered in its name in the CB, the latter didn't want to recognize the transfer.

HELD:
The CBCI is not a negotiable instrument. The instrument provides for a promise to pay the registered owner
Filriters. Very clearly, the instrument was only payable to Filriters. It lacked the words of negotiability which
should have served as an expression of the consent that the instrument may be transferred by negotiation.
The language of negotiability which characterize a negotiable paper as a credit instrument is its freedom to
circulate as a substitute for money. Hence, freedom of negotiability is the touchstone relating to the protection of
holders in due course, and the freedom of negotiability is the foundation for the protection, which the law throws
around a holder in due course. This freedom in negotiability is totally absent in a certificate of indebtedness
as it merely acknowledges to pay a sum of money to a specified person or entity for a period of time.
The transfer of the instrument from Philfinance to TRB was merely an assignment, and is not governed by the
negotiable instruments law. The pertinent question then iswas the transfer of the CBCI from Filriters to
Philfinance and subsequently from Philfinance to TRB, in accord with existing law, so as to entitle TRB to have
the CBCI registered in its name with the Central Bank? Clearly shown in the record is the fact that
Philfinances title over CBCI is defective since it acquired the instrument from Filriters fictitiously. Although the
deed of assignment stated that the transfer was for value received, there was really no consideration involved.
What happened was Philfinance merely borrowed CBCI from Filriters, a sister corporation. Thus, for lack of
any consideration, the assignment made is a complete nullity. Furthermore, the transfer wasn't in conformity with
the regulations set by the CB. Giving more credence to rule that there was no valid transfer or assignment to
petitioner.

Traders Royal Bank vs. CA

The bare fact that the forgery was committed by an employee of the party whose signature was forged can not
necessarily imply that such partys negligence was the cause of the forgery in the absence of some circumstances
raising estoppel against the drawer. (Samsung Construction Co. v. Far East Bank and Trust Company, G.R. No.
129015, Aug. 13, 2004)

PHILIPPINE BANK OF COMMERCE V. ARUEGO

102 SCRA 530
FACTS:
Aruego, on behalf of World Current Events, entered into a Credit Agreement with PBCom, for the
publication of the companys periodicals. At every printing endeavor by the printing press, a bill of
exchange is drawn against PBCom. The instruments are signed by Aruego, without any indication that he is an
agent of World Current Events. When he was being held liable by PBCom, he averred that he only signed the
instrument in the capacity of agent of the company.

HELD:
An inspection of the drafts accepted by the defendant would show nowhere that he has disclosed that he was signing
in representation of the Philippine Education Foundation Company. He merely signed his name. For failure to
disclose his principal, Aruego was personally liable for the drafts he accepted.

CRISOLOGO JOSE V. CA - Accommodation Party

177 SCRA 594
FACTS:
The president of Movers Enterprises, to accommodate its clients Spouses Ong, issued a check in favor of
petitioner Crisologo-Jose. This was in consideration of a quitclaim by petitioner over a parcel of land, which the
GSIS agreed to sell to spouses Ong, with the understanding that upon approval of the compromise
agreement, the check will be encashed accordingly. As the compromise agreement wasn't approved during
the expected period of time, the aforesaid check was replaced with another one for the same value. Upon
deposit though of the checks by petitioner, it was dishonored. This prompted the petitioner to file a case against
Atty. Bernares and Santos for violation of BP22. Meanwhile, during the preliminary investigation, Santos
tried to tender a cashiers check for the value of the dishonored check but petitioner refused to accept such. This
was consigned by Santos with the clerk of court and he instituted charges against petitioner. The trial court held that
consignation wasn't applicable to the case at bar but was reversed by the CA.

HELD:
Petitioner averred that it is not Santos who is the accommodation party to the instrument but the corporation itself.
But assuming arguendo that the corporation is the accommodation party, it cannot be held liable to the check
issued in favor of petitioner. The rule on accommodation party
doesn't include or apply to corporations which are accommodation parties. This is because the issue or indorsement
of another is ultra vires. 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 the 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.
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 party only is specifically
authorized to do so. Corollarily, corporate officers have no power to execute for mere accommodation a
negotiable instrument of the corporation for their individual debts and transactions arising from or in relation
to matters in which the corporation has no legitimate concern. Since such accommodation paper cannot
be enforced against the corporation, the signatories thereof shall be personally liable therefore, as well as the
consequences arising from their acts in connection therewith.

