PEOPLE v YABUT The estafa charged in the two informations appears to be transitory or continuing in nature.
Deceit
G.R. No. L-42847 April 29, 1977
FACTS:
Cecilia Que Yabut, as treasurer of the Yabut Transit Line, prepared and issued three (3) checks
(Check Nos. CB-19035 B, CB-190396 and CB-190397, dated February 22, 1975, February 24, 1975
and February 26, 1975), in the total sum of P6,568.94, drawn against the Merchants Banking
Corporation, payable to Freeway Tires Supply, owned and operated by Alicia P. Andan, in payment
of articles and merchandise delivered to and received by said accused, gave and delivered the said
checks to the said Freeway Tires Supply. Upon presentation of the said checks to the bank, the
checks were dishonored and inspite of repeated demands by the owner of the Freeway Tires Supply
to deposit the necessary funds to cover the checks within the reglementary period, respondent failed
and refused to do so.
Similarly, accused Geminiano Yabut, Jr., as president of the Yabut Transit Line was charged of the
same offense in a separate information.
The spouses filed separate motions to quash, contending that the acts charged do not constitute the
offense as there is no allegation that the postdated checks were issued and delivered to the
complainant prior to or simultaneously with the delivery of the merchandise, the crime of estafa not
being indictable, when checks are postdated or issued in payment of pre-existing obligation; and the
venue was improperly laid.
The information was quashed for the reason that the proper venue in the case is Caloocan City and
not Bulacan. The issue whether estafa lies for postdating or issuing a check in payment of a pre-
existing obligation was not discussed by Hon. Jesus De Vega who is also a respondent in this case.
The motion for reconsideration of this dismissal order was denied, thus the appeal.
Issues:
1. Will the new law on checks (Rep. Act 4885, amending Art. 315, par. 2 (d), Revised Penal
Code), penalizes the postdating or issuance thereof in payment of pre-existing obligation?;
and Can the Malolos court can exercise jurisdiction over the case, since the last ingredient
of the offense, i.e., damage, transpired in Bulacan (residence of complainant) after the
dishonor of the checks for lack of funds?
2. Does postdating or issuing of a worthless check in payment of a pre-existing obligation
constitute estafa under Art. 315, par. 2 (d) of the Revised Penal Code?
Ruling:
1. Estafa is a Continuing Crime, Delivery of the Check to the Drawee Determines the
Execution Not Where it was Signed
has taken place in Malolos, Bulacan, while the damage in Caloocan City, where the checks were
dishonored by the drawee banks there. Jurisdiction can, therefore, be entertained by either the
Malolos court or the Caloocan court. While the subject checks were written, signed, or dated in
Caloocan City, they were not completely made or drawn there, but in Malolos, Bulacan, where they
were uttered and delivered.
The place where the bills were written, signed, or dated does not necessarily fix or determine the
place where they were executed. What is of decisive importance is the delivery thereof. The delivery
of the instrument is the final act essential to its consummation as an obligation.
An undelivered bill or note is inoperative. Until delivery, the contract is revocable. And the issuance
as well as the delivery of the check must be to a person who takes it as a holder, which means
the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof. Delivery of
the check signifies transfer of possession, whether actual or constructive, from one person to another
with intent to transfer title thereto.
Modesto Yambao's receipt of the bad checks from Cecilia Que Yabut or Geminiano Yabut Jr. in
Caloocan City cannot, contrary to the holding of the respodent Judges, be licitly taken as delivery of
the checks to the complainant Alicia P. Andan at Caloocan City to fix the venue there. He did not
take delivery of the checks as holder, i.e., as "payee" or "indorse". And there appears to be no
contract of agency between Yambao and Andan so as to bind the latter for the acts of the former.
Alicia P. Andan declared in that sworn testimony before the investigating fiscal that Yambao is but
her "messenger" or "part-time employee." There was no special fiduciary relationship that permeated
their dealings.
Furthermore, the place of business of the Freeway Tires Supply and Freeway Caltex Station, is at
Malolos, Bulacan, from where the tire and gas purchases were made by the two private respondents.
As a consequence, payment thereof should be considered effected at Malolos, Bulacan.
In general terms, a prosecution for issuing a worthless check with intent to defraud is in the county
where the check was uttered and delivered. The venue of the offense lies at the place where the check
was executed and delivered to the payee. Since in the instant case it was in Malolos, Bulacan where
the checks were uttered and delivered to complaint Andan, at which place, her business and residence
were also located, the criminal prosecution of estafa may be lodged therein. As earlier pointed out,
the giving of the checks by the two private respondents in Caloocan City to Modesto Yambo cannot
be treated as valid delivery of the checks, because Yambo is a mere "messenger" or "part-time
employee" and not an agent of complainant Alicia P. Andan.
