ATENEO DE DAVAO UNIVERISTY

BAR OPERATIONS 2019

NEGOTIABLE INSTRUMENTS LAW
ATTY ED BATACAN

METROPOLITAN BANK AND TRUST COMPANY vs JUNNEL'S

MARKETING CORP.
G.R. No. 235511, June 20, 2018

DOCTRINE OF COMPARATIVE NEGLIGENCE VS DOCTRINE OF SEQUENTIAL

RECOVERY

FACTS:

Respondent Junnel's Marketing Corporation (JMC) is a domestic corporation

engaged in the business of selling wines and liquors. It has a current account
with Metrobank from which it draws checks to pay its different suppliers.
Among JMC's suppliers are Jardine Wines and Spirits (Jardine) and Premiere
Wines (Premiere).

In 2000, during an audit of its financial records, JMC discovered an anomaly

involving eleven (11) checks (subject checks) it had issued to the orders of
Jardine and Premiere on various dates between October 1998 to May 1999.
As it was, the subject checks had already been charged against JMC's current
account but were, for some reason, not covered by any official receipt from
Jardine or Premiere. The subject checks, which are all crossed checks and
amounting to P1,481,292.00 in total, are as follows:

Checks Payable to the Order of Jardine:

1. Check No. 3010048953 - issued on 11 October 1998 in the amount of
P181,440.00
2. Check No. 3010048955 - issued on 24 October 1998 in the amount of
P195,840.00
3. Check No. 3010069098 - issued on 18 May 1999 in the amount of
P58,164.56
4. Check No. 3010069099 - issued on 18 May 1999 in the amount of
P44,651.52
5. Check No. 3010049551 - issued on 25 May 1999 in the amount of
P103,680.00
6. Check No. 3010049550 - issued on 30 May 1999 in the amount of
P103,680.00
7. Check No. 3010048954 - issued on 29 December 1998 in the amount of
P195,840.00

Checks Payable to the Order of Premiere:

1. Check No. 3010049149 - issued on 9 December 1998 in the amount of

P136,220.00
2. Check No. 3010049148 - issued on 16 December 1998 in the amount of
P136,220.00
3. Check No. 3010049410 - issued on 18 April 1999 in the amount of
P189,336.00.
4. Check No. 3010049150 - issued on 27 November 1998 in the amount of
P136,220.00

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Examination of the dorsal portion of the subject checks revealed that all had
been deposited with Bankcom, Dau branch, under Account No. 0015-32987-
7. Upon inquiring with Jardine and Premiere, however, JMC was able to
confirm that neither of the said suppliers owns Bankcom Account No. 0015-
32987-7.
Meanwhile, on 30 April 2000, respondent Purificacion Delizo (Delizo), a
former accountant of JMC, executed a handwritten letter addressed to one
Nelvia Yusi, President of JMC. In the said letter, Delizo confessed that, during
her time as an accountant for JMC, she stole several company checks drawn
against JMC's current account. She professed that the said checks were
never given to the named payees but were forwarded by her to one Lita
Bituin (Bituin). Delizo further admitted that she, Bituin and an unknown bank
manager colluded to cause the deposit and encashing of the stolen checks
and shared in the proceeds thereof.

On 28 January 2002, JMC filed before the Regional Trial Court (RTC) of Pasay
City a complaint for sum of money against Delizo, Bankcom and Metrobank.
The complaint was raffled to Branch 115 and was docketed as Civil Case No.
02-0193.

On 28 May 2013, the RTC rendered a decision holding both Bankcom and
Metrobank liable to JMC-on a 2/3 to 1/3 ratio, respectively-for the amount of
subject checks plus interest as well as attorney's fees, but absolving Delizo
from any liability. The trial court, in the same decision, also dismissed
Metrobank's cross-claim against Bankcom. A portion of the decision provides
to wit:
The involvement of Bankcom and Metrobank on the wrongful encashment of
the subject checks, however, were clearly established:

a. Bankcom accepted the subject checks for deposit under Account

No. 0015-32987-7, endorsed them and sent them for clearance with the
Philippine Clearing House Corporation (PCHC). Bankcom did all these despite
the fact that the subject checks were all crossed checks and that Account
No. 0015-32987-7 neither belongs to Jardine nor Premiere-the payees named
in the subject checks. In this regard, Bankcom was clearly negligent.

b. Metrobank, on the other hand, is also negligent for its failure to

scrutinize the subject checks before clearing and honoring them. Had
Metrobank done so, it would have noticed that Bankcom's ID band stamped
at the back of the subject checks did not contain any initials and are,
therefore, defective. In this regard, Metrobank was remiss in its duty to
ensure that the subject checks are paid only to the named payees.
In view of the comparative negligence of Bankcom and Metrobank, they
should be held liable to JMC, on a 2/3 to 1/3 ratio, respectively, for the
amount of subject checks plus interest.

ISSUE : Whether the doctrine of comparable negligence is applicable?