PRUDENCIO V. CA
143 SCRA 7
FACTS:
Appellants are the owners of a property, which they mortgaged to help secure a loan of a certain Domingo
Prudencio. On a later date, they were approached by their relative who was the attorney-in-fact of a construction
company, which was in dire need of funds for the completion of a municipal building. After some persuasion, the
appellants amended the mortgage wherein the terms and conditions of the original mortgage was made an
integral part of the new mortgage. The promissory note covering the second loan was signed by their
relative. It was also signed by them, indicating the request that the check be released by the bank.
After the amendment of the mortgage was executed, a deed of assignment was made by Toribio, assigning all
the payments to the Bureau to the construction company. This notwithstanding, the Bureau with approval of the
bank, conditioned however that they should be for labor and materials,
made three payments to the company. The last request was denied by the bank, averring that the account was long
overdue, the remaining balance of the contract price should be applied to the loan.
The company abandoned the work and as consequence, the Bureau rescinded the contract and assumed
the work. Later on, the appellants wrote to the PNB that since the latter has authorized payments to the
company instead of on account of the loan guaranteed by the mortgage, there was a change in the conditions
of the contract without the knowledge of appellants, which entitled the latter to cancel the mortgage contract.
The trial court held them still liable together with their co-makers. It has also been held that if the judgment is not
satisfied within a period of time, the mortgaged properties would be foreclosed and sold in public auction.
In their appeal, petitioners contend that as accommodation makers, the nature of their liability is only that of
mere sureties instead of solidary co-debtors such that a material alteration in the principal contract, efected by the
creditor without the knowledge and consent of the sureties, completely discharges the sureties from all liabilities on
the contract of suretyship.

HELD:
There is no question that as accommodation makers, petitioners would be primarily and unconditionally liable on the
promissory note to a holder for value, regardless of whether they stand as sureties or solidary co-debtors since such
distinction would be entirely immaterial and inconsequential as far as a holder for value is concerned.
Consequently, the petitioners cannot claim to have been released from their obligation simply because at the time
of payment of such obligation was temporarily deferred by the
PNB without their knowledge and consent. There has to be another basis for their claim of having been freed
from their obligation. It has to be determined if PNB was a holder for value.
A holder for value is one who meets the requirement of being a holder in due course except the notice for want of
consideration. In the case at bar, PNB may not be considered as a holder for value. Not only was PNB an

immediate party or privy to the promissory note, knowing fully well that petitioners only signed as
accommodation parties, but more importantly it was the Deed of Assignment which moved the petitioners to
sign the promissory note. Petitioners also relied on the belief that there will be no
alterations to the terms of the agreement. The deed provided that there will no further conditions which could possibly
alter the agreement without the consent of the petitioner such as the grant of greater priority to obligations
other than the payment of the loan. This notwithstanding, the bank approved the release of payments to the
Company instead of the same to the bank. This was in violation of the deed of assignment and prejudiced
the rights of petitioners. The bank was not in good faitha requisite for a holder to be one in due course.

STATE INVESTMENT HOUSE V. CA

217 SCRA 32
FACTS:
Moulic issued checks as security to Victoriano, for pieces of jewelry to be sold on commission. Moulic failed to
sell the pieces of jewelry, so she returned them to Victoriano. The checks however could not be recovered by
Moulic as these have been discounted already in favor of petitioner. Consequently, before the maturity dates,
Moulic withdrew her funds from her account. Thereafter, petitioner presented the checks for payment but these were
dishonored. This prompted the petitioner to initiate an action
against Moulic.

HELD:
A prima facie presumption exists that a holder of a negotiable instrument is a holder in due course. The burden of
proving that State is not a holder in due course is upon Moulic. In this regard, she failed to do so.
The evidence shows that the dated checks were complete and regular; petitioner bought the checks from
Victoriano before their due dates; it took the checks in good faith and for value; and it was never informed nor made
aware that these checks were merely issued to payee as security.
Consequently, State is a holder in due course.