2. Postdating a Check Constitute Estafa
The informations against private respondents, constitute estafa under Art. 315, par. 2 (d) of the
Revised Penal Code. In considering a motion to quash based on the ground "(t)hat the facts charged
do not constitute an offense," the point of resolution is whether the facts alleged, if hypothetically
admitted, would meet the essential elements of the offense as defined in the law. The facts alleged in
the criminal charge should be taken as they are. An analysis of the two informations involved in the
present case show that the facts charged therein substantially constitute the integral elements of the
offense as defined in the law. And the averments in the two informations sufficiently inform the two
private respondents of the nature and cause of the accusations against them, thereby defeating any 1. Whether a check still in the hands of the maker or its duly authorized representative is
constitutional objection of lack of notice. owned by the payee before physical delivery to the latter.
2. Whether the salary check of a government official or employee funded with public funds
The court orders the arraignment of the private respondents in the criminal cases at the earliest date can be subject to garnishment.
and the trial on the merits to proceed immediately.
RULING:

1. Petitioner reiterates his position that the salary checks were not owned by Mabanto, Jr.,
because they were not yet delivered to him, and that petitioner as garnishee has no legal
obligation to hold and deliver them to the trial court to be applied to Mabanto, Jr.'s
DELA VICTORIA V. BURGOS
judgment debt. The thesis of petitioner is that the salary checks still formed part of public
245 SCRA 374 funds and therefore beyond the reach of garnishment proceedings.

FACTS:
Garnishment is considered as a species of attachment for reaching credits belonging to the
judgment debtor owing to him from a stranger to the litigation. Emphasis is laid on the
Sesbreno filed a case against Mabanto Jr. among other people wherein the phrase "belonging to the judgment debtor" since it is the focal point in resolving the issues
court decided in favor of the plaintiff, ordering the defendants to pay raised.
former a definite amount of cash. The decision had become final and executory and a writ of
execution was issued. This was questioned in the CA by the defendants.
In the meanwhile, a notice of garnishment was
issued to petitioner who was then the City Fiscal. She was asked to As Assistant City Fiscal, the source of the salary of Mabanto, Jr., is public funds. He
withhold any check or whatnot in favor of Mabanto Jr. The CA then receives his compensation in the form of checks from the Department of Justice through
dismissed the defendant’s petition and the garnishment was commenced only to find out that petitioner as City Fiscal of Mandaue City and head of office. Under Sec. 16 of the
petitioner didn't follow instructions of sheriff. She is now being held liable. Negotiable Instruments Law, every contract on a negotiable instrument is incomplete and
revocable until delivery of the instrument for the purpose of giving effect thereto. As
ordinarily understood, delivery means the transfer of the possession of the instrument by
On 4 February 1992 a notice of garnishment was served on petitioner Loreto D. de la Victoria as City
the maker or drawer with intent to transfer title to the payee and recognize him as the
Fiscal of Mandaue City where defendant Mabanto, Jr., was then detailed. The notice directed
holder thereof.
petitioner not to disburse, transfer, release or convey to any other person except to the deputy sheriff
concerned the salary checks or other checks, monies, or cash due or belonging to Mabanto, Jr., under
penalty of law. On 10 March 1992 private respondent filed a motion before the trial court for 2. According to the trial court, the checks of Mabanto, Jr., were already released by the
examination of the garnishees. Department of Justice duly signed by the officer concerned through petitioner and upon
service of the writ of garnishment by the sheriff petitioner was under obligation to hold
On 25 May 1992 the petition pending before the Court of Appeals was dismissed. Thus the trial them for the judgment creditor. It recognized the role of petitioner as custodian of the
court, finding no more legal obstacle to act on the motion for examination of the garnishees, directed checks. At the same time however it considered the checks as no longer government funds
petitioner on 4 November 1992 to submit his report showing the amount of the garnished salaries of and presumed delivered to the payee based on the last sentence of Sec. 16 of the Negotiable
Mabanto, Jr., within fifteen (15) days from receipt taking into consideration the provisions of Sec. 12, Instruments Law which states: "And where the instrument is no longer in the possession of
pars. (f) and (i), Rule 39 of the Rules of Court. a party whose signature appears thereon, a valid and intentional delivery by him is
presumed." Yet, the presumption is not conclusive because the last portion of the provision
On 24 November 1992 private respondent filed a motion to require petitioner to explain why he says "until the contrary is proved." However this phrase was deleted by the trial court for
should not be cited in contempt of court for failing to comply with the order of 4 November 1992. no apparent reason. Proof to the contrary is its own finding that the checks were in the
custody of petitioner. Inasmuch as said checks had not yet been delivered to Mabanto, Jr.,
they did not belong to him and still had the character of public funds.In Tiro v. Hontanosas
On the other hand, on 19 January 1993 petitioner moved to quash the notice of garnishment claiming we ruled that —
that he was not in possession of any money, funds, credit, property or anything of value belonging to
Mabanto, Jr., except his salary and RATA checks, but that said checks were not yet properties of The salary check of a government officer or employee such as a teacher does not
Mabanto, Jr., until delivered to him. He further claimed that, as such, they were still public funds belong to him before it is physically delivered to him. Until that time the check
which could not be subject to garnishment. belongs to the government. Accordingly, before there is actual delivery of the
check, the payee has no power over it; he cannot assign it without the consent of
ISSUE: the Government.