RULING: NO. Doctrine of Comparative Negligence Does Not Apply to

the Instant Case

Instead of applying the rule on the sequence of recovery to the case at

bench, the RTC and the CA held both Metrobank and Bankcom liable to JMC
in accordance with a fixed ratio. In so doing, the RTC and the CA seemingly
relied on the doctrine of comparative negligence as applied in the cases of
Bank of the Philippine Islands v. Court of Appeals and Allied Banking
Corporation v. Lio Sim Wan. In both cases, the Court held the drawee bank

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and collecting bank liable for the wrongful encashment of checks under a
60% and 40% ratio.
It must be emphasized, however, that the factual contexts of Bank of the
Philippine Islands and Allied Banking Corporation are starkly different from
the instant case:

1. Bank of the Philippine Islands involved two (2) cashier's checks

issued by the Bank of the Philippine Islands (BPI) in favor of a certain Eligia
Fernando (Eligia). The checks are supposed to represent the proceeds of a
pre-terminated money market placement of Eligia with BPI. BPI issued the
checks upon the mere phone request of a person who introduced herself as
Eligia. The checks were subsequently deposited with the China Banking
Corporation (CBC) under an account that was opened by a person who
identified herself as Eligia. This person thereafter encashed the checks.

It was later established, however, that Eligia never requested the pre-
termination of her money market placement nor opened an account with the
CBC. It was an impostor who did so.

2. Allied Banking Corporation, on the other hand, involved a manager's

check issued by the Allied Banking Corporation (ABC) in favor of a certain
Lim Sio Wan (Lim). The check is supposed to represent the proceeds of a
pre-terminated money market placement of Lim with ABC. ABC issued the
checks upon the mere phone request of a person who introduced herself as
Lim. The checks, now bearing an indorsement of Lim, were then deposited
with the Metrobank under the account of a certain Filipinas Cement
Corporation. The checks were eventually encashed.

It was later established, however, that Lim never requested the pre-
termination of his money market placement and that his indorsement in the
check was forged.

A glaring peculiarity in the cases of Bank of the Philippine

Islands and Allied Banking Corporation is that the drawee bank-
which is essentially also the drawer in the scenario-is not only guilty
of wrongfully paying a check but also of negligence in issuing such
check. Indeed, this is the very reason why the drawee bank in the
two cases were adjudged co-liable with the collecting bank under a
fixed ratio and the former was not allowed to claim reimbursement
from the latter. The drawee bank cannot claim that its participation in the
wrongful payment of a check was merely limited to its reliance on the
guarantees of the collecting bank. In other words, the drawee bank was held
liable in its own right because it was the one that negligently issued the
checks in the first place.
That, however, is clearly not the situation in the case at bench.

Here, no negligence similar to that committed by the drawee

banks in Bank of the Philippine Islands and Allied Banking
Corporation-whether in type or in magnitude-can be attributed to
Metrobank. Metrobank, though guilty of the unauthorized check
payments, only acted upon the guarantees deemed made by
Bankcom under prevailing banking practices. While Metrobank's
reliance upon the guarantees of Bankcom did not excuse it from
being answerable to JMC, such reliance does enable Metrobank to
seek reimbursement from Bankcom on the ground of the breach in
the latter's warranties as a collecting bank. Under such circumstances,
we cannot deny Metrobank's right to seek reimbursement from Bankcom.

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Hence, given the differences in the factual milieu between this case on one
hand and the cases of Bank of the Philippine Islands and Allied Banking
Corporation on the other, we find that the doctrine of comparative
negligence cannot be applied so as to apportion the respective liabilities of
Metrobank and Bankcom. The liabilities of Metrobank and Bankcom, as
already discussed in length, must be governed by the rule on sequential
recovery pursuant to Bank of America.

EVANGELISTA VS SCREENEX
G.R. No. 211564
November 20, 2017

DOCTRINES:

A negotiable instrument (e.g. check) may be discharged by any other act

which will discharge a simple contract for the payment of money. (Sec. 119
(d), NIL)

A check is subject to prescription of actions upon a written contract, which is

ten (10) years (Art. 114, NCC).

If the check is undated, the cause of action is reckoned from the date of
the issuance of the check. This is so because regardless of the omission of
the date indicated on the check, Section 17 of the Negotiable Instruments
Law instructs that an undated check is presumed dated as of the time
of its issuance.

A check must be presented for payment within a reasonable time after its
issue or the drawer will be discharged from liability thereon to the extent of
the loss caused by the delay. (Sec. 186. Within what time a check must be
presented)

FACTS:

Sometime in 1991, Evangelista obtained a loan from respondent Screenex,

Inc. which issued two (2) checks to Evangelista. The first check was UCPB
Check No. 275345 for ₱l,000,000 and the other one is China Banking
Corporation Check No. BDO 8159110 for ₱500,000. There were also vouchers
of Screenex that were signed by the accused evidencing that he received the
2 checks in acceptance of the loan granted to him.

As security for the payment of the loan, Evangelista gave two (2) open-
dated checks: UCPB Check Nos. 616656 and 616657, both pay to the order
of Screenex, Inc. From the time the checks were issued by Evangelista, they
were held in safe keeping together with the other documents and papers of
the company[Screenex], by Philip Gotuaco, Sr., father-in-law of respondent
Alexander Yu, until the former's death on 19 November 2004.

Before the checks of Evangelista were deposited, there was a personal

demand from the family [Alexander Yu] for Evangelista to settle the loan
and likewise a demand letter sent by the family lawyer.

Evangelista invoked that his obligation had been extinguished by

prescription.

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ISSUE : Whether or not Petitioner Evangelista is still liable for the total
amount of the check?

RULING : Evangelista is no longer liable. The cause of action based on the

issued checks had already prescribed.

