PNB v.

Benito Seeto

GR L-4388 August 13, 1952

Facts: On March 13, 1948, Benito Seeto presented to the Philippine National Bank at Surigao a check in the
amount of P5,000, payable to cash or bearer, and drawn by one Gan Yek Kiao against the Cebu branch of the
Philippine National Bank of Communications. After consultation with the bank employees, Seeto made a general
and unqualified endorsement of the check, which was accepted by PNB’s agency, which paid Seeto the value of
the check therefore. Upon being presented to the drawee bank for payment, however, the check was dishonored for
“insufficient funds.” PNB demanded refund from Seeto. Seeto, however, refused, claiming that at the time of the
negotiation of the check, the drawer had sufficient funds in the drawee bank, and had not PNB delayed in
forwarding the check until the drawer’s funds were exhausted, the same would have been paid.

PNB alleged that Seeto gave assurances that the drawer of the check had sufficient funds with the bank, and that
Seeto had made a general and unqualified indorsement thereon. As evidence, PNB presented two witnesses at the
trial, who testified that the check was cashed due to assurances given by Seeto and the promise that he would
refund the amount paid by PNB should the check be dishonored.

Issue: Should parole evidence with respect to the verbal assurances made by Seeto be admitted as evidence?

Held: Yes. It has been held that any prior or contemporaneous conversation in connection with a note or its
indorsement may be proved by parole evidence. An extrinsic agreement between indorser and indorsee which
cannot be embodied in the instrument without impairing its credit is provable by parole. If, therefore, the supposed
assurances that the drawer had funds and that the Seeto would refund the amount of the check if the drawer had no
funds, were the considerations or reasons that induced the branch agency of PNB to go out of its ordinary practice
of not cashing out of town checks and accept the check and to pay its face value, the same would be provable by
parole, provided, of course, that the assurances or inducements offered would not vary, alter, or destroy the
obligations attached by law to the indorsement.
However, in this case, there was no express obligation assumed by Seeto that the drawer would always have funds,
or that he would refund the amount of the check even if there was delay in its presentation. Therefore, though the
supposed assurances given were part of Seeto’s obligation as an indorser, such assurances were discharged by the
unreasonable delay in the presentation of the check for payment.

Doctrine: Any prior or contemporaneous conversation in connection with a note or its indorsement may be
proved by parole evidence. An extrinsic agreement between indorser and indorsee which cannot be
embodied in the instrument without impairing its credit is provable by parole.