As a necessary consequence of being public fund, the checks may not be garnished to
satisfy the judgment. The rationale behind this doctrine is obvious consideration of public
policy.
Consequently, we find no difficulty concluding that the trial court exceeded its jurisdiction
in issuing the notice of garnishment concerning the salary checks of Mabanto, Jr., in the
possession of petitioner.
JOHN DY v. PEOPLE OF THE PHILIPPINES
G.R. No. 158312 November 14, 2008
FACTS:
John Dy has been a distributor of W.L. Products since 1990. At times, he would entrust the
payment of the food products to ne of his drivers.
On June 24, 1992, Dy’s driver went to the office of W.L. Foods to pick up stocks of snack
foods worth 106, 579.60. In return, the driver handed to the checker a blank check, postdated July 22,
1992. The check was signed by Dy though it did not indicate a specific amount. Again, on July 1,
1992, the same driver obtained snack foods from the checker in the amount of 226,794.36 in
exchange for a blank check, postdated July 31, 1992.
The amounts for the purchases were filled in by the accountant of W. L. Foods, based on
the value of the goods delivered. When presented for payment, the checks were dishonored. In a
letter sent by the manager of the bank, it informed the counsel of W. L. Foods that the check for the
payment of 106, 579.60 was returned to the drawee bank for the reasons stop payment order and
drawn against uncollected deposit (DAUD).
Lim, the owner of W. L. Foods phoned Dy regarding the matter, the latter explained that he
could not pay because he had no funds yet. The owner sent a demand letter but Dy ignored it. Lim
charged Dy with two counts of estafa and two counts of violation of B. P. Blg. 22. Dy contends that
the checks were ineffectively issued, he claims that the checks were blank and the accountant had no
authority to fill the amounts to negate any obligation to W.L. Foods.
RTC and CA found Dy guilty.
ISSUE: Were the checks ineffectively issued?
RULING:
No. Even if the checks were given to W.L. Foods in blank, this alone did not make its
issuance invalid. When the checks were delivered to Lim, through his employee, he became a holder
with prima facie authority to fill the blanks. This was, in fact, accomplished by Lim’s accountant.
The pertinent provisions of Section 14 of the Negotiable Instruments Law are instructive:
SEC. 14. Blanks; when may be filled.Where the instrument is wanting
in any material particular, the person in possession thereof has a prima
facie authority to complete it by filling up the blanks therein. And a signature
on a blank paper delivered by the person making the signature in order that the
paper may be converted into a negotiable instrument operates as a prima
facie authority to fill it up as such for any amount. . (Emphasis supplied.)
Hence, the law merely requires that the instrument be in the possession of a person other
than the drawer or maker. From such possession, together with the fact that the instrument is wanting
in a material particular, the law presumes agency to fill up the blanks. Because of this, the burden of
proving want of authority or that the authority granted was exceeded, is placed on the person
questioning such authority. Petitioner failed to fulfill this requirement.
DEVELOPMENT BANK OF RIZAL v SIMA WEI Formatted: Centered, Space After: 0 pt, Line spacing:
G.R. No. 85419 March 9, 1993 single
FACTS:
For a loan, Sima Wei executed and delivered a promissory note engaging to pay the
Development Bank of Rizal or order amounting to P1,820,000.00 on or before June 24, 1983 with the
interest of 32% per annum. He made partial payment of the note, leaving a balance of P1,032,450.02.
SIma Wei futher issued two crossed checks payable to the bank drawn against China Banking
Corporation to fully settle the obligation. However, the said checks were not delivered to the payee-
bank of any of its authorized representatives.
For unknown reason, it came to the possession of Lee Kian Huat, who deposited the check
without indorsement from the payee to the account of Plastic Corporation at the Producer’s Bank
BAlintawak branch. Cheng Uy, the branch manager allowed the deposit of the check despite lack of
indorsement.
ISSUE:
Whether or not Development Bank has a cause of action against Sima Wei or other
respondents for the undelivered checks.
RULING:
No. A negotiable instrument must be delivered to the payee in order to evidence its
existence as a binding contract. Section 16 of the NIL provides that every contract on a negotiable
instrument is incomplete and revocable until delivery of the instrument for the purpose of giving
effect thereto. Thus, the payee of a negotiable instrument acquires no interest with respect thereto
until its delivery to him. Without the initial delivery of the instrument from the drawer to the payee,
there can be no liability on the instrument. Petitioner however has a right of action against Sima Wei
for the balance due on the promissory note.
Notwithstanding the above, it does not necessarily follow that the drawer Sima Wei is freed
from liability to petitioner Bank under the loan evidenced by the promissory note agreed to by her.