By definition, a check is a bill of exchange drawn on a bank 'payable on

demand. It is a negotiable instrument - written and signed by a drawer
containing an unconditional order to pay on demand a sum certain in money.
It is an undertaking that the drawer will pay the amount indicated thereon.
Section 119 of the NIL, however, states that a negotiable instrument like a
check may be discharged by any other act which will discharge a simple
contract for the payment of money, to wit:

“Sec. 119. Instrument; how discharged. - A negotiable instrument is

discharged:
xxx
(d) By any other act which will discharge a simple contract for
the payment of money;
xxx.”

A check therefore is subject to prescription of actions upon a written

contract. Article 1144 of the Civil Code provides:

“Article 1144. The following actions must be brought within ten

years from the time the right of action accrues:

1) Upon a written contract;

xxx”

Barring any extrajudicial or judicial demand that may toll the 10-year
prescription period and any evidence which may indicate any other time
when the obligation to pay is due, the cause of action based on a check is
reckoned from the date indicated on the check.

If the check is undated, however, as in the present petition, the cause of

action is reckoned from the date of the issuance of the check. This is so
because regardless of the omission of the date indicated on the check,
Section 17 of the Negotiable Instruments Law instructs that an undated
check is presumed dated as of the time of its issuance.

While the space for the date on a check may also be filled, it must, however,
be filled up strictly in accordance with the authority given and within a
reasonable time. Assuming that Yu had authority to insert the dates in the
checks, the fact that he did so after a lapse of more than 10 years from their
issuance certainly cannot qualify as changes made within a reasonable time.

Given the foregoing, the cause of action on the checks has become stale,
hence, time-barred. No written extrajudicial or judicial demand was shown to
have been made within 10 years which could have tolled the period.
Prescription has indeed set in.

Moreover, payment is deemed effected and the obligation for which the
check was given as conditional payment is treated discharged, if a period of
10 years or more has elapsed from the date indicated on the check until the
date of encashment or presentment for payment. The failure to encash the
checks within a reasonable time after issue (Sec. 186, NIL), or more than 10

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years in this instance, not only results in the checks becoming stale
but also in the obligation to pay being deemed fulfilled by operation
of law.

Evangelista, therefore, is considered discharged from his obligation to pay

and can no longer be pronounced civilly liable for the amounts indicated
thereon.

MANUEL C. UBAS, SR., Petitioner vs. WILSON CHAN, Respondent

G.R. No. 215910 February 6, 2017

PERLAS-BERNABE, J.:

DOCTRINE : Presumption of Consideration

FACTS:
Petitioner alleged that respondent, “doing business under the name and
style of UNIMASTER,” was indebted to him in the amount of ₱1,500,000.00,
representing the price of boulders, sand, gravel, and other construction
materials allegedly purchased by respondent from him for the construction
of the Macagtas Dam in Macagtas, Catarman, Northern Samar. Further, he
averred that respondent had issued three (3) bank checks, payable to
“CASH” in the amount of ₱500,000.00 but when petitioner presented the
subject checks for encashment, the same were dishonored due to a stop
payment order.

Respondent filed an Answer with Motion to Dismiss, seeking the dismissal of

the case on the following ground, among others: the complaint states no
cause of action, considering that the checks do not belong to him
but to Unimasters Conglomeration, Inc. (Unimasters).

The Regional Trial Court (RTC) ruled that petitioner had a cause of action
against respondent. At the outset, it observed that petitioner’s demand letter
– which clearly stated the serial numbers of the checks, including the dates
and amounts thereof – was not disputed by respondent.

The CA reversed and set aside the RTC’s ruling, dismissing

petitioner’s complaint on the ground of lack of cause of action. It
held that respondent was not the proper party defendant in the
case, considering that the drawer of the subject checks was
Unimasters, which, as a corporate entity, has a separate and
distinct personality from respondent.

ISSUE: Whether the checks were issued for a consideration?

RULING : Yes. Although the checks were under the account name of
Unimasters, it should be emphasized that the manner or mode of payment
does not alter the nature of the obligation. The source of obligation, as
claimed by petitioner in this case, stems from his contract with respondent.
When they agreed upon the purchase of the construction materials on credit
for the amount of ₱1,500,000,00, the contract between them was perfected.
Therefore, even if corporate checks were issued for the payment of the
obligation, the fact remains that the juridical tie between the two (2) parties
was already established during the contract’s perfection stage and, thus,
does not preclude the creditor from proceeding against the debtor during the
contract’s consummation stage.

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Jurisprudence holds that "in a suit for a recovery of sum of money, as here,
the plaintiff-creditor [(petitioner in this case)] has the burden of proof to
show that defendant [(respondent in this case)] had not paid [him] the
amount of the contracted loan. However, it has also been long established
that where the plaintiff-creditor possesses and submits in evidence an
instrument showing the indebtedness, a presumption that the credit has not
been satisfied arises in [his] favor. Thus, the defendant is, in appropriate
instances, required to overcome the said presumption and present evidence
to prove the fact of payment so that no judgment will be entered against
him." This presumption stems from Section 24 of the NIL, which provides
that:

Section 24. Presumption of Consideration. - Every negotiable

instrument is deemed prima facie to have been issued for a
valuable consideration; and every person whose signature appears
thereon to have become a party thereto for value.