Moulic cannot set up the defense that there was failure or

want of consideration. It can only invoke the defense if State was a privy to the purpose for which they were issued
and therefore is not a holder in due course.
Furthermore, the mere fact that the checks were issued as security is not sufficient ground to discharge the
instrument as against a holder in due course.
And also, Moulic was responsible for the dishonor of her checks.

She withdrew her funds from her

account and could not have expected her checks to be honored by then.

ASSOCIATED BANK V. CA

208 SCRA 465

FACTS:
Reyes was engaged in the RTW business and held transactions with diferent department stores. She was
about to collect payments from the department stores when she was informed that the payments had already been
made, through crossed checks issued in her business name and the same were deposited with the bank. The
bank consequently allowed its transfer to Sayson who later encashed the checks. This prompted Reyes to sue the
bank and its manager for the return of the money. The trial and appellate court ruled in her favor.

HELD:
There is no doubt that the checks were crossed checks and for payees account only.

Reyes was able to

show that she has never authorized Sayson to deposit the checks nor to encash the same; that the bank had
allowed all checks to be deposited, cleared and paid to one Sayson in
violation of the instructions in the said crossed checks that the same were for payees account only; and that
Reyes maintained a savings account with the bank which never cleared the said checks.
Under accepted banking practice, crossing a check is done by writing two parallel lines diagonally on the top left
portion of the checks. The crossing is special where the name of a bank or a business institution is written
between the two parallel lines, which means that the drawee should pay
only with the intervention of the company. The crossing is general where the words written in between are And Co.
and for payees account only, as in the case at bar. This means that the drawee bank should not encash the check
but merely accept it for deposit.
The efects of crossing a check are as follows:
1.

That the check may not be encashed but only deposited in the bank

2.

That the check may be negotiated only onceto one who has an account with a bank

3.

That the act of crossing the check serves as a warning to the holder that the check has been issued

for a definite purpose so that he must inquire if he has received the check pursuant to the
purpose
The subject checks were accepted for deposit by the bank for the account of Sayson although they were crossed
checks and the payee wasn't Sayson but Reyes.

The bank stamped thereon its guarantee that all prior

endorsements and/or lack of endorsements guaranteed.

By such deliberate and positive act, the bank had

for all legal intents and purposes treated the said checks as negotiable instruments and accordingly assumed the
warranty of the endorser.
When the bank paid the checks so indorsed notwithstanding that title has not passed to the endorser, it did so at its
peril and became liable to the payee for the value of the checks.

PNB V. CA- Material Alteration

256 SCRA 491
FACTS:
DECS issued a check in favor of Abante Marketing containing a specific serial number, drawn
against PNB. The check was deposited by Abante in its account with Capitol and the latter
consequently deposited the same with its account with PBCOM which later deposited it with
petitioner for
clearing. The check was thereafter cleared. However, on a relevant date, petitioner PNB returned the
check on account that there had been a material alteration on it. Subsequent debits were made but
Capitol cannot debit the account of Abante any longer for the latter had withdrawn all the money already
from the account. This prompted Capitol to seek reclarification from PBCOM and demanded the
recrediting of its account. PBCOM followed suit by doing the same against PNB. Demands unheeded,
it filed an action against PBCOM and the latter filed a third-party complaint against petitioner.

HELD:
An alteration is said to be material if it alters the efect of the instrument. It means an unauthorized
change in the instrument that purports to modify in any respect the obligation of a party or an
unauthorized addition of words or numbers or other change to an incomplete instrument relating to the
obligation of the party. In other words, a material alteration is one which changes the items which
are required to be stated under Section 1 of the NIL.
In this case, the alleged material alteration was the alteration of the serial number of the check in issue
which is not an essential element of a negotiable instrument under Section 1. PNB alleges that the
alteration was material since it is an accepted concept that a TCAA check by its very
nature is the medium of exchange of governments, instrumentalities and agencies. As a safety
measure, every government office or agency is assigned checks bearing diferent serial numbers.
But this contention has to fail. The checks serial number is not the sole indicia of its origin. The name of
the government agency issuing the check is clearly stated therein. Thus, the checks drawer is sufficiently
identified, rendering redundant the referral to its serial number.
Therefore, there being no material alteration in the check committed, PNB could not return the check to
PBCOM. It should pay the same.