Her allegation that she has paid the balance of her loan with the two checks payable to petitioner
Bank has no merit for, as We have earlier explained, these checks were never delivered to petitioner
Bank. And even granting, without admitting, that there was delivery to petitioner Bank, the delivery
of checks in payment of an obligation does not constitute payment unless they are cashed or their
value is impaired through the fault of the creditor.6 None of these exceptions were alleged by
respondent Sima Wei.
Therefore, unless respondent Sima Wei proves that she has been relieved from liability on the
promissory note by some other cause, petitioner Bank has a right of action against her for the balance
due thereon.
However, insofar as the other respondents are concerned, petitioner Bank has no privity
with them. Since petitioner Bank never received the checks on which it based its action against said
respondents, it never owned them (the checks) nor did it acquire any interest therein. Thus, anything
which the respondents may have done with respect to said checks could not have prejudiced
petitioner Bank. It had no right or interest in the checks which could have been violated by said
respondents. Petitioner Bank has therefore no cause of action against said respondents, in the
alternative or otherwise. If at all, it is Sima Wei, the drawer, who would have a cause of action
against her co-respondents, if the allegations in the complaint are found to be true.
PNB vs. Quimpo
158 SCRA 582
FACTS:
In June 1973, Francisco Gozon II went to the Philippine National Bank (Caloocan City) accompanied
by his friend Ernesto Santos. Gozon left Santos in his car and while Gozon was at the bank, Santos
took a check from Gozon’s checkbook. Santos forged Gozon’s signature and filled out the check with
the amount of P5,000.00. Santos was able to encash the check that day with PNB. Gozon learned of
this when his statement arrived. Santos eventually admitted to forging Gozon’s signature. Gozon then
demanded the PNB to refund him the amount. PNB refused. Judge Romulo Quimpo ruled in favor of
Gozon.
ISSUE: Whether or not PNB is liable.
HELD: Yes. 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 change the
amount so paid to the account of the depositor whose name was forged. PNB failed to meet its
obligation to know the signature of its correspondent (Gozon). Further, it was found by the court that
there are glaring differences between Gozon’s authentic specimen signatures and that of the forged
check.
Associated Bank vs Court of Appeals (1996)
252 SCRA 620
FACTS:
The Province of Tarlac was disbursing funds to Concepcion Emergency Hospital via checks drawn
against its account with the Philippine National Bank (PNB). These checks were drawn payable to
the order of Concepcion Emergency Hospital. Fausto Pangilinan was the cashier of Concepcion
Emergency Hospital in Tarlac until his retirement in 1978. He used to handle checks issued by the
provincial government of Tarlac to the said hospital. However, after his retirement, the provincial
government still delivered checks to him until its discovery of this irregularity in 1981. By forging
the signature of the chief payee of the hospital (Dr. Adena Canlas), Pangilinan was able to deposit 30
checks amounting to P203k to his account with the Associated Bank.
When the province of Tarlac discovered this irregularity, it demanded PNB to reimburse the said
amount. PNB in turn demanded Associated Bank to reimburse said amount. PNB averred that
Associated Bank is liable to reimburse because of its indorsement borne on the face of the checks:
“All prior endorsements guaranteed ASSOCIATED BANK”
ISSUE: What are the liabilities of each party?
HELD: The checks involved in this case are order instruments.
Liability of Associated Bank
Where the instrument is payable to order at the time of the forgery, such as the checks in this case,
the signature of its rightful holder (here, the payee hospital) is essential to transfer title to the same
instrument. When the holder’s indorsement is forged, all parties prior to the forgery may raise the real
defense of forgery against all parties subsequent thereto.
A collecting bank (in this case Associated Bank) where a check is deposited and which indorses the
check upon presentment with the drawee bank (PNB), is such an indorser. So even if the indorsement
on the check deposited by the banks’s client is forged, Associated Bank is bound by its warranties as
an indorser and cannot set up the defense of forgery as against the PNB.
EXCEPTION: If it can be shown that the drawee bank (PNB) unreasonably delayed in notifying the
collecting bank (Associated Bank) of the fact of the forgery so much so that the latter can no longer
collect reimbursement from the depositor-forger.
Liability of PNB
The bank on which a check is drawn, known as the drawee bank (PNB), is under strict liability to pay
the check to the order of the payee (Provincial Government of Tarlac). Payment under a forged
indorsement is not to the drawer’s order. When the drawee bank pays a person other than the payee, it
does not comply with the terms of the check and violates its duty to charge its customer’s (the
drawer) account only for properly payable items. Since the drawee bank did not pay a holder or other
person entitled to receive payment, it has no right to reimbursement from the drawer. The general
rule then is that the drawee bank may not debit the drawer’s account and is not entitled to
indemnification from the drawer. The risk of loss must perforce fall on the drawee bank.
EXCEPTION: If the drawee bank (PNB) can prove a failure by the customer/drawer (Tarlac
Province) to exercise ordinary care that substantially contributed to the making of the forged
signature, the drawer is precluded from asserting the forgery.