Hence, as the RTC correctly ruled, it is presumed that the subject checks
were issued for a valid consideration, which therefore, dispensed with the
necessity of any documentary evidence to support petitioner's monetary
claim. Unless otherwise rebutted, the legal presumption of consideration
under Section 24 of the NIL stands. Verily, "the vital function of legal
presumption is to dispense with the need for proof

BDO UNIBANK vs LAO

G.R. No. 227005
June 19, 2017

DOCTRINES:

The liability of the drawee bank is based on its contract with the drawer
and its duty to charge to the latter's accounts only those payables authorized
by him. A drawee bank is under strict liability to pay the check only to the
payee or to the payee's order. When the drawee bank pays a person other
than the payee named in the check, it does not comply with the terms of the
check and violates its duty to charge the drawer's account only for properly
payable items.

The liability of the collecting bank is anchored on its guarantees as the

last endorser of the check. Under Section 66 of the Negotiable Instruments
Law, an endorser warrants "that the instrument is genuine and in all respects
what it purports to be; that he has good title to it; that all prior parties had
capacity to contract; and that the instrument is at the time of his
endorsement valid and subsisting."

The effects of crossing a check are: (1) that the check may not be
encashed but only deposited in the bank; (2) that the check may be
negotiated only once - to one who has an account with a bank; and (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 that purpose. The effects of crossing a
check, thus, relate 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.

FACTS:

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Drawer: Lao
Drawee: BDO (formerly: Equitable Bank)
Payee: Everlink
Collecting Bank: Union Bank (formerly: International Exchange Bank)

Lao entered into a transaction with Ever link, through its authorized
representative Wu, under which, Everlink would supply him with "HCG
sanitary wares"; and that for the down payment, he issued two (2) Equitable
(BDO) crossed checks payable to Everlink: Check No. 0127-2422494 and
Check No. 0127-242250,5.

Lao further averred that when the checks were encashed, he contacted
Everlink for the immediate delivery of the sanitary wares, but the latter failed
to perform its obligation. Later, Lao learned that the checks were deposited
in two different bank accounts at respondent International Exchange Bank,
now respondent Union Bank of the Philippines (UnionBank). He was later
informed that the two bank accounts belonged to Wu and a company named
New Wave Plastic (New Wave), represented by a certain Willy Antiporda
(Antiporda). Consequently, Lao was prompted to file a complaint against
Everlink and Wu for their failure to comply with their obligation and against
BDO for allowing the encashment of the two (2) checks.

BDO asserted that it had no obligation to ascertain the owner of the

account/s to which the checks were deposited because the instruction to
deposit the said checks to the payee's account only was directed to the
payee and the collecting bank, which in this case was Union Bank; that as
the drawee bank, its obligations consist in examining the genuineness of the
signatures appearing on the checks, and paying the same if there were
sufficient funds in the account under which the checks were drawn; and that
the subject checks were properly negotiated and paid in accordance with the
instruction of Lao in crossing them as they were deposited to the account of
the payee Ever link with Union Bank, which then presented them for
payment with BDO.

ISSUE: Whether or not BDO, as drawee bank, is liable to pay Lao, the
drawer, for amount paid to another who is not the named payee of the
crossed check?

RULING : Yes. BDO, as drawee, is liable.

The Court agrees with the appellate court that in cases of unauthorized
payment of checks to a person other than the payee named therein, the
drawee bank may be held liable to the drawer. The drawee bank, in turn,
may seek reimbursement from the collecting bank for the amount of the
check. This rule on the sequence of recovery in case of unauthorized check
transactions had already been deeply embedded in jurisprudence.

The liability of the drawee bank is based on its contract with the
drawer and its duty to charge to the latter's accounts only those payables
authorized by him. A drawee bank is under strict liability to pay the check
only to the payee or to the payee's order. When the drawee bank pays a
person other than the payee named in the check, it does not comply with the
terms of the check and violates its duty to charge the drawer's account only
for properly payable items.

On the other hand, the liability of the collecting bank is anchored on its
guarantees as the last endorser of the check. Under Section 66 of the

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Negotiable Instruments Law, an endorser warrants "that the instrument is
genuine and in all respects what it purports to be; that he has good title to it;
that all prior parties had capacity to contract; and that the instrument is at
the time of his endorsement valid and subsisting."

It has been repeatedly held that in check transactions, the collecting

bank generally suffers the loss because it has the 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
endorsements. If any of the warranties made by the collecting bank turns out
to be false, then the drawee bank may recover from it up to the amount of
the check.

In the present case, BDO paid the value of Check No. 0127-242250 to
Union Bank, which, in turn, credited the amount to New Wave's account. The
payment by BDO was in violation of Lao's instruction because the same was
not issued in favor of Everlink, the payee named in the check. It must be
pointed out that the subject check was not even endorsed by Everlink to New
Wave. Clearly, BDO violated its duty to charge to Lao's account only those
payables authorized by him.

Nevertheless, even with such clear violation by BDO of its duty, the
loss would have ultimately pertained to Union Bank. By stamping at the back
of the subject check the phrase "all prior endorsements and/or lack of it
guaranteed," Union Bank had, for all intents and purposes treated the check
as a negotiable instrument and, accordingly, assumed the warranty of an
endorser. Without such warranty, BDO would not have paid the proceeds of
the check. Thus, Union Bank cannot now deny liability after the aforesaid
warranty turned out to be false.

Union Bank was clearly negligent when it allowed the check to be

presented by, and deposited in the account of New Wave, despite knowledge
that it was not the payee named therein. Further, it could not have escaped
its attention that the subject checks were crossed checks.