In sum, by reason of Associated Bank’s indorsement and warranties of prior indorsements as a party
after the forgery, it is liable to refund the amount to PNB. The Province of Tarlac can ask
reimbursement from PNB because the Province is a party prior to the forgery. Hence, the instrument
is inoperative. HOWEVER, it has been proven that the Provincial Government of Tarlac has been
negligent in issuing the checks especially when it continued to deliver the checks to Pangilinan even
when he already retired. Due to this contributory negligence, PNB is only ordered to pay 50% of the
amount or half of P203 K.
BUT THEN AGAIN, since PNB can pass its loss to Associated Bank (by reason of Associated
Bank’s warranties), PNB can ask the 50% reimbursement from Associated Bank. Associated Bank
can ask reimbursement from Pangilinan but unfortunately in this case, the court did not acquire
jurisdiction over him.
WESTMONT BANK vs EUGENE ONG
G.R. No. 132560. January 30, 2002
FACTS:
Eugene Ong maintained a current account with Westmont Bank, formerly the Associated
Banking Corporation. Sometime in May 1976, he sold certain shares of stocks through Island
Securities Corporation. To pay Ong, Island Securities purchased two (2) Pacific Banking Corporation
managers checks, both dated May 4, 1976, issued in the name of Eugene Ong as payee. Before Ong
could get hold of the checks, his friend Paciano Tanlimco got hold of them, forged Ong’s signature
and deposited these with petitioner, where Tanlimco was also a depositor. Even though Ong’s
specimen signature was on file, petitioner accepted and credited both checks to the account of
Tanlimco, without verifying the signature indorsements appearing at the back thereof. Tanlimco then
immediately withdrew the money and absconded.
Ong sought to collect the money from the family of Tanlimcos before filing a report with the
Central Bank. Unfortunately, his efforts to recover the amount were futile so he filed an action
against the bank. In his complaint, he demanded that petitioner pay the value of the two checks on
whose gross negligence he imputed his loss. In his suit, he insisted that he did not deliver, negotiate,
endorse or transfer to any person or entity the subject checks issued to him and asserted that the
signatures on the back were spurious.
The bank did not present evidence to the contrary, but simply contended that since plaintiff
Ong claimed to have never received the originals of the two (2) checks in question from Island
Securities, much less to have authorized Tanlimco to receive the same, he never acquired ownership
of these checks. Thus, he had no legal personality to sue as he is not a real party in interest. The bank
then filed a demurrer to evidence which was denied.
The RTC of Manila rendered a decision for Ong and against the Bank. On appeal, the Court of
Appeals affirmed in toto the decision of the RTC.
Issue
1. Whether or not respondent Ong may still recover from petitioner
2. Whether or not Ong is barred to recover the money from Westmont Bank due to laches
Held:
1. Yes. Since the signature of the payee, in the case at bar, was forged to make it appear that
he had made an indorsement in favor of the forger, such signature should be deemed as
inoperative and ineffectual. Petitioner, as the collecting bank, grossly erred in making
payment by virtue of said forged signature. The collecting bank is liable to the payee and
must bear the loss because it is its legal duty to ascertain that the payee’s endorsement was
genuine before cashing the check.
As a general rule, a bank or corporation who has obtained possession of a check
upon an unauthorized or forged indorsement of the payees signature and who collects the
amount of the check from the drawee, is liable for the proceeds thereof to the payee or
other owner, notwithstanding that the amount has been paid to the person from whom the
check was obtained.
Petitioner relies on the view to the effect that where there is no delivery to the
payee and no title vests in him, he ought not to be allowed to recover on the ground that he
lost nothing because he never became the owner of the check and still retained his claim of
debt against the drawer. However, another view in certain cases holds that even if the
absence of delivery is considered, such consideration is not material. The Doctrine of
Desirable Short Cut states that the plaintiff uses one action to reach, by a desirable short
cut, the person who ought in any event to be ultimately liable as among the innocent
persons involved in the transaction. In other words, the payee ought to be allowed to
recover directly from the collecting bank, regardless of whether the check was delivered to
the payee or not.
2. No. It cannot be said that respondent sat on his rights. He immediately acted after knowing
of the forgery by proceeding to seek help from the Tanlimco family and later the Central
Bank, to remedy the situation and recover his money from the forger, Paciano Tanlimco.
Only after he had exhausted possibilities of settling the matter amicably with the family of
Tanlimco and through the Central Bank, about five months after the unlawful transaction
took place, did he resort to making the demand upon the petitioner and eventually before
the court for recovery of the money value of the two checks. These acts cannot be
construed as undue delay in or abandonment of the assertion of his rights
Petition denied.
Philippine National Bank v. Erlando Rodriguez
G.R. No. 170325 September 26, 2008
FACTS
Respondent Spouses Erlando and Norma Rodriguez were engaged in the informal lending business
and had a discounting arrangement with the Philnabank Employees Savings and Loan Association
(PEMSLA), an association of Philippine National Bank (PNB) employees.