A crossed check is one where two parallel lines are drawn across its
face or across the comer thereof. A check may be crossed generally or
specially. A check is crossed especially when the name of a particular banker
or company is written between the parallel lines drawn. It is crossed
generally when only the words "and company" are written at all between the
parallel lines.

Jurisprudence dictates that the effects of crossing a check are: (1) that
the check may not be encashed but only deposited in the bank; (2) that the
check may be negotiated only once - to one who has an account with a bank;
and (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 that purpose. The effects of crossing
a check, thus, relate 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.

It is undisputed that Check No. 0127-242250 had been crossed

generally as nothing was written between the parallel lines appearing on the
face of the instrument. This indicated that Lao, the drawer, had intended the
same for deposit only to the account of Everlink, the payee named therein.

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Despite this clear intention, however, Union Bank negligently allowed the
deposit of the proceeds of the said check in the account of New Wave.

Generally, BDO must be ordered to pay Lao the value of the subject
check; whereas, Union Bank would be ordered to reimburse BDO the amount
of the check.

RCBC vs ODRADA
G.R. No. 219037, Oct. 19, 2016

FACTS:

In April 2002, respondent Noel M. Odrada (Odrada) sold a second hand

Mitsubishi Montero (Montero) to Teodoro L. Lim (Lim) for One Million Five
Hundred Ten Thousand Pesos (Php1,510,000).

Of the total consideration, Six Hundred Ten Thousand Pesos

(Php610,000) was initially paid by Lim and the balance of Nine Hundred
Thousand Pesos (P900,000) was paid in manager’s check issued by RCBC
dated April 12, 2002.

 After the issuance of the manager's checks and their turnover to

Odrada but prior to the checks' presentation, Lim notified Odrada in a letter
dated 15 April 2002 that there was an issue regarding the roadworthiness of
the Montero. A meeting was requested with regard to the matter. However,
Odrada did not go to the slated meeting and instead deposited the
manager's checks with International Exchange Bank (Ibank) on April 16,
2002 and redeposited them on April 19, 2002 but the checks were
dishonored both times apparently upon Lim's instruction to RCBC.
Consequently, Odrada filed a collection suit against Lim and RCBC in the
Regional Trial Court of Makati.

In his Answer, Lim alleged that the cancellation of the manager’s check
was at his instance, upon discovery of the misrepresentations by Odrada
about the Montero's roadworthiness. Lim claimed that the cancellation was
not done ex parte but through a letter dated 15 April 2002. He further
alleged that the letter was delivered to Odrada prior to the presentation of
the manager's checks to RCBC.

ISSUE : WON drawee bank can still deny payment of a manager’s check
due to the Personal Defense of Lim that a defective Montero was sold to Lim.

RULING : YES. As a general rule, the drawee bank is not liable until it
accepts. Acceptance, therefore, creates a privity of contract between the
holder and the drawee so much so that the latter, once it accepts, becomes
the party primarily liable on the instrument.

A manager’s check makes the bank primarily liable as there is already

acceptance upon issuance of a manager’s check. HOWEVER, the SC ruled
that the issuing bank could validly refuse payment when the holder is NOT a
holder in due course.

In this case, the Court of Appeals gravely erred when it considered Odrada as
a holder in due course.

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To be a holder in due course, the law requires that a party must have
acquired the instrument in good faith and for value. Odrada did not
acquire the instrument in good faith as he sold a defective Montero. He
immediately presented the check for payment upon notice of the Montero’s
defect.

RCBC acted in good faith in following the instructions of Lim. The records
show that Lim notified RCBC of the defective condition of the Montero before
Odrada presented the manager's checks.

Section 58 of the Negotiable Instruments Law provides: "In the hands of any
holder other than a holder in due course, a negotiable instrument is subject
to the same defenses as if it were non-negotiable. xxx. "Since Odrada was
not a holder in due course, the instrument becomes subject to personal
defenses under the Negotiable Instruments Law. Hence, RCBC may legally
act on a countermand by Lim, the purchaser of the manager's checks.

LAND BANK VS KHO

G.R. No. 205839, July 27, 2016

FACTS:

On December 28, 2005, Kho opened an account with Land Bank in order to
leverage a business deal with Red Orange;
He purchased Land Bank Manager’s check No. 07410 worth ₱25,000,000.00
payable to Red Orange and dated January 2, 2006;
He also gave Rudy Medel a photocopy of the check that the bank had given
him;
After his visit to the Bank, the deal with Medel and Red Orange did not push
through;
He picked up check No. 07410 from the bank on January 2, 2006, without
informing the bank that the deal did not materialize;
Afterwards, Red Orange presented a spurious copy of check No. 07410 to
BPI, Kamuning for payment;
Land Bank cleared the check;
However, Kho never negotiated the actual check. It was in his possession the
whole time. Thus Kho seeks reimbursement from LandBank.
However LandBank contends that Kho is precluded from raising the defense
of forgery because of his failure to notify the LandBank that the deal did not
push through and in giving Medel a Copy of the check.

ISSUE: W/N Kho is precluded from setting up the defense of Forgery?

RULING: No. A drawer or a depositor of the bank is precluded from asserting

the forgery if the drawee bank can prove his failure to exercise ordinary care
and if this negligence substantially contributed to the forgery or the
perpetration of the fraud. While the act of giving Medel a Photocopy of the
check may have allowed the latter to create a duplicate, this cannot possibly
excuse Land Bank’s failure to recognize the check itself – not just the
signature – but the check itself is fake.

More importantly, Land Bank itself furnished Medel the photocopy without
objecting to the latter’s intention of giving it to E. Kho’s failure to inform Land
Bank that the deal did not push through does not justify Land Bank’s
confirmation and clearing of a fake check bearing the forged signature of its
own officers.

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Whether or not the deal pushed through, the check remained in Kho’s
possession. He was entitled to a reasonable expectation that the banks
would not release any funds corresponding to the check.

CHUA V. PEOPLE
G.R. No. 196853 , July 13, 2015

FACTS :

Chua and private complainant Philip See (See) were long-time friends and
neighbors. On different dates from 1992 until 1993, Chua issued several
postdated PSBank checks of varying amounts to See pursuant to their
rediscounting arrangement at a 3% rate
However, See claimed that when he deposited the checks, they were
dishonored either due to insufficient funds or closed account. Despite
demands, Chua failed to make good the checks. Hence, See filed on
December 23, 1993 a Complaint for violations of BP 22 before the Office of
the City Prosecutor of Quezon City. He attached thereto a demand letter
dated December 10, 1993.

ISSUE:
Can a notice of dishonor be issued prior to the issuance of checks? Can a
demand letter that precedes the issuance of checks constitute as sufficient
notice of dishonor?

RULING: No, such notice must be issued only after said checks have been
dishonored and within 5 banking days from such notice failed to satisfy said
amount can the prima facie presumption of issuance of an unfunded check
arise. As such gives the accused an opportunity to avert prosecution and
serves to mitigate the harshness of the law in its application

In other words, if such notice of non-payment/dishonor by the drawee bank is

not sent to the maker or drawer of the bum check, or if there is no proof
as to when such notice was received by the drawer, then the
presumption or prima facie evidence as provided in Section 2 of B.P.
Blg. 22 cannot arise, since there would simply be no way of
reckoning the crucial 5-day period.
Checks can only be dishonored after they have been issued and presented
for payment. Before that, dishonor cannot take place. Thus, a demand letter
that precedes the issuance of checks cannot constitute as sufficient notice of
dishonor within the contemplation of BP 22.

AREZA V. EXPRESS SAVINGS BANK,

G.R. No. 176697, September 10, 2014

FACTS:

Petitioners Cesar V. Areza and Lolita B. Areza maintained two bank deposits
with respondent Express Savings Bank's Biñan branch.

They were engaged in the business of "buy and sell" of brand new and
second-hand motor vehicles. On 2 May 2000, they received an order from a
certain Gerry Mambuay (Mambuay) for the purchase of a second-hand
Mitsubishi Pajero and a brand-new Honda CRV.

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The buyer, Mambuay, paid petitioners with nine (9) Philippine Veterans
Affairs Office (PVAO) checks payable to different payees and drawn against
the Philippine Veterans Bank (drawee), each valued at Two Hundred
Thousand Pesos (P200,000.00) for a total of One Million Eight Hundred
Thousand Pesos (P1,800,000.00).
Such checks were then subsequently deposited to Petitioner’s bank accounts
and cleared by the Drawee. However, it was later found out that such checks
where already materially altered prior to it clearance, and dishonored by
Drawee later, which resulted into Express savings bank debiting the amount
of the dishonored check from petitioner’s accounts.

ISSUE: When the drawee accepted/cleared the check, is it liable according

to the altered tenor of acceptance based on Sec. 63 of NIL(Negotiable
Instruments Law) or according to its original tenor based on Sec. 124 of the
NIL?

RULING : Liable according to original tenor only despite tenor of

acceptance. On one hand, Sec. 63 of the NIL provides that a drawee that
accepts an instrument engages that he will pay it according to the tenor of
his acceptance. On the other hand, Sec. 124 of the NIL provides that a
material alteration avoids an instrument except as against an assenting
party and subsequent indorsers, but a holder in due course may enforce
payment according to its original tenor.

Thus, when the drawee bank pays a materially altered check, it violates the
terms of the check, as well as its duty to charge its client's account only for
bona fide disbursements he had made. If the drawee 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 drawer's account which it
was expected to treat with utmost fidelity.

The drawee, however, still has recourse to recover its loss. It may pass the
liability back to the collecting bank which is what the drawee bank exactly
did in this case. It debited the account of Equitable-PCI Bank for the altered
amount of the checks.

The Court here, upheld the view that the acceptor/drawee is liable only to
the extent of the bill prior to alteration.

HONGKONG & SHANGHAI BANKING CORP. LTD.-PHIL. BRANCH V.

COMMISSIONER OF INTERNAL REVENUE
G.R. Nos. 166018 & 167728, June 4, 2014

FACTS:
HSBC's investor-clients maintain Philippine peso and/or foreign currency
accounts, which are managed by HSBC through instructions given through
electronic messages. The said instructions are standard forms known in the
banking industry as SWIFT, or "Society for Worldwide Interbank Financial
Telecommunication." In purchasing shares of stock and other investment in
securities, the investor-clients would send electronic messages from abroad
instructing HSBC to debit their local or foreign currency accounts and to pay
the purchase price therefor upon receipt of the securities

ISSUE: Are electronic messages considered as bills of exchange?