The association maintained current and savings accounts with Philippine National Bank (PNB).
PEMSLA regularly granted loans to its members. Spouses Rodriguez would rediscount the postdated
checks issued to members whenever the association was short of funds. As was customary, the
Spouses would replace the postdated checks with their own checks issued in the name of the
members.
It was PEMSLA’s policy not to approve applications for loans of members with outstanding
debts. To subvert this policy, some PEMSLA officers devised a scheme to obtain additional loans
despite their outstanding loan accounts. They took out loans in the names of unknowing members,
without the knowledge or consent of the latter. The officers carried this out by forging the
indorsement of the named payees in the checks.
Rodriguez checks were deposited directly by PEMSLA to its savings account without any
indorsement from the named payees. This was an irregular procedure made possible through the
facilitation of Edmundo Palermo, Jr., treasurer of PEMSLA and bank teller in the PNB Branch. This
became the usual practice for the parties.
In November 1998 to February 1999, the Spouses issued 69 checks totaling to P2,345,804. These
were payable to 47 individual payees who were all members of PEMSLA.
PNB eventually found out about these fraudulent acts. To put a stop to this scheme, PNB closed the
current account of PEMSLA. As a result, the PEMSLA checks deposited by the Spouses were
returned or dishonored for the reason “Account Closed.” The amounts were duly debited from the
Rodriguez account.
Spouses filed a civil complaint for damages against PEMSLA, the Multi-Purpose Cooperative of
Philnabankers (MCP), and PNB.
According to the Spouses, PNB credited the checks to the PEMSLA account even without
indorsements, thus, PNB violated its contractual obligation to them as depositors, so PNB should
bear the losses
The Regional Trial Court favored Rodriguez saying that makers did not actually intend for the named
payees to receive the proceeds of the checks because they are fictitious payees under the Negotiable
Instruments Law (NIL) and that the checks are not negotiable by mere delivery. The Court of
Appeals affirmed the decision of the RTC saying that checks were obviously meant by the Spouses to
be really paid to PEMSLA, and are payable to order.
ISSUE
Whether or not the 69 checks are payable to order for not being issued to fictitious persons ,thereby,
dismissing PNB from liability
RULING
No. The general rule is when the payee is fictitious or not intended to be the true recipient of the
proceeds, the check is considered as a bearer instrument under Sections 8 and 9 of the NIL.
However, there is a commercial bad faith exception to the fictitious-payee rule. A showing of
commercial bad faith on the part of the drawee bank, or any transferee of the check for that
matter, will work to strip it of this defense. The exception will cause it to bear the loss.
The distinction between bearer and order instruments lies in their manner of negotiation. An order
instrument requires an indorsement from the payee or holder before it may be validly negotiated. On
other hand, a bearer instrument may be negotiated mere delivery.
US jurisprudence provides that one is “fictitious” if the maker of the check did not intend for the
payee to in fact receive the proceeds of the check
In a fictitious-payee situation, the drawee bank is absolved from liability and the drawer bears the
loss. When faced with a check payable to a fictitious payee, it is treated as a bearer instrument that
can be negotiated by delivery. The underlying theory is one cannot expect a fictitious payee to
negotiate the check by placing his indorsement thereon.
The lack of knowledge on the part of the payees, however, was not tantamount to a lack of intention
on the part of respondents-spouses that the payees would not receive the checks’ proceeds. PNB did
not obey the instructions of the drawers when it accepted absent indorsement, forged or
otherwise. It was negligent in the selection and supervision of its employees.
Marcelo Mesina vs Intermediate Appellate Court
145 SCRA 497
FACTS:
Jose Go maintains an account with Associated Bank. He needed to transfer P800,000.00 from
Associated Bank to another bank but he realized that he does not want to be carrying that cash so he
bought a cashier’s check from Associated Bank worth P800,000.00. Associated Bank then issued the
check but Jose Go forgot to get the check so it was left on top of the desk of the bank manager. The
bank manager, when he found the check, entrusted it to Albert Uy for the later to safe keep it. The
check was however stolen from Uy by a certain Alexander Lim.
Jose Go learned that the check was stolen son he made a stop payment order against the check.
Meanwhile, Associated Bank received the subject check from Prudential Bank for clearing.
Apparently, the check was presented by a certain Marcelo Mesina for payment. Associated Bank
dishonored the check.
When asked how Mesina got hold of the check, he merely stated that Alfredo Lim, who’s already at
large, paid the check to him for “a certain transaction”.
ISSUE: Whether or not Mesina is a holder in due course.
HELD: No. Admittedly, Mesina became the holder of the cashier’s check as endorsed by Alexander
Lim who stole the check. Mesina however refused to say how and why it was passed to him. Mesina
had therefore notice of the defect of his title over the check from the start. The holder of a cashier’s
check who is not a holder in due course cannot enforce such check against the issuing bank which
dishonors the same. The check in question suffers from the infirmity of not having been properly
negotiated and for value by Jose Go who is the real owner of said instrument.