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RULING: The electronic messages received by HSBC from its investor-clients
abroad instructing the former to debit the latter's local and foreign currency
accounts and to pay the purchase price of shares of stock or investment in
securities do not properly qualify as either presentment for acceptance or
presentment for payment.

The electronic messages are not signed by the investor-clients as supposed

drawers of a bill of exchange; they do not contain an unconditional order to
pay a sum certain in money as the payment is supposed to come from a
specific fund or account of the investor-clients; and, they are not payable to
order or bearer but to a specifically designated third party. Thus, the
electronic messages are not bills of exchange as they do not comply with the
requisites of negotiability.

METROPOLITAN BANK AND TRUST COMPANY VS. WILFRED N. CHIOK

G.R. No. 172652; November 26, 2014

Doctrine: While manager’s and cashier’s 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.

Facts: On July 5, 1995, respondent Wilfred N. Chiok (Chiok) bought

US$1,022,288.50 dollars from Gonzalo B. Nuguid (Nuguid) where Chiok
deposited the three manager’s checks (Asian Bank MC Nos. 025935 and
025939, and Metrobank CC No. 003380), with an aggregate value
of ₱26,068,350.00 in Nuguid’s account with petitioner Bank of the Philippine
Islands (BPI). Nuguid, however, failed to deliver the dollar equivalent of the
three checks as agreed upon, prompting Chiok to request that payment on
the three checks be stopped. 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. On July 25, 1995, the RTC issued an Order
directing the issuance of a writ of preliminary prohibitory injunction. When
checks were presented for payment, Asian Bank refused to honor MC Nos.
025935 and 025939 in deference to the TRO.

Issue: Whether or not payment of manager’s and cashier’s checks are

subject to the condition that the payee thereof should comply with his
obligations to the purchaser of the checks.

Held: No. A manager’s check, like a cashier’s 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 manager’s check or a cashier’s check is regarded substantially
to be as good as the money it represents. While manager’s and cashier’s
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 practices do not countenance
the countermanding of manager’s and cashier’s checks on the basis of a
mere allegation of failure of the payee to comply with its obligations towards
the purchaser. Therefore, 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; but, Chiok did not have a cause of action against
Metrobank and Global Bank that would allow him to rescind the contracts of

14
sale of the manager’s or cashier’s checks, which would have resulted in the
crediting of the amounts thereof back to his accounts.

PATRIMONIO vs. GUTIERREZ

G.R. No. 187769, June 4, 2014

FACTS:
The petitioner and the respondent Napoleon Gutierrez (Gutierrez) entered
into a business venture under the name of Slam Dunk Corporation (Slum
Dunk).
In the course of their business, the petitioner pre-signed several checks to
answer for the expenses of Slam Dunk. Although signed, these checks had
no payee's name, date or amount. The blank checks were entrusted to
Gutierrez with the specific instruction not to fill them out without previous
notification to and approval by the petitioner.
In the middle of 1993, without the petitioner's knowledge and consent,
Gutierrez went to Marasigan (the petitioner's former teammate), to secure a
loan in the amount of P200,000.00 on the excuse that the petitioner needed
the money for the construction of his house.
Marasigan acceded to Gutierrez' request and gave him P200,000.00
sometime in February 1994. Gutierrez simultaneously delivered to Marasigan
one of the blank checks the petitioner pre-signed with Pilipinas Bank,
Greenhills Branch, Check No. 21001764 with the blank portions filled out
with the words "Cash" "Two Hundred Thousand Pesos Only", and the amount
of "P200,000.00".
On May 24, 1994, Marasigan deposited the check but it was dishonored for
the reason "ACCOUNT CLOSED." It was later revealed that petitioner's
account with the bank had been closed since May 28, 1993.

ISSUES: Whether respondent Gutierrez has completely filled out the subject
check strictly under the authority given by the petitioner?

RULING: No, applicable rule is Sec. 14 of Negotiable Instruments law. While

Gutierrez here had prima facie authority to complete the check, such prima
facie authority does not extend to its use (i.e., subsequent transfer or
negotiation) once the check is completed. Only the authority to complete the
check is presumed.

Gutierrez was only authorized to use the check for business expenses; thus,
he exceeded the authority when he used the check to pay the loan he
supposedly contracted for the construction of petitioner's house. This is a
clear violation of the petitioner's instruction to use the checks for the
expenses of Slam Dunk. It cannot therefore be validly concluded that the
check was completed strictly in accordance with the authority given by the
petitioner.

EQUITABLE BANKING CORPORATION, INC. v. SPECIAL STEEL

PRODUCTS and AUGUSTO L. PRADO
G.R. No. 175350, 13 June 2012

Liabilities of Acceptor

DOCTRINE:

Banks have the duty to scrutinize the checks deposited with it, for a
determination of their genuineness and regularity. The law holds banks to a

15
high standard because banks hold themselves out to the public as experts in
the field.

The nature of crossed checks should place a bank on notice that it should
exercise more caution or expend more than a cursory inquiry, to ascertain
whether the payee on the check has authorized the holder to deposit the
same in a different account

FACTS:
Special Steel Products (SSP) sells steel products. International Copra Export
Corp. (Interco) is it’s regular customer. Jose Uy is Interco’s employee in
charge of purchasing department, and son-in-law of Interco’s majority
stockholder.

In 1991, SSP sold welding electrodes to Interco. Corresponding Sales Invoices

were issued for the transactions
In payment for the welding electrodes, Interco issued 3 Equitable checks
payable to the order of SSP. Each check was crossed with the notation
“account payee only.”

The case records disclose that Uy presented each crossed check to

Equitable, claiming that he had good title over them. The records do not
identify the signatory for the checks, nor explain how Uy came into
possession of the checks.
Uy demanded the deposit of the checks to his personal accounts with
Equitable, which was allowed by Equitable on the assumption that Uy – as
the son-in-law of the majority stockholder, was acting pursuant to Interco’s
orders.

Equitable also relied on his status as a valued client.

SSP then reminded Interco of the unpaid welding electrodes. Interco replied
saying it already issued 3 checks payable to SSP.
After Interco found out about Uy’s scheme, it issued 3 more checks covering
the payment but only some of the interest amount, it not being the cause of
the delay.

SSP then filed a complaint for damages and writ of preliminary attachment
against Uy and Equitable alleging negligence on Equitable’s part when they
ignored the restrictive nature of the checks and the subsequent depositing of
the amount in Uy’s account.
Equitable moved to dismiss for lack of cause of action, maintaining that,
since Equitable and SSP did not enter into any contract, the former cannot be
liable for actual damages. Equitable further argued that it is not liable
because it accepted the 3 crossed checks in good faith. o Due to Uy’s close
relations with the drawer of the checks, it had basis to assume that the
drawer authorized Uy to countermand the original order.

The RTC ruled that the crossed checks belonged solely to the payee named
therein, SSPI. Since SSPI did not authorize anyone to receive payment in its
behalf, Uy clearly had no title to the checks and Equitable had no right to
accept the said checks from Uy. o Equitable was negligent in permitting Uy
to deposit the checks in his account without verifying Uy’s right to endorse
the crossed checks.
It reiterated that banks have the duty to scrutinize the checks deposited with
it, for a determination of their genuineness and regularity. The law holds
banks to a high standard because banks hold themselves out to the public as
experts in the field.

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ISSUE: Whether or not Equitable is grossly negligent when it allowed Uy’s
demands in having the checks deposited to his personal account?

HELD: Yes, banks have the duty to scrutinize the checks deposited with it,
for a determination of their genuineness and regularity. The law holds banks
to a high standard because banks hold themselves out to the public as
experts in the field.

The checks that Interco issued in favor of SSP were all crossed, made
payable to SSP’s order, and contained the notation “account payee only.”
This creates a reasonable expectation that the payee alone would receive
the proceeds of the checks and that diversion of the checks would be
averted. This expectation arises from the accepted banking practice that
crossed checks are intended for deposit in the named payee’s account only
and no other.

At the very least, the nature of crossed checks should place a bank on notice
that it should exercise more caution or expend more than a cursory inquiry,
to ascertain whether the payee on the check has authorized the holder to
deposit the same in a different account.

Since the banking business is impressed with public interest, the trust and
confidence of the public in it is of paramount importance. Consequently, the
highest degree of diligence is expected, and high standards of integrity and
performance are required of it.”

SAN MIGUEL CORPORATION v. BARTOLOME PUZON, JR.

G.R. No. 167567, 22 September 2010
Completion and Delivery

DOCTRINE:

When a check is delivered, the intent/purpose of the act of delivery

determines whether the same is given effect or given merely as a security.
The first situation transfers ownership to the payee, while the latter does not.

FACTS:

Puzon was a dealer of San Miguel beer products, buying the same on credit.

To ensure payment, and as a business practice, San Miguel required Puzon

to issue postdated checks equivalent to the value of the products purchased
on credit.

The checks are then returned after full payment of the value of the
transaction.

Following this arrangement, Puzon purchased products to which he issued

two checks to cover the transaction.

A month later, Puzon visited San Miguel’s Sales Office to reconcile his
account with the latter. Puzon allegedly requested to see one of the checks.
When he got hold of both checks (attached to a bond paper), he immediately
left the office, bringing the check with him.

17
San Miguel then sent a demand letter asking for the checks back. After being
ignored, San Miguel filed a criminal complaint for theft against Puzon.

DOJ dismissed the case on the ground that the non-payment of a debt
cannot give rise to a criminal case. It also established that the relationship
between the two is one of creditor-debtor.

CA found that the postdated checks issued were merely as a security of his
purchases and not intended to be encashed. It concluded that SMC did not
acquire ownership of the checks.

San Miguel then argued that the checks’ ownership were transferred to it
because they were issued in payment of the purchases and not merely for
security.

ISSUE: Whether or not the delivery of the checks to SMC vested it

ownership over the checks.

RULING: No, the delivery of the check did not make SMC the owner thereof.
The check was not given as payment, there being no intent to give effect to
the instrument.

“Delivery” as a term used in Sec. 12 means that the party delivering did so
for the purpose of giving effect thereto. Otherwise, it cannot be said that
there has been delivery of the negotiable instrument. Once there is delivery,
the person to whom the instrument is delivered gets the title to the
instrument completely and irrevocably.

The purpose of the delivery will determine if ownership is transferred:

(1) If the purpose is the give effect to the instrument, title or ownership
transfers upon delivery.
(2) If the intent to give effect is missing, ownership is retained by the person
who delivered.

The check was only meant to cover the transactions in the meantime, and
Puzon was to pay for the transaction by some other means other than the
check.

18