International Corporate Bank, Inc vs Court of Appeals
501 SCRA 20 [G.R. No. 129910 September 5, 2006]
Facts: The Ministry of Education and Culture issued 15 checks drawn against respondent which
petitioner accepted for deposit on various dates. After 24 hours from submission of the checks to
respondent for clearing, petitioner paid the value of the checks and allowed the withdrawals of the
deposits. However, on 14 October 1981, respondent returned all the checks to petitioner without
clearing them on the ground that they were materially altered. Thus, petitioner instituted an action for
collection of sums of money against respondent to recover the value of the checks.
Issue: Whether the alterations in the serial numbers of the check is a material alteration.
Held: No. Sections 124 and 125 of Act No. 2031, otherwise known as the Negotiable Instruments
Law, provide:
SEC. 124. Alteration of instrument; effect of. ― Where a negotiable instrument is materially
altered without the assent of all parties liable thereon, it is avoided, except as against a party who has
himself made, authorized, or assented to the alteration and subsequent indorsers. But when an
instrument has been materially altered and is in the hands of a holder in due course, not a party to the
alteration, he may enforce payment thereof according to its original tenor.
SEC. 125. What constitutes a material alteration. ― Any alteration which changes: (a) The date;
(b) The sum payable, either for principal or interest; (c) The time or place of payment; (d) The
number or the relations of the parties; (e) The medium or currency in which payment is to be
made; or which adds a place of payment where no place of payment is specified, or any other change
or addition which alters the effect of the instrument in any respect, is a material alteration.
An alteration is said to be material if it alters the effect of the instrument. It means an unauthorized
change in an 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 a party. In other words, a material alteration is one which changes the items which
are required to be stated under Section 1 of the Negotiable Instruments Law.
The case at the bench is unique in the sense that what was altered is the serial number of the check in
question, an item which, it can readily be observed, is not an essential requisite for negotiability
under Section 1 of the Negotiable Instruments Law. The aforementioned alteration did not change the
relations between the parties. The name of the drawer and the drawee were not altered. The intended
payee was the same. The sum of money due to the payee remained the same.
METROPOLITAN BANK AND TRUST COMPANY v. RENATO D. CABILZO
G.R. No. 154469 , December 6, 2006
FACTS:
Petitioner Metrobank is a banking institution duly organized and existing as such under Philippine
laws. Respondent Renato D. Cabilzo (Cabilzo) was one of Metrobanks clients who maintained a
current account with Metrobank Pasong Tamo Branch.
On 12 November 1994, Cabilzo issued a Metrobank Check No. 985988, payable to CASH and
postdated on 24 November 1994 in the amount of One Thousand Pesos (P1,000.00). The check was
drawn against Cabilzos Account with Metrobank Pasong Tamo Branch under Current Account No.
618044873-3 and was paid by Cabilzo to a certain Mr. Marquez, as his sales commission.
Subsequently, the check was presented to Westmont Bank for payment. Westmont Bank, in turn,
indorsed the check to Metrobank for appropriate clearing. After the entries thereon were examined,
including the availability of funds and the authenticity of the signature of the
drawer, Metrobank cleared the check for encashment in accordance with the Philippine Clearing
House Corporation (PCHC) Rules.
On 16 November 1994, Cabilzos representative was at Metrobank Pasong Tamo Branch to make
some transaction when he was asked by a bank personnel if Cabilzo had issued a check in the amount
of P91,000.00 to which the former replied in the negative. On the afternoon of the same
date, Cabilzo himself called Metrobank to reiterate that he did not issue a check in the amount
of P91,000.00 and requested that the questioned check be returned to him for verification, to
which Metrobank complied.
Upon receipt of the check, Cabilzo discovered that Metrobank Check No. 985988 which he issued
on 12 November 1994 in the amount of P1,000.00 was altered to P91,000.00 and the date 24
November 1994 was changed to 14 November 1994.
Hence, Cabilzo demanded that Metrobank re-credit the amount of P91,000.00 to his
account. Metrobank, however, refused. Repeated verbal demands followed but Metrobank still failed
to re-credit the amount of P91,000.00 to Cabilzos account. Consequently, Cabilzo instituted a civil
action for damages against Metrobank before the RTC of Manila, Branch 13.
RTC Ruling: On 4 September 1998, the RTC rendered a Decision in favor of Cabilzo and thereby
ordered Metrobank to pay the sum of P90,000.00, the amount of the check.
CA Ruling: In a Decision dated 8 March 2002, the Court of Appeals affirmed with modification the
Decision of the court a quo, similarly finding Metrobank liable for the amount of the check, without
prejudice, however, to the outcome of the case between Metrobank and Westmont Bank which was
pending before another tribunal.
Similarly ill-fated was Metrobanks Motion for Reconsideration which was also denied by the
appellate court.
ISSUE:
Whether or not Metrobank, as drawee bank, is liable for the alterations on the subject check bearing
the authentic signature of the drawer thereof.
RULING:
The Supreme Court ruled in the affirmative.
An alteration is said to be material if it changes the effect of the instrument. It means that an
unauthorized change in an 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 a party. In other words, a material alteration is one which changes the
items which are required to be stated under Section 1 of the Negotiable Instruments Law.

Also pertinent is the following provision in the Negotiable Instrument Law which states:
Section 125. What constitutes material alteration. Any alteration which changes:
(a) The date;
(b) The sum payable, either for principal or interest;
(c) The time or place of payment;
(d) The number or the relation of the parties;
(e) The medium or currency in which payment is to be made;
Or which adds a place of payment where no place of payment is specified, or any
other change or addition which alters the effect of the instrument in any respect is
a material alteration.
In the case at bar, the check was altered so that the amount was increased
from P1,000.00 to P91,000.00 and the date was changed from 24 November 1994 to 14 November
1994. Apparently, since the entries altered were among those enumerated under Section 1 and 125,
namely, the sum of money payable and the date of the check, the instant controversy therefore
squarely falls within the purview of material alteration.
Moreover, the following provision of the Negotiable Instrument Law will shed us some light in
threshing out the issue:
Section 124. Alteration of instrument; effect of. Where a negotiable
instrument is materially altered without the assent of all parties liable thereon, it
is avoided, except as against a party who has himself made, authorized,
and assented to the alteration and subsequent indorsers.
But when the instrument has been materially altered and is in the hands
of a holder in due course not a party to the alteration, he may enforce the
payment thereof according to its original tenor.
Indubitably, Cabilzo was not the one who made nor authorized the alteration. Neither did he assent to
the alteration by his express or implied acts. There is no showing that he failed to exercise such
reasonable degree of diligence required of a prudent man which could have otherwise prevented the
loss. Indeed, Cabilzo placed asterisks before and after the amount in words and figures in order to
forewarn the subsequent holders that nothing follows before and after the amount indicated other than
the one specified between the asterisks.
The bank is under obligation to treat the accounts of its depositors with meticulous care, always
having in mind the fiduciary nature of their relationship. The appropriate degree of diligence required
of a bank must be a high degree of diligence, if not the utmost diligence.
In the present case, it is obvious that Metrobank was remiss in that duty and violated that
relationship. As observed by the Court of Appeals, there are material alterations on the check that are
visible to the naked eye. Thus:
x x x The number 1 in the date is clearly imposed on a white figure in the shape
of the number 2. The appellants employees who examined the said check should
have likewise been put on guard as to why at the end of the amount in words, i.e.,
after the word ONLY, there are 4 asterisks, while at the beginning of the line or
before said phrase, there is none, even as 4 asterisks have been placed before and
after the word CASH in the space for payee. In addition, the 4 asterisks before
the words ONE THOUSAND PESOS ONLY have noticeably been erased with
typing correction paper, leaving white marks, over which the word NINETY was
superimposed. The same can be said of the numeral 9 in the amount 91,000,
which is superimposed over a whitish mark, obviously an erasure, in lieu of the
asterisk which was deleted to insert the said figure. The appellants employees
should have again noticed why only 2 asterisks were placed before the amount in
figures, while 3 asterisks were placed after such amount. The word NINETY is
also typed differently and with a lighter ink, when compared with the words ONE
THOUSAND PESOS ONLY. The letters of the word NINETY are likewise a
little bigger when compared with the letters of the words ONE THOUSAND
PESOS ONLY.
Surprisingly, however, Metrobank failed to detect the above alterations which could not
escape the attention of even an ordinary person.
In addition, the bank on which the check is drawn, known as the drawee bank, is under strict liability
to pay to the order of the payee in accordance with the drawers instructions as reflected on the face
and by the terms of the check. Payment made under materially altered instrument is not payment
done in accordance with the instruction of the drawer.
When the drawee bank pays a materially altered check, it violates the terms of the check, as well as
its duty to charge its clients account only for bona fide disbursements he had made. Since the drawee
bank, in the instant case, did not pay according to the original tenor of the instrument, as directed by
the drawer, then it has no right to claim reimbursement from the drawer, much less, the right to
deduct the erroneous payment it made from the drawers account which it was expected to treat with
utmost fidelity.
Metrobank vigorously asserts that the entries in the check were carefully examined: The date of the
instrument, the amount in words and figures, as well as the drawers signature, which after
verification, were found to be proper and authentic and was thus cleared. We are not
persuaded. Metrobanks negligence consisted in the omission of that degree of diligence required of a
bank owing to the fiduciary nature of its relationship with its client. Article 1173 of the Civil Code
provides:
The fault or negligence of the obligor consists in the omission of that diligence
which is required by the nature of the obligation and corresponds with the
circumstances of the persons, of the time and of the place. x x x.
Metrobank cannot now feign ignorance nor claim diligence; neither can it point its finger at the
collecting bank, in order to evade liability. Petition is denied.